2014 (12) TMI 5 - AT - Income Tax

Validity of reopening of assessment u/s 148 - reason to believe failure of assessee brought on record or not Lack of coordination between AOs - Held that - The Proviso casts onus on the AO to prove failure of the assessee - the AO had to mention, in the reasons recorded, about the alleged failure and had to explain as which material facts were not disclosed by the assessee - the assessee original assessment was completed u/s. 143(3) of the Act, that the AO had issued notice u/s. 148 as the AO had reasons to believe that taxable income had escaped assessment, that the assessee had objected to the notice issued u/s. 148, that the FAA had upheld the reopening of assessment, that the AO had never held that there was any failure on part of the assessee to disclose material facts fully and truly - because of between the DDIT(IT)and certain amounts remained untaxed - He had not held that the assessee had concealed the facts that resulted in escapement of income - If there was lack of coordination between two AOs, the assessee cannot be penalised for that - The power to reopen a completed assessment is one of the extraordinary powers conferred upon the AOs, but it cannot be used in a routine matter-especially when a notice u/s. 148 of the Act is to issue after four years - failure of the assessee had not been brought on record - the re-assessment proceedings were not initiated validly thus, the order of the FAA is set aside as the reopening id bad in law Decided in favour of assessee. Validity of notice for reopening of assessment u/s 148 Held that - Notice u/s. 148 was issue within the four year - The basis for reopening was taxation of royalty income in the hands of recipient - once the AO found out the factual position about the payment, he reached at certain conclusions and initiated proceedings u/s. 147 - Established principles of reopening envisage that there should be reasons to believe that taxable income had escaped assessment - the Tribunal cannot and should not enter into the merits of the subjective satisfaction of the AO nor should judge the sufficiency of the reasons recorded - What can be seen to whether the belief of the AO is based on tangible, concrete and new information and whether it is capable of supporting such a conclusion - The law only requires that the information or material on which the AO records his or her satisfaction is communicated to the assessee - The satisfaction arrived at by the AO should be prima facie level - AO had rightly invoked the provisions of section 147 of the Act for reopening the assessment Decided against assessee. Payment made to MTV Asia and other parties Held that - The ADIT (IT)-3(2), Mumbai passed u/s. 197 of the Act, addressed to MTV Asia, has directed it that taxes be deducted at source at 4. 30% from the sums payable as distribution revenue to the assessee under its agreement with MNIPL - the assessee had made detailed submissions and had requested the FAA to admit additional evidence, in form of confirmation certificates from the banks/extracts from NSDL website about the payment of taxes, as per the provisions of section 46A of the Income tax Rules, 1962 (Rules) - the assessee had filed a detailed explanation about deducted taxes and reasons for non-deduction of taxes thus, the matter is to be remitted back to the FAA for fresh adjudication Decided partly in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 143(3) read with Section 147 of the Income Tax Act.
2. Deduction of distribution expenses paid to Nickelodeon Asia Pte Ltd and MTV Asia LDC.
3. Admission of additional evidence under Rule 46A of the Income-Tax Rules, 1962.
4. Deduction of distribution expenses where taxes were deducted at source in subsequent years.
5. Adjustment of reversed distribution expenses in subsequent years.
6. Levy of interest under Section 234B and 234C of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings:

The primary issue was whether the reassessment proceedings initiated under Section 143(3) read with Section 147 of the Income Tax Act were valid. The assessee argued that the reassessment was unwarranted, without jurisdiction, bad in law, barred by limitation, void ab-initio, and should be quashed. The Tribunal held that the reassessment proceedings were not initiated validly as the Assessing Officer (AO) did not establish that there was any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The Tribunal emphasized that the AO must clearly mention and prove that due to the assessee's failure to disclose material facts, the taxable income had escaped assessment. The Tribunal cited various legal precedents, including Tecumseh Products India Pvt. Ltd. and General Motors India Pvt. Ltd., to support its conclusion that the reassessment notice issued after four years was invalid. Consequently, the Tribunal decided this issue in favor of the assessee and reversed the order of the First Appellate Authority (FAA).

2. Deduction of Distribution Expenses:

The assessee claimed deductions for distribution expenses paid to Nickelodeon Asia Pte Ltd and MTV Asia LDC. The AO disallowed these expenses under Section 40(a)(ia) of the Act due to non-deduction of tax at source. The Tribunal found that the AO had not considered the additional evidence provided by the assessee, which included certificates issued under Section 197 of the Act and confirmation certificates from banks. The Tribunal directed the FAA to reconsider the additional evidence and decide the issue afresh. The Tribunal also noted that the payment to MTV Asia was in the nature of royalty and taxable under the Indo-Singapore DTAA, thus requiring tax deduction at source.

3. Admission of Additional Evidence:

The assessee argued that the FAA should have admitted additional evidence under Rule 46A of the Income-Tax Rules, 1962. The Tribunal observed that the FAA had not considered the additional evidence submitted by the assessee, which included confirmation certificates and detailed explanations about deducted taxes. The Tribunal directed the FAA to admit and consider the additional evidence while deciding the issue afresh.

4. Deduction of Distribution Expenses Where Taxes Were Deducted at Source in Subsequent Years:

The assessee claimed that distribution expenses should be allowed as deductions in subsequent years when taxes were deducted at source and paid into the government treasury. The Tribunal directed the FAA to consider this issue while re-adjudicating the matter, ensuring that the deducted taxes are given credit in one of the assessment years.

5. Adjustment of Reversed Distribution Expenses in Subsequent Years:

The assessee contended that if distribution expenses paid to MTV Asia were disallowed in AY 2006-07, the same should be reduced while computing the income for AY 2008-09. The Tribunal directed the FAA to pass a speaking order about the amount in question while deciding the issues arising from the deduction of distribution expenses.

6. Levy of Interest Under Section 234B and 234C:

The assessee argued that interest under Section 234B and 234C should not be levied in the absence of any specific direction in the assessment order. The Tribunal noted that this ground was consequential in nature and did not adjudicate it separately.

Conclusion:

The appeal for AY 2005-06 was allowed in favor of the assessee, and the appeal for AY 2006-07 was partly allowed. The Tribunal directed the FAA to reconsider the additional evidence and re-adjudicate the issues related to the deduction of distribution expenses and the adjustment of reversed expenses in subsequent years. The Tribunal emphasized the need for the AO to clearly establish the failure of the assessee to disclose material facts fully and truly when initiating reassessment proceedings.