Case: NEW DELHI TELEVISION LTD Vs. DEPUTY COMMISSIONER OF INCOME TAX

1. The appellant New Delhi Television Limited (hereinafter referred to as the assessee) is an Indian company engaged in running television channels of various kinds. It has various foreign subsidiaries to which we shall refer in detail later on but we are concerned mainly with the subsidiary based in the United Kingdom (UK) named NDTV Network Plc., U.K. (hereinafter referred to as NNPLC)2. The assessee submitted a return for the financial year 2007- 08 i.e. assessment year 2008-09 on 29.09.2008 declaring a loss. This return was processed under Section 143 of the Income Tax Act, 1961 (hereinafter referred to as the Act). The case was selected for scrutiny and notice under Section 143(2) of the Act was issued and a notice under Section 142(1) of the Act was also sent to the assessee. Thereafter, the case of the assessee was taken up for consideration and final assessment order was passed on 03.08.20123. We are mainly concerned with that part of the assessment order which relates to the issue of step-up coupon bonds amounting to US$100 million. These bonds were issued in July, 2007 through the Bank of New York for a period of 5 years. The case of the assesee is that NNPLC issued step-up coupon bonds of US$ 100 million which were arranged by Jeffries International and the funds were received by NNPLC through Bank of New York. The assessee had agreed to furnish corporate guarantee for this transaction. These bonds were subscribed to by various entities to whom we shall refer to in detail at a later stage. These bonds were to be redeemed at a premium of 7.5% after the expiry of the period of 5 years. However, these bonds were redeemed in advance at a discounted price of US $74.2 million in November, 20094. The assessing officer held that NNPLC had virtually no financial worth, it had no business of the name and therefore it could not be believed that it could have issued convertible bonds of US$ 100 million, unless the repayment along with interest was secured. This was secured only because of the assessee agreeing to furnish guarantee in this regard. Though the assessee had never actually issued such guarantee, the assessing officer was of the view that the subsidiary of the assessee could not have raised such a huge amount without having this assurance from the assessee. The transaction was of such a nature that the assessee should be required to maintain an arms length from its subsidiary, meaning that it should be treated like a guarantee issued by any corporate guarantor in favour of some other corporate entity. The assessing officer did not doubt the validity of the transaction but imposed guarantee fee @ rate of 4.68% by treating it as a business transaction and added Rs. 18.72 crores to the income of the assessee, vide order dated 03.08.2012.5. On 31.03.2015, the revenue sent a notice to the assessee wherein it was stated that the authority has reason to believe that net income chargeable to tax for the assessment year 2008- 09 had escaped assessment within the meaning of Section 148 of the Act. This notice did not give any reasons. The assessee then asked for reasons and thereafter on 04.08.2015 reasons were supplied. The main reason given was that in the following assessment year i.e. assessment year 2009-10, the assessing officer had proposed a substantial addition of Rs.642 crores to the account of the assessee on account of monies raised by the assessee through its subsidiaries NDTV BV, The Netherlands, NDTV Networks BV, The Netherlands (NNBV), NDTV Networks International Holdings BV, The Netherlands (NNIH) and NNPLC. The assessee had raised its objection before the Dispute Resolution Panel (DRP) which came to the conclusion that all these transactions with the subsidiary companies in Netherlands were sham and bogus transactions and that these transactions were done with a view to get the undisclosed income, for which tax had not been paid, back to India by this circuitous round tripping6. The assessing officer relies upon the order of the DRP holding that there is reason to believe that funds received by NNPLC were actually the funds of the assessee. It was specified that NNPLC had a capital of only Rs.40 lakhs. It did not have any business activities in the United Kingdom except a postal address. Therefore, it appeared to the assessing officer that it was unnatural for anyone to make such a huge investment of $100 million in a virtually non-functioning company and thereafter get back only 72% of their original investment. According to the assessing officer The natural inference could be that it was NDTVs own funds introduced in NNPLC in the grab of the impugned bonds. The details of the investors are given in this communication giving reasons. Mention has also been made of complaints received from a minority shareholder in which it is alleged that the money introduced in NNPLC was shifted to another subsidiary of the assessee in Mauritius from where it was taken to a subsidiary of the assessee in Mumbai and finally to the assessee. NNPLC itself was placed under liquidation on 28.03.2011. Therefore, the assessing officer was of the opinion that there were reasons to believe that the funds received by NNPLC were the funds of the assessee under a sham transaction and that the amount of Rs.405.09 crores introduced into the books of NNPLC during the financial year 2007-08 corresponding to the assessment year 2008-09 through the transaction involving the step-up coupon convertible bonds pertains to the assessee. The last portion of the communication dt. 04.08.2015 giving reasons to the assessee reads as follows:-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 a 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 material for assessment7. The assessee filed reply to the notice and reasons given, and claimed that there had been no failure on the part of the assessee to disclose fully and truly all material facts necessary to make an assessment. Assessee also claimed that the proceedings had been initiated on a mere change of opinion and there was no reason to believe. The assessee also claimed that the transaction of step-up bonds was a legal and valid transaction. In addition, it was claimed that the assessing officer had no valid reasons to believe that the income of the assessee had escaped assessment. According to the assessee the assessment officer had accepted the genuineness of the transaction wherein NNPLC, the subsidiary, had issued convertible bonds which had been subscribed by many entities. It was urged that the assessing officer had treated the transaction to be genuine by levying guarantee fees and adding it back to the income of the assessee. In the alternative, it was submitted that the notice had been issued beyond the period of limitation of 4 years. According to the assessee it had not withheld any material facts and, therefore, limitation of 6 years as applicable to the first proviso to Section 147 would not apply8. The assessing officer did not accept these objections. The claim of the assessee was disposed of by the assessing officer vide order dated 23.11.2015 wherein the assessing officer held that there was non-disclosure of material facts by the assessee and the notice would be within limitation since NNPLC was a foreign entity and admittedly a subsidiary of the assessee and the income was being derived through this foreign entity. Hence, the case of the assessee would fall within the 2 nd proviso of Section 147 of the Act and the extended period of 16 years would be applicable. The objections were accordingly rejected9. Aggrieved, the petitioner filed a writ petition in the High Court challenging the notice. The writ petition was dismissed on 10.08.2017. Against this the assessee has filed the present Appeal.

Reasoning:
That may be true, but merely the fact that the original assessment is a detailed one, cannot take away the powers of the assessing officer to issue notice under Section 147 of the Act13. We would like to make it clear that we are not going into the merits of the allegations made against the assessee. At this stage we are only required to decide whether the revenue has sufficient reasons to believe that undisclosed income of the asseessee has escaped assessment and therefore there are grounds to issue notice. Obviously, during the assessment proceedings the assessee will have the right to place material on record to show that the transaction in question was a genuine transaction22. A perusal of the aforesaid judgments clearly shows that subsequent facts which come to the knowledge of the assessing officer can be taken into account to decide whether the assessment proceedings should be re-opened or not. Information which comes to the notice of the assessing officer during proceedings for subsequent assessment years can definitely form tangible material to invoke powers vested with the assessing officer under Section 147 of the Act23. The material disclosed in the assessment proceedings for the subsequent years as well as the material placed on record by the minority shareholders form the basis for taking action under Section 147 of the Act. At the stage of issuance of notice, the assessing officer is to only form a prima facie view. In our opinion the material disclosed in assessment proceedings for subsequent years was sufficient to form such a view. We accordingly hold that there were reasons to believe that income had escaped assessment in this case. Question No.1 is answered accordinglyWe make it clear that we are not going into this aspect of the matter because those complaints have not seen light of the day either before the High Court or this Court and, therefore, it would be unfair to the assessee if we rely upon such material which the assessee has not been confronted with26. Even before the assessment order was passed on 03.08.2012, the assessing officer was aware of the entities which had subscribed to the convertible bonds. This is apparent from the communication dated 08.04.2011. The case of the revenue is that the assessee did not disclose the amount subscribed by each of the entities and furthermore the management structure of these companies. We are not in agreement with this submission of the revenue. It is apparent from the records of the case that the revenue was aware of the entities which subscribed to the convertible bonds. It has been urged that these are bogus companies, but we are not concerned with that at this stage. The issue before us is whether the revenue can take the benefit of the extended period of limitation of 6 years for initiating proceedings under the first proviso Section 147 of the Act. This can only be done if the revenue can show that the assessee had failed to disclose fully and truly all material facts necessary for its assessment. The assessee, in our view had disclosed all the facts it was bound to disclose. If the revenue wanted to investigate the matter further at that stage it could have easily directed the assessee to furnish more facts27. The High Court held that there was no true and fair disclosure in view of the law laid down by this Court in Phool Chands case (supra), and the judgment of the Delhi High Court in Honda Siel Power Products Limited vs. Deputy Commissioner Income-Tax and Another (2012) 340 ITR 53 (Delhi)  . We have already referred to the judgment in Phool Chands case (supra), wherein it was held that where the transaction of a particular assessment year is found to be a bogus transaction, the disclosures made could not be said to be all true and full. Relying upon the said judgment the High Court held that merely because the transaction of convertible bonds was disclosed at the time of original assessment does not mean that there is true and full disclosure of facts28. We are unable to agree with this reasoning given by the High Court. The assessee as mentioned above made a disclosure about having agreed to stand guarantee for the transaction by NNPLC and it had also disclosed the factum of the issuance of convertible bonds and their redemption. The income, if any, arose because of the redemption at a discounted price. This was an event which took place subsequent to the assessment year in question though it may be income for the assessment year. As we have observed above, all relevant facts were duly within the knowledge of the assessing officer. The assessing officer knew who were the entities who had subscribed to other convertible bonds and in other proceedings relating to the subsidiaries the same assessing officer had knowledge of addresses and the consideration paid by each of the bondholders as is apparent from assessment orders dated 03.08.2012 passed in the cases of M/s. NDTV Labs Ltd. and M/s. NDTV Lifestyle Ltd. Therefore, in our opinion there was full and true disclosure of all material facts necessary for its assessment by the assessee29. The fact that step-up coupon bonds for US$ 100 million were issued by NNPLC was disclosed; who were the entities which subscribed to the bonds was disclosed; and the fact that the bonds were discounted at a lower rate was also disclosed before the assessment was finalised. This transaction was accepted by the assessing officer and it was clearly held that the assessee was only liable to receive a guarantee fees on the same which was added to its income. Without saying anything further on merits of the transaction we are of the view that it cannot be said that the assessee had withheld any material information from the revenueIt is not disputed that the assessee had obtained an exemption from the competent authority under the Companies Act, 1956 from providing such details in its final accounts, balance sheets, etc. As such it cannot be said that the assessee was bound to disclose this to the Assessing Officer. The Assessing Officer before finalising the assessment of 03.08.2012 had never asked the assessee to furnish the details31. The revenue now has come up with the plea that certain documents were not supplied but according to us all these documents cannot be said to be documents which the assessee was bound to disclose at the time of assessment. The main ground raised by the revenue is that the assessee did not disclose as to who had subscribed what amount and what was its relationship with the assessee. As far as the first part is concerned it does not appear to be correct. There is material on record to show that on 08.04.2011 NNPLC had sent a communication to the Deputy Director of Income Tax (Investigation), wherein it had not only disclosed the names of all the bond holders but also their addresses; number of bonds along with the total consideration received. This chart forms part of the assessment orders dated 03.08.2012 in the case of M/s. NDTV Labs Ltd. and M/s. NDTV Lifestyle Ltd. The said two assessment orders were passed by the same officer who had passed the assessment order in the case of the assessee on the same date itself. Therefore, the entire material was available with the revenueA careful analysis of this judgment indicates that the Constitution Bench held that it is the duty of the assessee to disclose full and truly all material facts which it termed as primary facts. Non- disclosure of other facts which may be termed as secondary facts is not necessary. In light of the above law, we shall deal with the facts of the present case33. In our view the assessee disclosed all the primary facts necessary for assessment of its case to the assessing officer.What the revenue urges is that the assessee did not make a full and true disclosure of certain otherof the view that the assessee had disclosed all primary facts before the assessing officer and it was not required to give any further assistance to the assessing officer by disclosure of other facts. It was for the assessing officer at this stage to decide what inference should be drawn from the facts of the case. In the present case the assessing officer on the basis of the facts disclosed to him did not doubt the genuiness of the transaction set up by the assessee. This the assessing officer could have done even at that stage on the basis of the facts which he already knew. The other facts relied upon by the revenue are the proceedings before the DRP and facts subsequent to the assessment order, and we have already dealt with the same while deciding Issue No.1. However, that cannot lead to the conclusion that there is non-disclosure of true and material facts by the assessee34. It is interesting to note that whereas before this Court the revenue is strenuously urging that the assessee is guilty of non- disclosure of material facts, before the High Court the case of the revenue was just oppositeThis submission has been repeated a number of times in the counter-affidavit. Therefore, in our opinion the revenue cannot now turn around and urge that the assessee is guilty of non- disclosure of facts. We are also of the view that the revenue could not be permitted to blow hot and cold at the same time.35. We are clearly of the view that the revenue in view of its counter-affidavit before the High Court that it was not relying upon the non-disclosure of facts by the assessee could not have been permitted to orally urge the same. Even otherwise we find that the assessee had fully and truly disclosed all material facts necessary for its assessment and, therefore, the revenue cannot take benefit of the extended period of limitation of 6 years. We answer Question No.2 accordingly38. In this regard we may make reference to the notice dated 31.03.2015. The notice is conspicuously silent with regard to the second proviso. It does not rely upon the second proviso and basically relies on the provision of Section 148 of the Act. The reasons communicated to the assessee on 04.08.2015 mention reason to believe and non-disclosure of material facts by the assessee. There is no case set up in relation to the second proviso either in the notice or even in the reasons supplied on 04.08.2015 with regard to the notice. It is only while rejecting the objections of the assessee that reference has been made to the second proviso in the order of disposal of objections dated 23.11.201539. The High Court relied upon the judgment in Mohinder Singh Gill & Anr. vs. The Chief Election Commissioner, New Delhi & Ors. (1978) 2 SCR 272  and came to the conclusion that the revenue cannot rely upon the second proviso because the notice was silent in this regard. However, the High Court held that the assessee was guilty of non-disclosure of material facts. We have already held that in our view the assessee was not guilty of non- disclosure of material facts. The revenue has not challenged the judgment of the High Court in so far as this finding against it is concerned but the revenue is entitled to defend the petition even on a ground which may have been decided against it by the High CourtThere can be no quarrel with this proposition of law. However, the noticee or the assesee should not be prejudiced or be taken by surprise. The uncontroverted fact is that in the notice dated 31.03.2015 there is no mention of any foreign entity. There is only mention of the Section 148. Even after the assessee specifically asked for reasons, the revenue only relied upon facts to show that there was reason to believe that income has escaped assessment and this escapement was due to the non-disclosure of material facts. There is nothing in the reasons to indicate that the revenue was intending to apply the extended period of 16 years. It is only after the assessee filed its reply to the reasons given, that in the order of rejection for the first time reference was made to the second proviso by the revenue41. In our view this is not a fair or proper procedure. If not in the first notice, at least at the time of furnishing the reasons the assessee should have been informed that the revenue relied upon the second proviso. The assessee must be put to notice of all the provisions on which the revenue relies upon. At the risk of repetition, we reiterate that we are not going into the merits of the case but in case the revenue had issued a notice to the assessee stating that it relies upon the second proviso, the assessee would have had a chance to show that it was not deriving any income from any foreign asset or financial interest in any foreign entity, or that the asset did not belong to it or any other ground which may be available. The assessee cannot be deprived of this chance while replying to the notice42. Therefore, even if we do not fall back on the reason given by the High Court that the revenue cannot take a fresh ground, we are clearly of the view that the notice and reasons given thereafter do not conform to the principles of natural justice and the assessee did not get a proper and adequate opportunity to reply to the allegations which are now being relied upon by the revenue43. If the revenue is to rely upon the second proviso and wanted to urge that the limitation of 16 years would apply, then in our opinion in the notice or at least in the reasons in support of the notice, the assessee should have been put to notice that the revenue relies upon the second proviso. The assessee could not be taken by surprise at the stage of rejection of its objections or at the stage of proceedings before the High Court that the notice is to be treated as a notice invoking provisions of the second proviso of Section 147 of the Act. Accordingly, we answer the third question by holding that the notice issued to the assessee and the supporting reasons did not invoke provisions of the second proviso of Section 147 of the Act and therefore at this stage the revenue cannot be permitted to take benefit of the second proviso.