Supreme Court of India
DELHI TELEVISION LTD.versusDEPUTY COMMISSIONER OF INCOME TAX
- Citation
- 2020 INSC 330
- Decided
- 3 April 2020
- Disposal
- Appeal(s) allowed
- Bench
- L NAGESWARA RAO
Holding
The Court held that while there were sufficient reasons to invoke s.147(1) to reopen the assessment, the assessee had made full and true disclosure of all primary facts, and the notice did not invoke the second proviso; therefore the extended 16‑year limitation could not be applied and the notice issued after four years was quashed.
Summary
The appellant New Delhi Television Ltd. challenged a notice issued under section 147 of the Income Tax Act alleging that undisclosed income had escaped assessment. The Court examined whether the revenue had a prima facie reason to believe such escapement, whether the assessee had fully disclosed all material facts, and whether the notice invoked the second proviso of section 147, which would extend the limitation period to 16 years. It held that material disclosed in subsequent assessment years gave the assessing officer sufficient reason to reopen the case, but the assessee had indeed disclosed all primary facts required for assessment. The notice was silent on the second proviso, so the extended limitation could not be applied, and the notice issued after four years was set aside. Consequently, the appeal was allowed.
Issues considered
- Whether the revenue had sufficient reasons to believe that undisclosed income of the assessee escaped assessment, justifying issuance of a notice under s.147.
- Whether the assessee failed to make a full and true disclosure of all material facts necessary for assessment.
- Whether the notice dated 31.03.2015 and the reasons supplied invoked the second proviso of s.147, thereby attracting the 16‑year limitation period.
Legislation cited
- Companies Act, 1956
- Income Tax Act, 1961s. 139, s. 142(1), s. 143, s. 147, s. 148, s. 149(1)(c), s. 92E
Subjects
Income TaxSection 147ReassessmentNon‑disclosureLimitation periodSecond provisoNoticeForeign subsidiaryRound‑trippingGuarantee fees
Judgment
[2020] 7 S.C.R. 649 649
NEW DELHI TELEVISION LTD. A
v.
DEPUTY COMMISSIONER OF INCOME TAX
(Civil Appeal No. 1008 of 2020)
APRIL 03, 2020 B
[L. NAGESWARA RAO AND DEEPAK GUPTA, JJ.]
Income Tax Act, 1961 : s.147 – Power under, invocation of –
Whether the revenue had sufficient reasons to believe that
undisclosed income of the assessee has escaped assessment and C
there were grounds to issue notice u/s.147 – Held: 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 u/s.147 of the
Act – At the stage of issuance of notice, the assessing officer is to
only form a prima facie view – In the instant case, material disclosed D
in assessment proceedings for subsequent years was sufficient to
form such a view – Accordingly, there were reasons to believe that
income had escaped assessment in this case.
Income Tax Act, 1961: s.147, first proviso – Limitation –
Invocation of extended period – Allegation of non-disclosure of E
material facts – Allegation that the assessee was guilty of creating
network of shell companies with a view to transfer its untaxed income
in India to entities abroad and then bring it back to India thereby
avoiding taxation – Revenue placed reliance on certain complaints
made by the minority shareholders and it was alleged that those
F
complaints revealed that assessee was indulging in round tripping
of its funds – Held: These complaints did not see light of the day
either before the High Court or before this Court and, therefore, it
was unfair to the assessee if they were relied upon – Revenue can
take the benefit of the extended period of limitation of 6 years for
initiating proceedings under the first proviso s.147 of the Act, only G
if revenue can show that the assessee had failed to disclose fully
and truly all material facts necessary for its assessment – Assessee
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 facts – Assessee made a
H
649
650 SUPREME COURT REPORTS [2020] 7 S.C.R.
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 – All
B
relevant facts were duly within the knowledge of the assessing officer
– 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 – The fact
C 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
D
guarantee fees on the same which was added to its income – It
cannot be said that the assessee had withheld any material
information from the revenue.
Income Tax Act, 1961: s.147, second proviso – Plea of revenue
that in terms of second proviso to s.147 r/w s.149(1)(c), limitation
E
period would be 16 years since assessee has derived income from
foreign entity – Held: The notice issued to assessee was silent with
regard to second proviso – In the notice, there was no mention of
any foreign entity – There was only mention of s.148 – There was
nothing to indicate that revenue was intending to apply the extended
F period of 16 years – It was only after 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 revenue – This is
not fair or proper procedure – 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
G
as a notice invoking provisions of the second proviso of s.147 of
the Act – Accordingly, the notice and the supporting reasons did
not invoke provisions of the second proviso of s.147 of the Act and,
therefore, at this stage the revenue cannot be permitted to take benefit
of the second proviso.
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Allowing the appeal, the Court A
HELD: 1. 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. B
The material disclosed in assessment proceedings for subsequent
years was sufficient to form such a view. Accordingly, there were
reasons to believe that income had escaped assessment in this
case. [Para 23][664-E-F]
Claggett Brachi Co. Ltd., London v. Commissioner of C
Income Tax, Andhra Pradesh (1989) 2 Suppl. SCC 182
: [1989] 2 SCR 731; M/s Phool Chand Bajrang Lal
and Another v. Income Tax Officer and Another (1993)
4 SCC 77 : [1993] 1 Suppl SCR 28; Ess Kay
Engineering Co.(P) Ltd. v. Commissioner of Income
Tax, Amritsar (2001) 10 SCC 189 – relied on. D
Whether there was failure on the part of the assessee to
make a full and true disclosure of all the relevant facts.
2.1 The assessee had disclosed all the facts it was bound to
disclose. If the revenue wanted to investigate the matter further E
at that stage it could have easily directed the assessee to furnish
more facts. The assessee 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 F
place subsequent to the assessment year in question though it
may be income for the assessment year. 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 G
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, there was full and true disclosure of all material
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652 SUPREME COURT REPORTS [2020] 7 S.C.R.
A facts necessary for its assessment by the assessee. 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
B
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. It
cannot be said that the assessee had withheld any material
information from the revenue. [Paras 26, 28, 29][665-D-E, H;
666-A-E]
C M/s Phool Chand Bajrang Lal and Another v. Income
Tax Officer and Another (1993) 4 SCC 77 : [1993] 1
Suppl. SCR 28; Honda Siel Power Products Limited v.
Deputy Commissioner Income-Tax and Another (2012)
340 ITR 53 (Delhi) – referred to.
D 2.2 According to the revenue, the assessee to avoid
detection of the actual source of funds of its subsidiaries did not
disclose the details of the subsidiaries in its final accounts, balance
sheets, and profit and loss account for the relevant period as was
mandatory under the provisions of the Indian Companies Act,
E 1956. It 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
F the assessee to furnish the details. It was for the assessing officer
at this stage to decide what inference should be drawn from the
facts of the case. In the instant 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
G could have done even at that stage on the basis of the facts which
he already knew. [Paras 30, 33][666-F-G; 669-E-F]
Calcutta Discount Co. Ltd. v. Income-tax Officer,
Companies District I, Calcutta and Another AIR 1961
SC 372 : [1961] 2 SCR 241 – followed.
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3.1 The notice u/s. 148 is conspicuously silent with regard A
to the second proviso s. 147. 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
B
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.
[Para 38][671-D-E]
Mohinder Singh Gill & Anr. v. The Chief Election C
Commissioner, New Delhi & Ors. [1978] 2 SCR 272 –
referred to.
3.2 If the revenue is to rely upon the second proviso and
wanted to urge that the limitation of 16 years would apply, then in
the notice or at least in the reasons in support of the notice, the D
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 E
Section 147 of the Act. Therefore at this stage the revenue cannot
be permitted to take benefit of the second proviso. [Para 43][672-
G-H; 673-A]
Case Law Reference
[1989] 2 SCR 731 relied on Para 21 F
[1993] 1 Suppl SCR 28 relied on Para 21
(2001) 10 SCC 189 relied on Para 21
(2012) 340 ITR 53 (Delhi) referred to Para 27
[1961] 2 SCR 241 followed Para 32 G
[1978] 2 SCR 272 referred to Para 39
CIVIL APPELLATE JURISDICTION: Civil Appeal No.1008 of
2020.
From the Judgment and Order dated 10.08.2017 of the High Court
of Delhi at New Delhi in Writ Petition (Civil) No.11638 of 2015. H
654 SUPREME COURT REPORTS [2020] 7 S.C.R.
A Arvind P. Datar, Sr. Adv., Sachit Jolly, Ms. Anuradha Dutt, Rohit
Garg, Ms. B. Vijayalakshmi Menon, Advs. for the Appellant.
Tushar Mehta, SG, Arijit Prasad, Sr. Adv., Zoheb Hossain, Rajat
Nair, Piyush Goyal, Mrs. Anil Katiyar, Advs. for the Respondent.
The Judgment of the Court was delivered by
B
DEEPAK GUPTA, J.
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
C 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
D 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 03.08.2012.
E
3. 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
F 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
G
a discounted price of US $74.2 million in November, 2009.
4. The assessing officer held that NNPLC had virtually no financial
worth, it had no business of the name and therefore it could not be
believed that it could have issued convertible bonds of US$ 100 million,
unless the repayment along with interest was secured. This was secured
H
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only because of the assessee agreeing to furnish guarantee in this regard. A
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 arm’s length from its subsidiary, meaning
B
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. C
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 D
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 E
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, F
for which tax had not been paid, back to India by this circuitous round
tripping.
6. 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 G
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
H
656 SUPREME COURT REPORTS [2020] 7 S.C.R.
A the assessing officer “The natural inference could be that it was
NDTV’s 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
B
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
C 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:-
D “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
E 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
F to disclose fully and truly all facts material for assessment.”
7. 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
G 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
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NEW DELHI TELEVISION LTD. v. DEPUTY COMMISSIONER 657
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subsidiary, had issued convertible bonds which had been subscribed by A
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,
B
therefore, limitation of 6 years as applicable to the first proviso to Section
147 would not apply.
8. 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 C
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
2nd proviso of Section 147 of the Act and the extended period of 16
years would be applicable. The objections were accordingly rejected. D
9. 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.
10. We have heard Shri Arvind P. Datar, learned senior counsel
for the assessee, Shri Tushar Mehta, learned Solicitor General and Shri E
Zoheb Hossain, learned counsel appearing for the revenue.
11. In our opinion, the following issues arise for consideration in
this case:-
(i) Whether in the facts and circumstances of the case, it can F
be said that the revenue had a valid reason to believe that
undisclosed income had escaped assessment?
(ii) Whether the assessee did not disclose fully and truly all
material facts during the course of original assessment which
led to the finalisation of the assessment order and undisclosed
G
income escaping detection?
(iii) Whether the notice dated 31.03.2015 along with reasons
communicated on 04.08.2015 could be termed to be a notice
invoking the provisions of the second proviso to Section 147
of the Act?
H
658 SUPREME COURT REPORTS [2020] 7 S.C.R.
A 12. At the outset we may note that it has been strenuously urged
on behalf of the assessee that its assessment was done under scrutiny
procedure and a very detailed procedure was followed during the original
assessment proceedings and all aspects of the case were noted by the
assessing officer. That may be true, but merely the fact that the original
assessment is a detailed one, cannot take away the powers of the
B
assessing officer to issue notice under Section 147 of the Act.
Question No.1
13. 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
C 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
transaction.
D
14. It is trite law that an assessing officer can only re-open an
assessment if he has ‘reason to believe’ that undisclosed income has
escaped assessment. Mere change of opinion of the assessing officer is
not a sufficient to meet the standard of ‘reason to believe’. Relevant
portion of Section 147 reads as follows:-
E
147. Income escaping assessment.-If the Assessing
Officer, has reason to believe that any income chargeable to tax
has escaped assessment for any assessment year, he may, subject
to the provisions of sections 148 to 153, assess or reassess such
income and also any other income chargeable to tax which has
F escaped assessment and which comes to his notice subsequently
in the course of the proceedings under this section, or recompute
the loss or the depreciation allowance or any other allowance, as
the case may be, for the assessment year concerned (hereafter
in this section and in sections 148 to 153 referred to as the relevant
G assessment year):
Provided that where an assessment under sub-section (3)
of section 143 or this section has been made for the relevant
assessment year, no action shall be taken under this section after
the expiry of four years from the end of the relevant assessment
year, unless any income chargeable to tax has escaped assessment
H
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for such assessment year by reason of the failure on the part of A
the assessee to make a return 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 B
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:
Provided also that the Assessing Officer may assess or C
reassess such income, other than the income involving matters
which are the subject-matter of any appeal, reference or revision,
which is chargeable to tax and has escaped assessment.
Explanation 1.—Production before the Assessing Officer of
account books or other evidence from which material evidence D
could, with due diligence, have been discovered by the Assessing
Officer will not necessarily amount to disclosure within the meaning
of the foregoing proviso.
Explanation 2.—For the purposes of this section, the following
shall also be deemed to be cases where income chargeable to tax E
has escaped assessment, namely :—
(a) where no return of income has been furnished by
the assessee although his total income or the total
income of any other person in respect of which he is
assessable under this Act during the previous year F
exceeded the maximum amount which is not
chargeable to income-tax;
(b) where a return of income has been furnished by the
assessee but no assessment has been made and it is
noticed by the Assessing Officer that the assessee
G
has understated the income or has claimed excessive
loss, deduction, allowance or relief in the return;
(ba) where the assessee has failed to furnish a report in
respect of any international transaction which he was
so required under section 92E;
H
660 SUPREME COURT REPORTS [2020] 7 S.C.R.
A (c) where an assessment has been made, but—
(i) income chargeable to tax has been
underassessed; or
(ii) such income has been assessed at too low a
rate; or
B
(iii) such income has been made the subject of
excessive relief under this Act; or
(iv) excessive loss or depreciation allowance or
any other allowance under this Act has been
C computed.
(ca) where a return of income has not been furnished by
the assessee or a return of income has been furnished
by him and on the basis of information or document
received from the prescribed income-tax authority,
D under sub-section (2) of section 133C, it is noticed
by the Assessing Officer that the income of the
assessee exceeds the maximum amount not
chargeable to tax, or as the case may be, the assessee
has understated the income or has claimed excessive
loss, deduction, allowance or relief in the return;
E
(d) where a person is found to have any asset (including
financial interest in any entity) located outside India.
xxx xxx xxx
15. The case of the assessee is that the transaction of step-up
F coupon bonds was scrutinised in great detail by the assessing officer
before he passed the order of assessment dated 03.08.2012. According
to the assessee there is an attempt on behalf of the revenue to deliberately
mix-up the transactions relating to the Netherlands subsidiary with the
U.K. subsidiary. According to the assessee the order of the DRP for the
assessment year 2009-10 is in two distinct compartments. While the
G DRP held the Netherlands’ transactions of Rs.642 crores to be a sham,
the transaction of issuance of US$ 100 million convertible bonds was
not questioned. Therefore, according to the assessee there was no fresh
material before the assessing officer to have reason to believe that the
undisclosed income of the assessee had escaped assessment.
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16. On behalf of the assessee it has been urged that once the A
transaction of step-up coupon bonds has been accepted to be correct,
then the revenue cannot re-open the same and doubt the genuiness of
the transaction. We are not in agreement with the first part of the
submission but we make it clear that we are not commenting on the
genuineness of the transaction, which will be considered by the concerned
B
assessing officer.
17. On the other hand, on behalf of the revenue it is submitted
that at the stage of issue of show cause notice the revenue only has to
establish a tentative and prima facie view. At this stage, this Court is
not expected to go into the merits of the case but can only ascertain
C
whether the revenue has prima facie ground to show that it had reasons
to believe that income has escaped assessment. It is further submitted
that the scope of judicial review in such matters is very limited. It is also
submitted that since the revenue discovered fresh tangible material
subsequent to the assessment order of 03.08.2012, it cannot be said that
the assessing officer did not have reasons to believe that income had D
escaped assessment.
18. The main issue is whether there was sufficient material before
the assessing officer to take a prima facie view that income of the
assessee had escaped assessment. The original order of assessment
was passed on 03.08.2012. It was thereafter on 31.12.2013 that the E
DRP in the case of AY 2009-10 raised doubts with regard to the corporate
structure of the assessee and its subsidiaries. It was noted in the order
of the DRP that certain shares of NNPLC had been acquired by Universal
Studios International B.V., Netherlands, indirectly by subscribing to the
shares of NNIH. As already noted above it was recorded in the reasons
communicated on 04.08.2015 that NNPLC was not having any business F
activity in London. It had no fixed assets and was not even paying rent.
Other than the fact that NNPLC was incorporated in the U.K., it had no
other commercial business there. NNPLC had declared a loss of Rs.8.34
crores for the relevant year. It was also noticed from the order of the
assessing officer that the assessee is the parent company of NNPLC G
and it is the dictates of the assessee which are important for running
NNPLC.
19. Pursuant to the directions of the DRP, the assessing officer
passed the final assessment order for AY 2009-10 on 21.02.2014 which
also disclosed similar facts. H
662 SUPREME COURT REPORTS [2020] 7 S.C.R.
A 20. According to the revenue Tax Evasion Petitions were filed by
the minority shareholders of the assessee company on various dates,
i.e., 11.03.2014, 25.07.2014, 13.10.2014 and 11.03.2015, which complaints
describe in detail the communication between the assessee and the
subsidiaries and also allegedly showed evidence of round tripping of the
assessee’s undisclosed income through a layer of subsidiaries which led
B
to the issuance of the notice in question.
21. Whether the facts which came to the knowledge of the
assessment officer after the assessment proceedings for the relevant
year were completed, could be taken into consideration for coming to
the conclusion that there were reasons to believe that income had escaped
C assessment is the question that requires to be answered. Though a number
of judgments have been cited in this behalf, we shall make reference to
only a few. In Claggett Brachi Co. Ltd., London vs. Commissioner
of Income Tax, Andhra Pradesh1, this Court held as follows:-
“7. Two points have been urged before us by learned
D counsel for the assessee. It is contended that the Income Tax
Officer has no jurisdiction to take proceedings under Sections
147 and 148 of the Income Tax Act because the conditions
prerequisite for making the reassessments were not satisfied. The
re-assessments were made with reference to clause (b) of Section
E 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 assessment years. From the material before
us it appears that the Income Tax Officer came to realise that
income had escaped assessment for the two assessment years
F 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 were not confined to the business of
G 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 due diligence at the time of the original
assessment itself. It does not appear, however, that the attention
of the Income Tax Officer was directed by anything before him
1
H 1989 Supp(2) SCC 182
NEW DELHI TELEVISION LTD. v. DEPUTY COMMISSIONER 663
OF INCOME TAX [DEEPAK GUPTA, J.]
to the fact that the overhead expenses related to the entire business. A
The information derived by the Income Tax Officer evidently came
into his possession when taking assessment proceedings for the
subsequent year. In the circumstances, it cannot be doubted that
the case falls within the terms of clause (b) of Section 147 of the
Act, and that, therefore, the High Court is right in holding against
B
the assessee.”
In M/s Phool Chand Bajrang Lal and Another vs. Income
Tax Officer and Another2, this Court held as follows:-
“19…Acquiring fresh information, specific in nature and
reliable in character, relating to the concluded assessment which C
goes to expose the falsity of the statement made by the assessee
at the time of original assessment is different from drawing a
fresh inference from the same facts and material which was
available with the ITO at the time of original assessment
proceedings. The two situations are distinct and different. Thus,
where the transaction itself on the basis of subsequent information, D
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 ITO would have the jurisdiction to reopen the concluded
assessment in such a case. It is correct that the assessing authority E
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 F
information on the basis of which the ITO 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 non-specific.” G
In Ess Kay Engineering Co.(P) Ltd. vs. Commissioner of
Income Tax, Amritsar3, this Court held as follows:-
2
(1993) 4 SCC 77
3
(2001) 10 SCC 189 H
664 SUPREME COURT REPORTS [2020] 7 S.C.R.
A “This is a case of reopening. We have perused the
documents. We find there was material on the basis of which the
Income Tax Officer could proceed to reopen the case. It is not a
case of mere change of opinion. We are not inclined to interfere
with the decision of the High Court merely because the case of
the assessee was accepted as correct in the original assessment
B
for this assessment year. It does not preclude the Income Tax
Officer from reopening the assessment of an earlier year on the
basis of his findings of fact made on the basis of fresh materials in
course of assessment of the next assessment year. The appeal is
dismissed. No order as to costs.”
C 22. 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
D can definitely form tangible material to invoke powers vested with the
assessing officer under Section 147 of the Act.
23. 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
E 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 accordingly.
F
Question No.2
24. Coming to the second question as to whether there was failure
on the part of the assessee to make a full and true disclosure of all the
relevant facts. The case of the assessee is that it had disclosed all facts
G which were required to be disclosed.
25. The revenue has placed reliance on certain complaints made
by the minority shareholders and it is alleged that those complaints reveal
that the assessee was indulging in round-tripping of its funds. According
to the revenue the material disclosed in these complaints clearly shows
that the assessee is guilty of creating a network of shell companies with
H
NEW DELHI TELEVISION LTD. v. DEPUTY COMMISSIONER 665
OF INCOME TAX [DEEPAK GUPTA, J.]
a view to transfer its un-taxed income in India to entities abroad and A
then bring it back to India thereby avoiding taxation. We 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 with.
B
26. 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 C
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 D
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 E
to furnish more facts.
27. The High Court held that there was no “true and fair disclosure”
in view of the law laid down by this Court in Phool Chand’s case (supra),
and the judgment of the Delhi High Court in Honda Siel Power Products
Limited vs. Deputy Commissioner Income-Tax and Another4.We have F
already referred to the judgment in Phool Chand’s 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 G
was disclosed at the time of original assessment does not mean that
there is true and full disclosure of facts.
28. We are unable to agree with this reasoning given by the High
Court. The assessee as mentioned above made a disclosure about having
4
(2012) 340 ITR 53 (Delhi) H
666 SUPREME COURT REPORTS [2020] 7 S.C.R.
A 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
B
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
C 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 assessee.
29. The fact that step-up coupon bonds for US$ 100 million were
issued by NNPLC was disclosed; who were the entities which subscribed
D 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
E the assessee had withheld any material information from the revenue.
30. According to the revenue the assessee to avoid detection of
the actual source of funds of its subsidiaries did not disclose the details
of the subsidiaries in its final accounts, balance sheets, and profit and
loss account for the relevant period as was mandatory under the provisions
F of the Indian Companies Act, 1956. It 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
G before finalising the assessment of 03.08.2012 had never asked the
assessee to furnish the details.
31. 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
H at the time of assessment. The main ground raised by the revenue is that
NEW DELHI TELEVISION LTD. v. DEPUTY COMMISSIONER 667
OF INCOME TAX [DEEPAK GUPTA, J.]
the assessee did not disclose as to who had subscribed what amount and A
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;
B
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 revenue. C
32. A number of decisions have been cited as to what is meant by
true and full disclosure. It is not necessary to multiply decisions, as law
in this regard has been succinctly laid down by a Constitution Bench of
this Court in Calcutta Discount Co. Ltd. vs. Income-tax Officer,
Companies District I, Calcutta and Another5, wherein it was held as D
follows :-
“(8)…The words used are “omission or failure to disclose fully
and truly all material facts necessary for his assessment for that
year”. It postulates a duty on every assessee to disclose fully and
truly all material facts necessary for his assessment. What facts E
are material, and necessary for assessment will differ from case
to case. In every assessment proceeding, the assessing authority
will, for the purpose of computing or determining the proper tax
due from an assessee, require to know all the facts which help
him in coming to the correct conclusion. From the primary facts
in his possession, whether on disclosure by the assessee, or F
discovered by him on the basis of the facts disclosed, or otherwise
— the assessing authority has to draw inferences as regards
certain other facts; and ultimately, from the primary facts and the
further facts inferred from them, the authority has to draw the
proper legal inferences, and ascertain on a correct interpretation G
of the taxing enactment, the proper tax leviable. Thus, when a
question arises whether certain income received by an assessee
is capital receipt, or revenue receipt, the assessing authority has
to find out what primary facts have been proved, what other facts
5
AIR 1961 SC 372 H
668 SUPREME COURT REPORTS [2020] 7 S.C.R.
A can be inferred from them, and taking all these together, to decide
what the legal inference should be.
(9) There can be no doubt that the duty of disclosing all the
primary facts relevant to the decision of the question before the
assessing authority lies on the assessee. To meet a possible
B contention that when some account books or other evidence has
been produced, there is no duty on the assessee to disclose further
facts, which on due diligence, the Income-tax Officer might have
discovered, the Legislature has put in the Explanation, which has
been set out above. In view of the Explanation, it will not be open
to the assessee to say, for example — “I have produced the
C account books and the documents: You, the assessing officer
examine them, and find out the facts necessary for your purpose:
My duty is done with disclosing these account-books and the
documents.” His omission to bring to the assessing authority’s
attention these particular items in the account books, or the
D particular portions of the documents, which are relevant, will
amount to “omission to disclose fully and truly all material facts
necessary for his assessment.” Nor will he be able to contend
successfully that by disclosing certain evidence, he should be
deemed to have disclosed other evidence, which might have been
discovered by the assessing authority if he had pursued
E investigation on the basis of what has been disclosed. The
Explanation to the section, gives a quietus to all such contentions;
and the position remains that so far as primary facts are concerned,
it is the assessee’s duty to disclose all of them — including
particular entries in account books, particular portions of documents
F and documents, and other evidence, which could have been
discovered by the assessing authority, from the documents and
other evidence disclosed.
(10) Does the duty however extend beyond the full and
truthful disclosure of all primary facts? In our opinion, the answer
G to this question must be in the negative. Once all the primary
facts are before the assessing authority, he requires no further
assistance by way of disclosure. It is for him to decide what
inferences of facts can be reasonably drawn and what legal
inferences have ultimately to be drawn. It is not for somebody
else — far less the assessee — to tell the assessing authority
H
NEW DELHI TELEVISION LTD. v. DEPUTY COMMISSIONER 669
OF INCOME TAX [DEEPAK GUPTA, J.]
what inferences -—- whether of facts or law should be drawn. A
Indeed, when it is remembered that people often differ as regards
what inferences should be drawn from given facts, it will be
meaningless to demand that the assessee must disclose what
inferences — whether of facts or law — he would draw from
the primary facts.
B
(11) If from primary facts more inferences than one could
be drawn, it would not be possible to say that the assessee should
have drawn any particular inference and communicated it to the
assessing authority. How could an assessee be charged with failure
to communicate an inference, which he might or might not have
drawn?” C
A 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 case. D
33. 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 other facts. We are of the view that the assessee had disclosed
all primary facts before the assessing officer and it was not required to E
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 F
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 assessee. G
34. 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 opposite. We may quote a portion of the counter-affidavit filed by
H
670 SUPREME COURT REPORTS [2020] 7 S.C.R.
A the revenue in response to the writ petition filed by the assessee before
the High Court which reads as follows:-
“…It is evident from these facts that second proviso to Section
147 is clearly attracted in this case and first proviso to Section
147 is not applicable to facts of this case, i.e. in this case, the only
B requirement to reopen assessment u/s 147 was that the AO has
reason to believe that any income chargeable to tax has escaped
assessment. The second condition that the income should have
escaped assessment due to failure on the part of the assessee to
disclose fully and truly all material facts necessary for making
assessment is not relevant to decide issue before the Hon’ble
C Court”
This 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
D 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
E 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 accordingly.
Question No.3
F 36. It is urged before this Court by the revenue that in terms of
second proviso to Section 147 of the Act read with Section 149(1)(c) of
the Act, the limitation period would be 16 years since the assessee has
derived income from a foreign entity. We may make specific reference
to the second proviso and explanation 2(d) which reads as follows:-
Provided further that nothing contained in the first proviso
G
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:
xxx xxx xxx
H
NEW DELHI TELEVISION LTD. v. DEPUTY COMMISSIONER 671
OF INCOME TAX [DEEPAK GUPTA, J.]
Explanation 2.—For the purposes of this section, the A
following shall also be deemed to be cases where income
chargeable to tax has escaped assessment, namely :—
xxx xxx xxx
(d) where a person is found to have any asset (including
financial interest in any entity) located outside India. B
xxx xxx xxx
37. On behalf of the assessee it has been urged that no income
was derived from the foreign entity and a loan cannot be termed to be
an asset or an income and it is submitted that the notice cannot be said to C
have been issued under the second proviso.
38. 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 D
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 23.11.2015. E
39. The High Court relied upon the judgment in Mohinder Singh
Gill & Anr. vs. The Chief Election Commissioner, New Delhi & Ors.6
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 F
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 Court.
G
40. On behalf of the revenue it is urged that mere non-naming of
the second proviso in the notice does not help the assessee. It has been
urged that even if the source of power to issue notice has been wrongly
mentioned, but all relevant facts were mentioned, then the notice can be
6
(1978) 2 SCR 272 H
672 SUPREME COURT REPORTS [2020] 7 S.C.R.
A said to be a notice under the provision which empowers the revenue to
issue such notice. There 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,
B
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
C given, that in the order of rejection for the first time reference was made
to the second proviso by the revenue.
41. 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
D 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
E 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 notice.
42. 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
F 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 revenue.
43. If the revenue is to rely upon the second proviso and wanted
G 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
H Court that the notice is to be treated as a notice invoking provisions of
NEW DELHI TELEVISION LTD. v. DEPUTY COMMISSIONER 673
OF INCOME TAX [DEEPAK GUPTA, J.]
the second proviso of Section 147 of the Act. Accordingly, we answer A
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.
Conclusion B
44. We accordingly allow the appeal by holding that the notice
issued to the assessee shows sufficient reasons to believe on the part of
the assessing officer to reopen the assessment but since the revenue
has failed to show non-disclosure of facts the notice having been issued
after a period of 4 years is required to be quashed. Having held so, we C
make it clear that we have not expressed any opinion on whether on
facts of this case the revenue could take benefit of the second proviso
or not. Therefore, the revenue may issue fresh notice taking benefit of
the second proviso if otherwise permissible under law. We make it clear
that both the parties shall be at liberty to raise all contentions with regard
to the validity of such notice. All pending application(s) shall stand(s) D
disposed of.
Devika Gujral Appeal allowed.
E
F
G
H
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