High Court restricts remedial action on audit objection – tones down rigour of Instruction No. 9 of 2006

Case Law Citation-  Sun Pharmaceutical Industries Ltd. Vs. DCIT (Delhi High Court); W.P.(C) 6729/2011; Date of Pronouncement- 14.01.2016; Assessment Year 2004-2005
Issue involved:- Whether the reassessment proceedings initiated vide Notice u/s 148 of the Act, on the basis of an audit objection, is sustainable in law?
Importance: Vide this judgment, the Hon’ble Delhi High Court was pleased to read down the effect of para 4 of Instruction No. 9 of 2006, which provided that the AO was compelled to initiate reassessment in case of an audit objection, even if the AO is not in agreement with the objections of the Audit party. The High Court has observed that “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 30th March, 2011. If the CBDT Instruction No. 9/2006 is read to the contrary, it would fall foul of Section 119 of the Act.”
Background:- Post scrutiny assessment, the Audit peruses the file and suggests lapses. These lapses the Assessing Officer may not agree with. Even his Commissioner may do the same. Yet reopening of the said assessment is mandatory. This is usually the case and the case records affirm this.
Thousand of concluded assessments are reopened in a routine manner all over India merely because the audit party has objected. There is no effective consideration of why what Assessing Officer or his CIT is saying is not correct. This leads to avoidable litigation and harassment.
Decided on 14.01.2016 – by Court No. 7 of Hon’ble Delhi High Court comprising of Hon’ble Mr. Justice. S. Muralidhar & Hon’ble Mr. Justice Vibhu Bakhru
Mr. M. S. Syali, Sr. Advocate along with Mr. V. P. Gupta, Mayank Nagi Advocates successfully represented the Assessee / Petitioner. The Revenue / Respondent was represented by Mr. P. Roy Chaudhuri, Senior Standing Counsel.
Outcome:- Allowing the Writ Petition filed by the Petitioner, interalia, the Hon’ble DHC noted and held that:-
“17. It is submitted by Mr Syali, learned Senior counsel for the Petitioner on the strength of decisions in M.P. Tiwari v. Y.P. Chawla ( 187) ITR 506 (Del), Dr. M.L. Passi v. CBDT (188) ITR 685 (Del) and CIT v. Greenworld Corporation 314 ITR 81 (SC) that the decision to 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 W.P.(C).6729/2011 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.
26. 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.”
The copy of judgment obtained from the official DHC website is attached herewith for your kind perusal and reference.

Submitted by – Advocate Mayank Nagi
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