Cadila Healthcare Ltd vs. ACIT (Gujarat High Court)

S. 147: If AO disputes Audit objection, she cannot use that as “reason to believe”

The Revenue Audit raised an objection that the assessee had made remittances to foreign parties without deduction of TDS u/s 195 and that the expenditure ought to have been disallowed u/s 40(a)(i). In reply, the AO wrote back stating that as the amounts remitted to the foreign parties were not chargeable to tax in India, the assessee was under no obligation to deduct tax u/s 195 and that the expenditure was not disallowable u/s 40(a)(i). However, she still issued a notice u/s 147 and reopened the assessment to disallow the said expenditure. The assessee filed a Writ Petition to challenge the reopening. HELD allowing the Petition:

U/s 147, it is only the AO’s opinion with respect to the income escaping assessment which is relevant for the purpose of reopening an assessment. While it is true if the audit party brings certain aspects to the notice of the AO and thereupon, the AO forms his own belief, it may be a valid basis for reopening assessment, the mere opinion of the Audit Party cannot form the basis for the AO to reopen an assessment. On facts, the AO had categorically come to the conclusion that the objection of the audit party was not valid and that the assessee’s explanation with respect to non-requirement of collection of TDS was required to be accepted. Accordingly, the AO could have no “reason to believe” that income had escaped assessment and so the s. 148 notice was without jurisdiction (P. V. S. Beedies 237 ITR 13 (SC) & Indian & Eastern Newspaper 119 ITR 996 (SC) distinguished; Lucas TVS 249 ITR 306 (SC) followed).