2019 (6) TMI 356 - HC - Income Tax

Reopening of assessment u/s 147 - validity of reasons to believe - non independent application of mind by AO - HELD THAT - I am thus of the view that, in the light of the proviso to section 147, the assessee having made a complete disclosure of all relevant facts along with the return of income, the impugned proceedings are barred by limitation and also constitute a review of the original order of assessment, impermissible in law. In fact, the Assessing Officer is seen to have applied his mind to the issue in question and the original order of assessment confirms the position that various materials have been called for, such as accounts, financials, tax audit report, etc. and the assessee has also engaged in discussions with the Assessing Officer in regard to the issues that arise therefrom. The full and true disclosure of the assessee is thus not in doubt. AO in this case, is seen to simply reproduce the audit query as his reasons for reopening, which indicate categorically that there has been no independent application of mind in the least to the issued raised. It was incumbent upon the AO to have had independent reasons to believe that there is escapement of tax, even if the initial nudge did emanate from the audit department. The recording of reasons is mechanical and robotic and the mandate u/s 147 has not been complied with. TDS u/s 195 - TDS on foreign remittances relating to production related fees - HELD THAT - Tax was deducted in respect of the payments effected by the petitioner to Nagie James Associates Ltd (UK), Mark Monitor INC (USA), Cososys SRL (USA) and Buena Vista International (USA). The sole remittance upon which tax was not deducted was in respect of the payment to Asianet Global FZ LLC, UAE, as the payment was in connection with production related fees and the Agreement for Avoidance for avoidance of Double Taxation between India and the UAE does not contain an Article providing for the taxation of Fees for Technical Services. In any event, the details of the remittances as well as the certification in Form 15B to this effect were duly furnished to the assessing authority even during the original proceedings and are, admittedly, on record. Amortisation of cost of programmes/films - , the expenditures incurred and claimed on programmes/film rights HELD THAT - In fact, the petitioner has been following a consistent method of claiming expenditures in a particular fashion and the Department has accepted the methodology of valuation and claim for all years except the assessment years in question, being AY 2011-12 and 2013-14. In fact, even after the initiation of the present proceedings for re-assessment, orders under scrutiny have been passed in respect of AY 2015-16 accepting the petitioners claim. The view proposed to be adopted in the impugned re-assessments is thus a deviation, an aberration so to say, from the regular and consistent view taken by the Income Tax Department in regard to this issue. The expenditures incurred on Programme/film rights have been found to be revenue in nature and the stand of the assessee accepted. Thus, quite apart from the fact that as rejected the legal arguments put forth by the respondent to support the impugned proceedings, they are also found to be contrary to the settled principles of consistency. The principle of res judicata would not apply in matters of assessment under the Income tax Act, as each assessment year is separate and distinct, to be looked into independently and without reference to other years. Be that as it may, it is too well settled that there should be no deviation with respect to a consistent view except where such deviation is justified in law or on facts. As far as the present matters are concerned, there is no dispute that the view of the Department has remained consistent through the years, except for the assessment years before me now. Supreme Court in the case of PARASHURAM POTTERY WORKS CO. LIMITED VERSUS ITO 1976 (11) TMI 1 - SUPREME COURT held that income-tax assessment orders are concerned, they cannot be reopened on the scope of income escaping assessment u/s 147 after the expiry of four years from the end of the assessment year unless there be omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. - Decided in favour of assessee.

Issues Involved:
1. Assumption of jurisdiction for re-assessment under Section 147 of the Income Tax Act, 1961.
2. Expiry of limitation period for re-assessment.
3. Full and true disclosure of material facts by the assessee.
4. Change of opinion by the Assessing Officer.
5. Basis for re-assessment being audit objections.

Issue-wise Detailed Analysis:

1. Assumption of Jurisdiction for Re-assessment under Section 147 of the Income Tax Act, 1961:
The petitioner challenged the orders rejecting their objections to the assumption of jurisdiction by the Assessing Officer for re-assessment under Section 147. The court noted that the Assessing Officer issued a notice under Section 148 after the expiry of six years from the end of the assessment year, stating that income chargeable to tax had escaped assessment. The court emphasized that the Supreme Court in GKN Drive Shafts Private Limited v. Income Tax Officer had set out the procedure for re-assessments, which includes filing a return, seeking reasons for issuing notices, and the Assessing Officer disposing of objections by passing a speaking order. The court found that the reasons for re-assessment were based on the belief that program/film rights should have been capitalized and not treated as revenue expenditure, which the petitioner objected to on various grounds, including the expiry of limitation and change of opinion.

2. Expiry of Limitation Period for Re-assessment:
The court observed that the notice under Section 148 for the assessment year 2011-12 was issued after the expiry of four years but before six years from the end of the assessment year. According to Section 147, the Revenue must establish that the escapement of income was due to the assessee's failure to disclose fully and truly all material facts necessary for the assessment. The court concluded that the petitioner had made a full and true disclosure of all material facts, including the method of amortization and valuation of program/film rights, which were consistently followed and accepted in previous years. Therefore, the extended period of limitation was not satisfied, and the re-assessment proceedings for AY 2011-12 were barred by limitation.

3. Full and True Disclosure of Material Facts by the Assessee:
The court found that the petitioner had consistently amortized expenditures on program/film rights and disclosed all relevant details in their returns and during the original assessment proceedings. The Assessing Officer had called for and verified these details, confirming the disclosure made by the petitioner. The court emphasized that the statutory condition for the extended period of limitation was not met as the petitioner had made a complete disclosure of all relevant facts, and the re-assessment proceedings constituted a review of the original assessment, which is impermissible in law.

4. Change of Opinion by the Assessing Officer:
The court referred to the Supreme Court's decision in Commissioner of Income Tax v. Kelvinator of India Ltd., which held that the Assessing Officer has no power to review but only to re-assess based on tangible material indicating escapement of income. The court noted that the reasons for re-assessment were based on the same material already on record, and there was no new tangible material. The proceedings were thus a change of opinion, which is not a valid ground for re-assessment.

5. Basis for Re-assessment being Audit Objections:
The court compared the audit objections with the reasons for re-assessment and found that the Assessing Officer had simply adopted the audit objections without independent application of mind. The Supreme Court in Indian Eastern Newspaper Society v. Commissioner of Income Tax held that the opinion of an audit party on a point of law cannot be regarded as "information" for re-assessment. The court concluded that the re-assessment proceedings were based on audit objections, which is not permissible, and there was no independent "reason to believe" by the Assessing Officer.

Conclusion:
The court quashed the re-assessment proceedings for AY 2011-12 and AY 2013-14, holding that they were barred by limitation, constituted a review of the original assessment, and were based on audit objections without independent application of mind by the Assessing Officer. The writ petitions were allowed, and the connected miscellaneous petitions were closed with no order as to costs.

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