TaxTMI 
TaxTMI 
2017 (8) TMI 729
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....he FYs 2007-08 to 2011-12, it invested in a number of foreign subsidiaries, primarily in the UK and Netherlands. During the FY 2006-07 and FY 2008-09, NDTV received funds amounting to Rs. 1127 crore through these subsidiaries as under: a. US $ 20 million (Rs. 86 crores) through investment made in M/s. NDTV Networks Plc, UK (hereinafter, "NNPLC") by M/s. Com Ventures, V.I., L.P. during FY 2006-07. b. US $ 100 million (Rs. 405 crores) through Step Up Coupon Bonds due 2012 issued by NNPLC during FY 2007-08. c. US $150 million (Rs. 642 crores) through investment made in M/s. NDTV Networks International Holding BV (hereinafter. "NNIH") by M/s. Universal Studios International BV, Netherlands (hereinafter, "USBV") during FY 2008-09. 3. NDTV filed its Return of Income for the AY 2008-09, which was selected for scrutiny during the original assessment proceedings under Section 139 of the Act. The Assessing Officer (hereinafter, "AO") examined the issue of Step Up Coupon Bonds issued by NNPLC, for which NDTV stood as guarantor and revised the assessment income by adding the guarantee commission for this transaction. In addition, the AO also made certain additions relating to....
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....bust, as being claimed by assessee. What was the justification for the assessee to buy back the shares of nearly defunct and own subsidiary company at a value which was more than 12 times of the face value. The totality of the transaction clearly lead to the inescapable conclusion that the entire transaction of sale & subsequent buy back of shares was a "sham" transaction entered into by the assessee with the sole motive of introducing Rs. 642,54,22,000/-in its books and providing loss of Rs. 584.46 crores to Universal Studios BV Netherlands. 5.16.1. In view of the facts and finding as mentioned above and taking the totality of the picture into consideration, it is held that assessee has brought an amount of Rs. 642,54,22,000/being unexplained money in to its books through its subsidiary NDTV Networks BV Netherlands. It is pertinent to mention that, as per the admission of the assessee the above subsidiary has been subsequently liquidated, which shows that the same was floated only to create a front for introducing the above amount." 5. Additionally, the DRP granted relief to NDTV on the issue of disallowance of commission on advertisement revenue and disallowance of t....
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....ry NDTV Networks International Holdings BV, Netherlands from Universal Studios International BV, Netherlands on account of issue of shares of its indirect subsidiary NDTV BV, resulting in transfer of 26% effective indirect stake in NNPLC, represents NDTV's own unaccounted money introduced into its books through its subsidiary NDTV Networks BV through this 'sham' transaction and the same was directed to be added to the taxable income of NDTV. Further, the unsecured loan amounting to Rs. 254.75 crores raised by NDTV Networks Plc, UK from NDTV*BV was also held to be the income of NDTV. Thus, within the meaning of clause 2.2.6 of the Manual on Exchange of Information, there is a reason to believe that the group companies of NDTV Limited have been non-compliant with the provisions of the income tax law in India. 6. Raising funds by issuing US$ 100m coupon convertible bonds 6.1 Perusal of the assessment record for AY 2008-09 reveals that during the financial year -2007-08 relevant to AY 2008-09, NNPLC, NDW's indirect subsidiary incorporated in UK, raised funds by issuing $ 100m coupon convertible bonds due in 2012 (redeemable at premium of 7.5%). In this rega....
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....DTV from a minority shareholder alleging that the money introduced in NNPLC was shifted to NDTV's another subsidiary in Mauritius, from where it was taken to NDTV's subsidiaries in Mumbai, which finally merged In NDTV. NNPLC was placed under liquidation on 28.03.2011. The period relating to the shifting of funds from NNPLC is covered by the later assessment years, wherein the assessment proceedings in the case of NDTV are pending. 7. In view of the above facts and circumstances of the case and considering the findings of the DRP holding the funds received by NNPLC as the funds of the assessee New Delhi Television Limited under sham transactions, there is reason to believe that the funds amounting to Rs. 405.09 crores introduced into the books of NNPLC during the FY 2007-08 in the form of Step Up Coupon Bonds pertain to the assessee New Delhi Television Limited only. I have therefore reason to believe that the income of the assessee New Delhi Television Limited for AY 2008-09 amounting to at least Rs. 405.09 crores has escaped assessment. It is also recorded that the escapement is due to failure on the part of the assessee to disclose fully and truly all facts mate....
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..... v. CIT, 336 ITR 136 (Del.) 13. It was submitted by Mr. S. Ganesh, learned senior counsel, for NDTV that the "reasons to believe" supplied by the AO did not substantiate on how it had failed to disclose all material facts and instead merely repeated the statutory language. Additionally, it was submitted that the AO's allegation that it were the funds that belonged to NDTV that were introduced in NNPLC under the pretext of the issued bonds is baseless and merely a reason to suspect. It was urged on behalf of NDTV that the re-assessment has been opened not on the basis of any tangible material, but only on a mere change of opinion and therefore the notice has been issued without jurisdiction. NDTV placed reliance on CIT v, Kelvinator of India Ltd. [2010] 228 CTR 488. 14. Mr. Ganesh argued that during the course of proceedings in the regular, scrutiny assessment, for the relevant assessment year, the AO had made inquiries with respect to the investment in the Step Up coupons. In reply to these queries, it had written a letter: "During the course of assessment proceedings, the assessee was asked to state whether any corporate guarantee has been given by the assessee for NNPLC....
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....e guarantee for and on behalf of NOTV Networks in relation to raising USO 100m Step Up Coupon Convertible bonds. With respect to the query when the coupons were received, it is submitted that, NNPLC has raised funds by issuing $ 100m coupon convertible bonds on 30 May 2007 by entering into Subscription Agreement with the Jefferies International Ltd ('Jefferies'), a leading global securities and investment banking group having it s registered office at Brachen House, 4th Floor, One Friday Street, London EC4M9J A, UK. Jefferies were also appointed, as an underwriter and the placing agent for offer and issuance of bonds.." 16. Mr. Ganesh also stated that NNPLC's identity is as a non-resident, and accordingly is liable to tax in UK and that any gain/(loss) on the redemption of bonds was duly considered in accordance with UK Tax Laws and disclosed in the Tax Returns filed by the NNPLC in UK. He relied on the letter written to the revenue, for AY 2008-09, on 31.05.2012. A letter dated 20.07.2012, reiterating the same facts, was shown to the court. 17. It was submitted that all the documents placed on record in the regular assessments, demonstrated that the AO sought and obta....
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....ot have been able to raise the money through the said bonds. Lastly, NDTV also contended that second proviso of Section 147 cannot be invoked by the revenue as no mention of this ground is found in the reasons recorded by the AO. This amounts to supplementing the reasons recorded, which is not permitted by the law. 19. It is submitted that a mere allegation in the reasons recorded that there is failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment is insufficient for initiating proceedings under Section 147 of the Act. The mere repetition of the expression in the "reasons to believe" about failure to disclose fully and truly all material facts will not empower the AO to assume jurisdiction under section 147 of the Act and he is required to state in the reasons recorded which material facts have not been disclosed in the reasons recorded. Learned senior counsel emphasized that there is no whisper or even an allegation that the facts disclosed by the Petitioner were false and that there has been any denial by the investors i.e. bond holders that they did not make any such investment or that investment made by them was the inves....
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.... NNPLC in the year under consideration. Furthermore, the revenue in the impugned letter/order dated 23.01.2015 has sought to supplement the reasons recorded and has referred to second Proviso to Section 147 of the Act as an afterthought. It is submitted that it is well settled that the AO cannot supplement the reasons recorded and it is the reasons, alone which are to be looked into to justify the reopening of proceedings under Section147 of the Act. Mr. Ganesh relied on Atma Ram Properties Pvt. Ltd. v. Deputy Commissioner of Income Tax 343 ITR 141 (Del) and Bombay Stock Exchange Ltd. v Deputy Director Income Tax (2014) 365 ITR 160. Counsel also relied on Pardesi Developers and infrastructure (P) Ltd v. CIT (2013) 351 ITR 8 (Del) and Rasalika Trading & Investment Co. (P) Ltd v Deputy Commissioner of Income Tax & Anr (2014) 365 ITR 447. 22. Mr. P.S. Patwalia, learned Additional Solicitor General appearing for the revenue argued that despite repeated notices, NDTV had not submitted the financial statements of its subsidiaries including the Balance Sheet, Profit & Loss Accounts, report of Board of Directors, Report of auditors etc., during the original assessment. It was further co....
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....bsidiaries were incorporated abroad - 4 each in Mauritius and Netherland and 1 each in UK, Sweden and UAE. The key subsidiaries were situated in UK and Netherlands and these were all liquidated by FY 2011-12. During FY 2006-07 to FY 2008-09, NDTV received funds amounting to Rs. 1127 crore through these subsidiaries situated in Netherlands and UK, as per following details: (i) US $ 20 million (Rs.86 crores) through investment made in M/s. NDTV Networks Plc, UK ("NNPLC") by M/s. Com Ventures, V.I.,L.P. during FY 2006-07 (ii) US $ 100 million (Rs.405 crores) through Step Up Coupon Bonds due 2012 issued by NNPLC during FY 2007-08; (iii) US $ 150 million (Rs. 642 crores) through investment made in M/s. NDTV Networks International Holding BV ("NNIH") by M/s. Universal Studios International BV, Netherlands ("USBV") during FY 2008-09. 25. The introduction of funds in these main subsidiaries, followed by immediate routing of these funds to other supporting entities, which finally merged into the ultimate parent company NDTV, i.e. destination of these funds was the petitioner. It was argued that, the entities investing funds in NDTV's subsidiaries incurred huge losses within shor....
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.... authority could have deferred the completion of the original assessment proceedings for further enquiry and investigation into the genuineness to the loan transaction but in our opinion his failure to do so and complete the original assessment proceedings would not take away his jurisdiction to act under Section 147 of the Act, on receipt of the information subsequently. The subsequent information on the basis of which the I.T.O. acquired reasons to believe that income chargeable to tax had escaped assessment on account of the omission of the assessee to make a full and true disclosure of the primary facts was relevant, reliable and specific. It was not at all vague or nonspecific." 27. The revenue also relies upon the decision reported as ALA Firm v Commissioner of Income Tax 1991 (189) ITR 289 (SC) which held that: "This proposition clearly envisages a formation of opinion by the Income-tax Officer on the basis of material already on record provided the formation of such opinion is consequent on "information" in the shape of some light thrown on aspects of facts or law which the I.T.O. had not earlier been conscious of. To give a couple of illustrations, suppose an I.T.O.,....
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.... Crores through Bonds issued by NNPLC are the subject matter of the reassessment proceedings for AY 2008-09, which were initiated by way of issue of notice to NDTV under Section 148 of the Act on 31.03.2015. The reassessment proceedings were initiated on the basis of new information received from following two sources after completion of original assessment proceedings on 03.08.2012. The first source was the findings of the DRP, recorded in the assessment order for AY 2009-10 (finalized on 21.02.2014, i.e. after a gap of approximately seventeen months from the date of finalization of assessment in question) in order to initiate proceedings under Section 147 of the Act. These were : * Transactions routed through subsidiaries of the petitioner company, namely NDTV BV, Netherlands, NDTV Networks BV, Netherlands(NNBV) and NDTV Networks Plc, UK (NNPLC) were sham. The revenue relies on paragraph 4 of reasons recorded and paragraph 5.16 of the DRP's order. * Transactions routed through NDTV's foreign subsidiaries reflected introduction of unaccounted money in the books of accounts of the petitioner through its subsidiary companies. The revenue relies on paragraph 5 of reasons re....
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....laints of tax evasion were received from NDTV's shareholders, who were aware of its internal affairs and aim and object of floating complex corporate structure by the petitioner; therefore, the AO had reason to believe that information was credible. The tax evasion petition contained detailed information regarding the complex corporate structure created by petitioner to route funds and evade taxes and most of this information was corroborated with the findings of the DRP for AY 2009-10. The revenue also refers to WP(C) 984/2015, which is pending before this court and in which the complainant/petitioner has alleged that no action was being taken by the Enforcement Directorate and the Investigation Wing of the Income Tax Department on the complaints filed by it. The revenue had also subsequently been impleaded as a party in this writ petition. All these complaints are treated as confidential. On the basis of such information from two different sources and after having considered material on assessment record for the year under consideration, the AO formed a belief that investment of US$ 100 million, the source of which was not explained in the books of accounts of the NNPLC as eviden....
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....urn under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year." 33. The first question requires firstly an analysis of the proposition as to whether the AO can supplement the reasons for re-opening the assessment under Section 147/148 by way of a counter-affidavit. At the outset, what must be noted is that the requirement for providing reasons for re-assessment was recognized by the Supreme Court in GKN Driveshafts (India) Limited v. Income Tax Officer and Others [(2003) 259 ITR 19 (SC)], wherein the Court held: "However, we clarify that when a notice under Section 148 of the Income Tax Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notic....
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....y the Income-tax Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief." 37. Similarly, in Kelvinator (supra), the Supreme Court held that the AO has power to re-open the assessment if there is tangible material to come to the conclusion that there has been escapement of income. As to whether something disclosed during the regular assessment proceeding, upon scrutiny is per se excluded, because there was some inquiry into the matter, was explained in Commissioner of Income Tax v. Velocient Technologies Ltd. (2015) 376 ITR 131. The Division Bench of this court, observed in that judgment as follows: "19. Phool Chand Bajrang Lal (supra) is an authority for the proposition that acquisition of "fresh information, specific in nature and reliable in character, relating to the concluded assessment" which exposes "falsity" of the assessee's statement during the original statement is a legitimate basis for reopening (the assessment). The court significantly noted that "the mere disclosure of that transaction at the time of original assessment proceedings, cannot be said to be disclosure of the "true" and "full....
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....ds through the Step Up Coupon Bonds by NNPLC was a bogus transaction. The investment of US$ 150 million made in NNBV by USBV, that was the subject of AY 2009-10, was held to be a sham transaction, to hide the unaccounted income of NDTV. In that transaction the shares of NNBV were issued at a price much greater than its share value and later bought back at a cheaper rate, thus resulting in losses for the investors. Similarly, the Step Up Coupon Bonds were issued at a higher price, and yet were prematurely redeemed leading to a loss for the investors. In this regard, the AO has provided specific details regarding the new or tangible information that was received subsequent to the assessment proceedings for the year 2008-09. The DRP's observations, in its order dated 31-12-2013 (for AY 2009-10) are extracted below: "Though AO in his remand report has said that the money has not been recorded in the books of assessee, after lifting the corporate veil, the DRP finds that in this case a sum of Rs. 642,54,22,000/- has been found credited in the books of assessee/ its subsidiary for the previous year (FY 2008-09) under consideration. Though the assessee has sought to explain the above a....
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....id that the money has not been recorded in the books of assessee, after lifting the corporate veil, the DRP finds that in this case a sum of Rs. 642,54,22,000/- has been found credited in the books of assessee/its subsidiary for the previous year (FY 2008-09) under consideration. Though the assessee has sought to explain the above amount through the lengthy and circuitous transactions, the commercial substance/economic rationale for such transaction has not been satisfactorily explained. Assessee's theory of having sold a "Dream" to the investor has not been substantiated by any credible evidence as no details have been Wed whatsoever for the so called business projections and the basis for computation of the sale price of the share at the astronomical price of Rs. 7,015/- which is 159 times of its face value of Rs. 45/-. Needless to mention that the subject company whose shares were sold was incurring huge losses and there was hardly any worthwhile business to justify the above sale price. Interestingly, the assessee/subsidiaries have again repurchased the same share in the very next financial year at the price of Rs. 634.17 per share totaling Rs. 58 crores. Here also no detai....
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....ayers and the genuineness of the transactions." 5.18 Accordingly, the AO was directed to examine this issue and send a remand report. The remand report was given to the assessee who strongly objected to the proposed addition made by the AO in the remand report. The remand report dated 11.12.2013 and the summary of the oral argument of the AO dated 26.12.2013 are reproduced below:...." 39. After extracting the remand report dated 11-12-2013 and the assessee/NDTV's contentions, the DRP held: "5.19 The copy of the remand report was given to the assessee on 16.12.2013 to submit its rejoinder and on the day of hearing i.e. on 17.12.2013 they were asked to treat the forwarding letter of the DRP enclosing the remand report as enhancement notice by DRP to cut short the time as matter is getting time barred on 31.12.2013. The same was recorded in the order sheet vide entry dated 17.12.2013. 5.20 In response to the above, the assessee vide its letter dated 23.12.2013 has filed a document which is purported to be a loan agreement concluded between NBCU, NDTV limited, NDTV PLC and NDTV Networks BV and requested to admit the same. The assessee has further submitted as ....
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....on. From a bare reading of the so-called agreement copy by the DRP, it is found that the above loan is advanced without any interest, the reason for which has not been explained. The amount involved is quite a large sum of money. Further, as per this document, the interest-free credit facility was to be granted on the basis of a duly completed utilization request, where as no such utilization request or basis for seeking the above credit facility, has been produced by the assessee before the AO or before the DRP. We are therefore in agreement with the AO's finding that the onus of proving the genuineness of the loan transaction has not been discharged by the assessee. The AO is, therefore, directed to make addition of Rs. 254.75 crores." 40. At this juncture, it is to be noted that re-opening of the assessment proceedings on the basis of fresh information received is permissible under the law as held by Clagett Brachi Co. Ltd. v. CIT (1989) 177 ITR 409 (SC) and Phool Chand (supra). In Clagett Brachi (supra) it was observed as follows: "It is contended that the Income Tax Officer has no jurisdiction to take proceedings under Sections 147 and 148 of the Income-tax Ac....
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.... by the assessee. In this regard, it is essential to understand the meaning of the phrase "true and fair disclosure". This Court in has considered the meaning of this phrase in Honda Siel Power Products Ltd. v. Deputy Commissioner Income Tax (2012) 340 ITR 53 (Delhi) where the Court held that that the term "failure" on the part of the assessee is not restricted to the Income-tax return and the columns of the Income-tax return or the tax audit report. The Court held that there can be omission and failure on the part of the assessee to disclose material facts fairly and truly during the course of the assessment proceedings. 43. More specifically, the Supreme Court in Phool Chand (supra) was dealing with the issue of disclosure related to bogus and sham transactions. The Court there held: "Thus, where the transaction itself on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the time of original assessment proceedings, cannot be said to be disclosure of the "true" and "full" facts in the case and the I.T.O. would have the jurisdiction to reopen the concluded assessment in such a case. It is correct that the as....
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.... NDTV was likely to thwart the attempt of the Revenue to recover legitimate taxes. In this regard, NDTV stressed that it had regularly assessed to tax for the past two decades. Further, NDTV argued that the extraordinary power under Section 281B cannot be invoked merely on grounds of difficulty in recovering taxes and the Respondent has failed to indicate any overt activities of NDTV in alienating its assets to the detriment of the Respondent. NDTV argued that there were no enforceable tax demands at present and the estimated tax demand of Rs. 328.96 crores, if arises, can be enforced against the assets of NDTV which are valued at Rs. 675.35 crores. 47. On behalf of the Revenue, it was submitted that the order of provisional attachment was legal and valid and had been passed with the due approval of the Commissioner. The Respondent contended that it is not essential to prove that NDTV will thwart the recovery of future demand. For passing an order of attachment under Section 281B of the Act, the AO must be of the opinion that such an order is necessary to protect the interests of the Revenue. 48. The revenue placed reliance on the tax evasion petitions filed by the shareholde....
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....alidity of an executive decision grant a certain measure of freedom of play in the joints to the executive.....It is only palpably arbitrary exercise which can be declared void. Only when the action of the administrative authority is so unfair or unreasonable that no reasonable person would have taken that action, can the court intervene." 51. In VLS Finance (supra), the Court relied upon the prima facie investigations conducted by the investigation wing that indicated the manipulation of the Profit & Loss A/c by the assessee to indicate losses despite profits earned in that year. Holding in favour of the Revenue, the Court did not interfere with the orders under Section 281B. In this context, while interpreting this provision in Society for Integrated Development in Urban and Rural Areas v. Commissioner of Income Tax and Anr. [2001] 252 ITR 642 (AP), the Court noted that there must be "reasonable apprehension that the assessee may default the ultimate collection of demand, i.e., likely to be raised on completion of the assessment". The power under Section 281B must not be invoked unless there is sufficient and relevant material on record to prove that the assessee is about to d....
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....pending assessments/reassessments will be difficult to recover." 53. In addition to this, NDTV has also issued guarantees to obtain a term loan for its subsidiary NDTV Convergence. 54. The AO relies on the CBDT Circular No. 4 of 2011 dated 19 July, 2011, which inter alia, states as follows: "3. The circumstances under which prior permission u/s 281 should be granted by the Assessing Officers are as follows: *************** ********* (iv) If demand is likely to arise in the next six months, then the AO should explore the possibility of action prescribed u/s 281B." 55. The revenue states that the annual reports and financial statements of the assessee show that its net worth has constantly declined over the years and has in fact declined to Rs. 339.42 cro....