2015 (10) TMI 2433 - AT - Income Tax

Tribunal upholds reassessment for Assessee, dismisses AO's expense disallowance

The Hon'ble Tribunal upheld the validity of reassessment proceedings under Section 147 for the Assessee-company, dismissing the AO's disallowance of ... Reopening of assessment - disallowance of advertisement and sales promotion expenses - AO disallowed the aforesaid expenses on the ground that the expenditure is of the Channel principal - Held that:- While deciding the appeal for AY 2005-06 the Tribunal has discussed the issue as under after considering the submission and perusing the material on record, we find that the assessee deserves to succeed on the issue involved. We find that learned CIT(A) was not justified in observing that Hon'ble High Court in case of Star India [2009 (3) TMI 990 - BOMBAY HIGH COURT] has not passed a detailed order, therefore, the same was not followed, in our view, whether the order of the Hon'ble High Court is, in detail or in short, that has to be followed. We further noted that learned CIT(A) has tried to distinguish the facts in the case of Star India Private Limited and in the case of assessee. Distinguishing feature has been explained by the assessee while filing a chart. - Decided in favour of assessee. Issues Involved:1. Reopening of assessment under Section 147.2. Disallowance of 81.25% of advertisement and sales promotion expenses.3. Validity of reassessment proceedings.4. Applicability of previous judgments and consistency in decisions.Detailed Analysis:1. Reopening of Assessment under Section 147:The Assessee-company, engaged in the production and sale of TV programs and film distribution, filed its return of income for AY 2004-05 on 1.11.2005, declaring a total income of Rs. 16.35 crores. The AO initially completed the assessment under Section 143(3) on 22.12.2006, determining the income at Rs. 19.39 crores. The matter was later reopened under Section 147, and a reassessment was completed on 5.5.2010, computing the total income at Rs. 38.42 crores. The reopening was based on a similar issue in AY 2005-06, where disallowance of Rs. 32.49 crores was made on account of selling and distribution charges. The Assessee objected to the reopening, but the Hon'ble Supreme Court upheld the validity of the reassessment proceedings.2. Disallowance of 81.25% of Advertisement and Sales Promotion Expenses:The AO disallowed 81.25% of the advertisement and sales promotion expenses amounting to Rs. 21.74 crores, reasoning that the expenditure benefitted the Assessee's principal. This disallowance was based on the assessment for AY 2005-06, where a similar disallowance was made. The Assessee argued that the expenditure was incurred wholly and exclusively for business purposes and was eligible for deduction under Section 37 of the Act. The First Appellate Authority (FAA) considered the Assessee's submissions and relied on the Tribunal's order for AY 2005-06 and the decision of the Hon'ble Bombay High Court in the case of Star India Pvt. Ltd., allowing the appeal in favor of the Assessee.3. Validity of Reassessment Proceedings:The Departmental Representative (DR) stated that the matter could be decided on merits, while the Assessee's Authorized Representative (AR) relied on the Tribunal's previous order dated 20.3.2013. The Tribunal, after hearing the rival submissions and perusing the material, found that the issue was discussed in detail in the previous order for AY 2005-06. The Tribunal noted that the AO's disallowance was based on presumptions and surmises without appreciating that the expenditure was incurred wholly and exclusively for business purposes. The Tribunal also considered the Transfer Pricing Officer's (TPO) examination, which confirmed that the margin arrived at as per the Transactional Net Margin Method (TNMM) was at arm's length.4. Applicability of Previous Judgments and Consistency in Decisions:The Tribunal emphasized the importance of following the decisions of higher courts and previous judgments. It noted that the Hon'ble Bombay High Court in the case of Star India Pvt. Ltd. had dismissed the revenue's appeal, confirming the Tribunal's detailed order. The Tribunal also observed that the facts in the Assessee's case were identical to those in Star India Pvt. Ltd. and other similar cases like Viacom 18 Media Pvt. Ltd. and NGC Network (India) Pvt. Ltd., where the issue was decided in favor of the Assessee. The Tribunal concluded that the FAA was correct in allowing the Assessee's appeal based on these precedents.Conclusion:The Tribunal decided the effective ground of appeal against the AO for all three assessment years (2004-05, 2006-07, and 2007-08), following the order for AY 2005-06 and the Hon'ble Bombay High Court's decision in Star India Pvt. Ltd. The cross-objection filed by the Assessee for AY 2004-05 was deemed infructuous. Consequently, the appeals filed by the AO for all three years and the cross-objection by the Assessee were dismissed.Order Pronounced:The order was pronounced in the open court on 9.10.2015.