TMI Blog2021 (7) TMI 348X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income-tax, Delhi vs. Kelvinator of India Ltd. , [ 2010 (1) TMI 11 - SUPREME COURT] Grant of approval under Section 151 for issuance of notice under Section 148 - Given this backdrop, the ACIT while giving approval under Section 148 of the Act, ought to have applied his mind, to the crucial question as to whether any new or fresh facts had come to the notice of the AO for triggering the provisions of Section 147/148 of the Act. The ACIT, on the other hand, mechanically replicated the language of the provision [i.e., Section 151 of the Act] by making the aforesaid endorsement in both cases - Given this backdrop, the ACIT while giving approval under Section 148 of the Act, ought to have applied his mind, to the crucial question as to whether any new or fresh facts had come to the notice of the AO for triggering the provisions of Section 147/148 of the Act. The ACIT, on the other hand, mechanically replicated the language of the provision [i.e., Section 151 of the Act] by making the aforesaid endorsement in both cases - See SYNFONIA TRADELINKS PVT. LTD. VERSUS INCOME TAX OFFICER, WARD-22 (4) [ 2021 (3) TMI 1177 - DELHI HIGH COURT] The argument advanced on behalf of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct; and iii. orders dated 24.09.2018, whereby the objections filed by the petitioners to the impugned reasons were disposed of by the AO. 3. Since the facts in both cases are similar, the above-captioned writ petitions are being disposed of via a common judgement. 3.1. The aforementioned orders concern the assessment year [in short A.Y. ] 2013-2014. 3.2. Before we set forth the core issues, which arise for consideration, in the above-captioned writ petitions, which are similar, it would be convenient, to outline, in detail, the facts and circumstances obtaining in one of the writ petitions, i.e., W.P. (C) 10939/2018 instituted by ESSA. We may note that counsel for the parties were agreed that the decision in W.P. (C) 10939/2018 would apply mutatis mutandis to the other writ petition as well, i.e., W.P. (C) 10940/2018. Background facts pertaining to W.P. (C) 10939/2018: 4. ESSA is a partnership firm established under the laws of Mauritius. The two partners in ESSA are ESPN Mauritius Ltd. [now known as Worldwide Wickets, Mauritius]; an entity incorporated in Mauritius and having 99.9% share in the profits of ESSA. While the other partner, i.e., ESPN Network ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord shows that the TPO, via order dated 05.09.2016, inter alia, informed the AO the following. 3. During the year, the assessee has reported the following International transactions in the Form 3CEB: International Transaction Amount Receipt for [the] acquisition of Advertisement airtime inventory 2,586,079,609 4. The transfer pricing documentation which contains the functional and economic analysis along with other details has been examined and placed on record. This is a flipside case and the Indian company i.e. M/s Star Sports India Pvt. Ltd. (Formerly Known as ESPN Software India Pvt. Ltd.) is subject to TP Audit. The TP issues that arise in the international transaction between the assessee and its AE are being examined in the case of the AE. Accordingly, necessary action, if any, is being taken in the case of AE. 5.3. Unknown to the TPO who passed the order dated 05.09.2016, concerning ESSA, the TPO dealing with the Associated Enterprise [in short AE ] referred to in the order dated 05.09.2016, i.e., SSIPL had the international transactions examined to determine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould result in the same outcome. It was also noticed that the decision of earlier AYs was pending before the appellate authorities. 5.8. Being aggrieved, ESSA filed objections with the Dispute Resolution Panel [in short DRP ], on 01.02.2017. A copy of the said objections was filed with the AO on the succeeding day, i.e., 02.02.2017. The DRP disposed of the objections vide order dated 11.09.2017, wherein it concluded that it did not have jurisdiction in the matter as ESSA was not an eligible assessee within the meaning of Section 144C(15)(b) of the Act [as it stood on that date], as neither the TPO had proposed any variation in its income and nor was ESSA a foreign company. Consequently, the DRP declined to issue any directions in the matter and dismissed the proceedings without considering other grounds of objections taken by ESSA. 6. Faced with this situation, the AO, employed a different approach and as it appears took steps for initiating proceedings against ESSA under Section 147 of the Act. As per the respondent, a note was generated on 20.03.2018 for recording reasons for initiating proceedings under Section 147 of the Act. Pertinently, this note proffers the follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to hereinabove, was premised on the supposition that the AO had reason to believe that ESSA s income chargeable to tax amounting to ₹ 85,68,23,883/- qua AY 2013-2014 had escaped assessment. Thus, according to the said notice, the AO proposed to assess/reassess the ESSA s income/loss for the said AY, and therefore, required it to deliver a return within 30 days in the prescribed form. 7.1. ESSA responded to the aforesaid notice vide reply dated 25.04.2018. Via the said reply, ESSA indicated, in no uncertain terms, that the AO should treat the return originally filed by it as a return filed in response to the notice issued under Section 148 of the Act. Besides this, ESSA also sought reasons for initiating proceedings under Section 147 of the Act in line with the judgement of the Supreme Court rendered in GKN Driveshafts (India) Ltd. vs. ITO, [2003] 259 ITR 19 (SC). 7.2. The AO complied with the request. The reasons which were said to have been recorded by the AO, as noted above, on 20.03.2018, were received by ESSA on 29.06.2018, via e-mail. On 02.08.2018, ESSA filed its objections with the AO. The objections were disposed of by the AO, as noted above, vide order da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if any, would be taken in the case of the AE i.e. SSIPL. 9.5. On 26.09.2016, the AO raised certain queries which were identical to those that were raised qua ESSA. In response thereto, submissions were filed by ESSD on 29.09.2016. The AO, once again, served a questionnaire on ESSD which was received by it on 08.12.2016 seeking additional information, which, according to ESSD, was furnished by it via communication dated 19.12.2016. 9.6. On 23.12.2016, the AO passed a draft assessment order under Section 144C(1)/143(3) of the Act qua ESSD. The proposed addition to the returned income on account of the subscription fee received by ESSD, which, according to the AO, took the character of royalty was ₹ 4,90,07,43,680/-. A perusal of the draft assessment order would show that the AO has also held that the subscription income received by ESSD was its business income attributable to the PE in India. The AO, however, proposed the alternate route of treating the subscription income as royalty as the net tax effect was higher and therefore beneficial to the revenue. 9.7. Being aggrieved, ESSD filed its objections with the DRP on 01.02.2017. A copy of the same was filed with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence was made to the following orders. Date of orders Assessment Year (AY) Proceedings 26.12.2014 AY 2010-2011 Order passed by the DRP. 27.03.2015 AY 2011-2012 Final assessment order passed under Section 143(3) of the Act and not a draft assessment order as petitioners were not eligible assessees, 10.03.2016 AY 2012-13 Final assessment order passed under Section 143(3) of the Act and not a draft assessment order as petitioners were not found to be eligible assessees, 23.03.2016 AY 2010-2011 This Court quashed the draft and final assessment order as petitioners were not found to be eligible assessees. ii. Secondly, the respondent sought to initiate (re)assessment proceedings, although, such an attempt had been repelled by this Court vide judgment dated 31.10.2017, passed in W.P 11968/2016 and W.P. (C) 11971/2016 [concerning AY 2010-2011] and in W.P. (C) 12031 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment orders were not taken to their logical conclusion can never form a sustainable reason for reopening the assessment for the following reasons. a) The DRP set aside the draft assessment orders [as it was illegal], and therefore, was binding on the AO. b) Since the draft assessment orders were illegal, and they could never have, logically, ended up as orders under Section 143(3) of the Act. c) Reopening of assessment can never be justified to overcome, what was, to begin with, illegal action of the respondent. d) The respondent, after considering the entire material on record, adjudicated, inter alia, on the issue concerning PE (in the case of petitioners) and royalty (in the case of ESSD) in the draft assessment order(s) which was passed under Section 143(3) read with Section 144C of the Act. Once such an order was passed, the concerned officer had completed his part of the assessment proceedings, albeit, as required under Section 144C of the Act in a draft form. e) A draft assessment order is final, once passed, insofar as the AO is concerned, pending the directions that DRP may issue while disposing of the objections filed by the assessee. The AO i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unciated by the Courts. xii. Twelfth, the sanctions granted under Section 151 of the Act, have been accorded without due application of mind. The sanctions granted by the concerned officer are mechanical as is evident from the reasons given while approving initiation of impugned proceedings: This is [a] fit case for issue of [sic issuing ] notice u/s 148 of the IT Act, 1961. Approved [See CIT vs. S Goyanka Lime Chemical Ltd., (2019) 237 Taxman 378 (SC), Chhugamal Rajpal vs. S.P. Chaliha, (1971) 79 ITR 603 (SC), PCIT vs. NC Cables Ltd., (2017) 391 ITR 11 (Del) and United Electrical CO (P.) Ltd. vs. Commissioner of Income-Tax, (2002) 258 ITR 317 (Del)] Submissions advanced on behalf of the respondent: 12. On behalf of the respondent, arguments were advanced by Ms. Vibhooti Malhotra. Ms. Malhotra argued, broadly, on the following lines. i. An alternate statutory remedy that was equally efficacious was available to the petitioners, and therefore, the instant writ petition should not be entertained. [See: CIT vs. Chhabil Dass Agarwal, (2014) 1 SCC 603 ] ii. The petitioners have wrongly sought to place reliance on this Court s order dated 23.03.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and cannot be termed as an assessment creating binding obligations either on the respondent or the assessees, i.e., ESSA and ESSD, in these cases. The reliance placed by the petitioners on the judgement of the Supreme Court in C.A. Abraham v. Income-tax Officer, Kottayam and Anr. [1961] 41 ITR 425 (SC) is misplaced, as the draft assessment orders in the present cases did not produce any definitive consequences. The instant cases fall squarely within the ambit of Explanation 2 attached to Section 147 of the Act. Furthermore, it requires to be emphasized that a draft assessment order is final qua the AO only when assessment jurisdiction is exercised under Section 144C of the Act. vi. Since no final assessment orders were passed, (re)assessment proceedings could have been initiated against the petitioners. [See Deputy Commissioner of Income-tax vs. Zuari Estate Development Investment Co. Ltd., [2015] 373 ITR 661. vii. The petitioners had raised objections on merits against the draft assessment orders before the DRP; the main issue being, as to whether the advertising revenue (in case of ESSA) and subscription fee received from SSIPL (in case of ESSD) was taxable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partnership firm. The AO, however, as noticed above, took the aid of the assessment regime prescribed under Section 144C of the Act despite the TPO having passed two separate but similar orders dated 05.09.2016, which concluded that no action was called for qua the petitioners though, their associated enterprise, i.e., SSIPL was being subjected to TP Audit. 13.4. Therefore, it is difficult to fathom, why the AO would continue to embark on a route that would lead, figuratively speaking, to perdition. 13.5. It is when the DRP, via its orders dated 11.09.2017, ruled once again, that the petitioners were not eligible assessees within the meaning of Section 144C(15)(b) of the Act, as neither the TPO had proposed a variation in their returned income and nor were they a foreign company, did the AO take recourse to the impugned proceedings. It is pertinent to note, as noticed above, that the DRP had concluded that it did not have jurisdiction in the matter, and therefore, was not inclined to issue any directions in the case. The proceedings qua the petitioners were, accordingly, dismissed. 13.6. What is important, though, is that the draft assessment orders concerning the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -2014) no change in circumstances/status of the petitioners. 14.1. As noticed above, the draft assessment orders for AY 2013-2014 have not only been passed under Section 144C but also Section 143(3) of the Act. It almost appears that the AO had made up its mind that, if the DRP were to hold once again that the petitioners were not eligible assessees, the draft assessment orders would be sustained under Section 143(3) of the Act. The DRP, instead, dismissed the proceedings vide order dated 11.09.2017. 14.2. The question, therefore, which arises for consideration is: whether the respondent can continue with the impugned proceedings based on the same material which was examined and qua which opinion was rendered by the AO while passing the draft assessment orders? 14.3. There can be no dispute that the material that has been used for triggering the impugned proceedings is the same material that was available to the AO while passing the draft assessment orders. The notes which contained reasons for initiating the impugned proceedings make no bones about the fact that the same material has been used. The only argument advanced is that the exercise did not culminate in the passi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whilst the normal assessment proceedings are pending conclusion. To find the answer we must keep in perspective that every return of income filed under section 139 may not result in its active and in-depth perusal or consideration by the Assessing Officer as it may receive an automatic onward passage under section 143(1). However, once an inquiry has been initiated by the Assessing Officer, it cannot but result in either the return being accepted as having been correctly computed by the concerned assessee, or for an assessment being conducted and concluded thereon by the Assessing Officer. The provisions of section 147 would have no role to play at this stage of the proceedings. Once a return of income attracts the attention and scrutiny of the Assessing Officer, it is his bounden duty to delve into every aspect thereof. The Assessing Officer is sufficiently empowered to ask for all information necessary for framing the assessment. The only fetter on the amplitude of his discretion is that the assessment must be framed within the time limit set-down by section 153 which, in substance, is two years from the end of the assessment year in which the income was first assessable or one y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d set-down in section 153. In these circumstances if the Assessing Officer has reason to believe, predicated on information received by him, that income chargeable to tax has escaped assessment, he would invoke the powers under section 147. On the other hand, where a return of income has been filed but has been taken at its face value, without any proceedings under section 143(2) and 143(3) having been conducted, no assessment exercise would obviously have been undertaken. After the expiry of the time period set-down in section 153, this situation can be remedied by the Assessing Officer by invoking section 147. 9. However, in the present case since inquiries had been initiated under section 143(2), it became mandatory that they should have culminated in an order under section 143(3). 10. In Trustees of H. E. H. the Nizam's Supplemental Family Trust v. CIT [2000] 242 ITR 381 the Apex Court has observed that it is settled law that unless the return of income already filed is disposed of, notice for reassessment under section 148 of the Income-tax Act, 1961, cannot be issued, i. e. , no reassessment proceedings can be initiated so long as assessment proceedings p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment. Therefore, an obligation is to disclose facts; secondly, those which are material; thirdly, the disclosure must be full and fourthly, true. What facts are material and necessary for assessment will differ from case to case. In every assessment proceeding, for computing or determining the proper tax due from the assessee, it is necessary to know all the facts which help the assessing authority in coming to the correct conclusion. From the primary facts in his possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise, the assesssing authority has to draw inferences as to certain other facts. But on the primary facts, it is for the taxing authority to draw inferences. It is not necessary for the assessee to draw inferences for him. See, in this connection, the observations in Calcutta Discount Ltd. 's case (supra). (p. 967) 12. The Full Bench of this Court in CIT v. Kelvinator of India Ltd. [2002] 256 ITR 1 had opined that the amendments introduced into section 147 with effect from 1-4-1989 have not altered the position that a mere change of opinion of the Assessing Officer was not sufficient ground f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al on 28.03.2018, made the following identical endorsement. This is fit case for issue of notice u/s 148 of the IT Act, 1961. Approved 15.6. The notes recording reasons dated 20.03.2018, which were before the ACIT, clearly pointed out the following. i. First, the draft assessment orders which are dated 23.12.2016 were passed under Section 144C/143(3) of the Act. ii. Second, the DRP had held that the petitioners were not being eligible assessees as they were neither a foreign company nor had the TPO ordered a variation of their income. Consequently, the DRP had dismissed the proceedings filed before it. iii. Third, the only reason approval for initiating proceedings under Section 147/148 of the Act was sought to be taken was on account of the draft assessment orders not reaching a logical conclusion. 15.7. Given this backdrop, the ACIT while giving approval under Section 148 of the Act, ought to have applied his mind, to the crucial question as to whether any new or fresh facts had come to the notice of the AO for triggering the provisions of Section 147/148 of the Act. The ACIT, on the other hand, mechanically replicated the language of the provision [i. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Officer, Company Circle X, New Delhi Anr., (2011) SCC OnLine Del 472 : (2011) 333 ITR 237. 19. In respect of the first plea, if the judgments in Chuggamal Rajpal's case (supra); Chanchal Kumar Chatterjee's case (supra); and Govinda Choudhury Sons's case (supra) are examined, the absence of reasons by the assessing officer does not exist. This is so as along with the proforma, reasons set out by the assessing officer were, in fact, given. However, in the instant case, the manner in which the proforma was stamped amounting to approval by the Board leaves much to be desired. It is a case where literally a mere stamp is affixed. It is signed by a Under Secretary underneath a stamped 'Yes' against the column which queried as to whether the approval of the Board had been taken. Rubber stamping of underlying material is hardly a process which can get the imprimatur of this Court as it suggests that the decision has been taken in a mechanical manner. Even if the reasoning set out by the ITO was to be agreed upon, the least, which is expected, is that an appropriate endorsement is made in this behalf setting out brief reasons. Reasons are the link betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch of this Court, in its judgement dated 31.10.2017, passed in a batch of writ petitions (the lead petition being W.P. (C) 11968/2016), concerning the petitioners herein, [pertaining to AYs 2010-2011 and 2008-2009] that, the questions relating to whether or not, the petitioners had a PE in India, had been engaging the revenue since AY 2003-2004. Undoubtedly, the respondent was attempting to regurgitate old facts by taking recourse to the provisions of Section 147/148 of the Act, which, according to us, is not permissible. 18. The failure to arrive at a logical conclusion in a Section 144C proceeding cannot become the ruse for initiating the proceedings under Section 147/148 of the Act in the absence of new material emerging before the AO which gives the AO reason to believe that assessee's income chargeable to tax had escaped assessment. Conclusion : 19. Thus, for the foregoing reasons, we are of the view that the above-captioned writ petitions would have to be allowed, and consequently, the notices issued under Section 148 of the Act dated 29.03.2018, the underlying reasons contained in the notes dated 20.03.2018, and the orders disposing of the objections dated 24 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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