ACIT 11(1), MUMBAI V. NGC NETWORK (INIDA) P.LTD, MUMBAI

ITA 3545/MUM/2010

• Counselvise Citation: 354519914 RSA 2010
• Duration Of Justice: 1 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 12-10-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 05-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PORUSKAKA MR DIVESH CHAWLA
• Assessee Lawyers: PRAVIN VERMNA
• Keywords: Tangible material; Difference of opinion; Assessment record; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 147; 27; 148

Judgement Text

1 ITA 3545/ M/2010, NGC NETWORK (I) PL. LTD. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B BEFORE SHRI B.R. MITTAL, J.M. AND SHRI R.K. PANDA, A.M. ITA NO. 3545/MUM/2010 ASSESSMENT YEAR 2004-05 A.C.I.T. 11(1), ROOM NO. 439, AAYAKAR BHAVAN, M.K. MARG, MUMBAI - 400020. PAN AABCN1401A VS. M/S NGC NETWORK (INDIA) PVT. LTD., STAR HOUSE, DR. E. MOSES ROAD, MAHALAXMI, MUMBAI. 400 011. APPELLANT RESPONDENT C.O. NO. 34/MUM/2011 ARISING OUT OF ITA NO. 3545/MUM/2010 ASSESSMENT YEAR 2004-05 M/S NGC NETWORK (INDIA) PVT. LTD., STAR HOUSE, DR. E. MOSES ROAD, MAHALAXMI, MUMBAI. 400 011. VS. A.C.I.T. 11(1), ROOM NO. 439, AAYAKAR BHAVAN, M.K. MARG, MUMBAI - 400020. PAN AABCN1401A CROSS OBJECTOR RESPONDENT ASSESSEE BY MR. PORUSKAKA MR. DIVESH CHAWLA RESPONDENT BY MR. PRAVIN VERMNA DATE OF HEARING 12.10.2011 DATE OF PRONOUNCEMENT 19.10.2011 ORDER PER R.K. PANDA A.M. THIS APPEAL FILED BY THE REVENUE AND C.O. FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DT. 23.2.2010 OF THE CIT (A)- 3, MUMBAI RELATING TO 2 ITA 3545/ M/2010, NGC NETWORK (I) PL. LTD. A.Y. 2004-05. FOR THE SAKE OF CONVENIENCE, THESE WE RE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. ITA NO. 3545/MUM/2010 (BY REVENUE) 2. GROUNDS OF APPEAL NO. 1 BY THE REVENUE READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES IN THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE ASSESSMENT COM PLETED U/S.143(3) AND WITH SEC. OPINION WAS FORMED BY THE AO WITH REG ARD TO ADVERTISEMENT AND PUBLICITY EXPENSES IN THE ORDER D ATED 27.12.2006. THE APPELLANT PRAYS THAT THE ORDER OF CIT(APPEALS) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFI CER RESTORED. 2.1 FACTS OF THE CASE IN BRIEF ARE THAT THE RETURN OF INCOME FOR A.Y. 04-05 WAS FILED BY THE ASSESSEE ON 1-11-04, DECLARING TOTAL I NCOME AT `. 8,96,50,630/- WHICH WAS PROCESSED U/S 143(1). SUBSEQUENTLY, IN TH E SCRUTINY U/S.143(3) THE RETURNED INCOME WAS ACCEPTED BY THE A.O. VIDE ORDER DATED 27.12.06. THEREAFTER, ON THE BASIS OF REASONS RECORDED, THE A .O REOPENED THE ASSESSMENT BY ISSUING NOTICE U/S.148 DATED 24.03.09. THE REASO N RECORDED WAS THAT DURING THE COURSE OF ASSESSMENT FOR A.Y. 2005-06, THERE WA S DISALLOWANCE OF `. 4,14,20,843/- ON ADVERTISEMENT AND PUBLICITY EXPENS ES ON THE BASIS OF SPECIFIC FINDINGS OF THE A.O. THE A.O HAS RECORDED IN REASONS FOR REOPENING THAT THE DETAILS OF SAID ADVERTISEMENT AND PUBLICITY EXP ENSES WERE NOT CALLED FOR OR VERIFIED BY THE AO AND THAT DURING SCRUTINY PROCEED INGS ASSESSEE HAD ALSO NOT MADE ANY DECLARATION NOR DISCLOSED ANY INFORMATION TO THIS EFFECT. ACCORDINGLY, THE A.O. IN HIS ORDER PASSED U/S.143(3) R.W.S.147 O N 19.11.09 DETERMINED THE TOTAL INCOME AT `. 48,60,000/-. 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 ESCA PEMENT OF INCOME FOR THE 3 ITA 3545/ M/2010, NGC NETWORK (I) PL. LTD. IMPUGNED ASSESSMENT YEAR. FURTHER, THE SCRUTINY ASS ESSMENT PROCEEDINGS FOR THE IMPUGNED ASSESSMENT YEAR HAS BEEN COMPLETED U/S .143(3) OF THE ACT AFTER CONSIDERING DETAILS RELATED TO ADVERTISEMENT AND PU BLICITY EXPENSES INCURRED WHICH WERE FILED BY THE ASSESSEE BEFORE THE AO AND REOPENING WAS A MERE CHANGE 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 VALID 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 A SSESSMENT PROCEEDINGS IS FOUND TO BE PART OF THE ASSESSMENT R ECORD OF A.O. THE FINDING OF AO WHILE RECORDING REASONS FOR REOPENING THAT SUCH DETAILS WERE NOT CALLED FOR NOR VERIFIED DURING SCRUTINY PR OCEEDINGS AND APPELLANT NOT HAVING DISCLOSED THESE DETAILS IS INC ORRECT AND NOT SUPPORTED BY THE FACTS OF THE CASE AND MATERIAL AVA ILABLE ON RECORD. 3.1.2 THE REOPENING IS FOR DISALLOWANCE OF ADVERTIS EMENT AND PUBLICITY EXPENSES CONSIDERED EXCESSIVE AND UNREASO NABLE AND AS HAVING BENEFITED THE NGC NETWORK ASIA FROM WHOM APP ELLANT HAS A DISTRIBUTION AGREEMENT. DETAILS AVAILABLE ON RECORD INDICATE THAT THE SAID EXPENSES HAVE BEEN LOOKED INTO AND VERIFIED BY AO DURING ASSESSMENT PROCEEDINGS AS ALSO THE APPELLANTS DIST RIBUTION AGREEMENT. ON CONSIDERATION THEREOF, IT IS HELD THA T THE AOS ACTION OF REOPENING THE CASE FOR DISALLOWANCE OF THE SAID EXP ENSES CAN ONLY BE TREATED A CHANGE OF OPINION REGARDING ADMISSIBILITY OF EXPENSES. REOPENING IS, THEREFORE, CONSIDERED NOT VALID AND B AD IN LAW ON THE FACTS OF THE CASE AND IN VIEW OF VARIOUS HON'BLE CO URT PRONOUNCEMENTS ON THE MATTER OF CHANGE OF OPINION N OT BEING PERMISSIBLE 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 A ND ANOTHER REPORTED IN 324 ITR 54 SUBMITTED THAT WHEN ADDITIONAL MATERIAL HAS BEEN DISCOVERED IN THE ASSESSMENT PROCEEDINGS OF A SUBSEQUENT YEAR THEN TH E RE-ASSESSMENT PROCEEDINGS ON THE BASIS OF SUCH SUBSEQUENT ASSESSM ENT IS VALID. REFERRING TO 4 ITA 3545/ M/2010, NGC NETWORK (I) PL. LTD. THE COPY OF THE REASONS RECORDED, THE LD. D.R. SUBM ITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR A.Y. 2005-06, THE A.O . HAD MADE SPECIFIC ADDITION UNDER THE HEAD ADVERTISEMENT AND PUBLICIT Y WHICH WAS DEBITED TO THE P&L ACCOUNT. SIMILARLY, THE ADVERTISEMENT AND PUBL ICITY EXPENSES WERE THERE IN THE A.Y. 2004-05. THE ASSESSEE HAD DEBITED A SU M OF ` 5,28,19,341/- UNDER THE HEAD ADVERTISEMENT AND PUBLICITY EXPENSES. TH ESE DETAILS WERE NEITHER CALLED FOR BY THE A.O. NOR VERIFIED BY HIM DURING T HE 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 ESCAPED ASSESSMENT, THEREFORE, THE INITIATION FOR RE-ASSESSMENT PROCEED INGS 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 REASS ESSMENT PROCEEDINGS AS INVALID. HE SUBMITTED THAT THERE IS A FUNDAMENTAL D IFFERENCE BETWEEN THE DECISIONS RELIED ON BY THE LD. D.R. AND THE FACTS O F THE PRESENT CASE. REFERRING TO THE COPY OF THE THIRD MEMBER DECISION OF THE TRI BUNAL 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 HA S BEEN GIVEN THAT W.E.F. IST JULY, 2004 THE ASSESSEE COMPANY ENTERED INTO ADVER TISING SALES REPRESENTATION AGREEMENTS WITH FOX INTERNATIONAL CHANNELS AS WELL AS NGC NET WORK ASIA LLC WHERE BY THE ASSESSEE WAS APPOINTED AS AN EXCLU SIVE INDEPENDENT REPRESENTATIVE IN THE TERRITORY TO SOLICIT TELEVISI ON ADVERTISING FOR THE CHANNELS AND TO COLLECT AND REMIT ADVERTISEMENT CHARGES. REF ERRING 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 APPLICABLE TO THE FACTS OF THE IMPUGNED ASSESSMENT YEAR I.E. 2004-05. IN THE CASE OF THE ASSESSEE THERE WAS NO ADVERTISEMENT INCOME FOR THE IMPUGNED ASSESS MENT YEAR. THERE IS NO LIVE LINK BETWEEN THE REASONS RECORDED AND REASON T O BELIEVE. REFERRING TO THE 5 ITA 3545/ M/2010, NGC NETWORK (I) PL. LTD. DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F CIT V. KELVINATOR OF INDIA LTD. REPORTED IN [2010] 320 ITR 561 (SC), HE SUBMIT TED THAT THERE MUST BE SOME TANGIBLE MATERIAL FOR THE FORMATION OF THE BEL IEF. THE A.O. HAS POWER TO REOPEN THE ASSESSMENT PROCEEDINGS PROVIDED THERE IS TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE WAS ESCAPEMENT OF INCO ME FROM ASSESSMENT. THE REASON MUST HAVE A LINK WITH THE FORMATION OF THE B ELIEF. REFERRING TO THE COPY OF THE ASSESSMENT ORDER PASSED 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 ASSESSME NT ORDER. HE SUBMITTED THAT THE A.O. IN THE SCRUTINY ASSESSMENT HAD ACCEPT ED THE INCOME ` 89650630/- AFTER CONSIDERING THE T.P. REPORT. NO N EW MATERIAL HAS COME TO THE NOTICE OF THE A.O. TEREFORE, THE RE-OPENING OF THE ASSESSMENT MADE BY THE A.O. IS DUE TO MERE CHANGE OF OPINION WHICH IS NOT SUSTA INABLE IN LAW. HE ACCORDINGLY SUBMITTED THAT THE LD. CIT(A) WAS FULLY JUSTIFIED IN HOLDING THAT THE REASSESSMENT 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 DECISIONS CITED BEFORE US. IN THIS CASE THE SCRUTINY ASSESSMENT WAS COMPLETED U/S 143(3) ON 27 TH DECEMBER 2006 WHEREIN THE RETURNED INCOME OF THE A SSESSEE AT ` 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 T HE ADVERTISEMENT EXPENSES WERE DISALLOWED DURING A.Y. 2005-06. SINCE DURING THIS ASSESSMENT YEAR THE ASSESSEE HAD DEBITED A SUM OF ` 5,28,19,341/- UNDER THE HEAD ADVERTISEMENT AND PUBLICITY EXPENSES AND SINCE THE DETAILS OF SU CH EXPENSES WERE NEITHER CALLED NOR VERIFIED BY THE A.O. AND SINCE THE ASSES SEE HAS ALSO NOT MADE ANY DECLARATION OR NOT DISCLOSED THE INFORMATION TO THI S EFFECT, THEREFORE, THE A.O. HAD REASON TO BELIEVE THAT THE TAXABLE INCOME OF TH E 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 ASSESS EE COMPANY ENTERED INTO 6 ITA 3545/ M/2010, NGC NETWORK (I) PL. LTD. ADVERTISING SALES REPRESENTATION AGREEMENTS WITH FO X INTERNATIONAL CHANNELS AS WELL AS NGC NET WORK ASIA LLC W.E.F. IST JULY, 2 004, A FACT BROUGHT ON RECORD BY THE HONBLE THIRD MEMBER IN ASSESSEES OW N CASE IN ITA NO. 635/MUM/2010 ORDER DTD. 17 TH JUNE, 2011 FOR A.Y. 2005-06. WE, THEREFORE, ARE OF THE OPINION THAT THERE IS A FUNDAMENTAL DIFF ERENCE BETWEEN THE FACTS OF THE CASE FOR A.Y. 2004-05 AND 2005-06 AND, THEREFOR E, THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF KELVINATOR OF INDIA LTD. (SUPRA) IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CAS E. 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 C OME 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 INST ANT CASE WE DO NOT FIND THE REASONS HAVING ANY LINK WITH THE FORMATION OF THE B ELIEF SINCE THE A.O. WHILE REOPENING THE ASSESSMENT FOR A.Y. 2004-05 HAS RELIE D ON THE ASSESSMENT ORDER FOR 2005-06 ON THE ISSUE OF DISALLOWANCE OF ADVERTI SEMENT 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 REASSESSMENT PROCEEDINGS ARE INVALID. WE ACCORDING LY UPHOLD THE SAME. THE GROUND RAISED BY THE REVENUE IS ACCORDINGLY DISMISS ED. C.O. NO. 34/MUM/2011(BY THE ASSESSEE) 6. AFTER HEARING BOTH THE SIDES WE FIND THE APPEAL FIL ED BY THE REVENUE CHALLENGING THE REOPENING OF THE ASSESSMENT HAS BEE N DISMISSED. THEREFORE, THE C.O. FILED BY THE ASSESSEE BECOMES INFRUCTUOUS AND ACCORDINGLY DISMISSED. 7 ITA 3545/ M/2010, NGC NETWORK (I) PL. LTD. 7. IN THE RESULT, APPEAL FILED BY THE REVENUE AS WE LL AS C.O. FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON 19.10.2011. SD/- SD/- (B.R. MITTAL) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 19.10.2011 RK COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 34, MUMBAI 4. THE CIT 24, MUMBAI 5. THE DR BENCH, B 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI