TAO Publishing Pvt. Ltd. vs Deputy Commissioner of Income Tax

N.M. Jamdar, J.—Rule. Rule made returnable forthwith. Counsel for the respondents waive service. By consent, the writ petition taken up for final disposal.

The petitioner challenges the notice dated March 28, 2012, issued under section 148 of the Income-tax Act, 1961 ("the Act"), by respondent No. 1--Deputy Commissioner of Income-tax seeking to reopen the assessment for the assessment year 2005-06. Besides, the challenge is also to the order dated September 3, 2014, rejecting the objections raised by the petitioner.

The petitioner, M/s. Tao Publishing is a P. Ltd. Co., was engaged in the business of printing and publishing books, magazines and compact discs. The petitioner had filed its return of income for the assessment year 2005-06 declaring a total loss of Rs. 5,34,230. In its books of account, the petitioner had debited an amount of Rs. 32,34,652 as of expenditure for advertising. The notice was issued under section 142(1) of the Act, pursuant to which, scrutiny proceeding took place. On September 11, 2007, a notice was issued by respondent No. 1 calling upon the petitioner to provide certain particulars. Respondent No. 1 sought particulars in respect of the advertising and publishing expenses of Rs. 32,34,652. The petitioner furnished the particulars sought for on October 24, 2007, and also gave details of the advertising expenses. The petitioner stated that the petitioner had appointed one America Multimedia, U.S.A. for promotion and publicity of their website for information for those who wanted to know the details of magazines and books published by the petitioner. The petitioner stated that the service provided by the America Multimedia Corporation was outside India and, therefore, the payment of Rs. 10,64,281 was not covered under Chapter XVII-B--Deduction of tax at source. This explanation of the petitioner was accepted by the Assessing Officer. The Assessing Officer did not make any disallowance pertaining to the advertising and publishing expenses.

Thereafter, on March 28, 2012, respondent No. 1 issued a notice under section 148 of the Act in respect of the assessment year 2005-06, after four years from the end of the relevant assessment year. On April 25, 2012, the petitioner sought reasons for issuance of notice under section 148 for reassessment. On January 24, 2013, a copy of the reasons was supplied to the petitioner. It reads as under:

"The reason recorded for reopening the case is hereunder:

I am of the belief that the following income have escaped assessments in the case of TAO Publishing Pvt. Ltd. For the assessment year 2005-06.

As per section 195 of the Income-tax Act, any person for paying to a non-resident not being a company or to a foreign company, any interest or any other sum chargeable under the provisions of this Act, at the time of credit of such income to the account of the payee or any other income, whichever is earlier, deduct income-tax thereon at the rates in force.

It is seen from the records that as claimed and the Department allowed as expenditure debited in the head ''Advertisement expenses'' to the extent of Rs. 10,64,281 paid to America Multimedia Corporation, 80 Fifth Avenue, Suite 1403, New Yord. NY 10011, USA for promotion and publishing on their website osho.com. It was stated by the assessee that this service is provided by the above company outside India and the said company has no permanent establishment in India. Hence, the payment of Rs. 10,64,281 due to the financial year 2004-05 is not correct under the provisions of deduction of tax at source of the Income-tax Act, 1961.

As the provisions of section 195 of the Income-tax Act is very clear the amount of Rs. 10,64,281 required to be disallowed and added back to the total income of under section 40A failure to do so has resulted into underassessment of income of Rs. 10,64,281.

Hence, Rs. 1,24,622 has escaped assessment and, hence, this case is reopened and notice under section 148 is issued to the assessee."

The petitioner filed its objections on January 31, 2013, which objections were rejected by the impugned order dated September 3, 2014.

We have heard the learned counsel for the petitioner and the learned counsel for the respondent-Revenue.

In the present case, the reassessment proceedings are sought to be initiated after the period of four years from the end of the relevant assessment year. In view of the proviso to section 147 of the Act, the Assessing Officer will not take any action for reassessment after the period of four years, unless the income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to disclose fully and truly all material facts for assessment of that year.

A statement of reasons was supplied to the petitioner regarding the belief of respondent No. 1 for coming to a conclusion that the income had escaped assessment. The reasons state that, from the record it is seen that the Department allowed the claim of the petitioner regarding an expenditure debited under the head "Advertising expenses", wrongly. Thus, on a perusal of the record respondent No. 1 found that an incorrect amount was allowed as an expenditure under the head "Advertising expenses". The petitioner filed its objections. The petitioner set out the factors how the expenditure was correctly allowed. The petitioner also pointed out that the fact that the concerned advertising company was based in the United States, was already on record, and also that it did not have any permanent account number in India. While rejecting the objections, respondent No. 1 observed that the petitioner failed to disclose fully and truly, material facts for the assessment and because of the failure of the petitioner to provide for all the relevant details in respect of the expenditure, reassessment needs to be carried out.

The learned counsel for the petitioner rightly pointed out that the ground that the petitioner had failed to disclose all the relevant material was not incorporated in the reasons supplied to the petitioner. The object of furnishing reasons for reopening, is to put the assessee to notice as to why the Assessing Officer has reason to believe that income has escaped assessment. Apart from this position, in the present case, the reasons supplied do not state that there was any failure on the part of the petitioner to provide material particulars. That an assessee has not made a full and true disclosure of facts, is one of the jurisdictional requirement for proceeding with reassessment after a period of four years. In the case of Clarence Brandenburg Vs. State of Ohio, 395 U.S. 444 (1969) , this court had held that the notices for reassessment would stand or fall on the basis of reasons and the reasons cannot be improved upon, substituted or supplemented. This view has been followed by this court in several other cases.

As stated above, the reasons supplied to the petitioner do not disclose that there was any failure on the part of the petitioner to provide all the material facts. That being the position, this ground could not have been taken up against the petitioner at the time of disposing of the objections. Once this was not the basis for issuance of notice for reassessment, it cannot be held against the petitioner that the petitioner had failed to make a true and full disclosure. It will have to be held that the petitioner did not fail to make full and true disclosure of all material facts. The jurisdictional requirement for carrying out the reassessment, after the expiry of the period of four years, is not fulfilled in the present case.

The learned counsel for the petitioner also submitted that, in fact, there was no failure to disclose all material facts as respondent No. 1 had specifically sought details as regards the relevant expenditure and which were furnished. He relied upon the decision of the apex court in the case of Clarence Brandenburg Vs. State of Ohio, 395 U.S. 444 (1969) , to contend that the duty of the assessee was to place on record all the primary facts and drawing of inference from the primary facts is up to the Assessing Officer. However, this issue need not be gone into in depth any further, as the petitioner is entitled to succeed on the first ground mentioned above.

In the circumstances, the petitioner is entitled to the reliefs prayed for in the petition. It will have to be held that respondent No. 1 had no jurisdiction to proceed with the impugned reassessment proceedings.

Accordingly, rule is made absolute in terms of prayer clauses (a) and (b) which read as under:

(a) Issue a writ of certiorari or a writ in the nature of certiorari or any other appropriate writ, order or direction under article 226 and article 227 of the Constitution of India calling for the records and quashing the impugned notice dated March 28, 2012, and the impugned order dated September 3, 2014.

(b) Issue a writ of mandamus or a writ in the nature of mandamus or any other appropriate writ, order or direction under article 226 and article 227 of the Constitution of India directing the respondents not to proceed or initiate any reassessment proceedings for the assessment year 2005-06.

No order as to costs.