IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED:07.06.2010 CORAM: THE HON'BLE MR.JUSTICE P.JYOTHIMANI WRIT PETITION Nos.27357, 27358/2009 and 810 and 811/2010 and M.P.NO.1 & 1/2009 and 1 & 1/2010 M/s.Mavis Satcom Ltd., rep. By its Managing Director Mrs.Prabha Sivakumar 48 NP, Jawaharlal Nehru Salai Ekkattuthangal Chennai 600 032. .. Petitioner in all the Writ Petitions. vs. Deputy Commissioner of Income-tax Media Circle I 121 Mahatma Gandhi Road Nungambakkam Chennai 600 034. .. Respondent in all the Writ Petitions. Writ Petitions filed under Article 226 of the Constitution of India praying for issuance of a Writ of Certiorari calling for the records in PAN.1)AACC M2127K/147/09-10,2)AACC M2127K/147/09-10, 3) AACCM2127K, 4)AACCM2127K, dated 18.12.2009, 18.12.2009, 29.12.2009, 29.12.2009 on the file of the respondent relating to the assessment year 2003-04, 2004-05, 2003-04 and 2004-05 respectively For petitioner : Mr.V.Ramachandran,Sr.Counsel for Dr.(Mrs.) Anitha Sumanth For respondent : Mr.K.Ramasamy COMMON ORDER The writ petitions, W.P.Nos.27357 and 27358 of 2009 are filed by the petitioner challenging the order of the respondent, the Deputy Commissioner of Income-tax relating to the assessee company’s objection for reopening of assessment under section 147 of the Income-tax Act, 1961 for the assessment years 2003-04 and 2004-05 and https://hcservices.ecourts.gov.in/hcservices/ the writ petitions, W.P.Nos.810 and 811 of 2010 are filed challenging the subsequent assessment orders passed for the said assessment years 2003-04 and 2004-05. 2. The writ petitioner, which is a company registered under the provisions of the Indian Companies Act, carrying on the business of operating a Television Network, is stated to have filed its return for the assessment years 2003-04 on 1.12.2003 declaring ‘Nil’ income and that was accepted by the respondent in the intimation dated 18.11.2004. Thereafter, the statutory notice under section 143(2) of the Income-tax Act,1961 (in short, “the Act”) was issued along with the questionnaire under section 142(1) of the Act seeking particulars. a) It is stated that the petitioner furnished the details and thereafter the respondent completed the assessment under section 143 (3) of the Act, by order dated 30.3.2006, by raising a demand of Rs.51,408/- which was paid by the petitioner. b) Again, in respect of the assessment year 2004-05, the petitioner filed its return on 1.11.2004, relating to which an intimation under section 143(1) of the Act was sent accepting the return and determining a sum of Rs.48,159/- as being payable, in the communication dated 24.8.2005 and the said amount was also paid by the petitioner. c) However, the petitioner received notice under section 148 of the Act dated 19.12.2008 for the assessment year 2003-04 and dated 5.12.2008 for the assessment year 2004-05, calling upon it to file its return of income for the assessment years within 30 days, on the basis that there is reason to believe that certain income chargeable to tax had escaped assessment in respect of these two assessment years. d) The petitioner filed reply on 9.1.2009, requesting the respondent to treat the returns filed earlier for both the assessment years as filed in response to the notice under section 148 of the Act. In respect of the assessment year 2003-04, the petitioner has clearly stated that the proceedings were fully scrutinized and after the relevant assessment year, four years have passed and therefore, as per the Proviso to section 147, such proceedings cannot be initiated except when the escapement of income resulted in the failure to make full and complete disclosure by the assessee. The petitioner has also requested for a copy of the reasons for such notice issued under section 148 of the Act. e) Thereafter, the respondent for the year 2003-04, in the reply dated 16.1.2009, gave reason stating that the expenditure in the purchase of copyrights for Rs.2,95,63,495/- is capital in nature, since it has the effect of enduring benefit of re-telecast over many https://hcservices.ecourts.gov.in/hcservices/ years and the expenditure is to be treated as capital in nature and is to be only allowed depreciation in the year of purchase. That was reflected in Schedule-3 to P & L account of the company. f) Again, for the year 2004-05, the reasons adduced are that the company claimed a sum of Rs.6,20,00,017/- as purchase amount of copyrights in the schedule-J to P & L account and the petitioner purchased the right of feature films and other programmes for broadcasting and though the petitioner claimed the whole of expenses as deduction for the year, the films have the value of reuse and re- telecast over many years and therefore, the expenditure is to be treated as capital in nature and is to be allowed depreciation only as deduction in the year of purchase. According to the respondent, these were the reasons for the purpose of arriving at the conclusion that there was escaped assessment for the years 2003-04 and 2004-05. g) It is the case of the petitioner that the assessing authority has in fact considered the claim in respect of purchase of copyrights including all particulars relating to the purchase of feature films and other programmes which would be re-telecast and the particulars were given in complete form in the profit and loss accounts. In fact, the petitioner claimed the said amount as revenue expenditure and it is stated that the respondent raised the same issue in the course of original assessment proceedings and the same was explained to the effect that the films would be taken as stock-in-trade and could not be classified as fixed assets or as copyrights and it was, only after the petitioner filed a detailed reply to the respondent during the original assessment proceedings on 30.12.2005 and 12.1.2006, the original assessment was adopted accepting the claim of the petitioner as tenable and according to the petitioner, the present reassessment proceedings have been effected by change of opinion by the same assessing authority and it is hit by the proviso to section 147 of the Income-tax Act. h) The petitioner filed objections to the reasons recorded by the assessing authority for reassessment under section 148(1) of the Act by communication dated 30.1.2009, filed before the respondent on 4.12.2009. It is sated that the assessing authority during the month of February, 2007 requested certain particulars in person on the basis of audit objections for which a reply was sent by the petitioner on 1.2.2007. It is stated that the objections filed by the petitioner were not adjudicated by the respondent with the result the petitioner was under the impression that the respondent accepted the objections raised by the petitioner in the notice issued under section 148 of the Act. It was, after 10 months, the petitioner received a notice under section 142(1) of the Income-tax Act for continuing the reassessment proceedings and the petitioner wrote a letter to the respondent on 15.10.2009 stating that the objections have to be adjudicated by way of a speaking order, followed by the assessment proceedings. https://hcservices.ecourts.gov.in/hcservices/ i) It is stated that the petitioner thereafter received a letter from the respondent rejecting the objections against reopening of assessment on 6.11.2009 for the assessment year 2003-04 and on 4.11.2009 for the assessment year 2004-05. In the said letter, according to the petitioner, the respondent has not denied the statement of the petitioner that the assessment was made on the basis of audit objections and there was a delay of 10 months. j) It is stated that when notices were issued under section 148 of the Act on 5.12.2008 and 19.12.2008 in respect of the said assessment years for reassessment, they were challenged before this Court and this Court, by order dated 10.12.2009 directed the petitioner to file a detailed objections before the assessing officer who should pass appropriate orders. It was, only thereafter, the petitioner filed the objections on 16.12.2009 and appeared before the assessing authority on 18.12.2009 and the respondent passed orders on 18.12.2009 rejecting the objections raised by the petitioner. 3. The said orders are being challenged as stated above in W.P.Nos.27357 and 27358 of 2009 on various grounds including that the orders were passed with a total non-application of mind; that the orders were passed based on audit objections which were not coming within the purview of section 147 of the Income-tax Act; that what was objected to by the audit party was only a point of law and not a factual matter and therefore, the question of reassessment would not arise; that the original assessment for the year 2003-04 was completed after scrutiny on 30.3.2006 and for the year 2004-05 it was completed by way of intimation dated 24.8.2005 and there was no failure on the part of the petitioner in disclosing all material facts and in fact, the petitioner filed particulars relating to its claim as revenue expenditure under section 37 of the Act and there was no failure of disclosure; that in respect of assessment year 2003-04, the reassessment proceedings are barred by section 147 of the Act, since proviso to section 147 provides that any action initiated beyond a period of four years must be only in cases where there was failure to disclose, that the impugned orders were passed based on audit objections which cannot form the basis, and that as it was held by the Supreme Court in Indian and Eastern Newspaper Society vs. Commissioner of Income-Tax [119 ITR 996] there was delay between the filing of objections on 30.1.2009 and the passing of orders by the respondents rejecting the objections, apart from raising many other grounds. 4. It was, thereafter, the respondent posted the matter for hearing on merits on 23.12.2009 and the petitioner filed a detailed reply to the effect that the films and serials purchased by the petitioner would amount to revenue items and once the films were telecast, they seized to have any value and they were purchased as stock in trade. However, notwithstanding the submissions made by the https://hcservices.ecourts.gov.in/hcservices/ petitioner, the respondent completed the assessment on 29.12.2009 and passed orders for the assessment year 2003-04 computing tax payable for the said year as ‘Nil’ after setting off the loss of previous years and in respect of the assessment year 2004-05, the assessing authority computed the tax payable at Rs.2,54,21,877/- as additional tax and the said orders of assessment for the years 2003- 04 and 2004-05 are challenged in W.P.Nos.810 and 811 of 2010 on various grounds as stated in above said writ petitions. 5. In the counter affidavit filed by the respondent in W.P.Nos.27357 and 27358 of 2009, it is stated that in the order passed by this Court in W.P.Nos.24370 and 24371 of 2009 dated 10.12.2009 there was a direction to the authority to pass orders stating that the Court is not inclined to interfere with the notice issued calling upon the petitioner to give explanation and it was, as per the direction, the petitioner filed objections on 16.12.2009 and thereafter, an opportunity was given to the petitioner on 18.12.2009 and after hearing the petitioner, adjudication order was passed on 18.12.2009 and further opportunity was given to the petitioner on 23.12.2009 and assessment order was finally passed on 29.12.2009 and the adjudication order as well as assessment order was passed as per the law laid down by the Supreme Court in GKN Driveshafts (I) Ltd. V. ITO & others (259 ITR 19) and therefore, it is stated that inasmuch as the assessment orders were passed, W.P.Nos.27357 and 27358 of 2009 have become infructuous and as far as assessment orders challenged in W.P.Nos.810 and 811 of 2010 are concerned, as per section 246A of the Income-tax Act, the petitioner’s remedy is to file a statutory appeal. 6. In respect of W.P.Nos.810 and 811 of 2010, in the counter affidavit filed by the respondent it is stated that the filing of writ petitions against the orders of assessment is not maintainable and the petitioner has got appeal remedy available under the Income- tax Act, relying upon various judgments of the Supreme Court including the law laid down in Dr.K.Nedunchezhian vs. Deputy Commissioner of Income-tax [279 ITR 342]. a) It is stated that the petitioner is a satellite broadcasting company running a T.V. channel in the name, M/s.Jaya TV, whose primary business is to telecast programmes through satellite and the petitioner is engaged in the purchase of films and serials and that amounts to sale of time slots for broadcasting. It is stated that the assessee claimed the purchase of copyrights on films as revenue expenditure and according to the respondent, it should be treated as capital expenditure and therefore, there was willful evasion of tax by claiming the same as revenue expenditure. b) Again, when notice was issued for reassessment, this Court passed orders on 10.12.2009 in the writ petitions filed by the petitioner earlier permitting the petitioner to submit explanation and it is stated that after the order was passed by this Court on 10.12.2009, the respondent issued a letter to the assessee to file https://hcservices.ecourts.gov.in/hcservices/ objections on 15.12.2009 and posted the case for hearing on 18.12.2009 and on 16.12.2009 the petitioner/assessee filed objections and a full hearing was given on 18.12.2009 and a speaking order of adjudication was passed rejecting the objections filed by the petitioner against the notice issued. c) Thereafter, the respondent issued a letter to the petitioner on 21.12.2009, giving opportunity to the petitioner on 23.12.2009, on which date the assessee made a submission and the case was heard and ultimately, the impugned order was passed on 29.12.2009 under section 143(3) of the Income-tax Act and therefore, the principles of natural justice have been fully followed in respect of adjudication as well as subsequent assessment orders. d) It is stated that for the assessment years 2003-04 and 2004- 05, the assessment was reopened as per section 147 of the Act after recording reasons for initiating proceedings under section 148 of the Act and the Commissioner of Income-tax gave his approval for the year 2003-04 on 10.12.2008 since for the year 2003-04 it was more than four years to take steps and as far as the year 2004-05 is concerned, it was within four years for which the approval of the Commissioner of Income-tax was not required. e) It is also denied that the assessment was reopened on the basis of audit objections and the audit objections which were raised were incidental and the same were not the only reason for reopening the assessment under section 147 of the Act and for reopening, there was a reason to believe that the income had escaped assessment due to the failure of the assessee. It is stated that the assessment for the year 2003-04 was completed under section 143(3) on 30.3.2006 and since true and correct facts were not disclosed by the assessee, the assessment was reopened as per proviso to section 147 of the Act and it was due to the failure on the part of the assessee to disclose fully all material facts for completion of assessment and the reasons for reopening the assessment were communicated to the assessee by letter dated 16.1.2009 and for the assessment year 2004-05, the assessment was reopened after recording reasons. f) It is also the case of the respondent that in Indian and Eastern Newspaper Society v. CIT [119 ITR 996], the Supreme Court held that the assessment cannot be reopened on the basis of audit objection when a question of law was involved, but, on the facts and circumstances of the case, there was no question of law involved and it was the petitioner who did not disclose true particulars. It is stated that as per the judgment of the Supreme Court in CIT v. PVS Beedies Pvt. Ltd. [237 ITR 13], reopening of cases under section 147 on the basis of factual information is perfectly valid in law. g) It is denied that the respondent could not pass adjudication order on 18.12.2009 on the very same date when the hearing was made. https://hcservices.ecourts.gov.in/hcservices/ It is stated that on 16.12.2009 the objections were made and on 18.12.2009 there were no fresh objections made by the petitioner and therefore, the orders rejecting the objections were passed on 18.12.2009 and thereafter, final orders were passed on 29.12.2009 and it is stated that the respondent followed meticulously various provisions of the Income-tax Act, especially sections 147 and 148 of the Act and since the process of law has been followed and as against the order of assessment, there is an appeal remedy available to the petitioner before the Commissioner of Income-tax (Appeals) and a further appeal remedy before the Income-tax Appellate Tribunal, bye- passing the same, the writ petitions being filed are not maintainable. It is stated that the filing of successive writ petitions is an abuse of process of Court and in this regard, the respondent would rely upon the judgment of the Supreme Court in State of Maharashtra vs. Captain Buddhikota Subha Rao [AIR 1989 SC 2292]. 7. Mr.V.Ramachandran, learned senior counsel appearing for the petitioner would submit that as far as the assessment year 2003-04 is concerned, the proceedings initiated after a period of four years are not valid in law, and it is his case that when the petitioner’s returns were submitted, there was a total disclosure about the facts regarding copyrights of the films as well as serials and the petitioner claimed the expenditure incurred for obtaining the copyrights as revenue expenditure and that was originally accepted by the assessing authority, but subsequently, reassessment proceedings were initiated by the same authority, the respondent herein by changing his view that it should be capital expenditure and the mere change in view by the authority in respect of legal issue does not mean that there was any suppression on the part of the petitioner. He would rely upon the judgment in GKN Driveshafts (India) Ltd., vs. Income-tax Officer [259 ITR 19]. a) It is submitted that the adjudication order dealing with the objections against the notice issued for reopening the assessment under section 147 of the Act came to be passed on 18.12.2009, especially when the respondent issued notice on 15.12.2009 giving one week’s time and without even waiting for one week’s time, the adjudication order came to be passed on 18.12.2009 itself. By relying upon the judgment in S.Velu Palandar vs. Deputy Commercial Tax Officer, Thanjavur II [83 ITR 683], he submitted that personal hearing was not given and against the order dated 18.12.2009, there is no appeal remedy available. b) It is his submission that the proviso to section 147 has not been complied with. It is stated that there is no reason recorded for the purpose of reopening the assessment. It is submitted that the audit objection, which has not been denied, is stated to be the reason, but the audit objection cannot be a ground for reopening the assessment. He would rely upon the judgment in Indian and Eastern Newspaper Society vs. Commissioner of Income-tax, New Delhi [119 ITR https://hcservices.ecourts.gov.in/hcservices/ 996]. It is his submission that when the adjudication order itself is not valid in law, against which no appeal remedy is provided, the consequential assessment order passed cannot be said to be valid in law. 8. On the other hand, it is the contention of the learned Senior Central Government Standing counsel that in the earlier writ petitions filed in W.P.Nos.24370 and 24371 of 2009, the petitioner raised the same objection and the said writ petitions were dismissed, by order dated 10.12.2009 by directing the petitioner to give his objections to the authorities and thereafter, the objections were given on 16.12.2009 and when the impugned order of adjudication came to be passed, there was no submission on behalf of the petitioner and therefore, it is his contention that sufficient opportunity was given to the petitioner before the order of adjudication came to be passed and there was no irregularity. a) It is his submission that inasmuch as the final assessment orders have been challenged in W.P.Nos.810 and 811 of 2010, the writ petitions in W.P.Nos.27357 and 27358 of 2009 have become infructuous. He would submit that on the facts of the present case, the audit objection is not the only reason for the purpose of issuing reassessment notice. It is his submission that when the audit objection is incidental, it cannot be said that the reopening of assessment is invalid. It is submitted that when admittedly for the assessment year 2004-05 the adjudication proceedings started within the time stipulated in section 147 of the Act, the remedy available to the petitioner is only to file an appeal and therefore, the writ petitions are misconceived. 9. I have heard the learned senior counsel appearing for the petitioner and the learned Senior Central Government Standing counsel and given my anxious thoughts to the issues involved in these cases. 10. Before going into the legal submissions of the learned counsel for the respective parties, it is relevant to point out some of the facts which are almost admitted. For the assessment year 2003-04, the assessee/petitioner filed its return on 1.12.2003 declaring ‘Nil’ income and the said assessment was processed on 18.11.2004 and completed as per section 143(3) of the Income-tax Act on 30.3.2006, accepting the income returned by the assessee. As it is seen in the reasons given by the respondent for reopening, the petitioner disclosed in Schedule-J to profit and loss accounts that the company purchased copyrights for Rs.2,95,63,495/- and claimed it as revenue expenditure. It was accepted by the respondent while passing the assessment order dated 30.3.2006 for the assessment year 2003-04. 11. Likewise, in respect of the assessment year 2004-05, the petitioner filed its return on 1.11.2004 by declaring a total income https://hcservices.ecourts.gov.in/hcservices/ of Rs.2,48,01,610/- and the same was processed under section 143(1) of the Act on 24.8.2005 accepting the return. In that year, as it is seen in the reasons adduced for reopening, the petitioner claimed Rs.6,20,60,017/- as purchase money of copyrights in schedule-J to the profit and loss accounts. The said purchase was in respect of feature films and other programmes for broadcasting and the same was claimed as revenue expenditure deductable for the said year. 12. The claim of deduction for the above said assessment year made by the petitioner appears to be under section 37(1) of the Income-tax Act which is as follows: " 37.(1) "Any expenditure" (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession." {Explanation.- For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.]" 13. Therefore, it is clear that for the assessment year 2003-04, the respondent assessing authority had reason to believe that the returns were inadmissible, only after issuing notice under section 143(2) of the Income-tax Act and passing final orders of assessment under section 143(3) on 30.3.2006, upon hearing the party and taking into account the particulars furnished by the assessee. In respect of assessment year 2004-05, the respondent assessing authority was satisfied about the returns filed by the petitioner and issued communication accepting the return filed by the petitioner under section 143(1) of the Act and then, had reason to believe that the income had escaped assessment. 14. In respect of the incomes for which assessments was made either under section 143(1) or under section 143(3) of the Act, the assessing authority is empowered or entitled to assess or reassess such income chargeable to tax which had escaped assessment and which comes to his notice subsequently in the course of proceedings and to recompute, of course, subject to sections 148 and 143 of the Act which contemplate issuance of notice in respect of escaped income,