Summary of this article
ITAT Mumbai quashed reassessment involving Rs 1.24 crore Bitcoin sale proceeds over approval issue.
Reopening approval came from Principal Commissioner instead of mandated Principal Chief Commissioner under Section 151(ii).
Tribunal declared reassessment void ab initio, without deciding Bitcoin sale taxability on merits.
Selling Bitcoin can lead to a tax demand by the Income Tax Department trigger taxes, but how much you owe in taxes will depend on your profit, how long you held it and how you sold it. In a recent case, a taxpayer’s Bitcoin sale proceeds of Rs 1.24 crore were treated as an unexplained investment by the Income Tax Department which led to a reassessment dispute before the Income Tax Appellate Tribunal (ITAT), Mumbai.
What Happened
The case relates to Mohammed Hasseb Mohammed Hanif Khan for income tax returns (ITRs) for the assessment year 2018-19. The assessing officer reopened the assessment and issued a notice under Section 148 of the Income-tax Act on April 13, 2022.
An addition of Rs 1,24,55,654 was made in relation to the sale proceeds from Bitcoins that alleges the amount to be unexplained investment under Section 69 of the Income-tax Act, 1961.
The taxpayer challenged both the reopening of the assessment and the addition. He also raised an additional legal objection that the assessing officer had reopened the assessment without obtaining approval from the appropriate specified authority under Section 151.
The ITAT admitted this additional ground as it concerned the validity and jurisdiction of the assessment.
The tribunal highlighted that the assessment year involved was 2018-19 and the notice under Section 148 was issued on April 13, 2022. This showed that more than three years had passed from the end of the relevant assessment year when the assessment was reopened.
What Did ITAT Observe
The tribunal examined the approval recorded for the reopening and found that it had been granted by the Principal Commissioner of Income Tax-3, Mumbai.
Under Section 151(ii) where more than three years have elapsed from the end of the relevant assessment year, approval for issuing a reassessment notice has to be obtained from the specified higher authority, including the Principal Chief Commissioner of Income Tax, Principal Director General, Chief Commissioner or Director General.
The ITAT relied on the Supreme Court’s decision in Union of India vs Rajeev Bansal and the Bombay High Court's decision in Alag Property Construction vs ACIT.
The tribunal also referred to the Supreme Court’s dismissal of the appeal in ITO vs Mangla Gupta, which affirmed a similar view taken by the Delhi High Court in Twylight Infrastructure vs ITO.
The ITAT said, “Following the said decision, we hold that, since the approval for reopening of the assessment had been granted beyond a period of three years from the end of the relevant assessment year by the Principal Commissioner of Income Tax and not by the Principal Chief Commissioner of Income Tax as mandated under the provisions of section 151(ii) of the Act, such notice u/s 148 is bad in law. Consequently, the reassessment framed is void ab initio. Accordingly, the reassessment framed for A.Y. 2018-19 u/s 147 r.w.s. 143(3) of the Act is quashed.”
ITAT’s Decision
The ITAT held that the approval for reopening the assessment had been granted by the Principal Commissioner instead of the Principal Chief Commissioner as mandated under Section 151(ii).
The tribunal consequently held the reassessment framed under Section 147 read with Section 143(3) to be void ab initio and quashed it. The appeal filed by the taxpayer was allowed.
The order came on September 11, 2026 which dealt with the validity of the reassessment on the approval and jurisdiction issue. The tribunal did not decide whether the Rs 1.24 crore Bitcoin sale proceeds were exempt from tax or not taxable.
