No reassessment because income remained untaxed due to non coordination between departmental officers

By | October 16, 2015
(Last Updated On: October 16, 2015)

Facts of the Case :-

Assessing Officer finalised assessment under section 143(3) .Assessing Officer issued notice under section 148 as Assessing Officer had reasons to believe that taxable income had escaped assessment . In reasons recorded by Assessing Officer, he stated that certain amounts remain untaxed because of non co-ordination between Departmental Officers.  However, it was observed that Assessing Officer had not held that there was any failure on part of assessee to disclose material facts fully and truly and, further, he had not held that assessee had concealed facts that resulted in escapment of income.

reassessment

Held

Impugned reassessment proceedings was not initiated validly

IN THE ITAT MUMBAI BENCH ‘F’

Viacom 18 Media (P.) Ltd.

v.

Assistant Commissioner of Income-tax

VIJAY PAL RAO, JUDICIAL MEMBER
AND RAJENDRA, ACCOUNTANT MEMBER

IT APPEAL NOS. 3887 AND 3888 (MUM.) OF 2013
[ASSESSMENT YEARS 2005-06 AND 2006-07]

NOVEMBER  26, 2014

Farokh Irani for the Appellant. Pawan Kumar Beerla and Parminder Kaur for the Respondent.

ORDER

Rajendra,Accountant Member – Challenging the orders dated (sic) of CIT(A)-3, Mumbai, the assessee had filed following grounds of appeal for the above referred two assessment years :

ITA No. 3887/Mum/2013; Asst. yr. 2005-06 :

‘1. On the facts, and in the circumstances of the case, and in law, the Hon’ble CIT(A)-3, Mumbai ought to have held that reassessment proceedings are bad in law and the order passed by the learned AO under s. 143(3) r/w s. 147 of the Act is unwarranted, without jurisdiction, bad in law, barred by limitation, void ab initio and hence ought to be quashed in light of the provisions of the IT Act, 1961 (‘the Act’).

2. Without prejudice to the above, on the facts, and in the circumstances of the case, and in law, even assuming (without admitting) that the reassessment proceedings are within the jurisdiction, the Hon’ble CIT(A) ought to have allowed deduction for the distribution expenses of Rs. 2,23,04,019 paid by the appellant to Nickelodeon Asia Pvt. Ltd. (‘Nick Asia’) for asst. yr. 2005-06.

3. Without prejudice to the above, on the facts and in the circumstances of the case and in law, the Hon’ble CIT(A) ought to have admitted the additional evidence under r. 46A of the IT Rules, 1962.

4.Without prejudice to the above, on the facts and in the circumstances of the case and in law, distribution expenses of Rs. 1,92,72,111 ought to be allowed as deduction in asst. yr. 2005-06 as appropriate taxes in respect of the same were deducted at source in asst. yr. 2005-06 as per the provisions of s. 195 r/w s. 197 of the Act. It is prayed that the learned AO be directed to allow deduction of distribution expenses of Rs. 1,92,72,111 (out of Rs. 2,23,04,019 paid to Nick Asia for asst. yr. 2005- 06) as the taxes have been appropriately deducted at source in asst. yr. 2005-06 and paid into the Government treasury as per the provisions of the Act.

5. Without prejudice to the above, on the facts and in the circumstances of the case and -in law, the balance distribution expenses of Rs. 30,31,908 (23,04,019-1,92,72,111) ought to have been allowed in the subsequent years in which the taxes have been deducted at source and paid into the Government treasury as per the provisions of s. 195 r/w s. 197 of the Act. It is prayed that the learned AO be directed to allow deduction of balance distribution expenses of Rs. 30,31,908 (2,23,04,019-1,92,72,111) in the year(s) in which the taxes have been deducted at source and paid into the Government treasury as per the provisions of s. 195 r/w s. 197 of the Act.

The appellant craves leave to add, alter, amend or withdraw all or any of the grounds of appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.’

TTA No. 3888/Mum/’2013; Asst. yr. 2006-07:

“1. On the facts, and in the circumstances of the case, and in law, the Hon’ble CIT(A)-3, Mumbai ought to have held that reassessment proceedings are bad in law and the order passed by the learned AO under s. 143(3) r/w s. 147 of the Act is unwarranted, without jurisdiction, bad in law, barred by limitation, void ab initio and hence ought to be quashed in light of the provisions of the IT Act, 1961 (‘the Act’).

2. Without prejudice to the above, on the facts, and in the circumstances of the case, and in law, even assuming (without admitting) that the reassessment proceedings are within the jurisdiction, the Hon’ble CIT(A) ought to have allowed deduction for the distribution expenses of Rs. 5,55,28,565 paid by the appellant to MTV Asia LDC (‘MTV Asia’) for asst. yr. 2006-07.

“3. Without prejudice to the above, on the facts and in the circumstances of the case and in law, the Hon’ble CIT(A) ought to have admitted the additional evidence under r. 46A of the IT Rules, 1962.

4. Without prejudice to the above, on the facts and in the circumstances the case and in law, distribution expenses of Rs. 1,72,88,715 ought to be allowed as deduction in asst. yr. 2006-07 as appropriate taxes in respect of the same were deducted at source in asst. yr. 2006-07 as per the provisions of s. 195 r/w s. 197 of the Act.

It is prayed that the learned AO be directed to allow deduction of distribution expenses of Rs. 1,72,88,715 (out of Rs. 5,55,28,565 paid to MTV Asia for asst. yr. 2006-07) as the taxes have been appropriately deducted at source in asst. yr. 2006-07 and paid into the Government treasury as per the provisions of the Act.

5. Without prejudice to the above, on the facts and in the circumstances of the case and in law, the balance distribution expenses of Rs. 3,61,92,613 (5,55,28,565-1,72,88,715-20,47,237) ought to have been allowed in the subsequent years in which the taxes have been deducted at source and paid into the Government treasury as per the provisions of s. 195 r/w s. 197 of the Act. It is prayed that the learned AO be directed to allow deduction of balance distribution expenses of Rs. 3,61,92,613 (5,55,28,565-1,72,88,715-20,47,237) in the year(s) in which the taxes have been deducted at source and paid into the Government treasury as per the provisions of s. 195 r/w s. 197 of the Act.

6. Without prejudice to the above, on the facts and in the circumstances of the case and in law, distribution expenses of Rs. 20,47,237, which were reversed in asst. yr. 2008-09, should be reduced while computing income of the appellant for asst. yr. 2008-09. It is prayed that in case distribution fees paid to MTV Asia of Rs 20,47,237 is disallowed in asst. yr. 2006-07, the learned AO be directed to reduce the same while computing income of the appellant for asst. yr. 2008-09 as the said amount is written back in asst. yr. 2008-09.

7. Without prejudice to the above, on the facts and in the circumstances of the case and in law, distribution expenses of Rs. 29,97,586 paid to Nickelodeon Asia Holdings Pvt. Ltd. for asst. yr. 2005-06 ought to have been allowed in asst. yr. 2006-07 since the taxes have been deducted at source and paid into the Government treasury as per the provisions of s. 195 r/w s. 197 of the Act in asst. yr. 2006-07. It is prayed that the learned AO be directed to allow deduction of distribution expenses of Rs. 29,97,586 in asst. yr. 2006-07 as the taxes have been deducted at source and paid into the Government treasury in asst. yr. 2006-07.

8. On the facts and in the circumstances of the case and in law, the Hon’ble CIT(A) had erred holding that interest under ss. 234B and 234C of the Act should be levied despite there not being any specific direction in the assessment order regarding levy of interest.

It is prayed that the learned AO be directed not to levy interest under ss. 234B and 234C in the absence of any specific direction in the assessment order.

The appellant craves leave to add, alter, amend or withdraw all or any of the ground of appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.”

ITA No. 3887/Mum./2013; Asst. yr. 2005-06 :

Assessee-company, engaged in the business of production/acquisition of programmes, filed its return of income on 31st Oct., 2005 declaring loss Rs. 11.02 crores. Later on a revised return was filed on 6th Dec, 2006 declaring total income of Rs. Nil. The AO finalised the assessment under s. 143(3) of the Act on 15th Dec, 2008 determining the income of the assessee at Rs. 17.12 crores, the assessment was reopened by issue of notice under s. 148 of the Act dt. 29th March, 2011. The reasons recorded for reopening the assessment were as under :

“The assessment in this case for the asst. yr. 2005-06 had been completed under s. 143(3) of the IT Act, 1961 vide order dt. 15th Dec, 2008 assessing the income at Rs. 17,12,83,880. The assessment was subsequently rectified in January, 2009 to allow set off of brought forward losses and thereby taxable income was revised to Rs. 7,51,31,480.

The assessee company as per agreement entered into paid 50 per cent of subscription income to M/s Nickelodeon Asia Holding (P) Ltd. for acting as a distributor of their channel. It was observed from the records of Nickelodeon Asia Holdings (P) Ltd. (NICK) for asst. yr. 2005-06 which is being assessed in the charge of Dy. Director of IT (IT), 4(2), Mumbai that while finalizing the assessment, the Department held that distribution revenue received from Viacom 18 Media (P) Ltd. is in the nature of royalty as per Indo-Singapore DTAA. Accordingly, royalty income of Rs. 2,20,70,048 received from Viacom 18 was taxed 15 per cent of the amount is in fact Rs. 21,23,04,019 as per the books of accounts of Viacom 18, The variation appears to be due to difference in rate of exchange adopted by Dy. Director of IT (IT), 4(2). It was further observed that the above stand of Dy. Director of IT (IT) 4(2) was confirmed by CIT(A)-XI in July, 2009.

It was however, observed from the records of M/s. Nickelodeon Asia Holding (P) Ltd. that no tax at source was deducted by Viacom 18 in respect of distribution royalty paid. Further, it also appeared from the records that the non-observance of TDS provision was not reported to Asstt. CIT-11(l) for invoking the provisions of s. 40(a)(ia). Thus, the non- coordination between Dy. Director of IT (IT)-4(2) and Asstt. CIT-11(l) resulted in assessee getting irregular deduction of distribution royalty of Rs. 2,23,04,019 without observing TDS provision. The omission to disallow the same resulted in underassessment of income.

Similarly, for non-deduction of tax at source @ 15 per cent amounting to Rs. 33,45,603 and not crediting the same to Government account, the assessee is also liable for interest under s. 201(1A) of Rs. 2,07,362 On account of the facts and circumstances as above, I have reasons to believe that income had escaped assessment for asst. yr. 2005-06 under the meaning of s. 147 of the IT Act.”

2.1 Aggrieved by the order of the AO, the assessee preferred an appeal before the first appellate authority. After considering the order of the AO and the submissions of the assessee, he held that the assessment had been reopened beyond 4 years at the end of relevant assessment year, that as per Expln. 2 to s. 147 the assessment could be reopened after recording reasons for the reopening in case assessment was made at too low rate, that the payment made by the assessee to NAHPL was in the nature of royalty as per Indo-Singapore DTAA on which no TDS was deducted by it, that the assessment was made at lower a rate, that the word assessment meant the ascertainment of the account of taxable income and all the tax payable thereon, that when there was no ascertainment of tax payable thereon it could never be said that such income was assessed, that it had merely filed some details of distribution expenses as per audit report, that it could not be said that relevant material was on record. Referring to the case of Praful Chunilal Patel v. Asstt. CIT [1999] 236 ITR 832 (Guj.) of Hon’ble Gujarat High Court, he held that the AO would acquire jurisdiction to reopen assessment under s. 147 on the basis of specific reliable and relevant information coming to his position (sic—possession) subsequently, that in the case under consideration the AO had received information subsequently that the payment of subscription income to NAHPL was in the nature of royalty as held by the Dy. Director of IT (IT)- 4(2) Mumbai, that the FAA had upheld the order of the Dy. Director of IT (IT)-4(2), that the AO had reason to believe that by reason of omission or failure on the part of the assessee to make full and true disclosure of all material facts necessary for his assessment, income had escaped assessment, that deduction of payment allowed resulted in irregular assessment and said amount remained to be disallowed under s. 40(a)(ia) of the Act, there had been reasonable belief of the AO, that sufficiency of the reason for forming the belief was not to be judged, that it would be immaterial whether the AO at the time of making original assessment could or could not have found the said fact, that every disclosure was not and could not be treated as truly or fully disclosure. He placed reliance in the case Shree Krishna (P.) Ltd. v. ITO[1996] 221 ITR 538  (SC) wherein it was held that every disclosure could not be treated to be truly and full disclosure. He further held that the Authorised Representative of the assessee had cited various decisions but there could not be any precedent of fact, that precedent could be only on point of law, that he AO had appropriately recorded the reasons and conveyed to the assessee, that it could be concluded that reopening of assessment was in accordance with law, that the reasons so recorded were made available to the assessee and objections for reopening of assessment were also disposed of by passing separate order on 24th Nov., 2011, that the distribution payment was wrongly allowed as deduction as it was required to be subjected to TDS provisions and it did not come to the notice of the AO, amounted to non-disclosure of facts.

2.2 The Authorised Representative argued that there was no failure on part of the assessee, that in the reasons recorded no allegation was made by the AO that assessee had not furnished full and true particulars of the income for the year under consideration, that failure of the assessee had to be recorded by the AO, that the taxability of royalty was debatable issue that on debatable issues notice under s. 148 could not be issued. He relied upon the cases of Hindustan Lever Ltd. v. R.B. Wadkar [2004] 268 ITR 332 (Bom.) and Arthur Anderson & Co. v. Asstt. CIT [2010] 324 ITR 240 . Departmental Representative supported the order of the FAA.

2.3 We. have heard the rival submissions and perused the material before us. In our opinion, the primary requirement to reopen any assessment is a reason to believe that income chargeable to tax had escaped assessment. Secondly, the reasons for reopening an assessment have to be tested or examined only on the basis of the reasons recorded at the time of issuing a notice under s. 148 of the Act, seeking to reopen an assessment. Besides, the reasons cannot be improved upon or supplemented. It is said that the mandate of proviso to s. 147 of the Act is very clear. It requires the AO not only to clearly mention but also to prove that because of the failure of the assessee to disclose material facts truly and fully, taxable income had escaped assessment. Proviso was incorporated in the Act to prevent misuse of reopening the assessments by the AOs after period of four years. Tax laws envisage that completed assessment should not be disturbed without solid reasons. We hold that the proviso casts onus on the AO to prove failure of the assessee. In other words, the AO has to mention, in the reasons recorded, about the alleged failure and has to explain as to which material facts were not disclosed by the assessee. If the AO fails to do so, then assessment passed by him in pursuance of reopening notice, loses legal validity and sanctity. At this juncture, we would like to consider the latest legal position regarding reopening of assessment after expiry of period of four years. In the matter of Tecumseh Products India (P.) Ltd. v. Asstt. CIT [2014] 361 ITR 429  Hon’ble AP High Court had discussed the proviso to s. 147 as under:

“Before any notice is issued after the expiry of four years, the officer concerned must be satisfied that there had been an escapement in assessment of income, which is chargeable to tax and that this is because of the failure on the part of the assessee to make a return under s. 139 of the IT Act, 1961, or in response to a notice issued under sub-s. (1) of s. 142 or s. 148 for not disclosing the material facts. These conditions must be reflected in the notice itself. In the absence of the conditions, exercise of jurisdiction in issuance of the notice under the provision is patently illegal.”

Similarly, in the case of General Motors India (P.) Ltd. v. Dy. CIT [2014] 360 ITR 527  the Hon’ble Gujarat High Court had also dealt with the similar issue. In that matter the assessee had challenged the validity of the notice issue under s. 148 after the expiry of four years. Deciding the writ petition in favour of the assessee, the Hon’ble Court – held as follows :

“…there was not even a whisper to the effect that income had escaped assessment on account of any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment in the absence of any satisfaction having been recorded by the AO that the income had escaped by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the assessment year under consideration, assumption of jurisdiction under s. 147 was not valid and, therefore, notice under s. 148 could not be sustained.”

From the above it is clear that where the provisions of s, 147 are being invoked after the period of four years from the end of the relevant assessment year, in addition to the AO having reason to believe that any income chargeable to tax had escaped assessment, it must also be established as a fact that such escapement of assessment had been occasioned by either the assessee failing to make a return under s. 139 etc., or by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year.

Undisputed facts of the present case are that the assessee’s original assessment was completed under s. 143(3) of the Act, that the AO had issued notice under s. 148 as the AO had reasons to believe that taxable income had escaped assessment, that the assessee had objected to the notice issued under s. 148, that the FAA had upheld the reopening of assessment, that the AO had never held that there was any failure on part of the assessee to disclose material facts fully and truly. In the reasons recorded he had held that because of (sic—non-coordination) between the Dy. Director of IT (International Taxation) and Asstt. CIT certain amounts remained untaxed. He had not held that the assessee had concealed the facts that resulted in escapement of income. If there was lack of co-ordination between two AOs, the assessee cannot be penalised for that. The power to reopen a completed assessment is one of the extraordinary powers conferred upon the AOs, but it cannot be used in a routine matter—especially when a notice under s. 148 of the Act is to issued after four years. In the matter before us, failure of the assessee had not been brought on record. In these circumstances, we hold that the reassessment proceedings were not initiated validly. Reversing the order of the FAA, we decide ground No. 1 in favour of the assessee. As the reopening had been held invalid, so the remaining grounds of appeal are not being adjudicated.

Considering the facts of the case and circumstances, appeal filed by the assessee for the year under consideration stands allowed.

1TA No. 3888/Mum/’2013; Asst yr. 2006-07

3. The first ground of appeal deals with reassessment proceedings. The assessee had filed its return on 29th Nov., 2011 declaring Nil income. The AO completed the assessment on 11th Nov., 2010 under s. 143(3) r/w s. 144C(5) of the Act, in accordance with the directions of the Dispute Resolution Panel (DRP), Mumbai. The assessment was reopened, as per the notice issued under s. 148 of the Act on 29th March, 2011, recording following reasons :

“1. It was observed from the records of MTV Asia LDC (Non-resident) which is assessed in the charge of Dy. Director of IT (IT), 4(1), Mumbai that MTV Asia LDC entered into agreement with Viacom is on principal-to-principal basis of sharing of 50 per cent of distribution revenue collected by Viacom 18 Media (P) Ltd. The Dy. Director of IT (International Taxation)-4(1) while finalizing assessment for asst. yr. 2006-07 of MTV Asia had held that distribution revenue received from Viacom 18 in the nature of royalty in terms of Art. 12 of Indo-Singapore DTAA. This issue was discussed at length in the assessment order. Accordingly, the distribution receipts of Rs. 5,69,64,4521 [the amount is in fact Rs. 5,55,28,565 as per the books of accounts of Viacom 18 the variation appears to be due to difference in rate of exchange adopted by Dy. Director of IT (International Taxation)-4(l)] received from Viacom 18 was taxed treating the same as royalty. It was further observed that the above stand of Dy. Director of IT (International Taxation)-4(l) was upheld by CIT(A) in earlier assessment years. It was however, observed from records of MTV Asia LDC that tax at source was deducted by Viacom 18 in respect of distribution royalty paid. Thus, the assessee had been granted relief of Rs. 5,55,28,565 which ought to have been disallowed under s. 40(a)(ia) due to non-observance of the provisions of TDS which had resulted in assessee getting irregular deduction of distribution royalty of Rs. 5,55,28,565 without observing TDS provision. The omission to disallow the same resulted on underassessment of income.

2. Further it is observed from P&L a/c that assessee company had credited below line net prior period income Rs. 12,10,61,803. Though this income was considered while computing book profit, the same was excluded while arriving at profit and gains of business under the normal provisions. In the note No. 18 to schedule 15 it is stated that during financial year 2004-05 at the specific request of M/s MTV Asia LDC and Nickelodeon Asia Holdings (P) Ltd. (NICK) certain additional marketing and sales promotion expenses incurred for production of programmes however the same were not accepted by MTV and NICK. It is also stated that as per the opinion of the management as these expenses are not of routine nature the same were treated as cost of production to be recovered from and NICK. Similarly assessee-company during financial year 2004-05 incurred certain marketing cost at the request of NICK, the reimbursement thereof, however was again not accepted by NICK. After considerable deliberations both the above companies finally agreed to pay these expenses to the assessee. Accordingly, the assessee company accounted for prior period income of aggregating to Rs. 12,30,67,766 which consisted of production cost from MTV and NICK of Rs. 7,23,89,976 and Rs. 4,20,34,314 respectively. Besides, marketing cost of Rs. 86,43,476 was also recovered from NICK.

3. It is crystal clear from the above that assessee company had incurred expenses in connection with the ‘Prior period income’ in financial year 2004-05 and as per the mercantile system of accounting followed by the assessee, these expenses must have been booked in financial year 2004- 05 itself. Even if it is considered that these expenses were not claimed in financial year 2004-05, the same being prior period expenses cannot be allowed during financial year 2005-06. Moreover, , the expenses incurred i.e. sales promotion expenses for production of programme and marketing expenses for earning advertising sales commission are also in the line and in connection with the regular business activity of the assessee.

In view of the above, entire prior period income of Rs. 12,10,61,803 was required to be brought to tax under normal provision of IT Act. The omission to do so resulted in underassessment of income.

On account of facts and circumstances as above, I have reasons to believe that income of Rs. 17,65,90,368 had escaped assessment for asst. yr. 2006-07 under the meaning of s. 147 of the IT Act.

You may note that the scrutiny proceedings under-s. 147 are pending in your case for asst. yr. 2006-07 (in earlier notice wrongly mentioned as asst. yr. 2009-10). In this regard, you are requested to submit all the relevant information on 18th Oct., 2011.”

3.1 In the appellate proceedings the First Appellate Authority held that a notice under s. 148 had been issued within four years that notice within four years could be issued even if there was no failure on the part of assessee to disclose all material truly and fully necessary for assessment, that the notice issued under s. 148 was as per law. Placing reliance on the matter ofGrindwell Norton Ltd. v. Asstt. CIT [2004] 267 ITR 673  he held that as per the provisions of Expln. 2 to s. 147 of the Act where the Department reopened assessment within a period of 4 years, it could do so on the ground of income having escaped assessment, even if there is no failure on the part of assessee to disclose fully and truly all material facts. He also relied upon the case of Dr. Amin’s Pathology Laboratory v. Jt. CIT [2001] 252 ITR 673 (Bom.) and held that the reason had to be a reason of a prudent person, that reason should be fair and not necessarily due to failure of the assessee to disclose fully or partially some material facts relevant for assessment, that mere production of account books from which material evidence could have been discovered by the AO will not necessarily amount to disclosure within the meaning of the proviso, that mere production of the balance sheet, P&L a/c or account books will not necessarily amount to disclosure, that the payment made by the appellant to MTV Asia LDC was in the nature of royalty as per Indo-Singapore DTAA on which no tax at source was deducted by the appellant, that assessment was made at lower rate, that the word “assessment” would mean the ascertainment of the account of taxable income and all the tax payable thereon when there was no ascertainment of tax payable thereon it could never be said that such income was assessed, that in the matter under consideration the assessee had merely filed some details of distribution expenses as per audit report, which could not be said to be relevant material was on record. He further held that the AO had received information subsequently that the payment of subscription income to MTV/VHI was in the nature of royalty as held by the Dy. Director of IT (International Taxation)-4(l), Mumbai which had been also confirmed by the FAA, that the AO had reason to believe that income had escaped assessment for the year under appeal, that the deduction of payment allowed led to irregular assessment and said amount remained to be disallowed under s. 40(a)(ia) of the Act. Finally, he upheld the order of the AO with regard to reopening.

3.2 The Authorised Representative left the issue of reopening of the assessment for the year under appeal to the discretion of the Bench. From the reasons recorded it is clear that notice under s. 148 was issued within the four years. The basis for reopening was taxation of royalty income in the hands of recipient. Once the AO found out the factual position about the payment, he reached at certain conclusions and initiated proceedings under s. 147 of the Act. Established principles of reopening envisage that there should be reasons to believe that taxable income had escaped assessment. We are of the firm opinion that the Tribunal cannot and should not enter into the merits of the subjective satisfaction of the AO nor should judge the sufficiency of the reasons recorded. What can be seen is whether the belief of the AO is based on tangible, concrete and new information and whether it is capable of supporting such a conclusion. The law only requires that the information or material on which the AO records his or her satisfaction is communicated to the assessee. The satisfaction arrived at by the AO should be prima facie level. Considering the facts of the case we are of the opinion that AO had rightly invoked the provisions of s. 147 of the Act for reopening the assessment. So, confirming the order of the FAA, we decide ground No. 1 against the assessee.

4. Next four grounds of appeal (ground of appeal 2-5) deal with payment made by the assessee to MTV Asia and other parties. These grounds pertain to different aspects of the payment. During the assessment proceedings, the AO found that the assessee had claimed distribution expenses of Rs. 5,55,28,565 under the head payment to MTV Asia LDC. A perusal of the assessment records in the case of MTV Asia LDC revealed, that distribution revenue received was in the nature of royalty as per Indo-Singapore DTAA. It was also found that tax was not deducted by the assessee in respect of distribution royalty of Rs. 5.55 crores. The AO was of the opinion that the matter was of irregular/non-deduction of tax on distribution of royalty as per TDS norms. He directed the assessee to explain as to why the same should not be disallowed under s. 40(a)(ia) of the Act. The assessee, vide its letter dt. 14th Nov., 2011, stated that it had deducted the taxes at appropriate rates on distribution fees payable by the assessee company of Rs. 5,55,28,565, in accordance with certificate issued under s. 197 of the Act, that it had withheld the taxes on a sum of Rs. 3,01,18,939 in accordance with the certificate issued under s. 197 and paid the same within the time limit prescribed under s. 200(1).

The AO examined the submission of the assessee and held that same were not acceptable, that as per agreement in question the assessee had made payment of royalty of Rs. 5,55,28,565, that tax at source was not deducted by the assessee as prescribed by Chapter XVII-B of the Act, that as per s. 40(a)(ia) of the Act no deduction would be allowed In case of non-deduction/non-payment/late payment or belated deposit to the Government treasury, that the amount paid by the assessee was royalty on which tax at source ought to have been deducted, that the assessee had not placed on record any clinching any convincing evidence including proof of payment of TDS such as TDS challans and TDS return to accept its claim or contention, that it had defaulted in payment of TDS as required under the provisions of the Act. As there was a failure on the part of the assessee to deduct tax at source on the amount of Rs. 2,23,04,019, therefore, he disallowed the same under s. 40(a)(ia) of the Act.

4.1 Aggrieved by the order of the AO, the assessee filed an appeal before the First Appellate Authority. After considering the order of the AO and submissions of the assessee, he held that the assessee had paid 50 per cent of subscription income to MTV Asia for acting as a distributor of their channel, that the payment received from MTV Asia were held to be in the nature of royalty by the Dy. Director of IT (International Taxation)-4(1), Mumbai and the same had also been confirmed by the First Appellate Authority, that MTV Asia had filed appeal against the order of the First Appellate Authority contesting that payment received by them is not in the nature of royalty and that MTV Asia had no PE, that the above payment to MTV Asia had been held to be royalty by DRP, Mumbai in case of MTV Asia, that MTV Asia had not agitated the above order of DRP before the Tribunal withdrawn the aforesaid ground during the hearing before the Tribunal, that the decision of DRP attained finality, that the payment amounting to Rs. 5,55,28,565 made by the assessee was in the nature of royalty and taxable in the hands of M/s MTV Asia, that the assessee was required to deduct tax thereon in accordance with the provisions of s. 195 of the Act, that payment made without deduction of tax at source could not be allowed.

He further mentioned that the assessee had paid 50 per cent subscription income to M/s Nickelodeon Asia Holdings (P) Ltd. (NAHPL) for acting as a distributor of their channel, that distribution revenue received was in the nature of royalty as per Indo-Singapore DTAA, that no tax at source was deducted by it in respect of distribution royalty paid of Rs. 2.23 crores, that it was case of irregular/non-deduction of tax on distribution of royalty as per TDS norms, that the payment amounting to Rs. 2,23,04,019 made by the assessee was in the nature of royalty and taxable in the hands of NAHPL, that the assessee was required to deduct tax thereon in accordance with the provisions of s. 195 of the Act, that payment made without deduction of tax at source could not be allowed as per the provisions of s. 40(a)(ia) of the Act, that as per Expln. 2 to s. 9(l)(vi) of the Act, royalty means consideration received on account of transfer of all or any right (including the granting of a licence) in respect of patent, invention, model, design, secret formula or process or trade mark and similar property of transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, that Expln. 6 provided that the expression “process” included transmission by satellite including uplinking, amplification, conversion for downlinking of any signal, cable, optic fiber or by any other similar technology, that disallowance made under s. 40(a) (ia) were in accordance with law. Finally, he upheld the order of the AO.

4.2 Before us, the Authorised Representative stated that while completing the assessment, addition of Rs. 5.51 crore was made whereas in the notice amount of Rs. 12.10 crores was mentioned, that the assessee had deducted tax with regard to the payment of Rs. 5.51 crores @ 4.3 per cent, that AO was of the opinion that the assessee should have deducted tax @ 15 per cent, that for short deduction of tax, provisions of s. 40(a)(ia) of the Act could not be invoked, that assessee had not been given credit for the tax deducted, that the assessee had produced additional evidences before the First Appellate Authority, that he did not consider the evidences produced by the assessee. He referred to page Nos. 72, 73, 74B, 128 of the paper book and stated that tax deducted at source had to be considered in one of the years. The Departmental Representative relied upon the order of the First Appellate Authority and stated that assessee had not produced any evidences before the AO.

4.3 We have heard the rival submissions and perused the material before us. We find that the Addl. Director of IT (International Taxation)- 3(2), Mumbai, vide its order dt. 31st Aug., 2005, passed under s. 197 of the Act, addressed to MTV Asia, has directed it that taxes be deducted at source at 4.30 per cent from the sums payable as distribution revenue to the assessee under its agreement with MNIPL (p. 73 of the paper book). We further find that at page No. 128 of the paper book the assessee had made detailed submissions and had requested the First Appellate Authority to admit additional evidence, in form of confirmation certificates from the banks/extracts from NSDL website about the payment of taxes, as per the provisions of r. 46A of the IT Rules, 1962 (Rules). The assessee had given the reasons for not submitting the same before the AO. It is also found that the assessee had filed a detailed explanation about deducted taxes and reasons for non-deduction (pp. 128-130) of taxes. We find that while deciding the appeal the First Appellate Authority has neither considered the additional evidences nor has deliberated upon the arguments of the assessee. The request made by the assessee about giving credit in either of the years of the deducted taxes has not been dealt by the First Appellate Authority. In these circumstances, we are of the opinion, that in the interest of justice, matter should be restored back to the file of the First Appellate Authority for fresh adjudication. He is directed to consider the additional evidences filed by the assessee while deciding the issue in addition to the issue of giving credit of taxes in one of the assessment years. Grounds Nos. 2-5 are partly allowed in favour of the assessee.

5. Sixth ground of appeal is about distribution expenses of Rs. 20.47 lakhs that were reversed in the asst. yr. 2008-09. As per the Authorised Representative, if the said amount paid to MTV Asia was to be disallowed in the asst. yr. 2006-07, same should be reduced while computing the income of the assessee for the year 2008-09. We have, in the earlier part of the order, directed the First Appellate Authority to reconsider the fact about payment of taxes and pass fresh orders. He is directed to pass a speaking order about the amount in question while deciding the issues arising out of ground Nos. 2-5.

Ground No. 6 is allowed in favour of the assessee, in part.

6. Next ground of appeal is about distribution expenses of Rs. 29,97,586 paid to Nickelodeon Asia Holdings (P.) Ltd. for asst. yr. 2005-06. Before us, Authorised Representative stated that if the order for the asst. yr. 2005-06 was decided in the favour of the assessee, the ground would not survive. We have, in the para No. 2.4 of our order have held, that the order for the year 2005-06 was not valid. Therefore, in our opinion, ground No. 7 need not be adjudicated.

7. Next ground deals with levy of interest under s. 234B of the Act. Before us, the Authorised Representative and the Departmental Representative stated that ground No. 8 was consequential in nature. As the ground is of consequential nature, same is not being adjudicated.

As a result, appeal filed by the assessee for the year 2005-06 stands allowed and the appeal for the asst. yr. 2006-07 is partly allowed.

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