Ess Advertising (Mauritius) S.N.C. Et Compagnie Vs ACIT (Delhi High Court)
No Power to Carry Out Reassessment On Same Material And Facts Available On Record And Rubber Stamp Approval Held Invalid Following Synfonia Decision Of Own Court
Thus, the moot question, which arises for consideration, is: should the respondent be permitted to assess the petitioners‟ income chargeable to tax, which, according to the respondent, had escaped assessment in the facts and circumstances obtained in the instant cases?
15.1. We are consciously using the expression ‘assess’ as against ‘reassess’ since according to the respondent, no assessment has taken place. That being said, the exercise of assessing petitioners‟ income, in the instant cases, under Section 147 of the Act, could only have been carried out if it was based on new material and fresh facts that had not already been disclosed.
15.2. Explanation 2(b) to Section 147 of the Act cannot be divorced from the main provision and read in isolation. Therefore, even if we were to accept the argument advanced on behalf of the respondent that the assessment proceedings remained “inchoate”, assessment under Section 147 of the Act could only have been completed based on fresh facts and not based on material already traversed.
15.4. In sum, the sum and substance of the aforesaid discussion is that, AO has no power to carry out an assessment based on a mere change of opinion on the same set of facts and materials which was available on record. The AO‟s power under Section 147 of the Act does not extend to carry out the review of the material that was always available on record, and by this route conclude that the assessee‟s income chargeable to tax has escaped assessment. [See Commissioner of Income-tax, Delhi vs. Kelvinator of India Ltd.4 , [2010] 187 Taxman 312 (SC)]
15.8. What the ACIT forgot was that this endorsement was really his conclusion and the reasons which were to form a link between the material that was placed before him and was required to be appraised by him, were missing. The approval, thus, given by ACIT, in our view, is flawed in law and cannot pass muster. The observations made in Synfonia Tradelinks (P.) Ltd. vs. Income-tax Officer, [2021] 127 taxmann.com 153 (Delhi) being apposite are extracted hereafter.
“10. In our view, the sanction-order passed by respondent no.2 presents, metaphorically speaking „the inscrutable face of sphinx‟ (See: Breen v. Amalgamated Engineering Union [1971] 2 QB 17500; Also see: State of H.P. v. Sardara Singh, (2008) 9 SCC 392). In our view, the satisfaction arrived at by the concerned officer should be discernible from the sanction-order passed under Section 151 of the Act. In this context, the observations made by the Supreme Court in Chhugamal Rajpal vs. S.P. Chaliha, (1971) 1 SCC 453 being apposite are extracted hereafter: “… Further the report submitted by him under Section 151(2) does not mention any reason for coming to the conclusion that it is a fit case for the issue of a notice under Section 148. We are also of the opinion that the Commissioner has mechanically accorded permission. He did not himself record that he was satisfied that this was a fit case for the issue of a notice under Section 148.
To Question 8 in the report which reads “whether the Commissioner is satisfied that it is a fit case for the issue of notice under Section 148”, he just noted the word “yes” and affixed his signatures thereunder. We are of the opinion that if only he had read the report carefully, he could never have come to the conclusion on the material before him that this is a fit case to issue notice under Section 148. The important 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]
“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’ against the column which queried as to whether the approval of the Board had been taken. Rubber stamping of underlying material is hardly a process which can get the imprimatur of this Court as it suggests that the decision has been taken in a mechanical manner. Even if the reasoning set out by the ITO was to be agreed upon, the least, which is expected, is that an appropriate endorsement is made in this behalf setting out brief reasons. Reasons are the link between the material placed on record and the conclusion reached by an authority in respect of an issue, since they help in discerning the manner in which conclusion is reached by the concerned authority. Our opinion is fortified by the decision of the Apex Court in Union of India v. M.L. Capoor and Ors. MANU/SC/0405/1973 : AIR 1974 SC 87 wherein it was observed as under:
27. … We find considerable force in the submission made on behalf of the Respondents that the “rubber-stamp” reason given mechanically for the supersession of each officer does not amount to “reasons for the proposed supersession”. The most that could be said for the stock reason is that it is a general description of the process adopted in arriving at a conclusion. … … … …
28. … If that had been done, facts on service records of officers considered by the Selection Committee would have been correlated to the conclusions reached. Reasons are the links between the materials on which certain conclusions are based and the actual conclusions. They disclose how the mind is applied to the subject matter for a decision whether it is purely administrative or quasi-judicial. They should reveal a rational nexus between the facts considered and the conclusions reached. Only in this way can opinions or decisions recorded be shown to be manifestly just and reasonable. … (emphasis supplied) This is completely absent in the present case. Thus, we find force in the contention of learned Counsel for the Appellant that there has not been proper application of mind by the Board and if a proper application had taken place, there would have been no reason to re-open the closed chapter in view of what we are setting out hereinafter.”
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. These writ petitions are directed against separate but identical orders. The orders impugned bear the same date and content. The first writ petition has been filed by ESS Advertising (Mauritius) S.N.C Et Compagnie (Earlier Known as ESPN Star Sports Mauritius S.N.C. Et Compagnie) [hereafter referred to as “ESSA”] while 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 petitions, i.e., W.P. (C) 10939/2018 instituted by ESSA. We may note that counsel for the parties were agreed that the decision in W.P. (C) 10939/2018 would apply mutatis mutandis to the other writ petition as well, i.e., W.P. (C) 10940/2018.
Background facts pertaining to W.P. (C) 10939/2018:
4. ESSA is a partnership firm established under the laws of Mauritius. The two partners in ESSA are ESPN Mauritius Ltd. [now known as Worldwide Wickets, Mauritius]; an entity incorporated in Mauritius and having 99.9% share in the profits of ESSA. While the other partner, i.e., ESPN Network Pte Ltd.; incorporated in Singapore, held a 0.1% share in the profits earned by ESSA. This position also obtained in the AY in issue, i.e., AY 2013-2014. ESSA is engaged in the business of acquiring and allotting advertising time and programme sponsorship [hereafter referred to as “advertising time”] in connection with television programming. ESSA entered into agreements for the sale of advertising time with ESPN Software India Private Limited [now known as Star Sports India Private Limited (in short “SSIPL”)], a company incorporated under the laws of India, which in turn has merged with Star India Private Limited. ESSA has claimed that it entered into the aforementioned agreement with SSIPL on a principal to principal basis and that SSIPL, on its own steam carried on the business of allotting advertisement time slots to various advertisers and advertising agencies in India.
5. On 28.11.2013, ESSA filed its return of income for the AY 2013-2014, wherein it declared its taxable income as Rs.4,22,65,500/-( as also the status of a firm), along with Form 3CEB, whereby it disclosed the amount received upon the sale of advertisement inventory from SSIPL. Initially, the return was processed under Section 143(1) of the Act, and intimation, in that regard was given on 08.08.2014. Thereafter, the return was picked up for scrutiny by the AO under Section 143(2) of the Act, and accordingly a notice was issued on 05.09.2014. In the course of the assessment proceedings, the respondent sought information from ESSA via several questionnaires, which were issued under Section 142(1) of the Act. In this context, it would be relevant to note that information was sought via communication dated 16.07.2015. ESSA appears to have filed with the AO in response, in quick succession, two replies dated 13.01.2016 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 20132014.
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:
