2018 (4) TMI 392 - AT - Income Tax

Reopening of assessment u/s 147 - addition u/s 68 - Held that - AO was not vested with blanket powers and debarred from making fishing and roving inquiries. Further, observed that a fresh notice u/s 148 with respect to new items would be required, which is missing in the present case. AO was not right in assuming jurisdiction with respect to independent and unconnected items without any tangible material or information suggesting escapement of income which was the basic requirement of Section 147. Hence, impugned additions u/s 68 could not survive. - Decided in favour of assessee

Issues Involved:
1. Legality of reopening the assessment under Section 148 of the Income Tax Act.
2. Scope of reassessment proceedings and the legality of making additional inquiries.
3. Sustaining the addition of ?5,90,00,000 out of ?7,65,00,000 under Section 68 of the Income Tax Act.

Detailed Analysis:

1. Legality of Reopening the Assessment:
The assessee challenged the reopening of the assessment under Section 148 of the Income Tax Act, arguing that it was illegal and bad in law. The Tribunal examined whether the Assessing Officer (AO) had "reasons to believe" that income had escaped assessment. The reopening was based on information from the DGIT (Investigation) indicating that the assessee had obtained accommodation entries of bogus purchase bills amounting to ?9,990 from Symphony Metalam Private Limited. The Tribunal held that the AO had sufficient cause and justification to initiate reassessment proceedings within four years from the end of the relevant assessment year. The Tribunal emphasized that at the stage of issuing a notice under Section 148, the AO only needed a prima facie belief of income escapement, not conclusive evidence. Citing the Supreme Court's decision in ACIT Vs Rajesh Jhaveri Stock Brokers Pvt. Ltd., the Tribunal concluded that the AO had rightly initiated reassessment proceedings.

2. Scope of Reassessment Proceedings:
The assessee argued that the AO could not make fishing and roving inquiries beyond the reasons recorded for reopening the assessment. The AO had added ?7,65,00,000 under Section 68, which was not related to the initial reason for reopening. The Tribunal noted that Explanation 3 to Section 147, inserted by the Finance Act, 2009, allows the AO to assess any income that comes to his notice during reassessment proceedings, even if it was not part of the original reasons for reopening. However, the Tribunal found that the AO had exceeded his jurisdiction by making inquiries into new issues without any tangible material or information suggesting escapement of income. The Tribunal referred to the Bombay High Court's decision in CIT v. Jet Airways (I) Ltd. and the Delhi High Court's decision in Ranbaxy Laboratories Ltd. v. CIT, which held that the AO could not make roving inquiries into unconnected issues. Therefore, the Tribunal ruled that the AO's addition under Section 68 was beyond the scope of reassessment proceedings.

3. Sustaining the Addition under Section 68:
The AO had added ?7,65,00,000 to the assessee's income under Section 68, which the CIT(A) partially upheld by sustaining ?5,90,00,000 and deleting ?1,75,00,000. The Tribunal found that the AO's addition was based on fishing and roving inquiries into the assessee's share application money, share capital, and share premium from 26 parties. The Tribunal held that the AO had no tangible material or information to justify this addition and had exceeded his jurisdiction. Consequently, the Tribunal allowed the assessee's appeal on legal grounds, rendering the question of quantum additions academic.

Conclusion:
The Tribunal allowed the assessee's appeal, ruling that the AO had exceeded his jurisdiction in making additional inquiries and additions under Section 68 without any tangible material. The revenue's appeal was dismissed, and the reassessment proceedings were deemed invalid beyond the initial reason for reopening. The order was pronounced in the open court on 04th April 2018.

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