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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 ..... (A)-12/IT)-6(3)(3)/88/15-16 dated 20/07/2016 . The assessment for impugned AY was framed by Income Tax Officer-6(3)(3), Mumbai on 31/03/2015 u/s 143(3) read with Section 147 of the Income Tax Act, 1961. First we take up assessee s appeal ITA No. 5452/Mum/2016 wherein effective grounds as pressed before us reads as under:- 3. The CIT(A) has erred in law and on facts in not holding that the reopening of the assessment by issuing of notice u/s 148 of the Act was illegal and bad in law. 4. The CIT(A) ought to have held that the Assessing Officer has erred in law and 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 ₹ 5,90,00,000/- out of ₹ 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 ₹ 6,35,79,180/- under normal provisions after c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers 3 4 has also contested the legality of assessment proceedings and additions made in consequent thereto. 4. The Ld. Authorized Counsel for Assessee [AR], drawing our attention to the statutory provisions qua reassessment contended that Ld. AO could not make fishing and roving inquiries in the reassessment proceedings so as to undo the already completed issues since the basis for reopening was bogus purchases for ₹ 9,990/- and therefore, the reassessment proceedings were required to be confined to that extent only. The Ld. AR also contested the quantum additions on merits by drawing our attention to the documentary evidences submitted by 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntities has escaped assessment for AY 2009-10 within the meaning of Section 147 of the Act. A perusal of the above reasons reveals that certain information came to the possession of Ld. AO in the form of report of DGIT (Inv.) which was based on inquiries conducted by other government agency i.e. Sales Tax Department, Maharashtra that the assessee obtained certain accommodation entries in the shape of bogus bills of purchases. The Ld. AO duly analyzed the same and after matching the same from the website of Sales Tax Department, Maharashtra came to conclusion that the certain purchases made by the assessee were non-genuine. The possession of said information coupled with further analysis of Ld. AO, in our opinion, was quite sufficient to trigger reassessment proceedings. We have already noted that the only requirement to be fulfilled to initiate reassessment proceedings was that the Ld. AO had reasons to believe that certain income 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is reason to believe , but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction ITO v. Selected Dalurband Coal Co. (P.) Ltd. [1996] 217 ITR 597 (SC); Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC). Respectfully following the above, we conclude that only a prima-facie opinion was required to be formed by Ld. AO at the stage of initiating reassessment proceedings and nothing 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. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance, as the case may be, for the assessment year concerned (Emphasis supplied) Explanation-3 as inserted by Finance Act, 2009 retrospectively w.e.f. 01/04/1989 reads as follows:- Explanation 3. - For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under subsection (2) of section 148 . (Emphasis supplied) Upon perusal of the same, we find that post amendment, Ld. AO has wide powers to assess not only those incomes which were the subject matter of reassessment proceedings but also those escaped incomes which came to his notice during reassessment proceedings. The rationale behind insertion of Explanation-3, as evident from the reasons for insertion of this clarificatory Explanation in cl. (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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO, in our opinion, in the absence of any new tangible material or information, by making roving / fishing inquiries could not unearth completely new grounds of addition by calling further information from assessee which had already attained finality by way of acceptance of original return of income. There was no iota of evidence on record to suggest escapement of income qua this item. Therefore, the Ld. AO, in our opinion, has exceeded his jurisdiction by way of making fishing roving inquiries, which could not be sustained. The reassessment proceedings were never meant to give second inning or chance to revenue to scrutinize the assessee s return of income particularly when no tangible material suggesting escapement of income was available on record. There should have been minimum material to trigger further action on the part of Ld. AO so as to assume valid jurisdiction u/s 147/148. It is trite law that there must be an end to litigation and finality of issues and the issues could not be agitated / reagitated or revisited by the respective parties except within the framework of law. The basic objective of reassessment proceedings is to bring to tax escaped incomes and the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation where an assessment has already been made but the AO has reason to believe that there is underassessment on account of the existence of any of the grounds contemplated by Expln. 1 to s. 147. The Supreme Court adverted to the judgment in V. Jaganmohan Rao vs. CIT (1970) 75 ITR 373 (SC), which held that once an assessment is validly reopened, the previous underassessment is set aside and the ITO has the jurisdiction and duty to levy tax on the entire income that had escaped assessment during the previous year. The Court held that the object of s. 147 enures to the benefit of the Revenue and it is not open to the assessee to convert the reassessment proceedings as an appeal or revision and thereby seek relief in respect of items which were rejected earlier or in respect of items not claimed during the course of the original assessment proceedings. 17. The judgment in V. Jaganmohan Rao vs. CIT (supra) dealt with the language of ss. 22(2) and 34 of the Act of 1922 while the judgment in Sun Engg. Works (P) Ltd. (supra) interprets the provisions of s. 147 as they stood prior to the amendment on 1st April, 1989. 18. The effect of the amended provisions came to be consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the conclusion, that any income chargeable to tax, which, according to his 'reason to believe', had escaped assessment for any assessment year, did not escape assessment, then, the mere fact that the AO entertained a reason to believe, albeit even a genuine reason to believe, would not continue to vest him with the jurisdiction, to subject to tax, any other income, chargeable to tax, which the AO may find to have escaped assessment, and which may come to his notice subsequently, in the course of proceedings under s. 147. 20. Parliament, when it enacted the Expln. (3) to s. 147 by the Finance (No. 2) Act, 2009 clearly had before it both the lines of precedent on the subject. The precedent dealt with two separate questions. When it effected the amendment by bringing in Expln. 3 to s. 147, Parliament stepped in to correct what it regarded as an interpretational error in the view which was taken by certain Courts that the AO has to restrict the assessment or reassessment proceedings only to the issues in respect of which reasons were recorded for reopening the assessment. The corrective exercise embarked upon by Parliament in the form of Expln. 3 consequently provides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which, comes to his notice during the course of the proceedings. However, if after issuing a notice under s. 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under s. 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee. 22. We have approached the issue of interpretation that has arisen for decision in these appeals, both as a matter of first principle, based on the language used in s. 147(1) and on the basis of the precedent on the subject. We agree with the submissions which has been urged on behalf of the assessee that s. 147(1) as it stands postulates that upon the formation of a reason to believe that income chargeable to tax has escaped assessment for any assessment year, the AO may assess or reassess such income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orded for initiation of the proceedings and the notice, he would be competent to make assessment of those items. However, the legislature could not be presumed to have intended to give blanket powers to the AO that on assuming jurisdiction under s. 147 regarding assessment or reassessment of escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. For every new issue coming before AO during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under s. 148. ( emphasis, being supplied by us) Although both the decisions have been rendered in a situation where no additions were made by Ld. AO with respect to those items which were the subject matter of reassessment proceedings and the additions were made against independent and unconnected issues which is not the case here. However, we find the observations of Hon ble Courts as emphasized by us to be very relevant and pertinent to issue before us. The Explanation 3, as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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