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Sun Pharmaceutical Industries Ltd. Vs. Deputy Commissioner Of Income Tax & Anr.
February, 01st 2016
+                  W.P.(C) 6729/2011
                                                       ..... Petitioner
                          Through Mr M.S. Syali, Senior Advocate with Mr
                          V.P. Gupta, Mr Mayank Nagi, Mr Arunav Kumar
                          and Ms Husnal Syali, Advocates with Mr Subir
                          Kachroo, Manager Taxation.


       TAX & ANR.                             ..... Respondents
                   Through Mr P. Roy Chaudhuri, Senior Standing

       %            14.01.2016

Dr. S. Muralidhar, J.:
1. The Petitioner, Sun Pharmaceutical Industries Ltd. (earlier known as
Ranbaxy Laboratories Ltd.) , has filed this writ petition seeking quashing of
a notice dated 30th March, 2011 issued to it under Section 148 of the Act as
well as the proceedings initiated thereunder for the Assessment Year (`AY')

2. The Petitioner is engaged in the business of manufacturing and trading of
pharmaceutical products. For AY 2004-05, the Petitioner filed its return of
income on 20th October, 2004 declaring an income of Rs. 330.64 crores.

      W.P.(C).6729/2011                                            Page 1 of 20
Along with its return, the Petitioner submitted, inter alia, a copy of the
annual accounts, a copy of the Tax Audit Report under Section 44AB of the
Act, a copy of the report under Section 115JB of the Act, a copy of the
report for arm's length price (ALP) for the international transactions in Form
3CEB, a copy of the reports under Sections 80 HHC, 80 IB and 80-O of the
Act and other supporting documents.

3. The return was picked up for scrutiny and a notice was issued by the
Assessing Officer (`AO') on 24th December, 2004 under Section 143(2) of
the Act enclosing a detailed questionnaire. During the assessment
proceedings the AO issued another questionnaire dated 25th February, 2005
seeking further details. In response to these questionnaires, the Petitioner
addressed various letters dated 31st January 2005, 28th February 2005, 16th
March, 2005 and 24th March, 2005 to the AO. Thereafter, an assessment
order was passed on 30th March, 2005 under Section 143 (3) of the Act.

4. The Petitioner received a notice dated 25th January, 2011 from the
Assistant Director of Income Tax (Investigation) Unit-III (3), New Delhi
requiring the appearance of the Petitioner on 4th February, 2011. The ADIT
sought confirmation from the Petitioner in respect of 2 transactions of
receipts in foreign currency from M/s Ranbaxy Pharmaceuticals Inc. USA
('Ranbaxy USA) of USD 1,13,17,472 and USD 1,03,69,250. By the letter
dated 11th February 2011, the Petitioner informed the ADIT that it had
received an aggregate amount of USD 1,13,17,472/- vide seven remittances
on different dates. It was stated that USD 1,03,69,250/- was a total of six of
the seven receipts and was, therefore, included in the sum of USD

     W.P.(C).6729/2011                                              Page 2 of 20

5. The reasons for reopening of the assessment for AY 2004-05 read as
     "Reasons for the belief that income has escaped assessment:-

     The assessment for AY 2004-05 was completed u/s 154 /
     143(3) on 5.04.2005 determining an income of
     Rs.3,63,45,44,931/-. After verifying the records, the following
     points are noted:

    1. The assessee company has claimed an amount of
    Rs.2,15,99,534/- as "Provision for Doubtful Debts and
    Advances". This amount had to be added back for the purposes
    of calculation of Book Profit u/s 115JB. This is as per clause (i)
    of Explanation 1 to Section 115JB of the I.T. Act, 1961. This
    has not been done. Omission to do so has resulted in
    underassessment of income amounting to Rs.2,15,99,534/-.

    2. Secondly, the assessee company has earned a dividend of
    Rs.1,85,30,220/- which has been treated as exempt u/s 10(34) of
    the Act. However, no disallowance of expenditure have been made
    u/s 14A neither has assessee produced any details to show that no
    expenditure was incurred on earning of this exempt income. This is
    in spite of the fact that the assessee company has paid interest
    amounting to Rs.109.95 million on borrowed fund. The
    investments made are 30.75% of total assets. 30.75% of interest
    paid works out to be a figure of Rs.36.65 crores. This is liable to be
    disallowed. Over and above the interest expenses, other common
    expenses like managerial, administrative expenses also have to be
    apportioned. Omission to do so has resulted in escapement of income.
    Apportionment of expenses would imply a disallowance of Rs.36.65
    crores as expenses relatable to earning exempt income and this
    escapement should be brought to tax.

     W.P.(C).6729/2011                                                  Page 3 of 20
 3. While allowing deduction u/s 80IB, the Assessing Officer omitted
to apportion R&D capital expenses in the separate account of the new
undertakings though the same were claimed in the computation of
income of the company as a whole.

Under the Income Tax Act 1961, where the gross total income of an
assessee includes profits and gains derived from a newly established
undertaking the assessee is entitled to a deduction of 25% of such
profits and gains derived from that undertaking. The deductions equal
to 30 percent / 100 percent of such profit is allowable to these units
which are established after 31st March 1990. It has been judicially held
that the use of the term 'derived from' in the relevant provisions of the
Act indicates the restricted meaning given by the legislature to cover
only the profits and gains directly accruing from the conduct of the
business undertaking.

The omission resulted in excess allowance of deduction of

4. Further, it is noted that the assessee claimed and was allowed deduction
of Rs.7,10,64,204/- on account of product registration and regulatory
expenses. These expenses were incurred to enable the company to market
its products in different countries as applicable money for grant of licenses
with regulatory authorities of the concerned countries. These expenses
gave enduring benefits to the assessee, therefore they were capital in nature
and required to be capitalized.
Section 37 of the Income Tax Act 1961, provides that any expenditure not
being expenditure of capital nature, laid out wholly or exclusively for the
business is allowable as deduction in computation of the income chargeable
under the head 'profits and gains of business or profession'.

The omission resulted in excess allowance of deduction / under assessment
of income of Rs.7,10,64,204/-.

5. Further, it is also noted that while computing the deduction u/s 80-
HHC, trade discount and R&D (Capital) expenses was not included in the
indirect cost. The omission resulted in excess allowance of deduction of
Rs.93,75,342/- involving tax effect of Rs.33,63,618/-.

 W.P.(C).6729/2011                                                    Page 4 of 20
Section 80 HHC of the Income Tax Act, 1961, provides that there being an
assessee being an Indian Company or a from residence in India is engaged
in the business of export out of India of any goods or merchandise, there
shall be allowed, in accordance with and subject to the provision of this
section in computing the total income of the assessee, a deduction to the
export of such goods or merchandise. Where the export out of India is of
goods or merchandise manufactured or processed by the assessee and also
of trading goods the profit derived from such export shall be the aggregate
of the adjusted profit in preparation to the export turnover in relation to the
manufacturing / processing of goods and in relation to the trading activity
the amount arrived after deducting the direct and indirect costs of the
trading from the export turnover of the activity.

6.      While claiming deduction u/s 80-IB, the assessee had apportioned
and was allowed by the Assessing Officer 30% of R&D (Revenue)
expenses and 75% of head office expenses in the separate accounts of the
individual undertaking in the ratio of sales whereas 100% expenses were
required to be apportioned.

 Under the Income Tax Act 1961, where the gross total income of an
 assessee includes profits and gains derived from a newly established
 undertaking the assessee is entitled to a deduction of 25% of such profits
 and gains derived from that undertaking. The deductions equal to 30
 percent / 100 percent of such profit is allowable to these units which are
 established after 31st March 1990. It has been judicially held that the use of
 the term 'derived from' in the relevant provisions of the Act indicates the
 restricted meaning given by the legislative to cover only the profits and
 gains directly accruing from the conduct of the business undertaking.
The omission resulted in excess allowance of deduction of

7. As per return filled by the assessee the gross total income included
dividend income of Rs.39,84,537/- and instead of restricting the Chapter
VIA deduction to the extent of income from profits & gains of business,
deduction were allowed on income which included dividend income also.

Under the provision of Chapter VIA of the Income Tax Act, 1961, certain
deductions are admissible from the gross total income of an assessee in

 W.P.(C).6729/2011                                                     Page 5 of 20
    arriving at the total income chargeable to tax. The Act further provides that
    where deduction is required to be made of any income, under any section
    included under Chapter VIA, and which is also included in the gross total
    income, for the purpose of computing the deduction under that section, the
    amount of that nature (before making any deductions under Chapter VIA)
    shall alone be deemed to be the income of that nature which is received by
    the assessee and included in the assessee's gross total income.

    The omission resulted in excess allowance of deduction/under assessment of
    income of Rs.39,84,537/-.

    8. Further, the department received information from Foreign Tax
    Authorities under the Automatic Exchange of Information provisions of the
    respective Double Taxation Avoidance Agreements of India with various
    foreign Countries. Thus information was received by the CBDT regarding
    India Residents Tax Payers who have received income from these foreign

    In particular information was received regarding some remittances received
    by M/s Ranbaxy Laboratories Ltd. from Ranbaxy Pharmaceuticals Inc.,
    U.S.A. Queries were raised from the assessee company regarding the same.
    However despite numerous opportunities given, the assessee company was
    unable to reconcile receipts amounting to US Dollars 10369250. The
    average rate of exchange during 2003 was Rs.46.6 for every 1 USD.
    Therefore, income amounting to Rs.48,32,07,050/- should have been added
    to the income of the assessee. "

6. Towards the end of these reasons it was stated as under:-
            "Thus the assessee has failed to disclose all material
            facts truly and fully that were necessary for
            assessment. Here it is relevant to mention the
            explanation 1 in section 147 that states that
            "production before the AO of account books or other
            evidence from which material evidence could with
            the diligence have been discovered by the AO will
            not necessarily amount to disclosure with the
            meaning of the provision in section 147".

     W.P.(C).6729/2011                                                   Page 6 of 20
7. The AO, accordingly, concluded that he had reason to believe that income
chargeable to tax amounting to Rs.109,53,38,686/- has escaped assessment
in the case and the same had to be brought to tax under Section 147/148 of
the Act.

8. The Petitioner submitted a letter dated 26th April, 2011 listing out its
objections to the aforementioned notice. By an order dated 29th July,
2011/01st August, 2011 the AO rejected these objections. It was stated by
the AO, in response to the objection that there was no fresh material on the
basis of which a belief could be formed by the AO regarding income having
escaped assessment, that "the AO had fresh material in the form of Audit
Memos which were analysed by the AO and only after properly recording
the reasons for the same, AO issued notice u/s 148 of the Act." The other
objection regarding the pendency of proceedings under Section 154 at the
time of issuance of notice under Section 148 of the Act was negatived since
the proceedings under Section 154 stood automatically abated once
proceedings under Section 147 were initiated.

9. Thereafter, the present writ petition was filed. In response to the notice
issued on 15th September 2011, the Respondent filed a reply. It may be
mentioned, at this stage, that while issuing notice, the Court directed that the
AO will not frame the assessment order till the next date. That interim order
has continued thereafter.

10. This Court has heard the submissions of Mr M.S. Syali, learned Senior
Advocate for the Petitioner, and Mr. P. Roy Chaudhuri, Senior Standing

     W.P.(C).6729/2011                                                Page 7 of 20
Counsel, for the Revenue.

11. It has been pointed out that five of the eight reasons for reopening, viz.,
reasons at Serial Nos. 3 to 7 above are only as a result of the audit objections
raised. It has been pointed out that these audit objections were not accepted
by the AO as was evident from five separate letters dated 10th February,
2006 written by the Deputy Commissioner CIT (1) Delhi to the Deputy
Director Revenue Audit. Nevertheless, the order under Section 148 was
issued as result of Instruction No. 9/2006 dated 7th November, 2006 issued
by the Central Board of Direct Taxes (`CBDT').

12. In para 15 of the writ petition it is stated that the Petitioner inspected the
file of the Department on 16th and 17th June, 2011 and this "revealed that in
respect of five issues out of eight issues raised for reassessment respondent
himself had replied to the Audit Party that there has been no
underassessment in respect of the issues and claim had been allowed after
fully examining the facts and the legal position in this regard". In ground (v)
of the writ petition this has further been reiterated.

13. In the counter affidavit, in specific reply to ground (v) it is averred by
the Respondent as under:
         "v. That the contents of Para-V are repetitions of earlier
         Paras hence denied in their corresponding Paras. Hence
         need no further reply. However, it is submitted that the part
         replies were sent to the audit on the basis of the submission
         made by the assessee. But the audit has not settled these
         objections. Remedial action has to be taken compulsorily
         as per Instruction No. 9/2006."

     W.P.(C).6729/2011                                                  Page 8 of 20
14. Mr P. Roy Chaudhuri, learned counsel for the Revenue, submitted that
the AO was constrained to take remedial action in terms of the binding
CBDT Instruction No. 9/2006.

15. A copy of the said Instruction No. 9 of 2006 has been placed before the
Court. 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." Accordingly, the said
instruction No. 9 of 2006 was issued "in supersession" of earlier instructions
for "strict compliance by all concerned".

16. In terms of the said instructions 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). This is evident from para 4 of the
instructions which reads as under:

            "4. Remedial action:

       (i) An Audit objection should be accepted and remedial action
            should be taken in a case where the audit objection relating
            to an error of facts or an issue of law is found to be correct.
       (ii) Even if objection is not accepted by the CIT, remedial
            action should be initiated, as a precautionary measure, in
            respect of such audit objections, save as provided in para
            (v) below.
        (iii) Appropriate remedial action should invariably be
             initiated within two month of the receipt of the Local Audit

     W.P.(C).6729/2011                                                 Page 9 of 20
        Report, and necessary orders should be passed within six
        months thereafter.
   (iv) Remedial action should invariably be initiated in respect of
        the following circumstances,
           (a) where an assessment under section 143(1) was made
              and the objection pointed out by Audit could not have
              been considered under the provisions of section
           (b) where the interpretation of fact or law by the audit is
              in conflict with any decision of a High Court (not
              being the jurisdictional High Court) which is
              squarely applicable to the facts of the case, or
           (c) where there are conflicting decisions of different
              High Courts (not being the jurisdictional High
              Court), or
           (d) where the matter involves interpretation of statute
              and there is no decision of any High Court on the
         However, in cases falling under (b), (c) and (d) above, the
         remedial action initiated can be dropped only with the
         prior approval of the Board. For this purpose, the CIT
         should immediately send a reference to the Board for
         decision, not later than three months from receipt of LAR
         by the CIT concerned, stating cogently therein the detailed
         reasons for consideration of the proposal for dropping of
         the remedial action initiated.
  (v) Remedial action need not be initiated in a case where,
           (a) the CIT is of the view that the interpretation of fact
              or law by the audit is in conflict with a decision of
              the Supreme Court and the decision squarely applies
              to the facts of the case, or
           (b) the CIT is of the view that the interpretation of fact
              or law by the audit is in conflict with a decision of
              the jurisdictional High Court, which is squarely

W.P.(C).6729/2011                                                 Page 10 of 20
                   applicable to the facts of the case and the operation
                   of which has not been stayed by the Supreme Court,
               (c) the CIT is of the view that the Assessing Officer has
                  acted in conformity with Board's Instruction/Circular,
                (d) the audit objection raised is on facts, and the CIT,
                   after necessary verification, is of the opinion that the
                   audit objection is factually incorrect.
            However, considering that C.Cs/Ds.CIT are the competent
            authority for accepting or contesting adverse judgments of
            High Courts, in respect of (a) and (b) above prior approval
            of the C.Cs / Ds.CIT. concerned should be obtained for
            taking a decision for not initiating remedial action, and in
            respect of (c) above the matter should be referred to the
            relevant Divisions of the Board for examination and
            The CsIT should ensure that necessary reply/reference is
            sent to the AG (Audit) concerned/the Board within a
            month of the receipt of the Local Audit Report."

17. It is submitted by Mr Syali, learned Senior counsel for the Petitioner on
the strength of decisions in 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) that 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 attention of the Court is drawn to proviso (a)
to Section 119(1) of the Act which makes it clear that there cannot be any
such orders, instructions or directions of the CBDT which "require any

    W.P.(C).6729/2011                                                 Page 11 of 20
income tax authority to make a particular assessment or to dispose of a
particular case in a particular manner." It is, accordingly, submitted that as
far as reasons 3 to 7 above are concerned, since they were purely based on
audit objections with which the AO/CIT did not agree, the persistence with
the reopening of the assessment by issuance of notice under Section 147/148
of the Act was unsustainable in law.

18. That a quasi judicial authority, which is expected to exercise statutory
functions on an objective criteria, cannot act on the dictates of any superior
authority, or on any instruction that may be issued by an authority that may
have administrative control over such quasi-judicial authority, is fairly well

19. In Commissioner of Police Bombay v. Govardhan Dass Bhanji AIR
(1952) SC 16 the Supreme Court was examining the powers of the
Licensing Authority under the Bombay Police Act, 1951 and the Rules
thereunder. The Court noted that the discretion to issue or cancel licences
was with the Commissioner of Police and not the State Government. It was
held that "no other person or authority can do it".

20. In Sirpur Paper Mills v. Commissioner of Wealth-Tax (1970) 77 ITR 6
(SC) when a Commissioner of Wealth Tax (CWT) sought instructions from
the CBDT on how an assessment should be framed, the court had no
hesitation in setting aside the consequent orders passed by the CWT. It took
exception to the CWT having merely "carried out the directions of the
Board" instead of himself deciding the case.

    W.P.(C).6729/2011                                              Page 12 of 20
21. In Anirudhsinhji Jadega v. State of Gujarat (1995) 5 SCC 302, it was
reiterated by the Supreme Court that once a discretion is vested with a
certain authority, he alone should exercise that discretion vested under the
statute and if he acts in accordance with "the direction or any c ompliance
with some higher authorities instruction" it would be a case of failure to
exercise discretion altogether.

22. Recently in Commissioner of Income Tax v. Greenworld Corporation
(Supra) the AO passed the order under Section 148 of the Act on the
dictates of the CIT. The Supreme Court stated that without going into the
question of the bona fides of the authorities under the Act, "the order of
assessment passed by the Assessing Officer on the dictates of the higher
authority, being wholly without jurisdiction, was a nullity".

23. In M.P. Tewari v. Y.P. Chawla (supra), this Court was dealing with a
circular issued by CBDT which sought to delineate certain offences which
could not be compounded. The Court referred to Section 119 of the Act and
        "in the exercise of its power to issue orders and circulars under
        Section 119 of the Income-tax Act, 1961, the Central Board cannot
        take away the judicial or quasi-judicial functions of the Commissioner
        and vest them in itself or put them under the overall supervision of
        itself or the Minister. The Board can relax the rigour of the law or
        grant relief to the taxpayers which is not to be found in the statute.
        But the Central board cannot dilute the discretion of the
        Commissioner which has been conferred by the statute."

24. In Dr. M.L. Passi v. CBDT (supra) the above legal position was
reiterated. In CIT v. SPL's Siddhartha Ltd [2012] 345 ITR 223 (Del) the

    W.P.(C).6729/2011                                               Page 13 of 20
Court found that for the purposes of Section 151 (1) of the Act the approval
for issuance of notice under Section 147 had to be given only by the Joint
Commissioner or Additional Commissioner. Instead the approval was taken,
in that case, from the CIT (3) who was not competent to approve the action
even though he was a higher authority. When the Court examined the file, it
found that although it was routed through the Additional Commissioner, he
did not apply his mind for due sanction but instead requested the CIT to
accord the approval. The Court observed:
         "Thus, if authority is given expressly by affirmative words
         upon a defined condition, the expression of that condition
         excludes the doing of the Act authorised under other
         circumstances than those as defined. It is also established
         principle of law that if a particular authority has been
         designated to record his/her satisfaction on any particular
         issue, then it is that authority alone who should apply
         his/her independent mind to record his/her satisfaction and
         further mandatory condition is that the satisfaction
         recorded should be "independent" and not "borrowed" or
         "dictated" satisfaction. Law in this regard is now well -
         settled. In Sheo Narain Jaiswal v. ITO [1989] 176 ITR 352
         (Patna), it was held:

              "Where the Assessing Officer does not himself
              exercise his jurisdiction under section 147 but merely
              acts at the behest of any superior authority, it must be
              held that assumption of jurisdiction was bad for non-
              satisfaction of the condition precedent."

25. The Gujarat High Court in Raajratna Metal Industries Ltd. v. Asst.
Commissioner of Income Tax (decision dated 30th July 2014 in SCA No.
7140 of 2014) set aside an order re-opening an assessment solely on the
basis of audit objections, which had not in the first place been accepted by

    W.P.(C).6729/2011                                               Page 14 of 20
the AO.

26. Consequently, reasons 3 to 7 of the order dated 30 th March, 2011, 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 dated 30th
March, 2011. If the CBDT Instruction No. 9/2006 is read to the contrary, it
would fall foul of Section 119 of the Act.

27. Turning to reason (1), it is stated that an amount of Rs. 2,15,99,534 as
"Provision for Doubtful Debts and Advances" had to be added back for the
purposes of calculation of book profits in terms of clause (i) of the
Explanation 1 to Section 115JB of the Act. It is pointed out by the Petitioner
that the said clause was inserted with retrospective effect from 1st April,
2009. Clearly, the said clause did not exist at the time of filing of the return
of income on 29th October, 2004. It is further pointed out that in CIT v.
HCL Comnet Systems and Services Ltd [2008] 305 ITR 409 (SC), the
Supreme Court clarified that the question of adding back the provision for
doubtful debts in terms of the said clause would not arise. It is further
pointed out that in the subsequent AY i.e. 2005-06, this issue was discussed
and the Assessee's claim was accepted in the light of the decision in CIT v.

    W.P.(C).6729/2011                                                Page 15 of 20
HCL Comnet Systems (supra).

28. 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.

29. In the present case, the Assessee had already made a full and true
disclosure of all the relevant materials in the first instance when the original
assessment was framed. This included the account books, tax audit reports
etc. The return was picked up for scrutiny and after two questionnaires were
answered to the AO's satisfaction by the Assessee, the assessment was
framed under Section 143 (3) of the Act. In the circumstances, the reference
by the AO to Explanation 1 to Section 147 of the Act is, misconceived for
the simple reason that once the original return was picked up for scrutiny
and the accounts and other documents were subjected to a detailed
examination by the AO, the question of there being no full and true
disclosure of the material facts did not arise. Significantly, the reasons for
re-opening fail to mention which material was failed to be disclosed by the
Assessee. In similar circumstances in Global Signal Cables (India) Pvt. Ltd.
v. Dy. CIT [2014] 368 ITR 609 (Del) this Court invalidated the re-opening
of the assessment under Section 148 of the Act.

30. Reason (2) for reopening of the assessment is that despite the Assessee

    W.P.(C).6729/2011                                                Page 16 of 20
earning dividend of Rs. 1,85,30,220/- which was treated as exempt under
Section 10 (34) of the Act, no disallowance of expenditure was made under
Section 14-A of the Act. It is alleged that the Assessee failed to produce details
to show that no expenditure was incurred on earning of the said exempt income.

31. It is seen that during the original assessment proceedings under Section
143(3) of the Act, there was a specific query raised by the AO in the letter
dated 24th December, 2004 addressed to the Assessee. Question 8 required
the assessee to give details of dividend exempt under Section 10 (34)
received from HDFC along with copies of accounts. It is further seen that
Question 9 of the AO's letter dated 25th February, 2005 was regarding the
dividend of Rs.1.85 crores received from HDFC. The Assessee submitted
detailed replies in this regard on 31st January, 2005 enclosing the complete
details. Another reply was furnished on 16th March, 2005. Para 8 of the said
reply deals with in detail with the query regarding the dividend of Rs.1.85
crores received from HDFC.

32. Here again it requires to be observed that the reason for re-opening the
assessment, specific to reason (2), fails to spell out the material that was
failed to be fully and truly disclosed by the Assessee. It is therefore, not
possible to conclude that the jurisdictional 'trigger' for re-opening the
assessment was present. As observed in Madhukar Khosla v. Asst. CIT
[2014] 367 ITR 165 (Del):
      "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

    W.P.(C).6729/2011                                                  Page 17 of 20
      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."

33. In CIT v. Kelvinator of India Ltd [2002] 256 ITR 1(Del) it was
observed that an order that has been purportedly passed without application
of mind could not itself confer jurisdiction upon the AO to reopen the
proceeding "without anything further" as that would amount to "giving a
premium to an authority exercising quasi-judicial function to take benefit of
its own wrong". In CIT v. Usha International Ltd [2012] 348 ITR 485
(Del) a Full Bench of this Court observed that there can be cases where an
AO may not raise any written query but still the Assessing Officer in the
first round/original proceedings may have examined the subject matter
because the aspect or question may be too apparent and obvious. In
Swarovski India Pvt. Ltd. v. Deputy Commissioner of Income Tax 368 ITR
601 (Del), it was held that the escapement of income by itself is not
sufficient for reopening the assessment in a case covered by the first proviso
to Section 147 of the said Act and unless and until there was failure on the
part of the assessee to disclose fully and truly all the material facts necessary
for assessment. It was insisted that the reasons for reopening of the
assessment should specifically indicate which material fact was not
disclosed by the Assessee in the course of the original assessment under
Section 143(3) of the Act failing which there should not be any reopening of
the assessment. In Oracle Systems Corporation v Asst. DIT (decision dated
8th October, 2015 in Writ Petition Civil No. 12856/2009), this Court
reiterated the settled legal position that once a regular assessment is
completed in terms of Section 143 (3) a presumption can be raised that such

    W.P.(C).6729/2011                                                 Page 18 of 20
an order was passed by the AO on a proper application of mind.

34. 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.

35. Reason 8 is that the Assessee was unable to reconcile the receipts of
USD, 10369250 from Ranbaxy USA despite various opportunities. In this
regard the AO had sought an explanation from the Petitioner by issuing a
notice dated 25th January, 2011 even prior to issuance of the notice under
Section 147/148 of the Act. This information had been furnished to the AO
by the Petitioner by its letter dated 11th February, 2011. It was explained that
USD 1,03,69,250/- was a total of six of the seven receipts and was,
therefore, included in the sum of USD 1,13,17,472/-. A certificate was also
provided from Ranbaxy USA to the effect that no other amount was paid by
them during the relevant period. In the counter affidavit filed by the
Respondent, it is simply reiterated that the Petitioner had not reflected USD
948,222 as income in the relevant AY despite the fact that Ranbaxy USA
has disclosed this in its return. As pointed out by Mr Syali, it was the above
reason that prompted the AO to issue a letter in the first instance to the
Petitioner on 25th January, 2011. The explanation offered by the Petitioner in
its reply dated 11th February, 2011 that the said amount was included in the

    W.P.(C).6729/2011                                                Page 19 of 20
amount already disclosed was obviously overlooked while seeking to re-
open the assessment. Consequently, there appears to be no basis in the
conclusion of the AO that Petitioner was unable to reconcile the receipts
from Ranbaxy USA. The Court is, therefore, satisfied that reason 8 is also
unsustainable in law.

36. For the above reasons, the impugned notice dated 30th March, 2011
issued by the respondent under Section 148 of the Act, the order dated 29th
July/1st August, 2011 passed by the DCIT and all proceedings consequential
thereto are hereby quashed.

37. The writ petition is allowed in the above terms but with no order as to

                                                  S.MURALIDHAR, J

                                                  VIBHU BAKHRU, J
JANUARY 14, 2016/pkv

    W.P.(C).6729/2011                                            Page 20 of 20
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