2017 (7) TMI 867 - AT - Income Tax

Best judgment assessment - Unexplained Money - addition u/s 68 - Held that - It is admitted by the ld AR that order passed u/s 144 of the Act are appealable before the ld CIT(A), however, he stated that for filing an appeal the AO ought to have determined the total assessed income and demand of tax and further issued notice of demand u/s 156 of the Act. He further stated that no notice of demand was issued along with the draft assessment order dated 31.03.2013. According to us the ld AR did not appreciate that it is the final assessment order which is passed u/s 144 of the Act in pursuance to the direction of the ld DRP is showing computation of total income as well as the computation of demand of tax and also accompanied by the notice u/s 156 of the Act. Therefore, such assessment order is appealable before the ld CIT(A). However, the ld AR is referring to the draft assessment order only and naturally u/s 144C of the Act there is no provision of issuing notice of demand. The notice of demand u/s 156 of the Act is required to be issued only with the final order passed in pursuance of the direction of ld Dispute Resolution Panel, which is not demined by the assessee. Therefore, according to us the tribunal is not right appellate forum where assessee should have filed such an appeal where the order is passed u/s 144 read with section 144C of the Act. Hence, according to us the appeal of the assessee is not maintainable. Disallowance under section 40(a)(i) - commission paid to advertisement agency without deducting TDS - Held that - DAn advertiser engages an advertising agency and the advertising agency in turn approaches print and electronic media for publication/broadcast of the advertisement. There is no direct link between the print and electronic media and the advertiser. In the normal course when orders are released by the advertising agencies, the name of the client is always disclosed on it, though there is no principal agent relationship between the print and electronic media on one hand and the advertising agencies on the other hand. As per the rules of INS, accreditation is awarded by INS to the advertising agency which becomes eligible to receive 15 per cent discount from media companies on procuring advertisement space for/time in publication/broadcast for advertisers. It may be noted that even the discount is not at the will or contractual discretion; it is governed by INS regulations. In view of this we do not find any infirmity in the direction of the ld DRP in directing the ld Assessing Officer to delete the disallowance commission paid Non-deduction of tax on transmission and uplinking charges paid to Intelsat Corporation, USA - Held that - The assessee Company had no liability to deduct tax on such payments under section 195 of the Act which provides that any person would liable to deduct tax if the payments made to non-resident are chargeable to tax. When it has already been held be the jurisdictional High Court/Tribunal that such sum is not taxable in India in the recipient, no liability could be fastened on the payer to deduct on such sum. Thus, the disallowance of above sum by invoking the provisions of section 40(a)(i) of the Act will be arbitrary and unwarranted. No infirmity in the direction of the ld DRP in directing the ld Assessing Officer to delete the disallowance transmission and up linking charges paid to Intelsat Corporation USA. Addition on account of software expenses - Held that - The assessee has been allowed the identical claim in earlier years by the ldCIT(A) and based on that decision the ld DRP was also of the view that the above expenditure incurred by the assessee is revenue in nature. The ld DR could not controvert that why the order of the ld DRP is erroneous. In view of this we do not find any infirmity in the direction issued by the ldDRP. In the result we confirm the direction of the DRP. In view of this ground No. 3 of the appeal of the revenue is dismissed. Admission of additional evidence - Held that - It is difficult to accept the contention of the learned counsel for the assessee that there is a complete bar for the revenue to produce any additional evidence suo motu and it can be permit- ted to do so only if the Tribunal requires such evidence and accordingly directs the Department to produce the same. In our opinion, the first limb of condition stipulated in rule 29 clearly permits both the parties to the appeal to produce additional evidence and seek the leave of the Tribunal for admission thereof making out a case that the same shall enable it to pass orders or for any substantial cause and if the Tribunal is satisfied that the additional evidence so produced is required to enable it to pass orders or for any other substantial cause, it can allow the parties including the revenue to produce such additional evidence exercising its discretion in terms of the said Rule. Unexplained money added u/s 69A - amount representing share capital raised by NDTV Networks International Holdings BV, a subsidiary of the appellant company - Held that - he assessee has submitted scanty details and also tried to hide certain facts by not denying or owning the emails exchanged. Further it is too naive to accept in the facts and circumstances of the case that any transaction carried out through banking channel should be believed as genuine. In fact the money mostly rout through banking channels only and for these transactions only various sections in the income tax act are incorporated dehors the banking transitions such as section 69, 68 etc. It is only the banking transactions through which the tax evaders bring their unaccounted money in to the books by creating or dealing with entities/ persons without substances. In the present era where the business is carried on through and from complex, dynamic and multi jurisdictional, diverse entities, the transaction through banking channel does not have much credence, especially in like cases before us. During the course of hearing assessee was asked about KYC certificate of the foreign banks along with the beneficiary disclosure forms from the bankers from where the transactions have originated which is not submitted before us or before ld AO. Assessing Officer has correctly made the addition of ₹ 6425422000/- by invoking section 69A of the Act on account of money transferred by by M/s. Universal Studio International BV which was routed to the coffers of the assessee by entering in to series of mergers and liquidation by payment of dividend, loans without any obligation for repayment. Hence, we do not find any infirmity in the order of ld Assessing Officer as well as ld DRP and hence the addition of ₹ 642.54 crores in the hands of the assessee u/s 69A is confirmed. Decided against assessee Addition invoking the provisions of section 68 - Held that - The assessee has explained the statement of Mr. Rao and submitting its reply at page no. 23 to 25 of its reply submitted on 02.11.2016. Even otherwise, Mr. Rao is the Director of the company and director of the some subsidiaries. He was also the CEO of the company. During the course of his examination, he was asked question No. 34 wherein the details of funds raised and retained of the foreign subsidiaries was asked. He replied that most of the funds came to the Indian subsidiaries particularly NDTV Imagine through NNPLC. According to him this included a loan of US 50 million, which came to NNPLC as a loan from NDTV BV and was in fact was out of subscription money received from NBCU. In view of this statement of the Director of company who was at the helm of the affairs we do not have any option but to set aside this ground of cross objection back to the file of the ld Assessing Officer with a direction to make a proper enquiry with respect to the loan of US 50 million. The ld Assessing Officer is further directed to carry enquiry also with respect to the fact that whether this loan amount was also out of subscription sum received from NBCU and is part of the total consideration of ₹ 642 crore to avoid any duplication of addition in the interest of justice. The assessee is also directed to submit the complete explanation with respect to the above loan with exhaustive evidences before the ld Assessing Officer. Needless to say that ld Assessing Officer after enquiry as deem fit confront the assessee with the result of the enquiry and after seeking the explanation of the assessee deal with the issue in accordance with the law Jurisdiction of DRP directing the ld Assessing Officer to enhance the variation as a result of further enquiry in respect of loan transaction between NDTV Network PLC UK and NDTV Networks BV - Held that - According to the provision of section 144C(a) the Dispute Resolution Panel has power for enhancement to the variation proposed and further explanation added therein by the Finance Act 2012 with retrospective effect from 01.04.2009 also provides that the ld DRP has power to enhance the variation on any matter arising out of assessment proceedings relating to the draft order. Notwithstanding that such matter was raised or not by the eligible assessee. In view of this we dismiss ground No. 10 of the cross objection. Addition u/s 14A - Held that - In view of the above of the ld Assessing Officer that the assessee has not been disallowed any expenditure and further the Nil expenditure could not have been incurred in relation to exempt income because of common infrastructure and expenditure. Therefore, relying on the decision of the Hon ble Delhi High Court in Indiabulls Financial Services Ltd Vs. DCIT (2016 (11) TMI 1369 - DELHI HIGH COURT) the disallowance is required to be made u/s 14A of the Act. Further, the income of the dividend income from the foreign subsidiary is not exempt. Therefore, that investment must not be included while working disallowance u/s 14A. further, if the assessee has tax-free funds available more than the amount of investment then no disallowance with respect to the interest expenditure can be made of the nexus is not proved by the Assessing Officer. in view of all these facts in the interest of justice we set aside the issue of disallowance u/s 14A back to the file of the ld AO with a direction to recomputed disallowance after giving assessee a reasonable opportunity of hearing. TPA - grant assessee the adjustment on account of working capital - Held that - We set aside ground of the appeal of the assessee back to the file of the ld TPO with a direction to the assessee to submit the details of working capital adjustment to the ld Transfer Pricing Officer and if the ld TPO find it after examination in accordance with the law then same may be granted to the assessee. Addition in respect of alleged international transaction of provision of corporate guarantee on the ground that appellant has been compensated from providing such alleged guarantee - Held that - whether corporate guarantee is an international transaction or not is a matter pending before the Special Bench of the Tribunal. In view of this both the parties requested to setting aside this ground of appeal to file of TPO with a direction to decide after the order of the Special Bench. - in view of this we set aside this ground of cross objection of the assessee to the file of the ld TPO with a direction to decide the issue after the decision of the Special Bench of tribunal. Decided partly in favor of assessee.

Summary

Issues Involved:
1. Sham Transaction and Unexplained Money under Section 69A of the IT Act.
2. Unsecured Loans and Their Tax Implications under Section 68 of the IT Act.
3. Disallowance under Section 14A of the IT Act.
4. Transfer Pricing Adjustments.
5. Corporate Guarantee as an International Transaction.
6. Interest under Sections 234B and 234D, and Withdrawal of Interest under Section 244A.
7. Penalty Proceedings under Section 271(1)(c) of the IT Act.

Issue-Wise Detailed Analysis:

1. Sham Transaction and Unexplained Money under Section 69A of the IT Act:
The core issue revolves around the characterization of a sum of ?642,54,22,000/- received by the assessee's subsidiary, NDTV Networks International Holdings BV (NNIH), from Universal Studios International BV (USBV). The Assessing Officer (AO) and the Dispute Resolution Panel (DRP) concluded that the transaction was a sham designed to introduce unaccounted money into the assessee's books. The transaction involved the sale of shares at a high premium and subsequent buy-back at a significantly lower price, leading to the conclusion that the transaction lacked commercial substance and was engineered for tax evasion. The DRP and AO invoked Section 69A, determining that the amount represented unexplained money owned by the assessee.

2. Unsecured Loans and Their Tax Implications under Section 68 of the IT Act:
During the assessment year, the assessee raised unsecured loans amounting to ?365.25 crores through its subsidiary NNPLC. The AO and DRP found that the assessee failed to substantiate the identity, creditworthiness, and genuineness of the transactions. The DRP directed the AO to make an addition of ?254.75 crores under Section 68, citing the lack of evidence to support the assessee's claims. The AO's remand report highlighted the absence of documentation and verification regarding the source of the loan, leading to the conclusion that the assessee had not discharged its onus under Section 68.

3. Disallowance under Section 14A of the IT Act:
The AO disallowed ?78,40,990/- under Section 14A, applying Rule 8D, due to the assessee's failure to allocate any expenditure towards earning exempt income. The DRP directed the AO to record reasons for invoking Rule 8D, which the AO subsequently did, noting that the assessee's claim of nil expenditure was unreasonable given the common infrastructure and personnel used for earning both exempt and taxable income. The matter was set aside to the AO for recomputation, excluding investments in foreign subsidiaries and considering tax-free funds available.

4. Transfer Pricing Adjustments:
The assessee contested the Transfer Pricing Officer's (TPO) adjustment of ?74,63,229/- for business support services, arguing that the actual price received was ?75,27,788/-. The assessee also sought a working capital adjustment, which the DRP did not consider. The Tribunal directed the TPO to examine the claim for working capital adjustment and grant it if found in accordance with the law.

5. Corporate Guarantee as an International Transaction:
The issue of whether providing a corporate guarantee constitutes an international transaction was pending before the Special Bench of the Tribunal. Both parties agreed to set aside the matter to the TPO, to be decided after the Special Bench's ruling.

6. Interest under Sections 234B and 234D, and Withdrawal of Interest under Section 244A:
The issues of charging interest under Sections 234B and 234D, and the withdrawal of interest under Section 244A, were acknowledged by both parties as consequential to the determination of the assessee's income. These grounds were dismissed as they depend on the final income computation.

7. Penalty Proceedings under Section 271(1)(c) of the IT Act:
Penalty proceedings were initiated under Section 271(1)(c) for concealment of income. The AO issued a show-cause notice detailing the findings from the assessment and penalty proceedings, including statements from key individuals and email evidence suggesting the routing of funds to evade taxes. The Tribunal noted that the penalty proceedings are separate and independent, and the additional evidence gathered during these proceedings was admitted for consideration.

Conclusion:
The Tribunal upheld the addition of ?642.54 crores under Section 69A, finding the transaction to be a sham. The issue of unsecured loans was set aside for further examination by the AO. The disallowance under Section 14A was also set aside for recomputation. The Transfer Pricing adjustment and the issue of corporate guarantee were remanded to the TPO for reconsideration. The grounds related to interest and penalties were dismissed as consequential. The Tribunal's detailed analysis emphasized the need for substantial evidence and transparency in financial transactions to avoid adverse tax implications.