One day past three years: Gujarat High Court quashes Surat reassessment sanctioned by the wrong officer
A division bench of Justice A.S. Supehia and Justice Vaibhavi D. Nanavati held that the Finance Act 2023 proviso to Section 151 is prospective, so a Principal Commissioner had no power on 1 April 2022 to approve a Section 148 notice for assessment year 2018-19.
The three-year window for reopening a Surat landowner's assessment for 2018-19 closed on 31 March 2022. The Income Tax Department issued its reassessment notice the next day, 1 April, with the approval of the Principal Commissioner of Income Tax (Central), Surat. The Gujarat High Court has now quashed that notice and the order behind it, holding that once the calendar crossed three years, only the Principal Chief Commissioner could sign off, and that a proviso Parliament added to Section 151 a year later cannot be used to rescue the sanction.
The division bench of Justice A.S. Supehia and Justice Vaibhavi D. Nanavati, in a judgment authored by Justice Supehia and reserved on 15 October 2026, also found that the material the department relied on, loose papers impounded from a third party's premises, carried no name and established no link to the petitioner at all. The Revenue lost on jurisdiction and on merits.
A 16.66 per cent share, and an alleged Rs 29 lakh of on-money
Ritaben Arvindbhai Patel and her co-owners sold a parcel of land, Block No. 633/B at Village Vav in Kamrej taluka of Surat district, by a sale deed dated 17 October 2017. The purchasers were Nathabhai Gordhanbhai Gajera, HUF, and Vilasben Nathabhai Gajera. Her share in the land was 16.66 per cent, and she says she received Rs 8,43,250 as her part of the consideration.
Eighteen months later, on 18 and 19 April 2019, the department carried out a survey under Section 133A of the Income-tax Act at the premises of M/s Saral Infra, a third party. Diaries, notebooks and loose papers were impounded. During the survey, one Sunilbhai M. Patel gave a statement under Section 131 in which he was confronted with notings about land transactions concerning Block Nos. 633/A, 633/B and 633/K at Village Vav. He said the lands purchased had later been sold and that a profit of Rs 2,34,99,954 had been earned.
From the figures in the impounded papers, the Assessing Officer computed on-money of Rs 97,54,796 in the hands of the buyers and Rs 1,17,68,296 in the hands of the sellers. Applying the petitioner's 16.66 per cent share to the sellers' figure, the officer arrived at Rs 29,42,074 as her undisclosed receipt.
The timeline that decided the case then ran as follows. On 19 March 2022 the Assistant Commissioner of Income Tax, Central Circle 3, Surat, issued a show-cause notice under Section 148A(b) giving her until 28 March to respond. She replied on 28 March, saying she had never sold the land to Sunil Patel and that her name appeared nowhere in the impounded material. On 1 April 2022 the officer passed an order under Section 148A(d) holding that income had escaped assessment, and on the same day issued the notice under Section 148. Both steps were taken after the Principal Commissioner of Income Tax (Central), Surat, granted approval on 1 April 2022 as the specified authority under Section 151(i).
She challenged the order and the notice in a Special Civil Application, arguing that both were without jurisdiction.
Why the identity of the sanctioning officer mattered
Section 151, as substituted by the Finance Act, 2021, splits the sanctioning power by time. If three years or less have elapsed from the end of the relevant assessment year, the Principal Commissioner, Principal Director, Commissioner or Director can approve a reassessment notice. If more than three years have elapsed, approval must come from the Principal Chief Commissioner or Principal Director General, or where there is none, the Chief Commissioner or Director General.
Section 149 separately fixes the time limit for the notice itself. Under clause (a) of Section 149(1), no notice can issue once three years have elapsed, unless the case falls under clause (b), which allows up to ten years where the escaped income represented by an asset, expenditure or book entry is Rs 50 lakh or more. The third proviso to Section 149(1), as it stood in April 2022, excluded from the limitation computation the time allowed to the assessee to respond to a Section 148A(b) notice. The fourth proviso gave the officer a minimum of seven days after that exclusion to pass the Section 148A(d) order. Section 149(2) says the provisions of sub-section (1) as to the issue of notice are subject to Section 151.
The Finance Act, 2023, with effect from 1 April 2023, added a proviso to Section 151. It says the three-year period for clause (i) shall be computed after taking into account the periods excluded or extended by the provisos to Section 149(1). The whole case turned on whether that proviso could reach back to a sanction granted on 1 April 2022.
The Revenue's nine-day arithmetic
Senior Standing Counsel Karan Sanghani, appearing with Senior Standing Counsel Rutvij Patel for the department, built the defence on Section 149(2). Because the limitation provision is expressly subject to Section 151, he argued, the two sections are intertwined machinery and must be read together. The nine days from 19 to 28 March 2022, allowed to the petitioner to reply, had to be excluded under the third proviso. That pushed the three-year deadline to 9 April 2022, and so the 1 April order and notice fell within three years. If the notice was within three years for Section 149, the same computation had to govern Section 151, which meant the Principal Commissioner was the right authority.
The alternative, he said, produced an anomaly: a notice treated as timely under Section 149(1)(a) while still requiring the higher-level approval under Section 151(ii) that applies only after three years. He drew on Part III of the Limitation Act, 1963, Sections 12 to 15, for the general proposition that whether a period has expired does not depend on an inflexible calendar count where the statute itself excludes certain periods. He relied on the Supreme Court's decision in Union of India v. Rajeev Bansal, the coordinate bench ruling in Dhanraj Govindram Kella v. ITO, the Delhi High Court in Abhinav Jain v. ITO and the Calcutta High Court in Giriraj Commercial (P.) Ltd. v. Union of India.
Without prejudice to that argument, the Revenue contended that the 2023 proviso to Section 151 was clarificatory and declaratory, so its operation was not confined to proceedings begun after 1 April 2023. Counsel pointed to the Memorandum explaining the Finance Bill, 2023, which said the amendment was proposed “to give further clarity with regards to the specified authority”. He cited the Supreme Court in Manjula v. D.A. Srinivas and CIT v. Gold Coin Health Food (P.) Ltd. for the principle that an amendment which cures a defect or gives effect to the original intent may apply retrospectively, and that its nature, not merely its commencement date, decides the question. On merits, he asked that the petitioner, a non-filer, be relegated to the assessment because there was enough incriminating material to suggest escapement.
The petitioner's case: jurisdiction is fixed on the date of sanction
Senior Advocate Tushar Hemani, with Vaibhavi K. Parikh, argued that the three years under Section 151(i) expired on 31 March 2022. On 1 April the competent authority was the Principal Chief Commissioner under Section 151(ii). A sanction by the Principal Commissioner was a sanction by an authority with no power to give it, and that defect went to jurisdiction.
He said the provisos to Section 149(1) exist for computing limitation under Section 149 and could not be imported into Section 151 without an express provision. The very fact that Parliament had to insert a proviso in Section 151 in 2023 showed there was no such mechanism before. The amendment altered which officer could sanction, which made it substantive. The Memorandum, the Notes on Clauses and CBDT Circular No. 1/2024 dated 23 January 2024 all fixed the effective date at 1 April 2023. Where Parliament wants retrospective effect, it says so. He relied on the Constitution Bench in CIT v. Vatika Township (P.) Ltd. and on Sedco Forex International Drill Inc. v. CIT, and on paragraphs 74 and 76 of Rajeev Bansal, which tie the sanctioning authority's jurisdiction to the time elapsed from the end of the assessment year.
He also took the bench through the Bombay High Court's decisions in Vodafone Idea Ltd. v. DCIT, Agnello Oswin Dias v. ACIT, Purnima Jitendra Navsariwala v. ITO, Mystique Media (P.) Ltd. v. ITO and Skypak Travels (P.) Ltd. v. ITO, and the Telangana High Court in Deloitte Consulting India (P.) Ltd., all of which, he said, had treated the Section 151 proviso as prospective. On the facts, he said this case was stronger than any of them: the show-cause notice, reply and sanction all sat inside a window that ended on 31 March, and the sanction still came on 1 April.
On merits, he said there was no live link between his client and the survey material. The loose papers bore no name. She had been roped in through the statement of Sunil Patel, a man to whom she had never sold anything and with whom she had no connection.
How the bench read Sections 149 and 151 together
The bench began by narrowing the field. Since the alleged escapement of Rs 29,42,074 was below Rs 50 lakh, the case fell under Section 149(1)(a), the plain three-year rule. The judges then made a textual observation that cut against the Revenue's whole approach. The third and fourth provisos to Section 149(1), as they stood under the Finance Act, 2021, operate expressly for the purposes of computing limitation under that section and address the situation in clause (b), with its Rs 50 lakh threshold. The fourth proviso refers back to the preceding proviso, the third. In the bench's reading, neither proviso applies to clause (a) at all.
Section 149(2) makes the limitation provision subject to Section 151, and the bench accepted that this creates a direct nexus between the limitation clauses and the identity of the sanctioning officer. But it drew the opposite conclusion from the one the Revenue wanted. Quoting paragraphs 75 and 76 of Rajeev Bansal, the judges noted the Supreme Court's holding that Section 151 does not prescribe a time limit for the authority to act; it links the time limits to the authority's jurisdiction, and non-compliance with those strict limits affects the Assessing Officer's jurisdiction to issue a notice under Section 148.
Applied here, the last date was 31 March 2022, three years after the end of assessment year 2018-19. The Principal Commissioner who granted sanction on 1 April 2022 had no jurisdiction to do so. The court put the department's argument in a sentence and rejected it: the Revenue could not validate its action by arguing that “a timely Section 148A(b) notice cures an untimely Section 151(i) sanction”. That contention, the bench said, contradicts the framework of Section 149(1)(a) read with Section 151 as it stood before 1 April 2023. Section 151 clearly demarcates which authority acts on which timeline, and the limitation periods cannot be blurred.
The judges added a point about legislative design. If the Revenue were right that the Section 149 exclusions already flowed into Section 151, there would have been no need for Parliament to introduce the 2023 proviso bringing those adjustments into Section 151. The legislature, the bench said, was conscious of the clear delineation of the specified authority and its nexus with clauses (a) and (b).
The 2023 proviso looks forward, not back
On retrospectivity, the court went first to the Memorandum explaining the Finance Bill, 2023. It states that “these amendments will take effect from the 1st day of April, 2023”. CBDT Circular No. 1/2024 of 23 January 2024 says the same for Section 151 and the sanctioning authority.
The bench then adopted the reasoning of the Bombay High Court in Skypak Travels, quoting paragraphs 20 to 22 of that judgment. Two strands mattered. First, where Parliament intends retrospectivity it says so expressly, and in the absence of such indication, particularly where the provision relates to jurisdiction, it cannot be construed to validate an action that was without jurisdiction when taken. Second, the Section 151 proviso refers to the third, fourth, fifth and sixth provisos to Section 149(1). The third and fourth provisos were themselves inserted with effect from 1 April 2023, and the earlier third and fourth were renumbered fifth and sixth. Nobody argued that the new third and fourth provisos were retrospective. A proviso inserted at the same time, which refers to provisos that are admittedly prospective, cannot itself be retrospective. The Gujarat bench said it was in complete agreement.
The judges gave an independent reason as well. By inserting the proviso, Parliament altered how the three-year period is computed for identifying the specified authority. An alteration that substantially affects an assessee's vested rights and changes jurisdiction must operate prospectively unless retrospective operation is provided expressly or by necessary implication. The bench relied on the Constitution Bench in Vatika Township, which held that assessment creates a vested right, that an assessee cannot be subjected to reassessment unless an amending provision is expressly or by necessary implication retrospective, and that Notes on Clauses fixing a commencement date, read against other amendments in the same Finance Act that were expressly made retrospective or clarificatory, show a conscious legislative choice of prospective operation.
If the proviso were applied retrospectively, the court said, it would validate sanctions that were invalid under the law applicable when they were granted, altering the competent authority and diluting a statutory safeguard. The bench held that the proviso operates with effect from 1 April 2023 and does not apply retrospectively.
Why the Revenue's precedents did not carry the day
The judgment deals with each authority the department cited. Dhanraj Govindram Kella, the coordinate bench ruling the Revenue said squarely covered the case, concerned assessment years 2013-14 to 2017-18 and the extension of time under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020. That bench was working through the Supreme Court's directions in Union of India v. Ashish Agarwal, under which old-regime notices were treated as Section 148A(b) show-cause notices and assessees given 30 days from 4 May 2022 to reply, and through Rajeev Bansal's treatment of the surviving TOLA period. It upheld approvals under Section 151(i) for notices issued between 1 April and 30 June 2021. It did not decide whether the 2023 proviso applies retrospectively, so the bench said it did not assist the Revenue, while recording no quarrel with its principle.
Abhinav Jain was decided on the undisputed footing that two corrigenda had extended the assessee's reply time and had not been challenged; on that basis the Delhi High Court applied the third proviso and treated the Principal Commissioner as competent. In Giriraj Commercial, a single judge of the Calcutta High Court applied the amended provisions, referred to before it as a recent amendment, without the question of retrospectivity being raised, argued or decided. A ruling that does not consider a question of law is not binding on it, and the bench invoked the principle of sub silentio.
Manjula concerned the 2016 amendments to the Benami Transactions (Prohibition) Act, 1988. The Supreme Court upheld their retrospective application because no one has a vested right to enter into a benami transaction designed to defeat the law. That reasoning, the bench said, does not by itself show that a proviso to the Income-tax Act was meant to look backward; each amendment's language, object, effect and legislative intent must be examined on its own. As for Gold Coin Health Food, the amendment there was one the Notes on Clauses themselves described as clarificatory. The Notes on Clauses to Clause 71 of the Finance Bill, 2023, by contrast, state that the amendments take effect from 1 April 2023.
Loose papers with no names
Having decided jurisdiction, the bench went on to the merits and found the reassessment unsustainable there too. The petitioner's sale was on 17 October 2017 to the Gajera HUF and Vilasben Gajera. The material was impounded nearly two years later, on 18 and 19 April 2019, at the premises of Saral Infra. The loose papers reproduced in the notice and the order, the court found, do not disclose any names; apart from survey numbers and land rates they contain nothing capable of establishing her involvement in any on-money transaction.
It was undisputed that she did not sell the land to Sunil Patel, and nothing on record showed that he acted as her broker. The Assessing Officer had rejected her reply by relying on Sunil Patel's statement and on her failure to report the alleged receipt in a return. The bench held that no live link had been established between the petitioner and either Saral Infra or Sunil Patel, that the proceedings rested on material which did not even prima facie connect her to the alleged on-money, and that she could not be put through the rigours of reassessment on that basis.
Order
The court reiterated that sanction by the competent specified authority under Section 151 is a prerequisite for the Assessing Officer to assume jurisdiction under Section 148, and that non-compliance with the rules on competent authority and limitation affects that jurisdiction. The sanction of 1 April 2022 by the Principal Commissioner of Income Tax (Central), Surat, could not be sustained by applying the 2023 proviso retrospectively.
The writ petition was allowed. The order under Section 148A(d) and the notice under Section 148, both dated 1 April 2022, were quashed and set aside. Rule was made absolute. The judgment, reserved on 15 October 2026, was pronounced on 23 October 2026 and approved for reporting.