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Sun Pharmaceuticals Industries Ltd vs. DCIT (Delhi High Court)
January, 27th 2016

S. 147: Reopening of assessment to take remedial action pursuant to audit objections as per Instruction No. 9 of 2006 is not valid if AO disagrees with the objections. Instruction No. 9 cannot override the requirement in s. 147 that AO should form his own belief that income has escaped assessment

The revenue audit raised objections on the assessment of the assessee. Though the AO did not accept the audit objections, he nevertheless issued a notice u/s 148 to reopen the assessment. It was claimed that the s. 148 notice was issued to take remedial measures as a result of Instruction No. 9/2006 dated 7th November, 2006 issued by the Central Board of Direct Taxes (‘CBDT’). On a Writ Petition filed to challenge the reopening HELD by the High Court:

(i) Instruction No. 9 of 2006 has been issued for the purpose of issuing instructions is “to set out the procedure to be followed at different stages of audit objections and for the appropriate remedial action to be taken thereon.” The CBDT has issued these instructions so that “management and processes relating to audit objections are streamlined with a greater sense of accountability.” In terms of the said instruction No. 9 of 2006 remedial action is expected to be taken even where an objection raised by the audit is not accepted by the Commissioner of Income-tax (CIT).

(ii) The decision to reopen the assessment had to be taken by the AO alone and no one else. In other words, the AO could not have been subject to any compulsion in the form of an instruction by the CBDT to take a decision with regard to reopening of the assessment in terms of Section 147 of the Act. The proviso (a) to Section 119(1) of the Act makes it clear that there cannot be any such orders, instructions or directions of the CBDT which “require any income tax authority to make a particular assessment or to dispose of a particular case in a particular manner”.

(iii) Consequently, the reasons 3 to 7, based as they are on audit objections, in terms of which the AO felt constrained as a result of the CBDT Instruction No. 9 of 2006, to reopen the assessment for the AY 2004-05, are unsustainable in law. The Court holds instruction No. 9 of the CBDT dated 7th November, 2006 cannot possibly override the statutory powers to be exercised by an AO in terms of Section 147 of the Act. In other words the said instruction has to be read consistent with proviso (a) to Section 119 (1) of the Act and cannot, as was erroneously understood by the Respondent, compel the AO to issue the notice u/s 148. If the CBDT Instruction No. 9/2006 is read to the contrary, it would fall foul of Section 119 of the Act.

(M.P. Tiwari v. Y.P. Chawla (187) ITR 506 (Del), Dr. M.L. Passi v. CBDT (188) ITR 685 (Del) and CIT v. Greenworld Corporation 314 ITR 81 (SC) referred)

(iv) In CIT v. SIL Investments Ltd. [2011] 339 ITR 166 (Del) it was held by this Court that where a claim is rendered inadmissible on account of an amendment to the law introduced subsequently though with retrospective effect, which covers the relevant previous year, it cannot be said that there was any failure on the part of the Assessee to disclose truly and fully all the material facts.

(v) The reason for re-opening the assessment must spell out the material that was failed to be fully and truly disclosed by the Assessee. The foundation of the AO’s jurisdiction and the raison d’etre of a reassessment notice are the “reasons to believe”. Now this should have a relation or link with an objective fact, in the form of information or facts external to the materials on the record. Such external facts or material constitute the driver, or the key which enables the authority to legitimately re-open the completed assessment. In absence of this objective ‘trigger’, the AO does not possess jurisdiction to re-open the assessment. It is therefore, not possible to conclude that the jurisdictional ‘trigger’ for re-opening the assessment was present. (Madhukar Khosla v. Asst. CIT [2014] 367 ITR 165 (Del) referred)

(vi) In the present case apart from a bland statement at the end of the reasons that the assessee failed to truly disclose the material particulars, it is not pointed out which material particular was not disclosed in the course of the original assessment by the assessee. Consequently, the Court has no hesitation in holding that reason (2) for reopening the assessment is based merely on a change of opinion and not on any tangible material warranting reopening of the assessment under Section 147/148 of the Act.

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