Case at a Glance
The Income Tax Department reopened a land co-owner’s assessment for AY 2018-19, alleging ₹29.42 lakh of unaccounted “on-money” based on loose papers found in a survey of a third-party developer. The reopening order and notice dated 1 April 2022 were approved by the Principal Commissioner, although more than three years had expired, which required approval from a higher authority under Section 151(ii). A Division Bench held the sanction invalid, ruled that the proviso added to Section 151 by the Finance Act, 2023 operates only from 1 April 2023, found no live link between the petitioner and the seized papers, and quashed the proceedings.
The petitioner held a 16.66% share in agricultural land at Village Vav, Taluka Kamrej, Surat, sold by a sale deed dated 17 October 2017; she says she received ₹8,43,250 as her share. On 18–19 April 2019, the department conducted a survey under Section 133A at the premises of a third party, M/s. Saral Infra, and impounded loose papers. A person named Sunilbhai M. Patel gave a statement under Section 131 when shown those papers. On that basis the Revenue computed on-money of ₹1,17,68,296 on the sellers’ side and attributed ₹29,42,074 to the petitioner.
A show-cause notice under Section 148A(b) was issued on 19 March 2022 with time till 28 March 2022; the petitioner replied on that day. On 1 April 2022 the order under Section 148A(d) and notice under Section 148 were issued, with approval from the Principal Commissioner of Income Tax (Central), Surat under Section 151(i). The petitioner argued that three years from the end of AY 2018-19 had expired on 31 March 2022, so approval was required from the higher authority under Section 151(ii). The Revenue argued that if the period given to reply to the Section 148A(b) notice is excluded under Section 149, the notice falls within three years, and that the 2023 proviso to Section 151, which allows such exclusion, is clarificatory and retrospective.
The Key Question Before the Court
Was approval from the Principal Commissioner under Section 151(i) valid for a reopening order and notice issued on 1 April 2022 for AY 2018-19, and does the Finance Act, 2023 proviso to Section 151 apply retrospectively?
Sanction is jurisdictional, and the 2023 proviso operates prospectively
Relying on Union of India v. Rajeev Bansal, (2024) 10 SC CK 0002 and Union of India v. Ashish Agarwal, the Bench held that a valid sanction from the competent authority under Section 151 is a jurisdictional precondition for a Section 148 notice. It rejected the Revenue’s argument, observing that “The Revenue cannot validate its action by arguing that a timely Section 148A(b) notice cures” an untimely sanction, and noted that if the Revenue’s reading were right, Parliament would not have needed to add the 2023 proviso at all. Relying on the Finance Bill 2023 memorandum stating that “these amendments will take effect from the 1st day of April, 2023”, CBDT Circular No. 1/2024, the Bombay High Court’s decision in Skypack Travels Pvt. Ltd. v. ITO, and the Constitution Bench in CIT v. Vatika Township Pvt. Ltd., (2014) 09 SC CK 0074, it held that the proviso changes the computation that determines the competent authority and therefore affects jurisdiction; it “operates with effect from 01.04.2023 and does not apply retrospectively.”
The Court distinguished the authorities relied on by the Revenue: Dhanraj Govindram Kella v. ITO dealt with the TOLA extension; Abhinav Jain v. ITO, (2026) 04 DEL CK 0680 turned on unchallenged corrigenda extending time; Giriraj Commercial Pvt. Ltd. v. Union of India applied the amended provision without deciding retrospectivity; and CIT v. Gold Coin Health Food Pvt. Ltd., (2008) 08 SC CK 0098 could not help as the Notes on Clauses expressly fixed 1 April 2023. On merits too, the Court found the papers contained no names, the petitioner had not sold land to Sunil Patel, no broker link was proved, and the papers surfaced about two years after the sale: “No live link has been established between the petitioner and either M/s.Saral Infra or Mr.Sunil Patel.”
What the Court Actually Held
- Approval by the competent authority under Section 151 is a jurisdictional prerequisite; a timely Section 148A(b) notice does not cure approval by the wrong authority.
- The proviso inserted in Section 151 by the Finance Act, 2023 is prospective from 1 April 2023 and cannot be used to validate a sanction granted in April 2022.
- On merits, loose papers impounded from a third party, with no names and no proven link to the petitioner, could not sustain the reopening.
- The writ petition was allowed and the order under Section 148A(d) and notice under Section 148, both dated 1 April 2022, were quashed.
Why This Judgment Matters
- Many reopenings issued around 1 April 2022 for AY 2018-19 were approved by the Principal Commissioner; this ruling directly affects them in Gujarat.
- It adds to the High Court view that the 2023 proviso to Section 151 is substantive and prospective.
- Third-party survey material must be linked to the assessee with some live nexus before it can justify reopening.
What Should Advocates Take Away From the Judgment?
For Taxpayers
- Check who approved a reopening notice and whether that authority was competent on the date of approval.
- Land sellers named in third-party papers can challenge reopening where nothing links them to the alleged on-money.
- A writ petition is maintainable where the defect is jurisdictional, such as invalid sanction.
For Counsel
- Distinguish limitation under Section 149 from the competent authority under Section 151; the Court treated them separately for pre-2023 sanctions.
- Rely on Rajeev Bansal, Vatika Township and Skypack Travels on sanction and prospectivity.
- Attack the ‘live link’ between survey material and the assessee, not just the procedure.
Key Takeaways
- Reopening for AY 2018-19 approved by the Principal Commissioner on 1 April 2022 was held invalid.
- The Finance Act, 2023 proviso to Section 151 applies only from 1 April 2023.
- Unnamed loose papers from a third party’s survey are not enough on their own.
- The reassessment order and notice were quashed outright.
Frequently Asked Questions
What did the Gujarat High Court decide in Ritaben Patel v. ACIT?
It quashed a reassessment order and notice dated 1 April 2022 for AY 2018-19 because they were approved by the Principal Commissioner when, more than three years having passed, a higher authority’s approval was required under Section 151(ii), and because no link connected the petitioner to the seized papers.
Is the 2023 proviso to Section 151 retrospective?
No. The Court held it changes the computation that determines the competent sanctioning authority and therefore operates only from 1 April 2023.
Can third-party survey papers be used to reopen a seller’s assessment?
Only if there is a live link to the assessee. Here the papers bore no names, the petitioner had no dealings with the person examined, and no broker link was shown.
Conclusion
The decision underlines that sanction under Section 151 is not a formality and that the Revenue cannot rely on a later amendment to rescue approvals given before it came into force. It also insists on a real nexus between seized material and the taxpayer before reopening.
Practical takeaway: For reopening notices issued in the window around April 2022, verify the date and level of the Section 151 approval — if the wrong authority approved it, the proceedings may be quashed at the threshold.
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