M/S.tao Publishing Pvt. Ltd., 17, Koregaon Park, Pune 411 001. … v. Dy. Commissioner Of Income Tax, Circle

bsb 1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION WRIT PETITION NO. 9104 OF 2014 M/s.Tao Publishing Pvt. Ltd., 17, Koregaon park, Pune 411 001.… Petitionerv/s1.Dy. Commissioner of Income Tax,Circle-7, Pune;60/61, Praptikar Sadan, Erandwane,Karve Road, Pune – 411 004. 2. Union of India, through the Secretary,Ministry of Finance North Block,New Delhi – 110 001.… Respondents Mr.Mihir Naniwadekar, Advocate for the petitioner.Mr.Tejveer Singh, Advocate for the respondents. CORAM: M.S. SANKLECHA & N.M. JAMDAR, JJ.DATED : 13 OCTOBER, 2014 JUDGMENT (Per N.M.Jamdar, J.): Rule. Rule made returnable forthwith. Counsel for the respondents waive service. 2.By consent, writ petition taken up for final disposal. 3The Petitioner challenges the notice dated 28 March 2012 issued under Section 148 of the Income Tax Act, 1961 (the Act), by the Respondent No.1 – Deputy Commissioner of Income Tax seeking to reopen the assessment for Assessment Year 2005-2006. Besides, the challenge is also to the order dated 3 September 2014, rejecting the 4.The Petitioner M/s.Tao Publishing is a Private Limited Company, engaged in the business of printing and publishing books, magazines and Compact Discs. The Petitioner had filed its return of income for the Assessment Year 2005-2006 declaring total loss of Rs.5,34,230/-. In it's books of accounts, the Petitioner had debited an amount of Rs.32,34,652/- as of expenditure for advertising. The notice was issued under Section 142(1) of the Act, pursuant to which, scrutiny proceeding took place. On 11 September 2007, a notice was issued by the Respondent No.1 calling upon the Petitioner to provide certain particulars. The Respondent No.1 sought particulars in respect of the advertising and publishing expenses of Rs.32,34,652/-. The Petitioner furnished the particulars sought for on 24 October 2007 and also gave details of the advertising expenses. The Petitioner stated that the Petitioner had appointed one America Multimedia, U.S.A. for promotion and publicity of their website for information for those who wanted to know the details of magazines and books published by the Petitioner. The Petitioner stated that the service provided by the America Multimedia Corporation was outside India and, therefore, the payment of Rs.10,64,281/- was not covered under Chapter XV II B - Deduction of Tax at Source. This explanation of the Petitioner was accepted by the Assessing Officer. The Assessing Officer did not make any disallowance pertaining to the advertising and publishing expenses. 5.Thereafter, on 28 March 2012, the Respondent No.1 issued a notice under Section 148 of the Act in respect of the Assessment Year 2005- bsb 3 2006, after four years from the end of relevant Assessment Year. On 25 April 2012, the Petitioner sought reasons for issuance of notice under Section 148 for reassessment. On 24 January 2013, a copy of the Reasons was supplied to the Petitioner. It reads as under : “The reason recorded for reopening the case is hereunder : I am of the belief that the following income have escaped assessments in the case of TAO Publishing Pvt. Ltd. For AY 2005-06. 1. As per Section 195 of the IT Act any person for paying to a non-resident not being a company or to a foreign company, any interest or any other sum chargeable under the provisions of this Act, at the time of credit of such income to the account of the payee or any other income whichever is earlier deduct income tax thereon at the rates in force. 2006, after four years from the end of relevant Assessment Year. On 25 April 2012, the Petitioner sought reasons for issuance of notice under Section 148 for reassessment. On 24 January 2013, a copy of the Reasons was supplied to the Petitioner. It reads as under : “The reason recorded for reopening the case is hereunder : I am of the belief that the following income have escaped assessments in the case of TAO Publishing Pvt. Ltd. For AY 2005-06. 1. As per Section 195 of the IT Act any person for paying to a non-resident not being a company or to a foreign company, any interest or any other sum chargeable under the provisions of this Act, at the time of credit of such income to the account of the payee or any other income whichever is earlier deduct income tax thereon at the rates in force. It is seen from the records that as claimed and department allowed as expenditure debited in the head “advertisement expenses” to the extent of Rs.1064281/- paid to America Multimedia Corporation, 80 Fifth Avenue, Suite 1403, New Yord. NY 10011, USA for promotion and publishing on their website osho.com. It was stated by the that this service is provided by the above company outside India and the said company has no permanent establishment in India. Hence the payment of Rs.1064281/- due to F.Y. 2004-05 is not correct under the provisions of deduction of tax at source of the IT Act 1961. 2. As the provisions of 195 of the IT Act is very clear the amount of Rs.1064281/- required to be disallowed and added back to the total income of U/s 40(A) failure to do so has resulted into u/a of income of Rs.1064281/-. 3. Hence, Rs.124622/- has escaped assessment and hence this case is reopened and notice u/s 148 is issued to the assessee.” The Petitioner filed its objections on 31 January 2013, which objections were rejected by the impugned order dated 3 September 2014. 6.We have heard the learned counsel for the Petitioner and the learned counsel for the Respondent Revenue. 7.In the present case, the reassessment proceedings are sought to be initiated after the period of four years from the end of relevant Assessment Year. In view of the proviso to Section 147 of the Act, the Assessing Officer will not take any action for reassessment after the period of four years, unless the income chargeable to tax has escaped assessment for such Assessment Year by reason of the failure on the part of the assessee to disclose fully and truly all material facts for assessment of that year. 8.A statement of Reasons was supplied to the Petitioner regarding the belief of the Respondent No.1 for coming to a conclusion that the income had escaped assessment. The Reasons state that, from the record it is seen that the department allowed the claim of the petitioner regarding an expenditure debited under the head 'Advertising Expenses', wrongly. Thus, on perusal of the record the Respondent No.1 found that an incorrect amount was allowed as an expenditure under the head 'Advertising Expenses'. The Petitioner filed it's objections. The Petitioner set out the factors how the expenditure was correctly allowed. The Petitioner also pointed out that the fact that the concerned advertising Company was based in United States, was already on record, and also bsb 5 WP9104.14.doc that it did not have any Permanent Account Number in India. While rejecting the objections, the Respondent No.1 observed that the Petitioner failed to disclose fully and truly, material facts for the assessment, and because of the failure of the Petitioner to provide for all the relevant details in respect of the expenditure, reassessment needs to be carried out. bsb 5 WP9104.14.doc that it did not have any Permanent Account Number in India. While rejecting the objections, the Respondent No.1 observed that the Petitioner failed to disclose fully and truly, material facts for the assessment, and because of the failure of the Petitioner to provide for all the relevant details in respect of the expenditure, reassessment needs to be carried out. 9.The learned counsel for the Petitioner rightly pointed out that the ground that the Petitioner had failed to disclose all the relevant material was not incorporated in the Reasons supplied to the Petitioner. The object of furnishing Reasons for reopening, is to put the assessee to notice as to why the Assessing Officer has reason to believe that income has escaped assessment. Apart from this position, in the present case the Reasons supplied do not state that there was any failure on the part of the Petitioner to provide material particulars. That an assessee has not made a full and true disclosure of facts, is one of the jurisdictional requirement for proceeding with reassessment after a period of four years. In the case of Hindustan Levers v/s R.B. Wadkar, Asstt. Commissioner of Income Tax & ors.(No.1), reported in 268 ITR 332, this Court had held that the notices for reassessment would stand or fall on the basis of Reasons and the Reasons cannot be improved upon, substituted or supplemented. This view has been followed by this Court in several other cases. 10.As stated above, the reasons supplied to the Petitioner do not disclose that there was any failure on the part of the Petitioner to provide all the material facts. That being the position, this ground could not have been taken up against the Petitioner at the time of disposing of the objections. Once this was not the basis for issuance of notice for bsb 6 Reassessment, it cannot be held against the Petitioner that the Petitioner had failed to make a true and full disclosure. It will have to be held that the Petitioner did not fail to make full and true disclosure of all material facts. The jurisdictional requirement for carrying out the reassessment, after the expiry of period of four years, is not fulfilled in the present case. 11.The learned counsel for the Petitioner also submitted that, in fact, there was no failure to disclose all material facts as the Respondent No.1 had specifically sought details as regard the relevant expenditure and which were furnished. He relied upon the decision of the Apex Court in the case of Gemini Leather Stores v/s Income Tax Officer, B-Ward, Agra & ors., reported in 100 ITR 1, to contend that the duty of the assessee was to place on record all the primary facts and drawing of inference from the primary facts is upto the Assessing Officer. However, this issue need not be gone into in depth any further, as the Petitioner is entitled to succeed on the first ground mentioned above. 12.In the circumstances, the Petitioner is entitled to the reliefs prayed for in the Petition. It will have to be held that the Respondent No.1 had no jurisdiction to proceed with the impugned reassessment proceedings. 13.Accordingly, Rule is made absolute in terms of prayer clause (a) and (b) which read as under : (a) Issue a writ of certiorari or a writ in the nature of certiorari or any other appropriate writ, order or direction under Article 226 and 227 of the Constitution of India calling for the records bsb 7 and quashing the impugned notice dated 28 March 2012 and the impugned order dated 3 September 2014. (b) Issue a writ of mandamus or a writ in the nature of mandamus or any other appropriate writ, order or direction under Article 226 and 227 of the Constitution of India directing the Respondents not to proceed or initiate any reassessment proceedings for the Assessment Year 2005-2006. 14.No order as to costs. (N.M. JAMDAR, J.) (M.S. SANKLECHA, J.)