Nielsen (India) Pvt Ltd v. The Deputy Commissioner Of Income Tax5(1)(1), Mumbai & Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYO.O.C.J.WRIT PETITION NO. 3592 OF 2018 Nielsen (India) Pvt Ltd..Petitioner Versus The Deputy Commissioner of Income Tax5(1)(1), Mumbai & Ors...Respondents ................... •Mr. Madhur Agrawal i/by Atul Jasani for the Petitioner •Mr. Akhileshkumar Sharma for Respondent Nos. 1 to 3 ................... CORAM : AKIL KURESHI & M.S. SANKLECHA, JJ. DATE : JANUARY 31, 2019. P.C.: 1.The petitioner has challenged a notice of reopening ofassessment dated 15.3.2018. 2.The brief facts are as under:- (a). Petitioner is a Private Limited Company. For theassessment year 2011-12, the petitioner had filed the returnof income on 30.11.2011 which was subsequently revised on2.11.2012 declaring total income of Rs. 10.30 crore (rounded off). In such return, the petitioner had debited an amount ofRs. 8.84 crore (rounded off) in the profit and loss account towards payment of fees as per the Global ServiceAgreement. The petitioner would point out that saidpayment would be made initially on estimation basis andsubsequently upon finalization of accounts be adjusted in thebooks by making reversal entry. (b)With respect to such payment, the question ofdeducting tax at source came up for consideration before theAssessing OfÏcer during the scrutiny assessment. To theextent, the assessee had failed to deduct tax at source, theexpenditure was disallowed. The order of assessmentpassed by the Assessing OfÏcer under Section 143(3) of theIncome Tax Act ("the Act" for short) on 19.3.2014. To reopensuch assessment, the Assessing OfÏcer issued the impugnednotice. In order to do so,he had recorded the followingreasons:- "As per provisions of section 40(a)(i) of the Income Tax Act,1961, any interest, royalty, fees for technical services or other sumchargeable under the Act, which is payable outside India or in India toa non resident on which tax is deductible at source and tax has notbeen deducted or, after deduction, has not been paid on or beforethe due date of filing return, then such expenditure shall be allowedin the year in which such tax has been paid. 2.The assessee filed the return of income on 30.11.2011 whichwas revised on 2.11.2012 declaring income of Rs. 10,30,22,452/-.The Assessing Officer, after scrutiny, determined income of Rs.11,31,98,590/-. 3.It was seen that the assessee had debited the Profit and Lossaccount with an amount of Rs. 8,84,29,729/- on account of 'GlobalServices Agreement (GSA) fees' (Sch. 14). This Lamont is the netfigure of a sum of Rs. 8,07,22,455/- on which tax was deducted andpaid, and Rs. 4,65,32,582/- on which tax was not deducted lessreversals of expenditure of earlier years (AY 2009-10 and AY 2010-11) amounting to Rs. 3,88,25,307/-. The assessing officer, haddisallowed an amount of Rs. 77,07,275/- (Rs. 8,84,29,729 - Rs.8,07,22,455 or Rs. 4,65,32,582 - Rs. 3,88,25,307) u/S. 40(a)(i) fornon deduction of tax, in the scrutiny assessment. Since the tax wasnot deducted on a sum of Rs. 4,65,32,582/-, this amount wasdisallowable but for reversals of expenditure. The netting of sum onwhich tax was not deducted with sum of reversals amounted toallowance of deduction of expenditure on account of reversals.However, the allowance of deduction on account of reversals ofexpenditure pertaining to earlier years is permissible only if theamount was disallowed in the relevant years. The verification ofearlier year records (for AY 2010-11 and AY 2009-10) revealed that inAY 2010-11, an amount of Rs. 1,95,13,243/- (Rs. 1,04,54,076/- andRs. 90,59,167/-) was disallowed u/S. 40a(i) and in AY 2009-10, nodisallowance was made u/S. 40a(i) on account of 'GSA', Therefore,an amount of Rs. 2,70,19,339/- [ Rs. 4,65,32,582 - Rs. 1,95,13,243)was to be disallowed as against an amount of Rs. 77,07,275/-disallowed. The omission resulted in underassessment of income ofRs. 1,93,12,064/- 4. In view of the above, I have "reasons to believe" that incomechargeable to tax, to the tune of Rs. 1,00,000/- or more has escapedassessment for A.Y. 2011-12 within the meaning of Section 147 of the I.T. Act, 1961, on account of failure on the part of the assessee todisclose fully and truly all material facts necessary for itsassessment. Accordingly, the assessment is to be reopened u/S.147 of the I.T. Act, 1961 by way of issuance of notice u/S. 148. 5.In view of the above, it is requested that approval may begranted to reopen assessment u/S. 147 of the I.T. Act, 1961 and toissue notice u/S. 148 of the Act in this case as required underprovisions of Sec. 151(1) of the Act." (c). Upon being supplied the reasons, the petitioner raisedobjections to the notice of reopening of assessment undercommunication dated 22.11.2018. Such objections wererejected by the Assessing OfÏcer by an order dated27.11.2018 and hence, this petition. 3.Having heard the learned counsel for the parties andhaving perused the documents on record, we may noticethat the impugned notice has been issued beyond the periodof four years from the end of relevant assessment year. Therequirement that the income chargeable to tax has escapedassessment due to the failure on the part of the assessee todisclose truly and fully all material facts flowing from firstproviso to Section 147 of the Act, therefore, needs to besatisfied. In the present case, the Assessing OfÏcer has recorded reasons which neither state nor demonstrate thatthere was any failure on the part of the assessee to disclosetruly and fully all material facts. 4.There is one more reason why the impugned noticecannot be sustained. The reason is that the AssessingOfÏcer had occasion to examine the entire transaction duringthe scrutiny assessment. To appreciate this ground, we maysummarize the reasons on the basis of which the AssessingOfÏcer has issued the impugned notice. He recorded thatthe assessee had debited the profit and loss account by anamount of Rs. 8.84 crore on account of Global ServiceAgreement. This amount represents a net sum after reversalof expenditure of Rs. 4.65 crore. The assessee hadaccounted for only such sum of Rs. 8.84 crore for deductionof tax at source and no tax at source was deducted on theadditional sum of Rs. 4.65 crore. According to the AssessingOfÏcer, the assessee could have claimed reversal of theexpenditure pertaining to earlier arrears only if the amountwas disallowed in the relevant years. He noticed that in theearlier years, only total of Rs. 1.95 crore was disallowed and therefore, the remaining amount out of Rs. 4.65 crore i.e Rs.2.70 crore (rounded off) was to be disallowed in the presentcase as against the disallowance of Rs. 77.07 lacs made byhim in the assessment order. 5.The assessee claimed that expenditure of Rs. 8.84 crorewhich was thoroughly examined by the Assessing OfÏcerduring the assessment proceedings. Under a letter dated17.12.2013, the Assessing OfÏcer called for various detailsfrom the petitioner including the following :- "xiv) Details of following expenses debited to Profit & Lossaccount:- ....................... ....................... (h) Details of Global Services Agreement fees. Alsoindicate whether TDS made thereon being fees forTechnical services." In response to the query, the petitioner replied under letter dated 30.1.2014 and supplied following details:- "5.Details of tax deducted at source on General ServicesAgreement (GSA) fees. Please refer Annexure C. Out of the total expenses of Rs.88,429,729/-, tax has duly been deducted and deposited onexpenses of Rs. 80,722,454/-. Along with this letter, the petitioner had annexed details of Global Services Agreement and tax deducted thereon which reads as under:- Details of Global Services Agreement (GSA) and tax deducted thereon ....................... ....................... (h) Details of Global Services Agreement fees. Alsoindicate whether TDS made thereon being fees forTechnical services." In response to the query, the petitioner replied under letter dated 30.1.2014 and supplied following details:- "5.Details of tax deducted at source on General ServicesAgreement (GSA) fees. Please refer Annexure C. Out of the total expenses of Rs.88,429,729/-, tax has duly been deducted and deposited onexpenses of Rs. 80,722,454/-. Along with this letter, the petitioner had annexed details of Global Services Agreement and tax deducted thereon which reads as under:- Details of Global Services Agreement (GSA) and tax deducted thereon Sr.ParticularsTotalRemarksNo.12009-True-up-GSA Chgs - $28755212,982,973 No Tax deducted22009-True-up-GSA Royalty Chgs - $1429905,810,895 No Tax deducted32010 Q1 & Q2 Royalty Chgs - $401291-Nilesen Co LLC18,973,570 Tax has been deducted and duly paid4Credit Note - 2009 GSA True-up-Nielsen Co (US) LLC(13,226,863) Reversal5Credit Note-2009 Royalty True-up-$128702-Nielsen(6,085,201) Reversal6Provision for Sponsorship Charges10,995,000 No Tax deducted7Q1 & Q2 - GSA 2010 Chgs - The Nielsen Co (US) LLC21,300,920 Tax has been deducted and duly paid8Q1-2010-GSA Chgs - $231541(10,454,076) Reversal9Q1-2010-GSA Royalty Chgs-$639790(9,059,163) Reversal10Q1-2011-GSA Royalty Chgs16,743,714 No Tax deducted11Q3 & Q4 - GSA 2010 Chgs - The Nielsen Co (US) LLC21,669,724 Tax has been deducted and duly paid12Q3 & Q4 2010 Royalty Chgs - The Niesen Co (US) LLC18,778,241 Tax has bee deducted and duly paidTotal88,429,729 In yet another reply dated 14.3.2014 in this connection, the petitioner had contended as under:- "5. Explanation for not deducting tax at source on GSAexpenditure of Rs. 46,532,582 and adjusting it with the reversalsduring the year As submitted before your goodself vide letter dated 30 January 2014,out of the total expenses of Rs. 88,429,729, tax has duly beendeducted and deposited on expenses of Rs. 80,772,454/-. Thedetails of GSA expenses and tax deducted thereon were submittedvide Annexure 'C' of the said letter. From these details, your goodself would observe that tax has been duly deducted and deposited onexpenses of Rs. 80,722,454/-. The balance expenditure amount to Rs. 7,707,275 (i.e. aggregatereflected at sr. nos. 1, 2, 6 and 10 as reduced by the aggregate ofamounts reflected at 4,5, 8 and 9 (aggregating to Rs. 46,532,582),the expense claim for the year stands reduced (to the extent of suchreversals). Accordingly, the said reversals are required to be takeninto consideration (i.e reduced from the expenditure amount) whiledetermining the amount on which the Company was required todeduct tax at source. In other words, if the Company had deductedtax without reducing the aforesaid reversals, excess tax would havebeen deposited into the exchequer as compared to the Company'sexpense claim for the year. In view of the above, we request your goodself not to makedisallowance of GSA expenditure without considering the reversals ofRs. 46,532,582 comprised therein." It was after such detailed scrutiny that the AssessingOfÏcer passed the order of assessment in which he made limited disallowance of sum of Rs. 77.07 Lacs under Section40A(i)(a) of the Act making following observations:- -"3.Disallowance u/s. 40A(i)(a) GSA Fees:3.1On perusal of records filed during the course of assessmentproceedings, it is observed that the assesee has claimed expensesof Rs. 8,84,29,729/- under 'Global Services Agreement Fees'. Theassessee was required to deduct TDS u/S. 194J of the I.T. Act. Theassessee was, therefore, required to furnish details of Tax Deductedat Source. In response to the same, the assessee vide letter dated30.1.2014 submitted that out of Rs. 8,84,29,729/-, tax has beendeducted on Rs. 8,07,22,454/-. Thus, it is seen that the assessee It was after such detailed scrutiny that the AssessingOfÏcer passed the order of assessment in which he made limited disallowance of sum of Rs. 77.07 Lacs under Section40A(i)(a) of the Act making following observations:- -"3.Disallowance u/s. 40A(i)(a) GSA Fees:3.1On perusal of records filed during the course of assessmentproceedings, it is observed that the assesee has claimed expensesof Rs. 8,84,29,729/- under 'Global Services Agreement Fees'. Theassessee was required to deduct TDS u/S. 194J of the I.T. Act. Theassessee was, therefore, required to furnish details of Tax Deductedat Source. In response to the same, the assessee vide letter dated30.1.2014 submitted that out of Rs. 8,84,29,729/-, tax has beendeducted on Rs. 8,07,22,454/-. Thus, it is seen that the assessee has failed to deduct tax on Rs. 77,07,275/-. 3.2In view of the same, an amount of Rs. 77,07,275/- isdisallowed u/S. 40A(i)(a) of the I.T. Act and added back to the totalincome of the assessee. (Addition: Rs. 77,07,275/-)" 6.It can thus be seen that quite apart from there being nofailure on the part of the petitioner to disclose truly and fullyall material facts, there was scrutiny of the petitioner'sexpenditure. After raising queries and eliciting responsefrom the petitioner, the Assessing OfÏcer had passed theorder of assessment making limited disallowance. On boththese grounds i.e non failure to disclose true and full materialfacts and change of opinion, the impugned notice must bequashed. 7.Learned counsel for the Revenue, however, argued thatthe information with respect to disallowance or nondisallowance of the expenditure would appear only in theearlier assessment orders. Even if this is so, surely, thepetitioner cannot be blamed for non disclosure. As held bythe Supreme Court in the case of Calcutta Discount Co. Ltd Vs. I.T.O.[1], the duty of the assessee is to discloseprimary facts. What further inquiries on such facts orconsequence in law are to be drawn, is the exercise that theAssessing OfÏcer has to undertake. 8.In the result, the impugned notice is quashed and setaside. 9.The petition is allowed in the above terms. [ M.S. SANKLECHA, J. ] [ AKIL KURESHI, J ]