TaxTMI 
TaxTMI 
2016 (1) TMI 788
X X X X Extracts X X X X
X X X X Extracts X X X X
....ia, 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 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 Rs. 67,91,538/-. 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, there....
X X X X Extracts X X X X
X X X X Extracts X X X X
....#39;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 Rs. 13,28,16,481/-. 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 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 i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r 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 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 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 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 matter. However, in cases falling under (b), (c) and (d) above, the remedial....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 fairly well settled. 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 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 wellsettled. In Sheo Narain Jaiswal v. ITO [1989] 176 ITR 352 (Patna), it was held: "Where the Assessing Officer does not himself exercise his jurisdiction un....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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)....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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....