Wp/2269/2023 Of Knight Riders Sports Pvt Ltd v. Asst.commissioner Of Income Tax Central Circle 4 2 And Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.2269 OF 2023 Knight Riders Sports Pvt. Ltd. 8th Floor, Backstage, Plot No. 512 15th Road, Junction of Ram Krishna Road, Santacruz West, Mumbai – 400054... Petitioner v/s. 1.Assistant Commissioner of Income TaxCentral Circle – 4(2)Room No. 1918, 19th Floor,Air India Building, Nariman Point,Mumbai – 400021.Central Circle – 4(2)Room No. 1918, 19th Floor,Air India Building, Nariman Point,Mumbai – 400021. 2.Chief Commissioner of Income-tax (Central) – 2Room No. 1920, 19th FloorAir India Building, Nariman Point,Room No. 1920, 19th FloorAir India Building, Nariman Point, Mumbai – 400021. 3.The Union of IndiaThrough the Secretary,Government of India,Ministry of Finance,New Delhi – 110 001... Respondents … Mr. J.D. Mistri, Senior Advocate a/w. Mr. Hiten Chande i/b. Lumiere LawPartners, for the Petitioner. Mr. Vipul Bajpayee, for the Respondent – Revenue. … 1/14 CORAM : K. R. SHRIRAM & KAMAL KHATA, JJ. DATED : 26TH SEPTEMBER 2023. ORAL JUDGMENT : (PER : K. R. SHRIRAM, J.) 1.Since the pleading are completed, by consent of the counsels wetook up the Petition for hearing at the admission stage. 2.Rule. Rule made returnable forthwith. 3.Petitioner is impugning a notice dated 17th March 2023 receivedunder Section 148A(b) of the Income Tax Act, 1961 (“the Act”), theorder dated 30th March 2023 passed under Section 148A(d) of the Actand the reassessment notice dated 30th March 2023 issued underSection 148 of the Act. 4.Various grounds have been raised in the Petition but thepreliminary ground is that no assessment can be reopened on change ofopinion. 5.Petitioner, for the year under consideration, i.e., Assessment Year(“A.Y.”) 2016-2017, carried on the business of operating and running ateam in India Premium League, i.e., Kolkata Knight Riders. Petitioner 2/14 filed return of income on 13th October 2016 declaring total income ofRs.11,17,62,590/-. During the years Petitioner paid a sum ofRs.3,04,85,970/- as management fees towards consultancy and teammanagement fees. A sum of Rs. 1.90 crores was paid as consultancy feesto one Insignia Sports International Ltd. (“Insignia”). 6.During the course of assessment proceedings, Petitioner receivedvarious notices under Section 142(1) of the Act. In the notice dated 17thJanuary 2018 under Section 142(1) of the Act petitioner was calledupon to furnish in writing and verify in the prescribed mannerinformation to justify the outward remittances to any non-resident (notbeing a company) or to a foreign company and in that regard alsosubmit relevant 15CA and 15CB certificate. Petitioner replied throughits Chartered Accountant’s letter dated 29th January 2018 in whichPetitioner provided details of the expenses that were incurred to nonresidents/foreign company. As regard Form 15CA and Form 15CBPetitioner stated that since the data were voluminous it would help if aspecific list of expenses in respect of which the two forms are required ismade available. 7.This was followed by another notice dated 10th December 2018under Section 142(1) of the Act by which Petitioner was called upon to provide details of foreign payments. The name of the players/parties,their address the amount paid, Tax Deducted at Source (“TDS”) withnarration were to be provided. By its chartered accountant’s letter dated13th December 2018 Petitioner provided the details in the format askedfor. Petitioner specifically provided that consultancy and teammanagement fees of Rs.3,04,85,970/- was paid and the breakup ofRs.3,04,85,970/- was also provided. In the breakup the amount ofRs.1.90 crores paid to Insignia is mentioned and also that no TDS wasdeducted. 7.This was followed by another notice dated 10th December 2018under Section 142(1) of the Act by which Petitioner was called upon to provide details of foreign payments. The name of the players/parties,their address the amount paid, Tax Deducted at Source (“TDS”) withnarration were to be provided. By its chartered accountant’s letter dated13th December 2018 Petitioner provided the details in the format askedfor. Petitioner specifically provided that consultancy and teammanagement fees of Rs.3,04,85,970/- was paid and the breakup ofRs.3,04,85,970/- was also provided. In the breakup the amount ofRs.1.90 crores paid to Insignia is mentioned and also that no TDS wasdeducted. 8.This was followed by another notice dated 14th December 2018under Section 142(1) of the Act whereby the Assessing Officer (“AO”)raised a specific query calling upon Petitioner to justify why no TDS wasdeducted on payment made to one Adrain Le. Roure and Jacques Kallis.This would indicate that the explanation regarding payment made toInsignia had already been accepted because in this notice and even later,no further query regarding Insignia was raised. Petitioner repliedthrough its chartered accountant’s letter dated 17th December 2018explaining why no taxes were withheld on the payment made to thesetwo players. Petitioner explained that the income from renderingprofessional services in India will be taxed only in South Africa by virtueof Article 14 of India – South Africa DTAA. 9.Thereafter an assessment order dated 25th December 2018 underSection 143(3) of the Act was passed. The assessment order specificallyrefers to the various notices issued to Petitioner under Section 142(1) ofthe Act as referred above. The payments made to Insignia or nondeduction of TDS was, however, not discussed in the assessment order. 10.Subsequently, Petitioner received the impugned notice dated 17thMarch 2023 under Section 148A(b) of the Act alleging that there wasinformation suggesting that income chargeable to tax for A.Y. 2016-2017 has escaped assessment within the meaning of Section 147 of theAct. The details of the information was made available and relevantportion reads as under: “Audit scrutiny of the assessment records including the FinancialStatements for the relevant Previous Year (PY) showed that the assesseehad claimed a total amount of 31480970/- as consultancy and teammanagement fees. Out of this, an amount of 1,90,00,000/- pertained topayment to a foreign entity, namely, Insignia Sport International Ltd., anentity based in United Kingdom. As per the submission of the assessee, notax was deducted on this payment as per the provisions of the Act satedabove. This non deduction of tax made this amount ineligible fordeduction as per section 40(a)(i) of the Act quoted above. The tax effecton 1,90,00,000/- worked out to 65,75,520/- @30 percent tax, 12percent surcharge and 3 percent cess.” 11.Petitioner replied vide letter dated 25th March 2023. Petitioner’s objections were rejected and an order dated 30th March 2023 underSection 148A(d) of the Act came to be passed followed by the impugnedreassessment notice also dated 30th March 2023 u/s 148 of the Act. 11.Petitioner replied vide letter dated 25th March 2023. Petitioner’s objections were rejected and an order dated 30th March 2023 underSection 148A(d) of the Act came to be passed followed by the impugnedreassessment notice also dated 30th March 2023 u/s 148 of the Act. 12.Mr. Mistri submitted that the subject matter of the information,i.e., payment to Insignia and non deduction of TDS was a subject of theconsideration during the assessment proceedings. Mr. Mistri submittedthat once a query is raised during the assessment proceeding andassessee has replied to it, it follows that the query raised was a subject ofconsideration of AO while completing the assessment and it is notnecessary that an assessment order should contain reference and/ordiscussion to disclose its satisfaction in respect of the query raised.Mr. Mistri submitted that in view of the query being raised, answersgiven and considering the assessment order, it was rather obvious thatthe reopening of the assessment was merely on the basis of change ofopinion of the AO from that held earlier during the course of assessmentproceedings that led to the assessment order dated 25th December2018. Relying on the judgment of division bench of this Court in AroniCommercials Ltd vs. Assistant Commissioner of Income-tax 2(1)1, MrMistri submitted that change of opinion does not constitute justificationto believe that income chargeable to tax has escaped assessment. 13.Even in the audit objection annexed to the Affidavit in Reply, it isadmitted that Petitioner had submitted during the assessmentproceedings that no tax was deducted on this payment of Rs.1.90 crores 144 taxmann.com 304 (Bombay) 6/14 made to Insignia as per the provisions of the Act. This also indicates thatthe submission was made during the assessment proceedings and it wasaccepted by the AO. 14.Mr Mistri also submitted, relying on a judgment of this Court inSiemens Financial Services Pvt Ltd. vs. Deputy Commissioner of Income2Tax Circle-8(2)(1) & Ors.,that the AO does not have any power toreview his own assessment because it is settled law that proceedingsunder Section 148 of the Act cannot be initiated to review the earlierstand adopted by the AO. 15.Mr. Bajpayee relying upon the affidavit in reply filed through oneAmit Kumar affirmed on 14th July 2023 submitted that the AO whopassed the assessment order dated 25th December 2018 never appliedhis mind to the information that TDS were not deducted and that shouldresult in dis-allowance of the expenses incurred. Mr. Bajpayee alsosubmitted that an audit objection has also been raised that as per theprovisions of Section 40(a)(1) of the Act non deduction of TDS wouldmake the amount of Rs.1.90 crores paid to Insignia ineligible fordeduction and the tax effect on that would work out to approximatelyRs. 66 lakhs. Mr. Bajpayee further submitted that this issue was not discussed2In Writ Petition No. 4888 of 2022 dated 25th August 2023.2In Writ Petition No. 4888 of 2022 dated 25th August 2023. in the assessment proceedings. 16.In our view Mr. Mistri’s submission have to be accepted. This isbecause the law as held in Siemens Financial Services (supra) is clearthat reopening of assessment is not permissible based on change ofopinions as the AO does not have any power to review his ownassessment when during the original assessment Petitioner has providedall the relevant information which was considered by the AO beforepassing the assessment order under Section 143(3) of the Act. Thiswould be their position even if there is an audit objection. ParagraphsNos. 34 to 39 of Siemens Financial Services Pvt. Ltd. (supra) reads asunder: “34 On the facts of this case, as regards change of opinion, the informationmade available is the same reason to believe. If one considers it clearly, itindicates change of opinion. Paragraphs 2 to 6 of the information read asunder: “34 On the facts of this case, as regards change of opinion, the informationmade available is the same reason to believe. If one considers it clearly, itindicates change of opinion. Paragraphs 2 to 6 of the information read asunder: “2. Brief details of information collected/ received by AO:On perusal of the records it I noticed that the assesseecompany has debited an amount of Rs.6,41,87,931/- onaccount of Software consumables as other expenses to theProfit and Loss account. 3. Analysis of information collected/received: As per theinformation gathered from case record, the assesseecompany has debited an amount of Rs.6,41,87,931/- onaccount of Software consumables. As the said expenses is acapital expenditure. This attract depreciation at the rate of60%. Remaining 40% of software consumable, which comesat Rs.2,56,75,172/- should have been disallowed and addedback to the business income of the assessee. This hasresulted in underassessment of income of Rs.2,56,75,172/-. 4. Enquiry made by the AO: The assessment records ofassessee for year under consideration has been analysed andas per the information gathered from case record theassessee company has debited an amount ofRs.35,90,19,339/- as other expenses. On perusal of detailsof other expenses, it is noticed that the assessee has claimedthe software consumable of Rs.6,41,87,931/- on account ofSoftware consumable. Expenses on acquiring softwarconsumable is a capital expenditure. Section 37(1) providefor deduction for any expenditure (not being expenditure of the nature described in sections30 to 36 and not being in the nature of capital expenditureor personal expenses of the assessee), laid out or expendedwholly and exclusively for the purposes of the business orprofession under the head "Profit and gain of business orprofession". Hence capital expenditure incurred foracquisition of an intangible asset should have beendisallowed and added back the total income after allowingdepreciation at the applicable rate of 60%, which resultedinto underassessment of income of Rs.2,56,75,172/-. 5. Finding of the AO: In this case, an amount ofRs.6,41,87,931/- had been debited in P&L A/c. on account ofSoftware consumable. As expenses on acquiring computersoftware consumable is capita expenditure, the same is notallowable as per the provision of section 37 of Income TaxAct, 1961. Hence capital expenditure incurred foracquisition of an intangible asset should have beendisallowed and added back the total income after allowingdepreciation at the applicable rate of 60%, which resultedinto underassessment of income of Rs. 2,56,75,172/-. 6.Basis of forming reason to believe and details of escapementof income: In view of the finding of AO (as mentioned inpara 5 above), I have a reason to believe that the Incomechargeable to tax of Rs. 2,56,75,172/-, has escapedassessment under the meaning of section 147 of the Incometax Act, 1961. The AO has carefully applied his mind to thefacts and circumstances of the case. The information inpossession of the AO gives a substantial basis for theformation of a reason to believe to initiate re-assessmentu/s. 147 of the Income Tax Act, 1961.” 35 During the course of assessment proceedings, notice had been issued topetitioner. In reply to the notice under Section 143(2), petitioner had by itsletter dated 6th December 2018 recorded, “……… based upon ourdiscussion during the course of the hearing ……………...”. The transactionwise summary of the software consumable was made available. This wasconsidered during the assessment proceedings and the assessment orderaccepting revised return came to be passed. 35 During the course of assessment proceedings, notice had been issued topetitioner. In reply to the notice under Section 143(2), petitioner had by itsletter dated 6th December 2018 recorded, “……… based upon ourdiscussion during the course of the hearing ……………...”. The transactionwise summary of the software consumable was made available. This wasconsidered during the assessment proceedings and the assessment orderaccepting revised return came to be passed. 36 We would agree with the submissions of Mr. Pardiwalla that if changeof opinion concept is given a go by, that would result in giving arbitrarypowers to the Assessing Officer to reopen the assessments. It would ineffect be giving power to review which he does not possess. The AssessingOfficer has only power to reassess not to review. If the concept of changeof opinion is removed as contended on behalf of the Revenue, then in thegarb of re- opening the assessment, review would take place. The conceptof change of opinion is an in-built test to check abuse of power by theAssessing Officer. As held in Dr. Mathew Cherian (Supra), whether underold or new regime of reassessment, it is settled position that the issuesdecided categorically should not be revisited in the guise of reassessment.That would include issues where query have been raised during theassessment and query have been answered and accepted by the AssessingOfficer while passing the assessment order. As held in Aroni Commercials(supra) even if assessment order has not specifically dealt with that issue,once the query is raised it is deemed to have been considered and theexplanation accepted by the Assessing officer. It is not necessary that anassessment order should contain reference and/or discussion to disclose hissatisfaction in respect of the query raised. The Division Bench of this court in Aroni Commercials Ltd. (supra) held itis not necessary that the assessment order should contain reference and/ordiscussion to disclose its satisfaction in respect of the query raised.Paragraph 14 of Aroni Commercials Ltd. (supra) read as under: “14. We are of the view that once a query is raised duringthe assessment proceedings and the assessee has replied toit, it follows that the query raised was a subject ofconsideration of the Assessing Officer while completing theassessment. It is not necessary that an assessment ordershould contain reference and/or discussion to disclose itsatisfaction in respect of the query raised. If an AssessingOfficer has to record the consideration bestowed by him onall issues raised by him during the assessment proceedingeven where he is satisfied then it would be impossible for 10/14 “14. We are of the view that once a query is raised duringthe assessment proceedings and the assessee has replied toit, it follows that the query raised was a subject ofconsideration of the Assessing Officer while completing theassessment. It is not necessary that an assessment ordershould contain reference and/or discussion to disclose itsatisfaction in respect of the query raised. If an AssessingOfficer has to record the consideration bestowed by him onall issues raised by him during the assessment proceedingeven where he is satisfied then it would be impossible for 10/14 the Assessing Officer to complete all the assessments whichare required to be scrutinized by him under Section 143(3)of the Act. Moreover, one must not forget that the mannerin which an assessment order is to be drafted is the soledomain of the Assessing Officer and it is not open to anassessee to insist that the assessment order must record allthe questions raised and the satisfaction in respect thereofof the Assessing Officer. The only requirement is that theAssessing Officer ought to have considered the objectionnow raised in the grounds for issuing notice under Section148 of the Act, during the original assessment proceedings.There can be no doubt in the present facts as evidenced by aletter dated 8 September 2012 the very issue of taxability ofsale of shares under the head capital gain or the headprofits and gains from business was a subject matter ofconsideration by the Assessing Officer during the originalassessment proceedings leading to an order dated 12October 2010. It would therefore, follow that the reopeningof the assessment by impugned notice dated 28 March2013 is merely on the basis of change of opinion of theAssessing Officer from that held earlier during the course ofassessment proceeding leading to the order dated 12October 2010. This change of opinion does not constitutejustification and/or reasons to believe that incomechargeable to tax has escaped assessment.” 37 The Assessing Officer does not have any power to review his ownassessment when during the original assessment petitioner provided all therelevant information which was considered by him before passing theassessment order under section 143(3) of the Act dated 23rd December2018. Petitioner had debited an amount of Rs.6,41,87,931/- on account ofsoftware consumables in the profit and loss account and a detailed break-up of the said expenses were submitted before the Assessing Officer duringthe course of assessment proceedings vide a letter dated 6th December2018. It is settled law that proceedings under section 148 cannot beinitiated to review the earlier stand adopted by the Assessing Officer. TheAssessing Officer cannot initiate reassessment proceedings to have a relookat the documents that were filed and considered by him in the originalassessment proceedings as the power to reassess cannot be exercised toreview an assessment. In petitioner’s case the Assessing Officer havingallowed the amount of software consumables as a revenue expenditure now seeks to treat the same as capital expenditure which is a clear changeof opinion. Various judicial precedents have held that reassessmentproceedings initiated on the basis of a mere change of opinion are invalidand without jurisdiction. 38 The Apex Court in Kelvinator of India Ltd.(Supra) emphasised on thedifference between a power to review and the power to reassess. The ApexCourt held that the Assessing Officer has no power to review but has onlythe power to reassess. The concept of ‘change of opinion’ must be treated asan in-built test to check abuse of power by the Assessing Officer. Therelevant extract of the judgement is reproduced as under: now seeks to treat the same as capital expenditure which is a clear changeof opinion. Various judicial precedents have held that reassessmentproceedings initiated on the basis of a mere change of opinion are invalidand without jurisdiction. 38 The Apex Court in Kelvinator of India Ltd.(Supra) emphasised on thedifference between a power to review and the power to reassess. The ApexCourt held that the Assessing Officer has no power to review but has onlythe power to reassess. The concept of ‘change of opinion’ must be treated asan in-built test to check abuse of power by the Assessing Officer. Therelevant extract of the judgement is reproduced as under: “…….However, one needs to give a schematic interpretationto the words "reason to believe" failing which, we are afraid,section 147 would give arbitrary powers to the AssessingOfficer to re-open assessments on the basis of "mere changeof opinion", which cannot beper sereason to reopen. Wemust also keep in mind the conceptual difference betweenpower to review and power to re-assess. The AssessingOfficer has no power to review; he has the power toreassess. But reassessment has to be based on fulfilment 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 treat theconcept of "change of opinion" as an in-built test to checkabuse of power by the Assessing Officer. Hence, after 1-4-1989, Assessing Officer has power to reopen, providedthere is "tangible material" to come to the conclusion thatthere is escapement of income from assessment. Reasonsmust have a live link with the formation of the belief. Ourview gets support from the changes made to section 147 ofthe Act, as quoted hereinabove. Under the Direct Tax Laws(Amendment) Act, 1987 , Parliament not only deleted thewords "reason to believe" but also inserted the word"opinion" in section 147 of the Act. However, on receipt ofrepresentations from the Companies against omission of thewords "reason to believe", Parliament re-introduced the saidexpression and deleted the word "opinion" on the groundthat it would vest arbitrary powers in the AssessingOfficer………….” 39 The Delhi High Court in Seema Gupta v. ITO18 held that the order 12/14 under section 148A(d) and notice under section 148 of the Act should beset aside when the reassessment was initiated on a change of opinionwhere the same was discussed and verified by the Assessing Officer at thetime of original assessment proceedings.” 17.The reason we say that there is a change of opinion is becauseonce a query has been raised during the assessment and query has beenanswered and accepted by the AO while passing the assessment order, itfollows that the query raised was a subject of consideration of the AOwhile completing the assessment. This would apply even if theassessment order has not specifically dealt with that issue. It is notnecessary that an assessment order should contain reference and/ordiscussion to disclose his satisfaction in respect of the query raised. Asheld in Aroni Commercials Ltd (supra) if an AO has to record theconsideration bestowed by him on all issues raised by him during theassessment proceedings even where he is satisfied, then it would beimpossible for the AO to complete all the assessment which are requiredto be scrutinized by him under Section 143(3) of the Act. 18.In our view, therefore, it would follow that the reopening of theassessment by the impugned notice is merely on the basis of change ofopinion from that held earlier during the course of assessmentproceedings that led to the passing of the assessment order dated 25thDecember 2018. In our view, this change of opinion does not constitute justification to believe that income chargeable to tax has escapedassessment. 19.Therefore, we allow the Petition and make the rule absolute in terms of prayer clause (a) which reads as under: 18.In our view, therefore, it would follow that the reopening of theassessment by the impugned notice is merely on the basis of change ofopinion from that held earlier during the course of assessmentproceedings that led to the passing of the assessment order dated 25thDecember 2018. In our view, this change of opinion does not constitute justification to believe that income chargeable to tax has escapedassessment. 19.Therefore, we allow the Petition and make the rule absolute in terms of prayer clause (a) which reads as under: “(a)that this Hon’ble Court be pleased to issue a Writ of Certiorari ora writ in the nature of Certiorari or any other appropriate writ, order ordirection under Article 226 and/or Article 227 of the Constitution of Indiacalling for the records of the Petitioner’s case and after examining thelegality and validity thereof quash and set aside the Impugned Notice dated17 March 2023 (Exhibit “M”) the Impugned Order dated 30 March 2023(Exhibit “O”) and, Impugned Reassessment Notice dated 30 March 2023(Exhibit “P”);” 20.Petition disposed. (KAMAL KHATA, J.) (K.R. SHRIRAM, J.)