Case: Bennett Coleman & Company Limited Vs. Deputy Commissioner of Income-Tax and ors

K. R. Shriram, J. 1. Petitioner is engaged in the business of printing and publishing of newspapers, activities in relation to entertainment industry, investing and financing, trading in leisure products, letting out of immovable properties etc. There was a subsidiary of petitioner viz., Times Global Broadcasting Company Limited which was engaged, among other things, in the business of running an English News Television Channel Times Now. 2. This English News Television Channel Times Now was demerged from Times Global Broadcasting Company Limited and merged with petitioner. The brought forward business loss and unabsorbed depreciation of the said demerged undertaking in Times Global Broadcasting Company Limited as on 31st March 2013 stood at Rs.2,12,01,39,009/- and Rs.50,90,85,147/-, respectively, which was available under the provisions of Section 72A(4) of the Income Tax Act, 1961 (). Petitioner filed return of income for A.Y. 2015-16 declaring total income of Rs.1347,05,13,250/-, which was subsequently revised at Rs.1355,59,25,070/-. After the case was selected for scrutiny under CASS, the assessment was completed under Section 143(3) on 30th December 2018 assessing the total income at Rs.1440,22,10,761/- under normal provisions of . 3. Petitioner received a notice dated 31st March 2021 issued under Section 148 of thein which the Jurisdictional Assessing Officer one Mr.Neeraj Kumar Agarwal has alleged that he had reasons to believe that petitioners income chargeable to tax for A.Y. 2015-16 has escaped assessment within the meaning of Section 147 of the Act. We have for a particular reason mentioned the name of the concerned officer because that is very relevant for deciding this petition. The same Mr. Neeraj Kumar Agarwal had submitted a proforma report on the draft audit para No.11 proposed to be included in the audit report by the C & AG to the Principal Commissioner of Income Tax-1. This was submitted on 19th February 2021. It will be necessary to reproduce the proforma report and it reads as under:- PROFORMA REPORT ON THE DRAFT AUDIT PARA NO.011 PROPOSED TO BE INCLUDED IN THE AUDIT REPORT BY THE C & AG FOR THE YEAR PART A 1 (a) Name of the assessee : M/s. Bennett Coleman & Co. Ltd. (b) CITs Charge : PCIT-1, Mumbai 2 (a) Asstts. Yrs. To which the audit objection relates : 2015-16 (b) Accounting years of the assessee : 2014-15 (c) Date of filing of return (where relevant) : 30.03.2017 (d) Date of assessment / other order (if any) and section under which the assessment / other order was made : Assessment u/s. 143(3) dated 30.12.2018 (e) Total income returned (where applicable) : Total income of Rs.1355,59,25,070/- & Current Year loss of Rs.343,82,26,992/- (f) Total income assessed (where applicable) : Rs.1440,22,10,761/- (g) Demand raised on original assessment or Demand as per any other order which is subjected to audit (Both gross demand and net demand after adjustment of prepaid taxes may be indicated) : Gross Demand Rs.4,89,98,95,945/- Net Demand Rs.49,22,96,070/- (h) Amount of revenue mentioned in the draft audit para : Rs.266,05,04,254/- (a) Gist of audit objection : The Audit scrutiny of the assessment records revealed that the assessee is engaged in the business of printing and publishing electronic media, trading of leisure products, broadcasting, guaranteeing investing and financing. As such assessee is not satisfying the condition of an industrial undertaking as prescribed under section 72A. Further assesses company is neither a banking company as defined in clauses 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 as prescribed under 72A of . Therefore, set off of brought forward losses of Rs. 266,05,04,254/- of amalgamating company an amalgamation with assessee is not in order. Incorrect allowance of set off brought forward losses resulted in underassessment of income by Rs. 266,05,04,254/- with consequent short levy of tax of Rs.90,43,05,396/- and Interest of Rs.40,69,37,438/-. (b) CITs comments. : i) If the facts stated by audit are not correct, full & correct fact must be stated : Not Acceptable. ii) Reasons for acceptance or non-acceptance must be invariable given. : 1. During FY 2014-15 (A.Y. 2015-16), Times Now the English News Channel (a division of Times Global broadcasting Company Limited, hereafter called as TGBCL), was transferred to BCCL by way of demerger with effect from the appointed date 1st April 2014 as approved by the Honorable Bombay high Court vide its order dated January 16, 2015. As per the Scheme, the assets and liabilities of the demerged undertaking (Times Now English Channel) have been transferred to and vested in the Assessee Company with effect from 1st April, 2014. The Financial Statements for the year ended 31st March 2015 are prepared from the books of account giving effect to the said Scheme. Accordingly, the return of income has been prepared giving effect to the above scheme. Copy of demerger scheme and High Court order is attached for your reference. Section 72A of thecontains provisions relating to carry forward losses and set-off of accumulated losses and unabsorbed depreciation in cases of amalgamation, demerger, etc. Specifically, section 72A(4) of thedeals with demerger, which reads as under:- (4) Notwithstanding anything contained in any other provisions of this Act, in the case of a demerger, the accumulated loss and the allowance for unabsorbed depreciation of the demerged company shall: where such loss or unabsorbed depreciation is directly relatable to the undertakings transferred to the resulting company, be allowed to be carried forward and set off in the hands of the resulting company; where such loss or unabsorbed depreciation is not directly relatable to the undertakings transferred to the resulting company, be apportioned between the demerged company and the resulting company in the same proportion in which the assets of the undertakings have been retained by the demerged company and transferred to the resulting company, and be allowed to be carried forward and set off in the hands of the demerged company or the resulting company, as the case may be. Thus, sub-section(4) of section 72A is in respect of a case of demerger and prescribes that the accumulated losses and unabsorbed depreciation of the demerged company shall be allowed to carry forward in the hands of the resulting company only in case such losses or unabsorbed depreciation is relatable to the undertaking transferred to the resulting company. Section 2(19AA) defines demerger as following. .....(19AA) demerger, in relation to companies, means the transfer, pursuant to a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956 (1 of 1956), by a demerged company of its one or more undertakings to any resulting company in such a manner that— (i) all the property of the undertaking, being transferred by the demerged company, immediately before the demerger, becomes the property of the resulting company by virtue of the demerger; all the liabilities relatable to the undertaking, being transferred by the demerged company, immediately before the demerger, become the liabilities of the resulting company by virtue of the demerger; the property and the liabilities of the undertaking or undertakings being transferred by the demerged company are transferred at values appearing in its books of account immediately before the demerger; Following proviso shall be inserted in sub-clause (iii) of clause (19AA) of section 2 by No. 23 of 2019, w.e.f. 1-4-2020: Provided that the provisions of this sub- clause shall not apply where the resulting company records the value of the property and the liabilities of the undertaking or undertakings at a value different from the value appearing in the books of account of the demerged company, immediately before the demerger, in compliance to the Indian Accounting Standards specified in Annexure to the Companies (Indian Accounting Standards) Rules, 2015; the resulting company issues, in consideration of the demerger, its shares to the shareholders of the demerged company on a proportionate basis except where the resulting company itself is a shareholder of the demerged company; the shareholders holding not less than three-fourths in value of the shares in the demerged company (other than shares already held therein immediately before the demerger, or by a nominee for, the resulting company or, its subsidiary) become shareholders of the resulting company or companies by virtue of the demerger, Otherwise than as a result of the acquisition of the property or assets of the demerged company or any undertaking thereof by the resulting company; the transfer of the undertaking is on a going concern basis; the demerger is in accordance with the conditions, if any, notified under sub- section (5) of section 72A by the Central Government in this behalf. Further Explanation 1 clarifies that undertaking shall include any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any combination thereof not constituting a business activity. 4. In view of the above, the assesse company has claimed and has been correctly allowed the set off of business loss and unabsorbed depreciation pertaining to Times Now business which was demerged from TGBCL into BCCL as per the provisions of section 72A(4) and not as per provisions of section 72A(1) as mentioned in the audit observation sheet. Therefore, the objection is not acceptable. iii) If the objection is acceptable the circumstances in which the mistake occurred must be stated. : Objection is not acceptable. (a) Date of issue of notice indicating remedial action and section under which issued. : The objection was not acceptable and the same was conveyed to Audit vide reply sent on 27.02.2020. (b) Whether appropriate remedial action was taken with CITs/ Addl. CITs prior approval as per Boards instruction. If so, when If not reason thereof. : Objection not acceptable. (c) Date of order revising the assessment(s) / other order (s) : N.A. (d) Amount of additional demand raised ascribable to audit objection or amount of refund allowed / adjusted : NIL (e) If the amount of revenue 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 account of appeal, revision etc. the same should be clearly indicated.) : N.A. (a) If no remedial action is taken, give reason. : As per Sr. 4(b) (b) If remedial action is barred by limitations, reasons and circumstances thereof. : No 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 about 19th February 2021, opined that petitioner has claimed and has been correctly allowed the set-off of business loss and unabsorbed depreciation pertaining to Times Now business, which was demerged from Times Global Broadcasting Company Limited into petitioner as per the provisions of Section 72A(4) and not as per the provisions of Section 72A(1) as mentioned in the audit observation sheet. He has not accepted the audit objection. Strangely, in less than 45 days, the same person Mr.Neeraj Kumar Agarwal, relying on the same audit objection, states that he has reasons to believe that petitioners income chargeable to tax has escaped assessment. Even in the reasons recorded for issuing notice under Section 148, extract of which has been provided to the petitioner vide a communication dated 20th September 2021, he has basically reproduced 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 of Rs.266,05,04,254/- allowed included brought forward business loss of Rs.212,01,39,009/- and unabsorbed depreciation of Rs.50,90,85,147/- pertaining to a company namely Times Now which was amalgamated with the assessee company during the relevant period. On perusal of the assessment records revealed that the assessee is engaged in the business of printing and publishing, electronic media, trading of leisure products, broadcasting, guaranteeing investing and financing. As such assessee is not satisfying the condition of an industrial undertaking as prescribed under section 72A. Further assessee company is neither a banking company as defined 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 as prescribed under 72A of , therefore set off of brought forward losses of Rs.266,05,04,254/- of amalgamating company or amalgamation with assessee is not in order. Incorrect allowance of set off brought forward losses resulted in underassessment of income by Rs.266,05,04,254/- with consequent short levy of tax of Rs.90,43,05,396/- and interest of Rs.40,69,37,428/-. 5. By the impugned notice dated 31st March 2021 issued under Section 148 of the, respondent was seeking to re-open the assessment for A.Y. 2015-16 which is beyond the period of four years from the end of the relevant assessment year. In such a case, the jurisdictional requirements to re-open an assessment are:- (a) the Assessing Officer must have reason to believe that income chargeable to tax had escaped assessment; (b) the Assessing Officer in the regular assessment proceedings had not formed an opinion in regard to the issue on which the re-opening notice is issued; and (c) there has been failure on the part of the assessee to truly and fully disclose all necessary facts for the assessment. The reason to believe that income chargeable to tax has escaped assessment on the part of the Assessing Officer is a sine qua non for issue of re-opening assessment under Section 148 of theas non-satisfaction of reason to believe would by itself make the notice fatal. From a perusal of the reasons for acceptance or non-acceptance to the audit objection given by the same Mr. Neeraj Kumar Agarwal, it is clear that the Assessing Officer was of the opinion that petitioner had claimed and had been correctly allowed the set-off of business loss and unabsorbed depreciation pertaining to Times Now business, which was demerged from Times Global Broadcasting Company Limited into petitioner as per the provisions of Section 72A(4) and not as per the provisions of Section 72A(1) as mentioned in the audit observations sheet. The same Assessing Officer has not accepted the objections. From this it is quite clear that the Assessing Officer had to issue notice on the ground of direction issued by the audit party and not on his personal satisfaction which is not permissible under law. A similar issue was considered by the Apex Court in M/s. Larson & Toubro Limited Vs. State of Jharkhand (2017) 13 SCC 780. A Division Bench of this Court in Commissioner of Income Tax (LTU) Vs. Reliance Industries Limited [2016] 382 ITR 574 (Bom) has also taken a similar view. A Division bench of this Court in IL and FS Investment Managers Limited Vs. Income Tax Officer [2008] 298 ITR 32 (Bom) has held, 11. We have considered the submissions of both the counsel. In the facts of the present case, it is quite clear that the petitioner was granted depreciation allowance on the intangible assets in the nature of know-how purchased by it. A regular assessment order was passed under section 143(3) of the Income-tax Act. In reply to the director of audit, the Assessing Officer had opposed the reopening. In spite of the same, he has reopened the assessment. It is, therefore, difficult to say that he has formed his own opinion that the income has escaped assessment. 6. This Court in Ananta Landmark (P) Limited Vs. Deputy Commissioner of Income-tax [2021] 131 taxmann.com 52 (Bombay) has relied upon Indian and Eastern Newspaper Society Vs. Commissioner of Income Tax 119 ITR 996 (SC) , New Delhi where the Court held that in every case, the Income Tax Officer must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether in consequence of the law which has come to his notice he can reasonably believe that income had escaped assessment. The basis of his belief must be the law of which he has now become aware. The opinion rendered by the audit party in regard to the law cannot, for the purpose of such belief, add to or colour the significance of such law. Therefore, the true evaluation of the law in its bearing on the assessment must be made directly and solely by the Income Tax Officer. 7. Moreover, it is not at all a case that petitioner has not disclosed anything in his response. Petitioner had given the full particulars. The stand taken by petitioner was also accepted by respondents on merits. The Assessing Officer even disagreed with the audit objections but on second thought, to the objections from the auditors he has re-opened the assessment. In our view, re-opening of the assessment without any basis and merely change of opinion is not permissible while exercising the powers under Section 147 read with Section 148 of the.

Decision:
1[ds]The reason to believe that income chargeable to tax has escaped assessment on the part of the Assessing Officer is a sine qua non for issue of re-opening assessment under Section 148 of  theas non-satisfaction of reason to believe would by itself make the notice fatal. From a perusal of the reasons for acceptance or non-acceptance to the audit objection given by the same Mr. Neeraj Kumar Agarwal, it is clear that the Assessing Officer was of the opinion that petitioner had claimed and had been correctly allowed the set-off of business loss and unabsorbed depreciation pertaining to Times Now business, which was demerged from Times Global Broadcasting Company Limited into petitioner as per the provisions of Section 72A(4) and not as per the provisions of Section 72A(1) as mentioned in the audit observations sheet. The same Assessing Officer has not accepted the objections. From this it is quite clear that the Assessing Officer had to issue notice on the ground of direction issued by the audit party and not on his personal satisfaction which is not permissible under law. A similar issue was considered by the Apex Court in M/s. Larson & Toubro Limited Vs. State of Jharkhand (2017) 13 SCC 780.  A Division Bench of this Court in Commissioner of Income Tax (LTU) Vs. Reliance Industries Limited [2016] 382 ITR 574 (Bom)  has also taken a similar view. A Division bench of this Court in IL and FS Investment Managers Limited Vs. Income Tax Officer [2008] 298 ITR 32 (Bom)  has held,11. We have considered the submissions of both the counsel. In the facts of the present case, it is quite clear that the petitioner was granted depreciation allowance on the intangible assets in the nature of know-how purchased by it. A regular assessment order was passed under section 143(3) of  the Income-tax Act. In reply to the director of audit, the Assessing Officer had opposed the reopening. In spite of the same, he has reopened the assessment. It is, therefore, difficult to say that he has formed his own opinion that the income has escaped assessment.6. This Court in Ananta Landmark (P) Limited Vs. Deputy Commissioner of Income-tax [2021] 131 taxmann.com 52 (Bombay) has relied upon Indian and Eastern Newspaper Society Vs. Commissioner of Income Tax 119 ITR 996  (SC) , New Delhi where the Court held that in every case, the Income Tax Officer must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether in consequence of the law which has come to his notice he can reasonably believe that income had escaped assessment. The basis of his belief must be the law of which he has now become aware. The opinion rendered by the audit party in regard to the law cannot, for the purpose of such belief, add to or colour the significance of such law. Therefore, the true evaluation of the law in its bearing on the assessment must be made directly and solely by the Income Tax Officer.7. Moreover, it is not at all a case that petitioner has not disclosed anything in his response. Petitioner had given the full particulars. The stand taken by petitioner was also accepted by respondents on merits. The Assessing Officer even disagreed with the audit objections but on second thought, to the objections from the auditors he has re-opened the assessment. In our view, re-opening of the assessment without any basis and merely change of opinion is not permissible while exercising the powers under Section 147 read with Section 148 of  the.