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2016 Supreme(Del) 672
IN THE HIGH COURT OF DELHI AT NEW DELHI
S.MURALIDHAR AND VIBHU BAKHRU, JJ.
SUN PHARMACEUTICAL INDUSTRIES LTD. - Petitioner
versus
DEPUTY COMMISSIONER OF INCOME TAX & ANR. – Respondents
W.P.(C) 6729/2011
Decided On : 14-01-2016
For the Appellant :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.
For the Respondent: Mr P. Roy Chaudhuri, Senior Standing Counsel.
The main legal point established in the judgment is that the AO alone should exercise the discretion to reopen the assessment and cannot act on the dictates of any superior authority. The Court emphasized that the reasons for reopening the assessment failed to specify which material facts were not fully and truly disclosed by the Assessee in the original assessment.
Headnote:
Income Tax - Assessment Reopening - Section 148 - 154 - 143(2) - 143(3) - 115JB - 10(34) - 14A - 80IB - 80HHC - 80-O - 80-IB - 147/148 - CBDT Instruction No. 9/2006
Fact of the Case:
The Petitioner, Sun Pharmaceutical Industries Ltd. (earlier known as Ranbaxy Laboratories Ltd.), filed a writ petition seeking quashing of a notice dated 30th March, 2011 issued under Section 148 of the Act and the proceedings initiated thereunder for the Assessment Year (‘AY’) 2004-05. The Petitioner was engaged in the business of manufacturing and trading of pharmaceutical products and filed its return of income on 20th October, 2004 declaring an income of Rs. 330.64 crores. The return was picked up for scrutiny and an assessment order was passed on 30th March, 2005 under Section 143 (3) of the Act. The Petitioner received a notice dated 25th January, 2011 requiring the appearance of the Petitioner on 4th February, 2011. The reasons for reopening of the assessment for AY 2004-05 were based on various discrepancies in the original assessment.
Finding of the Court:
The Court found that the reasons for reopening the assessment were based on audit objections and instructions from the CBDT, which were not accepted by the AO. The Court held that the reasons for reopening the assessment were unsustainable in law and quashed the notice and all proceedings consequential thereto.
Issues: The issues revolved around the validity of the notice issued under Section 148 of the Act and the proceedings initiated thereunder for the Assessment Year (‘AY’) 2004-05. The main contention was that the reasons for reopening the assessment were based on audit objections and instructions from the CBDT, which were not accepted by the AO.
Ratio Decidendi: The Court held that the reasons for reopening the assessment, which were based on audit objections and instructions from the CBDT, were unsustainable in law. The Court emphasized that the AO alone should exercise the discretion to reopen the assessment and cannot act on the dictates of any superior authority. The Court also noted that the reasons for reopening the assessment failed to specify which material facts were not fully and truly disclosed by the Assessee in the original assessment.
Final Decision: The Court quashed the notice dated 30th March, 2011 issued under Section 148 of the Act, the order dated 29th July/1st August, 2011 passed by the DCIT, and all proceedings consequential thereto.
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’) 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 Rs. 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 AO. Thereafter, an assessment order was passed on 30March, 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 1,13,17,472/-.
5. The reasons for reopening of the assessment for AY 2004-05 read as under:
“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”. Thisamount had tobe 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.
3. While allowing deduction u/s 80IB, the Assessing Officer omitted
