TaxTMI 
TaxTMI 
2014 (8) TMI 7
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.... the copyright purchase agreement dated 25th January, 1997 where the petitioner company had acquired the copyright of the hindi newspaper "Dainik Jagran" from the owner of the copyright, namely, the firm Jagran Publication. In response to the query raised by the Assessing Officer in proceedings under Section 143(3) of the Act, the petitioner filed a detailed reply dated 7th January, 1998 justifying the valuation of the purchase of the copyright at Rs. 17 crores. The petitioner contended that at the time of planning of public issue of equity shares at a premium during 1995, the Merchant Bankers including the lead issue Managers were of the firm opinion that the ownership of copyright was an essential prerequisite for a successful public issue of equity shares on a premium. The petitioner contended that mentioning of non-ownership of copyright of publishing Dainik Jagran was a risk factor which could dissuade the investors from subscribing to the proposed public issue of equity shares at a premium. It was also pointed out by the petitioner that the intrinsic worth of the said copyright and the valuation thereof may also be gathered from the fact that interest free security deposit....
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....Commissioner of Income Tax (Audit), Kanpur relating to excess payment of consideration towards copyright. In the audit report it was stated that the consideration of Rs. 17 crores paid by the petitioner to the owners of the copyright of Dainik Jagran was excessive. The report contended that the assessee company having purchased the composite copyrights became the absolute owner of the copyright. The name Dainik Jagran was being used by other sister concerns also without paying any consideration to the assessee and, consequently, concluded that a part of the consideration attributable to the territories of Varanasi, Jhansi, Meerut, Bareilly, New Delhi and Dehradun from where the newspaper was being published by other sister concerns could be said to be an expenditure wholly and exclusively for business purpose. According to the audit report, part of the purchase consideration was liable to be disallowed as not for the purpose of business and that a sum of Rs. 8.5 crores was to be treated as a deemed gift under Section 4(10)(c) of the Gift Tax Act. The audit report suggested that suitable action in this regard may be taken by the Assessing Officer for the assessment year in question.....
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....s. 17 crores for the copyright appears to be reasonable and that no gift appears to be involved. Inspite of the aforesaid, it seems that the Assessing Officer had a change of heart and issued a notice dated 23rd January, 2001 for the assessment year 1997-98 indicating that he had reasons to believe that income for the assessment year 1997-98 had escaped assessment. Reasons for reopening the assessment has been given by the Assessing Officer in its separate order dated 23rd January, 2001. The Assessing Officer contended that an amount of Rs. 1,20,00,000/- has been disclosed as expenses under Section 35A of the Act being 1/14th cost of Rs. 17 crores, which is the cost of copyright for the use for its business purposes. It was indicated that the assessee had permitted other companies, namely, Jagran Prakasan (Varanasi) Pvt. Ltd. to publish Dainik Jagran from Varanasi, Jagran Limited to publish Dainik Jagran from Meerut, Rohilkhand Publications Pvt. Ltd. to publish Dainik Jagran from Bareilly and Jagran Prakashan (Delhi) Pvt. Ltd. to publish Dainik Jagran from New Delhi without any consideration. It was contended that the assessee was not charging any amount on the use of the sam....
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....-department, is that the Assessing Officer has wide powers to reopen the assessment if he has reasons to believe that the income had escaped assessment. The learned counsel submitted that if the Assessing Officer had a reasonable ground to believe that there had been a non-disclosure of a primary fact, which has a material bearing on the question that the assessment so made was not assessed or that some income had escaped assessment, in that event, it would be sufficient to initiate proceedings for reassessment. The learned counsel submitted that the reasons disclosed by the Assessing Officer justified his action in issuing a notice under Section 148 of the Act. Before proceeding further, it would be appropriate to peruse Section 147 and 148 of the Act which is extracted hereunder:- "Income escaping assessment. 147. If the [Assessing] Officer [has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proc....
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.... allowance or any other allowance under this Act has been computed." "Issue of notice where income has escaped assessment. 148. [(1)] Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139. [Provided that in a case - (a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005 in response to a notice served under this section, and (b) Subsequently a notice has been served under subsection (2) of section 143 after the expiry of twelve months specified in the proviso to subsection ....
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....High Courts and also by the Supreme Court of India. In Ganga Saran & Sons P. Ltd. Vs. Income-Tax Officer and others, 1981 Vol.130 ITR 1, the Supreme Court held : "It is well settled as a result of several decisions of this Court that two distinct conditions must be satisfied before the Income Tax Officer can assume jurisdiction to issue notice under section 147 (a). First, he must have reason to believe that the income of the assessee has escaped assessment and secondly, he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. If either of these conditions is not fulfilled, the notice issued by the Income Tax Officer would be without jurisdiction. The important words under section 147 (a) are "has reason to believe" and these words are stronger than the words "is satisfied". The belief entertained by the Income Tax Officer must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. The Court, of course, cannot investigate into the adequacy or sufficiency of the ....
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....en for the court's investigation. In other words, all that is necessary to give this special jurisdiction is that the Income-tax Officer had when he assumed jurisdiction some prima facie grounds for thinking that there had been some non-disclosure of material facts." From a perusal of the aforesaid, it is clear that where a notice is issued within four years from the end of the relevant assessment year, the jurisdiction of the Assessing Officer is conferred where he has reasons to believe that income chargeable to income tax on escaped assessment. Explanation-2 provides the following shall be deemed to be cases where income chargeable to tax on escaped assessment, namely, where no return of income had been furnished by the assessee or where the return has been furnished by the assessee but no document has been made and the Assessing Officer noticed that the assessee has understated the income. It is settled law that the Assessing Officer having reasons to believe that there had been some omission or failure to disclose fully or truly all material facts necessary for the assessment must be based on some material facts which according to the Assessing Officer is based on so....
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....rds what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences-whether of facts or law-he would draw from the primary facts." In Commissioner of Income Tax Vs. Kelvinator of India Ltd., 256 ITR 1, the Full Bench of the Delhi High Court held that Section 147 of the Act did not confer any power upon the Assessing Officer to initiate reassessment proceedings on a mere change of opinion. In the said case, the assessee in his revised return of income had withdrawn the disallowance in respect of expenses on rent and depreciation of the guest house on the ground that since rent and depreciation were allowable u/S 30 and 32 of the Act, the same cannot be disallowed u/S 37 (4) of the Act. The Assessing Officer accepted the contention of the assessee in the original assessment order and accepted the withdrawal of the disallowance of guest house expenditure as submitted by the assessee in his revised return of income. Subsequently, a notice u/s 148 of the Act was issued on the ground that the tax audit report was not noticed by the Assessing Officer while passing the original assessment order. The Full Bench of the Del....
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....ssessment proceedings cannot be reopened on the basis of an opinion formed on the basis of an audit report and the same is not valid. The said decision was affirmed by the Supreme Court in Commissioner of Income Tax Vs. Lucas T.V.S. Ltd., 249 ITR 306. In Indian and Eastern Newspaper Society Vs. Commissioner of Income Tax, New Delhi, 119 ITR 996 the Supreme Court held that the opinion of the internal audit party at a point of law cannot be regarded as information within the meaning of Section 147(b) of the Act for the purpose of reopening an assessment. Similarly, in IL and FS Investment Managers Ltd. Vs. Income Tax Officer and others, 2008 298 ITR 32 the assessee had claimed depreciation on intangible assets. Subsequently, an audit objection was raised to a substantial portion of the depreciation amount, which was claimed in the intangible asset. Based on this audit objection, notice under Section 148 of the Act was issued. The Bombay High Court quashed the reassessment proceedings holding that once the Assessing Officer had opposed the reopening at the initial stage and subsequently reopened the assessment proceedings, the Court held that the Assessing Officer had not formed hi....