Roving Enquiries during the Reassessment Proceedings

CA Sunil Arora
Sunil Arora & Associates
Chartered Accountants

Roving Enquiries during the Reassessment Proceedings

1. Provisions with respect to reassessment of Income contained in Section 147 to 153 of the Income Tax Act, 1961 have been in news during the recent past due to various reasons. Amendments made by the Finance Act, 2021 as well as 2022 being one and the other being the manner in which the said provisions are being extensively used by the Department to assess the escaped Incomes. The said provisions have also been subject matter of huge litigation due to various reasons.

2. One contentious issue with respect to the said reassessment provisions is with regard to the initiation of the proceedings to conduct verification and for conducting roving enquiries. Explanation to Section 147 as amended by the Finance Act, 2021 empowers the Assessing officer to reassess not just the Income, based on which, the reassessment proceedings have been initiated but any other Income as well, which during the course of such reassessment is found to have escaped assessment. In other words even after the amendment the Assessing officer has been empowered to assess Income with respect to any issue other than for which the reassessment proceedings have been initiated which come to his notice subsequently during the course of reassessment proceedings. Although the power to assess any other Income was available under the pre-amended provisions as well but the issue with respect to making of roving enquiries during the reassessment proceedings have been a contentious issue. The Ld. Assessing officer at times conducts reassessment proceedings in a manner as if it is a scrutiny assessment under Section 143(3) of the Act.

3. Recently the Hon’ble Gujarat High Court in the case of Piyush Ambalal Gandhi versus DCIT (SLP no. 17829 of 2018, Gujrat HC) had the occasion to examine whether the reassessment proceedings can be initiated to undertake fishing enquiries or for reverification of information available with the Department. Although the judgement is with respect to the pre-amended provisions but the same holds good even after the amendments made by the Finance Act, 2021 and Finance Act, 2022. The Hon’ble Gujarat High Court in the aforesaid case held that the reassessment powers cannot be exercised either for the purpose of re-verification or to have a merry sailing for a roving enquiry.

4. There is no doubt that the Ld. Assessing officer can assess Income with respect to any issue other than the issue on which the reassessment proceedings have been initiated. But the law does not empower the Assessing officer to undertake fishing enquiries and to assess the Income of the assessee de novo. The law permits the Assessing officer to assess any other Income which comes to his notice subsequently in the course of proceedings under Section 147 of the Act. But the law does not appear to empower him to seek and collect information beyond the issue for which the reassessment proceedings have been initiated.

5. The courts have been consistently holding this view as is evident from some other judgements enlisted hereunder:

1. Vipin Khanna Vs. Commissioner of Income-tax [(2002) 122 Taxman 1 (Punj. & Har.)]

2. Swati Malove Divetia Vs. Income Tax Officer [(2018) 98 taxmann.com 447]

3. Commissioner of Income-tax, Chennai Vs. S & S Power Switchgear Ltd. [(2018) 92 taxmann.com 429]

4. Hitachi HI REL Power Electronics (P.) Ltd. Vs. Assistant Commissioner of Income Tax, Circle 2(1)(1) [(2020) 122 taxmann.com 79]

6. To conclude, it can be said that the enquiry during the reassessment proceedings by the Ld. Assessing officer should be limited to the issue on which the reassessment proceedings have been initiated. The Assessing officer is empowered to assess any other Income which might have escaped assessment which he comes across during the course of such proceedings but that does not empower him to initiate roving or fishing enquiries.