Income Tax Appellate Tribunal - Delhi
Ppk Newsclick Studio Pvt Ltd, New Delhi vs Deputy Commissioner Of Income Tax, ... on 5 April, 2024
Author: G.S Pannu
Bench: G.S Pannu
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : F : NEW DELHI
BEFORE SHRI G.S PANNU, HON'BLE VICE PRESIDENT
AND
SHRI ANUBHAV SHARMA, JUDICIAL MEMBER
Stay Application No.65/Del/2024
(ITA No.448/Del/2024)
Assessment Year: 2021-22
PPK Newsclick Studio Pvt. Ltd., Vs DCIT,
Kh. No.275, 1st Floor, Central Circle-1,
Saidulajab, Delhi.
New Delhi - 110 030.
PAN: AAJCP6662R
(Appellant) (Respondent)
Assessee by : Shri Rohit Sharma, Advocate,
Shri Nikhil Purohit, Advocate &
Shri Jatin Lalwani, Advocate
Revenue by : Shri P.N. Barnwal, CIT-DR
Date of Hearing : 26.02.2024
Date of Pronouncement : 05.04.2024
ORDER
PER ANUBHAV SHARMA, JM:
This Stay Application has been filed by the assessee for stay of demand for AY. 2021-22.
2. Heard and perused the record.
3. The facts, in brief, as canvassed and as coming from the matter before us are that the applicant assessee has filed return of income declaring the total income of Rs. Nil as per the normal provisions of the Act and disclosed SA No.65/Del/2024 book profit of Rs.1,28,68,482/- u/s 115JB of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'). A survey u/s 133A of the Act was carried out at the premises of the applicant on 10.09.2021 wherein electronic data was found and impounded. A notice u/s 143(2) of the Act was issued on 29.06.2022. The Assessing officer ( further mentioned as 'AO') had examined the issue that the assessee has claimed to be involved in providing services to M/s Justice and Education Fund Inc. and M/s Tri- continental Ltd., which are entities based in US ( further mentioned as 'JEF' or "Foreign Body"). The AO questioned the foreign remittances of approximately Rs.16.45 crores from 62 entities allegedly in the form of service fee/consultancy fee/website maintenance fee based on content services being provided to the Foreign Body. Based on the response of the assessee, the AO had considered these remittances to be unexplained cash credit and additions were made u/s 68 of the Act. The assessee went in appeal before the CIT(A), which was dismissed on 31.01.2024 against which the assessee is in appeal before this Tribunal and wherein the application in hand has been moved.
4. In support of application, the ld. AR for the applicant has submitted that ld. tax authorities below have fallen in error in invoking section 68 of the Act when the question of identity of the service recipient being JEF and source of remittances is not disputed. He submitted that the credit worthiness of the service recipient is also not disputed. He has relied the service agreement between these parties to claim that the transaction is genuine for the purpose of creating and supply of what ld. AR calls is 2 SA No.65/Del/2024 'original journalistic content'. The ld. AR submitted that the assessee created and supplied 763 videos, 1469 stories and 396 scripts for which invoices were raised billing on rates as per the agreement. He has taken us through these invoices available in paper book to contend that invoices disclose as to how the service rendered have been valued in terms of rates determined for each story, video and script. It was submitted that the total consideration was in terms of these rates as per the agreement.
5. Then ld AR submitted that the entire amount was received through banking channels and relying the judgement in CIT vs. Divine Leasing and Finance Ltd (2008) 299 ITR 268, he submitted that as for the purpose of examining genuineness of the transaction, which has been questioned by ld. tax authorities below, the fact of transmission of the consideration through banking channel is sufficient.
6. The ld. AR submitted that in the case in hand, the tax authorities have fallen in error in invoking the provisions of section 68 of the Act and relied the Ahmedabad Bench order in Shree Sanand Textiles Industries Ltd. vs. The Dy. CIT (OSD), Circle-8, ITA No.995/Ahd/2014, to contend that sales receipts shown in the books cannot be made subject matter of addition under section 68 of the Act. The ld. AR submitted that whatever revenue was generated was out of the business of the assessee and the same was reported in the financial statements. It was submitted that it is not a case where receipts have been shown in the form of gifts/capital receipts, 3 SA No.65/Del/2024 etc., but, shown as business income and the same could not have been added u/s 68 of the Act.
7. Next, relying the judgement of the Hon'ble Supreme Court in the case CIT vs. Orissa Corporation - 1986 AIR 1849, the ld. AR submitted that the genuineness of transaction with reference to section 68 of the Act, cannot be questioned by the Department based on its subjective understanding of commercial prudence or business expediency. The ld. AR submitted that tax authorities cannot question the commercial expediency of the business model by pointing out deficiencies like inability of the assessee to provide certain information about eligibility of the persons creating the content. The ld. AR submitted that it is not a case of fraud or bogus transaction which is sought to be passed off by the assessee as a legitimate transaction, so to allege that whole transaction is farce.
8. Referring to certain mails placed in the Paper Book, it was submitted that the ld. tax authorities have fallen in error to examine the genuineness of transaction by alleging that there were no directions from the JEF with regard to the nature of services. The ld. AR also pointed out that ld. tax authorities have fallen in error in doubting the genuineness of the transaction on the ground that the assessee had received pre-determined advances to the tune of 90% of the estimated budget.
9. Particularly referring to the order of first appellate authority, the Ld. AR submitted that CIT (A) erred in discarding the relevance of the expenses 4 SA No.65/Del/2024 while determining the genuineness of the transaction between the applicant and JEF. It is submitted that the Applicant incurred expenses, inter alia, on salaries of employees and professional charges, in order to supply the content to JEF as per the Services Agreement. Once the relevance of these expenses and the quantum of content supplied by the applicant to JEF is not doubted, the AO could not have doubted the genuineness of the transaction between the applicant and JEF.
10. The Ld. AR pointed out that CIT(A) erred in holding that the applicant had not supplied all the necessary evidences before the AO, and that the payment by JEF was not based on any content creation. He submitted that these observations are based solely on the non-compliance of the illegal demand by the Ld. AO to provide "line by line item correlation" of the work done by each employee / consultant and the expense incurred on each article, video or script. It is submitted that insistence on such "line by line item correlation" is absolutely absurd and unlawful. He has submitted that there is no such requirement in law that the Assessee must establish the expense incurred on each item of service provided by it. He questioned the AO's finding that "No specific bifurcation was given by him so that relation of the expenses incurred for the unit of the services provided in lieu of the receipts. Hence, no satisfactory reply was made by the assessee" and submitted that same is absolutely illegal and arbitrary. He thus, has submitted that on non-compliance of this query, the CIT (A) could not have concluded that sufficient evidence was not provided or that payment made by JEF was not based on content creation.
5 SA No.65/Del/2024 In this context it is submitted that the payments made were in accordance with the Services Agreement, stipulating unit price for content delivered, based on invoices containing links of the content delivered.
11. Ld. AR then has alleged that the CIT (A) has erred in holding that JEF does not have any IPR over the content created by the applicant, and that the applicant is the owner of the content created for JEF, based on the fact that some of the content was also uploaded on the applicant's website, and the claim that no payment has been made by the applicant to JEF for use of content uploaded on the website of JEF. Ld. AR has alleged that this finding is patently erroneous as the CIT (A) has failed to appreciate that the applicant had uploaded only some of the articles / videos / scripts from Peoples Dispatch on its own website, and that too after giving credit to Peoples Dispatch for the same. The ownership of Peoples Dispatch over those articles / videos / scripts was duly recognized by the applicant. This was done in terms of the Creative Commons licence granted by Peoples Dispatch, as recorded on its website, and also in the 1st Addendum to the Service Agreement. He argued that the CIT (A) has also failed to appreciate that apart from the applicant, several news organizations all over the world use the articles / videos / scripts from Peoples Dispatch for their own websites under the same Creative Commons Licence. Thus, the ownership of the content rested with JEF and such content was subject to a Creative Commons Licence.
6 SA No.65/Del/2024
12. Ld. AR has then alleged and submitted that the CIT (A) has erred in adopting a patently absurd logic to claim that 84% of the links were uploaded on Peoples' Despatch and the website of the almost at the same time. He submitted that the CIT (A) has failed to appreciate that the applicant had uploaded only some of the articles / videos / scripts from Peoples Dispatch on its own website, and that too after giving credit to Peoples Dispatch for the same. It is submitted that news content is by its very nature time sensitive, and therefore, there was no illegality in some of the content being used by the applicant for its own website within 24 hours of it being supplied to Peoples Dispatch in accordance with the Creative Commons Licence.
13. The ld. AR submitted that there is a prima facie case in favour of the assessee and balance of convenience is also in favour of the assessee and the assessee is likely to suffer irreparable loss as its accounts have been frozen and is unable to pay for its day to day expenses.
14. Ld. AR has submitted that this Tribunal, while exercising its powers under Section 254, has ample powers to direct refund of the amounts debited by the revenue authorities while granting stay. He relied on the order of Delhi Benches in the case of Glaxo SmithKline Asia (P.) Ltd v. Additional Commissioner of Income-tax, [2005] 2 SOT 457 (Delhi). We consider it appropriate to reproduce here below, the relevant part of order he has relied;
7 SA No.65/Del/2024
"5. However, this power of the Tribunal has been frustrated by the revenue authorities by recovering the entire outstanding amount before the assessee could file an appeal before the Tribunal and also apply for a stay on the recovery. Our concern is not so much against frustrating the power of the Tribunal, but it is more towards the fact that by this process, the right of the assessee to approach for a stay is also frustrated. If the rights of the citizens are allowed to be crushed in this manner which is akin to the Tsunami wave, then the day is not far when we shall be driven into utter anarchy where people will tend to forget what "Rule of Law" is. These very thoughts were expressed by the Tribunal in the case of RPG Enterprises Ltd. (supra) wherein support was drawn from the judgment of the Bombay High Court in the case of Mahindra & Mahindra Ltd. v. Union of India 1992 (59)ELT 505. In this case, the High Court held that revenue authorities should not proceed to recover its dues till the assessee has time to file a further appeal. When the assessee is aware of its right of further appeal, he also has a right to reasonably expect that the revenue authorities will not pounce upon him and destroy his right to appeal and ask for a stay. This proposition is enshrined in the Doctrine of Reasonable Expectation. This doctrine was well explained by the Tribunal in the case of Maharashtra State Electricity Board v. Jt. CJT [2002] 81ITD 299 (Mum.) where a similar situation had arisen and the Tribunal was constrained to direct the revenue to refund the amount recovered to the assessee(emphasis supplied)
15. He has submitted that once a prima facie case is established, this Tribunal can grant stay under Section 254 of the Act, either by requiring the Assessee to deposit 20 % of the outstanding demand or security equivalent of 20 % of the outstanding amount. He relied Delhi Bench order in the case of India Property (Mauritius) Company II v. Assistant Commissioner of Income Tax, (2023) 106 ITR (Trib) 130, and contended that the Bench has granted stay based on similar considerations. The relevant part relied by him is reproduced below;
"4. We find that the arguments advanced by the learned authorised representative and the learned Departmental representative require to be verified from various documents and requires extensive hearing, which could be done during the course of hearing of main appeal. At the time of stay application, what is 8 SA No.65/Del/2024 to be seen is whether a prima facie case had been made out by the assessee and whether balance of convenience is in favour of the assessee. In our considered opinion, in order to come to a conclusion whether a prima facie case has been made out or not itself requires extensive verification of facts and documents. In view of the provisions of section 254(2A) of the Income- tax Act, 1961 read together with its proviso thereon, we deem it fit and appropriate to direct the assessee to pay 20 per cent, of the outstanding demand in two equal instalments in August and September, 2023. The assessee shall produce the proof of remittance of stipulated instalments before the Bench by September 15, 2023. In the alternative, the assessee is also entitled to furnish security equivalent to the value of 20 per cent, of the outstanding demand in favour of the Income-tax Department on or before September 15. 2023. The assessee is directed to ensure compliance of the aforesaid conditions before the Bench on or before September 15, 2023. Subject to the aforesaid conditions, the demand, raised by the Revenue is kept in abeyance for a period of 90 days from the date of compliance as mandated to the assessee before the Bench, i. e., September 15, 2023 or till the disposal of the appeal, whichever is earlier. It is hereby made clear that till September 15, 2023 no recovery proceedings shall be initiated on the assessee for the demand(emphasis supplied)
16. Reliance is also placed on a order passed by the Mumbai Bench of this Tribunal in Hindustan Lever Limited v. Deputy Commissioner of Income Tax, SA No. 116/Mum/2022, wherein, stay was granted by the Tribunal on furnishing security of 20 % of the disputed demand.
17. It is submitted that the present case is one of extremely harsh/ high- pitched assessment. In the original return filed by the applicant, the applicant had claimed legitimate business and professional expenses of Rs. 15,26,59,792/- during the year in question, all through proper banking channels, inter alia, on salaries and other expenses for 117 employees and payments to 221 professional consultants. None of these expenses has been doubted. Still, all these expenses have been disallowed in the demand and 9 SA No.65/Del/2024 the entire receipt has been made chargeable to tax at 60% plus other charges. It is submitted that when the income determined upon assessment is substantially higher than the returned income, such as when it is twice the returned income, it is necessary that the demand has to be in abeyance until the decision on the appeals filed by the Assessee. As for this contention he has relied the Hon'ble High Court Delhi judgment in Valvoline Cummins Ltd. v. Deputy Commissioner of Income Tax, Delhi, 2008 SCC OnLine Del 634. We consider it appropriate to reproduce here in below the relevant part of the said judgment, Ld. AR has relied:-
"40. It may be recalled that the returned income of the Assessee was Rs.
7.25 crores, but the assessed income is Rs. 58.68 crores, which is almost 8 times the returned income. In this regard, learned counsel has drawn our attention to Instruction No. 96 dated 21st August, 1969 issued by the CBDT, which deals with the framing of an assessment which is substantially higher than the returned income. The relevant portion of the Instruction reads as follows:--
"1222. Income determined on assessment was substantially higher than returned income -- Whether collection of tax in dispute is to be held in abeyance till decision on appeal
1. One of the points that came up for consideration in the 8th meeting of the Informal Consultative Committee was that income-tax assessments were arbitrarily pitched at high figures and that the collection of disputed demands as a result thereof was also not stayed in spite of the specific provision in the matter in section 220(6).
2. The then Deputy Prime Minister had observed as under: "... where the income determined on assessment was substantially higher than the returned income. say, twice the latter amount or more, the collection of the tax in dispute should be held in abeyance till the decision on the appeals, provided there were no lapse on the part of the assessee. "
3. The Board desire that the above observations may be brought to the notice of all the Income-tax Officers 10 SA No.65/Del/2024 working under you and the powers of stay of recovery in such cases up to the stage of first appeal may be exercised by the Inspecting Assistant Commissioner/Commissioner of Income-tax. "
41. A perusal of paragraph 2 of the aforesaid extract would show that where the income determined is substantially hieher than the returned income, that is. twice the latter amount or more, then the collection of tax in dispute should he held in abeyance till the decision on the appeal is taken. In this case, as we have noted above, the assessment is almost 8 times the returned income. Clearly, the above extract from Instruction No. 96 dated 21st August, 1969 would be applicable to the facts of the case.
42. Learned counsel for the Assessee has drawn our attention to several decisions of various High Courts which have interpreted the aforesaid Instruction in the way that we have read it. Some of these decisions are N. Raj an Nair v. Income Tax Officer and another, [1987] 165ITR 650 (Kerala), Mrs. R. Mani Goyal v. Commissioner of Income Tax and another, [1996] 217 ITR 641 (Allahabad) and I.V.R. Construction Ltd. v. Assistant Commissioner of Income Tax and another, [1998] 231 ITR 519 (Andhra Pradesh).
43. Under the circumstances, we are of the view that the Assessee would, in normal course, be entitled to an absolute stay of the demand on the basis of the above Instruction(emphasis supplied)
18. On the contrary, the ld. DR has primarily relied the findings of the ld.
tax authorities below and submitted that the additions have been made on the basis of circumstances which indicated that there was no genuine business transaction. He relied upon the judgment of Hon'ble Supreme Court in the case of Assistant Collector of Central Excise Vs. Dunlop India Ltd. and Ors. - 1985 AIR 330 to submit that the Tribunal has to be circumspect to the facts of the case and even consider public interest.
19. Now before entering on merits of the application we consider it expedient to bring on record certain settled principles of law, having an 11 SA No.65/Del/2024 impact on determination of the application for stay of demand and, for this, we would like to rely on a recent Order of this Bench in Stay Application No.61/Del/2024 dated 8th March, 2024, wherein, with regard to the power of the Tribunal to stay the recovery proceedings, we have observed as follows:-
"17. So far as the power of the Tribunal to stay the recovery proceedings is concerned, the same has been judicially well- recognized, being an inherent power, and, it has also been impliedly imparted statutory acceptance by way of insertion of first and second Provisos below Section 254(2) of the Act. The Hon'ble Supreme Court in the case of Income-tax Officer, Cannanore Vs. M.K. Mohammed Kunhi - [1969] 71 ITR 815 (SC) expressly opined that the Tribunal has power to grant stay, considering it to be a power which is incidental or ancillary to its appellate jurisdiction. In this context, we may refer to the following discussion by the Hon'ble Supreme Court :
"It could well be said that when section 254 confers appellate jurisdiction, it impliedly grants the power of doing all such acts, or employing such means, as are essentially necessary to its execution and that the statutory power carries with it the duty in proper cases to make such orders for staying proceeding as will prevent the appeal if successful from being rendered nugatory".
18. However, the Hon'ble Supreme Court has also cautioned that such power should not be exercised in a routine way. The relevant discussion on this aspect is as under :-
"14. A certain apprehension may legitimately arise in the minds of the authorities administering the Act that if the Appellate Tribunals proceed to stay recovery of taxes or penalties payable by or imposed on the assessees as a matter of course the revenue will be put to great loss because of the inordinate delay in the disposal of appeals by the Appellate Tribunals. It is needless to point out that the power of stay by the Tribunal is not likely to be exercised in a routine way or as a matter of course in view of the special nature of taxation and revenue laws. It wilt only be when a strong prima facie case is made out that the Tribunal will consider whether to stay the recovery proceedings and on what conditions and the stay will be granted in most deserving and appropriate cases 12 SA No.65/Del/2024 where the Tribunal is satisfied that the entire purpose of the appeal will be frustrated or rendered nugatory by allowing the recovery proceedings to continue during the pendency of the appeal."
19. We may also refer to the judgment of Hon'ble Supreme Court in the case of Assistant Collector of Central Excise Vs. Dunlop India Ltd. And Ors. - 1985 AIR 330 wherein the Hon'ble Court has enunciated broad parameters to be applied while considering the pleas for grant of interim injunctions/stay on the recovery proceedings. The pertinent observations of the Hon'ble Supreme Court are as under :-
"There can be and there are no hard and fast rules. But prudence, discretion and circumspection are called for. There are several other vital considerations apart from the existence of a prima facie case. There is the question of balance of convenience. There is the question of irreparable injury. There is the question of the public interest. There are many such factors worthy of consideration."
20. From the above, it is discernable that while exercising the power of stay, it is imperative for the Tribunal to not only consider factors, such as, existence of a prima facie case, balance of convenience and irreparable loss/hardship but also to be circumspect; and, that the stay on the recovery proceedings should not be granted as a matter of course or in a routine manner. Thus, each Application would have to be decided on its own merits, having regard to the facts and circumstances of the case.
21. We may also refer to the first Proviso below Section 254(2A) of the Act, which reads as under :-
"Provided that the Appellate Tribunal may, after considering the merits of the application made by the assessee, pass an order of stay in any proceedings relating to an appeal filed under sub-section (1) of section 253, for a period not exceeding one hundred and eighty days from the date of such order and the Appellate Tribunal shall dispose of the appeal within the said period of stay specified in that order:"
22. Shorn of other details, for the purpose of the present controversy, it would suffice to note the words "...............after considering the merits of the application ..........." appearing above, reinforces our earlier premise that it is only in cases where the merits of the application have 13 SA No.65/Del/2024 been made out, that the Tribunal would be justified in exercising its power of grant of stay on the recovery proceedings."
20. Coming to merits of application, we have given thoughtful consideration to the matter on record and submissions made. In order to find out a prima facie case of the applicant, as we go through the impugned orders of the ld. tax authorities below, we find that section 68 of the Act has been primarily invoked on a wholesome basis, by doubting the genuineness of the transaction and the receipts in the hands of the assessee, by examining the nature of services allegedly rendered by the applicant to the overseas customer and whether a transaction like the one in dispute is justified in ordinary course of business between the parties.
21. We find that the AO observes in para 5.2.2 of his order that the assessee was asked to submit the linkage between the cost of services delivered and compare the same with the sales realized, but, the same was not submitted because the assessee has not maintained any such item-wise record. As we go through the list of stories, videos and scripts provided at page 185 to 223 of the paper book, we find that the content of all these items concerns international events occurring in various parts of the world with one or two stories in regard to India. Thus, while examining the receipts, the AO doubted the potential of the assessee to deliver such services and the nature of services, and, in these circumstances, the onus was on the assessee to establish that it had necessary experienced personnel to produce and deliver the subject-content items. The assessee 14 SA No.65/Del/2024 cannot escape by submitting that no record was maintained with regard to item wise cost of services delivered. When applicant is claiming that there were predetermined rates for each item, then certainly some sort of costing must have been estimated by the assessee to produce these items. Expenditures claimed to have been made on salaries, provident fund contribution, travelling expenses, conveyance expenses of employees alone do not satisfy the query raised by the AO qua the assessee's ability to deliver the services and to justify the quantum of revenue generated.
22. The AO has further analysed this aspect by following observations in para 5.3.2 of his order:-
"5.3.2 Vide questionnaire issued u/s 142(1), the assessee was asked to make a link between the receipts and the expenses incurred especially in the view of the fact that approx 95% receipts are from one party only. In service sector if an entity is receiving such a huge part of the receipt from one entity then it is natural that the expenses incurred are geared towards delivery of those critical services and the linkage between deliverables and cost incurred can be established with relative ease. But strangely assessee is not able to correlate the expenses with the receipts when only one party is the source of majority of the receipts. The assessee submitted the whole data of the expenses incurred by him during the financial year. No specific bifurcation was given by him so that relation of the expenses incurred for the unit of the services provided in the lieu of the receipts. Hence, no satisfactory reply was made by the assessee."
23. Thus what comes up is that AO has taken note of a relevant fact, on the basis that as to if after paying 90% of the budget, even before the start of the quarter, whether the Foreign Body was in any way supervising the nature and quality of content. The AR has though cited certain e-mails of the communications from Foreign Body giving some directions about 15 SA No.65/Del/2024 creation of certain stories, but, those e-mails to us are very ambiguous and in no way establish as to if in terms of service agreement there was any genuine connection between the value of content created by the assessee and the revenue shown to be generated. The assessee had claimed that such a query was misconceived as there is no occasion for another entity to issue substantive directions regarding the topic, content and relevance of issues prior to creation of the content. We are of the considered view that ld. tax authorities were examining the transaction as a whole to consider if the same was genuine throughout and based upon the rules of probability and prudence if an opinion is formed, for which rebuttal is sought for the purpose of section 68 of the Act, the assessee cannot escape from responsibility of discharging the initial burden by merely assailing the query to be misconceived or absurd. The assessee was obliged to justify its experience and ability to prepare the content delivered and that the so-called journalistic services were actually delivered according to any parameters fixed in advance at the time of agreement itself. No two business entities can claim that without any parameters of performance of a contract they would be entering into the contract and without any checks and balances from the side of the master of contract, payments would be in advance.
24. Then, the ld. tax authorities have considered the fact that the same content was posted by applicant also and at times simultaneously. The ld. AR had claimed that being open source content not only the assessee, but any third party was entitled to use the content with only limitation of giving credit to the Foreign Body. The ld. AR has heavily relied the concept of 16 SA No.65/Del/2024 world-wide creative common licence to submit that the Foreign Body was getting the content created for free use by any one. At this stage, we find no error in the findings of the ld. tax authorities below questioning the genuineness of this transaction on the basis of prudent approach expected from any business entity. Even if the Foreign Body had any benevolent objectives of getting content created from the assessee and allowing it to be used world over without any exclusivity to the Foreign Body, that in fact makes the nature of remittances in the hands of the assessee suspect, and justifies the observations of the ld. AO that the receipts from JEF is nothing, but, donation.
25. In this context, the modus operandi of the assessee has also been examined by the AO and we consider it relevant to reproduce para 5.9 in that regard:-
"5.9 Further, on examination of MCA Database, it is gathered that M/s PPK Newsclick Studio Private Limited, was erstwhile existing as M/s PPK Newsclick Studio LLP. As per the details filed in Income Tax Returns of M/s PP Newsclick Studio LLP, it was incorporated on 28.04.2015 and was not carrying out any operations. Further, on analysis of the digital evidences gathered in the survey proceedings, it is revealed that the LLP was converted into Private Limited company only for the purpose of receiving foreign funding."
26. The CIT(A), confirming the findings of AO and the assessment order, has made certain observations which are prima facie appealing and we consider it appropriate to reproduce the same:-
"Findings, and Decision
22. The appellant has levelled a serious charge on the Assessing Officer. The claim of the appellant that the action of the Assessing 17 SA No.65/Del/2024 Officer in making assessment and creating demand is aimed as muzzling is freedom of speech and expression and his right to conduct business is devoid of any evidence. Whatever is the findings of the Assessing Officer is based upon the documents available. The Assessing Officer before passing the assessment order had issued a detailed show cause notice to the appellant and his findings were confronted to the appellant . The Assessing Officer is a quasi judicial authority and has passed the order after considering the reply of the appellant. The order of the Assessing Officer in no way suggests any malafide intention. Thus, such allegations and arguments of the appellant are baseless.
23. One of the arguments of the appellant is that the auditor had not made any adverse remark on either the income or expense of the appellant and therefore, the Assessing Officer was not justified in making addition is devoid of logic. The auditor had prepared his report on the basis of the document furnished before him. He is not expected to get into the shoes of the Investigating Officer or the Assessing Officer and unearth the truth behind the transaction. If the claim of the appellant that auditor has not pointed out any adverse finding is accepted, in that case there will not be any functions for enforcement agency or investigating agency. Whether or not the claims of the appellant are as per law or not is to be decided by the Assessing Officer and not the auditor. Therefore, the argument of the appellant cannot be accepted as a valid argument.
24. The appellant has raised an argument that as the expenses of the has not been found to be non-genuine, therefore, the Assessing Officer was not justified in making addition u/s 68 of the Act in respect of the receipts. The nature of expense is not determinative of the nature of income. Expense is application of receipts. Where the receipts are in the nature of income or donation or cash credits or anything else is not dependent upon the expenses claimed in the accounts. In the provisions of section 68, there is no reference to the claim of expenditure being a criteria for treating a receipts as cash credits. Therefore, the argument of the appellant is not a valid argument.
25. The appellant argued that in his books of accounts, the transaction has been recorded as revenue and therefore, provisions of section 68 do not apply to such receipts.
26. It is established position of law that the manner of recording an entry in the books of accounts is not determinative in deciding the taxability of receipt. Taxation is dependent upon the actual nature of transaction. What is the nomenclature given in the books of accounts or how the entry has been passed cannot determine the taxability of the receipts. Taxability of a receipt or allowance of a deduction is dependent upon the actual nature of transaction. This position of 18 SA No.65/Del/2024 law has been affirmed by Hon'ble Supreme Court in the case of Kedarnath Jute Manufacturing Co. Ltd. vs CIT reported in [1971] 82 ITR 363 (SC). In view of the above position of law, the argument that as the receipts were disclosed in the books of accounts as income, therefore, addition u/s 68 cannot be made is not a valid argument.
27. One of the arguments of the appellant is that the addition is made on the basis suspicion is unfounded. From perusal of the assessment order, It is seen that me Assessing Officer has examined the documents furnished by the appellant and it was after examination of the facts of the case that addition has been made. Prima facie, it is not a case of making addition on the basis of doubts or suspicion or conjectures or surmises. Therefore, the argument of the appellant is not a valid argument
28. One of the claims of the appellant is that he discharged his onus cast upon him by section 68 and therefore, the Assessing Officer was not justified in making addition u/s 68 of the Act. On perusal of the assessment order, it is seen that the Assessing Officer has not doubted either the identity of the creditor or the creditworthiness of the creditor. It is the case of the Assessing Officer that the transaction reported by the appellant as genuine business transaction is not actually a business transaction but a concocted and premeditated transaction. It is finding of the Assessing Officer that the money has been received by the appellant for extraneous consideration and not for any business consideration.
29. The appellant himself agrees that it is not possible for him to provide the detailed break up of costing of each video or other content. Further, the Assessing Officer has discussed as to how the evidences required by him could not be furnished by the appellant. Therefore, the claim of the appellant that he furnished all the necessary evidences before the Assessing Officer is factually incorrect.
30. The appellant claims that the intellectual property right over the content created by the rests with the JEF. The during the course of appellate proceedings has stated that he has made approximately 1520 journalistic stories & articles, 764 videos and 396 scripts for JEF for the impugned year, During the course of assessment proceedings, the vide his letter dated 05,12,2022 furnished 558 links along with the time of their being uploaded on website of the and of the JEF. The Assessing Officer examined the same. It was found that 511 links were uploaded on both the websites within the period of 24 hours. Only 47 links were uploaded in a gap of 24 hours to 120 hours. Further, it has been found that the time gap is basically on account of time zones in USA and In India, Thus, practically 84% of the links were uploaded on the two websites almost at the same time, 19 SA No.65/Del/2024
31. The appellant argues that he was not the owner of the content created by him. The content is claimed to be belonging to the JEF. The appellant further argued that the content was uploaded on his website as per Creative Commons license. However, analysis of timing of uploading the links establishes that the appellant was uploading the content on its website like any owner of the content would upload. Therefore, the argument of the appellant that JEF was the owner of the content is not established.
32. There was a service agreement dated 01.01.2019 between the appellant and JEF. The said service agreement was amended on 01.04,2019 for the first time and on 01.01.2020 for the second time. As per the agreement, the appellant was to receive USD 200 for each article, USD 1300 for each video and USD 150 for each short script. The annexure A to the agreement provided for the following rates.
S. No. Item Hourly Rate (in
USD)
1. Man Hours 25
2. Use of studio space for 900
the creation of content,
including camera,
electricity, computer
etc.
Methodology for Unit cost calculation:
Items Hours/per item Cost unit Unit Cost
USD per item
Story/report 8 25 $200
Per video man hour 16 25 $1300
Studio charges 1 900
(Camera Sound,
Lights and other
equipment charges
including charges for
camera person,
lighting &
production support
Short script 6 25 $150
33. After first amendment to the agreement, the following rates were agreed:-20 SA No.65/Del/2024
S. No. Item Hourly Rate (in
USD)
1. Man Hours 35
2. Studio charges (Camera Sound, 1600
Lights and other equipment
charges including charges for
camera person, lighting &
production support
Revised deliverable & cost calculation : per month Items Numbers Hours/per Cost unit Total Monthly item USD Cost (USD) Story/report 140 8 280 39200 Per video 30 11 385 11550 Studio 30 1 1600 4800 charges (Camera Sound, Lights and other equipment charges including charges for camera person, lighting & production support Short script 60 6 210 12600 Grand Total 11,350
34. The appellant was required to give budget estimates for each quarter and based on that, the funds were to be released to the by JEF. However, there has not been any exercise in this regard and whatever was asked for by the appellant was disbursed to the appellant by JEF. It is admitted fact that about 90% of the amount was received in advance. There was no understanding about the topics, quality of output etc before releasing the funds. Thus, the core terms were not met and followed. No prudent businessman would disburse the funds without examining the estimates and without matching it with the terms of contract. Apparently, in the impugned case the funds to the appellant was pre-determined and then later on backward calculation was made.21 SA No.65/Del/2024
35, However, the payments to the appellant were made in an adhoc manner by the JEF. From the above table, it is seen that the remuneration to the was based on various articles and videos and also man power employed by the appellant. The Assessing Officer during the course of assessment proceedings asked the appellant to furnish the costing of each video story or script made by It for JEF. However, the appellant could not furnish the breakup of the costing. During the course of appellate proceedings also, the could not furnish the costing. The appellant stated that it was not possible for rim to furnish the breakup of each items incurred for JEF. This establishes that the payment to the appellant was not actually based on any content creation. In normal business parlance, if any content is created for another party, in that case, the payment is as per the topic, length etc. of the content. In this case, there is no co-relation between the content and the payment received by the appellant from the JEF.
36. In normal business parlance, the right over the content rests with the person who is paying for it, In the instant case, the contents were created by the appellant on money paid by JEF. The content was uploaded on the website of the appellant as well as the JEF, This establishes that the was actually the owner of the content and not the JEF as claimed. By uploading the content on the website, the appellant also receives some amount. In normal business if any person uses the content owned by someone else, in that case, a payment has to be made to the owner, Such is not the case with the content developed by the and claimed to be owned by JEF.
37. The JEF do not have any IPR over the content created by it because it is freely used by the appellant also and posted on its website simultaneously along with that of JEF.
38. If a person pays money for creation of contents, in that case a prudent businessman would like to have control over the content. In the impugned case, the could not furnish evidence to establish that there was any direction from JEF regarding the material/subject and quality of the content In fact, in his submissions, during appeal, the argued that it was not possible in the journalistic line of business to issue any direction about the topic, content and relevance prior to the creation of contents, If that be so, in that case, the was practically free to create any content on any topic of his own choice without any control whatsoever from the JEF. Thus, whether or not the appellant created any content for the JEF, the appellant was destined to receive the money from JEF.
39. There was a complete lack of any check and balance in content creation by the appellant on the money paid by the JEF. Any prudent businessman would control the content creation as per 22 SA No.65/Del/2024 his need and not leave It to the Wimps and caprices of the vendor (the appellant). The topics on which content has been created by the appellant are very wide in nature. A prudent business man could like to exercise some control over the content as per his requirement and not leave it entirely in the hands of vendor. Further, there is no evidence of any rejection of any content (video or article) by the JEF.
40. The appellant argued that in his fine of business, seeking direction or giving direction was not possible because the issues are dynamic and constantly emerging. However, it is observed that there are some videos on the topics that are historical in nature and not related to any current affairs, Thus, the claim that the direction could not be issued by the JEF is flawed.
41, In the service agreement, there was a clause wherein JEF was required to give directions for managing the content of the portal. The appellant could not furnish any evidence regarding any direction being issued to it regarding content creation and the websites.
42. The actual behaviour of the appellant and JEF was not that of vendor and vendee. Even the terms of service agreement were not followed in letter and spirit. The appellant acted independently and created the content it desired to create. From the behaviour of the two parties it is evident that the appellant was destined to receive funds whether or letter and spirit of the contract was followed.
43. The service agreement was basically a facade and smoke screen to hide the actual nature of transaction. In order to circumvent the FCRA regulation, firstly, the LLP was converted into the company and then in the garb of service fee, the amount was received by the appellant. Therefore, the Assessing Officer was correct and justified in treating the agreement as a sham agreement.
44. The funds received by the appellant were not out of any business considerations. The service agreement was a device to introduce unexplained funds routed through JEF to the accounts of the appellant.
45. The above discussion establishes that the transaction reported by the appellant was not a genuine business transaction. The money received by the appellant was for any purpose but business.
46. In order to escape the applicability of section 68, the appellant is required to establish 23 SA No.65/Del/2024 a. Identity of the creditor b. Creditworthiness Of the creditor and c. Genuineness of the transaction.
47. If any of the three limbs are not established, in that ease, the provision of section 68 applies to the appellant.
48. The appellant on his part has not cared to establish the genuineness of the transaction. The law casts upon the appellant the onus to establish the genuineness of the transaction, Had the wanted, he could have gone a step further to establish the source of source also. It is evident that the money was received by the appellant out of some extraneous consideration other than any business consideration. Therefore, the Assessing Officer was justified in invoking the provisions of section 68 in respect of receipt of Rs,15,53,79,718/-."
27. To conclude, as the ld. AR has himself conceded that unless the transaction as a whole is questioned as a 'farce', provisions of section 68 of the Act could not have been invoked with regard to the receipts shown in the nature of income. We find that the tax authorities have examined the whole transaction on that aspect only and at this stage, based on our discussion above, there is no reason to differ from the same. The provisions of Section 68 of the Act rests initial burden on the assessee to explain the genuineness of the transaction. It being a deeming income provision, the burden needs to be sufficiently discharged, at least on the preponderance of probability. Here before us there are concurrent findings of two quasi- judicial authorities against the assessee by raising valid concerns about the genuineness of the transaction. Before us also, the same set of arguments and explanations have been raised, which, we also find prima facie lacking the strength to stand on its own legs. Thus, we have no hesitation to hold that the assessee has no prima facie case to contend that as for the purpose of section 68 of 24 SA No.65/Del/2024 the Act, it had prima facie discharged its burden or that provisions of section 68 of the Act have been patently wrongly invoked.
28. The aforesaid discussion made by us is bolstered by Order dated 29.11.2023 in W.P.(C) 15337/2023 & CM Appl. 61508/2023 & CM Appl. 61509/2023 titled PPK Newsclick Studio Pvt.Ltd. Vs. Principal CCIT, Central Delhi and Anr., wherein the present Applicant had approached Hon'ble High Court for stay of demand during the pendency of appeal before CIT(A). Hon'ble High Court, having taken note of the 'cogent findings' against the Applicant had concluded that Assessing Officer has virtually held that the transaction between the petitioner and the foreign entity was based on 'reverse engineering'. Relying the findings of the Assessing Officer, the Hon'ble High Court had concluded in Paragraph 8 as follows:-
"8. Keeping in view the aforesaid findings, this Court is of the view that the petitioner has not been able to make out a prima facie case in its favour. To put it mildly, the petitioner has a 'lot to answer' in the appeal."
29. The question of financial stringency was also examined by the Hon'ble High Court and the financials of the Applicant were not found to be inspiring confidence. As a matter of fact, the findings of the learned Assessing Officer now stand sustained and further reasoned by the Order of the learned CIT(A) in the first appellate proceedings.
30. Since there is no prima facie case, the balance of convenience in no way comes to assist the applicant assessee. On the contrary, when substantial receipts are from the Foreign Body only, and assessee is not 25 SA No.65/Del/2024 having any other source of prospective earnings to ensure payments of demands if being unsuccessful, here, the Revenue is justified in initiating recovery proceedings. We find no malice in the action of the ld. AO in that regard.
31. Considering the entirety of facts and circumstances, we do not find any justification to interfere with the impugned recovery proceedings. Nevertheless, the assessee shall be at liberty to approach the Assessing Officer with plan to liquidate the disputed tax demand or otherwise seek securitization of the same, as may be found satisfactory by the Assessing Officer.
32. The application of the assessee has no merit and accordingly is dismissed.
Order pronounced in the open court on 05.04.2024.
Sd/- Sd/-
(G.S. PANNU) (ANUBHAV SHARMA)
VICE PRESIDENT JUDICIAL MEMBER
Dated: 05th April, 2024.
dk
Copy forwarded to:
1.
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asstt. Registrar, ITAT, New Delhi
26