TARUN AGARWALA, J. - (1.) THE petitioner has filed the present writ petition for the quashing of the notice dated 23rd January, 2001 issued under Section 148 of the Income Tax Act, 1961 (hereinafter referred to as the Act). The petitioner is a public limited company carrying on the BUSINESS of publishing a Hindi newspaper Dainik Jagran from various places. For the assessment year 1997 -98, the return of income was initially processed under Section 143(1)(a) of the Act. Subsequently, the return was picked up for scrutiny and notices under Section 143(2) and 142(1) of the Act along with a detailed questionnaire covering various issues was served upon the assessee. Once such query based in the questionnaire was with regard to the justification of the valuation of the purchase consideration on copyright under the copyright purchase agreement dated 25th January, 1997 where the petitioner company had acquired the copyright of the hindi newspaper "Dainik Jagran" from the owner of the copyright, namely, the firm Jagran Publication.
(2.) IN response to the query raised by the Assessing Officer in proceedings under Section 143(3) of the Act, the petitioner filed a detailed reply dated 7th January, 1998 justifying the valuation of the purchase of the copyright at Rs.17 crores. The petitioner contended that at the time of planning of public issue of equity shares at a premium during 1995, the Merchant Bankers including the lead issue MANAGERS were of the firm opinion that the ownership of copyright was an essential prerequisite for a successful public issue of equity shares on a premium. The petitioner contended that mentioning of non -ownership of copyright of publishing Dainik Jagran was a risk factor which could dissuade the investors from subscribing to the proposed public issue of equity shares at a premium. It was also pointed out by the petitioner that the intrinsic worth of the said copyright and the valuation thereof may also be gathered from the fact that interest free security deposit to the owners of the copyright had been increased to Rs.15 crores as early as on 30.1.1995. The petitioner in its reply dated 7.1.1998 further gave its justification for the purchase of copyright and not charging any amount from other COMPANIES publishing Dainik Jagran. It was stated that under the agreement with the firm Jagran Publications, the petitioner had the sole rights of using copyright of Dainik Jagran against deposit of interest free security money with the said firm and necessary licence fees for the use of the said copyright were being paid regularly to the firm annually. The petitioner company had authorised the other companies i.e. Jagran Prakasan (Varanasi) Pvt. Ltd. to publish Dainik Jagran from Varanasi, Jagran Limited to publish Dainik Jagran from Meerut, Rohilkhand Publications Pvt. Ltd. to publish Dainik Jagran from Bareilly and Jagran Prakashan (Delhi) Pvt. Ltd. to publish Dainik Jagran from New Delhi and did not charge any amount towards copyright from these firms on account of the fact that the petitioner had retained its exclusive rights of advertisement booking in these firms/companies. Under this arrangement, the entire advertisement revenue generated by procuring booking orders for publishing the advertisements in Dainik Jagran, Varanasi, Meerut, Bareilly and New Delhi, came to the petitioner. From the said amount, after deducting due share, as per the arrangement with the said companies, the balance amount were paid to the said companies by the petitioner. The petitioner contended that the petitioner company also filed statement of the last 5 years showing the total advertisement receipts and shares paid to the said firms/companies. The details of security deposit with the firm Jagran Publications by the petitioner along with copyright use charges paid by the petitioner for the last 5 years were also filed along with the said reply. The reply of the petitioner was discussed and the Assessing Officer prepared a detailed office note dated 16th March, 1998 in which the quantum of purchase consideration was examined in detail. After the close of detailed enquiry, the Assessing Officer passed an assessment order dated 16th March, 1998 under Section 143(3) of the Act accepting the sale consideration of the copyright as provided by the petitioner. It transpires that an internal audit objection was issued by the Additional Commissioner of Income Tax (Audit), Kanpur relating to excess payment of consideration towards copyright. In the audit report it was stated that the consideration of Rs.17 crores paid by the petitioner to the owners of the copyright of Dainik Jagran was excessive. The report contended that the assessee company having purchased the composite copyrights became the absolute owner of the copyright. The name Dainik Jagran was being used by other sister concerns also without paying any consideration to the assessee and, consequently, concluded that a part of the consideration attributable to the territories of Varanasi, Jhansi, Meerut, Bareilly, New Delhi and Dehradun from where the newspaper was being published by other sister concerns could be said to be an expenditure wholly and exclusively for business purpose. According to the audit report, part of the purchase consideration was liable to be disallowed as not for the purpose of business and that a sum of Rs.8.5 crores was to be TREATED as a deemed gift under Section 4(10)(c) of the Gift Tax Act. The audit report suggested that suitable action in this regard may be taken by the Assessing Officer for the assessment year in question. In response to the said audit objection, the Assessing Officer by its order dated 4th July, 2000 justified his assessment order contending that the fixation of the purchase consideration of its quantum was examined in detail by the Assessing Officer and that the implication as well as the inferences drawn in the audit objection were palpably misconceived. The Assessing Officer held that the detailed inquiries in respect of the issue of valuation was made by him and only thereafter the assessment order was passed. For facility, the extract of the reply submitted by the Assessing Officer dated 4th July, 2000 is extracted hereunder: -
(3.) "Regarding the issue pertaining to deemed gift u/s 4(1)(c) of Gift Tax Act, the implications/ inferences drawn are palpably misconceived in as much as the fixation of purchase consideration and its quantum have been examined in detail looking to the dire business necessity for the assessee company to acquire such valuable copyright. In this regard you may kindly refer to my detailed office note dated 16.13.1998 on the subject wherein the 'quantum' of purchase consideration has been examined in detail........................................................... A perusal of the above extract from my detailed office note dated 16.03.1998 clearly shows that the "quantum of purchase consideration" at a fair and equitable mutually agreed valuation was pure "business transaction". Moreover it may be noted that assessee had already given security of upto Rs.15 crores to M/s Jagran Publications for simply using this copyright. So now at the time of purchase the valuation of Rs.17 crores for the copyright appears to be reasonable and no gift appears to be involved. I have further made inquiries in respect of issue of valuation of copyright and as per my inquiries, I am given to understand that the value of copyright has been recently valued at much higher value by an independent INTERNATIONAL Firm of Chartered Accountants viz. KPMG, New Delhi (copy enclosed)." From the aforesaid, it is clear that the Assessing Officer examined the issue of fixation of the purchase consideration in detail, which has been recorded in the office note dated 16th March, 1998. The Assessing Officer after making detailed inquiries found that the quantum of purchase consideration was a pure business transaction and that the valuation of Rs.17 crores for the copyright appears to be reasonable and that no gift appears to be involved. Inspite of the aforesaid, it seems that the Assessing Officer had a change of heart and issued a notice dated 23rd January, 2001 for the assessment year 1997 -98 indicating that he had reasons to believe that income for the assessment year 1997 -98 had escaped assessment. Reasons for reopening the assessment has been given by the Assessing Officer in its separate order dated 23rd January, 2001. The Assessing Officer contended that an amount of Rs.1,20,00,000/ - has been disclosed as expenses under Section 35A of the Act being 1/14th cost of Rs.17 crores, which is the cost of copyright for the use for its business purposes. It was indicated that the assessee had permitted other companies, namely, Jagran Prakasan (Varanasi) Pvt. Ltd. to publish Dainik Jagran from Varanasi, Jagran Limited to publish Dainik Jagran from Meerut, Rohilkhand Publications Pvt. Ltd. to publish Dainik Jagran from Bareilly and Jagran Prakashan (Delhi) Pvt. Ltd. to publish Dainik Jagran from New Delhi without any consideration. It was contended that the assessee was not charging any amount on the use of the same copyright from these companies and, consequently, prima facie it shows that the expenses of Rs.1,20,00,000/ - had not been used wholly and exclusively for the purpose of assesse's business under Section 37(1) of the Act and, consequently, the assessee was not entitled to claim total expenses of Rs.1,20,00,000/ - as debited in his credit of loss account. The Assessing Officer further found that the assessee had paid some amount of TDS after due date on which interest under Section 201(1A) of the Act was to be paid, which had not been charged. On this basis, the Assessing Officer was of the opinion that there was reasons to believe that income had escaped assessment for the assessment year 1997 -98. We have heard Sri V.K. Upadhya, the learned Senior Counsel assisted by Sri Ritvik Upadhya, the learned counsel for the petitioner and Sri Govind Krishna, the learned counsel for the respondents.;