TMI Blog2016 (1) TMI 788X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Despite the Assessee earning dividend which was treated as exempt under Section 10 (34) no disallowance of expenditure was made under Section 14-A - 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 ₹ 1.85 crores received from HDFC. The Assessee su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proceedings initiated thereunder for the Assessment Year ( AY ) 2004-05. 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 ₹ 330.64 crores. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of expenses would imply a disallowance of ₹ 36.65 crores as expenses relatable to earning exempt income and this escapement should be brought to tax. 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 ₹ 67,91,538/-. 4. Further, it is noted that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ₹ 13,28,16,481/-. 7. As per return filled by the assessee the gross total income included dividend income of ₹ 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 arriving at the total income chargeable to tax. The Act further provides that where deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Counsel, for the Revenue. 11. It has been pointed out that five of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 143(1); (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 applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 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 fair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatute. 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 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 mandat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed and the Assessee's claim was accepted in the light of the decision in CIT v. 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 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment. 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 mat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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