Mr.dharan v. Shraddha Talekar, Ps

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 2031 OF 2022 ]]]]]]]… Petitioner]]]]]]]]]]]]]]]]]]..Respondents Clear Media (India) Private Limited,a company incorporated in India, having registered offce at B 15-18, Commerce Centre,Tardeo Road, 2[nd] Floor, Above ICICI, Mumbai 400 034.PAN : AACCC 6691E Versus1. Deputy Commissioner of Income-tax,6(1)(2), Mumbai,Room No. 511, Aaykar Bhavan,M.K. Road, Mumbai 400 020. 2. Joint Commissioner of Income-tax,Range 6(1), Aaykar Bhavan, M.K. Road,Mumbai – 400 020. 3. The Union of India through the Secretary, Ministry of Finance, Government of India, North Block, New Delhi -110 001. 4. National Faceless Assessment Centre,2[nd] Floor, E-Ramp, Jawaharlal Nehru Stadium,Delhi – 110 003. **** Mr.Dharan V. Gandhi, Advocate for petitioner. Mr.Charanjeet Chanderpal with Ms.Ruchi Rajput, Advocates forrespondents. ***** CORAM : DHIRAJ SINGH THAKUR &VALMIKI SA MENEZES, JJ. PRONOUNCED ON :9[th] JANUARY, 2023 J U D G M E N T PER DHIRAJ SINGH THAKUR, J. 1.In this petition, the petitioner challenges the notice,dated 30[th] March 2021 issued by respondent No.1 undersection 148 of the Income Tax Act, 1961 (‘the Act’)proposing to reopen the assessment for the assessmentyear 2016-17 on the ground that the income exigible to taxfor the said assessment year has escaped assessment. Thepetitioner also challenges the order dated 25[th] February2022, passed by respondent No.4, whereby, the objectionsraised by the petitioner for the reopening the assessmenthave been disposed of. 2.Briefy stated the material facts are as under : (a)The petitioner is a company engaged inter-aliain the business of FM Radio Broadcasting. Return ofincome for the assessment year 2016-17 was fledin the business of FM Radio Broadcasting. Return ofincome for the assessment year 2016-17 was fled under section 139(1) of the Act on 16[th] October 2016declaring a total loss of Rs.7,88,83,872/-. By virtueof notice, dated 26[th] July 2017 issued under section143(2) of the Act, as a part of the limited scrutinyamong others identifed the issue related tointangible assets for examination. (b)In response thereto, the petitioner claims that itfled the relevant details, supported by documentsexplaining as to how the amounts payable under theagreement executed with the Ministry of Informationand Broadcasting on migration from Phase-II toPhase-III were capitalized as “intangible assets” andthe basis for claiming depreciation thereunder. Acopy of this response dated 10[th] August 2017 is alsoplaced on record. (c)Thereafter, notices are stated to have beenissued under section 142(1) seeking certain details ofthe assessee, pursuant to which the same werefurnished including the audit report, proft and loss balance-sheet etc. Finally, an order of assessmentdated 22[nd] October 2018 came to be passed acceptingthe return of income of the petitioner which includedthe claim of depreciation under section 32 of the Acton intangible assets, without making anyadjustment. (d)A notice dated 30[th] March 2021 was issued byrespondent No.1 invoking the provisions of section148 of the Act seeking to reopen the assessment forthe assessment year 2016-17 require the petitioner tofle a return in the prescribed form for the saidassessment year, which was fled by the petitionerand also sought the reasons for reopening of theassessment. 3.The following were the reasons for reopening of the assessment for the assessment year 2016-17 : REASONS FOR REOPENING OF THE ASSESSMENTU/S.147 OF THE ACT 1.The assessee filed its return on income on16.10.2016 declaring income at total loss ofRs.7,88,83,872/- and the assessment was completed u/s 143(3) vide order dated 22.10.2018 acceptingthe returned income. The assessee is engaged inbusiness of radio broadcasting. (d)A notice dated 30[th] March 2021 was issued byrespondent No.1 invoking the provisions of section148 of the Act seeking to reopen the assessment forthe assessment year 2016-17 require the petitioner tofle a return in the prescribed form for the saidassessment year, which was fled by the petitionerand also sought the reasons for reopening of theassessment. 3.The following were the reasons for reopening of the assessment for the assessment year 2016-17 : REASONS FOR REOPENING OF THE ASSESSMENTU/S.147 OF THE ACT 1.The assessee filed its return on income on16.10.2016 declaring income at total loss ofRs.7,88,83,872/- and the assessment was completed u/s 143(3) vide order dated 22.10.2018 acceptingthe returned income. The assessee is engaged inbusiness of radio broadcasting. 2.1 Section 35ABB of the Income Tax Actprovides that any capital expenditure actually paidfor obtaining license to operate telecommunicationservices shall be allowed as deduction in equalinstallments during the number of years for whichlicense is in force. Further as discussed in para 12 ofthe ITAT, Delhi in case of M/s. Digital Radio (Delhi)Broadcasting Ltd. Vide ITA No.4364/Del/2011dated 24.11.2015, the scope of telecommunicationservices was increased to include the broadcastingservices and cable services also, hence, provisions ofSection 35ABB will apply to assessee engaged inthese services. The Board has issued instructionsfrom time to time that in scrutiny assessment,assessing officer shall make correct assessment ofincome or loss and determine correct sum payableby him or refundable to him on the basis of suchassessment. 2.2 The assessee company was permission holderfor radio broadcasting in the region of Delhi underPhase II of policy (valid upto August, 2016). In2015, the Government has pronounced fresh policy(Phase III effective from 01.04.2015) and theassessee was given option to migrate to Phase III bypaying one time non-refundable entry fee ofRs.33,33,78,328/- for 15 years. The assessee optedfor same and capitalized amount of fee as intangibleasset. Accordingly, one time fee paid upto August,2015 relating to Phase II was adjusted and licensefee payable was determined at Rs.31,44,39,730 andthis amount was paid on 29.04.2016. Since, byclaiming depreciation @ 25% on license fee forphase II, maximum amount had been claimed asdepreciation in earlier years. Thus, assessee shouldhave been allowed capitalization onRs.31,44,39,730. As per provisions contain inSection 35ABB, the assessee was eligible fordeduction of Rs.2,09,62,648/- (1/15th ofRs.31,44,39,730/-). However, it had capitalized thesaid fee as intangible asset and claimed 25% depreciation of Rs.8,11,12,130/- which was not inorder in view of provisions quoted above. Failure todo so has resulted in allowance of excessdepreciation claim of Rs.6,10,49,482/-. 3Considering the above, I have reason tobelieve that the income chargeable to taxamounting allowance of excess depreciation claimof Rs.6,01,49,481/- has escaped assessment for theyear under consideration and therefore, thecondition specified in the proviso to Sec.147 arefulfilled. 4.In view of the above facts, the provisions ofclause (c) of explanation 2 to section 147 areapplicable to facts of this case and the assessmentyear under consideration is deemed to be a casewhere income chargeable to tax has escapedassessment. Regular assessment u/s 143(3) wasmade on since, 4 years from the end of the relevantyear has not expired in this case, the onlyrequirement to initiate proceeding u/s 147 is reasonto believe which has recorded above. 5.This case is within four years from the end ofthe assessment year under consideration. Hence,necessary sanction to issue notice u/s 148 has beenobtained separately from Addl. Commissioner ofIncome Tax Range 6(1) as per the provisions ofsection 151 of the Act. 4.Objections were fled to the notice under section 148in which it was highlighted that claim of depreciation oflicence fees as an intangible asset had been allowed since 5.This case is within four years from the end ofthe assessment year under consideration. Hence,necessary sanction to issue notice u/s 148 has beenobtained separately from Addl. Commissioner ofIncome Tax Range 6(1) as per the provisions ofsection 151 of the Act. 4.Objections were fled to the notice under section 148in which it was highlighted that claim of depreciation oflicence fees as an intangible asset had been allowed since the assessment years 2007-08 in several scrutinyassessment proceedings and that it has also been done forthe relevant assessment year 2016-17 in which a specifc query in that regard had been raised. It is also stated thateven for the assessment year 2017-18, the return had beenaccepted, after scrutiny by the same offcer who hadissued the impugned notice. It is also stated thatreopening of the assessment was nothing but a ‘change ofopinion’ as there was no tangible material which wouldwarrant the reopening of the assessment. Objections fled by the respondents were disposed ofby the order dated 25[th] February 2022 by respondent No.4. 5.Both, the notice as also the order (supra) have beencalled in question primarily on the ground that the issuewith regard to claim of depreciation on the intangibleassets had been a matter of detailed scrutiny during theassessment proceedings under section 143(3) for theassessment year in question. It is stated that queries wereraised and response was fled, pursuant to which the claimon depreciation on intangible assets was allowed not onlyfor the assessment year 2016-17, by virtue of assessmentorder 22[nd] October 2018, but even for the subsequentassessment year 2017-18, by virtue of the order dated 26[th] December 2019. It is, therefore, urged that the presentproceeding was nothing but a clear change of opinionwithout there being any new tangible material based onwhich assessment could be reopened. 6.Under section 147 of the Act, the AO can exercise itsjurisdiction to reopen an assessment when; (a) he has‘reason to believe’ that the income chargeable to tax hadescaped assessment; and (b) in the cases where theassessment sought to be reopened is beyond the period offour years from the end of relevant assessment years, theAO has to additionally be satisfed that there was failureon the part of the assessee to fully and truly disclose allmaterial facts necessary for assessment. 7.In response, the stand taken by the respondents inthe reply inter-alia is that the query raised by the AOduring scrutiny assessment was only pertaining to the taxaspect of the intangible assets and that no specifc querywas raised regarding depreciation claim of the licence feepaid by the assessee. The stand taken indicates that there was no application of mind by the AO with regard to theclaim of depreciation on payment of onetime licence feeduring the original assessment proceedings. It is statedthat in a case, where the AO had not applied its mind inthe original assessment proceedings to a particular issue,the reassessment proceedings must be held to be valid. Itis also stated that a change of opinion presupposes anearlier formation of an opinion which is not discerniblefrom the order of assessment. It was further urged thatunless there was suffcient material on record which wouldprove that the issue had been duly considered, meresilence or absence of discussion would not preventinitiation of reassessment proceedings. Reliance in thisregard was placed upon a Delhi High Court judgment inthe case of M/s. Consolidated Photo and Finvest Ltd. Vs.Assistant Commissioner of Income Tax[1]. 8.The Supreme Court in Commissioner of Income-tax, Delhi Vs. Kelvinator of India Ltd.[2]held that there was a difference between ‘power to review’ and ‘power to reassess’ 1(2006) 281 ITR 394 (Delhi)2[2010] 320 ITR 5612[2010] 320 ITR 561 8.The Supreme Court in Commissioner of Income-tax, Delhi Vs. Kelvinator of India Ltd.[2]held that there was a difference between ‘power to review’ and ‘power to reassess’ 1(2006) 281 ITR 394 (Delhi)2[2010] 320 ITR 5612[2010] 320 ITR 561 under section 147 and that the AO had no power to reviewand that, if the concept of ‘change of opinion’ was removed,then, in the garb of reopening of the assessment, a review would take place. It was held : 4 ……..Therefore, post-1-4-1989, power to re-open ismuch wider. However, one needs to give a schematicinterpretation to the words “reason to believe” failingwhich, we are afraid, section 147 would give arbitrarypowers to the Assessing Officer to re-open assessmentson the basis of “mere change of opinion”, whichcannot be per se reason to re-open. We must also keepin mind the conceptual difference between power toreview and power to re-assess. The Assessing Officerhas no power to review; he has the power to re-assess.But reassessment has to be based on fulfillment ofcertain pre-condition and if the concept of “change ofopinion” is removed, as contended on behalf of theDepartment, then, in the garb of re-opening theassessment, review would take place. One must treatthe concept of “change of opinion” as an in-built testto check abuse of power by the Assessing Officer.Hence, after 1-4-1989, Assessing Officer has power tore-open, provided there is “tangible material” to cometo the conclusion that there is escapement of incomefrom assessment. Reasons must have a live link withthe formation of the belief…...” 9.In fact, the Supreme Court in Kelvinator of India Ltd.(Supra) had upheld the Full Bench decision of Delhi HighCourt in Commissioner of Income-tax Vs. Kelvinator ofIndia Ltd.[3]. In the said judgment, the Full Bench of DelhiHigh Court held : “We also cannot accept submissionof Mr. Jolly to the effect that only because inthe assessment order, detailed reasons havenot been recorded on analysis of thematerials on the record by itself may justifythe Assessing Officer to initiate a proceedingunder section 147 of the Act. The saidsubmission is fallacious. An order ofassessment can be passed either in terms ofsub-section (1) of Section 143 or Sub-section(3) of Section 143. When a regular order ofassessment is passed in terms of the saidsub-section (3) of section 143 a presumptioncan be raised that such an order has beenpassed on application of mind. It is wellknown that a presumption can also be raisedto the effect that in terms of clause (e) ofsection 114 of the Indian Evidence Act thejudicial and official acts have been regularlyperformed. If it be held that an order whichhas been passed purportedly withoutanything further, the same would amount togiving premium to an authority exercisingquasi- judicial function to take benefit of itsown wrong.” 10.In Jindal Photo Films Ltd. Vs. Deputy Commissioner of Income Tax [4], the Court, in the light of the facts before itand in the background of section 147 of the Act, observed : “……………….all that the Income-taxOfficer has said is that he was not right inallowing deduction under Section 80Ibecause he had allowed the deductionswrongly and, therefore, he was of the 10.In Jindal Photo Films Ltd. Vs. Deputy Commissioner of Income Tax [4], the Court, in the light of the facts before itand in the background of section 147 of the Act, observed : “……………….all that the Income-taxOfficer has said is that he was not right inallowing deduction under Section 80Ibecause he had allowed the deductionswrongly and, therefore, he was of the opinion that the income had escapedassessment. Though he has used the phrase"reason to believe" in his order, admittedly,between the date of the orders of assessmentsought to be reopened and the date offorming of opinion by the Income-tax Officernothing new has happened. There is nochange of law. No new material has come onrecord. No information has been received. Itis merely a fresh application of mind by thesame Assessing Officer to the same set offacts. While passing the original orders ofassessment the order dated February 28,1994, passed by the Commissioner ofIncome-tax (Appeals) was before theAssessing Officer. That order stands tilltoday. What the Assessing Office has saidabout the order of the Commissioner ofIncome-tax (Appeals) while recordingreasons under Section 147 he could havesaid even in the original orders ofassessment. Thus, it is a case of mere changeof opinion which does not providejurisdiction to the Assessing Officer toinitiate proceedings under Section 147 ofthe Act. It is also equally well settled that ifa notice under Section 148 has been issuedwithout the jurisdictional foundation underSection 147 being available to the AssessingOfficer, the notice and the subsequentproceedings will be without jurisdiction,liable to be struck down in exercise of writjurisdiction of this court. If "reason tobelieve" be available, the writ court will notexercise its power of judicial review to gointo the sufficiency or adequacy of thematerial available. However, the present oneis not a case of testing the sufficiency of material available. It is a case of absence ofmaterial and hence the absence ofjurisdiction in the Assessing Officer toinitiate the proceedings under Section147/148 of the Act.” 11.In the backdrop of the aforementioned judgments, itcan be seen that during the course of scrutinyassessment, the petitioner had received a notice undersection 143(2) of the Act, dated 26[th] July 2017 whichidentifed the issue related to intangible assets as one ofthe issues for examination. This notice was replied byvirtue of communication, dated 10[th] August 2017, in whichit was stated that the amount payable under theagreement was capitalized in the books as intangibleassets and depreciation had been claimed accordingly. 12.The AO appears to have fnally passed the order ofassessment dated 25[th] February 2022 accepting the claimof the petitioner for depreciation under section 32 of theAct. The basis for reopening with reference to the reasonsfurnished and referred to in the preceding paragraphsappears to be that the petitioner was eligible for deduction in terms of section 35ABB of the Act and that instead ithad capitalized the non-refundable entry fee as intangibleassets and claimed 25% depreciation of Rs.8,11,12,130/-which was not in order in accordance with section 35ABBand that failure to do so had resulted in allowance ofexcess depreciation claim of Rs.6,01,49,482/. 12.The AO appears to have fnally passed the order ofassessment dated 25[th] February 2022 accepting the claimof the petitioner for depreciation under section 32 of theAct. The basis for reopening with reference to the reasonsfurnished and referred to in the preceding paragraphsappears to be that the petitioner was eligible for deduction in terms of section 35ABB of the Act and that instead ithad capitalized the non-refundable entry fee as intangibleassets and claimed 25% depreciation of Rs.8,11,12,130/-which was not in order in accordance with section 35ABBand that failure to do so had resulted in allowance ofexcess depreciation claim of Rs.6,01,49,482/. 13.From a reading of the reasons for reopening, it canbe stated that the petitioner was entitled to claimdeduction under section 35ABB of the Act but it has notbeen specifcally stated in the reasons that the petitionerwas not entitled to claim depreciation @ 25% in terms ofsection 32 on the amount capitalized as “intangibleassets”. Even otherwise, it does appear to us that the issuewith regard to claim of depreciation had been gone into bythe AO and notwithstanding the fact that in the order ofassessment, there was no specifc discussion as regardsthis particular claim, yet, considering the ratio of thejudgments referred hereinabove, it must be presumed thatthe claim was considered and only then allowed. 14.In this regard, reliance is placed by learned counselfor the respondents in M/s. Consolidated Photo andFinvest Ltd. (Supra). In this case, the argument was thateven when the order of assessment did not record anyexplicit opinion on the aspects which were sought to beexamined during reassessment proceedings, it must bepresumed that the same had been considered by the AOand held in favour of the assessee. The Court, whilerejecting such a contention, held : “19……………...It is trite that a matterin issue can be validly determined only uponapplication of mind by the authoritydetermining the same. Application of mind is,in turn, best demonstrated by disclosure ofmind, which is best done by giving reasons forthe view which the authority is taking. In caseswhere the order passed by a statutoryauthority is silent as to the reasons for theconclusion it has drawn, it can well be saidthat the authority has not applied its mind tothe issue before it nor formed any opinion. Theprinciple that a mere change of opinion cannotbe a basis for reopening computed assessmentswould be applicable only to situations wherethe assessing officer has applied his mind andtaken a conscious decision on a particularmatter in issue. It will have no applicationwhere the order of assessment does notaddress itself to the aspect which is the basisfor reopening of the assessment, as is theposition in the present case. It is in that viewinconsequential whether or not the materialnecessary for taking a decision was available tothe assessing officer either generally or in the form of a reply to the questionnaire servedupon the assessed. What is important iswhether the assessing officer had based on thematerial available to him taken a view. If hehad not done so, the proposed reopeningcannot be assailed on the ground that thesame is based only on a change of opinion.” 15.However, subsequently Delhi High Court in KLMRoyal Dutch Airlines Vs. Assistant Director of Income-tax[5]held that the view expressed earlier in M/s. ConsolidatedPhoto and Finvest Ltd.(Supra) was contrary to the viewexpressed by the Full Bench on the subject inCommissioner of Income-tax Vs. Kelvinator of India Ltd(Supra). 16.In the backdrop of the facts and the law stated inJindal Photo Films Ltd. (Supra),even in the present case,between the date of the order of assessment sought to bereopened and the date of forming of opinion by theAssessing Offcer, nothing new has happened. Neither isthere any new information received nor is a reference madeto any new material on record. The Assessing Offcersimply has accorded a fresh consideration and come to a 15.However, subsequently Delhi High Court in KLMRoyal Dutch Airlines Vs. Assistant Director of Income-tax[5]held that the view expressed earlier in M/s. ConsolidatedPhoto and Finvest Ltd.(Supra) was contrary to the viewexpressed by the Full Bench on the subject inCommissioner of Income-tax Vs. Kelvinator of India Ltd(Supra). 16.In the backdrop of the facts and the law stated inJindal Photo Films Ltd. (Supra),even in the present case,between the date of the order of assessment sought to bereopened and the date of forming of opinion by theAssessing Offcer, nothing new has happened. Neither isthere any new information received nor is a reference madeto any new material on record. The Assessing Offcersimply has accorded a fresh consideration and come to a conclusion that the assessee ought to have claimed beneftof deduction under section 35ABB which would haveresulted in reducing the allowance under section 32 byRs.6,01,49,482/-. In the absence of any tangible material,the present case is nothing but a case of change of opinionand thus does not satisfy the jurisdictional foundationunder section 147 of the Act. 17.In that view of the matter, we have no hesitation inholding that the impugned notice dated 30[th] March 2021under section 148 of the Act and the consequent orderdated 25[th] February 2022 disposing off the objectionsraised for reopening of the assessment, are unsustainableand accordingly set aside the same. 18.This petition is allowed accordingly. No costs. [ VALMIKI SA MENEZES, J. ] [DHIRAJ SINGH THAKUR, J.]