By TIOL News Service

AHEMDABAD, MAY 10, 2018: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether the proviso to Section 133(6) allows the AO to call for relevant information from another Investigation Wing of Department, before making up his mind for reopening an assessment. YES IS THE VERDICT.

Facts of the case:

The assessee companies, engaged in processing man made fabrics having a manufacturing unit at Surat, had returned nil income for the relevant AY. The assessment was also completed by the AO. However, later on, the AO had received an information from investigation wing of Kolkata making reference of shell companies which had given accommodation entries for share premium in Surat based companies. Further, the data also showed that during the relevant AY, the assessees had accepted share capital/share premium from one Galore Private Limited for issuance of 37000 shares at a sizeable premium. Accordingly, the AO noted that since the investor companies were proved to be shell companies indulging in providing accommodation entries, hence, the said premium received by the assessees from such companies were not genuine. Subsequently, the AO had reason to believe that the said premium received had escaped the assessment for the year under consideration and thus, issued reopening notices. Thereupon, the assessees objected such reopening but, failed to persuade the AO to drop such notice.

High Court held that,

++ the Counsel for the assessee has contended that the AO had called for certain information from the Investigation Wing and upon being supplied the material, formed a belief that income chargeable to tax had escaped assessment which was wholly impermissible. This Court while rejecting such a contention in case of Aishwarya Dying Mills Pvt. Ltd., placed reliance on Sec. 133 without noticing provision to sub-section (6). In the process, the Court undoubtedly made a reference to the powers of an AO u/s 133, in particular, sub-section (6) which limits the powers of any authority below a certain rank in calling for such information when the assessment is not pending, without the approval of the higher authority. However, the contours of the powers of a Revenue Officer u/s 133 was not the sole or even the prime basis for the Court in case of Aaishwarya while rejecting the contention;

++ after giving detailed reasons why merely bacause the AO in a given case calls for information from another wing of the Department before making up his mind whether there was sufficient material to reopen the assessment, would not invalidate the proceedings, reference was made to the provisions contained in Sec. 133(6) to highlight that the powers of the AO in this respect are quite wide. He has merely contacted the Investigation Wing of the Department at Kolkata and called for certain information based on the process of shortlisting. The Court thus had made a clear distinction between exercise of powers u/s 133(6) and the act of the AO in the said case of calling for information from another wing of the Department. Proviso to sub-section (6) does not take away the power of the AO to call for relevant information. It only provides for approval of the higher authority before exercising such power in cases where the assessment is not pending;

++ therefore, for the reasons cited in the case of Aishwarya Dying Mills Ltd., we do not find that the notice of reopening can be invalidated on this ground. We find no such inhibition in the act. If there is preliminary or prima facie material with him to trigger a further inquiry inter or intra-departmentally and the AO calls for information from another wing or office of the Department, and which information he utilizes and on the basis of reliable information so provided to him he forms a belief that income chargeable to tax had escaped assessment, we do not find that such process can be faulted. Accepting the contention of the Counsel for the assessee would amount to rendering an AO a mute spectator once the assessment is over and allowed to act only after some information is provided to him by some other Departmental authority. There is neither any statutory force nor any reason to limit his role in this respect.

(See 2018-TIOL-877-HC-AHM-IT)