Powers of ITOs under section 142(1) of Income Tax Act, 1961. - Income Tax - 1147/CBDT

INSTRUCTION NO. 1147/CBDT Dated : February 3, 1978 Section(s) Referred: 142(1) Statute: Income - Tax Act, 1961 The question whether the ITO has powers under section 142(1) of the IT Act, 1961, to call for the account books of the Head Office for determining the admissibility of the head office expenses claimed by the Indian branches, has been examined by the Board in consultation with the Ministry of Law. 2. A reference to the Ministry of Law was made in the case of IBM, where a similar question had arisen for consideration. A copy of the advice of the Ministry of Law is enclosed (annex I). It will be seen that the Ministry of Law are of the view that the ITO can call for the books of account of the head office, if these are relevant for the purposes of making the assessment. In other words, the ITO cannot issue a notice calling for all the books of account of the head office but only such books which he considers, after applying his mind, to be relevant for the purpose of making an assessment under the Act. 3. The above question also came up for consideration recently before the Calcutta High Court in the case of National Grindlays Bank. It has been held by the High Court that the fact that the assessee is an Indian branch of a foreign company and the documents called for are the account books of the Head Office, will not affect the scope of the powers of the ITO under section 142(1) of the IT Act. Relevant extracts from the decision of the High court are enclosed (Annex.II). 4. In short, the ITO has powers under section 142(1) to call for the books of account of the head office in order to examine the claim made by the Indian branch. However, it is necessary that only those books of account should be called for which are relevant for assessment and that there must be evidence to show that there has been an application of mind by the ITO before calling for the books of account.