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From the Courts »
 M/s Ess Distribution (Mauritius) S.N.C.Et Compagnie Vs. Assistant Commissioner Of Income Tax, Circle -1(2)(2) International Taxation, New Delhi
 Commissioner Of Income Tax (Ltu) Vs. ESPN Software India Ltd.
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 The Chamber Of Tax Consultants vs. UOI (Delhi High Court)
 M/s Ess Distribution (Mauritius) S.N.C.Et Compagnie Vs. Assistant Commissioner Of Income Tax, Circle-1(2)(2) International Taxation, New Delhi
 M/s Ess Advertising (Mauritius) S.N.C.Et Compagnie (Earlier Known As M/s Espan Star Sports Mauritius Vs. Assistant Commissioner Of Income Tax, Circle-1(2)(2) International Taxation, New Delhi
 The Pr. Commissioner Of Income Tax -9 Vs. Wsp Consultants India Pvt. Ltd.
 ITO vs. Arvind Kumar Jain HUF (ITAT Mumbai)
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M/s Ess Distribution (Mauritius) S.N.C.Et Compagnie Vs. Assistant Commissioner Of Income Tax, Circle-1(2)(2) International Taxation, New Delhi
November, 09th 2017
 $~
 *      IN THE HIGH COURT OF DELHI AT NEW DELHI

 +                             W.P.(C) 11968/2016

                                               Reserved on: October 10, 2017
                                               Date of decision: October 31, 2017

        M/S ESS DISTRIBUTION (MAURITIUS) S.N.C.ET
        COMPAGNIE                                   ..... Petitioner
                       Through: Mr. Porus Kaka, Senior Advocate
                       with Mr. Prakash Kumar, Mr. Manish Kanth,
                       Mrs. Rashmi Singh, Mr. Divesh Chawla,
                       Advocates.

                               versus

        ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE -
        1(2)(2) INTERNATIONAL TAXATION,
        NEW DELHI                                 ..... Respondent
                       Through: Mr. Rahul Chaudhary, Senior
                       standing counsel with Mr. Sanjay Kumar,
                       Advocate.

                                        With

 +                             W.P.(C) 11971/2016

        M/S ESS ADVERTISING (MAURITIUS) S.N.C.ET
        COMPAGNIE (EARLIER KNOWN AS M/S ESPAN STAR
        SPORTS MAURITIUS S.N.C.ET COMPAGNIE) ..... Petitioner
                      Through: Mr. Porus Kaka, Senior Advocate
                      with Mr. Prakash Kumar, Mr. Manish Kanth,
                      Mrs. Rashmi Singh, Mr. Divesh Chawla,
                      Advocates.

                               versus


        ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-
        1(2)(2) INTERNATIONAL TAXATION,
        NEW DELHI                                   ..... Respondent
                       Through: Mr. Rahul Chaudhary, Senior

WP (C) 11968/2016 & connected matters                                   Page 1 of 23
                               standing counsel with Mr. Sanjay Kumar,
                               Advocate.

                                        With

 +                             W.P.(C) 11972/2016

        M/S ESS ADVERTISING (MAURITIUS) S.N.C.ET
        COMPAGNIE (EARLIER KNOWN AS M/S ESPAN STAR
        SPORTS MAURITIUS S.N.C.ET COMPAGNIE) ..... Petitioner
                      Through: Mr. Porus Kaka, Senior Advocate
                      with Mr. Prakash Kumar, Mr. Manish Kanth,
                      Mrs. Rashmi Singh, Mr. Divesh Chawla,
                      Advocates.

                               versus

        ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE -
        1(2)(2), INTERNATIONAL TAXATION,
        NEW DELHI                                  ..... Respondent
                        Through: Mr. Rahul Chaudhary, Senior
                        standing counsel with Mr. Sanjay Kumar,
                        Advocate.

                                        And

 +                             W.P.(C) 12031/2016

        M/S ESS DISTRIBUTION (MAURITIUS) S.N.C.ET
        COMPAGNIE                                   ..... Petitioner
                       Through: Mr. Porus Kaka, Senior Advocate
                       with Mr. Prakash Kumar, Mr. Manish Kanth,
                       Mrs. Rashmi Singh, Mr. Divesh Chawla,
                       Advocates.

                               versus

        ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE -
        1(2)(2), INTERNATIONAL TAXATIONAL TAXATION, NEW
        DELHI                                      ..... Respondent
                        Through: Mr. Rahul Chaudhary, Senior
                        standing counsel with Mr. Sanjay Kumar,
                        Advocate.

WP (C) 11968/2016 & connected matters                         Page 2 of 23
        CORAM:
        JUSTICE S.MURALIDHAR
        JUSTICE PRATHIBA M. SINGH

                               JUDGMENT
 %                              31.10.2017

 Dr. S. Muralidhar, J.

 1. These are four writ petitions under Article 226 of the Constitution of
 India. Two are by M/s. ESS Distribution (Mauritius) SNCET
 Campagnie [Writ Petition (C) Nos. 11968 of 2016 and 12031 of 2016]
 and two by M/s. ESS Advertising (Mauritius) SNCET Compagnie [Writ
 Petition (C) Nos. 11971 of 2016 & 11972 of 2016]. The writ petitions
 arise from a similar set of facts and are being disposed of by this
 common judgment. While W.P. (C) Nos. 11968 and 11971 of 2016
 pertain to Assessment Year (AY) 2010-11, W.P. (C) Nos. 12031 and
 11972 of 2016 pertain to AY 2008-09.

 Facts concerning ESS Distribution for AY 2010-11
 2. The facts as far as M/s. ESS Distribution (Mauritius) SNCET
 Campagnie (hereinafter referred to as ,,ESS Distribution) are concerned,
 is that ESS Distribution is a partnership firm established under the laws
 of Mauritius by ESPN Mauritius Limited (EML) (now known as
 Worldwide Wickets, Mauritius). During the AY 2010-11, EML has
 99.9% share in the profit of ESS Distribution. ESS Asia Limited (EAL)
 (incorporated in Labuan, Malaysia), had the remaining 0.01% share.

 3. ESS Distribution is engaged in the business of distribution of sports
 and sports related television programmes broadcast by ESPN Star
 Sports, Singapore (ESS) via Non-standard television. ESS Distribution
 had entered into agreements with ESPN Software India Private Limited

WP (C) 11968/2016 & connected matters                           Page 3 of 23
 (now known as Star Sports India Private Limited since merged with Star
 India Private Limited) (hereinafter referred to as "ESPN India") for
 distribution of the channels.

 4. Since ESS Distribution is a tax resident of Mauritius, it is entitled to
 the protection under the India-Mauritius Double Taxation Avoidance
 Agreement (,,DTAA). ESS Distribution filed its return of income for
 AY 2010-11 on 1st October 2010 as a partnership firm. The case of ESS
 Distribution is that its revenue from distribution being business profit
 was, in terms of Article 7 (1) of the DTAA, not taxable in India, in the
 absence of it having a Permanent Establishment (,,PE) in India as
 contemplated by Article 5 of the DTAA. In the notes to the return of
 income, ESS Distribution described itself as a partnership firm
 incorporated under the laws of Mauritius on 29th March 2002.

 5. In the notes to the return of income, ESS Distribution also mentioned
 that it had entered into an agreement with Scorpio Television India
 Private Limited (,,Scorpio) where Scorpio was granted a licence to use
 the live feed. However, it is stated that during AY 2010-11 no such feed
 was shared and therefore, ESS Distribution did not receive any sum
 from Scorpio. In the Form 3CEB appended to the income tax return,
 ESS Distribution declared the amount received on account of
 subscription remittance. As regards the agreement with Scorpio, in the
 notes to the return, ESS Distribution mentioned as under:
        "ESSD has entered into an agreement with Scorpio Television
        India Private Limited ('Scorpio') granting the latter the license to
        use the live main feed to produce content to be used in Interactive
        Guide, including but not limited to edit, modify, add, delete, dub,
        cut, sub-title, voice over, reformat, rebroadcast and distribute
        (including all technical process associated therewith) such live feed
        on DTH platform for ESPN and Star Sports channels. However, no
        such feed has been shared during the year under consideration and

WP (C) 11968/2016 & connected matters                              Page 4 of 23
        accordingly, ESSD has not received any sums from Scorpio. "

6. The income tax return of ESS Distribution for AY 2010-11 was picked
up for scrutiny by the Assessing Officer (,,AO). The AO raised queries
regarding taxability of the subscription/distribution revenue. ESS
Distribution provided to the AO the details of the revenue received by it.
ESS Distribution stated that it had not received revenue from any other
customer (including Scorpio) during the AY in question. A query was
raised by the AO as to why the status of the firm should not be treated as
foreign company and taxed accordingly. By its letter dated 27th March
2014, ESS Distribution pointed out the difference between a partnership
firm and a company.

7. Nevertheless the AO concluded the assessment proceedings and passed
a draft assessment order on 28th March 2014 under Section 143 (3) read
with Section 144C of the Income Tax Act, 1961 (,,Act). ESS Distribution
filed its objections against the said order before the Disputes Resolution
Panel (,,DRP) inter alia contended that since ESS Distribution was a
foreign partnership it was not an ,,eligible Assessee within the meaning
under Section 144C (15) (b) of the Act. This was accepted by the DRP by
an order dated 26th December 2014 holding that it did not have
jurisdiction over the case of ESS Distribution. The DRP, therefore,
declined to issue any direction.

8. Although the AO was bound by the aforementioned decision of the
DRP, he decided to ignore it and proceeded to pass the final assessment
order on 28th January 2015 under Section 144C read with Section 143 (3)
of the Act. The AO held that DRP had failed to deal with the other
objections of the Petitioner. The AO described the decision of the DRP to
be "grossly illegal against the intent of the legislature and not in

WP (C) 11968/2016 & connected matters                           Page 5 of 23
accordance with the provisions of the Act".

9. ESS Distribution then filed Writ Petition (Civil) No. 2397 of 2015 in
this Court challenging both the draft and final assessment orders passed
by the AO. Even while the said writ petition was pending, the AO issued
notice dated 30th March 2015 to ESS Distribution under Section 148 of
the Act seeking to reopen the assessment for the AY 2010-11 on the
ground that there were "reasons to believe" that income has escaped
assessment. In a reply to the said notice, ESS Distribution by its letter
dated 5th May 2015 requested that the reasons for reopening be provided.
ESS Distribution also stated therein that the tax return already submitted
by it for the AY in question on 1st October 2010 should be treated as
return filed in response to a notice under Section 148 of the Act.

10. On 9th December 2015 ESS Distribution received the reasons for
reopening of the assessment for AY 2010-11. This was nearly seven
months after ESS Distribution informed the AO that the return already
filed should be treated as the one filed pursuant to the notice under
Section 148 of the Act. The reasons mentioned therein were as under:
        "Income earned from the Scorpio agreement would be taxable in
        the hands of the Petitioner, as royalty under Section 9 (1) (vi) of
        the Act and also under DTAA. The income has escaped assessment
        for AY 2010-11 as no such receipts were disclosed by the Assessee
        in its return of Income and neither the same had been offered for
        taxation during the scrutiny proceeding of the said year.

        Perusal of 26AS for AY 2010-11 as on 30 March 2015 shows that
        the receipts from ESPN Software India Pvt. Ltd. during the AY
        2010-11 are 439,83,22,056 (4,40,80,29,406 - 97,07,350), whereas
        the assessment was completed in this case, considering the gross
        subscription revenue of Rs. 4,05,98,53,517 (as submitted by the
        Assessee in reply during assessment proceedings). Therefore,
        subscription revenue of Rs. 33,84,68,539/- received by the
        Assessee from ESPN Software India Pvt. Ltd. has escaped

WP (C) 11968/2016 & connected matters                                Page 6 of 23
        assessment."

 11. ESS Distribution then filed a detailed objection inter alia pointing
 out that during the AY in question, as already disclosed in notes to the
 computation, although ESS Distribution entered into agreement with
 Scorpio it did not have any transaction with or receive any remuneration
 from Scorpio. It was further pointed out that the notes to the
 computation of income were duly filed by ESS Distribution before the
 AO in which it clearly mentioned that during the AY in question ESS
 Distribution did not have any transaction with Scorpio.

 12. The second reason mentioned by the AO for reopening of the
 assessment was with respect to the difference between Form 26 AS and
 assessed income. This was always available with the AO and therefore,
 did not have fresh tangible evidence. It was explained by ESS
 Distribution that:
        "As the Petitioner discloses the amount on an accrual basis, the
        amount that has been assessed to tax in the current year (Rs.
        4,05,98,53,517) also includes revenue (Rs 2,45,24,601) which has
        been disclosed in the current year however the same is reflected in
        the Form 26AS of the Petitioner in the subsequent year but does
        not include the amount assessed in the prior year (Rs.
        36,29,93,140) however the same has been reflected in the Form
        26AS of the instant AY 2010-11. It pertinent to point out that the
        taxes were duly deducted upon the entire amount of
        Rs.4,39,83,22,056."





 13. Even while the above objections were pending consideration by the
 AO, ESS Distributions writ petition came to be disposed of by this
 Court by an order dated 23rd March 2016 in Writ Petition (Civil) No.
 2397 of 2015. This Court held as follows:
        (i) Once the DRP held that the ESS Distribution was not an


WP (C) 11968/2016 & connected matters                            Page 7 of 23
        "eligible Assessee" the AO could not unilaterally make
        adjustments to the income of ESS Distribution by totally ignoring
        the views of the DRP.

        (ii) None of the objections raised by the Petitioner were in fact
        considered in the order dated 25th November 2016 passed by the
        AO rejecting them. Aggrieved by the rejection of the objections,
        ESS Distribution filed Writ Petition (Civil) No. 11968 of 2016 in
        this Court. While directing notice to issue in the petition on 21 st
        December 2016, the Court granted liberty to the Income Tax
        Department (,,Department) to continue with the assessment
        proceedings but not pass any final order during the pendency of the
        writ petition. That interim order was made absolutely by the Court
        on 19th July 2017 during the pendency of the writ petition.

 14. Although the above order was passed by the Court on 21st December
 2016, the Petitioner subsequently received another draft assessment
 order dated 19th December 2016 passed by the AO. The amendment
 sought by ESS Distribution to challenge the said draft assessment order
 was allowed by the Court and accordingly, the amended writ petition
 was taken on record. A reply has been filed to the amended writ petition
 by the Department.

 Facts concerning ESS Advertising for AY 2010-11

 15. Now turn to the facts in Writ Petition (Civil) No. 11971 of 2016
 filed by ESS Advertising (Mauritius) S.N.CT Campagnie (,,ESS
 Advertising) (earlier known as M/s. ESPN Star Sports Mauritius
 SNCET Compagnie). It again pertains to AY 2010-11.

 16. ESS Advertising is a partnership firm established under the laws of

WP (C) 11968/2016 & connected matters                                 Page 8 of 23
 Mauritius by EML having 99.9% share in its profit and the balance 0.1%
 held by ESS Asian Network Private Limited (EANPL) (incorporated in
 Singapore).

 17. ESS Advertising is engaged in the business of allotting advertising
 time and programme sponsorship (Ad time) in connection with
 television programming. ESS Advertising has entered into agreements
 with ESPN Software India Private Limited (now known as Star Sports
 India Private Limited since it emerged with Star India Private Limited)
 for allotting advertisement time to various advertisers and advertising
 agencies in India.

 18. ESS Advertising filed its return of income for AY 2010-11 on 1st
 October 2010 as a firm. The stand of ESS Advertising was that its
 revenue from sale of advertisement time being business profits, is not
 taxable in India since it has no PE in terms of Article 5 of the DTAA
 read with Article 7 (1) thereof.

 19. The return filed by ESS Advertising was picked up by the AO for
 scrutiny. During the course of the assessment proceedings the AO
 enquired why the firm should not be treated as foreign company. By its
 letter dated 27th March 2014 ESS Advertising drew a distinction
 between a company and a partnership firm. Nevertheless the AO
 concluded the assessment proceedings and passed the draft assessment
 order under Section 144 C read with Section 143 (3) of the Act. ESS
 Advertising then went before the DRP which agreed that it was not an
 ,,eligible Assessee in terms of Section 144 C (15) (b) of the Act. The
 DRP accordingly declined to issue any direction to the AO.

 20. Notwithstanding that the AO was bound by the order of the DRP

WP (C) 11968/2016 & connected matters                          Page 9 of 23
 under Section 144C (15) (b) of the Act, the AO proceeded to pass a final
 assessment order under Section 144C read with Section 143 (3) of the
 Act. In effect the AO disregarded the binding directions issued by the
 DRP by characterising the DRPs order as ,,grossly illegal.

 21. The aforementioned draft assessment order and the final assessment
 order were challenged by the ESS Advertising in this Court by filing
 Writ Petition (Civil) No. 2384 of 2015. While the said writ petition was
 pending, a notice dated 30th March 2016 was issued by the AO to ESS
 Advertising seeking to reopen the assessment for the AY 2010-11 on the
 ground that income had escaped assessment.

 22. ESS Advertising replied to the notice on 5th May 2015 stating that
 the tax return submitted on 1st October 2010 should be treated as return
 filed in response to the notice under Section 148 of the Act. ESS
 Advertising also requested for the "reasons recorded" for reopening of
 the assessment.

 23. More than seven months thereafter, on 9th December 2015, ESS
 Advertising received the reasons for reopening of the assessment. The
 reasons furnished to ESS Advertising for reopening of the assessment
 were as under:
        "The Assessee has declared the interest on Indian income tax in its
        return of income. Further during assessment proceedings the
        Assessee has declared gross advertising revenue as non-taxable but
        finally 30% of them were assessed as attributable income to Indian
        PE. But the other income amounting to USD 418,939 left to be
        considered for inclusion in the income of the Assessee. Therefore,
        the other income of USD 418,939 has escaped assessment."


24. ESS Advertising raised the following contentions in its detailed
objections for reopening of the assessment. Some of these contentions are

WP (C) 11968/2016 & connected matters                            Page 10 of 23
as under:
        "(i) The Revenue has refused to consider the accounts of the
        Assessee and thereby held that the business income attributable to
        the Indian operations is estimated at 30 percent of the gross
        advertising revenue. Such determination of business income
        attributable to the India PE on an estimated percentage basis is
        deemed to have considered and taken all business incomes and
        expenses into its fold and does not leave any scope for picking any
        particular item reflected in the accounts for a specific treatment.

        (ii) Therefore, after having considered and rejected the accounts of
        the Assessee, the action of the AO in stating that amount of USD
        418,939 credited in Profit and Loss Account has escaped
        assessment is invalid and contrary to his own action in the original
        assessment proceedings.

        (iii) The profit and loss account of the Assessee, which was filed
        during the assessment proceedings vide letter dated October 7,
        2013 with the Respondent No 2 (copy of the letter dated October 7,
        2013 filed during the original assessment proceeding annexed and
        marked as Annexure-9). The A0 during the course of hearing
        raised a specific query in the questionnaire issued for filing of
        complete audited balance sheet and profit and loss account
        including all the schedules. The "other income" was duly reflected
        and formed part of the profit and loss account submitted and such
        Profit and Loss account was duly observed by the A0 but he
        refused to consider the same during the assessment proceedings.

        (iv) Therefore, it is explicitly clear that there is no new material
        found by the Respondent and the action is merely representing
        examination of same material which is on records to review the
        original assessment order. As there is neither any new material on
        record nor any finding as to the basis of forming the belief that the
        income has escaped assessment, a mere suspicion of escapement of
        income on review of order and material already on record cannot
        form a valid reason for reopening of assessment."


25. While the objections of ESS Advertising were pending, this Court by
an order dated 23rd March 2016 allowed the Writ Petition (Civil) No.
2384 of 2015 holding that the order of the DRP was binding on the AO.

WP (C) 11968/2016 & connected matters                             Page 11 of 23
Accordingly, a draft and final assessment order of the AO was set aside
by this Court.

26. Thereafter on 25th November 2016, i.e., more than eight months after
the judgment of this Court, the AO rejected the objections raised by ESS
Advertising for reopening of the assessment. This was done without
considering the objection raised by the ESS Advertising

27. At this stage ESS Advertising filed Writ Petition (Civil) No. 11971 of
2016 in this Court in which notice was issued on 21st December 2016.
Liberty was granted to the Revenue to proceed with the assessment
proceedings but it was restrained from making any final order during the
pendency of these proceedings.

28. It transpired that on 19th December 2016 itself a draft assessment
order was passed by the AO under Section 144C (1) read with Section
147/143 (3) of the Act making addition as proposed in the notice under
Section 147 and 148 of the Act. This led to ESS Advertising filing an
application to amend the writ petition to challenge the draft assessment
order as well. An amendment was allowed by the Court by its order dated
27th January 2017. The Respondents were directed to main status quo and
not enforce the draft assessment order. That interim order was
subsequently directed to be made absolute during the pendency of the
writ petition.

Revenue's reply
29. The reply filed by the Revenue to both Writ Petition (Civil) Nos.
11968 of 2016 and 11971 of 2016 is more or less similar. It is inter alia
pointed out that while allowing both the writ petitions this Court by its
order dated 23rd March 2016 clarified that it had expressed no opinion


WP (C) 11968/2016 & connected matters                          Page 12 of 23
regarding the validity of the proceedings against the Petitioners under
Section 147/148 of the Act and that "the rights and contentions of the
parties in those proceedings are left open to be urged and decided by the
appropriate authority in accordance with law."

30. It is then contended that "acting under bonafide belief and in
compliance with the directions of the Honble Delhi High Court Draft
Assessment Order was passed." It is further contended that since the
earlier final assessment order was declared void ab initio, the net result
was that the return filed by the Assessee "remains unassessed and
therefore, no opinion can be said to have been formed by the AO."

31. Relying on the decision of the Supreme Court in Deputy
Commissioner         of    Income       Tax   v.   Zuari   Estate   Development
&Investment Co. Ltd. (2015) 373 ITR 661 and Assistant CIT v. Rajesh
Jhaveri Stock Brokers (P) Limited (2007) 291 ITR 500 it is contended
by the Revenue that there was no change of opinion by the AO and there
was no valid assumption and jurisdiction under Section 147/148 of the
Act. It is submitted that the necessary ingredients for exercise of
jurisdiction under Section 147/148 of the Act have been duly satisfied
before invoking its power of reassessment.

32. It is pointed out in para 23.3 of the counter affidavit, that against the
finding of the DRP that the Assessee was not an eligible assessee, an
appeal had been filed by the Revenue before the ITAT.

33. As regards ESS Distribution, it is contended that reasons for
reopening of assessment was a matter of record and that the order
disposing of the objections substituted. It is further submitted that the
amount received by ESS Distribution was taxable income under Section

WP (C) 11968/2016 & connected matters                                 Page 13 of 23
96 of the Act as well as DTAA. Notice was, therefore, rightly issued
under Section 148 of the Act.

34. This Court has heard the submissions of Mr. Porus Kaka, learned
Senior counsel appearing for the Petitioners and Mr. Rahul Kaushik,
learned Senior standing counsel for the Revenue respectively.

Analysis and reasons
35. For the reasons that follow, the Court is of the view that the both the
Writ Petition (Civil) Nos. 11968 and 11971 of 2016 pertaining to AYs
2010-11 by ESS Distribution and ESS Advertising respectively deserve
to be allowed.

36. In respect of these very Assessees and for the same AY 2010-11, the
earlier draft assessment order passed by the AO under Section 144C of
the Act has already been set aside by its judgment dated 23rd March 2016.
That judgment referred to the order of the DRP which had held that both
the Assessees were not eligible Assessee under Section 144C (15) of the
Act and that order of the DRP was binding on the AO. It was further held
by this Court that the AO could not have disregarded the finding
directions of the DRP and passed the final assessment order. This was an
issue of jurisdiction of the AO to proceed under Section 144C of the Act
against an entity which is a partnership firm incorporated outside India.

37. The fact that is undeniable is that the AO continues to be bound by
the order of the DRP which was by this Court by its decision dated 23 rd
March 2016 in respect of the same Assessees for the same AY 2010-11.
Since the Revenue has not challenged that judgment, the AO had no
option but follow the DRP's order. Further, the AO was aware that the
earlier attempt at disobeying the DRP's order led to invalidation of the


WP (C) 11968/2016 & connected matters                            Page 14 of 23
draft and the final assessment order.

38. What is surprising is that while disposing of the objections to the
reopening of the assessment, the AO again chose to only record that the
DRP held that both the Assessees were not eligible Assessees. The AO
did not refer to this Court's order dated 24th March 2016. This is despite
the fact that the AO was disposing of the objections more than nine
months after the judgment of this Court. This conduct of the AO is simply
unacceptable.

39. The passing of the draft assessment order pursuant to reopening of the
assessment under Section 147/148 of the Act, in respect of both the
Assessees and for the same AY 2010-11, is clearly in the teeth of the
order of the DRP as well as judgment of this Court and is therefore,
unsustainable in law. On this ground, both the draft assessment orders in
respect of ESS Distribution and ESS Advertising for AY 2010-11 dated
19th December 2016 are liable to be set aside.

40. Nevertheless the Court has also examined the reasons for reopening
of the assessments in respect of both the Assessees for the AY in
question. As far as ESS Distribution is concerned, two reasons have been
adduced for reopening of the assessment. One was that the amount
received by ESS Distribution from Scorpio, pursuant to the agreement
entered into between them, was taxable under Section 9 (1) (i) of the Act
read with the relevant provisions of the DTAA. The second was that the
Assessee received from ESPN Software India Pvt. Ltd in the form of
subscription revenue of Rs. 33,84,68,539 which had escaped assessment
on account of failure by ESS Distribution to make appropriate disclosures
in its return of income.


WP (C) 11968/2016 & connected matters                           Page 15 of 23
41. The Court has been shown a computation of income and notes to
computation filed by ESS Distribution in the original assessment
proceeding. It is clearly mentioned therein that during the year in question
ESS Distribution has not conducted any business with Scorpio and
accordingly, there were no receipts from Scorpio. Therefore, the said
reason recorded for reopening the assessment was apparently invalid.

42. Even as regards the second reason viz., the difference between form
26 AS and the assessed income of the Assessee is as under:

 Amount as assessed                                         4,06,98,53,517
 Less: Amount included in revenue but received in (2,45,24,601)
 subsequent year
 Add: Amount already taxed/assessed in earlier year but 36,29,93,140
 received in current year
 Amount as per Form 26 AS                               4,39,89,22,056


43. All this forms part of the assessment proceeding. There was no new
material for the AO to come into the conclusion that any other income
arose during the AY in question that was left out from consideration.
There was no nexus between the reasons to believe that income has
escaped assessment and any new tangible material placed on record
before the AO. The reopening was, therefore, based on a mere change of
opinion which has been disapproved by the Supreme Court in CIT v.
Kelvinator of India Ltd (2010) 320 ITR 561 (SC) law. There, the
Supreme Court observed as under:
        "However, one needs to give a schematic interpretation to the
        words "reason to believe" failing which, we are afraid, Section 147
        would give arbitrary powers to the Assessing Officer to re-open
        assessments on the basis of "mere change of opinion", which
        cannot be per se reason to re-open. We must also keep in mind the
        conceptual difference between power to review and power to re-
        assess. The Assessing Officer has no power to review; he has the
WP (C) 11968/2016 & connected matters                            Page 16 of 23
        power to re-assess. But re-assessment has to be based on
        fulfillment of certain pre-condition and if the concept of "change of
        opinion" is removed, as contended on behalf of the Department,
        then, in the garb of re-opening the assessment, review would take
        place. One must treat the concept of "change of opinion" as an in-
        built test to check abuse of power by the Assessing Officer. Hence,
        after 1st April, 1989, Assessing Officer has power to re-open,
        provided there is "tangible material" to come to the conclusion that
        there is escapement of income from assessment. Reasons must
        have a live link with the formation of the belief.

44. Further in Asian Paints Limited v. ACIT (2009) 308 ITR 195 (Bom),
the Bombay High Court observed as under:
        "It is further to be seen that the Legislature has not conferred
        power on the Assessing Officer to review its own order. Therefore,
        the power under Section 147 cannot be used to review the order. In
        the present case, though the Assessing Officer has used the phrase
        "reason to believe", admittedly between the date of the order of
        assessment sought to be reopened and the date of formation of
        opinion by the Assessing Officer, nothing new has happened,
        therefore, no new material has come on record, no new information
        has been received, it is merely a fresh application of mind by the
        same Assessing Officer to the same set of fats and the reason that
        has been given is that the same material which was available on
        record while assessment order was made was inadvertently
        excluded from consideration. This will, in our opinion, amount to
        opening of the assessment merely because there is change of
        opinion. The Full Bench of the Delhi High Court in its judgment
        in the case of Kelvinator (2002) 256 ITRs referred to above, has
        taken a clear view that reopening of assessment under Section 147
        merely because there is a change of opinion cannot be allowed. In
        our opinion, therefore, in the present case also, it was not
        permissible for Respondent No. 1 to issue notice under Section
        148."

45. It requires to be noticed that the Special Leave Petition filed by the
Revenue against the aforementioned decision was dismissed by the
Supreme Court.

46. In Commissioner of Income Tax v. Orient Craft Limited (2012) 354

WP (C) 11968/2016 & connected matters                             Page 17 of 23
ITR 536 (Del), this Court relied upon the decision of the Supreme Court
in CIT v. Kelvinator (supra) and held as under:
        "...... In the present case, the reasons disclose that the Assessing
        Officer reached the belief that there was escapement of income "on
        good through the return of income" filed by the Assessee after he
        accepted the return under Section 143 (1) without scrutiny, and
        nothing more. This is nothing but a review of the earlier
        proceedings and on abuse of power by the Assessing Officer, both
        strongly deprecated by the Supreme Court in CIT v. Kelvinator
        (supra). The reasons recorded by the Assessing Officer in the
        present case do confirm our apprehension about the harm that a
        less strict interpretation of the words "reason to believe" vis -a-vis
        intimation issued under Section 143 (1) can cause to the tax
        regime. There is no whisper in the reasons recorded, of any
        tangible material which came to the possession of the Assessing
        Officer subsequent to the issue of the intimation. It reflects an
        arbitrary exercise of the power conferred under Section 147."

47. As regards ESS Advertisement, there was only one reason for
reopening of the assessment which is that 30% of the gross advertising
revenue was assessed as an attributable income to Indian PE amounting
to USD 418,939 had been left out for being considered.

48. In the final assessment order passed by the AO in the first round it
was observed in para 10.3 which reads as under:
        "10.3 The Assessee is receiving the advertisement revenue from
        ESPN India. The Assessee has submitted the profit and loss
        account for the year ended 31st March 2010. The Assessee's
        activity has been the purchase and sale of advertising time. As
        discussed earlier, the purchase of airtime is not recorded properly
        in the accounts. In addition to this, it is not demonstrated that the
        purchase of airtime by it from ESPN Software Singapore is at
        arm's length. Considering this, the accounts maintained by the
        Assessee in Mauritius are not considered in this order, for working
        out the profits earned by it through the activities of ESPN India in
        India."

49. Thus, the determination of business income attributable to the India

WP (C) 11968/2016 & connected matters                              Page 18 of 23
PE on an estimated percentage basis was deemed to have considered and
taken into account all business income and expenses into its fold. There
was no occasion for lifting any particular item reflected in the accounts
for a specific treatment.

50. Further the above aspect was already a part of the original assessment
and there was no fresh tangible material available with the AO to form
reasons to believe that any income of the Assessee escaped assessment.
This order, therefore, is mere change of opinion.




51. In CIT v. Smt. Paramjit Kaur (2008) 311 ITR 38 (P&H) it was held
as under:
        "Section 147 empowers the Assessing Officer to assess or reassess
        income chargeable to tax if he has reasons to believe that the
        income for any assessment year has escaped assessment. The
        power conferred under this section is very wide, but at the same
        time, it cannot be stated to be a plenary power, me Assessing
        Officer can assume jurisdiction under the said provision, provided
        there is sufficient material before him. He cannot act on the basis
        of his whim and fancy, and the existence of material must be real.
        Further, there must be nexus between the material and escapement
        of income. The Assessing Officer must record reasons showing due
        application of mind before taking recourse to reassessment
        proceedings. The Assessing Officer can assume jurisdiction for
        reassessment proceedings, provided he has reasons to believe, but
        the same cannot be taken recourse to on the basis of reasons to
        suspect. [Para 4]

        In the instant case, it was undisputed that the Assessing Officer had
        initiated reassessment proceedings on the basis of information
        received from the survey circle that the assessee had got prepared a
        demand draft which was not accounted for in the books of account
        of the assessee. But the Assessing Officer had not examined and
        corroborated the information received from the survey circle before
        recording his own satisfaction of escaped income and initiating
        reassessment proceedings. The Assessing Officer had, thus, acted
        only on the basis of suspicion and it could not be said that the same
        was based on belief that the income chargeable to tax had escaped

WP (C) 11968/2016 & connected matters                             Page 19 of 23
        assessment. The Assessing Officer has to act on the basis of
        'reasons to believe' and not on 'reasons to suspect'. The Tribunal
        had, thus, rightly concluded that the Assessing Officer had failed to
        incorporate the material and his satisfaction for reopening the
        assessment and, therefore, the issuance of notice under section 148
        for reassessment proceedings was not valid.               [Para 6]"

52. As already noticed, the above position is consistent with CIT v.
Kelvinator India Pvt. Ltd (supra). Consequently, even in the case of ESS
Advertisement, the Court is of the view that the reopening of the
assessment under Section 147/148 of the Act for the AY in question was
bad in law.

Conclusion concerning AY 2010-11
53. For the aforementioned reasons, the Court quashes the notices issued
to both ESS Advertisement and ESS Distribution under Sections 147/148
and all consequential proceedings thereto including the order disposing
objections to the draft assessment orders passed on 19th December 2016
under Section 144C of the Act for AY 2010-11. Writ Petition (Civil) Nos.
11968 of 2016 and 11971 of 2016 are accordingly allowed.

Facts concerning AY 2008-09
54. Now turning to the facts in Writ Petition (Civil) No. 11972 of 2016 by
ESS Advertisement for AY 2008-09 and Writ Petition (Civil) No. 12031
of 2016 by ESS Distribution for the same AY 2008-09.

55. One difference as far as the facts are concerned is that the original
assessment was under Section 143 (1) of the Act and not under Section
143 (3) of the Act. However, what is similar to AY 2010-11 is that in
both these cases what has been issued by the AO is a draft assessment
under Section 144C of the Act. This was for the reasons explained
hereinbefore impermissible in law. There is no valid explanation for the


WP (C) 11968/2016 & connected matters                             Page 20 of 23
AO to repeatedly ignore the order of the DRP which held both the
Assessees to be not eligible for the purpose of Section 144C of the Act.
The AO has persisted in issuing legally unsustainable draft assessment
orders.

56. Even on merits, the reasons for reopening of the assessment in these
two cases do not bear scrutiny. As far as ESS Distribution is concerned,
during the original assessment proceedings, notice was issued by the AO
under Section 143 (1) as well as under Section 143 (2) raising some
queries on the basis of which the decision the assessment is now sought
to be reopened. Those notices were not taken to logical end.

57. In this connection, a reference was made to the decision of this Court
in KLM Royal Dutch Airlines v. Assistant Director of Income Tax
(2007) 292 ITR 49 (Del) where it was observed as under:
        "Applying this line of decisions to the facts of the present case, the
        inescapable conclusion that would have to be reached is that while
        assessment proceedings remain inchoate, no "fresh evidence or
        material" could possibly be unearthed. If any such material or
        evidence is available, there would be no restrictions or constraints
        on its being taken into consideration by the Assessing Officer for
        framing the then current assessment. If the assessment is not
        framed before the expiry of the period of limitation for a particular
        assessment year, it would have to be assumed that since
        proceedings had not been opened under Section 143 (2), the return
        had been accepted as correct. It may be argued that thereafter
        recourse could be taken to Section 147, provided fresh material had
        been received by the Assessing Officer after the expiry of
        limitation fixed for framing the original assessment. So far as the
        present case is concerned we are of the view that it is evident that,
        faced with severe paucity of time, the Assessing Officer had
        attempted to travel the path of Section 147 in the vain attempt to
        enlarge the time available for framing the assessment. This is not
        permissible in law."

58. The question whether the Assessees had a PE in India has engaged the

WP (C) 11968/2016 & connected matters                              Page 21 of 23
Revenue from AY 2003-04 onwards. The Court has been shown an
assessment order dated 28th March 2006 in the case of ESPN Star Sports
Mauritius for AY 2003-04 where this issue was specifically discussed.
Likewise in the case of ESS Distribution an assessment order dated 28 th
March 2010 for AY 2005-06 also refers to the assessment history where
the question of the Assessee having PE in India is discussed. Likewise the
assessment order dated 21st October 2011 for AY 2007-08 in the case of
ESPN Star Sport Mauritius.

59. Consequently, when the Assessees had filed their respective returns
for 2009-10 and intimation was sent under Section 143 (1) of the Act, it is
difficult to believe that the Revenue was unaware of the Assessees having
a PE in India particularly when in each of the other AYs the matter was
contested and is pending at various levels of the hierarchy. All this goes
to show that the Revenue was unable to point out any fresh tangible
material which could form the basis for believing the argument on this
aspect.

Conclusion for AY 2008-09
60. For all the aforementioned reasons, the Court is of the view that
reopening of the assessment for AY 2008-09 in respect of both the
Assessees is unsustainable in law.

61. As a result, the notice dated 27th March 2015 issued to each of the
Assessees under Section 147/148 of the Act and all proceedings
consequential thereto including the order dated 25th November 2016
passed by the AO rejecting objections to the draft assessment order dated
19th December 2016 passed under Section 144C of the Act are hereby
quashed.


WP (C) 11968/2016 & connected matters                           Page 22 of 23
62. The writ petitions are allowed in the above terms but, in the facts and
circumstances of the case, with no order as to costs.




                                                   S. MURALIDHAR, J.



                                              PRATHIBA M. SINGH, J.
 OCTOBER 31, 2017
 rk




WP (C) 11968/2016 & connected matters                           Page 23 of 23

 
 
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