NGC NETWORK (INDIA ) P. LTD, MUMBAI V. ASST CIT 11(1), MUMBAI

CO 11/MUM/2011

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7497 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 13 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 29-06-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 19-06-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 15-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A KOMADI
• Assessee Lawyers: PORUS KAKA SENIOR
• Keywords: Reopening of assessment; Tangible material; Difference of opinion; Assessment record; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 147; 148

Judgement Text

M/S. NGC NETWORK (INDIA) PVT. LTD. I.T.A NO: 2867/M/2010 & C.O. NO.11/M/2011 PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER & SHRI VIVEK VARMA, JUDICIAL MEMBER I.T.A. NO.2867/MUM/2010 ASSESSMENT YEAR : 2002-03 ACIT-11(1) ROOM NO. 439, AAYAKAR BHAVAN, M.K. MARG, MUMBAI-400 020 VS. M/S. NGC NETWORK (INDIA) PVT. LTD. STAR HOUSE, DR. E. MOSES ROAD, MAHALAXMI, MUMBAI-400 011 PAN NO: AABCN 1401 A (APPELLANT) (RESPONDENT) C.O. NO. 11/MUM/2011 ASSESSMENT YEAR : 2002-03 M/S. NGC NETWORK (INDIA) PVT. LTD. STAR HOUSE, DR. E. MOSES ROAD, MAHALAXMI, MUMBAI-400 011 PAN NO: AABCN 1401 A VS. ACIT-11(1) ROOM NO. 439, AAYAKAR BHAVAN, M.K. MARG, MUMBAI-400 020 (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI A. KOMADI ASSESSEE BY : SHRI PORUS KAKA, SENIOR ADVOCATE DATE OF HEARING: 20.06.2012 DATE OF PRONOUNCEMENT: 29-06-2012. O R D E R PER VIVEK VARMA, J.M. : THE INSTANT APPEAL IS FILED BY THE DEPARTMENT AGAIN ST THE ORDER OF CIT(A)-3, MUMBAI, DATED 12.02.2010. ON THE SERVICE OF NOTICE OF HEARING, THE ASSESSEE HAS FILED A CO ARISING OUT OF THE APPE AL. M/S. NGC NETWORK (INDIA) PVT. LTD. I.T.A NO: 2867/M/2010 & C.O. NO.11/M/2011 PAGE 2 OF 6 2. THE DEPARTMENT IS IN APPEAL AGAINST THE ORDER OF THE CIT(A), ALLOWING THE EXPENDITURE ON ACCOUNT OF ADVERTISEMENT UNDER S ECTION 37(1), AS CLAIMED BY THE ASSESSEE, WHEREAS, THE ASSESSEE HAS RAISED T HE ISSUE OF CORRECTNESS OF THE REOPENING OF ASSESSMENT PROCEEDINGS U/S 148, ON THE BASIS OF OBJECTIONS RAISED BY THE DEPARTMENT IN ASSESSMENT Y EAR 2005-06, IN THE CROSS OBJECTIONS. 3. THE DISALLOWANCE OF ADVERTISEMENT EXPENSES IN PA RT, HAS BEEN AN ISSUE BETWEEN THE ASSESSEE AND THE DEPARTMENT SINCE ASSESSMENT YEAR 2005-06. AS AN IMPORTANT FACT, THE ISSUE OF PART D ISALLOWANCE HAS BEEN LAID AT REST IN THE ASSESSEES OWN CASES BEFORE THE CO-O RDINATE BENCHES IN MUMBAI IN ITA NO. 655/MUM/2010 FOR ASSESSMENT YEAR 2005-06, BEING A THIRD MEMBER DECISION, WHICH WAS DECIDED IN FAVOUR OF THE ASSESSEE. CONSEQUENTLY, IN ITA NO. 3545/MUM/2010, ONCE AGAIN THE ISSUE WAS RAISED AND IT WAS ALSO DECIDED IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE DECISIONS OF THE CO-ORDINATE BENCHES IN THE ASSESSE ES OWN CASE, WE DISMISS THE APPEAL FILED BY THE DEPARTMENT. 4. THE ASSESSEE THROUGH THE CO HAS OBJECTED TO THE REOPENING OF ITS ASSESSMENT PROCEEDINGS U/S 148. THE FACTS ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 31.10.2002 AND IT WAS PROCESSED U/S 143(1). ON 24.03.2009 THE AO ISSUED A NOTICE U/S 148 ON THE RE ASONS AS RECORDED AND SUPPLIED TO THE ASSESSEE, THAT THE BASIS, IS ON ACC OUNT OF AD HOC DISALLOWANCE OF ADVERTISEMENT AND PUBLICITY EXPENSE S IN ASSESSMENT YEAR M/S. NGC NETWORK (INDIA) PVT. LTD. I.T.A NO: 2867/M/2010 & C.O. NO.11/M/2011 PAGE 3 OF 6 2005-06. ACCORDINGLY, THE AO ISSUED A NOTICE U/S 1 48, OBSERVING THAT, AS SUCH THE AO HAD NO OCCASION TO TAKE ANY OPINION ON THE SAID DISALLOWANCE CALLED FOR. THUS EXPENSES, AMOUNTING TO RS. 1,58,5 0,196 (THIS BEING 66.66% OF RS. 2,37,77,478) NEED TO BE DISALLOWED AS PER SP ECIFIC FINDINGS OF THE A.O. FOR A.Y. 2005-06. 5. THE A.O. AFTER CONSIDERING THE OBJECTIONS AND SU BMISSIONS BY THE ASSESSEE DISALLOWED THE SAID AMOUNT IN THE ASSESSME NT ORDER PASSED U/S 143(3) READ WITH SECTION 147 ON 19.01.2009. 6. THE ISSUE WAS TAKEN UP BEFORE THE FIRST APPELLAT E AUTHORITY, WHERE ACTION U/S 148 WAS UPHELD BUT THE DISALLOWANCE WAS DELETED (AGAINST WHICH THE DEPARTMENT CAME IN APPEAL IN ITA NO. 2867/MUM/2 010, DECIDED HERE ABOVE). 7. IN THE CO BEFORE THE ITAT, THE ASSESSEE HAS TAKE N UP THIS ISSUE. 8. BEFORE US, THE SENIOR AR POINTED OUT IN ASSESSME NT YEAR 2004- 05, IN THE ASSESSEES OWN CASE, THE ISSUE WAS TAKEN UP AS THE MAIN GROUND BY THE DEPARTMENT AS THE CIT(A) HAD STRUCK DOWN THE REOPENING U/S 148. IN THAT YEAR, ON THE SAME FACTS THE AO HAD REOPENED TH E ASSESSMENT AND WENT ON TO MAKE AN ADDITION ON THE BASIS ON ASSESSMENT Y EAR 2005-06 (AS IT HAS BEEN DONE IN THE INSTANT CASE). THE CO-ORDINATE BE NCH HELD THAT THE REASSESSMENT PROCEEDING WAS INVALID. THE RELEVANT P ORTION OF THE ORDER IS EXTRACTED HERE BELOW : 2.3 BEFORE THE LD. CIT(A) IT WAS SUBMITTED THAT THE A.O ERRED IN INITIATING THE REASSESSMENT PROCEEDINGS ON THE BASIS OF FINDING IN THE ASSESSMENT ORDER PASSED U/S.143(3) FOR A.Y. 05-06. IT WAS SUBMITTED THAT NO NEW MATERIAL HAD COME INTO THE POSSESSION OF THE A.O EVIDENCING ESCAPEMENT OF INCO ME FOR THE IMPUGNED ASSESSMENT YEAR. FURTHER, THE SCRUTINY ASSESSMENT P ROCEEDINGS FOR THE IMPUGNED M/S. NGC NETWORK (INDIA) PVT. LTD. I.T.A NO: 2867/M/2010 & C.O. NO.11/M/2011 PAGE 4 OF 6 ASSESSMENT YEAR HAS BEEN COMPLETED U/S.143(3) OF TH E ACT AFTER CONSIDERING DETAILS RELATED TO ADVERTISEMENT AND PUBLICITY EXPENSES INC URRED WHICH WERE FILED BY THE ASSESSEE BEFORE THE AO AND REOPENING WAS A MERE CHA NGE OF OPINION. 2.4 BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE , THE LD. CIT(A) HELD THAT THE REOPENING OF THE ASSESSMENT BY THE A.O. IS NOT VALI D AND BAD IN LAW BY HOLDING AS UNDER:- THE ASSESSMENT RECORD OF AO HAS BEEN SEEN. THE APP ELLANTS CONTENTION OF LETTERS GIVING DETAILS TO AO DURING ASSESSMENT PROCEEDINGS IS FOUND TO BE PART OF THE ASSESSMENT RECORD OF A.O. THE FINDING OF AO WHILE R ECORDING REASONS FOR REOPENING THAT SUCH DETAILS WERE NOT CALLED FOR NOR VERIFIED DURING SCRUTINY PROCEEDINGS AND APPELLANT NOT HAVING DISCLOSED THESE DETAILS IS INC ORRECT AND NOT SUPPORTED BY THE FACTS OF THE CASE AND MATERIAL AVAILABLE ON RECORD. 3.1.2 THE REOPENING IS FOR DISALLOWANCE OF ADVERTI SEMENT AND PUBLICITY EXPENSES CONSIDERED EXCESSIVE AND UNREASONABLE AND AS HAVING BENEFITED THE NGC NETWORK ASIA FROM WHOM APPELLANT HAS A DISTRIBUTION AGREEME NT. DETAILS AVAILABLE ON RECORD INDICATE THAT THE SAID EXPENSES HAVE BEEN LOOKED IN TO AND VERIFIED BY AO DURING ASSESSMENT PROCEEDINGS AS ALSO THE APPELLANTS DIST RIBUTION AGREEMENT. ON CONSIDERATION THEREOF, IT IS HELD THAT THE AOS ACT ION OF REOPENING THE CASE FOR DISALLOWANCE OF THE SAID EXPENSES CAN ONLY BE TREAT ED A CHANGE OF OPINION REGARDING ADMISSIBILITY OF EXPENSES. REOPENING IS, THEREFORE, CONSIDERED NOT VALID AND BAD IN LAW ON THE FACTS OF THE CASE AND IN VIEW OF VARIOUS HON'BLE COURT PRONOUNCEMENTS ON THE MATTER OF CHANGE OF OPINION NOT BEING PERMISSIB LE U/S.147. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A), THE RE VENUE IS IN APPEAL BEFORE US. 3. THE LD. D.R. REFERRING TO THE DECISION OF THE HO NBLE BOMBAY HIGH COURT IN THE CASE OF MULTISCREEN MEDIA (P) LTD. VS. UOI AND ANOT HER REPORTED IN 324 ITR 54 SUBMITTED THAT WHEN ADDITIONAL MATERIAL HAS BEEN DI SCOVERED IN THE ASSESSMENT PROCEEDINGS OF A SUBSEQUENT YEAR THEN THE RE-ASSESS MENT PROCEEDINGS ON THE BASIS OF SUCH SUBSEQUENT ASSESSMENT IS VALID. REFERRING TO T HE COPY OF THE REASONS RECORDED, THE LD. D.R. SUBMITTED THAT DURING THE COURSE OF AS SESSMENT PROCEEDINGS FOR A.Y. 2005-06, THE A.O. HAD MADE SPECIFIC ADDITION UNDER THE HEAD ADVERTISEMENT AND PUBLICITY WHICH WAS DEBITED TO THE P&L ACCOUNT. SI MILARLY, THE ADVERTISEMENT AND PUBLICITY EXPENSES WERE THERE IN THE A.Y. 2004-05. THE ASSESSEE HAD DEBITED A SUM OF RS. 5,28,19,341/- UNDER THE HEAD ADVERTISEMENT AND PUBLICITY EXPENSES. THESE DETAILS WERE NEITHER CALLED FOR BY THE A.O. NOR VER IFIED BY HIM DURING THE SCRUTINY PROCEEDINGS. THE ASSESSEE HAD ALSO NEITHER MADE ANY DECLARATION NOR DISCLOSED TO THE A.O. THEREFORE, IN VIEW OF THE FINDING FOR A.Y. 2005-06, THE A.O. HAD REASON TO BELIEVE THAT SIMILAR DISALLOWANCES WERE CALLED FOR IN A.Y. 2004-05. SINCE THE A.O. HAD REASON TO BELIEVE THAT TAXABLE INCOME HAS ESCAP ED ASSESSMENT, THEREFORE, THE INITIATION FOR RE-ASSESSMENT PROCEEDINGS BY THE A.O . IS VALID IN LAW. 4. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER H AND, SUBMITTED THAT THE LD. CIT(A) WAS FULLY JUSTIFIED IN HOLDING THE REASSESSMENT PRO CEEDINGS AS INVALID. HE SUBMITTED THAT THERE IS A FUNDAMENTAL DIFFERENCE BETWEEN THE DECISIONS RELIED ON BY THE LD. D.R. AND THE FACTS OF THE PRESENT CASE. REFERRING TO THE COPY OF THE THIRD MEMBER DECISION OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR A.Y . 2005-06, THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO PAGE 2 OF THE ORDER WHERE A FINDING HAS BEEN GIVEN THAT W.E.F. 1 ST JULY, 2004 THE ASSESSEE COMPANY ENTERED INTO ADVE RTISING SALES REPRESENTATION AGREEMENTS WITH FOX INTERNATI ONAL CHANNELS AS WELL AS NGC NET WORK ASIA LLC WHERE BY THE ASSESSEE WAS APPOINT ED AS AN EXCLUSIVE INDEPENDENT REPRESENTATIVE IN THE TERRITORY TO SOLI CIT TELEVISION ADVERTISING FOR THE CHANNELS AND TO COLLECT AND REMIT ADVERTISEMENT CHA RGES. REFERRING TO THE COPY OF THE REASON PLACED ON THE PAPER BOOK, HE SUBMITTED THAT THE A.O. HAD SIMPLY CUT AND PASTED THE FACTS OF A.Y. 2005-06 WHICH ARE NOT APPL ICABLE TO THE FACTS OF THE IMPUGNED ASSESSMENT YEAR I.E. 2004-05. IN THE CASE OF THE AS SESSEE THERE WAS NO ADVERTISEMENT INCOME FOR THE IMPUGNED ASSESSMENT YEAR. THERE IS N O LIVE LINK BETWEEN THE REASONS RECORDED AND REASON TO BELIEVE. REFERRING TO THE DE CISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V. KELVINATOR OF INDIA LTD . REPORTED IN [2010] 320 ITR 561 (SC), HE SUBMITTED THAT THERE MUST BE SOME TANGIBLE MATERIAL FOR THE FORMATION OF THE M/S. NGC NETWORK (INDIA) PVT. LTD. I.T.A NO: 2867/M/2010 & C.O. NO.11/M/2011 PAGE 5 OF 6 BELIEF. THE A.O. HAS POWER TO REOPEN THE ASSESSMENT PROCEEDINGS PROVIDED THERE IS TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT TH ERE WAS ESCAPEMENT OF INCOME FROM ASSESSMENT. THE REASON MUST HAVE A LINK WITH T HE FORMATION OF THE BELIEF. REFERRING TO THE COPY OF THE ASSESSMENT ORDER PASSE D U/S 143(3) FOR A.Y. 2004-05, THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE NATURE OF BUSINESS AS MENTIONED BY THE A.O. AT PAGE 2 & 3 OF THE ASSES SMENT ORDER. HE SUBMITTED THAT THE A.O. IN THE SCRUTINY ASSESSMENT HAD ACCEPTED TH E INCOME RS. 89650630/- AFTER CONSIDERING THE T.P. REPORT. NO NEW MATERIAL HAS CO ME TO THE NOTICE OF THE A.O. THEREFORE, THE RE-OPENING OF THE ASSESSMENT MADE BY THE A.O. IS DUE TO MERE CHANGE OF OPINION WHICH IS NOT SUSTAINABLE IN LAW. HE ACCO RDINGLY SUBMITTED THAT THE LD. CIT(A) WAS FULLY JUSTIFIED IN HOLDING THAT THE REAS SESSMENT PROCEEDINGS ARE INVALID. 5. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PURSUED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS D ECISIONS CITED BEFORE US. IN THIS CASE THE SCRUTINY ASSESSMENT WAS COMPLETED U/S 143( 3) ON 27TH DECEMBER 2006 WHEREIN THE RETURNED INCOME OF THE ASSESSEE AT RS. 8,96,50,630/- WAS ACCEPTED AFTER CONSIDERING THE T.P. STUDY REPORT. WE FIND THE A.O. ISSUED NOTICE U/S 148 ON THE GROUND THAT THE ADVERTISEMENT EXPENSES WERE DISALLO WED DURING A.Y. 2005-06. SINCE DURING THIS ASSESSMENT YEAR THE ASSESSEE HAD DEBITE D A SUM OF RS. 5,28,19,341/- UNDER THE HEAD ADVERTISEMENT AND PUBLICITY EXPENSE S AND SINCE THE DETAILS OF SUCH EXPENSES WERE NEITHER CALLED NOR VERIFIED BY THE A. O. AND SINCE THE ASSESSEE HAS ALSO NOT MADE ANY DECLARATION OR NOT DISCLOSED THE INFOR MATION TO THIS EFFECT, THEREFORE, THE A.O. HAD REASON TO BELIEVE THAT THE TAXABLE INC OME OF THE ASSESSEE HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE ACT. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE COMPANY ENTERED INTO ADVERTISING SALES REPRESENTATION AGREEMENTS WITH FOX INTERNATIONAL CH ANNELS AS WELL AS NGC NET WORK ASIA LLC W.E.F. IST JULY, 2004, A FACT BROUGHT ON RECORD BY THE HONBLE THIRD MEMBER IN ASSESSEES OWN CASE IN ITA NO. 635/MUM/20 10 ORDER DTD. 17TH JUNE, 2011 FOR A.Y. 2005-06. WE, THEREFORE, ARE OF THE OP INION THAT THERE IS A FUNDAMENTAL DIFFERENCE BETWEEN THE FACTS OF THE CASE FOR A.Y. 2 004-05 AND 2005-06 AND, THEREFORE, THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF KELVINATOR OF INDIA LTD. (SUPRA) IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THE CASE OF KELVINATOR OF INDIA LTD. (SUPRA), IT HAS BEEN HELD THAT THE A.O. HAS POWER TO RE-OPEN THE ASSESSMENT PROVIDED THERE IS TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE WAS ESCAPEMENT OF INCOME FROM ASSESSMENT. THE REASON MUST HAVE A LIVE LINK WITH THE FORMATION OF THE BELIEF. IN THE INSTANT CA SE WE DO NOT FIND THE REASONS HAVING ANY LINK WITH THE FORMATION OF THE BELIEF SINCE THE A.O. WHILE REOPENING THE ASSESSMENT FOR A.Y. 2004-05 HAS RELIED ON THE ASSES SMENT ORDER FOR 2005-06 ON THE ISSUE OF DISALLOWANCE OF ADVERTISEMENT EXPENSES AND THE FACTS OF A.Y. 2005-06 ARE COMPLETELY DIFFERENT FROM THE A.Y. 2004-05 IN VIEW OF THE FINDINGS OF THE THIRD MEMBER IN ASSESSEES OWN CASE FOR A.Y. 2005-06. IN THIS VIEW OF THE MATTER AND IN VIEW OF THE DETAILED REASONING GIVEN BY THE LD. CIT (A) WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) HOLDING THAT THE REASSE SSMENT PROCEEDINGS ARE INVALID. WE ACCORDINGLY UPHOLD THE SAME. THE GROUND RAISED BY T HE REVENUE IS ACCORDINGLY DISMISSED. 9. IN VIEW OF IDENTICAL CIRCUMSTANCES, WE ARE INCLI NED TO FOLLOW THE DECISION TAKEN BY THE CO-ORDINATE BENCH IN THE ASSE SSEES OWN CASE AND THE DETAILED REASONING GIVEN THEREIN. M/S. NGC NETWORK (INDIA) PVT. LTD. I.T.A NO: 2867/M/2010 & C.O. NO.11/M/2011 PAGE 6 OF 6 10. RESPECTFULLY, FOLLOWING THE DECISION IN ITA NO. 3545/MUM/2010 IN PARAS 2.3 TO 5, (EXTRACTED HERE ABOVE) WE ALLOW THE CROSS OBJECTION FILED BY THE ASSESSEE AND HOLD THAT PROCEEDINGS U/S 148 WERE INVALID. 11. IN THE RESULT, ITA NO. 2867/MUM/2010 FILED BY THE DEPARTMENT IS DISMISSED AND CO NO. 11/MUM/2010 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 29/06/2012. SD/- SD/- (B.RAMAKOTAIAH) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI: 29/06/2012. P/-*