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TMI Blog2017 (8) TMI 729X X X X Extracts X X X X X X X X Extracts X X X X ..... s Court is of the view that the impugned reassessment notice is valid in law and can be sustained. Provisional attachment of NDTV’s assets - validity of attachment and permissible under Section 281B - Held that:- In terms of Para 10 of the provisional attachment order dated 14.09.2015, NDTV issued unconditional and irrevocable guarantee to the extent of ₹ 3.5 crore and ₹ 5 crore for obtaining a term loan from Yes Bank by its subsidiary NDTV Convergence Limited. However, while pledging these assets, NDTV failed to seek permission from the Department as per the provisions of section 281 of the Act read with CBDT's Circular No. 4 of 2011 dated 19.07.2011. It is submitted that NDTV is aware of the Circular, because the AO had issued an advisory to the petitioner by letter no. 529 dated 01.08.2014. This Court is of the view that a reasonable apprehension that NDTV may liquidate the assets thwarting the recovery of tax liability is not unwarranted. This court further notes the AO’s decision not to attach the bank accounts and other trade receivables of NDTV so as to ensure unhampered operation of its business. This decision is in line with the judgment of the Bombay Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 commission on advertisement income that was later set aside by the Commissioner of Income Tax (Appeals) (Appeal No. 50/2012-13/CIT(A)-XX). With regard to the AY 2008-09, NDTV thus, earned a right to refund of over ₹ 19.88 crores. 4. With respect to the AY 2009-10, the investment of ₹ 642 crores in NNIH by USBV was examined by the AO after a reference to the Transfer Pricing Officer (TPO). The AO was of the view that the introduction of funds in NNIH was actually NDTV s unaccounted money and concluded that it was a sham transaction. This was further examined by the Dispute Resolution Panel (hereinafter, DRP ), which allowed the lifting of the corporate veil. The DRP, examining the said transaction held: DRP has carefully considered entire gamut of transaction and is of the opinion that the structure of the holding/ subsidiary companies and the transaction as narrated above, without any commercial substance, do warrant lif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 transmission and up-linking charges by the AO. The final assessment order of AO was further appealed before the ITAT. With respect to the AY 201011, the draft Assessment Order has made additions relating to the commission on advertisement income and transmission and up-linking charges. 6. In this background of circumstances, the revenue issued a notice, dated 31.03.2015 under Section 148 of the Act (hereinafter, impugned notice ) and sought to re-open the assessment of AY 2008-09. Responding to this notice, the assessee requested the reasons for the re-opening of the reassessment to be furnished. 7. The Respondent acceded to NDTV s request and furnished the following reasons: Return declaring loss of ₹ 53,19,275/- was filed on 29.09.2008 and the assessment was completed u/s 143(3) on 03.08.2012 at an income of ₹ 93,98,18,728/-. 2. The main additions included disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... $ 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 regard, NDTV gave an undertaking to provide a corporate guarantee for and on behalf of NNPLC, as and when required. 6.2 Subsequently, during the financial year 2010-11 relevant to AY 2011-12, NNPLC repurchased the US $100 million Step up Coupon Bonds, which were due in 2012. The Bonds were repurchased for US $ 72.4 million. The transaction resulted in a gain on buy back amounting to ₹ 128.28 crores (US$ 27.60 million) for NNPLC. 6.3 The above transactions of issue of coupons and the subsequent repurchase resulted in introduction of ₹ 405.09 crores in the account books of NNPLC, out of which ₹ 128.28 crores finally stayed with NNPLC. 6.4 NNPLC had only a small capital of ₹ 40 lacs and did not have any business activities, any fixed assets, any place of business except a postal address in UK, was a new entrant without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reassessment, on 27.08.2015. These objections elaborated why re-opening was not feasible or permissible in law and that the issues on which the revenue was proposing to issue notice, had been examined during regular assessment proceedings. According to NDTV, therefore, reassessment in effect amounted to review or a second look at the same material, which was not permissible in law. The objections were however, rejected by the AO in his letter dated 23.11.2015. Dissatisfied with the order of the AO, NDTV has preferred the present proceedings under Article 226 of the Constitution of India. 9. The AO, keeping in mind the estimated position of demands that would likely to arise from the re-assessment proceedings for the AY 2008-09 and the assessment proceedings for the AY 2010-11, 2011-12, 2012-13 and 2013-14 as well as the declining net worth of NDTV, passed an order dated 14.09.2015 under Section 281B of the Act provisionally attaching the immovable properties, non-current investments and refund of ₹ 19.88 crores due to NDTV for the AY 2008-09. 10. Aggrieved by that order, NDTV has filed the second Writ Petition W.P.(C) 9120/2015. Issues involved 11. The following q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her asked to specify the fee charged for the same and computation thereof. In this regard, it is respectfully submitted that during the financial year relevant to the subject assessment year, NDTV Networks Plc, (NNPLC), had raised funds by issuing US $100 million convertible bonds. As per the terms of the bonds, NDTV had given an undertaking to provide a corporate guarantee for and on behalf of NNPLC, as and when required. However, the requirement for giving the corporate guarantee never arose and therefore no corporate guarantee was given. Accordingly, no fee was charged as there was no requirement to charge the same and neither any corporate guarantee was given. The assessee had duly submitted these details vide submission dated I91h December'20I I and 26th December'2011 along with a Copy of the extracts of the resolution dated 22nd May'2007. The above understanding was contained in Terms and Conditions of the Bonds which form a part of the Subscription Agreement. A copy Subscription Agreement alongwith the relevant Terms and Conditions of the Bonds is attached as Annexure. 15. Reliance was placed on NDTV s letter of 28.05.2011, to the revenue, the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormation regarding the Step Up Coupon Bonds. The Subscription Agreement, names of bondholders, Trust Deed were all referred to and relied upon in the said letters filed by the Petitioner and NNPLC. If the AO wanted any further details/information, he could have asked for the same from NDTV. After examination of all the aforesaid data, the AO vide Order dated 03.08.2012 passed under 143(3) of the Act holds that since NDTV stood as a guarantor for issuance of the Step up Coupon Bonds and exposed itself to risks pertaining to the transaction , it should have received arm's length consideration for such service/guarantee. Accordingly, a transfer pricing adjustment ofRs.18.72 crores was made in the hands of the NDTV. AO was of the view that the issuance of Step Up Coupon Bonds by NNPLC was a bonafide and genuine commercial transaction and without the provision of the guarantee by NDTV, NNPLC would not have been able to raise the money through the said bonds. The case made out in the reasons recorded by revenue that the money introduced in NNPLC is the NDTV's own money is, therefore, inconsistent and diametrically opposite, to the case made out by AO in the original assessment pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel also argues that in the reasons recorded the AO's inference that it could be NDTV's own funds introduced in NNPLC in the garb of impugned bonds is without any material and only on account of suspicion and conjectures and the assessment has been reopened to make roving and fishing enquiries. Counsel submitted that all particulars relating to the transactions were fully disclosed; further the UK revenue authorities furnished the documents. 20. Learned counsel relied on JSRS Udyog Limited and Another v. Income Tax Officer [2009] 313 ITR 321 (Del) where this court held that: Apart from merely saying that the receipts of the share application money were bogus and sham transactions, there is nothing indicated either in the reasons or in the impugned order dated November 28, 2008, to enable us to arrive at such a conclusion.. 20. In the reasons supplied to the petitioner, there is no whisper, what to speak of any allegation, that the petitioner had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely having a reason to believe that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the AO. had reason to believe that there had been escapement of income. This was on the basis of the DRP proceedings for the AY 2009-10 wherein the DRP held that the transaction routed through NDTV s subsidiary NNBV was sham and required lifting of the corporate veil. The DRP also noted that given the financial strength of NNPLC, it was doubtful that investors purchased the Step Up Coupon bonds only to resell them at a loss in AY 2011-12. In addition to this, the AO also relied on the tax evasion petitions filed by the shareholders of NDTV alleging that the investment introduced in NDTV s subsidiaries was NDTV s own unaccounted money that was later transferred to NDTV through merger and liquidation of the said subsidiaries. On the basis of this information, the AO formed an opinion that the investment made through Step Up Coupon Bonds is a sham transaction and NDTV s own unaccounted money, similar to the investment made in NNBV of US $150 million. Thus, there was tangible material to reopen the assessment for AY 2008-09 and the impugned notice must not be quashed. 23. The learned ASG also submitted that in cases of sham transactions, it was not necessary to record how NDTV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hort period of time; for example, the investors in bonds were allegedly returned ₹ 290 crores out of investment of ₹ 405 Crores, while USBV was returned only ₹ 58 crores out of investment of ₹ 642 Crores. The balance funds of ₹ 699 Crores [i.e. ₹ 115 Crores (Rs. 405 Crore - ₹ 290 Crores) + ₹ 584 Crore (Rs. 642 Crore - ₹ 58 Crore) = ₹ 699 Crores] were retained by the foreign subsidiaries of the petitioner, which were ultimately transferred to petitioner itself. The real source of these funds was and is unexplained and all the key subsidiaries in Netherlands and UK were liquidated by FY 2011-12, which created considerable problems for the revenue in gathering of information from tax officials of foreign countries, particularly about their bank accounts. It was argued that during the original assessment proceedings, by notice issued under Sections 143(2)/142(1) dated 05.11.2009, the AO specifically required NDTV to furnish all statutory reports as per the Income Tax Act, copies of which could not be filed with return of income. However, in response to this notice, it furnished only standalone financial statements of NDTV an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . To give a couple of illustrations, suppose an I.T.O., in the original assessment, which is a voluminous one involving several contentions, accepts a plea of the assessee in regard to one of the items that the profits realised on the sale of a house is a capital realisation not chargeable to tax. Subsequently he finds, in the forest of papers filed in connection with the assessment, several instances of earlier sales of house property by the assessee. That would be a case where the I.T.O. derives information from the record on an investigation or enquiry into facts not originally undertaken. Again, suppose if I.T.O. accepts the plea of an assessee that a particular receipt is not income liable to tax. But, on further research into law he finds that there was a direct decision holding that category of receipt to be an income receipt. He would be entitled to reopen the assessment under S.147(b) by virtue of proposition (4) of Kalyanji Mavji. The fact that the details of sales of house properties were already in the file or that the decision subsequently come across by him was already there would not affect the position because the information that such facts or decision existed come ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsidiary companies. The revenue relies on paragraph 5 of reasons recorded in paragraph 5.16.1 of the DRP's order. It is stated that NNPLC had only a small capital of ₹ 40 lakh and did not have any business activities, any fixed assets, any place of business except a postal address in UK. NNPLC was a new entrant without any performance record, was a loss making company having incurred loss of about ₹ 8.34 crore during the year and book value of its share (having face value of ₹ 4050 per share) was in the negative. The revenue relies on Para 6.4 of the reasons recorded and para 5.14 (2.3.11.1) of the DRP's order. Considering financial conditions of the NNPLC, it was quite unlikely that any prudent investor will make investment of US$ 100mn (Rs.405.09 crore) in coupon convertible bonds during the year under consideration which were repurchased later in subsequent AY 2011-12at loss. Para2.1.18 of the DRP's order is relied on. Most of investors were located in known tax heavens namely British Virgin Islands, Cayman Islands and Switzerland. Even the bifurcation of the amounts of investment by each of eight investors was not disclose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llion, the source of which was not explained in the books of accounts of the NNPLC as evident from the findings of DRP relied upon by the AO while recording the reasons that the petitioner introduced its own money. 32. It is pointed out that NDTV is one of the signatories of the Underwriting Agreement in order to raise US $ 100 million from alleged investors. NNPLC is a subsidiary company 100% owned and managed by NDTV. According to the revenue, the money raised through bonds was ultimately transferred to NDTV after liquidation of the NNPLC in the year 2011 and merger of NDTV Mauritius Media Ltd. (subsidiary of the petitioner) with NDTV One Holdings Limited (subsidiary of the petitioner) on 30.09.2011 and finally, the merger of NDTV One Holdings Limited with the petitioner company and thus becomes NDTV s income, which is liable to be taxed. These facts lead to a reasonable belief that undisclosed income of ₹ 405.09 crores (equal to US$ 100 Million) chargeable to tax for the year under consideration has escaped assessment. It is evident from the above that reason to belief of the AO was based on credible information and material, which came to the knowledge of the AO after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o file return and if he so desires, to seek reasons for issuing notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the assessing officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the above said five assessment years. 34. Thus, an assessee can object to the re-opening of the assessment under Section 147 only when the correct reasons are provided by the AO. 35. Having said that, the issue of whether reasons can be supplemented by a counter-affidavit was considered by this Court in Haryana Acrylic Manufacturing Company v. The Commissioner of Income Tax and Anr. [2009] 308 ITR 38 (Delhi). In that case, the Respondents alleged that the reasons provided in the notice under Section 148 were not the actual reasons for re-opening of the assessment. The actual reasons had been filed by way of a counter-affidavit. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. That decision had taken note of Lakhmani Mewal Dass and Calcutta Discount (supra). This court also notes that the subsequent ruling of a three judge bench of the Supreme Court in Commissioner of Income Tax v Kelvinator India Ltd (2010) 320 ITR 561 (SC) crystallizes the acceptable standard for upholding a reassessment notice (under Section 147/148) as something beyond the existing record, in the form of tangible material available to the AO which provides a live link to the formation of a legitimate belief that reassessment is called for. In the present case, the formation of opinion is recorded in the note (i.e reasons to believe ) dated 30-03-2001 which noted that for AY 1996-97, the forfeiture of the loan was treated as cessation of trading liability and that even in its submissions before CIT (A) the assessee failed to establish the truthfulness of its claim of the receipt of loan of ₹ 10.65 crores despite being afforded specific opportunities. The CIT (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iary 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 filed whatsoever for the so called business projections and the basis for computation of the sale price of the share at the astronomical price of ₹ 7,015/- which is 159 times of its face value of ₹ 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 ₹ 634.17 per share totalling ₹ 58 crores. Here also no details/ justification has been given by the assessee as to how the above buy back price was fixed by the assessee when the so called Dream went bust, as being claimed by assessee. What was the justific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsidiaries have again repurchased the same share in the very next financial year at the price of ₹ 634.17 per share totaling ₹ 58 crores. Here also no details/justification has been given by the assessee as to how the above buy back price was fixed by the assessee when the so called 'Dream went bust, as being claimed by assessees. What was the justification for the assessees 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 ₹ 642,54,22,000/- in its books and providing loss of ₹ 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment 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 below: The appellant was not able to produce the above documents since the issue came up for the first time before the DRP and the assessee as unable to submit the same due to paucity of time. The loan agreement was not specifically asked for by the Ld. AO. The evidence submitted in this submission is correct and very much relevant for deciding the appeal of the appellant. It is requested to your good self that the evidences be admitted and be considered for deciding the matter. Your goodself may exercise the powers conferred on yourself by the law, which are very much required to be exercised in the light of facts and circumstances of the case. 5.21. The additional evidence in the form of copy of the purported loan agreement (supri) has been admitted in the interest of natural justice and was handed over to the AO for his response. The response is received, the extract of which is reproduced below: Extract of response of the AO dated 26.12.2013 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 147 of the Act, and apparently the Income Tax Officer proceeded on the basis that in consequence of information in his possession he had reason to believe that income chargeable to tax had escaped assessment for the two assessments years. From the material before us it appears that the Income Tax Officer came to realise that income 35 had escaped assessment for the two assessment years when he was in the process of making assessment for a subsequent assessment year. While making that assessment he came to know from the documents pertaining to that assessment that the overhead expenses related to the entire business including the business as commission agents and 40 were not confined to the business of purchase and sale. It is true, as the High Court has observed, that this information could have been acquired by the Income Tax Officer if he had exercised the due diligence at the time of the original assessment itself. It does not appear, however, the attention of the Income Tax Officer was directed by any- 45 thing before him to the fact that the overhead expenses related to the entire business. The information derived by the Income Tax Officer evidently came into his possessio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 . 44. This has also been reiterated by the Patna High Court in Kapoor Brothers v. Union of India (2001) 247 ITR 324 (Pat) and by the Bombay High Court in Nickunj Exim Enterprises (P) Ltd. v. Assistant Commissioner of Income Tax (2014) 270 CTR (Bom) 494 where the Court held: In case there is a prima facie doubt about the truthfulness and/or completeness of the disclosure at the time of original assessment in view of information obtained later the provisions cannot aid the petitioner at the stage of notice under s. 148 of the Act. It is likely that during the assessment proceedings the assessee may be able to satisfy the AO that there was a true and full disclosure. Once the AO has received information that invoices issued by M/s. Rahul Industries are bogus then the same is necessarily to be the subject matter of enquiry during the reassessment proceedings. 45. It is clear from the above judicial pronouncements that the mere disclosur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary, NNPLC. The Revenue took into consideration the findings of the DRP for the AY 200910, wherein the DRP had noted that the investment in NNPLC were sham transactions and required lifting of the corporate veil. Even for the AY 200809, the investigation in raising of ₹ 405 crores through Step Up Coupon Bonds issued by NNPLC and guaranteed by NDTV were in progress. In addition to this, the revenue argued that the declining net worth of NDTV as against the estimated tax liability will make it difficult to recover the tax demand. It was further contended that NDTV had also pledged its assets to the tune of ₹ 3.5 crore and ₹ 5 crore to issue an irrevocable and unconditional guarantee to secure a term loan for its subsidiary, NDTV Convergence Limited. This, the revenue argues, is in clear violation of the CBDT Circular No. 4 of 2011, dated 19.07.2011, wherein prior permission of the AO is required for the assessee to create a charge on its assets. 49. This issue involves the application of Section 281B of the Act. For convenience, the relevant provision of the Act is reproduced below: Section 281B- (1) Where, during the pendency of any proceeding for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. and Another v. ITO [2006] 281 ITR 147 (All)]. Mr. Ganesh, senior counsel for the assessee had argued that ordinarily the principles applicable to Order XXXVIII, Rule 5 Civil Procedure Code (CPC) which empowers a court to attach property before judgment, would be applicable to AOs who exercise powers under Section 281 of the Act. In this context, it is asserted that unless the authority or court (in this case the AO) concludes on the basis of materials on record, that there is a real danger or likelihood of the assessee fleeing his jurisdiction or squandering or frittering away its assets, the order under Section 281B should not be invoked, because it would place severe and impossible restraints on the commercial functioning of the assessee. 52. In this case, the reasons provided are to be viewed in the background of the tax evasion allegedly conducted by NDTV by floating paper companies to raise approximately ₹ 1100 crore and later dissolving them. Owing to these transactions, the investors in these companies have suffered significant losses within a short span of time. The AO also specifically points out to the declining net worth of NDTV and records: 12. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a term loan from Yes Bank by its subsidiary NDTV Convergence Limited. However, while pledging these assets, NDTV failed to seek permission from the Department as per the provisions of section 281 of the Act read with CBDT's Circular No. 4 of 2011 dated 19.07.2011. It is submitted that NDTV is aware of the Circular, because the AO had issued an advisory to the petitioner by letter no. 529 dated 01.08.2014. 56. This Court is of the view that a reasonable apprehension that NDTV may liquidate the assets thwarting the recovery of tax liability is not unwarranted. This court further notes the AO s decision not to attach the bank accounts and other trade receivables of NDTV so as to ensure unhampered operation of its business. This decision is in line with the judgment of the Bombay High Court in Gandhi Trading v. Assistant Commissioner of Income Tax and Others [1999] 239 ITR 337 (Bom) wherein the Court held that the action taken under Section 281B must not hamper the business activities of the assessee and accordingly, attachment of bank accounts must be the last resort. 57. For these reasons, this Court is of the opinion that the impugned order under Section 281B does not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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