1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION WRIT PETITION NO.8719 OF 2009 WITH WRIT PETITION NO.8720 OF 2009 Multiscreen Media Private Limited, ) a company incorporated under the Companies ) Act, 1956 having their office at Interface Building ) 7, 4th floor, Off.Malad Link Road, Malad (West), ) Mumbai- 400064. )..Petitioner. V/s. 1. The Union of India, Through the Secretary ) Ministry of Finance, Government of India ) North Block,New Delhi-110 101. ) ) 2. The Assistant Commissioner of Income-Tax ) Range 11(1), Aayakar Bhavan, Maharishi ) Karve Marg, Mumbai - 400 020. )..Respondents. Mr. Percy J. Pardiwala, senior Advocate with Prakash Shah & Sumeet Raghani i/b. PDS Legal for petitioner Mr. Vimal Gupta for respondents. CORAM : DR. D.Y.CHANDRACHUD AND J.P.DEVADHAR, JJ. DATED : 17TH FEBRUARY, 2010 JUDGMENT (PER DR. D.Y. CHANDRACHUD, J.) 1) Rule, by consent made returnable forthwith. Counsel for the respondents waives service. With the consent of counsel, both the petitions 2 are taken up for final hearing. 2) Both the petitions under Article 226 of the Constitution seek to question the validity of a notice issued by the Assistant Commissioner of Income Tax, Range 11(1), Mumbai, under Section 148 of the Income Tax Act, 1961 by which an assessment which was carried out under Section 143(3) was sought to be reopened beyond a period of four years from the expiry of the relevant assessment year. 3) The petitioner derives a major source of its income from its business of providing audiovisual television Software ('content'), films, events and other like activities, from subscription income received from distribution of channels, advertisements, sales and agency fees from marketing of airtime. As a content provider, the petitioner develops the content in-house or gets it developed from other software production houses under its supervision and control. Amongst the activities of the petitioner, is the distribution of various television channels for which the petitioner receives subscription income. The petitioner also claims to carry on the business of the sale of airtime inter alia for AXN channel. The petitioner also claims to act as an agent for canvassing the sale of airtime for other channels for which it receives agency fees. 4) The dispute in the present case relates to the expenditure incurred by the petitioner towards advertisements and sales promotion during the course of the previous year relevant to assessment years 2002-03 and 3 2003-04. For assessment year 2002-03, the petitioner filed a return of income on 30th October, 2002 declaring a total income of Rs.21.53 crores on which the tax payable was computed at Rs.7.69 crores. The return of income for the assessment year was selected for scrutiny assessment. During the course of the assessment proceedings under section 143(3), a notice was issued to the petitioner by the Assistant Commissioner of Income Tax calling for details inter alia in respect of expenditure incurred on advertisements, sales promotion and market research. By a letter dated 28th December, 2004 the petitioner submitted details pertaining to selling and distribution expenses, including those on market research and studies. An order was passed under Section 143(3) on 30th March, 2005 allowing the claim for deduction in respect of the expenditure incurred on advertisements, market research and other selling and distribution expenses. The claim towards depreciation and for deduction under section 80HHF was disallowed. 5) On 25th March, 2009 the Assistant Commissioner of Income Tax issued a notice under Section 148 proposing to reopen the assessment proceedings for assessment year 2002-03 on the ground that there was reason to believe that the income of the petitioner chargeable to tax for the assessment year had escaped assessment. By a communication dated 8th July, 2009 reasons were furnished to the petitioner for reopening the assessment. The reasons furnished by the Assessing Officer record that during the course of assessment proceedings for assessment year 2005-06, the Assessing Officer had made one specific addition under the head advertisements, sales promotion and market research expenses wherein a 4 certain amount was added back to the income of the assessee. The finding of the Assessing Officer for the subsequent year (2005-06) is adverted to. The Assessing Officer then observed as follows:- " Similar issue of Advertisement and Publicity Expenses is there for A.Y. 2002-03. Herein, this year, assessee has debited Rs. 17,76,91,375/- under the head Advertisement & Publicity expenses and Rs.2,03,94,431/- under Market Research Expenses. Hence, in total, assessee company has debited Selling and Distribution charges for Rs.19,80,85,806/-. This issue had not been raised by the A.O. during scrutiny assessment proceedings. The assessee had also not made any specific representation and as such the A.O. had no occasion to take any opinion on the said disallowance called for. Thus, expenses amounting to Rs.16,09,44,717/- (this being 81.25% of Rs.19,80,85,806/-) need to be fully disallowed as per specific findings of the A.O. for A.Y. 2005-06. " 6) Hence, the only basis on which the assessment for A.Y.2002-03 is sought to be reopened is the order passed by the Assessing Officer for assessment year 2005-06 during the course of which an addition has been made under the head of advertisements, sales promotion and market research expenses to the income of the assessee, 7) The petitioner lodged its objections to the reasons recorded by the Assessing Officer on 28th August, 2009. The representation made by the petitioner was disposed of by the Assessing Officer on 29th September, 2009. The Assessing Officer acknowledged the fact that the notice under Section 148 was issued beyond a period of four years from the end of 5 assessment year 2002-03. Nonetheless, the reopening of the assessment is sought to be justified on the ground that the assessee did not submit comprehensive details pertaining to the issue, warranting reopening of assessment under Sections 147/148. 8) Counsel appearing on behalf of the petitioner urged three submissions in support of the challenge to the notice under Section 148. Firstly, it was submitted that the reopening of assessment has taken place beyond a period of four years of the end of the relevant assessment year, 2002-03. The notice under Section 148, ex-facie, does not advert to any failure on the part of the petitioner to fully and truly disclose all the material facts necessary for assessment in that assessment year. Secondly, the basis on which assessment was sought to be reopened was that in a subsequent assessment year, 2005-06, the Assessing Officer made a disallowance. In the case of M/s. Star India P. Ltd. which involved a similar situation, the Assessing Officer had disallowed hundred per cent of advertisement expenses for assessment year 1997-98 to 1998-2000 on the ground that they were incurred for and on behalf of a foreign principal. The Commissioner of Income Tax upheld the disallowance to the extent of eight per cent, holding that the balance was allowable in the hands of the assessee. When the matter went in the appeal to the I.T.A.T., two members of the Tribunal differed and on a reference, a third member of the Tribunal came to the conclusion that the entire expenditure was liable to be allowed as expenditure paid out wholly and exclusively for the purposes of business under Section 37(1). The judgment of the Tribunal was confirmed by a 6 Division Bench of this Court on 24th March, 2009. Consequently, the basis on which assessment is sought to be reopened has no valid foundation in law since the order of the Assessing Officer under Section 143(3) is consistent with the position which is accepted in the decision of this Court. Thirdly, it is submitted that full details were furnished by the assessee of its advertisement and sales expenses during the course of the assessment proceedings. Those were inquired into when the order of assessment was passed under Section 143(3). Issuance of a notice under Section 148 would, therefore, merely amount to a change of opinion, which is not permissible in view of the judgment of the Supreme Court in Commissioner of Income-Tax V/s. Kelvinator of India Ltd.1. 9) On the other hand, it was urged on behalf of the Revenue that (i) The assessment was sought to be reopened on the basis of the proceedings before the Assessment Officer for a subsequent assessment year, namely, A.Y. 2005-06. The Assessing Officer, in exercise of his power under section 147 can validly consider the order of assessment passed for a subsequent assessment year; (ii) If any expenditure is incurred in India which benefits a foreign principal in India, then a certain amount of the expenditure is liable to be allocated to the principal; (iii) The fact that the petitioner was incurring expenses for the benefit of a foreign principal should have been disclosed in the return filed for assessment year 2002-03; (iv) The Assessing Officer did not inquire into the question as regards allocation of expenditure incurred as between the petitioner and the foreign principal and consequently, the assessment can validly be reopened. 1 [2010] 320 ITR 561 (SC) 7 10) In dealing with the merits of the rival contentions, it must at the outset be noted that during the course of the proceedings under section 143(3), the Assessing Officer was duly apprised of the circumstance that the petitioner was acting as an agent for the collection of subscriptions and for procuring advertisements for the benefit of its foreign principal. The order of assessment makes a reference to the nature of business of the petitioner in the following terms. " The assessee is a private limited company incorporated on 18-9-95. The company is engaged in the business of production / acquisition and sale of television programmes / files, distribution of satellite channels and acting as advertising agent of SET Satellite (Singapore) Ple. Ltd. for canvassing for sale of advertisement time slots to Indian advertisers. " 11) During the course of the assessment proceedings, the petitioner was called upon to furnish details specifically with reference to the expenditure incurred by it on advertisements, sales promotion and market research by a communication dated 3rd December, 2004 of the Assessing officer. In response to the communication, the petitioner by a letter dated 28th December, 2004 furnished details of the selling and distribution expenses, including those incurred on marketing research and studies. A copy of those communications together with the details submitted by the petitioner have been annexed to the proceedings before the Court. Hence during the course of the assessment proceedings, the Assessing Officer was apprised of the circumstance that the business of the petitioner consisted in 8 the collection of subscriptions from subscribers of television channels and for procuring advertisements. The fact that the petitioner was acting as an agent for a foreign principal was disclosed. 12) The notice issued by the Assessing Officer under section 148 does not state that there was a failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment for assessment year 2002-03. The assessment was sought to be reopened after the expiry of a period of four years from the end of the relevant assessment year. In such a case the jurisdictional condition precedent stipulated by the proviso to Section 147 is a failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment for that assessment year consequent upon which income chargeable to tax has escaped assessment. That has not been fulfilled. The notice does not even purport to state so. The ground furnished in the notice for reassessment would at the highest indicate that according to the Assistant Commissioner of Income Tax, allocation of expenses as between the petitioner and the foreign principal ought to have been originally considered by the Assessing Officer when the order of assessment was passed under section 143(3). That however would not give a valid reason to reopen the assessment beyond a period of four years, even assuming that the Assessing Officer had erred in not doing so, unless there was a failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment. Absent the existence of the jurisdictional condition precedent, assessment cannot be reopened beyond a period of four years after the expiry of the relevant assessment 9 year, as has been done in the present case. In the circumstances, the notice for reassessment is liable to be quashed and set aside solely on the ground that the Revenue has failed to establish the existence of the jurisdictional condition precedent to the exercise of the power to reopen an assessment beyond a period of four years of the expiry of the relevant assessment year. 13) The petition would accordingly have to be allowed. Rule is made absolute in terms of prayer clause (a), by quashing and setting aside the notice dated 25th March, 2009 and the order dated 29th September, 2009. WRIT PETITION NO.8720 OF 2009 12) The facts of this Writ Petition, it is common ground between both the learned counsel, are the same as in Writ Petition No.8719 of 2009, which has been allowed for the reasons recorded in the judgment. In the present case also, assessment is sought to be reopened beyond a period of four years from the end of expiry of the relevant assessment year, A.Y. 2003-04. For the reasons already recorded while allowing the companion Writ Petition, the present Writ Petition is made absolute in terms of prayer clause (a) by quashing and setting aside the notice dated 25th March, 2009 and the order dated 29th September, 2009. (J.P.DEVADHAR, J.) (DR. D.Y.CHANDRACHUD, J.)