TII Instant Update - 2017-TII-INSTANT-ALL-479

CASE LAW

2017-TII-60-HC-DEL-TP

NDTV LTD Vs DCIT: DELHI HIGH COURT (Dated: August 10, 2017)

Income Tax - Sections 147, 148, 281B

Keywords - reopening - escapement of income - furnishing of inaccurate particulars - recovery - provisional attachment of property - Step Up Coupon Bonds - guarantee commission - unaccounted money - sham transaction

The assessee operates news channels. In the FYs 2007-08 to 2011-12, it invested in a number of foreign subsidiaries, primarily in the UK and Netherlands. During the FY 2006-07 and FY 2008-09, it received funds amounting to Rs. 1127 crore through these subsidiaries. Assessee filed its Return of Income for the AY 2008-09, which was selected for scrutiny during the original assessment proceedings under Section 139. AO examined the issue of Step Up Coupon Bonds issued by NNPLC, for which assessee 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). With respect to the AY 2009-10, the investment of Rs. 642 crores in NNIH by USBV was examined by the AO after a reference to the TPO. AO was of the view that the introduction of funds in NNIH was actually assessee's unaccounted money and concluded that it was a sham transaction. DRP allowed the lifting of the corporate veil. Additionally, the DRP granted relief to assessee on the issue of disallowance of commission on advertisement revenue and disallowance of transmission and up-linking charges by the AO. With respect to the AY 2010-11, the draft Assessment Order has made additions relating to the commission on advertisement income and transmission and up-linking charges. Revenue issued a notice under Section 148 and sought to re-open the assessment of AY 2008-09 on the ground that on the basis of the findings of the DRP holding the funds received by NNPLC as the funds of the assessee under sham transactions, there is reason to believe that the funds amounting to Rs. 405.09 crores introduced into the books of NNPLC during the FY 2007-08 in the form of Step Up Coupon Bonds pertain to the assessee. Thus, AO had reason to believe that the income of the assessee for AY 2008-09 amounting to at least Rs.405.09 crores had escaped assessment due to failure on the part of the assessee to disclose fully and truly all facts material for assessment. Assessee's objections were rejected by the AO. 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 assessee, passed an order under Section 281B provisionally attaching the immovable properties, non-current investments and refund of Rs.19.88 crores due to NDTV for the AY 2008-09.

On appeal, the HC held that,

Whether reasons for reopening can be supplemented by way of a counter-affidavit - NO: HC

Whether DRP's directions as well as tax evasion petition relating to previous A.Ys, can be a reason for AO to form belief that international transaction of raising of funds through Step Up Coupon Bonds, was a bogus transaction, and hence it should undergo reopening - YES: HC

Whether disclosures of transactions made during original assessment proceedings, can protect the assessee from re-assessment, if the AO has information indicating such transaction as sham - NO: HC

Whether provisional attachment is permissible u/s 281B, if there is reasonable apprehension that assessee may liquidate the assets thwarting the recovery of tax liability - YES: HC

+ it is to be noted 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 - 2008-TIOL-555-HC-DEL-IT. 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. The Court frowned upon the supplementing of reasons. A similar approach was adopted by the Bombay High Court in Hindustan Lever Ltd. v. Assistant Commissioner of Income Tax and Others - 2004-TIOL-72-HC-MUM-IT. Furthermore, there can be no question that the reasons for an executive or statutory order are to be reflected in the concerned file or public document, and not improved through pleadings in court. This Court is of the view that the revenue, therefore, cannot be allowed to supplement the reasons recorded for re-opening of the assessment by way of a counter-affidavit. The Revenue relies on the assessment proceedings for the AY 2009-10, the DRP directions as well as the tax evasion petition received by the AO to form the belief that the transaction of raising of funds through the Step Up Coupon Bonds by NNPLC was a bogus transaction. The investment of US$ 150 million made in NNBV by USBV, that was the subject of AY 2009-10, was held to be a sham transaction, to hide the unaccounted income of assessee. In that transaction the shares of NNBV were issued at a price much greater than its share value and later bought back at a cheaper rate, thus resulting in losses for the investors. Similarly, the Step Up Coupon Bonds were issued at a higher price, and yet were prematurely redeemed leading to a loss for the investors. In this regard, the AO has provided specific details regarding the new or tangible information that was received subsequent to the assessment proceedings for the year 2008-09. The re-opening of the assessment proceedings on the basis of fresh information received is permissible under the law as held by Clagett Brachi Co. Ltd. v. CIT - 2002-TIOL-934-SC-IT. The complex and circuitous structure of subsidiaries and the transactions entered therein are closely connected and provide a live link for the formation of the belief of the AO that there has been escapement of income in AY 2009-10 and for the previous assessment year, AY 2008-09 as well because the investments continued that year. The proceedings u/s 147 of the Act, beyond a period of 4 years can only be initiated if the AO has reason to believe that there has been escapement of income and this escapement is owing to the lack of true and fair disclosure by the assessee;

+ mere disclosure of a transaction at the time of the original assessment proceedings does not protect the assessee from a re-assessment under Section 147 if the AO has information that indicates that the transaction is sham or bogus. In the present case, assessee has alleged that the details of the corporate guarantee issued by NDTV to NNPLC regarding the Step Up Coupon Bonds was intimated to the Revenue during the original assessment proceeding. This Court is of the view that the impugned reassessment notice is valid in law and can be sustained. There must be "reasonable apprehension that the assessee may default the ultimate collection of demand, i.e., likely to be raised on completion of the assessment". The power u/s 281B must not be invoked unless there is sufficient and relevant material on record to prove that the assessee is about to dispose of the property to thwart the collection of tax liability. 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 Rs.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. AO also specifically pointed out to the declining net worth of assessee and recorded that t he Balance Sheet of the assessee company as on 31. 03.2015 reflects reserves & surplus amounting to Rs.313.63 crore. At the same time, the assessee company has current liabilities of Rs.335.93 crore in the form of trade payables, short term & long term borrowings and the other current short term provisions and liabilities. Apart from this, the assessee company had issued bank guarantee to its subsidiary amounting to Rs.40 crore. After excluding the figures of cumulative outgo on account of trade payables, short term & long term borrowings and the other current short term provisions and liabilities of the assessee company, the assessee company would be left with assets of nearly Rs.339.42 crore. As the figures mentioned above pertain to the previous financial year, the possibility of the availability of assets being even lower as on date cannot be ruled out. As against this, the anticipated demand as mentioned above comes to Rs.328.96 crore apart from an existing demand of Rs.449.47 crore. AO was of the view that it apprehended that existing outstanding demand as well as the tax liability which would arise on completion of pending assessments/reassessments will be difficult to recover. In addition to this, NDTV has also issued guarantees to obtain a term loan for its subsidiary NDTV Convergence. A reasonable apprehension that assessee may liquidate the assets thwarting the recovery of tax liability is not unwarranted. This court further noted 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, wherein the Court held that the action taken u/s 281B must not hamper the business activities of the assessee.

Assessee's petitions dismissed