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TMI Blog2010 (2) TMI 269X X X X Extracts X X X X X X X X Extracts X X X X ..... ption income received by the petitioner for the distribution of television channels. The petitioner also acts as an agent for foreign television companies for canvassing the sale of airtime for channels for which it receives agency fees. 3) The bone of contention in the present case relates to the reopening of assessment for assessment year 2004-05. For assessment year 2004-05, the petitioner claimed a deduction in respect of certain expenditure pertaining to advertisements, sales promotion, market research and publicity expenses on the ground that it was wholly and exclusively incurred for the purpose of business under Section 37(1) of the Income Tax Act, 1961. The return of income for assessment year 2004-05 was taken up for scrutiny assessment. The assessment proceedings were concluded on 22nd December, 2006. The Assessing Office allowed to the petitioner a deduction on account of expenditure incurred towards advertisements, publicity and market research. 4) On 25th March, 2009 the Assessing Officer issued a notice under Section 148 proposing to reopen the assessment proceedings for assessment year 2004-05 on the ground that he had reason to believe that the income of the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessee to furnish details / break-up of advertisement and sales promotion expenses together with a justification for the claim. This was replied to by the petitioner on 29th November, 2006. The petitioner submitted that it incurred the advertisements and sales promotion expenses in the normal course of its business of, inter alia, distribution of TV channels and canvasing for airtime of TV channels in India. These expenses were with a view to increase the turnover of the company which in turn has increased its profitability. On the basis of this material, it was submitted that an order of assessment was passed under section 143(3). The Assessing Officer was, therefore, not within his jurisdiction to issue a notice of reassessment under Section 148 on the basis of the same facts. Undoubtedly, the Assessing Officer had for assessment year 2005-06 made a disallowance of the expenditure incurred on advertisements and sales promotion, save and except to the extent of 18.75% but this would not justify the Assessing Officer in seeking to reopen assessment for assessment year 2004-05, there being no fresh material for the Assessing Officer to do so. In the absence of fresh material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat ensures against an arbitrary exercise of power. Similarly, judicially evolved doctrine asserts that a mere change of opinion cannot justify recourse to the power under Section 147. This is intended to ensure that the power is exercised for valid reasons when there is tangible material for the Assessing Officer to do so. The test of 'tangible material', it may be noted, has been enunciated in a judgment of the Supreme Court in Commissioner of Income Tax V/s. Kelvinator of India Ltd.{ [2010] 320 ITR 561 (SC)}, wherein the Hon'ble Mr. Justice S.H. Kapadia, speaking for a Bench of the Supreme Court held thus :- " ...one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. But reassessment has to be based on fulfilment of certain pre-conditions and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopenin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... true that the Assessing Officer could have investigated the truth of the assertion of the assessee, which he actually did in the subsequent assessment year, the question as to whether the loan alleged to have been taken by the assessee was true or false, was a material fact and not a mere inference to be drawn from given facts. The Supreme Court held that this would furnish a reasonable ground to the Assessing Officer to form a belief that on account of the failure of the assessee to disclose all material facts, income had escaped assessment. The Court emphasised that at that stage, it was only required to consider whether there are reasonable grounds for the Assessing Officer to believe and not whether escapement of income had been established. In a subsequent judgment of the Supreme Court in Ess Ess Kay Engineering Co. P. Ltd. V/s. Commissioner of Income Tax {(2001) 248 I.T.R. 818}, which was a Civil Appeal from the judgment of the Punjab & Haryana High Court in an Income Tax Reference, the Supreme Court held that there was material on the basis of which the Assessing Officer can proceed to reopen the case and it was not a case of a mere change of opinion. Merely because the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that losses incurred in units which were not eligible for deduction under Sections 10A & 10B had to be first set off against the profits of the units which are eligible for deduction and only the balance profits were eligible for deduction under Section 10A. The Division Bench held that while furnishing those reasons, the Assessing Officer had in assessment year 2003-04 merely disagreed with the approach of the Assessing Officer who made an assessment for assessment year 2001-02. The Division Bench clarified that this was not a case where any other material had been disclosed or where new material had come to attention or where this Court or the Supreme Court had taken a view on the issue. The Division Bench held that merely because the second Assessing Officer differs with the opinion of the earlier Assessing Officer on the interpretation of the statutory provision without any additional material, that would not justify recourse to the provisions of Section 147 and a mere change of opinion on an interpretation of a provision by itself without anything more, cannot give rise to 'reason to believe'. The judgment of the Division Bench in Siemens Information Ltd. (supra), therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21st August, 2007 called up the assessee to furnish the ledger extracts of advertisements and sales promotion expenses / market research expenses. On 26th November, 2008 a notice was issued to the assessee under Section 142(1). The Annexure to the notice drew the attention of the assessee to the fact that the assessee had debited advertisements and sales promotion expenses of Rs.39.99 crores; dealer's incentives of Rs.50.89 crores and market research expenses of Rs.2.73 crores. The Assessing Officer noted that considering the fact that the programmes are aired by the channel, any 'upside' in the revenues shall accrue to the Channel Company. The assessee was asked to explain why this amount should be allowed in the light of the absence of business expediency. The assessee was called upon to file a detailed explanation along with supporting documents. In the course of the assessment proceedings for assessment year 2005-06, the assessee had filed a detailed explanation before the Assessing Officer on 11/12/2008. The assessee set out its case in regard to the allowability of its advertisements and sales promotion expenses and dealer's incentives expenses together with market research ..... X X X X Extracts X X X X X X X X Extracts X X X X
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