By TIOL News Service

NEW DELHI, JAN 22, 2016: THE issue is - Whether Instruction No 9 of 2006 issued by the CBDT, directing AOs to initiate reassessment in case of an audit objection overrides the statutory powers vested in AOs u/s 147. YES is the answer.

Facts of the case

The assessee is engaged in the business of manufacturing and trading of pharmaceutical products. For AY 2004-05, the assessee filed its return of income declaring an income of Rs. 330.64 crores. The return was picked up for scrutiny and a notice was issued by the Assessing Officer ('AO') under Section 143(2) of the Act enclosing a detailed questionnaire. During the assessment proceedings the AO issued another questionnaire seeking further details. In response to these questionnaires, the assessee addressed various letters to the AO. Thereafter, an assessment order was passed under Section 143 (3) of the Act.

The assessee 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 assessee on 4th February, 2011. The ADIT sought confirmation from the assessee 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 assessee 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 1,13,17,472/-.

The AO, accordingly, concluded that he had reason to believe that income chargeable to tax amounting to Rs.109,53,38,686/- had escaped assessment in the case and the same had to be brought to tax under Section 147/148 of the Act.

In response to th objections raised by the assessee the AO stated that he had fresh material in the form of Audit Memos which were analysed and only after properly recording the reasons for the same, AO issued notice u/s 148 of the Act.

On writ, the HC held that,

++ 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;

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

(See 2016-TIOL-130-HC-DEL-IT)