Relief to Discovery Communications India: Delhi HC halts Reopening of Assessment beyond 4 Years w/o Essential Requirements [Read Order]

The Delhi High Court recently granted relief to prominent media entity Discovery Communications by preventing the reopening of their Income Tax Assessment for the Assessment Year (A.Y.) 2011-12, observing that the Respondent Revenue had not been able to satisfy the requisite requirements warranting reopening of Assessment beyond a period of four years from its completion.

The decision was rendered by the Delhi High Court while adjudging a Writ Petition filed by Discovery Communications India (Discovery), the Indian auxiliary of the American conglomerate Discovery Inc. Discovery Communications India is engaged in the distribution, advertisement sales, marketing and production of educational and entertainment programs for Discovery Channel, Discovery Travel, Living Channel and Animal Planet Channel.

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The Petitioner had filed their Returns for A.Y. 2011-12 on 30.11.2021 and the same had been selected for scrutiny by the Revenue, issuing notice to the Petitioner under Section 143(2) of the Income Tax Act, 1961 on 03.08.2012. The Transfer Pricing Officer (TPO) passed an order on 30.01.2015 proposing a transfer pricing adjustment of Rs.45,14,38,652/-.

The concerned Assessing Officer (AO) subsequently passed a final  Assessment Order on 30.10.2015, making disallowance of Rs.44,63,40,998/- and Rs. 3,89,63,085/- citing mismatch in Form 26AS and the advertising expenses claimed by the Petitioner in their Profit & Loss Account. Eventually, another Notice under Section 148 of the Act was issued on 31.03.2018, seeking to reopen the Assessment for A.Y. 2011-12, which has now been challenged by Discovery through the present Writ Petition.

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Counsel for Discovery, Mayank Nagi and Sandeep Yadav, submitted before the Delhi High Court that the Revenue has failed to adduce fresh tangible material on the basis of which the Assessment framed under Section 143(3) of the Income Tax Act, 1961 could be reopened. Furthermore, the Counsel averred that the reassessment action was erroneously initiated as the conditions stipulated in the first proviso to Section 147 of the Act had not been fulfilled.

Counsel appearing for the Revenue, Shlok Chandra, Madhavi Shukla, Priya Sarkar and Sudarshan Roy laid reference to the Discovery Appreciation Plan (DAP), a mechanism in which employees were paid an additional amount in direct relation to the value of the unit share price of the company. The DAP had not come into light during the assessment for A.Y. 2011-12 but had come to the notice of the Revenue during the proceedings undertaken while scrutinizing the Petitioner’s financials for A.Y. 2012-13, on the basis of which the closed Assessment for A.Y. 2011-12 was sought to be reopened by the Revenue.

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The Division Bench of the Delhi High Court composed of Justice Yashwant Varma and Justice Ravinder Dudeja observed that escapement of income by itself is not a sufficient ground for reopening of the Assessment as per the first proviso to Section 147 of the Income Tax Act, 1961. Referring to the Decision of a coordinate Bench of the Delhi High Court in CIT v. Suren International Private Limited (2013) that an Assessment may be reopened only if there is a direct inference that the Assessee had failed to fully and truly disclose all material facts.

The Bench further observed that the Revenue had sought reassessment for A.Y. 2011-12 on the basis of details uncovered during assessment of A.Y. 2012-13; maintaining precedence with the decision of the Court in CIT v. Usha International Ltd. (2012) the Delhi High Court observed that initiation of reassessment proceedings shall be invalidated on the grounds of mere “reasons to believe” so, setting aside the impugned notice dated 31.03.2018 and all proceedings initiated by the revenue seeking to reopen the Assessment for A.Y. 2011-12.

To Read the full text of the Order CLICK HERE

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