The Delhi High Court has held that the (Assessing Officer) AO to spell out reasons as to what was to be disclosed before initiating income tax reassessment under section 147.
The bench of Justice Yashwant Varma and Justice Ravinder Dudeja has observed that the existence of failure on the part of the assessee to disclose fully and truly should not only be integral to the reasons but it must also be spelt out in the reasons as to what was to be disclosed but had not been disclosed. The absence of such averments in the reasons renders the whole exercise nugatory. Such lapse on the part of the AO cannot be regarded as a mere procedural irregularity but is a defect which goes to the root of the matter.
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Background – Reassessment under Section 147
The petitioner/assessee, Discovery Communications India is in the business of distribution, advertisement sales, marketing and production of educational and entertainment programs for Discovery Channel, Discovery Travel, Living Channel and Animal Planet Channel.
The petitioner filed Return of Income for AY 2011-12 on 30.11.2011. The return of the petitioner was selected for scrutiny and notice under Section 143(2) of the Income Tax Act, was issued to the petitioner on 03.08.2012. Another notice under Section 143(2) of the Income Tax Act was issued to the petitioner on 19.09.2014 along with a detailed questionnaire.
The questionnaire was filed by the petitioner on 21.11.2014 along with relevant material.
The Transfer Pricing Officer (TPO) passed an order dated 30.01.2015 proposing a transfer pricing adjustment amounting to Rs. 45,14,38,652/-.
On 23.03.2015, Draft Assessment Order was passed by the Assessing Officer (AO), giving effect the order passed by the TPO. A disallowance of Rs. 44,63,40,998/- and Rs. 3,89,63,085/- was proposed by the AO on account of mismatch in Form 26AS and advertising expenses claimed in the Profit & Loss Account (P&L Account) respectively.
Dispute Resolution Panel (DRP) issued directions under Section 144C(5) of the Act, deleting the disallowance of advertisement expenses claimed in the P&L Account by the petitioner.
Final Assessment Order was passed by the AO, giving effect to the directions issued by DRP. In the meanwhile, a notice under Section 142(1) was issued to the petitioner for AY 2012-13, on 14.10.2015.
Final Assessment Order was passed by the AO under Section 144C/143(3) of the Act for the AY 2012-13.
The Assessment Order was later rectified under Section 154 on account of certain mistakes apparent from record.
The Notice under Section 148 was issued by the department, reopening the assessment.
The petitioner filed objections to assumption of jurisdiction under Section 148 of the Act, but the same were dismissed by the department.
The notice proposing the reassessment action for AY 2011-12 has been challenged by the assessee.
Arguments On Behalf Of Assessee
The petitioner contended that there was no fresh tangible material on the basis of which the assessment framed under Section 143(3) could be reopened. The reasons recorded do not specify the trigger. It is further submitted that the material for reopening has been gathered from the assessment record of the subsequent year. There were no intervening circumstances between the framing of original assessment and reopening of reassessment.
The petitioner stated that an assessment concluded under Section 143(3) can be validly reopened only if there is some fresh tangible material. The details of production and translation expenses were placed on record in reply to the queries raised vide questionnaire dated 14.10.2015 in AY 2012-13.
The petitioner submitted that there was no tangible material leading to a prima facie belief that income chargeable to tax has escaped assessment in the subject AY. Rather, it is a case of change of opinion as compared to opinion formed and expressed in the later years.
Conclusion – Reassessment under Section 147
The court held that notice under Section 148 was issued beyond the period of four years from the end of the relevant AY. Consequently, the first proviso to Section 147 of the Act would be applicable.
The court ruled that escapement of income by itself is not a sufficient ground for reopening the assessment in a case covered by 1st proviso to Section 147 of the Act unless and until there is failure on the part of the assessee to have disclosed, fully and truly, facts necessary for assessment. The reasons must record that such a failure on the part of the assessee or, in the least, the reasons must lead to the clear and direct inference that there was a failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment.
The court stated that in order to assume jurisdiction under Section 147, the stand of the AO was that DAP expenditure was allowed owing to a ‘mistake’, whereas, production and translation expenses were allowed without any verification. Even if, such an argument is to be accepted, the appropriate remedy in such a situation may lie under Section 263 of the Act.
The court while allowing the petition held that the basis for the “reasons to believe” do not survive any more.
Read More: Delhi High Court Quashed Reassessment Notice Beyond 10 Years Block Period
Case Details
Case Title: Discovery Communications India Versus Addl. Commissioner Of Income Tax
Case No.: W.P.(C) 13225/2018
Date: 08 November 2024
Counsel For Petitioner: Mayank Nagi
Counsel For Respondent: Shlok Chandra
