M/S Ess Advertising (Mauritius) S.n.c. Et Compagnie (Earlier Known As M/S Espn Star Sports Mauritius S.n.c.et Compagnie v. Assistant Commissioner Of Income Tax, Circle 1(2)(2), International Taxation, New Delhi

$-J-1 & 2 * IN THE HIGH COURT OF DELHI AT NEW DELHI Judgement reserved on 08.03.2021Judgement pronounced on05.07.2021 + W.P.(C) 10939/2018 and CM No. 42617/2018 M/S ESS ADVERTISING (MAURITIUS) S.N.C. ET COMPAGNIE (EARLIER KNOWN AS M/S ESPN STAR SPORTS MAURITIUS S.N.C.ET COMPAGNIE) .....Petitioner Through: Mr. Porus Kaka, Senior Advocate with Mr. Prakash Kumar and Mr. Divesh Chawla, Advocates. versus ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(2)(2), INTERNATIONAL TAXATION, NEW DELHI .....Respondent Through: Ms. Vibhooti Malhotra, Senior Standing Counsel. + W.P.(C) 10940/2018 and CM No. 42619/2018 M/S ESS DISTRIBUTION (MAURITIUS) S.N.C. ET COMPAGNIE .....Petitioner Through: Mr. Porus Kaka, Senior Advocate with Mr. Prakash Kumar and Mr. Divesh Chawla, Advocates. versus ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE -1(2)(2), INTERNATIONAL TAXATION, NEW DELHI .....Respondent Through: Ms. Vibhooti Malhotra, Senior Standing Counsel. CORAM: HON'BLE MR. JUSTICE RAJIV SHAKDHERHON'BLE MR. JUSTICE TALWANT SINGH RAJIV SHAKDHER, J: TABLE OF CONTENTS Preface .................................................................................................................................................... 2 Background facts pertaining to W.P. (C) 10939/2018 ............................................................................ 3 Background facts pertaining to W.P. (C) 10940/2018 ............................................................................ 8 Submissions made on behalf of the petitioners ..................................................................................... 11 Submissions advanced on behalf of the respondent .............................................................................. 16 Analysis and Reasons ........................................................................................................................... 19 Conclusion ............................................................................................................................................ 31 Preface: 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: 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 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 2013-2014. 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: Signature Not VerifiedW.P. (C) 10939/2018 and W.P. (C) 10940/2018 Advertisement airtime inventory 5.1.It appears that the AO had made a reference under Section 92 CA (3) of the Act to the Transfer Pricing Officer 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 2013-2014. 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: Signature Not VerifiedW.P. (C) 10939/2018 and W.P. (C) 10940/2018 Advertisement airtime inventory 4. The transfer pricing documentation which contains the functional and economic analysis along with other details has been examined and placed on record. This is a flipside case and the Indian company i.e. M/s Star Sports India Pvt. Ltd. (Formerly Known as ESPN Software India Pvt. Ltd.) is subject to TP Audit. The TP issues that arise in the international transaction between the assessee and its AE are being examined in the case of the AE. Accordingly, necessary action, if any, is being taken in the case of AE.” 5.3.Unknown to the TPO who passed the order dated 05.09.2016, concerning ESSA, the TPO dealing with the Associated Enterprise [in short “AE”] referred to in the order dated 05.09.2016, i.e., SSIPL had the international transactions examined to determine the ALP. After examination of the transfer pricing documentation submitted by SSIPL, containing functional and economic analysis as prescribed under Rule 10D of the Income Tax Rules, 1962 [in short “Rules”], the TPO, vide order dated 31.08.2016, concluded that "no adverse inference is drawn in respect of the international transaction undertaken by the assessee during the Financial Year 2013-14 [sic Assessment Year ”2013-2014]. 5.4.Resultantly, insofar as SSIPL was concerned, the AO, after considering the TPO‟s order dated 31.08.2016, accepted the returned income of SSIPL which was pegged at Rs.1,20,82,13,340/-, vide order dated 25.11.2016, passed under Section 143(3) of the Act vis-à-vis AY 2013-2014. 5.5.In the interregnum, during the assessment proceedings, two queries were raised by the AO on 26.09.2016. a)First, whether there was any change in ESSA‟s business model (or in the factual matrix) that was considered in the previous year relevant to AY 2011-2012 and other previous years? factual matrix) that was considered in the previous year relevant to AY 2011-2012 and other previous years? b)Second, why the assessment for the AY in issue should not be made or completed based on the assessments made in the previous years when there was no change in the business model/factual matrix of the case. completed based on the assessments made in the previous years when there was no change in the business model/factual matrix of the case. 5.6.On 29.09.2016, the ESSA tendered its reply to both queries. Insofar as the first query was concerned, ESSA responded to the same by stating that there was no change in the business model or the factual matrix in the period in issue relatable to AY 2013-2014 as compared to the preceding years. Insofar as the second query was concerned, ESSA, inter alia, asserted that it does not have a permanent establishment in India and that the AO had erred in concluding that SSIPL was working solely for ESSA. In other words, according to ESSA, SSIPL was not its dependent agent. ESSA also asserted that the concerned AO had failed to appreciate the provisions of Articles 5(4) and 5(5) of the Double Taxation Avoidance Agreement entered into between India and Mauritius [in short “DTAA”]. 5.6.On 29.09.2016, the ESSA tendered its reply to both queries. Insofar as the first query was concerned, ESSA responded to the same by stating that there was no change in the business model or the factual matrix in the period in issue relatable to AY 2013-2014 as compared to the preceding years. Insofar as the second query was concerned, ESSA, inter alia, asserted that it does not have a permanent establishment in India and that the AO had erred in concluding that SSIPL was working solely for ESSA. In other words, according to ESSA, SSIPL was not its dependent agent. ESSA also asserted that the concerned AO had failed to appreciate the provisions of Articles 5(4) and 5(5) of the Double Taxation Avoidance Agreement entered into between India and Mauritius [in short “DTAA”]. 5.7.The AO, however, was not persuaded and thus passed a draft assessment order dated 23.12.2016; which according to ESSA, was served upon it on 03.01.2017. The rationale employed by the AO was that the facts and circumstances obtaining in the AY in issue, i.e., AY 2013-2014 were similar to those which arose in AY 2012-2013 and other earlier AYs and therefore, should result in the same outcome. It was also noticed that the decision of earlier AYs was pending before the appellate authorities. 5.8.Being aggrieved, ESSA filed objections with the Dispute Resolution Panel [in short "DRP"], on 01.02.2017. A copy of the said objections was filed with the AO on the succeeding day, i.e., 02.02.2017. The DRP disposed of the objections vide order dated 11.09.2017, wherein it concluded that it did not have jurisdiction in the matter as ESSA was not an “eligible assessee” within the meaning of Section 144C(15)(b) of the Act [as it stood on that date], as Signature Not VerifiedW.P. (C) 10939/2018 and W.P. (C) 10940/2018 Page 6 of 32 neither the TPO had proposed any variation in its income and nor was ESSA a foreign company. Consequently, the DRP declined to issue any directions in the matter and dismissed the proceedings without considering other grounds of objections taken by ESSA. 6.Faced with this situation, the AO, employed a different approach and as it appears took steps for initiating proceedings against ESSA under Section 147 of the Act. As per the respondent, a note was generated on 20.03.2018 for recording reasons for initiating proceedings under Section 147 of the Act. Pertinently, this note proffers the following reasons for initiating reassessment proceedings. “During the year under consideration, the Assessee received gross advertising revenue of Rs.2,85,60,79,609/-. In earlier year and subsequent year, a part of the advertising revenue has been attributed to the Permanent Establishment of the Assessee in India and taxed as its business income. In this case, the A0 passed a draft assessment order u/s 144C(1)/143(3), dated 23/12/2016, proposing addition of Rs.85,68,23,883/- on account of Profit from Advertisement business under head PGBP. Being aggrieved the assessee filed its objections appeal before the Hon'ble DRP-1, New Delhi. The Hon'ble DRP-1, New Delhi has passed an order uls 144C (5), dated 1 1/09/2017. The DRP has held that the assessee is not an 'eligible assessee' as neither it is a foreign company nor it is a case where variation has arisen to the income or loss returned as a consequence of the order of the Transfer Pricing Officer passed u/s 92CA(3) of the Act. Thus, the DRP has held that they do not have jurisdiction over the case. Consequently, the DRP has declined to issue-any direction in this case and has dismissed the proceedings 'before it. The findings of the DRP issued order under section 144C(5) are binding upon the AO under section 144C(10). Therefore, the draft assessment issued on 23.12.2016 was not taken to its logical conclusion by passing an order u/s 143(3) of the IT Act. Thus, no assessment was made under the provisions of section 143(3) r/w 144C(13) or else under the provisions of section 143(3) in conformity with the directions of DRP. Thus this is a case where return of income has been filed but no regular assessment has been made. Thus the Explanation 2 to section 147 is attracted in this case. … xxx xxx xxx 3. In view of the foregoing paras, I have reasons to believe that the income chargeable to tax amounting to Rs.85,68,23,883/- has escaped assessment for Assessment Year 2013 - 14 in this case.” 7.The respondent claims that the aforementioned note dated 20.03.2018 was submitted for consideration and approval of Additional Commissioner of Income Tax [in short “ACIT”] for issuance of notice under Section 148 of the Act to ESSA, which was obtained on 28.03.2018. The notice under Section 148 of the Act was, accordingly, issued on 29.03.2018. This notice, as alluded to hereinabove, was premised on the supposition that the AO had reason to believe that ESSA‟s income chargeable to tax amounting to Rs.85,68,23,883/- qua AY 2013-2014 had escaped assessment. Thus, according to the said notice, the AO proposed to assess/reassess the ESSA‟s income/loss for the said AY, and therefore, required it to deliver a return within 30 days in the prescribed form. 7.1.ESSA responded to the aforesaid notice vide reply dated 25.04.2018. Via the said reply, ESSA indicated, in no uncertain terms, that the AO should treat the return originally filed by it as a return filed in response to the notice issued under Section 148 of the Act. Besides this, ESSA also sought reasons for initiating proceedings under Section 147 of the Act in line with the judgement of the Supreme Court rendered in GKN Driveshafts (India) Ltd. vs. ITO, [2003] 259 ITR 19 (SC). 7.2.The AO complied with the request. The reasons which were said to have been recorded by the AO, as noted above, on 20.03.2018, were received by ESSA on 29.06.2018, via e-mail. On 02.08.2018, ESSA filed its objections with the AO. The objections were disposed of by the AO, as noted above, vide order dated 24.09.2018; this order was received by ESSA via email dated 25.09.2018. 7.3.On the same day, i.e., 25.09.2018, ESSA received a notice under Section 143(2) of the Act dated 24.09.2018. Background facts pertaining to W.P. (C) 10940/2018: 8.ESSD is a partnership firm established under the laws of Mauritius. The two partners in ESSD are ESPN Mauritius Ltd. [now known as Worldwide Wickets, Mauritius]; an entity incorporated in Mauritius and having, 99.9% share in the profits of ESSD. While the other partner, i.e., ESPN Asia Ltd.; incorporated in Labuan, Malaysia, held a 0.1% share in the profits earned by ESSD. ESSD is engaged in the business of distribution of sports and sports-related television programmes broadcasted by ESPN Star Sports, Singapore via non-standard television. ESSD entered into agreements with SSIPL for the distribution of its aforementioned channels. 9.On 28.11.2013, ESSD filed its return of income for the AY 2013-2014, wherein it declared its taxable income as Rs. 2,93,89,260/-. The return was accompanied by Form 3CEB, wherein, inter alia, ESSD disclosed having received from SSIPL Rs. 4,90,07,43,680/- towards gross subscription remittance. Via this return, ESSD claimed a refund of Rs. 24,56,97,480/-. 9.1.On 05.09.2014, the AO issued a notice to ESSD under Section 143(2) of the Act. However, on 25.02.2015, the AO issued an intimation to ESSD under Section 143(1) of the Act. 9.On 28.11.2013, ESSD filed its return of income for the AY 2013-2014, wherein it declared its taxable income as Rs. 2,93,89,260/-. The return was accompanied by Form 3CEB, wherein, inter alia, ESSD disclosed having received from SSIPL Rs. 4,90,07,43,680/- towards gross subscription remittance. Via this return, ESSD claimed a refund of Rs. 24,56,97,480/-. 9.1.On 05.09.2014, the AO issued a notice to ESSD under Section 143(2) of the Act. However, on 25.02.2015, the AO issued an intimation to ESSD under Section 143(1) of the Act. 9.2.ESSD revised its return on 30.03.2015. The only change brought about by the revised return was in respect of ESSD's claim for the refund. ESSD claimed additional credit qua taxes, deducted at source. Accordingly, the refund claimed was enhanced from Rs. 24,56,97,480/- to Rs. 25,41,48,240/-. 9.3.During the assessment proceedings, various details were sought by the respondent from ESSD, via questionnaires, served under Section 142(1) of the Act. In this context, it is averred by ESSD that, on 09.12.2015, it received a questionnaire dated 16.07.2015, issued by the AO, under Section 142(1) of the Act. It appears, in response, ESSD placed on record, its submissions qua the same on 13.01.2016 and 21.01.2016. 9.4.In the interregnum, the matter was referred by the AO to the TPO. The TPO on 05.09.2016, as in the case of ESSA, stated that SSIPL was being subjected to a transfer pricing audit and that necessary action, if any, would be taken in the case of the AE i.e. SSIPL. 9.5.On 26.09.2016, the AO raised certain queries which were identical to those that were raised qua ESSA. In response thereto, submissions were filed by ESSD on 29.09.2016. The AO, once again, served a questionnaire on ESSD which was received by it on 08.12.2016 seeking additional information, which, according to ESSD, was furnished by it via communication dated 19.12.2016. 9.6.On 23.12.2016, the AO passed a draft assessment order under Section 144C(1)/143(3) of the Act qua ESSD. The proposed addition to the returned income on account of the subscription fee received by ESSD, which, according to the AO, took the character of royalty was Rs. 4,90,07,43,680/-. A perusal of the draft assessment order would show that the AO has also held that the subscription income received by ESSD was its business income attributable to the PE in India. The AO, however, proposed the alternate route of treating the subscription income as royalty as the net tax effect was higher and therefore beneficial to the revenue. 9.7.Being aggrieved, ESSD filed its objections with the DRP on 01.02.2017. A copy of the same was filed with the AO on 02.02.2017. The DRP, in ESSD‟s case as well, declined to issue any direction, via its order dated 11.09.2017, as it concluded that ESSD was not an "eligible assessee" within the meaning of Section 144C(15)(b) of the Act. It is this order which triggered the proceedings under Section 147 of the Act. Consequently, a notice under Section 148 of the Act was issued qua ESSD on 29.03.2018. ESSD filed a response vis-à-vis the same vide reply dated 25.04.2018. Inter alia, ESSD indicated in its reply that its revised return should be treated as the return filed in response to the notice issued under Section 148 of the Act. Besides this, ESSD called upon the AO to furnish the reasons available on record for initiating the proceedings under Section 147 of the Act. 9.8.In response to this request, on 29.06.2018, the AO furnished a copy of the note dated 20.03.2018 which contained the reasons for initiating the impugned proceedings, albeit, via e-mail. The note also adverted to the approval received by the AO from the ACIT under Section 151 of the Act. The endorsement made in this regard read as follows: "This is [a] fit case for issue of [ sic "issuing"] notice u/s 148 of the IT Act, 1961. Approved" same vide reply dated 25.04.2018. Inter alia, ESSD indicated in its reply that its revised return should be treated as the return filed in response to the notice issued under Section 148 of the Act. Besides this, ESSD called upon the AO to furnish the reasons available on record for initiating the proceedings under Section 147 of the Act. 9.8.In response to this request, on 29.06.2018, the AO furnished a copy of the note dated 20.03.2018 which contained the reasons for initiating the impugned proceedings, albeit, via e-mail. The note also adverted to the approval received by the AO from the ACIT under Section 151 of the Act. The endorsement made in this regard read as follows: "This is [a] fit case for issue of [ sic "issuing"] notice u/s 148 of the IT Act, 1961. Approved" 9.9.ESSD filed its objections vis-à-vis the reasons recorded for initiation of reassessment proceedings on 02.08.2018. These objections were disposed of by the AO vide order dated 24.09.2018. The objections were received by ESSD via email dated 25.09.2018. Furthermore, ESSD also received on the same date, via e-mail of even date, i.e., 25.09.2018, a notice dated 13.09.2018, issued under Section 143(2) of the Act. 10.As can be seen from the facts narrated hereinabove vis-à-vis ESSA and ESSD, the cases concerning these two entities have followed the same trajectory, except for minor differences, which have been set forth hereinabove. Submissions made on behalf of the petitioners: 11.The submissions on behalf of the petitioners were advanced by Mr. Porus Kaka, learned senior counsel, who was instructed by Mr. Prakash Kumar. These can be paraphrased as follows. i.Firstly, even before the issuance of the draft assessment orders dated 23.12.2016, orders passed in other AYs had held that the petitioners were not an “eligible assessee” within the meaning of Section 144C(15) of the 23.12.2016, orders passed in other AYs had held that the petitioners were not an “eligible assessee” within the meaning of Section 144C(15) of the Act [as it stood, at the relevant time]. In this context, reference was made to the following orders. ii.Secondly, the respondent sought to initiate (re)assessment proceedings, although, such an attempt had been repelled by this Court vide judgment dated 31.10.2017, passed in W.P 11968/2016 and W.P. (C) 11971/2016 [concerning AY 2010-2011] and in W.P. (C) 12031/2016 and W.P. (C) 11972/2016 [concerning AY 2008-2009]. although, such an attempt had been repelled by this Court vide judgment dated 31.10.2017, passed in W.P 11968/2016 and W.P. (C) 11971/2016 [concerning AY 2010-2011] and in W.P. (C) 12031/2016 and W.P. (C) 11972/2016 [concerning AY 2008-2009]. iii.Thirdly, the respondent has chosen repeatedly to raise the issue that ESSA has a PE in India; a reference to which has been made by this Court in its aforementioned judgment dated 31.10.2017. ESSA has a PE in India; a reference to which has been made by this Court in its aforementioned judgment dated 31.10.2017. iv.Fourthly, the Income Tax Appellate Tribunal [in short “Tribunal”] has, in at least four AYs, held that the transaction entered into between ESSA and SSIPL is at Arms‟ Length, and therefore, no income is attributable to it. The finding to this effect has been returned by the Tribunal vide order dated 20.08.2018 qua AYs 2003-2004 and 2004-2005. Likewise, via at least four AYs, held that the transaction entered into between ESSA and SSIPL is at Arms‟ Length, and therefore, no income is attributable to it. The finding to this effect has been returned by the Tribunal vide order dated 20.08.2018 qua AYs 2003-2004 and 2004-2005. Likewise, via order dated 22.10.2020, the Tribunal has rendered a similar finding vis-à-vis AY 2009-2010 and AY 2011-2012. iv.Fourthly, the Income Tax Appellate Tribunal [in short “Tribunal”] has, in at least four AYs, held that the transaction entered into between ESSA and SSIPL is at Arms‟ Length, and therefore, no income is attributable to it. The finding to this effect has been returned by the Tribunal vide order dated 20.08.2018 qua AYs 2003-2004 and 2004-2005. Likewise, via at least four AYs, held that the transaction entered into between ESSA and SSIPL is at Arms‟ Length, and therefore, no income is attributable to it. The finding to this effect has been returned by the Tribunal vide order dated 20.08.2018 qua AYs 2003-2004 and 2004-2005. Likewise, via order dated 22.10.2020, the Tribunal has rendered a similar finding vis-à-vis AY 2009-2010 and AY 2011-2012. v.Fifthly, the order dated 24.09.2018, whereby objections filed by the petitioners were disposed of did not deal with the specific submissions made concerning the unavailability of fresh tangible material, non-taxability of profits from advertising business (in case of ESSA) and subscription income (in case of ESSD) as they had no PE in India, and more specifically, the ground that the impugned action amounted to change of opinion. The said order did not even deal with the orders of this Court that were placed on record. petitioners were disposed of did not deal with the specific submissions made concerning the unavailability of fresh tangible material, non-taxability of profits from advertising business (in case of ESSA) and subscription income (in case of ESSD) as they had no PE in India, and more specifically, the ground that the impugned action amounted to change of opinion. The said order did not even deal with the orders of this Court that were placed on record. vi.Sixthly, (re)assessment proceedings can only be initiated if the AO has reasons to believe that certain income has escaped assessment albeit based on the emergence of new facts/information. Section 147 of the Act does not confer on the AO the power to arrive at a different conclusion by reviewing material that is already on record. Since no fresh material/information was brought on record, the AO did not have the power to reopen the assessment proceedings. [See:Commissioner of Income Tax vs. Kelvinator of India Ltd, (2010) 320 ITR 561 (SC), Commissioner of Income Tax-V vs. Orient Craft Ltd., (2013) 354 ITR 536 (Delhi), and BPTP Limited vs. Principal Commissioner of Income Tax (Central)-III & Anr., (2020) 421 ITR 59 (Del)]. reasons to believe that certain income has escaped assessment albeit based on the emergence of new facts/information. Section 147 of the Act does not confer on the AO the power to arrive at a different conclusion by reviewing material that is already on record. Since no fresh material/information was brought on record, the AO did not have the power to reopen the assessment proceedings. [See:Commissioner of Income Tax vs. Kelvinator of India Ltd, (2010) 320 ITR 561 (SC), Commissioner of Income Tax-V vs. Orient Craft Ltd., (2013) 354 ITR 536 (Delhi), and BPTP Limited vs. Principal Commissioner of Income Tax (Central)-III & Anr., (2020) 421 ITR 59 (Del)]. vii.Seventhly, the draft assessment orders [i.e., orders dated 23.12.2016] was passed, for the AY in issue, i.e., AY 2013-2014, by the AO knowing fully well that the petitioners had already been held as not being “eligible ”passed, for the AY in issue, i.e., AY 2013-2014, by the AO knowing fully well that the petitioners had already been held as not being “eligible ”assessees in terms of Section 144C(15)(b) of the Act. viii.Eighthly, the reason given for initiating (re)assessment proceedings, i.e., that the draft assessment orders were not taken to their logical conclusion can never form a sustainable reason for reopening the assessment for the following reasons. that the draft assessment orders were not taken to their logical conclusion can never form a sustainable reason for reopening the assessment for the following reasons. viii.Eighthly, the reason given for initiating (re)assessment proceedings, i.e., that the draft assessment orders were not taken to their logical conclusion can never form a sustainable reason for reopening the assessment for the following reasons. that the draft assessment orders were not taken to their logical conclusion can never form a sustainable reason for reopening the assessment for the following reasons. a)The DRP set aside the draft assessment orders [as it was illegal], and therefore, was binding on the AO. and therefore, was binding on the AO. b)Since the draft assessment orders were illegal, and they could never have, logically, ended up as orders under Section 143(3) of the Act. have, logically, ended up as orders under Section 143(3) of the Act. c)Reopening of assessment can never be justified to overcome, what was, to begin with, illegal action of the respondent. was, to begin with, illegal action of the respondent. d)The respondent, after considering the entire material on record, adjudicated, inter alia, on the issue concerning PE (in the case of petitioners) and royalty (in the case of ESSD) in the draft assessment order(s) which was passed under Section 143(3) read with Section 144C of the Act. Once such an order was passed, the concerned officer had completed his part of the assessment proceedings, albeit, as required under Section 144C of the Act in a draft form. adjudicated, inter alia, on the issue concerning PE (in the case of petitioners) and royalty (in the case of ESSD) in the draft assessment order(s) which was passed under Section 143(3) read with Section 144C of the Act. Once such an order was passed, the concerned officer had completed his part of the assessment proceedings, albeit, as required under Section 144C of the Act in a draft form. e)A draft assessment order is final, once passed, insofar as the AO is concerned, pending the directions that DRP may issue while disposing of the objections filed by the assessee. The AO is bound by the decision that the DRP may take on the objections filed by the assessee. Given the failure of the respondent to act as per the scheme of the statute (and, in not adhering to the decisions of this Court as also the DRP), the respondent could not have formed concerned, pending the directions that DRP may issue while disposing of the objections filed by the assessee. The AO is bound by the decision that the DRP may take on the objections filed by the assessee. Given the failure of the respondent to act as per the scheme of the statute (and, in not adhering to the decisions of this Court as also the DRP), the respondent could not have formed Signature Not VerifiedW.P. (C) 10939/2018 and W.P. (C) 10940/2018 Page 14 of 32 reasons to believe that the petitioners‟ income chargeable to tax had escaped assessment. [See Principal Commissioner of Income-tax-6 vs. Moser Baer India Ltd., (2020) 114 taxmann.com 549 (SC), and Coperion Ideal (P.) Ltd. vs. Commissioner of Income-tax – II, [2015] 378 ITR 525 (Delhi)(Mag.)] Signature Not VerifiedW.P. (C) 10939/2018 and W.P. (C) 10940/2018 Page 14 of 32 reasons to believe that the petitioners‟ income chargeable to tax had escaped assessment. [See Principal Commissioner of Income-tax-6 vs. Moser Baer India Ltd., (2020) 114 taxmann.com 549 (SC), and Coperion Ideal (P.) Ltd. vs. Commissioner of Income-tax – II, [2015] 378 ITR 525 (Delhi)(Mag.)] ix.Ninth, Explanation 2 to Section 147 of the Act is applicable only if the assessment order was not framed. In these cases, assessment orders were framed by the AO, which, were, however, not confirmed by the DRP. The DRP held that the orders were invalid, as petitioners were not eligible assessees within the meaning of Section 144C(15)(b) of the Act. Therefore, the reason, given, that the draft assessment orders remained “inchoate” is not sustainable in law. In any event, the said explanation cannot be used to reopen an invalid order, which was passed contrary to the decision of this Court and was founded on AO's illegal conduct. assessment order was not framed. In these cases, assessment orders were framed by the AO, which, were, however, not confirmed by the DRP. The DRP held that the orders were invalid, as petitioners were not eligible assessees within the meaning of Section 144C(15)(b) of the Act. Therefore, the reason, given, that the draft assessment orders remained “inchoate” is not sustainable in law. In any event, the said explanation cannot be used to reopen an invalid order, which was passed contrary to the decision of this Court and was founded on AO's illegal conduct. x.Tenth, SSIPL does not act wholly or exclusively on behalf of the petitioners. Furthermore, SSIPL has not concluded any contract on behalf of the petitioners, and hence, cannot be considered as their agent. SSIPL has been accorded remuneration at ALP; a fact which has been accepted by the TPO and therefore, nothing further is attributable to the income of the petitioners‟. [See: DIT v/s Morgan Stanley (2007) 292 ITR 416(SC), ADIT v/s E-Funds IT Solutions Inc (2017) 399 ITR 34(SC), Honda Motor Co. Ltd. v/s ADIT (2018) 255 Taxman 72(SC), DIT v/s BBC Worldwide Limited (2011) 203 Taxman 554 (Del), Set Satellite (Singapore) Pte. Ltd. v/s DDIT (2008) 307 ITR 205 (Bom) & DIT v/s B4U International Holding Ltd (2015) 374 ITR 453 (Bom)]. petitioners. Furthermore, SSIPL has not concluded any contract on behalf of the petitioners, and hence, cannot be considered as their agent. SSIPL has been accorded remuneration at ALP; a fact which has been accepted by the TPO and therefore, nothing further is attributable to the income of the petitioners‟. [See: DIT v/s Morgan Stanley (2007) 292 ITR 416(SC), ADIT v/s E-Funds IT Solutions Inc (2017) 399 ITR 34(SC), Honda Motor Co. Ltd. v/s ADIT (2018) 255 Taxman 72(SC), DIT v/s BBC Worldwide Limited (2011) 203 Taxman 554 (Del), Set Satellite (Singapore) Pte. Ltd. v/s DDIT (2008) 307 ITR 205 (Bom) & DIT v/s B4U International Holding Ltd (2015) 374 ITR 453 (Bom)]. xi.Eleventh, initiation of reassessment is contrary to the provisions of Section 149(1)(b) of the Act having regard to the fact that the petitioners do not have a PE in India and/or no income is attributable to them. The impugned notices, and orders setting out reasons and disposing of objections raised qua the same, is contrary to the provisions of Article 5 read with Article 7 of the DTAA and in disregard of the principles enunciated by the Courts. Section 149(1)(b) of the Act having regard to the fact that the petitioners do not have a PE in India and/or no income is attributable to them. The impugned notices, and orders setting out reasons and disposing of objections raised qua the same, is contrary to the provisions of Article 5 read with Article 7 of the DTAA and in disregard of the principles enunciated by the Courts. xii.Twelfth, the sanctions granted under Section 151 of the Act, have been accorded without due application of mind. The sanctions granted by the concerned officer are mechanical as is evident from the reasons given while approving initiation of impugned proceedings: "This is [a] fit case for issue of [sic "issuing"] notice u/s 148 of the IT Act, 1961. Approved" [See CIT vs. S Goyanka Lime & Chemical Ltd., (2019) 237 Taxman 378 (SC), Chhugamal Rajpal vs. S.P. Chaliha, (1971) 79 ITR 603 (SC), PCIT vs. NC Cables Ltd., (2017) 391 ITR 11 (Del) and United Electrical CO (P.) Ltd. vs. Commissioner of Income-Tax, (2002) 258 ITR 317 (Del)] accorded without due application of mind. The sanctions granted by the concerned officer are mechanical as is evident from the reasons given while approving initiation of impugned proceedings: "This is [a] fit case for issue of [sic "issuing"] notice u/s 148 of the IT Act, 1961. Approved" [See CIT vs. S Goyanka Lime & Chemical Ltd., (2019) 237 Taxman 378 (SC), Chhugamal Rajpal vs. S.P. Chaliha, (1971) 79 ITR 603 (SC), PCIT vs. NC Cables Ltd., (2017) 391 ITR 11 (Del) and United Electrical CO (P.) Ltd. vs. Commissioner of Income-Tax, (2002) 258 ITR 317 (Del)] Submissions advanced on behalf of the respondent: 12. On behalf of the respondent, arguments were advanced by Ms. Vibhooti Malhotra. Ms. Malhotra argued, broadly, on the following lines. i.An alternate statutory remedy that was equally efficacious was available to the petitioners, and therefore, the instant writ petition should not be entertained. [See: CIT vs. Chhabil Dass Agarwal, (2014) 1 SCC 603] to the petitioners, and therefore, the instant writ petition should not be entertained. [See: CIT vs. Chhabil Dass Agarwal, (2014) 1 SCC 603] ii.The petitioners have wrongly sought to place reliance on this Court‟s order dated 23.03.2016 [passed in W.P. (C) Nos. 2384/2015 and 2397/2015 concerning AY 2010-2011]. This Court, via the said order, order dated 23.03.2016 [passed in W.P. (C) Nos. 2384/2015 and 2397/2015 concerning AY 2010-2011]. This Court, via the said order, quashed final assessment orders and reiterated the principle that assessment orders passed contrary to the requirement of Section 144C of the Act are, entirely without jurisdiction. This observation was made by this Court, in the said order, as it took exception to the AO attempting to finalize the assessment; conduct which was found contrary to the principles laid down in the judgement of the Supreme Court rendered in Union of India vs. Kamlakshi Finance Corporation Limited, 1992 Supp (1) SCC 443. Thus, the said judgement dated 23.03.2016 is distinguishable. In the present cases, the AO has validly exercised his jurisdiction for initiating reassessment proceedings. In the instant cases, although, scrutiny proceedings were initiated, final assessment orders could not be framed as the DRP declined to issue any directions qua the draft assessment orders. Therefore, the action taken by the AO aligned with this Court's decision dated 23.03.2016. Significantly, this Court in the aforementioned judgement, clarified that it had not expressed any opinion regarding the validity of proceedings taken out against ESSA and ESSD [i.e., the petitioners] under Section 147 and 148 of the Act. iii.The contention of the petitioners, that (re)assessment proceedings could not have been initiated in the absence of new and tangible material and therefore the impugned action of the AO suffers from an error of change of opinion, is without merit as it flies in the face of provision of explanation 2 appended to Section 147 of the Act. iv.The assertion made on behalf of the petitioners that the draft assessment orders passed by the AO were final insofar as AO was concerned, is flawed. It is an admitted fact that the additions proposed in the draft assessment orders were not examined on merits by the DRP given the conclusion reached by it that the petitioners were not eligible assessees. Had such a step been taken, it is only then the AO could have completed Page 17 of 32 iii.The contention of the petitioners, that (re)assessment proceedings could not have been initiated in the absence of new and tangible material and therefore the impugned action of the AO suffers from an error of change of opinion, is without merit as it flies in the face of provision of explanation 2 appended to Section 147 of the Act. iv.The assertion made on behalf of the petitioners that the draft assessment orders passed by the AO were final insofar as AO was concerned, is flawed. It is an admitted fact that the additions proposed in the draft assessment orders were not examined on merits by the DRP given the conclusion reached by it that the petitioners were not eligible assessees. Had such a step been taken, it is only then the AO could have completed Page 17 of 32 the proceedings, having regard to the provisions of sub-section (5) and (13) of Section 144C of the Act. [See Principal Appraiser (Exports), Collectorate of Customs and Central Excise and Ors. vs. Esajee Tayabally Kapasi, 1995 (80) ELT 3] v.The draft assessment orders passed by the AO were "inchoate" and cannot be termed as an assessment creating binding obligations either on the respondent or the assessees, i.e., ESSA and ESSD, in these cases. The reliance placed by the petitioners on the judgement of the Supreme Court in C.A. Abraham v. Income-tax Officer, Kottayam and Anr. [1961] 41 ITR 425 (SC) is misplaced, as the draft assessment orders in the present cases did not produce any definitive consequences. The instant cases fall squarely within the ambit of Explanation 2 attached to Section 147 of the Act. Furthermore, it requires to be emphasized that a draft assessment order is final qua the AO only when assessment jurisdiction is exercised under Section 144C of the Act. vi. Since no final assessment orders were passed, (re)assessment proceedings could have been initiated against the petitioners. [See Deputy Commissioner of Income-tax vs. Zuari Estate Development & Investment Co. Ltd., [2015] 373 ITR 661. vii. The petitioners had raised objections on merits against the draft assessment orders before the DRP; the main issue being, as to whether the advertising revenue (in case of ESSA) and subscription fee received from SSIPL (in case of ESSD) was taxable in the AY in issue, i.e., AY 2013-2014. The DRP has not expressed any view on this aspect. viii.This apart, since no original assessment has been carried out, it was not necessary for the AO to come up with fresh tangible material to form "reasons to believe" that the taxable income of the petitioners had escaped assessment. [See Indu Lata Rangwala vs. Deputy Commissioner of Income-tax, [2016] 384 ITR 337 (Delhi] ix.Since the draft assessment orders did not attain finality, there could be no impediment in law in initiating (re)assessment proceedings on the same material which led to the framing of the draft assessment orders. [See Krishna Developers and Company vs. Dy. Commissioner of Income Tax, [2018] 400 ITR 260 (Guj)] Analysis and Reasons: 13.Having heard learned counsel for the parties, and perused the record, what has emerged and qua which there is no rebuttal is that, before the draft assessment orders dated 23.12.2016 for the AY in issue, i.e., 2013-14 were passed, there was in place the order of the DRP dated 26.12.2014, concerning the assessees [i.e. petitioners in the instant cases], which was confirmed by this Court via order dated 23.03.2016 [related to AY 2010-2011], which noted that the petitioners were not eligible assesses within the meaning of Section 144C(15)(b) of the Act. Pertinently, the petitioners‟ declared status, even then, was, a non-resident foreign partnership firm. 13.1.Therefore, at the relevant time, the AO could not have taken recourse to the procedure for assessment provided under Section 144C. It needs to be emphasized that Section 144C falls in Chapter XIV which is titled “Procedure for Assessment”. 13.1.Therefore, at the relevant time, the AO could not have taken recourse to the procedure for assessment provided under Section 144C. It needs to be emphasized that Section 144C falls in Chapter XIV which is titled “Procedure for Assessment”. 13.2.Notably, for two AYs, i.e., AY 2011-2012 and 2012-2013, recourse was taken for passing final assessment orders qua the petitioners to the provisions of Section 143(3) of the Act. These orders were passed on 27.03.2015 (AY 2011-2012) and 10.03.2016 (AY 2012-2013). 13.3.Therefore, there was no good reason, according to us, for the AO to resort to the procedure for assessment provided under Section 144C of the Act when such orders [i.e., the aforementioned or