Introduction
The recent decision of the Income Tax Appellate Tribunal (ITAT), Kolkata Bench, in DCIT, Central Circle-4(4) vs. Shivam Dhatu Udyog Private Limited (ITA No.1435/KOL/2025) for Assessment Year 2018-19 represents a significant affirmation of the procedural safeguards surrounding reassessment proceedings under the Income Tax Act, 1961. The case cuts to the heart of the jurisdictional requirements for reopening assessments, specifically the mandatory approval hierarchy under Section 151. By quashing the reassessment notice and the consequent Assessment Order, the Tribunal has reinforced the principle that statutory approvals are not mere formalities but conditions precedent to the valid exercise of jurisdiction by the Assessing Officer. This commentary analyses the Tribunal’s reasoning, the reliance on High Court and Supreme Court precedents, and the implications for tax administration.
Facts of the Case
The Assessee, Shivam Dhatu Udyog Private Limited, engaged in the manufacturing and trading of pig iron and sponge iron, filed its return of income for A.Y. 2018-19 on 29.10.2018, declaring NIL income. The return was processed under Section 143(1) of the Act.
Subsequently, the Assessing Officer (AO) received information suggesting that income had escaped assessment. The reassessment process was initiated with a show-cause notice issued under Section 148A(b) of the Act on 30.03.2022, after obtaining approval from the PCIT, Central, Kolkata-2. An order under Section 148A(d) was passed on 25.05.2022, and a notice under Section 148 was issued on the same date. Crucially, the notice under Section 148 was issued after the expiry of three years from the end of the relevant assessment year (31.03.2022), but within the extended period.
The Assessee challenged the validity of these proceedings before the Commissioner of Income Tax (Appeal) [CIT(A)], who deleted the substantive additions made by the AO. Aggrieved, the Revenue appealed to the ITAT. Before the Tribunal, the Assessee raised a legal issue under Rule 27 of the Income Tax Rules, 1963, challenging the validity of the reassessment notice itself, arguing that the mandatory approval under Section 151 was obtained from an incompetent authority.
Reasoning and Analysis
The Tribunal’s reasoning is a masterclass in statutory interpretation and judicial discipline, focusing on the interplay between Sections 148, 149, and 151 of the Act. The core legal question was whether the approval for issuing a notice under Section 148, issued after the three-year period, was validly granted by the PCIT or whether it required the sanction of the PCCIT.
The Statutory Framework and the “Three-Year” Threshold
The Tribunal meticulously analysed the timeline. The assessment year involved was 2018-19. The three-year period for issuing a notice under Section 149(1)(a) expired on 31.03.2022. The notice under Section 148 was issued on 25.05.2022, which was beyond this three-year period. The Tribunal noted that the approval for the order under Section 148A(d) and the notice under Section 148 was obtained from the PCIT under Section 151(i) of the Act.
The Tribunal observed that the approval from the PCIT is permissible only where less than three years have elapsed from the end of the relevant assessment year. In the present case, since more than three years had elapsed, the notice under Section 148 required sanction from the PCCIT (Principal Chief Commissioner of Income Tax) or CCIT, not the PCIT. The Tribunal held that the notice issued after obtaining sanction from the PCIT was “bad in law.”
Rejecting the Revenue’s “Relation Back” Argument
The Revenue’s primary defence, argued by the Ld. DR, was that the show-cause notice under Section 148A(b) was issued on 14.03.2022, which was within the three-year period. Therefore, it was argued that the approval from the PCIT was valid, and the subsequent order and notice were saved by the provisions of Section 151(i). The Revenue contended that the process was initiated within the limitation period, and the approval should be judged based on the date of the initial notice.
The Tribunal emphatically rejected this contention. It held that the relevant date for determining the applicable approval authority is the date of issuance of the notice under Section 148, not the date of the show-cause notice under Section 148A(b). The Tribunal reasoned that the order under Section 148A(d) and the notice under Section 148 were issued on 25.05.2022, which was beyond the prescribed three-year period. Therefore, the sanction should have been obtained from the PCCIT.
Reliance on High Court and Supreme Court Precedents
The Tribunal’s decision was heavily anchored in binding judicial precedents. It placed significant reliance on the Telangana High Court’s ruling in Deloitte Consulting India (P) Limited vs. Assessment Unit, Income Tax Department, NFAC, New Delhi [2025] 178 taxmann.com 781. The High Court had quashed a similar reopening, holding that the proviso inserted in Section 151 by the Finance Act, 2023, cannot be applied retrospectively to notices issued before 01.04.2023. This was a critical point, as the Revenue might have attempted to rely on the amended provisions to justify the PCIT’s approval. The Tribunal noted that the Coordinate Bench in Hirus Trade Private Limited vs. ITO had already considered and followed the Deloitte decision.
Furthermore, the Tribunal drew strength from the Supreme Court’s dismissal of Special Leave Petitions (SLPs) in ACIT vs. LinkedIn Singapore Pte Ltd. [2025] 180 taxmann.com 158 (SC) and ACIT vs. Prakash Pandurang Patil [481 ITR 325 (Bombay)]. In these cases, the Bombay High Court had quashed orders under Section 148A(d) and notices under Section 148 on similar grounds. The Supreme Court’s dismissal of the SLPs against these High Court orders effectively affirmed the legal position that the approval of the PCCIT/CCIT is mandatory for notices issued beyond three years. The Tribunal extracted the operative part of the Bombay High Court’s decision, which explicitly stated that the approval from the PCIT is permissible only where less than three years have elapsed, and that the order and notice were required to be issued after obtaining sanction from the CCIT or PCCIT.
The “Proviso” to Section 151 and Retrospectivity
A key aspect of the Tribunal’s reasoning was its treatment of the proviso to Section 151 introduced by the Finance Act, 2023. The Revenue’s argument that the approval was saved by this proviso was dismantled by the Tribunal’s reliance on the Deloitte ruling. The High Court had clearly held that the proviso cannot be applied to notices issued before 01.04.2023. This finding is crucial as it prevents the Revenue from using subsequent legislative amendments to cure jurisdictional defects in past proceedings. The Tribunal’s adherence to this principle demonstrates a strict construction of tax statutes, particularly regarding limitation and approval requirements.
Consequence of Invalid Approval
Having found that the approval was invalid, the Tribunal concluded that the notice under Section 148 and the consequent Assessment Order dated 29.03.2023 were bad in law and liable to be quashed. As a result, the Revenue’s appeal against the CIT(A)’s order deleting the additions was dismissed as infructuous. The Tribunal did not adjudicate on the merits of the additions, including the issues regarding bogus purchases and the application of Section 69C and Section 115BBE, as the entire proceedings were vitiated by the jurisdictional error.
Conclusion
The ITAT Kolkata’s decision in Shivam Dhatu Udyog Private Limited is a robust reaffirmation of the procedural rigour required for reassessment proceedings. It clarifies that the approval hierarchy under Section 151 is sacrosanct and that the date of the notice under Section 148 is the decisive factor for determining the competent sanctioning authority. By following the Telangana High Court’s ruling in Deloitte and the Supreme Court’s affirmation of the Bombay High Court’s view, the Tribunal has ensured consistency in the interpretation of the law. This case serves as a potent reminder to the Revenue that jurisdictional defects, such as obtaining approval from an incompetent authority, cannot be cured by the substantive merits of the case. For taxpayers, it reinforces the importance of challenging the validity of reassessment proceedings at the threshold, as a successful legal challenge can render the entire assessment infructuous without the need to litigate complex factual issues.