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TMI Blog2018 (4) TMI 392X X X X Extracts X X X X X X X X Extracts X X X X ..... on facts in making fishing and roving enquiries and in passing the order impugned, which is not permitted in reassessment proceedings. 5. The CIT(A) has erred in law and on facts in sustaining addition of a sum of Rs. 5,90,00,000/- out of Rs. 7,65,00,000/- made by the Assessing Officer u/s 68 of the Act. 2.1 Facts leading to the same are that the assessee being resident corporate assessee was subjected to re-assessment proceedings u/s 143(3) read with section 147 of the Income Tax Act on 31/03/2015 wherein the income was determined at Rs. 6,35,79,180/- under normal provisions after certain additions as against 'Nil' returned income filed by the assessee on 22/09/2009 which was processed u/s 143(1). Subsequently, the case of the assessee was subjected to reassessment proceedings vide issuance of notice u/s 148 dated 14/03/2014 purportedly upon receipt of certain information from DGIT (Investigation) that the assessee obtained accommodation entries of bogus purchase bills during impugned AY from an entity namely Symphony Metalam Private Limited for Rs. 9,990/- which is evident from reasons for reopening as extracted by Ld. AO in the quantum assessment order. The assessee, while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to substantiate the receipt of Share Application /Share Capital / Share premium from various parties. Reliance has been placed on several judicial pronouncements for various contentions. Per contra, Ld. DR submitted that Ld. AO was empowered to make any other additions which came to his notice during the course of reassessment proceedings in terms of Section 147 read with Explanation 3 thereof. On merits, its was contended that since the assessee failed to conclusively prove the primary ingredients of Section 68, the additions thereof was justified and Ld. CIT(A) erred in granting relief to the assessee. 5.1 We have carefully heard the rival contentions and perused relevant material on record. First of all, it is noted that impugned AY is 2009-10 and the original return was processed u/s 143(1). The reopening has been done by way of issuance of notice u/s 148 dated 14/03/2014 which fall within a period four years from end of relevant AY and therefore, the only requirement to be fulfilled in such a case to resort to reassessment proceedings was that Ld. AO had reasons to believe that certain income chargeable to tax had escaped assessment. 5.2 As evident from the quan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome chargeable to tax had escaped assessment and that condition has been fulfilled in the form of receipt of certain tangible material from appropriate authorities coupled with analysis thereof by Ld. AO which suggested escapement of income. At this stage, the Ld. AO was only required to form a prime-facie opinion that certain income, although chargeable to tax, has escaped assessment and nothing beyond. All that is required at the stage of issuance of notice under Section 148 is the honest and reasonable belief of Ld. AO that certain income escaped assessment. The belief should not be based on mere, suspicion, gossip or rumors. The only requirement for initiating proceedings under Section 148 is that there must be reasons to justify the belief that there is escapement or suppression of income and nothing more which is duly supported by settled legal position with regard to initiation of reassessment proceedings viz.:- (i) There must be material for belief. (ii) Circumstances must exist and cannot be deemed to exist for arriving at the opinion. (iii) Reason to believe must be honest and not based on suspicion, gossip, rumor or conjecture. (iv) Reasons referred to must di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beyond. We have already observed that Ld. AO has duly applied his mind on the information received from the authorities and came to conclusion that certain income escaped assessment. 5.3 The Ld. AR has relied on the decision of Hon'ble Delhi High Court rendered in Signature Hotels Pvt. Ltd. Vs. Income Tax Officer [338 ITR 51] which has subsequently been followed by same court in PCIT Vs. Meenakshi Overseas Pvt. Ltd. [395 ITR 677]. However, we note that both the cases addressed a situation where reassessment proceedings were triggered after four years from the end of relevant AY. Further, in those cases, independent investigation of alleged facts by Ld. AO was missing. Further, a perusal of judgment rendered in Signatures Hotels Pvt. Ltd. [supra] shows that there the Hon'ble court noted that the undated reasons recorded by Ld. AO for initiation of proceedings were not same / identical as comparable to reasons recorded by Ld. AO in the approval proforma for initiation of action u/s 147/148. Therefore, the same, from any angle, are distinguishable and hence, could not be applied to the facts of the case. 5.4 In view of the above stated facts, we hold that reassessment proceedings we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (57) of Memorandum Explaining the Provisions of Finance Bill (No. 2) of 2009 [(2009) 224 CTR (St) 145] are as follows:- "Some Courts have held that the AO has to restrict the reassessment proceedings only to issues in respect of which the reasons have been recorded for reopening the assessment. He is not empowered to touch upon any other issue for which no reasons have been recorded. The above interpretation is contrary to the legislative intent. With a view to further clarifying the legislative intent, it is proposed to insert an Explanation in s. 147 to provide that the AO may assess or reassess income in respect of any issue which comes to his notice subsequently in the course of proceedings under this section, notwithstanding that the reason for such issue has not been included in the reasons recorded under sub-s. (2) of s. 148. This amendment will take effect retrospectively from 1st April, 1989 and will accordingly apply in relation to asst. yr. 1989-90 and subsequent years." Hence, newly inserted Explanation 3 makes it clear that the AO may assess or reassess the income in respect of issues which has escaped assessment, if such issue comes to his notice in the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies except within the framework of law. The basic objective of reassessment proceedings is to bring to tax escaped incomes and the same could not, by any stretch of imagination, empower Ld. AO to delve into completely independent and unconnected issues which already attained finality and with respect to which no new tangible material was available on record. 6.5 The Explanation-3 to Section 147, in our opinion, could not enlarge the scope of basic provisions as contained in Section 147 and the primary conditions as envisaged by Section 147 viz. reasons to believe was required to be fulfilled before resorting to reassessment proceedings. Our view is fully supported by the observation of our jurisdictional Hon'ble Bombay High Court rendered in CIT v. Jet Airways (I) Ltd. [2011 331 ITR 236] which has subsequently been followed by Delhi High Court in Ranbaxy Laboratories Ltd. v. CIT [2011 336 ITR 136]. The decision by Hon'ble Bombay High Court has been rendered after considering the judgment of Hon'ble Apex Court in CIT Vs. Sun Engg. Works P. Ltd. [198 ITR 297] and several other judgments and the Hon'ble Court have held as under:- 16. In CIT vs. Sun Engineering Works (P) Ltd. (1992) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or to the amendment on 1st April, 1989. 18. The effect of the amended provisions came to be considered in two distinct lines of precedent on the subject. The first line of authority, to which a reference has already been made earlier, adopted the principle that where the AO has formed a reason to believe that income has escaped assessment and has issued a notice under s. 148 on certain specific issues, it was not open to him during the course of the proceedings for assessment or reassessment to assess or reassess any other income, which may have escaped assessment but which did not form the subjectmatter of the notice under s. 148. This view was adopted in the judgment of the Punjab & Haryana High Court in Vipan Khanna (supra) and in the judgment of the Kerala High Court in Travancore Cements Ltd. (supra), This line of authority, would now cease to reflect the correct position in law, by virtue of the amendment which has been brought in by the insertion of Expln. 3 to s. 147 by Finance (No. 2) Act of 2009. The effect of the Explanation is that once an AO has formed a reason to believe that income chargeable to tax has escaped assessment and has proceeded to issue a notice under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctive exercise embarked upon by "Parliament in the form of Expln. 3 consequently provides that the AO may assess or reassess the income in respect of any issue which comes to his notice subsequently in the course of the proceedings though the reasons for such issue were not included in the notice under s. 148(2). The decisions of the Kerala High Court in Travancore Cements Ltd. (supra) and of the Punjab & Haryana High Court in Vipan Khanna (supra) would, therefore, no longer hold the field. However, insofar as the second line of authority is concerned, which is reflected in the judgment of the Rajasthan High Court in Shri Ram Singh (supra), Expln. 3 as inserted by Parliament would not take away the basis of that decision. The view which was taken by the Rajasthan High Court was also taken in another judgment of the Punjab & Haryana High Court in CIT vs. Atlas Cycle Industries (1989) 180 ITR 319 (P&H) : (1989) 46 Taxman 315 (P&H). The decision in Atlas Cycle Industries (supra) held that the AO did not have jurisdiction to proceed with the reassessment, once he found that the two grounds mentioned in the notice under s. 148 were incorrect or non-existent. The decisions of the Punjab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment for any assessment year, the AO may assess or reassess such income "and also" any other income chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment. The words "and also" are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by Parliament. Our view has been supported by the background which led to the insertion of Expln. 3 to s. 147. Parliament must be regarded as being aware of the interpretation that was placed on the words "and also" by the Rajasthan High Court in Shri Ram Singh (supra). Parliament has not taken away the basis of that decision. While it is open to Parliament, having regard to the plenitude of its legislative powers to do so, the provisions of s. 147(1) as they stood after the amendment of 1st April, 1989 continue to hold the field. 23. In that view of the matter and for the reasons that we have indicated, we do not regard the decision of the Tribunal in the present case as being in error. The question of law shall, accordingly, stand answered against the Revenue and in favour of the assessee. The appeal is, accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertinent to issue before us. The Explanation 3, as per the decision of Hon'ble Bombay High Court, cannot override the necessity of fulfilling the conditions set out in the substantive part of s. 147 since an explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or render the substance and core nugatory. Similarly, as per Hon'ble Delhi High Court, the Ld. AO was not vested with blanket powers and debarred from making fishing and roving inquiries. Further, both the Hon'ble Courts have observed that a fresh notice u/s 148 with respect to new items would be required, which is missing in the present case. 6.6 In view of the above stated analysis, we find that Ld. 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. 7. Since we have already allowed assessee's appeal on legal ground as above, the question of delving into the quantum additions on merits becomes merely academic in nature and we see no fruitful reason t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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