Allahabad H.C :Income had escaped assessment on ground that there was a disallowance liable to be made under section 40(a)(ia)

High Court Of Allahabad

Jagran Prakashan Ltd. Vs. DCIT

Section 194H, 40(a)(ia), 147

Dr. Dhananjaya Yeshwant Chandrachud, CJ. And Dilip Gupta, J.

Writ Tax No. 194 Of 2014

May 12, 2014

JUDGMENT

1. In these proceedings under article 226 of the Constitution, the petitioner has sought to challenge a notice dated March 30, 2012, issued under section 148 of the Income-tax Act, 1961, by the JCIT (OSD)/DCIT VI, Kanpur, purporting to reopen the assessment for the assessment year 2005-06. The petitioner has also seeks to question a notice dated March 18, 2014, issued under section 142(1) calling upon the petitioner to show cause as to why a disallowance should not be made under section 40(a)(ia) of the Income-tax Act, 1961 of an amount of Rs. 49.40 crores for non-deduction of tax at source under section 194H.

2. The petition is principally based on a judgment of a Division Bench of this court in the case of the assessee itself : Jagran Prakashan Ltd. v. Dy. CIT (TDS) [2012] 345 ITR 288/209 Taxman 92/21 taxmann.com 489. In the judgment of the Division Bench, it has been held that (i) there is no relationship of the principal and agent between the petitioner and the advertising agencies ; (ii) the advertising agencies do not render any service to the petitioner ; (iii) 15 per cent. trade discount allowed by the petitioner to the advertising agencies is not a payment of commission within the meaning of section 194H of the Income-tax Act ; and (iv) the petitioner was not liable to deduct tax at source on the trade discount allowed to the advertising agencies and, hence, proceedings under section 201/201(1A) could not have been initiated against the petitioner. The reasons which were supplied to the petitioner for reopening the assessment were also based on the same set of facts as would be evident from the reasons as disclosed on April 30, 2012 :

“It is apparent that the assessee had paid commission of Rs. 41,00,85,385 without deducting TDS to advertising agents and has made default under section 194H of the Income-tax Act, 1961. Since the assessee has neither deducted TDS nor paid against payment of commission to the advertising agents, consequently, has made also default under section 40(a)(ia) of the Income-tax Act, 1961. Hence, the commission paid by the assessee is not allowable.

In view of the facts as discussed above, I have reason to believe that the income of Rs. 41,00,85,385 chargeable to tax has escaped assessment for the assessment year 2005-06 and, thus, it is a case covered under section 147 of the Income-tax Act, 1961. A notice under section 148 will be issued after taking approval from the competent authority.”

3. When the petition came up for hearing on March 27, 2014, this court was informed that Special Leave Petition No. 9861 of 2013 Jagran Prakashan Ltd. filed by the Revenue against the judgment of the Division Bench of this court in Jagran Prakashan Ltd. (supra) was likely to come up before the Supreme Court on March 31, 2014. In view of this admitted position, the petition was directed to be listed on April 15, 2014. In the meantime, since the time for completing the assessment was to expire on March 31, 2014, this court, in order to obviate the bar of limitation, considered it appropriate to grant a stay to protect the interests of the assessee as well as the Revenue. In the circumstances, there was a stay of further proceedings in pursuance of the reassessment notices dated March 30, 2012, and March 18, 2014.

4. On April 18, 2014, this court adjourned the hearing of the petition since the court was apprised of the fact that the hearing of the aforesaid special leave petition before the Supreme Court was posted for May 5, 2014. However, in the meantime despite the order of stay, the Assessing Officer proceeded to pass an order of reassessment on March 31, 2014. Hence, a notice to show cause was directed to be issued to the Assessing Officer to explain why despite being aware of the fact that an order of stay had been passed by this court, she proceeded to complete the assessment. In pursuance of the notice to show cause, the Assessing Officer has filed an affidavit explaining her stand. The petition has been amended to challenge the order of reassessment which was passed despite an order of injunction granted by this court.

5. The court has been informed at the hearing today that the special leave petition against the judgment of the Division Bench of this court in the case of the assessee noted above has been dismissed on May 5, 2014. Hence, at the hearing it is not in dispute before this court that the sole basis, on which the assessment for the assessment year 2005-06 was sought to be reopened under section 148 of the Income-tax Act is governed against the Revenue by the Division Bench of this court in the judgment, as noted above, against which the special leave petition has been dismissed by the Supreme Court. The notice under section 142(1) also proposes the disallowance under section 40(a)(ia) on the same ground which had been held against the Revenue in the judgment of the Division Bench in Jagran Prakashan Ltd. (supra).

6. This position has not been disputed on behalf of the Revenue. In the circumstances, having regard to the law laid down by the Division Bench in the judgment noted above in the case of the assessee itself, against which a special leave petition has been dismissed by the Supreme Court, the Assessing Officer would have no reason to believe that the income has escaped assessment on the ground that there is a disallowance liable to be made under section 40(a)(ia) for non-deduction of the tax at source under section 194H. The notice of the reassessment under section 148 as well as the notice under section 142(1) would, accordingly, have to be quashed and set aside. The order of reassessment was passed by the Assessing Officer on March 31, 2014, despite the order of stay that was granted by this court on March 27, 2014. Since the order of reassessment is in pursuance of the notice under section 148 and despite the order of stay, we see no reason or justification to relegate the petitioner to the remedy of an appeal. In fact, the order of reassessment itself states that it is being passed subject to the decision of the Supreme Court in the special leave petition which was filed by the Revenue and to the decision of this court in these proceedings which were pending.

7. We have duly considered the explanation which has been tendered by the Assessing Officer in her affidavit. The Assessing Officer has stated that a copy of the order of stay passed by this court was not produced before her and only a letter was placed as a result of which she proceeded to pass an order of reassessment having regard to the bar of limitation which was to expire on March 31, 2014, but subject to the decision of the Supreme Court in the pending special leave petition and of this court in these proceedings. We consider it appropriate to accept the explanation of the Assessing Officer and drop the notice to show cause which has been issued to her.

8. We, accordingly, allow the petition by setting aside (i) the notice of reassessment dated March 30, 2012, issued under section 148 ; (ii) the notice dated March 18, 2014, issued under section 142(1) ; and (iii) the order of reassessment dated March 31, 2014.

9. There shall be no order as to costs.

[Citation : 368 ITR 687]