VODAFONE WEST LIMITED FORMERLYKNOWN AS VODAFONE ESSAR vs. ASSISTANT COMMISSIONER OF INCOME TAX

Challenge is made in this petition preferred under Article 226 of the Constitution of India to the notice of reopening issued under Section 148 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), seeking to reopen the assessment of the petitioner for the Assessment Year 2007-2008. 2. Brief facts necessary for appreciating the issue involved in this petition are as under:

1 Petitioner herein is a limited company which filed its return of income for the assessment year under question on 30.10.2007, declaring its total income as Nil. On scrutiny, the assessment had been framed by the respondent under Section 143(3) of the Act on 29.12.2009. 2.2 It is also averred in the petition that the reopening is proposed on two grounds 1) Income reflected as on “Advance Income (Prepaid)” was in fact for the outright purchase of “Recharge” by Prepaid Connection Customers and the same was not an advance to be appropriated against the future use of services and 2) Non-amortization of royalty paid to the Wireless Planning Commission of Government of India by treating the same as capital expenditure. Instead, entire expenditure charged to P & L Account was allowed as deduction resulting into under assessment of income.

3 It is the say of the petitioner that, on issuance of notice under Section 148 of the Act dated 07.03.2012 for reopening the assessment of the Assessment Year 2007-2008, the assessment is sought to be reopened on the very grounds which were already earlier scrutinized by the Assessing Officer as specific queries were raised under Section 142(1) of the Act alongwith detailed questionnaires & therefore, this notice is nothing but a change of opinion.

4 On petitioner's request, reasons recorded for such reopening of assessment vide communication dated 02.05.2012 have been provided which are as follows:

5 Objections were raised against such notice of reopening which includes the ground that only on objection raised by the audit department, such exercise is undertaken and Assessing Officer disposed of such objections vide order dated 16.11.2012 in toto and therefore, the present petition.

6 Affidavit-in-reply, on due service of notice, has been filed by the respondent, inter-alia, contending that challenge to the notice under Section 148 of the Act must not fail in as much as reopening is sought beyond a period of four years when the Assessing Officer had reason to believe that income has escaped the assessment as the petitioner did not disclose fully and truly the material necessary for assessment. It is further contended in the said affidavit that it was not sufficient on the part of the assessee to produce the evidences, it ought to have brought to the notice of the Assessing Officer uncovering embeded material. It is the say of the respondents that rejection of the objections raised by the petitioner was after proper verification and justification and reassessment proceedings are not initiated on the basis of change of opinion.

Affidavit-in-rejoinder on behalf of the petitioner has also been filed contending therein that there is no failure on the part of the petitioner in disclosing all material facts fully and truly. According to the petitioner, the reassessment proceedings are only on account of change of opinion based on audit objection and therefore, completely without juri iction. It is further the say of the petitioner that the assessee is not required to assist the Assessing Officer in drawing legal inferences from the factual details. The Assessing Officer ought to have reasonably drawn the conclusion on the basis of facts presented before him.

Learned Senior counsel Mr. Saurabh Soparkar, appearing with learned counsel Mr. Bandish Soparkar for the petitioner-company, has urged that it is a well settled law that if the Assessing Officer has not acted independently nor had a reason to believe that any income had escaped assessment and instead, had acted on the basis of the audit objection exclusively, such notice for reopening cannot be allowed to be proceeded with. He further urged that the grounds on which notice under Section 148 of the Act has been issued, were scrutinized by the Assessing Officer on petitioner having furnished the materials and after scrutinizing assessment under Section 143(3) of the Act and therefore also, this is nothing but a change of opinion on the part of the Assessing Officer. He relied on the decision of the Calcutta Discount reported in 41 ITR 191 and urged that the assessee is under no obligation to assist the Assessing Officer in drawing legal inferences. Cumulatively, it was argued that this is nothing but a change of the opinion on the part of the Assessing Officer.

Learned counsel Ms. Paurami Sheth for the revenue-department has objection may serve as information on the basis of which, Income-tax Officer of Income-tax, also reiterated this principle by holding thus: “Under the circumstances, it clearly emerges from the record that the Assessing Officer was of the opinion that no part of the income of the assessee has escaped assessment. In fact, after the audit party brought the relevant aspects to the notice of the AO, she held correspondence with the assessee. Taking into account the assessee's explanation regarding non-requirement of TDS collection and ultimately accepted the explanation concluding that in view of the Board's circular, tax was not required to be deducted at source. No income had therefore escaped assessment. Despite such opinion of the Assessing Officer, when ultimately the impugned notice came to be issued the only conclusion we can reach is that the Assessing Officer had acted at the behest of and on the insistence of the audit party. It is well settled that it is only the Assessing Officer whose opinion with respect to the income escaping assessment would be relevant for the purpose of reopening of closed assessment. It is, of course true, as held by the decisions of the Apex Court in the case of P.V.S.Beedies Pvt. Ltd. (supra) and Indian & Eastern Newspaper Society (supra), if the audit party brings certain aspects to the notice of the Assessing Officer and thereupon, the Assessing Officer forms his own belief, it may still be a valid basis for reopening assessment. However, in the other line of judgment noted by us, it has clearly been held that mere opinion of the Audit Party cannot form the basis for the Assessing Officer to reopen the closed assessment that too beyond four years from the end of relevant assessment year.” 6.5 held as under:

Therefore, the moot question requiring consideration is as to whether the issuance of impugned notice is based on objection raised by audit party or it simply provided information leading to formation of belief by the Assessing Officer that the income assessable to tax has escaped the assessment on petitioner not having disclosed fully and truly all material facts.

To verify this vital aspect, the original file was called for from the department & it can be noted pertinently that the revenue had raised audit objections in respect of both the grounds proposed to be reopened. The gist of audit objections is reproduced hereinafter for better grasping of the issue:

It can be further noted that Asst. Commissioner of Income-tax, Circle-8, while addressing a letter to the Commissioner of Income-tax, Ahmedabad-4, dated 27.07.2011, noted that the assessment for the Assessment Year 2006-2007 in case of the assessee was completed where a request was also made for necessary direction from the office of CIT-IV as for Assessment Year 2006-2007. Similar objections were raised and they were dealt with on such guidance. On the issue of amortization of license fees paid to operate telecommunication services, it is contended that identical objections when raised, the audit had accepted the department's stand and on the very same ground, “inconsistent and whimsical stand” is taken by audit for Assessment Year 2007-2008 for which, verification needs to be sought from the audit. It is further contended that though objections were not acceptable, in view of Board's instruction no.9/2006, however, the remedial actions were needed to be undertaken.

It is, thus, apparent that not only the Assessing Officer had no reason to believe that the income had escaped assessment, he was on the contrary of the opinion that there was inconsistent stand adopted by the audit, as for the Assessment Year 2008-2009, it had accepted the say of the Assessing Officer that the income had not escaped the tax & yet identical grounds were raised for the Assessment Year 2007-2008 & Assessing Officer chose to go ahead with reopening proceedings only at the instance of audit party objection despite his unwillingness.

We need to note at this stage that Section 147 of the Act permits initiation of reassessment proceedings only when the Assessing Officer has a reason to believe that income has escaped the assessment. Whenever the audit party raises objections, it may provide information, however, eventually it is the Assessing Officer who should be satisfied himself & form a belief of his own that taxable income escaped the assessment. He cannot abdicate his decision making power by choosing to solely rely on the audit objection or follow such direction without his subjective satisfaction. In the instant case, therefore, the petitioner has succeeded on this ground alone and notice of reopening does need to be quashed.

At this stage, we must hold that both these grounds raised by the respondent in the impugned notice have been duly scrutinized & we are backed by the record placed before us.

1 The amount paid for prepaid service was contended to be the outright purchase of “Recharge” by Prepaid Connection Customers and not an advance to be appropriated against the future use of services. The petitioner followed mercantile system of accounting and yet recognized the revenue only when the services were rendered to the prepaid customers.

2 It was the stand of the petitioner that as long as no services were rendered by the assessee to the customers, income cannot be recognized by the assessee. It is only at the time of actual use made of the network of the assessee by the customers that he would be required to render the services. Such issue was threadbare examined by the Assessing Officer and therefore also, it cannot be said that the assessee failed to disclose fully and truly all material facts.

3 As far as the second question was concerned, Section 35ABB provides for amortization of license fees paid for operating telecommunication services. Petitioner's claim for the Assessment Year 2008-2009 was disallowed to the extent of 98,29,17,915/- charged to P & L account but one eleventh (1/11 th) of which was allowed as deduction for considering the same for amortization. It is the stand of the petitioner that the royalty paid to the Wireless Planning Commission of Government of India is not paid for obtaining the license & this being revenue expenditure & not capital expenditure for obtaining license, is not amortizable under Section 35ABB. The respondent-Assessing Officer thus, absence of element of non-disclosure of relevant materials fully and truly necessary for assessment, but, both the grounds appear to have been, on scrutiny, finalized.

In view of above discussion, the impugned notice of reopening dated 07.03.2012 fails with all consequential reliefs. Other grounds on merit, therefore, deserve no further elaboration. Resultantly, petition stands disposed of in the above terms. (AKIL KURESHI, J.) (MS SONIA GOKANI, J.) Chandrashekhar*