TaxTMI 
TaxTMI 
2021 (7) TMI 348
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....hile the second writ petition has been filed by ESS Distribution (Mauritius) S.N.C. Et Compagnie [in short "ESSD"]. However, ESSA and ESSD will collectively be referred to as petitioners unless the context requires otherwise. 2. The impugned orders, passed in the instant matters, concern the following: i. orders containing reasons, dated 20.03.2018, based on which the Assessing Officer [in short "A.O."] issued a notice under Section 148 of the Income Tax Act, 1961 [in short "Act"] dated 29.03.2018; ii. notices dated 29.03.2018, issued under Section 148 of the Act; 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 petiti....
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....1.2016 and 21.01.2016. Consequent thereto, vide another notice dated 08.12.2016 issued under Section 142(1) of the Act, the respondent sought additional information from ESSA, which, according to it, was furnished via communication dated 19.12.2016. 5.1. It appears that the AO had made a reference under Section 92 CA (3) of the Act to the Transfer Pricing Officer [TPO] qua ESSA for determining Arm's Length Price [in short "ALP"] in respect of international transactions entered into by ESSA in the financial year [in short "F.Y."] 2012-2013, i.e., AY 2013-2014. 5.2. The record 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 Soft....
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....reciate the provisions of Articles 5(4) and 5(5) of the Double Taxation Avoidance Agreement entered into between India and Mauritius [in short "DTAA"]. 5.7. The AO, however, was not persuaded and thus passed a draft assessment order dated 23.12.2016; which according to ESSA, was served upon it on 03.01.2017. The rationale employed by the AO was that the facts and circumstances obtaining in the AY in issue, i.e., AY 2013-2014 were similar to those which arose in AY 2012-2013 and other earlier AYs and therefore, should 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 ....
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....n view of the foregoing paras, I have reasons to believe that the income chargeable to tax amounting to Rs. 85,68,23,883/- has escaped assessment for Assessment Year 2013 - 14 in this case." 7. The respondent claims that the aforementioned note dated 20.03.2018 was submitted for consideration and approval of Additional Commissioner of Income Tax [in short "ACIT"] for issuance of notice under Section 148 of the Act to ESSA, which was obtained on 28.03.2018. The notice under Section 148 of the Act was, accordingly, issued on 29.03.2018. This notice, as alluded to hereinabove, was premised on the supposition that the AO had reason to believe that ESSA's income chargeable to tax amounting to Rs. 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 issue....
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.... questionnaires, served under Section 142(1) of the Act. In this context, it is averred by ESSD that, on 09.12.2015, it received a questionnaire dated 16.07.2015, issued by the AO, under Section 142(1) of the Act. It appears, in response, ESSD placed on record, its submissions qua the same on 13.01.2016 and 21.01.2016. 9.4. In the interregnum, the matter was referred by the AO to the TPO. The TPO on 05.09.2016, as in the case of ESSA, stated that SSIPL was being subjected to a transfer pricing audit and that necessary action, 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 ....
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....ave been set forth hereinabove. Submissions made on behalf of the petitioners: 11. The submissions on behalf of the petitioners were advanced by Mr. Porus Kaka, learned senior counsel, who was instructed by Mr. Prakash Kumar. These can be paraphrased as follows. i. Firstly, even before the issuance of the draft assessment orders dated 23.12.2016, orders passed in other AYs had held that the petitioners were not an "eligible assessee" within the meaning of Section 144C(15) of the Act [as it stood, at the relevant time]. In this context, reference 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 eligi....
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....16] was passed, for the AY in issue, i.e., AY 2013-2014, by the AO knowing fully well that the petitioners had already been held as not being "eligible assessees" in terms of Section 144C(15)(b) of the Act. viii. Eighthly, the reason given for initiating (re)assessment proceedings, i.e., that the draft assessment 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 con....
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....b) of the Act having regard to the fact that the petitioners do not have a PE in India and/or no income is attributable to them. The impugned notices, and orders setting out reasons and disposing of objections raised qua the same, is contrary to the provisions of Article 5 read with Article 7 of the DTAA and in disregard of the principles enunciated 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....
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....n, it is only then the AO could have completed the proceedings, having regard to the provisions of sub-section (5) and (13) of Section 144C of the Act. [See Principal Appraiser (Exports), Collectorate of Customs and Central Excise and Ors. vs. Esajee Tayabally Kapasi, 1995 (80) ELT 3] v. The draft assessment orders passed by the AO were "inchoate" 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 Commi....
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....resort to the procedure for assessment provided under Section 144C of the Act when such orders [i.e., the aforementioned orders] had already been passed and there was no change in the status of the petitioners in the AY in issue, i.e., AY 2013-2014. The petitioners' status in AY 2013-2014, as in the above referred years, continued as a non-resident foreign 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 pro....
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....f the Act, as was done in AYs 2011-2012 and 2012-2013, vide order dated 27.03.2015 and 10.03.2016. 14. The AO, however, chose to assess the petitioners, by resorting to the procedure provided under Section 144C of the Act despite the record concerning the previous AYs showing that such attempts had failed and there was (in the AY in issue, i.e., AY 2013-2014) 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....
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....rvations. "7. ... The neat question which arises before us is whether on the commencement of assessment proceedings must they first be brought to their logical conclusion by framing an assessment before embarking on the proceedings as envisaged in section 147/148 of the Income-tax Act; or more precisely stated, can resort to section 147 be made even 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 As....
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....usly kept in view in 2nd Explanation to section 147 and in its clauses (a) and (b). In either event the Assessing Officer would invoke the powers conferred upon him by section 147 of the Income-tax Act culminating with the completion of the assessment. It is also conceivable that the incorrectness of the return may not be detected or noticed within the time period 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 Truste....
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....** ** As is well-settled now by the several authorities of this court and of several High Courts, there must be materials to come to the conclusion that there was 'omission or failure to disclose fully and truly all material facts necessary for the assessment of the year'. It postulates a duty on every assessee to disclose fully and truly all material facts necessary for the assessment. 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 dra....
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....aped assessment. [See Commissioner of Income-tax, Delhi vs. Kelvinator of India Ltd., [2010] 187 Taxman 312 (SC)] 15.5. Besides this, there is another aspect of the matter which requires to be highlighted. This aspect concerns the grant of approval under Section 151^2 for issuance of notice under Section 148 of the Act. As noted in the narration of the facts, concerning the above captioned writ petitions, the ACIT, while granting approval 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 sough....
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.... safeguards provided in Sections 147 and 151 were lightly treated by the Income Tax Officer as well as by the Commissioner. Both of them appear to have taken the duty imposed on them under those provisions as of little importance. They have substituted the form for the substance." [Emphasis is ours] 10.1. Also see the observations made in the judgment of the Division Bench of this Court in The Central India Electric Supply Co. Ltd. vs. Income 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' a....
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....stained as the errors committed in the instant cases go to the root of the respondent's jurisdiction. As noticed above, the stand taken that Explanation 2(b) appended to Section 147 of the Act would come to the aid of the respondent is completely misconceived given the fact that, in instant cases, the proceedings under the said provision have been undertaken based on a review of the material which was already available on record. 17. As noticed by the Division Bench 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 materi....