By TIOL News Service

AHMEDABAD, MAY 09, 2018: THE ISSUE BEFORE THE COURT IS - Whether there is any provision in Income Tax Act which prevents AO from roving inquiry before issue of Sec 147 notice. NO IS THE VERDICT.

Facts of the case:

The assessee company had filed the return for relevant AY. The return was taken in scrutiny. The AO passed assessment order u/s 143(3) of the Act. Later on information was received from the DDIT [Inv] Unit-3(1), Kolkata that during the period under consideration, the assessee company had accepted share capital and share premium from such parties who were proved to be shell companies based on the investigation conducted. Since, the investor companies were shell companies indulged in providing accommodation entries, the share capital/share premium claimed to have been received, from such companies by the assessee company was not genuine and income to that extent had escaped the assessment. For the reason that the assessee company had failed to disclose full and true facts of case, AO issued notice for reassessment. The assessee objected the reopening of assessment. Such objections were rejected by the AO. Aggrieved assessee filed petition in the High Court.

High Court held that,

++ the assessee had raised a contension that sanction u/s 151 of the Act of the Commissioner before issuance of notice of reopening was not obtained. But on perusal of the original files, suggest that the AO having recorded the reasons for reopening, presented the same for approval of the Principal Commissioner in prescribed format on 29.03.2017. On 30.03.2017, the Joint CIT as an intermediatory officer, processing such reasons and opining whether it was a fit case for reopening of the assessment under section 147 of the Act, in his own handwriting put the remarks " I am satisfied" that it was a fit case for reopening under section 147 of the Act. On 31.03.2017, the Principal CIT put his remarks that he was satisfied that it was a fit case for reopening the assessment. Thus, the sanction for reassessment was granted on 31.03.2017 i.e. the date on which such notice was issued. There is nothing on the record to substantiate this allegation of assessee and the same must rest;

++ instead of Investigation Wing of the Income Tax department at Kolkata providing any report or information, it was the Surat Unit of the Income Tax Department which apparently contacted the Investigation Wing at Kolkata and sought information whether there was any material to link the assessee companies at Surat with such bogus accommodation entry transactions. The information, as requested, was provided. Such material was placed before the AO. On the basis of such information, AO found that the assessee had received share application money from as many as 22 such shell companies during the year under consideration. On the basis of such information, AO recorded his satisfaction that income chargeable to tax had escaped assessment;

++ it can be seen that the AO had specific and definite information at his command to form a belief that income chargeable to tax had escaped assessment. He found that the assessee had received sizeable amount of share application and share premium monies from various companies which were found to be shell companies and whose Directors' statements were recorded confirming this aspect. This is, therefore, not a case where the AO was proceeding on borrowed satisfaction or that it had dearth information at his command to enable him to form a belief that income chargeable to tax had escaped assessment;

++ it is well settled that term "reason to believe" is vitally different from reason to suspect. On number of occasions, it has been held that reopening of assessment cannot be done for carrying out roving or fishing inquiries. The principle, that the notice of reopening can be issued only upon the AO bona fide forming a belief that income chargeable to tax had escaped assessment is well settled. However, there is no fetters on an AO carrying out preliminary inquiries even before issuance of notice of reopening in order to collect information on the basis of which, he may either form a belief that income chargeable to tax had escaped assessment or abandon any further inquiry, upon being satisfied that no such belief could be formed. No statutory backing was found to import the concept of impermissibility of a roving or a fishing inquiry at a stage prior to issuance of notice of reopening;

++ as per section 133, the AO, the Deputy Commissioner of Appeals, Joint Commissioner or the Commissioner (Appeals) for the purposes of the Act could require furnishing of various documents, informations and materials as specified therein. Pendency of an assessment is not a precondition for exercise of such powers. Even in absence of any pending assessment, such information or material may be summoned, not only from the assessee, being an individual HUF or a firm but also from any other person including a banking company or an officer thereof. Of course, these powers are not unguided or uncanalized and cannot be exercised at the whims of the assessing authority. In the present case, the AO has not even called for any information or document from the assessee or any other person in relation to the assessee's proposed assessments. He has, by all accounts, merely contacted the Investigation Wing of the Income Tax department at Kolkata and based on the process of shortlisting, has called for information with respect to dealings of such shortlisted companies. Mere fact, that instead of such information being supplied to him by the Investigation Wing of the Income Tax Department at Kolkata he sought such information, would not be of any consequence. In the result, petition is dismissed.

(See 2018-TIOL-857-HC-AHM-IT)