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

Cadila Healthcare Ltd vs. ACIT (Gujarat High Court)

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: