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TMI Blog2017 (11) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... .P. (C) Nos. 11968 and 11971 of 2016 pertain to Assessment Year (AY) 2010-11, W.P. (C) Nos. 12031 and 11972 of 2016 pertain to AY 2008-09. Facts concerning ESS Distribution for AY 2010-11 2. The facts as far as M/s. ESS Distribution (Mauritius) SNCET Campagnie (hereinafter referred to as "ESS Distribution‟) are concerned, is that ESS Distribution is a partnership firm established under the laws of Mauritius by ESPN Mauritius Limited (EML) (now known as Worldwide Wickets, Mauritius). During the AY 2010-11, EML has 99.9% share in the profit of ESS Distribution. ESS Asia Limited (EAL) (incorporated in Labuan, Malaysia), had the remaining 0.01% share. 3. ESS Distribution is engaged in the business of distribution of sports and sports related television programmes broadcast by ESPN Star Sports, Singapore (ESS) via Non-standard television. ESS Distribution had entered into agreements with ESPN Software India Private Limited (now known as Star Sports India Private Limited since merged with Star India Private Limited) (hereinafter referred to as "ESPN India") for distribution of the channels. 4. Since ESS Distribution is a tax resident of Mauritius, it is entitled to the protecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 014, ESS Distribution pointed out the difference between a partnership firm and a company. 7. Nevertheless the AO concluded the assessment proceedings and passed a draft assessment order on 28th March 2014 under Section 143 (3) read with Section 144C of the Income Tax Act, 1961 ("Act‟). ESS Distribution filed its objections against the said order before the Disputes Resolution Panel ("DRP‟) inter alia contended that since ESS Distribution was a foreign partnership it was not an "eligible Assessee‟ within the meaning under Section 144C (15) (b) of the Act. This was accepted by the DRP by an order dated 26th December 2014 holding that it did not have jurisdiction over the case of ESS Distribution. The DRP, therefore, declined to issue any direction. 8. Although the AO was bound by the aforementioned decision of the DRP, he decided to ignore it and proceeded to pass the final assessment order on 28th January 2015 under Section 144C read with Section 143 (3) of the Act. The AO held that DRP had failed to deal with the other objections of the Petitioner. The AO described the decision of the DRP to be "grossly illegal against the intent of the legislature and not in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to the computation of income were duly filed by ESS Distribution before the AO in which it clearly mentioned that during the AY in question ESS Distribution did not have any transaction with Scorpio. 12. The second reason mentioned by the AO for reopening of the assessment was with respect to the difference between Form 26 AS and assessed income. This was always available with the AO and therefore, did not have fresh tangible evidence. It was explained by ESS Distribution that: "As the Petitioner discloses the amount on an accrual basis, the amount that has been assessed to tax in the current year (Rs. 4,05,98,53,517) also includes revenue (Rs 2,45,24,601) which has been disclosed in the current year however the same is reflected in the Form 26AS of the Petitioner in the subsequent year but does not include the amount assessed in the prior year (Rs. 36,29,93,140) however the same has been reflected in the Form 26AS of the instant AY 2010-11. It pertinent to point out that the taxes were duly deducted upon the entire amount of Rs. 4,39,83,22,056." 13. Even while the above objections were pending consideration by the AO, ESS Distribution's writ petition came to be disposed of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r AY 2010-11 on 1st October 2010 as a firm. The stand of ESS Advertising was that its revenue from sale of advertisement time being business profits, is not taxable in India since it has no PE in terms of Article 5 of the DTAA read with Article 7 (1) thereof. 19. The return filed by ESS Advertising was picked up by the AO for scrutiny. During the course of the assessment proceedings the AO enquired why the firm should not be treated as foreign company. By its letter dated 27th March 2014 ESS Advertising drew a distinction between a company and a partnership firm. Nevertheless the AO concluded the assessment proceedings and passed the draft assessment order under Section 144 C read with Section 143 (3) of the Act. ESS Advertising then went before the DRP which agreed that it was not an "eligible Assessee‟ in terms of Section 144 C (15) (b) of the Act. The DRP accordingly declined to issue any direction to the AO. 20. Notwithstanding that the AO was bound by the order of the DRP under Section 144C (15) (b) of the Act, the AO proceeded to pass a final assessment order under Section 144C read with Section 143 (3) of the Act. In effect the AO disregarded the binding directions i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e profit and loss account of the Assessee, which was filed during the assessment proceedings vide letter dated October 7, 2013 with the Respondent No 2 (copy of the letter dated October 7, 2013 filed during the original assessment proceeding annexed and marked as Annexure-9). The A0 during the course of hearing raised a specific query in the questionnaire issued for filing of complete audited balance sheet and profit and loss account including all the schedules. The "other income" was duly reflected and formed part of the profit and loss account submitted and such Profit and Loss account was duly observed by the A0 but he refused to consider the same during the assessment proceedings. (iv) Therefore, it is explicitly clear that there is no new material found by the Respondent and the action is merely representing examination of same material which is on records to review the original assessment order. As there is neither any new material on record nor any finding as to the basis of forming the belief that the income has escaped assessment, a mere suspicion of escapement of income on review of order and material already on record cannot form a valid reason for reopening of assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the return filed by the Assessee "remains unassessed and therefore, no opinion can be said to have been formed by the AO." 31. Relying on the decision of the Supreme Court in Deputy Commissioner of Income Tax v. Zuari Estate Development &Investment Co. Ltd. (2015) 373 ITR 661 and Assistant CIT v. Rajesh Jhaveri Stock Brokers (P) Limited (2007) 291 ITR 500 it is contended by the Revenue that there was no change of opinion by the AO and there was no valid assumption and jurisdiction under Section 147/148 of the Act. It is submitted that the necessary ingredients for exercise of jurisdiction under Section 147/148 of the Act have been duly satisfied before invoking its power of reassessment. 32. It is pointed out in para 23.3 of the counter affidavit, that against the finding of the DRP that the Assessee was not an eligible assessee, an appeal had been filed by the Revenue before the ITAT. 33. As regards ESS Distribution, it is contended that reasons for reopening of assessment was a matter of record and that the order disposing of the objections substituted. It is further submitted that the amount received by ESS Distribution was taxable income under Section 96 of the Act as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell as judgment of this Court and is therefore, unsustainable in law. On this ground, both the draft assessment orders in respect of ESS Distribution and ESS Advertising for AY 2010-11 dated 19th December 2016 are liable to be set aside. 40. Nevertheless the Court has also examined the reasons for reopening of the assessments in respect of both the Assessees for the AY in question. As far as ESS Distribution is concerned, two reasons have been adduced for reopening of the assessment. One was that the amount received by ESS Distribution from Scorpio, pursuant to the agreement entered into between them, was taxable under Section 9 (1) (i) of the Act read with the relevant provisions of the DTAA. The second was that the Assessee received from ESPN Software India Pvt. Ltd in the form of subscription revenue of Rs. 33,84,68,539 which had escaped assessment on account of failure by ESS Distribution to make appropriate disclosures in its return of income. 41. The Court has been shown a computation of income and notes to computation filed by ESS Distribution in the original assessment proceeding. It is clearly mentioned therein that during the year in question ESS Distribution has not co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer on the Assessing Officer to review its own order. Therefore, the power under Section 147 cannot be used to review the order. In the present case, though the Assessing Officer has used the phrase "reason to believe", admittedly between the date of the order of assessment sought to be reopened and the date of formation of opinion by the Assessing Officer, nothing new has happened, therefore, no new material has come on record, no new information has been received, it is merely a fresh application of mind by the same Assessing Officer to the same set of fats and the reason that has been given is that the same material which was available on record while assessment order was made was inadvertently excluded from consideration. This will, in our opinion, amount to opening of the assessment merely because there is change of opinion. The Full Bench of the Delhi High Court in its judgment in the case of Kelvinator (2002) 256 ITRs referred to above, has taken a clear view that reopening of assessment under Section 147 merely because there is a change of opinion cannot be allowed. In our opinion, therefore, in the present case also, it was not permissible for Respondent No. 1 to issue not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness income attributable to the India PE on an estimated percentage basis was deemed to have considered and taken into account all business income and expenses into its fold. There was no occasion for lifting any particular item reflected in the accounts for a specific treatment. 50. Further the above aspect was already a part of the original assessment and there was no fresh tangible material available with the AO to form reasons to believe that any income of the Assessee escaped assessment. This order, therefore, is mere change of opinion. 51. In CIT v. Smt. Paramjit Kaur (2008) 311 ITR 38 (P&H) it was held as under: "Section 147 empowers the Assessing Officer to assess or reassess income chargeable to tax if he has reasons to believe that the income for any assessment year has escaped assessment. The power conferred under this section is very wide, but at the same time, it cannot be stated to be a plenary power, me Assessing Officer can assume jurisdiction under the said provision, provided there is sufficient material before him. He cannot act on the basis of his whim and fancy, and the existence of material must be real. Further, there must be nexus between the material a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce as far as the facts are concerned is that the original assessment was under Section 143 (1) of the Act and not under Section 143 (3) of the Act. However, what is similar to AY 2010-11 is that in both these cases what has been issued by the AO is a draft assessment under Section 144C of the Act. This was for the reasons explained hereinbefore impermissible in law. There is no valid explanation for the AO to repeatedly ignore the order of the DRP which held both the Assessees to be not eligible for the purpose of Section 144C of the Act. The AO has persisted in issuing legally unsustainable draft assessment orders. 56. Even on merits, the reasons for reopening of the assessment in these two cases do not bear scrutiny. As far as ESS Distribution is concerned, during the original assessment proceedings, notice was issued by the AO under Section 143 (1) as well as under Section 143 (2) raising some queries on the basis of which the decision the assessment is now sought to be reopened. Those notices were not taken to logical end. 57. In this connection, a reference was made to the decision of this Court in KLM Royal Dutch Airlines v. Assistant Director of Income Tax (2007) 292 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X
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