2024 (7) TMI 1047 - AT - Income Tax

AO's mechanical approval under Section 151 invalidates assessment reopening for non-resident Australian entity with ESPN broadcast agreement

Cricket Australia Versus ACIT (International Taxation), Circle-1 (2) (1), New Delhi.

ITAT Delhi held that reopening of assessment under Section 147 was invalid due to non-application of mind by AO and mechanical approval under Section 151. ... Validity of reopening of assessment u/s 147 - validity of approval u/s 151 argued as issued on mechanical manner - assessee is a non- resident corporate entity incorporated in Australia incurred financial transactions in India - based on AIR information available in AIMS module of ITBA, AO noticed that assessee has entered into certain financial transactions and as the activities undertaken by assessee are income generating activities and assessee has not filed any return of income in India, notice issued u/s 148 - As submitted by the assessee that it had entered into an Asian Broadcast Agreement with ESPN granting certain rights for telecasting certain matches played in Australia [ESPN Star Sports is a partnership incorporated in USA and has principal palace of business at Singapore] and that the fee received by the assessee from another non-resident company is not subject to tax in India - AO stated that assessee didn’t file any return of income. HELD THAT:- It is a fact on record, in the year under consideration, neither the assessee has made remittances to anyone outside India or in India nor deducted any tax at source. Therefore, there is no question of assessee filing any TDS return. This fact has been accepted subsequently by the Assessing Officer while disposing of the objections of the assessee. Thus, the present case stands on identical footing as the case of Cricket South Africa [2023 (10) TMI 1318 - ITAT DELHI] as held only requirement to initiate proceedings u/s. 147 is reason to believe which has been recorded above. This case is beyond four years & within six years from the end of the assessment year under consideration. Therefore, approval u/s 151(1) of the Act is solicited. AO has reopened the assessment under Section 147 of the Act with complete non-application of mind. Unfortunately, the higher authorities while granting approval under Section 151 of the Act have approached the issue in a mechanical manner without verifying the facts. Approval has to be granted with caution and proper application of mind to the facts and material on record, to prevent to miscarriage of justice as reopening of assessment involves reopening of an already concluded assessment. Therefore, it should not be used as a trail of harassment to the assessee unless there is concrete evidence that the Assessing Officer indicating escapement of income, powers under Section 147 of the Act should not be exercised. However, this is not the case in the present appeal. Not only the Assessing Officer has acted in a caliber manner while reopening of assessment under Section 147 of the Act but the proving authorities under Section 151 of the Act have failed in discharging the duties cast upon them by the Statue. As could be seen from the observations of learned DRP, they have disposed of the objections of the assessee being completely oblivious of the factual position as the DRP has referred to non- filing of TDS return and related transactions as the reasons for reopening. Thus, in our view, is totally unacceptable. When the Assessing Officer while disposing of the objections of the assessee as admitted errors committed by him, it is surprising that learned DRP has fallen in the same error while referring to non-filing of TDS royalty and TDS transaction as the cause for reopening of assessment - As DRP is constituted by three very senior officers of the department in the rank of Principal CIT/CIT. Therefore, it is expected that when the panel decides the objection raised by the aggrieved assessee, they must decide the issues raised before them by considering both the facts and law. This is so because after directions issued by the DRP, assessee got no further opportunity before the Assessing Officer as the Assessing Officer has to implement the directions of DRP in latter and spirit. However, we have come across several instances where the DRP has failed to discharge its obligation in a proper manner by dealing with the objections of the on merit with valid reasoning. The instant case is a classic example on failure of the DRP to effectively deal with the issue at hands. Thus we hold that reopening of assessment under Section 147 of the Act in the facts of the present appeal is wholly without jurisdiction, hence, invalid. Accordingly, we quash the assessment order. Decided in favour of assessee. Issues Involved:1. Validity of reopening of assessment under Section 147 of the Income-Tax Act, 1961.2. Taxability of license fee as royalty under Article 12(3) of India-Australia Double Taxation Avoidance Agreement (DTAA).Issue-wise Detailed Analysis:1. Validity of Reopening of Assessment under Section 147 of the Income-Tax Act, 1961:The primary issue raised by the assessee was the legality of the reopening of assessment under Section 147 of the Income-Tax Act, 1961. The assessee, a non-resident corporate entity incorporated in Australia, did not file any return of income under Section 139(1) for the assessment year 2013-14. However, based on AIR information available in the AIMS module of ITBA, the Assessing Officer (AO) noticed that the assessee had entered into financial transactions aggregating to Rs. 5,11,77,717. Believing these activities to be income-generating and noting the absence of a filed return, the AO reopened the assessment under Section 147.In response, the assessee filed its return of income and objected to the reopening, arguing that the fee received from ESPN Star Sports, another non-resident company, was not subject to tax in India and could not be treated as royalty under Article 12(3) of the India-Australia DTAA. The AO rejected these submissions and proceeded to tax the license fee as royalty, leading to the draft assessment order. The assessee raised objections before the Dispute Resolution Panel (DRP), which were also rejected.Upon review, the Tribunal found that the facts of the case were identical to those in the case of Cricket South America (ITA No.604/Del/2023). The reasons recorded by the AO for reopening the assessment were scrutinized, revealing several inaccuracies and misstatements. Specifically, it was noted that the AO incorrectly stated that the assessee had filed TDS returns under Sections 195 and 194E, despite the fact that no such returns were filed since no remittances were made.The Tribunal emphasized that the foundation of assessment jurisdiction under Section 147 is the reason recorded by the AO to form a belief that income chargeable to tax has escaped assessment. In this case, the reasons recorded were found to be based on non-existent or irrelevant facts, lacking any live link or nexus with tangible material on record. The Tribunal also criticized the higher authorities for granting approval under Section 151 in a mechanical manner without verifying the facts, highlighting the importance of proper application of mind to prevent miscarriage of justice.The Tribunal further noted the DRP's failure to effectively address the objections raised by the assessee, pointing out that the DRP's decision was based on incorrect facts and lacked proper reasoning. Consequently, the Tribunal declared the reopening of assessment as invalid and quashed the assessment order.2. Taxability of License Fee as Royalty under Article 12(3) of India-Australia DTAA:The second issue involved the taxability of the license fee received by the assessee from ESPN Star Sports. The assessee contended that the fee could not be treated as royalty under Article 12(3) of the India-Australia DTAA. However, since the Tribunal quashed the reopening of assessment under Section 147, the issues raised in other grounds, including the taxability of the license fee, became academic and were not decided. These issues were kept open for future consideration if necessary.Conclusion:In conclusion, the Tribunal allowed the appeal, declaring the reopening of assessment under Section 147 as invalid and quashing the assessment order. The issues related to the taxability of the license fee were not decided, as they became academic following the decision on the primary issue. The order was pronounced in the open court on 31.10.2023.