BBC World News Limited vs. ADIT (Delhi High Court)
This High Court has in some cases earlier adversely commented about record maintenance by the Revenue as it is unacceptable and faulters on the principle of good governance. Facts mentioned above do not disclose a commendable situation and in fact the situation appears to be alarming and perilous. This requires urgent effective remedial steps. Failure to maintain records has resulted in serious allegations being made that the papers/documents have been tempered or removed etc.The papers/documents on record are not serially numbered and indexed. We also note that it is not practice of the department to give acknowledgement of papers submitted during the course of assessment proceedings.
High Court Further held the reassessment is invalid because of the following three Reasons :-
1. There was no Failure on the part of the assessee to disclose fully and truly all facts necessary for the assessment
In the present case reassessment proceedings have been initiated after four years from the end of the relevant assessment year and as per the first proviso to Section 147 of the Act, it has to be shown that there was failure on the part of the assessee to disclose fully and truly all facts necessary for the assessment. In the „reasons to believe‟ it is mentioned that absence of “crucial information” relating to income and expenditure on account of activities of the petitioner in India had resulted in improper computation of income for the assessment year 2003-04. Thus, as per the reasons to believe itself, in case the petitioner had furnished statement showing income and expenditure from Indian activities in the course of the original assessment proceedings, there was no lapse or failure on the part of the assessee i.e. the petitioner. Once it is held that the said details were furnished vide letter/reply dated 22nd March, 2006, the reassessment notice, would fail and faulter. Letter/reply dated 22nd March, 2006 enclosing the details would go to the very root and falsify the averments made in the reasons to believe. The said reasons would be factually incorrect and reassessment notice bad and contrary to the first proviso to Section 147 of the Act.
2. Reopening was based on Change of opinion of Assessing Officer
In the order dated 1 3th December, 2011 rejecting the objections, the subsequent Assessing Officer had mentioned that there was non application of mind by the Assessing Officer in the original assessment proceedings, which was apparent as the assessment order was passed on 24th March, 2006, merely 2 days after the purported submissions dated 22nd March, 2006 running into 407 pages were filed by the petitioner. It is not the volume of the record which is determinative but the relevance of the selective papers on the issue in question. Again, it was for the Assessing Officer to pass the assessment order. The contention was raised and the papers and details were filed on the question of attribution of income to the Indian PE, is apparent even from the reply dated 27th February, 2006. Once the detailed submissions were made, the Assessing Officer had to apply his mind and form an opinion. The petitioner in their written submissions dated 27th February, 2006 had specifically referred to the appropriate or reasonable method to compute income attributable to Indian PE. This issue had been examined in the immediate preceding assessment year i .e. assessment year 2002-03 in case of the predecessor BBC Worldwide Ltd. by the very same Assessing Officer Mr. Saad Kidwai, Deputy Director of Income Tax. As noticed above, the original assessment order further records and mentions the manner and mode of computing and attributing of
profit/loss to the petitioner PE India India. It stands specifically mentioned in the original assessment order that it would be correct and proper to attribute 20% of the worldwide profit/loss to the petitioner‟s PE in India. Hence, the Assessing Officer had gone into the question of attribution of income under Article 7(4) read with Rule 10 of the Rules. This fact has also been asserted by the successor Assessing Officer in the reply to the audit objections. We have also noted the assertions made by the petitioner in their two returns of the income relating to attribution of income to Indian PE.
From the reasons recorded by the Assessing Officer, it is apparent that in the subsequent assessment years i .e. 2004-05 to 2006-07, the Assessing Officer had adopted a different formula or criteria to compute income attributable to the Indian PE. In the said assessment orders global loss, if any, was ignored on the ground that it was not on account of activities of the petitioner in India and, therefore, cannot be attributable to the Indian FE. In these assessment years, it was held that the statement showing loss due to Indian activities did not represent the correct position. The aforesaid stand in subsequent years i.e. 2004-05 to 2006-07 mentioned in the reasons to believe was contra and different from the stand and reasoning given in the assessment order dated 16th March, 2005 for BBC Worldwide Ltd. relating to the assessment year 2002-03. It is also different from the criteria adopted and applied by the Assessing Officer in the original assessment order dated 24th March, 2006. Therefore, it would be correct to infer and hold that the Assessing Officer during the course of the proceedings for the AY 2003-04 had gone into the question of attribution of profits to the Indian FE and adopted the criteria and formula which was adopted in the earlier year i.e. 2002-03 in the case of predecessor, BBC Worldwide Ltd. During the original proceeding, it may have been open to the Assessing Officer to adopt a different mode or method but he did not consider this to be reasonable and proper. At this stage, we only note that it is common knowledge that BBC World News and channel, was/is broadcast all over the globe and was/is a 24 hour news channel. They have to incur expenses for creating programmes and capsules which were shown and had footprint in India. Advertisement revenue was earned from India as the channel was viewed in India and abroad. The present stand of the respondents is that entire expenditure for creating programmes etc. should be excluded and only India specific operations have to be computed, did not appeal to the earlier/original Assessing Officer. He did not think it appropriate to take the said criteria and had attributed on the basis of the turnover, 20% of the global loss/earnings to the activities attributable to Indian FE. This is a matter of perception or opinion and, therefore, principle of „change of opinion‟ is applicable.
3. Reasons to believe was not having nexus and live link with the formation of opinion
There is a third reason why we think that the petitioner must succeed. Reasons to believe must have nexus and live link with the formation of opinion by the Assessing Officer that taxable income had escaped assessment. We have noted the reasons to believe mentioned above. As per mandate of Section 149(1)(b), income escaping assessment should be or likely to exceed Rupees one lac. This required prima facie computation of income escaping assessment. This in turn required examination of data or figures relating to “Indian operations”. If we accept the stand of the Revenue, then the said data and details were not available in the records for the assessment year 2003-04. It is not the contention of the Revenue that figures for the assessment year in question for the “Indian operation” were available in the records for subsequent or other years and were examined. Figures and data for every assessment will alter and change. This being the position and stand of the Revenue, the Assessing Officer could not have formed any prima facie or tentative opinion that income had escaped assessment as the petitioner had positive income from “Indian operations”, if we take into account “actual expenditure” incurred relating to Indian operations. In the absence of the said details, the averment made in the reasons to believe will be only a guess work or surmise and not cogent or reliable material to form a prima facie view. We understand that the Assessing Officers may be handicapped in such cases but there are sufficient provisions in the Act to get hold of the said data before proceedings are initiated or reasons are recorded. There is nothing to indicate and show the data and figures of the year in question were ascertained or gathered from records for other assessment years or otherwise.
In view of the aforesaid, we allow the present writ petition and quash the reassessment proceedings initiated by issue of notice under Section 148 dated 30th March, 2010 relating to assessment year 2003-04. We also quash the order dated 13th December, 2011 dismissing the objections to the reopening. Copy of this order will be sent to the Chairman of Central Board for Direct Taxes for appropriate and necessary action to ensure proper record maintenance and issuance of suitable directions.