Wp/4/2022 Of Bennett Coleman And Company Ltd v. Deputy Commissioner Of Income Tax Circle- 1 (1) (1) Mumbai And 3 Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTIONWRIT PETITION NO.4 OF 2022 Bennett Coleman & Company Limited)being a company incorporated under the)Companies Act, 1956 and having its registered)office at The Times of India Building,)D. N. Road, Mumbai 400 001.)PetitionerVs.1.Deputy Commissioner of Income-tax)Circle-1(1)(1), Mumbai, having his office at )Room No.533, 5[th] Floor, Aayakar Bhavan,)M. K. Road, Mumbai 400 020.)2.Additional Commissioner of Income-tax)Circle-1(1), Mumbai having his office at)5[th] Floor, Aayakar Bhavan, M. K. Road,)Mumbai 400 020.)3.Principal Commissioner of Income-tax-1)Mumbai having his office at Room No.387,)3[rd] Floor, Aayakar Bhavan, M. K. Road,)Mumbai 400 020.)4.Union of India)through the Secretary, Department of Revenue)Ministry of Finance, North Block,)New Delhi 110 001.)Respondents Mr. Percy Pardiwalla, Senior Advocate along with Mr. Nitesh Joshi,Mr. Prakash Shah and Mr. Jas Sanghavi i/b. PDS Legal for Petitioner.Mr. Suresh Kumar for Respondents. CORAM : K. R. SHRIRAM &R. N. LADDHA, JJ.DATE :JANUARY 18, 2022 ORAL ORDER:- (Per K. R. Shriram, J.) 1.Petitioner is engaged in the business of printing and publishing ofnewspapers, activities in relation to entertainment industry, investing and financing, trading in leisure products, letting out of immovableproperties etc. There was a subsidiary of petitioner viz., Times GlobalBroadcasting Company Limited which was engaged, among otherthings, in the business of running an English News Television ChannelTimes Now. 2.This English News Television Channel Times Now was demergedfrom Times Global Broadcasting Company Limited and merged withpetitioner. The brought forward business loss and unabsorbeddepreciation of the said demerged undertaking in Times GlobalBroadcasting Company Limited as on 31[st] March 2013 stood atRs.2,12,01,39,009/- and Rs.50,90,85,147/-, respectively, which wasavailable under the provisions of Section 72A(4) of the Income Tax Act,1961 (the Act). Petitioner filed return of income for A.Y. 2015-16declaring total income of Rs.1347,05,13,250/-, which was subsequentlyrevised at Rs.1355,59,25,070/-. After the case was selected for scrutinyunder CASS, the assessment was completed under Section 143(3) on30[th] December 2018 assessing the total income at Rs.1440,22,10,761/-under normal provisions of the Act. 3.Petitioner received a notice dated 31[st] March 2021 issued underSection 148 of the Act in which the Jurisdictional Assessing Officer oneMr.Neeraj Kumar Agarwal has alleged that he had reasons to believethat petitioner’s income chargeable to tax for A.Y. 2015-16 has escapedassessment within the meaning of Section 147 of the Act. We have for aparticular reason mentioned the name of the concerned officer becausethat is very relevant for deciding this petition. The same Mr. NeerajKumar Agarwal had submitted a proforma report on the draft audit paraNo.11 proposed to be included in the audit report by the C & AG to thePrincipal Commissioner of Income Tax-1. This was submitted on 19[th]February 2021. It will be necessary to reproduce the proforma report andit reads as under:- “PROFORMA REPORT ON THE DRAFT AUDIT PARA NO.011PROPOSED TO BE INCLUDED IN THE AUDIT REPORT BY THEC & AG FOR THE YEAR “PROFORMA REPORT ON THE DRAFT AUDIT PARA NO.011PROPOSED TO BE INCLUDED IN THE AUDIT REPORT BY THEC & AG FOR THE YEAR PART ‘A’1(a)Name of the assessee:M/s. Bennett Coleman & Co. Ltd.(b)CIT’s Charge:PCIT-1, Mumbai2(a)Asstts. Yrs. To which the :2015-16audit objection relates(b)Accounting years of the :2014-15assessee(c)Date of filing of return :30.03.2017(where relevant)(d)Date of assessment / other :Assessment u/s. 143(3) dated 30.12.2018order (if any) and section under which the assessment / other order was made(e)Total income returned :Total income of Rs.1355,59,25,070/- & Current Year(where applicable)loss of Rs.343,82,26,992/-(f)Total income assessed :Rs.1440,22,10,761/-(where applicable)(g)Demand raised on original:assessment or Demand as per any other order which Gross Demand Rs.4,89,98,95,945/-is subjected to audit (Both gross demand and net Net Demand Rs.49,22,96,070/-demand after adjustment of prepaid taxes may be indicated)(h)Amount of revenue :Rs.266,05,04,254/-mentioned in the draft audit para(a)Gist of audit objection:The Audit scrutiny of the assessment recordsrevealed that the assessee is engaged in thebusiness of printing and publishing electronicmedia, trading of leisure products, broadcasting,guaranteeing investing and financing. As suchassessee is not satisfying the condition of anindustrial undertaking as prescribed under section72A. Further assesses company is neither abanking company as defined in clauses of section 5of the Banking regulation Act. 1949 nor publicsector company as stated under section 72 (b) and(c) respectively As the assessee company is not acompany as prescribed under 72A of the Act.Therefore, set off of brought forward losses of Rs.266,05,04,254/- of amalgamating company anamalgamation with assessee is not in order.Incorrect allowance of set off brought forwardlosses resulted in underassessment of income by Rs.266,05,04,254/- with consequent short levy of taxofRs.90,43,05,396/-andInterestofRs.40,69,37,438/-.(b)CIT’s comments.:i)If the facts stated by audit :Not Acceptable.are not correct, full & correct fact must be statedii)Reasons for acceptance or :1. During FY 2014-15 (A.Y. 2015-16), Times Nownon-acceptance must be the English News Channel (a division of Timesinvariable given.Global broadcasting Company Limited, hereafter called as “TGBCL”), was transferred to BCCL byway of demerger with effect from the appointeddate 1st April 2014 as approved by the HonorableBombay high Court vide its order dated January16, 2015. As per the Scheme, the assets andliabilities of the demerged undertaking (“TimesNow” English Channel) have been transferred toand vested in the Assessee Company with effectfrom 1[st] April, 2014. The Financial Statements forthe year ended 31[st] March 2015 are prepared fromthe books of account giving effect to the saidScheme. Accordingly, the return of income hasbeen prepared giving effect to the above scheme.Copy of demerger scheme and High Court order isattached for your reference. 2. Section 72A of the Act contains provisionsrelating to carry forward losses and set-off ofaccumulated losses and unabsorbed depreciationin cases of amalgamation, demerger, etc.Specifically, section 72A(4) of the Act deals withdemerger, which reads as under:- “(4) Notwithstanding anything containedin any other provisions of this Act, in thecase of a demerger, the accumulated lossand the allowance for unabsorbeddepreciation of the demerged companyshall: (a) where such loss or unabsorbeddepreciation is directly relatable to theundertakings transferred to the resultingcompany, be allowed to be carried forwardand set off in the hands of the resultingcompany; 2. Section 72A of the Act contains provisionsrelating to carry forward losses and set-off ofaccumulated losses and unabsorbed depreciationin cases of amalgamation, demerger, etc.Specifically, section 72A(4) of the Act deals withdemerger, which reads as under:- “(4) Notwithstanding anything containedin any other provisions of this Act, in thecase of a demerger, the accumulated lossand the allowance for unabsorbeddepreciation of the demerged companyshall: (a) where such loss or unabsorbeddepreciation is directly relatable to theundertakings transferred to the resultingcompany, be allowed to be carried forwardand set off in the hands of the resultingcompany; (b) where such loss or unabsorbeddepreciation is not directly relatable to theundertakings transferred to the resultingcompany, be apportioned between thedemerged company and the resultingcompany in the same proportion in whichthe assets of the undertakings have beenretained by the demerged company andtransferred to the resulting company, andbe allowed to be carried forward and setoff in the hands of the demerged companyor the resulting company, as the case maybe." 3. Thus, sub-section(4) of section 72A is inrespect of a case of demerger and prescribes thatthe accumulated losses and unabsorbeddepreciation of the demerged company shall beallowed to carry forward in the hands of theresulting company only in case such losses orunabsorbed depreciation is relatable to theundertaking transferred to the resultingcompany. Section 2(19AA) defines “demerger”as following. .....(19AA) "demerger", in relation tocompanies, means the transfer, pursuant toa scheme of arrangement under sections391 to 394 of the Companies Act, 1956 (1of 1956), by a demerged company of itsone or more undertakings to any resultingcompany in such a manner that— (i) all the property of the undertaking,being transferred by the demergedcompany, immediately before thedemerger, becomes the property of theresulting company by virtue of the demerger; (ii) all the liabilities relatable to theundertaking, being transferred by thedemerged company, immediately beforethe demerger, become the liabilities of theresulting company by virtue of thedemerger;(iii) the property and the liabilities of theundertaking or undertakings beingtransferred by the demerged company aretransferred at values appearing in itsbooks of account immediately before thedemerger;Following proviso shall be inserted insub-clause (iii) of clause (19AA) ofsection 2 by the Act No. 23 of 2019, w.e.f.1-4-2020:Provided that the provisions of this sub-clause shall not apply where the resultingcompany records the value of the propertyand the liabilities of the undertaking orundertakings at a value different from thevalue appearing in the books of account ofthe demerged company, immediatelybefore the demerger, in compliance to theIndian Accounting Standards specified inAnnexure to the Companies (IndianAccounting Standards) Rules, 2015;(iv) the resulting company issues, inconsideration of the demerger, its shares tothe shareholders of the demerged companyon a proportionate basis except where theresulting company itself is a shareholderof the demerged company;(v) the shareholders holding not less thanthree-fourths in value of the shares in thedemerged company (other than sharesalready held therein immediately beforethe demerger, or by a nominee for, theresulting company or, its subsidiary)become shareholders of the resultingcompany or companies by virtue of thedemerger, Otherwise than as a result of theacquisition of the property or assets of thedemerged company or any undertakingthereof by the resulting company;(vi) the transfer of the undertaking is on agoing concern basis; (vii) the demerger is in accordance withthe conditions, if any, notified under sub-section (5) of section 72A by the CentralGovernment in this behalf.Further Explanation 1 clarifies that"undertaking" shall include any part of anundertaking, or a unit or division of anundertaking or a business activity taken as awhole, but does not include individual assets orliabilities or any combination thereof notconstituting a business activity. 4. In view of the above, the assesse company hasclaimed and has been correctly allowed the set offof business loss and unabsorbed depreciationpertaining to “Times Now” business which wasdemerged from TGBCL into BCCL as per theprovisions of section 72A(4) and not as perprovisions of section 72A(1) as mentioned in theaudit observation sheet. Therefore, the objection isnot acceptable. iii)If the objection is :Objection is not acceptable.acceptable the circumstances in which themistake occurred must be stated.(a)Date of issue of notice :The objection was not acceptable and the sameindicating remedial action was conveyed to Audit vide reply sent onand section under which 27.02.2020.issued.(b)Whether appropriate :Objection not acceptable.remedial action was taken with CIT’s/ Addl. CIT’s prior approval as per Board’s instruction. If so, when? If not reason thereof.(c)Date of order revising the :N.A.assessment(s) / other order(s)(d)Amount of additional :NILdemand raised ascribable to audit objection or amount of refund allowed /adjusted(e)If the amount of revenue :N.A.by the Audit is not correct, give reasons. (If the variation is due to variation of the total income after receipt of audit objection on accountof appeal, revision etc. the same should be clearly indicated.)(a)If no remedial action is :As per Sr. 4(b)taken, give reason.(b)If remedial action is :Nobarred by limitations, reasons and circumstancesthereof. sd/-(NEERAJ KUMAR AGARWAL)ACIT-1(1)(1)Mumbai sd/-(PANKAJ KUMAR)Addl.Com.of Income-tax-1(1)Mumbai sd/- (ANAND KUMAR)Chief Commissioner of Income Tax (OSD)in charge of PCIT-1,Mumbai” 4.Therefore, the said Mr. Neeraj Kumar Agarwal has, on or about19[th] February 2021, opined that petitioner has claimed and has been correctly allowed the set-off of business loss and unabsorbeddepreciation pertaining to Times Now business, which was demergedfrom Times Global Broadcasting Company Limited into petitioner as perthe provisions of Section 72A(4) and not as per the provisions of Section72A(1) as mentioned in the audit observation sheet. He has not acceptedthe audit objection. Strangely, in less than 45 days, the same personMr.Neeraj Kumar Agarwal, relying on the same audit objection, statesthat he has reasons to believe that petitioner’s income chargeable to taxhas escaped assessment. Even in the reasons recorded for issuing noticeunder Section 148, extract of which has been provided to the petitionervide a communication dated 20[th] September 2021, he has basicallyreproduced the gist of audit objection which is reproduced above.Paragraph 3 of the reasons reads as under:- “3.It was seen form the record that the set off ofRs.266,05,04,254/- allowed included brought forward business lossof Rs.212,01,39,009/- and unabsorbed depreciation ofRs.50,90,85,147/- pertaining to a company namely Times Now whichwas amalgamated with the assessee company during the relevantperiod. “3.It was seen form the record that the set off ofRs.266,05,04,254/- allowed included brought forward business lossof Rs.212,01,39,009/- and unabsorbed depreciation ofRs.50,90,85,147/- pertaining to a company namely Times Now whichwas amalgamated with the assessee company during the relevantperiod. On perusal of the assessment records revealed that the assessee isengaged in the business of printing and publishing, electronicmedia, trading of leisure products, broadcasting, guaranteeinginvesting and financing. As such assessee is not satisfying thecondition of an industrial undertaking as prescribed under section72A. Further assessee company is neither a banking company asdefined in clause (c) of section 5 of the Banking Regulation Act,1949 nor public sector company as stated under section 72(b) and(c) respectively. As the assessee company is not a company asprescribed under 72A of the Act, therefore set off of brought forwardlosses of Rs.266,05,04,254/- of amalgamating company oramalgamation with assessee is not in order. Incorrect allowance ofset off brought forward losses resulted in underassessment of incomeby Rs.266,05,04,254/- with consequent short levy of tax ofRs.90,43,05,396/- and interest of Rs.40,69,37,428/-.” 5.By the impugned notice dated 31[st] March 2021 issued underSection 148 of the Act, respondent was seeking to re-open theassessment for A.Y. 2015-16 which is beyond the period of four yearsfrom the end of the relevant assessment year. In such a case, thejurisdictional requirements to re-open an assessment are:- (a) the Assessing Officer must have reason to believe that income chargeable totax had escaped assessment; (b) the Assessing Officer in the regularassessment proceedings had not formed an opinion in regard to the issueon which the re-opening notice is issued; and (c) there has been failureon the part of the assessee to truly and fully disclose all necessary factsfor the assessment. The reason to believe that income chargeable to taxhas escaped assessment on the part of the Assessing Officer is a sine quanon for issue of re-opening assessment under Section 148 of the Act asnon-satisfaction of reason to believe would by itself make the noticefatal. From a perusal of the reasons for acceptance or non-acceptance tothe audit objection given by the same Mr. Neeraj Kumar Agarwal, it isclear that the Assessing Officer was of the opinion that petitioner hadclaimed and had been correctly allowed the set-off of business loss andunabsorbed depreciation pertaining to Times Now business, which wasdemerged from Times Global Broadcasting Company Limited intopetitioner as per the provisions of Section 72A(4) and not as per theprovisions of Section 72A(1) as mentioned in the audit observationssheet. The same Assessing Officer has not accepted the objections. Fromthis it is quite clear that the Assessing Officer had to issue notice on theground of direction issued by the audit party and not on his personalsatisfaction which is not permissible under law. A similar issue wasconsidered by the Apex Court in M/s. Larson & Toubro Limited Vs.State of Jharkhand[1]. A Division Bench of this Court in Commissioner of Income Tax (LTU) Vs. Reliance Industries Limited[2] has also takena similar view. A Division bench of this Court in IL and FS Investment Managers Limited Vs. Income Tax Officer[3] has held, “11.We have considered the submissions of both the counsel. Inthe facts of the present case, it is quite clear that the petitioner wasgranted depreciation allowance on the intangible assets in thenature of know-how purchased by it. A regular assessment order waspassed under section 143(3) of the Income-tax Act. In reply to thedirector of audit, the Assessing Officer had opposed the reopening.In spite of the same, he has reopened the assessment. It is, therefore, 1(2017) 13 SCC 780 2[2016] 382 ITR 574 (Bom)3[2008] 298 ITR 32 (Bom)3[2008] 298 ITR 32 (Bom) of Income Tax (LTU) Vs. Reliance Industries Limited[2] has also takena similar view. A Division bench of this Court in IL and FS Investment Managers Limited Vs. Income Tax Officer[3] has held, “11.We have considered the submissions of both the counsel. Inthe facts of the present case, it is quite clear that the petitioner wasgranted depreciation allowance on the intangible assets in thenature of know-how purchased by it. A regular assessment order waspassed under section 143(3) of the Income-tax Act. In reply to thedirector of audit, the Assessing Officer had opposed the reopening.In spite of the same, he has reopened the assessment. It is, therefore, 1(2017) 13 SCC 780 2[2016] 382 ITR 574 (Bom)3[2008] 298 ITR 32 (Bom)3[2008] 298 ITR 32 (Bom) difficult to say that he has formed his own opinion that the incomehas escaped assessment.” 6.This Court in Ananta Landmark (P) Limited Vs. DeputyCommissioner of Income-tax[4] has relied upon Indian and EasternNewspaper Society Vs. Commissioner of Income Tax[5], New Delhiwhere the Court held that in every case, the Income Tax Officer mustdetermine for himself what is the effect and consequence of the lawmentioned in the audit note and whether in consequence of the lawwhich has come to his notice he can reasonably believe that income hadescaped assessment. The basis of his belief must be the law of which hehas now become aware. The opinion rendered by the audit party inregard to the law cannot, for the purpose of such belief, add to or colourthe significance of such law. Therefore, the true evaluation of the law inits bearing on the assessment must be made directly and solely by theIncome Tax Officer. 7.Moreover, it is not at all a case that petitioner has not disclosedanything in his response. Petitioner had given the full particulars. Thestand taken by petitioner was also accepted by respondents on merits.The Assessing Officer even disagreed with the audit objections but onsecond thought, to the objections from the auditors he has re-opened theassessment. In our view, re-opening of the assessment without any basisand merely change of opinion is not permissible while exercising thepowers under Section 147 read with Section 148 of the Act. 8.For the aforesaid reasons, we have no option but to allow thispetition. The Petition is allowed in terms of prayer clause A, which readsas under:- “A.that this Hon’ble Court may be pleased to issue a writ ofCertiorari or a writ in the nature of Certiorari or any otherappropriate writ, order or direction under Article 226 of theConstitution of India calling for the records of the Petitioner’s caseand, after examining the legality and validity of the impugned noticeCertiorari or a writ in the nature of Certiorari or any otherappropriate writ, order or direction under Article 226 of theConstitution of India calling for the records of the Petitioner’s caseand, after examining the legality and validity of the impugned notice 4[2021] 131 taxmann.com 52 (Bombay)5119 ITR 996 (SC)5119 ITR 996 (SC) dated 31.03.2021 issued under section 148 of the Act (beingEXHIBIT N-1 hereto) and the impugned order dated 18.11.2021(being EXHIBIT R hereto) quash and set aside the same;” 9.Petition disposed with no order as to costs. (R. N. LADDHA, J.) (K. R. SHRIRAM, J.) Minal Parab