Facts of the Case

The petitioner, Discovery Communications India, was engaged in the business of distribution, advertisement sales, marketing and production of educational and entertainment programmes for various Discovery channels. The petitioner filed its return of income for Assessment Year 2011–12 on 30.11.2011. The return was selected for scrutiny and assessment was completed under Section 143(3) of the Income-tax Act, 1961 by order dated 30.10.2015 after detailed proceedings involving the Transfer Pricing Officer and the Dispute Resolution Panel.

Subsequently, on 31.03.2018, a notice under Section 148 was issued seeking to reopen the concluded assessment for AY 2011–12. The reasons recorded indicated that certain expenses relating to Discovery Appreciation Plan (DAP) and production and translation expenses were allegedly wrongly allowed, resulting in escapement of income. The petitioner filed objections, which were rejected, leading to the present writ petition.

Issues Involved

Whether reassessment proceedings initiated beyond four years from the end of the relevant assessment year were valid in the absence of any allegation or finding that the assessee had failed to disclose fully and truly all material facts necessary for assessment.

Petitioner’s Arguments

The petitioner contended that the reopening was barred by the first proviso to Section 147, as the assessment was completed under Section 143(3) and the notice was issued beyond four years. It was argued that there was no allegation in the recorded reasons that the petitioner had failed to disclose fully and truly all material facts. The reopening was based solely on material already on record and amounted to a mere change of opinion or correction of the Assessing Officer’s own mistake, which is impermissible in law.

Respondent’s Arguments

The Revenue argued that the Assessing Officer had reason to believe that income had escaped assessment as certain DAP expenses and production and translation expenses were allowed without proper verification. It was contended that at the stage of reopening, sufficiency or correctness of material is not to be examined and reassessment proceedings were validly initiated on a prima facie view.

Court Order / Findings

The Delhi High Court noted that the notice under Section 148 was issued beyond four years from the end of the relevant assessment year and therefore the first proviso to Section 147 squarely applied. The Court held that in such cases, reassessment can be initiated only if income has escaped assessment due to failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.

On examination of the reasons recorded, the Court found that there was no allegation whatsoever that the petitioner had failed to disclose any material facts. On the contrary, the reasons attributed escapement of income to a “mistake” and lack of verification by the Assessing Officer himself. The Court held that an assessee cannot be made to suffer for the lapse or error of the Assessing Officer.

The Court further observed that the same expenditure had been examined and allowed in subsequent assessment years, and therefore the reopening clearly amounted to a change of opinion. Reliance was placed on settled law laid down in Kelvinator of India Ltd., Usha International Ltd., and other binding precedents.

Important Clarification

The Court clarified that reassessment beyond four years is a jurisdictional issue and strict compliance with the first proviso to Section 147 is mandatory. Mere escapement of income or an alleged mistake by the Assessing Officer cannot justify reopening in the absence of a clear allegation of failure by the assessee to disclose material facts.

Final Outcome

The writ petition was allowed. The Delhi High Court quashed the notice dated 31.03.2018 issued under Section 148 and all proceedings initiated pursuant thereto, holding that the reassessment was bad in law. No order as to costs was passed.

 

Link to download the order - https://www.mytaxexpert.co.in/uploads/1769850573_DISCOVERYCOMMUNICATIONSINDIAVsADDL.COMMISSIONEROFINCOMETAXSPECIALRANGE3NEWDELHI..pdf

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