TMI Blog2014 (2) TMI 1073X X X X Extracts X X X X X X X X Extracts X X X X ..... the part of the assessee i.e. the petitioner - Once it is held that the details were furnished, the reassessment notice would fail - Letter/reply dated 22nd March, 2006 enclosing the details would go to the very root and falsify the averments made in the reasons to believe - The said reasons would be factually incorrect and reassessment notice bad and contrary to the first proviso to Section 147 of the Act - The reassessment notice is hit by the principle of “change of opinion”. Reasons to believe must have nexus and live link with the formation of opinion by the Assessing Officer that taxable income had escaped assessment - As per mandate of Section 149(1)(b), income escaping assessment should be or likely to exceed Rupees one lac. - This required prima facie computation of income escaping assessment - This in turn required examination of data or figures relating to “Indian operations” - This being the position and stand of the Revenue, the Assessing Officer could not have formed any prima facie or tentative opinion that income had escaped assessment as the petitioner had positive income from “Indian operations”, if we take into account “actual expenditure” incurred relating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ltd. in favour of the petitioner. Consequently, BBC Worldwide (India) Pvt. Ltd. started acting as an agent for the petitioner in India for sale of airtime for advertisements on BBC world channel. In addition to soliciting advertisement, BBC World (India) Pvt. Ltd. also provide marketing support to the petitioner. BBC Worldwide (India) Pvt. Ltd. was/is a company incorporated in India and being a resident, their income was/is taxable in India. 3. During the period relevant to the assessment year 2003-04 i.e. for the period between 1st December, 2002 to 31st March, 2003, the petitioner filed its return of income on 2nd December, 2003, declaring NIL income and claimed credit of tax deducted at source and prepaid taxes amounting to Rs.46,88,196/-. Refund of the said taxes was prayed for. Subsequently, the petitioner revised its return on 31st March, 2005 by enhancing the TDS amount and prepaid taxes to Rs.55,37,518/-. The revised return was filed to rectify omission in respect of TDS credit. 4. The return was taken up for scrutiny assessment and assessment order under Section 143(3) dated 24th March, 2006 was passed by Assessing Officer, inter alia, holding that the petitioner h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce computed under the Act is deemed to be a case of income chargeable to tax having escaped assessment. 7. It is an admitted position that in the present case, impugned notice has been issued after four years from the end of the relevant assessment year. The contention of the petitioner in view of the said factual background is that (1) it is a case of change of opinion; (2) the petitioner had made disclosure of full and true material facts and (3) reasons to believe do not justify reopening and meet the legal requirements. 8. In support of the contentions raised by the petitioner, it is submitted that the assessing officer in the assessment proceedings, had asked the petitioner to furnish India specific revenues and expenses and these were submitted vide letter dated 22nd March, 2006. The stand taken by the Revenue and subsequently mentioned in the order dated 13th December, 2011 dismissing the objections, is that the letter dated 22nd March, 2006 was neither on records of the department nor was it mentioned in the assessment order. It is stated that the assessment proceedings commenced on 31st May, 2005 by issue of notice, yet the submission dated 22nd March, 2006, running ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m any such opinion during the assessment proceedings. The assessee's case is hence different on the facts from the cited cases, which therefore do not help the assessee's cause. 10. However, in the counter affidavit, a more categorical and assertive stand has been taken by the respondents, who have pleaded and denied that the petitioner had filed reply dated 22nd March, 2006 in response to notice under Section 143(2) of the Act. 11. In order to determine and decide the controversy, we have examined the original records. Pursuant to order dated 15th January, 2013, passed by a Division Bench (Badar Durrez Ahmad and R.V. Easwar, JJ), the petitioner was permitted to carry out inspection of records pertaining to the assessment year 2003-04 including reassessment proceedings, on 22nd January, 2013 at 11.30 AM, at the office of the Assessing Officer. Thereafter, the petitioner filed additional affidavit on 25th February, 2013, stating that the assessment records were incomplete and papers were missing. Even admitted documents were not available on record. Order sheets relating to the original assessment were not on record. This fact was confronted to Mr. J.S. Rana, Inspecto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... medial steps. Failure to maintain records has resulted in serious allegations being made that the papers/documents have been tempered or removed etc. The papers/documents on record are not serially numbered and indexed. We also note that it is not practice of the department to give acknowledgement of papers submitted during the course of assessment proceedings. 14. There are various reasons why we feel that we should accept the contention of the petitioner that they had filed details or accounts of India specific revenue and expenditure during the original assessment proceedings and our reasons are indicated below:- (i) The assessment order does not record that details of India specific income and expenditure were not filed; (ii) In the original return filed by the assessee on 2nd December, 2013 declaring NIL income and in the revised return filed on 31st March, 2005, the petitioner made the following disclosure:- 1. For the relevant period, i.e. 1 December 2002 to 31 March 2003, the assessee has incurred a loss on a worldwide basis. Accordingly, even if any income/loss were attributable to the Indian operations on a proportionate basis, the net result would be a loss. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttributable to the Indian PE is being restricted to Rs.1,45,87,800/-. (iv) The same Assessing Officer Mr. Saad Kidwai, Deputy Director of Income Tax, Circle 1(1), International Taxation, had also passed the original assessment order dated 24th March, 2006 in the case of the petitioner. Thus, the Assessing Officer in the last year, had examined and gone into the question of India specific income and expenditure. He held that only expenses that had been incurred in relation to channel activities in India could be taken into consideration. It was further held that computation in this regard was submitted and the BBC Worldwide Ltd. had claimed that even if India specific income and expenditure were being considered, the net income would be at loss. On the basis of computation made, this was found to be correct and it was observed that the crucial activities including programming and broadcast were carried out abroad and it would be reasonable to attribute 20% of this loss/profit to channel activities in India. (The aforesaid finding of the Assessing Officer in the case of BBC Worldwide Ltd. for the assessment year 2002-03 will be also relevant when we deal with the question; chang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee has furnished audited global accounts of M/s BBC World Ltd. and the same are therefore being used to compute the taxable income of the assessee s PE in India. Particulars Amount Amount in Rupees Global turnover of the BBC World Limited (as per audited accounts) (A) 7,929,000 591,344,820 Global Profit/(loss) on ordinary activities before taxation before taxation of the BBC World Limited (B) (4,550,000) (339,339,000) Ratio of global profit to global turnover (C = B/A*100) (57.38%) Airtime sales revenue generated from India (C) 811,090 60,491,084 Total Profit/(Loss) from Indian activities on the basis of global profit rate [D = B/A*C] (34,712,376) 20% of above profit attributable to Indian activities [E = D*20/100] (6,942,475) Exchange rate 1 UKP = Rs.74.58 (TT buying rate on 31st March, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adverted to in the assessment order and, therefore, it should be assumed that no such letter was filed is unacceptable. The petitioner is not the author of the assessment order and could not have dictated and directed how the assessment order should be written. The Assessing Officer as the author had to decide what he wants to record and mention in the assessment order. This aspect has been dealt with by the Full Bench of this Court in CIT versus Usha International Limited, (2012) 348 ITR 485 (Delhi) (FB), wherein it has been observed as under:- It was argued on behalf of the Revenue that for determining whether or not it is not a case of change of opinion, reference can and should be made only to the assessment order and the discussion or the reasons stated therein. Reliance was placed on the decision of this court in CIT v. H. P. Sharma [1980] 122 ITR 675 (Delhi) and Consolidated Photo and Finvest Ltd. v. Asst. CIT [2006] 281 ITR 394 (Delhi). The relevant portion of the judgment in H. P. Sharma (supra) reads as under (page 698) : Adverting to the next question as to whether the resorts to reassessments under sections 147(b) and 148 of the Act were justified or not, it is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal assessment stage is to look to the assessment order itself. When it, of its own, does not reveal that the matters and controversies now sought to be raised by way of reassessment were at all before the Income-tax Officer or considered by him, it would be entirely surmiseful and, therefore, not permissible to still import their existence and consideration. This can, however, be permissible only where the assessment record of that stage overwhelmingly brings out that the matter did come for due consideration and was in fact considered. Mere silence on a matter or absence of discussion in the original order does not imply that the Income-tax Officer adjudicated upon the same one way or the other. (emphasis supplied) We may note that the said decision was not dealing with section 147 of the Act, as amended with effect from April 1, 1989, but was with reference to section 147(b) of the Act under which an Assessing Officer could reopen assessment on the basis of information . The term to inform it was observed means to impart knowledge and it does not mean mere availability. It gets transmuted into an item of information only when its existence is realized and its implicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy PE did not exist as they had no authority to conclude contracts on behalf of the petitioner. The Assessing Officer has specifically recorded that the petitioner had agency PE in India. 15. In the present case reassessment proceedings have been initiated after four years from the end of the relevant assessment year and as per the first proviso to Section 147 of the Act, it has to be shown that there was failure on the part of the assessee to disclose fully and truly all facts necessary for the assessment. In the reasons to believe it is mentioned that absence of crucial information relating to income and expenditure on account of activities of the petitioner in India had resulted in improper computation of income for the assessment year 2003-04. Thus, as per the reasons to believe itself, in case the petitioner had furnished statement showing income and expenditure from Indian activities in the course of the original assessment proceedings, there was no lapse or failure on the part of the assessee i.e. the petitioner. Once it is held that the said details were furnished vide letter/reply dated 22nd March, 2006, the reassessment notice, would fail and faulter. Letter/reply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amount in Rs. On Rupee denominated deals 53,860,225 On Dollar denominated deals * 6,630,859 Total 60,491,084 *Converted at the exchange rates prevailing on the relevant dates. The assessee does not have a branch or other office or place of business in India. Also, it does not carry out any independent activity in India. Its Indian operations are a part of the global operations of the company. The accounts of the assessee are maintained globally in UK and it does not maintain any country specific accounts. Therefore, in order to compute the income/loss attributable to the Indian operations [without prejudice to its claim that it does not have a PE in India], Rule 10(ii) of Income-tax Rules, 1962 can be resorted to. Circular no. 6/2001 dated 5 March 2001 also provides for such treatment in similar situations. Rule 10(ii) requires that in case the actual amount of income accruing or arising to any non-resident through a business connection cannot be definitely ascertained, the amount of such income for the purpose of assessment may be calculated on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2003] The above loss may be attributed on reasonable basis to the operations carried out in India. A chart showing operations carried out outside India and in India is enclosed as Annexure V. The net attributable loss is eligible for carry forward and set off in subsequent years. 4.1.2. In view of paragraph 4.1.1 above, without prejudice to our claim at point 4.1 above, in case the assessee is held to constitute a business connection/permanent establishment in India for the relevant financial year, there would be a proportionate loss attributable to such activities (Refer Point 4.1.1). In such case, the assessee would be entitled to carry forward the said losses, if any, to subsequent years for set off against any future incomes. 17. In the order dated 13th December, 2011 rejecting the objections, the subsequent Assessing Officer had mentioned that there was non application of mind by the Assessing Officer in the original assessment proceedings, which was apparent as the assessment order was passed on 24th March, 2006, merely 2 days after the purported submissions dated 22nd March, 2006 running into 407 pages were filed by the petitioner. It is not the volume of the recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BC Worldwide Ltd. relating to the assessment year 2002-03. It is also different from the criteria adopted and applied by the Assessing Officer in the original assessment order dated 24th March, 2006. Therefore, it would be correct to infer and hold that the Assessing Officer during the course of the proceedings for the AY 2003-04 had gone into the question of attribution of profits to the Indian PE and adopted the criteria and formula which was adopted in the earlier year i.e. 2002-03 in the case of predecessor, BBC Worldwide Ltd. During the original proceeding, it may have been open to the Assessing Officer to adopt a different mode or method but he did not consider this to be reasonable and proper. At this stage, we only note that it is common knowledge that BBC World News and channel, was/is broadcast all over the globe and was/is a 24 hour news channel. They have to incur expenses for creating programmes and capsules which were shown and had footprint in India. Advertisement revenue was earned from India as the channel was viewed in India and abroad. The present stand of the respondents is that entire expenditure for creating programmes etc. should be excluded and only India sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 143(1) and no scrutiny assessment is undertaken. In such cases there is no change of opinion. (2) Reassessment proceedings will be invalid in case the assessment order itself records that the issue was raised and is decided in favour of the assessee. Reassessment proceedings in the said cases will be hit by the principle of change of opinion . (3) Reassessment proceedings will be invalid in case an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such situations it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons. xxxx xxxx In view of the above observations we must add one caveat. There may be cases where the Assessing Officer does not and may not raise any written query but still the Assessing Officer in the first round/original proceedings ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scaped assessment as the petitioner had positive income from Indian operations , if we take into account actual expenditure incurred relating to Indian operations. In the absence of the said details, the averment made in the reasons to believe will be only a guess work or surmise and not cogent or reliable material to form a prima facie view. We understand that the Assessing Officers may be handicapped in such cases but there are sufficient provisions in the Act to get hold of the said data before proceedings are initiated or reasons are recorded. There is nothing to indicate and show the data and figures of the year in question were ascertained or gathered from records for other assessment years or otherwise. 20. In view of the aforesaid, we allow the present writ petition and quash the reassessment proceedings initiated by issue of notice under Section 148 dated 30th March, 2010 relating to assessment year 2003-04. We also quash the order dated 13th December, 2011 dismissing the objections to the reopening. Copy of this order will be sent to the Chairman of Central Board for Direct Taxes for appropriate and necessary action to ensure proper record maintenance and issuance o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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