Wrong Reassessment Procedure Can Nullify the Entire Case: Mumbai ITAT Quashes Political Donation Reopening
Keywords: Section 148A political donation, bogus political donation reassessment, Section 80GGC reassessment, Section 148A proviso, search-based reassessment, Mumbai ITAT Amit Pahuja, reassessment barred by limitation, Finance Act 2021 reassessment, Section 148 notice, Income Tax reassessment.
Can the Income Tax Department Follow the Wrong Reassessment Procedure and Still Sustain the Reopening?
The reassessment provisions introduced by the Finance Act, 2021 fundamentally changed the manner in which escaped income assessments are initiated. While Section 148A generally requires the Assessing Officer (AO) to issue a show-cause notice and provide an opportunity of hearing before issuing a notice under Section 148, the law also carves out specific exceptions.
One such exception applies where the information emanates from a search initiated on or after 1 April 2021. In such cases, Parliament has specifically dispensed with the Section 148A procedure.
In a landmark ruling, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that where the law itself excludes the applicability of Section 148A, the Assessing Officer cannot nevertheless follow that procedure. Doing so renders the subsequent notice under Section 148 without jurisdiction and, in the facts of the case, barred by limitation.
The decision could have significant implications for reassessment cases involving alleged bogus political donations.
Background of the Case
The case before the Tribunal was Amit Pahuja (ITA No. 868/Mum/2026, order dated 23.06.2026).
The assessee had claimed a deduction of ₹2,00,000 under Section 80GGC in respect of a donation made to a political party.
Subsequently, the Income Tax Department conducted a search on the political party and alleged that the donation was not genuine.
Chronology of Events
The reassessment proceedings unfolded as follows:
• 29 March 2023: Notice issued under Section 148A(b).
• 21 April 2023: Order passed under Section 148A(d).
• 21 April 2023: Notice issued under Section 148 reopening the assessment.
The validity of this sequence became the central issue before the Tribunal.
What Does the First Proviso to Section 148A Provide?
The Tribunal examined clause (c) of the first proviso to Section 148A.
The proviso specifically excludes the applicability of Section 148A where the information for reopening arises from a search initiated on or after 1 April 2021.
In such cases, Parliament itself has dispensed with the requirement of issuing:
• a notice under Section 148A(b), and
• an order under Section 148A(d).
Instead, the Assessing Officer is required to proceed directly under Section 148, subject to the statutory conditions and limitation.
AO Followed a Procedure That the Law Prohibited
The Tribunal observed that the Assessing Officer nevertheless chose to initiate proceedings under Section 148A.
According to the Tribunal, this was contrary to the express language of the statute.
Once the case falls within one of the statutory exceptions, the Assessing Officer has no authority to invoke Section 148A.
The procedure adopted by the Department was therefore without jurisdiction.
Limitation Also Expired
The Tribunal further noted that because the Assessing Officer unnecessarily followed the Section 148A procedure, valuable time was consumed.
As a result, the final notice under Section 148 came to be issued only in April 2023.
On the facts of the case, the Tribunal held that the notice had consequently become time-barred.
Thus, the reassessment failed not only because of the incorrect statutory procedure but also on the ground of limitation.
Entire Reassessment Quashed
Having found that:
• Section 148A itself was inapplicable, and
• the notice under Section 148 had become barred by limitation,
the Tribunal quashed:
• the notice issued under Section 148,
• the reassessment proceedings,
• and all consequential actions.
Why This Judgment Is Significant
The decision highlights an important but often overlooked principle.
Jurisdictional provisions are mandatory.
Where Parliament has expressly stated that a particular statutory procedure shall not apply, the Assessing Officer cannot choose to follow it merely because it appears procedurally convenient.
An authority exercising statutory power must act strictly within the four corners of the law.
Potential Wider Implications
The ruling could have broader implications for reassessment proceedings relating to alleged bogus political donations where:
• the reopening is based on information arising from a search conducted on or after 1 April 2021;
• the Department nevertheless issued notices under Section 148A(b) and passed orders under Section 148A(d) before issuing notices under Section 148;
• limitation expired during this intervening period.
However, whether this reasoning ultimately applies to other cases will depend on:
• the precise facts,
• the applicable limitation provisions,
• and whether the decision is followed by other Benches or higher courts.
Taxpayers should therefore treat the ruling as persuasive rather than assuming that all similar reassessments automatically become invalid.
Practical Lessons for Taxpayers
Taxpayers receiving reassessment notices should carefully verify:
• the source of the information relied upon by the Department;
• whether the case falls within any exception to Section 148A;
• whether the correct statutory procedure has been followed;
• the dates of search, notice under Section 148A, order under Section 148A(d), and notice under Section 148;
• whether limitation has been properly observed.
Jurisdictional defects can sometimes dispose of an entire reassessment without requiring adjudication on the merits.
Conclusion
The Mumbai ITAT’s decision in Amit Pahuja underscores a fundamental principle of tax administration: when the law prescribes a particular procedure—or expressly excludes one—the Assessing Officer has no discretion to adopt a different course. In the present case, the Tribunal held that once the first proviso to Section 148A excluded the applicability of the Section 148A procedure, the issuance of notices under Sections 148A(b) and 148A(d) was without legal authority. The consequential delay also rendered the final notice under Section 148 time-barred.
While the judgment may influence similar reassessment cases involving alleged bogus political donations and search-based information, its application will ultimately depend on the facts of each case and the views taken by other appellate forums. Nevertheless, the ruling serves as an important reminder that reassessment proceedings must satisfy not only the substantive requirements of the law but also its jurisdictional and procedural mandates.
The copy of the order is as under:
