Royal Chains Private Limited Vs DCIT (Bombay High Court)
Summary: The Bombay High Court allowed Royal Chains P Ltd’s writ petition and quashed the notice dated 30.03.2021 issued under Section 148 of the Income Tax Act, 1961 for AY 2016-17. The reassessment was founded on two grounds: alleged non-genuine share capital/premium of approximately Rs.15.55 crore received from M/s Viren Jewellers LLC, Dubai, and delayed deposit of employees’ PF/ESIC contributions of Rs.21,636. The petitioner contended that the share-capital issue had already been examined in the original limited scrutiny assessment under Section 143(3), including the applicability of Section 56(2)(viib), and during a survey under Section 133A.
The Court examined the statements of Mr. Sanjay Bhavishi and found that they did not refer, directly or indirectly, to Royal Chains P Ltd or to Viren Jewellers LLC’s investment in the petitioner. Applying Income Tax Officer v. Lakhmani Mewal Das, the Court reiterated that material relied upon for reopening must have a rational connection, direct nexus or live link with the belief that income escaped assessment; vague, remote or far-fetched material cannot sustain jurisdiction. It also relied upon S. P. Agarwalla, Sesa Sterlite Ltd and PCIT v. Shodiman Investments (P) Ltd. The Court found the connection drawn from Mr. Manoj Jain’s alleged activities to the petitioner’s FDI transaction to be conjectural and held that a “reason to suspect” cannot substitute the statutory “reason to believe”.
