IN THE SUPREME COURT OF INDIA
\nCIVIL APPELLATE JURISDICTION
\nCIVIL APPEAL NO. 1008 OF 2020
\nNEW DELHI TELEVISION LTD. \u2026APPELLANT(S)
\nVERSUS
\nDEPUTY COMMISSIONER OF
\nINCOME TAX \u2026RESPONDENT(S)
\nJ U D G M E N T
\nDeepak Gupta, J.
\n1. The appellant New Delhi Television Limited (hereinafter
\nreferred to as \u2018the assessee\u2019) is an Indian company engaged in
\nrunning television channels of various kinds. It has various
\nforeign subsidiaries to which we shall refer in detail later on but
\nwe are concerned mainly with the subsidiary based in the United
\nKingdom (UK) named NDTV Network Plc., U.K. (hereinafter
\nreferred to as \u2018NNPLC\u2019).
\n2. The assessee submitted a return for the financial year 200708
\ni.e. assessment year 200809
\non 29.09.2008 declaring a loss.
\n1
\n2
\nThis return was processed under Section 143 of the Income Tax
\nAct, 1961 (hereinafter referred to as \u2018the Act\u2019). The case was
\nselected for scrutiny and notice under Section 143(2) of the Act
\nwas issued and a notice under Section 142(1) of the Act was also
\nsent to the assessee. Thereafter, the case of the assessee was
\ntaken up for consideration and final assessment order was
\npassed on 03.08.2012.
\n3. We are mainly concerned with that part of the assessment
\norder which relates to the issue of stepup
\ncoupon bonds
\namounting to US$100 million. These bonds were issued in July,
\n2007 through the Bank of New York for a period of 5 years. The
\ncase of the assesee is that NNPLC issued stepup
\ncoupon bonds
\nof US$ 100 million which were arranged by Jeffries International
\nand the funds were received by NNPLC through Bank of New
\nYork. The assessee had agreed to furnish corporate guarantee for
\nthis transaction. These bonds were subscribed to by various
\nentities to whom we shall refer to in detail at a later stage. These
\nbonds were to be redeemed at a premium of 7.5% after the expiry
\nof the period of 5 years. However, these bonds were redeemed in
\n2
\n3
\nadvance at a discounted price of US $74.2 million in November,
\n2009.
\n4. The assessing officer held that NNPLC had virtually no
\nfinancial worth, it had no business of the name and therefore it
\ncould not be believed that it could have issued convertible bonds
\nof US$ 100 million, unless the repayment along with interest was
\nsecured. This was secured only because of the assessee agreeing
\nto furnish guarantee in this regard. Though the assessee had
\nnever actually issued such guarantee, the assessing officer was of
\nthe view that the subsidiary of the assessee could not have raised
\nsuch a huge amount without having this assurance from the
\nassessee. The transaction was of such a nature that the assessee
\nshould be required to maintain an arm\u2019s length from its
\nsubsidiary, meaning that it should be treated like a guarantee
\nissued by any corporate guarantor in favour of some other
\ncorporate entity. The assessing officer did not doubt the validity
\nof the transaction but imposed guarantee fee @ rate of 4.68% by
\ntreating it as a business transaction and added Rs. 18.72 crores
\nto the income of the assessee, vide order dated 03.08.2012.
\n3
\n4
\n5. On 31.03.2015, the revenue sent a notice to the assessee
\nwherein it was stated that the authority has reason to believe
\nthat net income chargeable to tax for the assessment year 200809
\nhad escaped assessment within the meaning of Section 148 of
\nthe Act. This notice did not give any reasons. The assessee then
\nasked for reasons and thereafter on 04.08.2015 reasons were
\nsupplied. The main reason given was that in the following
\nassessment year i.e. assessment year 200910,
\nthe assessing
\nofficer had proposed a substantial addition of Rs.642 crores to
\nthe account of the assessee on account of monies raised by the
\nassessee through its subsidiaries NDTV BV, The Netherlands,
\nNDTV Networks BV, The Netherlands (NNBV), NDTV Networks
\nInternational Holdings BV, The Netherlands (NNIH) and NNPLC.
\nThe assessee had raised its objection before the Dispute
\nResolution Panel (DRP) which came to the conclusion that all
\nthese transactions with the subsidiary companies in Netherlands
\nwere sham and bogus transactions and that these transactions
\nwere done with a view to get the undisclosed income, for which
\ntax had not been paid, back to India by this circuitous round
\ntripping.
\n4
\n5
\n6. The assessing officer relies upon the order of the DRP
\nholding that there is reason to believe that funds received by
\nNNPLC were actually the funds of the assessee. It was specified
\nthat NNPLC had a capital of only Rs.40 lakhs. It did not have
\nany business activities in the United Kingdom except a postal
\naddress. Therefore, it appeared to the assessing officer that it
\nwas unnatural for anyone to make such a huge investment of
\n$100 million in a virtually nonfunctioning
\ncompany and
\nthereafter get back only 72% of their original investment.
\nAccording to the assessing officer \u201cThe natural inference could be
\nthat it was NDTV\u2019s own funds introduced in NNPLC in the grab of
\nthe impugned bonds.\u201d The details of the investors are given in
\nthis communication giving reasons. Mention has also been made
\nof complaints received from a minority shareholder in which it is
\nalleged that the money introduced in NNPLC was shifted to
\nanother subsidiary of the assessee in Mauritius from where it
\nwas taken to a subsidiary of the assessee in Mumbai and finally
\nto the assessee. NNPLC itself was placed under liquidation on
\n28.03.2011. Therefore, the assessing officer was of the opinion
\nthat there were reasons to believe that the funds received by
\nNNPLC were the funds of the assessee under a sham transaction
\n5
\n6
\nand that the amount of Rs.405.09 crores introduced into the
\nbooks of NNPLC during the financial year 200708
\ncorresponding
\nto the assessment year 200809
\nthrough the transaction
\ninvolving the stepup
\ncoupon convertible bonds pertains to the
\nassessee. The last portion of the communication dt. 04.08.2015
\ngiving reasons to the assessee reads as follows:\u201c
\n7. In view of the above facts and circumstances of the case
\nand considering the findings of the DRP holding the funds
\nreceived by NNPLC as the funds of the assessee New Delhi
\nTelevision Limited under sham transactions, there is a reason
\nto believe that the funds amounting to Rs.405.09 crores
\nintroduced into the books of NNPLC during the FY 200708
\nin
\nthe form of Step Up Coupon Bonds pertain to the assessee
\nNew Delhi Television Limited only. I have therefore reason to
\nbelieve that the income of the assessee New Delhi Television
\nLimited for AY 200809
\namounting to at least Rs.405.09 crores
\nhas escaped assessment. It is also recorded that the
\nescapement is due to failure on the part of the assessee to
\ndisclose fully and truly all facts material for assessment.\u201d
\n7. The assessee filed reply to the notice and reasons given, and
\nclaimed that there had been no failure on the part of the assessee
\nto disclose fully and truly all material facts necessary to make an
\nassessment. Assessee also claimed that the proceedings had
\nbeen initiated on a mere change of opinion and there was no
\nreason to believe. The assessee also claimed that the transaction
\nof stepup
\nbonds was a legal and valid transaction. In addition,
\nit was claimed that the assessing officer had no valid reasons to
\n6
\n7
\nbelieve that the income of the assessee had escaped assessment.
\nAccording to the assessee the assessment officer had accepted
\nthe genuineness of the transaction wherein NNPLC, the
\nsubsidiary, had issued convertible bonds which had been
\nsubscribed by many entities. It was urged that the assessing
\nofficer had treated the transaction to be genuine by levying
\nguarantee fees and adding it back to the income of the assessee.
\nIn the alternative, it was submitted that the notice had been
\nissued beyond the period of limitation of 4 years. According to
\nthe assessee it had not withheld any material facts and,
\ntherefore, limitation of 6 years as applicable to the first proviso to
\nSection 147 would not apply.
\n8. The assessing officer did not accept these objections. The
\nclaim of the assessee was disposed of by the assessing officer vide
\norder dated 23.11.2015 wherein the assessing officer held that
\nthere was nondisclosure
\nof material facts by the assessee and
\nthe notice would be within limitation since NNPLC was a foreign
\nentity and admittedly a subsidiary of the assessee and the
\nincome was being derived through this foreign entity. Hence, the
\ncase of the assessee would fall within the 2nd proviso of Section
\n7
\n8
\n147 of the Act and the extended period of 16 years would be
\napplicable. The objections were accordingly rejected.
\n9. Aggrieved, the petitioner filed a writ petition in the High
\nCourt challenging the notice. The writ petition was dismissed on
\n10.08.2017. Against this the assessee has filed the present
\nAppeal.
\n10. We have heard Shri Arvind P. Datar, learned senior counsel
\nfor the assessee, Shri Tushar Mehta, learned Solicitor General
\nand Shri Zoheb Hossain, learned counsel appearing for the
\nrevenue.
\n11. In our opinion, the following issues arise for consideration
\nin this case:(
\ni) Whether in the facts and circumstances of the case, it
\ncan be said that the revenue had a valid reason to
\nbelieve that undisclosed income had escaped
\nassessment?
\n(ii) Whether the assessee did not disclose fully and truly
\nall material facts during the course of original
\nassessment which led to the finalisation of the
\n8
\n9
\nassessment order and undisclosed income escaping
\ndetection?
\n(iii) Whether the notice dated 31.03.2015 along with
\nreasons communicated on 04.08.2015 could be termed
\nto be a notice invoking the provisions of the second
\nproviso to Section 147 of the Act?
\n12. At the outset we may note that it has been strenuously
\nurged on behalf of the assessee that its assessment was done
\nunder scrutiny procedure and a very detailed procedure was
\nfollowed during the original assessment proceedings and all
\naspects of the case were noted by the assessing officer. That may
\nbe true, but merely the fact that the original assessment is a
\ndetailed one, cannot take away the powers of the assessing officer
\nto issue notice under Section 147 of the Act.
\nQuestion No.1
\n13. We would like to make it clear that we are not going into the
\nmerits of the allegations made against the assessee. At this stage
\nwe are only required to decide whether the revenue has sufficient
\nreasons to believe that undisclosed income of the asseessee has
\nescaped assessment and therefore there are grounds to issue
\nnotice. Obviously, during the assessment proceedings the
\nassessee will have the right to place material on record to show
\nthat the transaction in question was a genuine transaction.
\n9
\n10
\n14. It is trite law that an assessing officer can only reopen
\nan
\nassessment if he has \u2018reason to believe\u2019 that undisclosed income
\nhas escaped assessment. Mere change of opinion of the
\nassessing officer is not a sufficient to meet the standard of
\n\u2018reason to believe\u2019. Relevant portion of Section 147 reads as
\nfollows:147.
\nIncome escaping assessment.If
\nthe Assessing
\nOfficer, has reason to believe that any income chargeable to
\ntax has escaped assessment for any assessment year, he may,
\nsubject to the provisions of sections 148 to 153, assess or
\nreassess such income and also any other income chargeable to
\ntax which has escaped assessment and which comes to his
\nnotice subsequently in the course of the proceedings under
\nthis section, or recompute the loss or the depreciation
\nallowance or any other allowance, as the case may be, for the
\nassessment year concerned (hereafter in this section and in
\nsections 148 to 153 referred to as the relevant assessment
\nyear):
\nProvided that where an assessment under subsection
\n(3) of
\nsection 143 or this section has been made for the relevant
\nassessment year, no action shall be taken under this section
\nafter the expiry of four years from the end of the relevant
\nassessment year, unless any income chargeable to tax has
\nescaped assessment for such assessment year by reason of the
\nfailure on the part of the assessee to make a return under
\nsection 139 or in response to a notice issued under subsection
\n(1) of section 142 or section 148 or to disclose fully and
\ntruly all material facts necessary for his assessment for that
\nassessment year:
\nProvided further that nothing contained in the first proviso
\nshall apply in a case where any income in relation to any asset
\n(including financial interest in any entity) located outside
\nIndia, chargeable to tax, has escaped assessment for any
\nassessment year:
\nProvided also that the Assessing Officer may assess or
\nreassess such income, other than the income involving matters
\nwhich are the subjectmatter
\nof any appeal, reference or
\nrevision, which is chargeable to tax and has escaped
\nassessment.
\n10
\n11
\nExplanation 1.\u2014Production before the Assessing Officer of
\naccount books or other evidence from which material evidence
\ncould, with due diligence, have been discovered by the
\nAssessing Officer will not necessarily amount to disclosure
\nwithin the meaning of the foregoing proviso.
\nExplanation 2.\u2014For the purposes of this section, the following
\nshall also be deemed to be cases where income chargeable to
\ntax has escaped assessment, namely :\u2014
\n(a) where no return of income has been furnished by the
\nassessee although his total income or the total income
\nof any other person in respect of which he is
\nassessable under this Act during the previous year
\nexceeded the maximum amount which is not
\nchargeable to incometax;
\n(b) where a return of income has been furnished by the
\nassessee but no assessment has been made and it is
\nnoticed by the Assessing Officer that the assessee has
\nunderstated the income or has claimed excessive loss,
\ndeduction, allowance or relief in the return;
\n(ba) where the assessee has failed to furnish a report in
\nrespect of any international transaction which he was
\nso required under section 92E;
\n(c) where an assessment has been made, but\u2014
\n(i) income chargeable to tax has been underassessed;
\nor
\n(ii) such income has been assessed at too low a rate;
\nor
\n(iii) such income has been made the subject of
\nexcessive relief under this Act; or
\n(iv) excessive loss or depreciation allowance or any
\nother allowance under this Act has been computed.
\n(ca) where a return of income has not been furnished by
\nthe assessee or a return of income has been furnished
\nby him and on the basis of information or document
\nreceived from the prescribed incometax
\nauthority,
\nunder subsection
\n(2) of section 133C, it is noticed by
\nthe Assessing Officer that the income of the assessee
\nexceeds the maximum amount not chargeable to tax,
\nor as the case may be, the assessee has understated
\nthe income or has claimed excessive loss, deduction,
\nallowance or relief in the return;
\n(d) where a person is found to have any asset (including
\nfinancial interest in any entity) located outside India.
\nxxx xxx xxx
\n11
\n12
\n15. The case of the assessee is that the transaction of stepup
\ncoupon bonds was scrutinised in great detail by the assessing
\nofficer before he passed the order of assessment dated
\n03.08.2012. According to the assessee there is an attempt on
\nbehalf of the revenue to deliberately mixup
\nthe transactions
\nrelating to the Netherlands subsidiary with the U.K. subsidiary.
\nAccording to the assessee the order of the DRP for the
\nassessment year 200910
\nis in two distinct compartments. While
\nthe DRP held the Netherlands\u2019 transactions of Rs.642 crores to be
\na sham, the transaction of issuance of US$ 100 million
\nconvertible bonds was not questioned. Therefore, according to
\nthe assessee there was no fresh material before the assessing
\nofficer to have reason to believe that the undisclosed income of
\nthe assessee had escaped assessment.
\n16. On behalf of the assessee it has been urged that once the
\ntransaction of stepup
\ncoupon bonds has been accepted to be
\ncorrect, then the revenue cannot reopen
\nthe same and doubt the
\ngenuiness of the transaction. We are not in agreement with the
\nfirst part of the submission but we make it clear that we are not
\ncommenting on the genuineness of the transaction, which will be
\nconsidered by the concerned assessing officer.
\n12
\n13
\n17. On the other hand, on behalf of the revenue it is submitted
\nthat at the stage of issue of show cause notice the revenue only
\nhas to establish a tentative and prima facie view. At this stage,
\nthis Court is not expected to go into the merits of the case but
\ncan only ascertain whether the revenue has prima facie ground to
\nshow that it had reasons to believe that income has escaped
\nassessment. It is further submitted that the scope of judicial
\nreview in such matters is very limited. It is also submitted that
\nsince the revenue discovered fresh tangible material subsequent
\nto the assessment order of 03.08.2012, it cannot be said that the
\nassessing officer did not have reasons to believe that income had
\nescaped assessment.
\n18. The main issue is whether there was sufficient material
\nbefore the assessing officer to take a prima facie view that income
\nof the assessee had escaped assessment. The original order of
\nassessment was passed on 03.08.2012. It was thereafter on
\n31.12.2013 that the DRP in the case of AY 200910
\nraised doubts
\nwith regard to the corporate structure of the assessee and its
\nsubsidiaries. It was noted in the order of the DRP that certain
\nshares of NNPLC had been acquired by Universal Studios
\nInternational B.V., Netherlands, indirectly by subscribing to the
\n13
\n14
\nshares of NNIH. As already noted above it was recorded in the
\nreasons communicated on 04.08.2015 that NNPLC was not
\nhaving any business activity in London. It had no fixed assets
\nand was not even paying rent. Other than the fact that NNPLC
\nwas incorporated in the U.K., it had no other commercial
\nbusiness there. NNPLC had declared a loss of Rs.8.34 crores for
\nthe relevant year. It was also noticed from the order of the
\nassessing officer that the assessee is the parent company of
\nNNPLC and it is the dictates of the assessee which are important
\nfor running NNPLC.
\n19. Pursuant to the directions of the DRP, the assessing officer
\npassed the final assessment order for AY 200910
\non 21.02.2014
\nwhich also disclosed similar facts.
\n20. According to the revenue Tax Evasion Petitions were filed by
\nthe minority shareholders of the assessee company on various
\ndates, i.e., 11.03.2014, 25.07.2014, 13.10.2014 and 11.03.2015,
\nwhich complaints describe in detail the communication between
\nthe assessee and the subsidiaries and also allegedly showed
\nevidence of round tripping of the assessee\u2019s undisclosed income
\nthrough a layer of subsidiaries which led to the issuance of the
\nnotice in question.
\n14
\n15
\n21. Whether the facts which came to the knowledge of the
\nassessment officer after the assessment proceedings for the
\nrelevant year were completed, could be taken into consideration
\nfor coming to the conclusion that there were reasons to believe
\nthat income had escaped assessment is the question that
\nrequires to be answered. Though a number of judgments have
\nbeen cited in this behalf, we shall make reference to only a few.
\nIn Claggett Brachi Co. Ltd., London vs. Commissioner of
\nIncome Tax, Andhra Pradesh1, this Court held as follows:\u201c
\n7. Two points have been urged before us by learned
\ncounsel for the assessee. It is contended that the Income Tax
\nOfficer has no jurisdiction to take proceedings under Sections
\n147 and 148 of the Income Tax Act because the conditions
\nprerequisite for making the reassessments were not satisfied.
\nThe reassessments
\nwere made with reference to clause (b) of
\nSection 147 of the Act, and apparently the Income Tax Officer
\nproceeded on the basis that in consequence of information in
\nhis possession he had reason to believe that income
\nchargeable to tax had escaped assessment for the two
\nassessment years. From the material before us it appears that
\nthe Income Tax Officer came to realise that income had
\nescaped assessment for the two assessment years when he
\nwas in the process of making assessment for a subsequent
\nassessment year. While making that assessment he came to
\nknow from the documents pertaining to that assessment that
\nthe overhead expenses related to the entire business including
\nthe business as commission agents and were not confined to
\nthe business of purchase and sale. It is true, as the High Court
\nhas observed, that this information could have been acquired
\nby the Income Tax Officer if he had exercised due diligence at
\nthe time of the original assessment itself. It does not appear,
\nhowever, that the attention of the Income Tax Officer was
\ndirected by anything before him to the fact that the overhead
\nexpenses related to the entire business. The information
\nderived by the Income Tax Officer evidently came into his
\npossession when taking assessment proceedings for the
\n1 1989 Supp(2) SCC 182
\n15
\n16
\nsubsequent year. In the circumstances, it cannot be doubted
\nthat the case falls within the terms of clause (b) of Section 147
\nof the Act, and that, therefore, the High Court is right in
\nholding against the assessee.\u201d
\nIn M\/s Phool Chand Bajrang Lal and Another vs. Income
\nTax Officer and Another2, this Court held as follows:\u201c
\n19\u2026Acquiring fresh information, specific in nature and
\nreliable in character, relating to the concluded assessment
\nwhich goes to expose the falsity of the statement made by the
\nassessee at the time of original assessment is different from
\ndrawing a fresh inference from the same facts and material
\nwhich was available with the ITO at the time of original
\nassessment proceedings. The two situations are distinct and
\ndifferent. Thus, where the transaction itself on the basis of
\nsubsequent information, is found to be a bogus transaction,
\nthe mere disclosure of that transaction at the time of original
\nassessment proceedings, cannot be said to be disclosure of the
\n\u201ctrue\u201d and \u201cfull\u201d facts in the case and the ITO would have the
\njurisdiction to reopen the concluded assessment in such a
\ncase. It is correct that the assessing authority could have
\ndeferred the completion of the original assessment proceedings
\nfor further enquiry and investigation into the genuineness to
\nthe loan transaction but in our opinion his failure to do so and
\ncomplete the original assessment proceedings would not take
\naway his jurisdiction to act under Section 147 of the Act, on
\nreceipt of the information subsequently. The subsequent
\ninformation on the basis of which the ITO acquired reasons to
\nbelieve that income chargeable to tax had escaped assessment
\non account of the omission of the assessee to make a full and
\ntrue disclosure of the primary facts was relevant, reliable and
\nspecific. It was not at all vague or nonspecific.\u201d
\nIn Ess Kay Engineering Co.(P) Ltd. vs. Commissioner of
\nIncome Tax, Amritsar3, this Court held as follows:\u201c
\nThis is a case of reopening. We have perused the
\ndocuments. We find there was material on the basis of which
\nthe Income Tax Officer could proceed to reopen the case. It is
\nnot a case of mere change of opinion. We are not inclined to
\ninterfere with the decision of the High Court merely because
\nthe case of the assessee was accepted as correct in the original
\n2 (1993) 4 SCC 77
\n3 (2001) 10 SCC 189
\n16
\n17
\nassessment for this assessment year. It does not preclude the
\nIncome Tax Officer from reopening the assessment of an
\nearlier year on the basis of his findings of fact made on the
\nbasis of fresh materials in course of assessment of the next
\nassessment year. The appeal is dismissed. No order as to
\ncosts.\u201d
\n22. A perusal of the aforesaid judgments clearly shows that
\nsubsequent facts which come to the knowledge of the assessing
\nofficer can be taken into account to decide whether the
\nassessment proceedings should be reopened
\nor not. Information
\nwhich comes to the notice of the assessing officer during
\nproceedings for subsequent assessment years can definitely form
\ntangible material to invoke powers vested with the assessing
\nofficer under Section 147 of the Act.
\n23. The material disclosed in the assessment proceedings for
\nthe subsequent years as well as the material placed on record by
\nthe minority shareholders form the basis for taking action under
\nSection 147 of the Act. At the stage of issuance of notice, the
\nassessing officer is to only form a prima facie view. In our opinion
\nthe material disclosed in assessment proceedings for subsequent
\nyears was sufficient to form such a view. We accordingly hold
\nthat there were reasons to believe that income had escaped
\nassessment in this case. Question No.1 is answered accordingly.
\nQuestion No.2
\n17
\n18
\n24. Coming to the second question as to whether there was
\nfailure on the part of the assessee to make a full and true
\ndisclosure of all the relevant facts. The case of the assessee is
\nthat it had disclosed all facts which were required to be disclosed.
\n25. The revenue has placed reliance on certain complaints made
\nby the minority shareholders and it is alleged that those
\ncomplaints reveal that the assessee was indulging in roundtripping
\nof its funds. According to the revenue the material
\ndisclosed in these complaints clearly shows that the assessee is
\nguilty of creating a network of shell companies with a view to
\ntransfer its untaxed
\nincome in India to entities abroad and then
\nbring it back to India thereby avoiding taxation. We make it clear
\nthat we are not going into this aspect of the matter because those
\ncomplaints have not seen light of the day either before the High
\nCourt or this Court and, therefore, it would be unfair to the
\nassessee if we rely upon such material which the assessee has
\nnot been confronted with.
\n26. Even before the assessment order was passed on
\n03.08.2012, the assessing officer was aware of the entities which
\nhad subscribed to the convertible bonds. This is apparent from
\nthe communication dated 08.04.2011. The case of the revenue is
\nthat the assessee did not disclose the amount subscribed by each
\n18
\n19
\nof the entities and furthermore the management structure of
\nthese companies. We are not in agreement with this submission
\nof the revenue. It is apparent from the records of the case that
\nthe revenue was aware of the entities which subscribed to the
\nconvertible bonds. It has been urged that these are bogus
\ncompanies, but we are not concerned with that at this stage. The
\nissue before us is whether the revenue can take the benefit of the
\nextended period of limitation of 6 years for initiating proceedings
\nunder the first proviso Section 147 of the Act. This can only be
\ndone if the revenue can show that the assessee had failed to
\ndisclose fully and truly all material facts necessary for its
\nassessment. The assessee, in our view had disclosed all the facts
\nit was bound to disclose. If the revenue wanted to investigate the
\nmatter further at that stage it could have easily directed the
\nassessee to furnish more facts.
\n27. The High Court held that there was no \u201ctrue and fair
\ndisclosure\u201d in view of the law laid down by this Court in Phool
\nChand\u2019s case (supra), and the judgment of the Delhi High Court
\nin Honda Siel Power Products Limited vs. Deputy
\nCommissioner IncomeTax
\nand Another4. We have already
\n4 (2012) 340 ITR 53 (Delhi)
\n19
\n20
\nreferred to the judgment in Phool Chand\u2019s case (supra), wherein
\nit was held that where the transaction of a particular assessment
\nyear is found to be a bogus transaction, the disclosures made
\ncould not be said to be all \u201ctrue\u201d and \u201cfull\u201d. Relying upon the
\nsaid judgment the High Court held that merely because the
\ntransaction of convertible bonds was disclosed at the time of
\noriginal assessment does not mean that there is true and full
\ndisclosure of facts.
\n28. We are unable to agree with this reasoning given by the
\nHigh Court. The assessee as mentioned above made a disclosure
\nabout having agreed to stand guarantee for the transaction by
\nNNPLC and it had also disclosed the factum of the issuance of
\nconvertible bonds and their redemption. The income, if any,
\narose because of the redemption at a discounted price. This was
\nan event which took place subsequent to the assessment year in
\nquestion though it may be income for the assessment year. As
\nwe have observed above, all relevant facts were duly within the
\nknowledge of the assessing officer. The assessing officer knew
\nwho were the entities who had subscribed to other convertible
\nbonds and in other proceedings relating to the subsidiaries the
\n20
\n21
\nsame assessing officer had knowledge of addresses and the
\nconsideration paid by each of the bondholders as is apparent
\nfrom assessment orders dated 03.08.2012 passed in the cases of
\nM\/s. NDTV Labs Ltd. and M\/s. NDTV Lifestyle Ltd. Therefore, in
\nour opinion there was full and true disclosure of all material facts
\nnecessary for its assessment by the assessee.
\n29. The fact that stepup
\ncoupon bonds for US$ 100 million
\nwere issued by NNPLC was disclosed; who were the entities which
\nsubscribed to the bonds was disclosed; and the fact that the
\nbonds were discounted at a lower rate was also disclosed before
\nthe assessment was finalised. This transaction was accepted by
\nthe assessing officer and it was clearly held that the assessee was
\nonly liable to receive a guarantee fees on the same which was
\nadded to its income. Without saying anything further on merits
\nof the transaction we are of the view that it cannot be said that
\nthe assessee had withheld any material information from the
\nrevenue.
\n30. According to the revenue the assessee to avoid detection of
\nthe actual source of funds of its subsidiaries did not disclose the
\ndetails of the subsidiaries in its final accounts, balance sheets,
\nand profit and loss account for the relevant period as was
\n21
\n22
\nmandatory under the provisions of the Indian Companies Act,
\n1956. It is not disputed that the assessee had obtained an
\nexemption from the competent authority under the Companies
\nAct, 1956 from providing such details in its final accounts,
\nbalance sheets, etc. As such it cannot be said that the assessee
\nwas bound to disclose this to the Assessing Officer. The
\nAssessing Officer before finalising the assessment of 03.08.2012
\nhad never asked the assessee to furnish the details.
\n31. The revenue now has come up with the plea that certain
\ndocuments were not supplied but according to us all these
\ndocuments cannot be said to be documents which the assessee
\nwas bound to disclose at the time of assessment. The main
\nground raised by the revenue is that the assessee did not disclose
\nas to who had subscribed what amount and what was its
\nrelationship with the assessee. As far as the first part is
\nconcerned it does not appear to be correct. There is material on
\nrecord to show that on 08.04.2011 NNPLC had sent a
\ncommunication to the Deputy Director of Income Tax
\n(Investigation), wherein it had not only disclosed the names of all
\nthe bond holders but also their addresses; number of bonds
\nalong with the total consideration received. This chart forms part
\n22
\n23
\nof the assessment orders dated 03.08.2012 in the case of M\/s.
\nNDTV Labs Ltd. and M\/s. NDTV Lifestyle Ltd. The said two
\nassessment orders were passed by the same officer who had
\npassed the assessment order in the case of the assessee on the
\nsame date itself. Therefore, the entire material was available with
\nthe revenue.
\n32. A number of decisions have been cited as to what is meant
\nby true and full disclosure. It is not necessary to multiply
\ndecisions, as law in this regard has been succinctly laid down by
\na Constitution Bench of this Court in Calcutta Discount Co.
\nLtd. vs. Incometax
\nOfficer, Companies District I, Calcutta
\nand Another5 , wherein it was held as follows :\u201c(
\n8)\u2026The words used are \u201comission or failure to disclose fully
\nand truly all material facts necessary for his assessment for
\nthat year\u201d. It postulates a duty on every assessee to disclose
\nfully and truly all material facts necessary for his assessment.
\nWhat facts are material, and necessary for assessment will
\ndiffer from case to case. In every assessment proceeding, the
\nassessing authority will, for the purpose of computing or
\ndetermining the proper tax due from an assessee, require to
\nknow all the facts which help him in coming to the correct
\nconclusion. From the primary facts in his possession, whether
\non disclosure by the assessee, or discovered by him on the
\nbasis of the facts disclosed, or otherwise \u2014 the assessing
\nauthority has to draw inferences as regards certain other facts;
\nand ultimately, from the primary facts and the further facts
\ninferred from them, the authority has to draw the proper legal
\ninferences, and ascertain on a correct interpretation of the
\ntaxing enactment, the proper tax leviable. Thus, when a
\nquestion arises whether certain income received by an
\n5 AIR 1961 SC 372
\n23
\n24
\nassessee is capital receipt, or revenue receipt, the assessing
\nauthority has to find out what primary facts have been proved,
\nwhat other facts can be inferred from them, and taking all
\nthese together, to decide what the legal inference should be.
\n(9) There can be no doubt that the duty of disclosing all the
\nprimary facts relevant to the decision of the question before
\nthe assessing authority lies on the assessee. To meet a
\npossible contention that when some account books or other
\nevidence has been produced, there is no duty on the assessee
\nto disclose further facts, which on due diligence, the Incometax
\nOfficer might have discovered, the Legislature has put in
\nthe Explanation, which has been set out above. In view of the
\nExplanation, it will not be open to the assessee to say, for
\nexample \u2014 \u201cI have produced the account books and the
\ndocuments: You, the assessing officer examine them, and find
\nout the facts necessary for your purpose: My duty is done with
\ndisclosing these accountbooks
\nand the documents.\u201d His
\nomission to bring to the assessing authority\u2019s attention these
\nparticular items in the account books, or the particular
\nportions of the documents, which are relevant, will amount to
\n\u201comission to disclose fully and truly all material facts
\nnecessary for his assessment.\u201d Nor will he be able to contend
\nsuccessfully that by disclosing certain evidence, he should be
\ndeemed to have disclosed other evidence, which might have
\nbeen discovered by the assessing authority if he had pursued
\ninvestigation on the basis of what has been disclosed. The
\nExplanation to the section, gives a quietus to all such
\ncontentions; and the position remains that so far as primary
\nfacts are concerned, it is the assessee\u2019s duty to disclose all of
\nthem \u2014 including particular entries in account books,
\nparticular portions of documents and documents, and other
\nevidence, which could have been discovered by the assessing
\nauthority, from the documents and other evidence disclosed.
\n(10) Does the duty however extend beyond the full and
\ntruthful disclosure of all primary facts? In our opinion, the
\nanswer to this question must be in the negative. Once all the
\nprimary facts are before the assessing authority, he requires
\nno further assistance by way of disclosure. It is for him to
\ndecide what inferences of facts can be reasonably drawn and
\nwhat legal inferences have ultimately to be drawn. It is not for
\nsomebody else \u2014 far less the assessee \u2014 to tell the assessing
\nauthority what inferences \u2014 whether of facts or law should be
\ndrawn. Indeed, when it is remembered that people often differ
\nas regards what inferences should be drawn from given facts,
\nit will be meaningless to demand that the assessee must
\ndisclose what inferences \u2014 whether of facts or law \u2014 he
\nwould draw from the primary facts.
\n(11) If from primary facts more inferences than one could
\nbe drawn, it would not be possible to say that the assessee
\nshould have drawn any particular inference and
\ncommunicated it to the assessing authority. How could an
\n24
\n25
\nassessee be charged with failure to communicate an inference,
\nwhich he might or might not have drawn?\u201d
\nA careful analysis of this judgment indicates that the Constitution
\nBench held that it is the duty of the assessee to disclose full and
\ntruly all material facts which it termed as primary facts. Nondisclosure
\nof other facts which may be termed as secondary facts is
\nnot necessary. In light of the above law, we shall deal with the facts
\nof the present case.
\n33. In our view the assessee disclosed all the primary facts
\nnecessary for assessment of its case to the assessing officer.
\nWhat the revenue urges is that the assessee did not make a full
\nand true disclosure of certain other facts. We are of the view that
\nthe assessee had disclosed all primary facts before the assessing
\nofficer and it was not required to give any further assistance to
\nthe assessing officer by disclosure of other facts. It was for the
\nassessing officer at this stage to decide what inference should be
\ndrawn from the facts of the case. In the present case the
\nassessing officer on the basis of the facts disclosed to him did not
\ndoubt the genuiness of the transaction set up by the assessee.
\nThis the assessing officer could have done even at that stage on
\nthe basis of the facts which he already knew. The other facts
\n25
\n26
\nrelied upon by the revenue are the proceedings before the DRP
\nand facts subsequent to the assessment order, and we have
\nalready dealt with the same while deciding Issue No.1. However,
\nthat cannot lead to the conclusion that there is nondisclosure
\nof
\ntrue and material facts by the assessee.
\n34. It is interesting to note that whereas before this Court the
\nrevenue is strenuously urging that the assessee is guilty of nondisclosure
\nof material facts, before the High Court the case of the
\nrevenue was just opposite. We may quote a portion of the
\ncounteraffidavit
\nfiled by the revenue in response to the writ
\npetition filed by the assessee before the High Court which reads
\nas follows:\u201c\u2026
\nIt is evident from these facts that second proviso to
\nSection 147 is clearly attracted in this case and first proviso to
\nSection 147 is not applicable to facts of this case, i.e. in this
\ncase, the only requirement to reopen assessment U\/s 147 was
\nthat the AO has reason to believe that any income chargeable
\nto tax has escaped assessment. The second condition that the
\nincome should have escaped assessment due to failure on the
\npart of the assessee to disclose fully and truly all material facts
\nnecessary for making assessment is not relevant to decide
\nissue before the Hon\u2019ble Court\u201d
\nThis submission has been repeated a number of times in the
\ncounteraffidavit.
\nTherefore, in our opinion the revenue cannot
\nnow turn around and urge that the assessee is guilty of nondisclosure
\nof facts. We are also of the view that the revenue could
\nnot be permitted to blow hot and cold at the same time.
\n26
\n27
\n35. We are clearly of the view that the revenue in view of its
\ncounteraffidavit
\nbefore the High Court that it was not relying
\nupon the nondisclosure
\nof facts by the assessee could not have
\nbeen permitted to orally urge the same. Even otherwise we find
\nthat the assessee had fully and truly disclosed all material facts
\nnecessary for its assessment and, therefore, the revenue cannot
\ntake benefit of the extended period of limitation of 6 years. We
\nanswer Question No.2 accordingly.
\nQuestion No.3
\n36. It is urged before this Court by the revenue that in terms of
\nsecond proviso to Section 147 of the Act read with Section 149(1)
\n(c) of the Act, the limitation period would be 16 years since the
\nassessee has derived income from a foreign entity. We may make
\nspecific reference to the second proviso and explanation 2(d)
\nwhich reads as follows:Provided
\nfurther that nothing contained in the first
\nproviso shall apply in a case where any income in relation to
\nany asset (including financial interest in any entity) located
\noutside India, chargeable to tax, has escaped assessment for
\nany assessment year:
\nxxx xxx xxx
\nExplanation 2.\u2014For the purposes of this section, the
\nfollowing shall also be deemed to be cases where income
\nchargeable to tax has escaped assessment, namely :\u2014
\nxxx xxx xxx
\n27
\n28
\n(d) where a person is found to have any asset
\n(including financial interest in any entity) located outside
\nIndia.
\nxxx xxx xxx
\n37. On behalf of the assessee it has been urged that no income
\nwas derived from the foreign entity and a loan cannot be termed
\nto be an asset or an income and it is submitted that the notice
\ncannot be said to have been issued under the second proviso.
\n38. In this regard we may make reference to the notice dated
\n31.03.2015. The notice is conspicuously silent with regard to the
\nsecond proviso. It does not rely upon the second proviso and
\nbasically relies on the provision of Section 148 of the Act. The
\nreasons communicated to the assessee on 04.08.2015 mention
\n\u2018reason to believe\u2019 and nondisclosure
\nof material facts by the
\nassessee. There is no case set up in relation to the second
\nproviso either in the notice or even in the reasons supplied on
\n04.08.2015 with regard to the notice. It is only while rejecting
\nthe objections of the assessee that reference has been made to
\nthe second proviso in the order of disposal of objections dated
\n23.11.2015.
\n39. The High Court relied upon the judgment in Mohinder
\nSingh Gill & Anr. vs. The Chief Election Commissioner,
\n28
\n29
\nNew Delhi & Ors.6 and came to the conclusion that the
\nrevenue cannot rely upon the second proviso because the notice
\nwas silent in this regard. However, the High Court held that the
\nassessee was guilty of nondisclosure
\nof material facts. We have
\nalready held that in our view the assessee was not guilty of nondisclosure
\nof material facts. The revenue has not challenged the
\njudgment of the High Court in so far as this finding against it is
\nconcerned but the revenue is entitled to defend the petition even
\non a ground which may have been decided against it by the High
\nCourt.
\n40. On behalf of the revenue it is urged that mere nonnaming
\nof the second proviso in the notice does not help the assessee. It
\nhas been urged that even if the source of power to issue notice
\nhas been wrongly mentioned, but all relevant facts were
\nmentioned, then the notice can be said to be a notice under the
\nprovision which empowers the revenue to issue such notice.
\nThere can be no quarrel with this proposition of law. However,
\nthe noticee or the assesee should not be prejudiced or be taken
\nby surprise. The uncontroverted fact is that in the notice dated
\n31.03.2015 there is no mention of any foreign entity. There is
\nonly mention of the Section 148. Even after the assessee
\n6 (1978) 2 SCR 272
\n29
\n30
\nspecifically asked for reasons, the revenue only relied upon facts
\nto show that there was reason to believe that income has escaped
\nassessment and this escapement was due to the nondisclosure
\nof material facts. There is nothing in the reasons to indicate that
\nthe revenue was intending to apply the extended period of 16
\nyears. It is only after the assessee filed its reply to the reasons
\ngiven, that in the order of rejection for the first time reference was
\nmade to the second proviso by the revenue.
\n41. In our view this is not a fair or proper procedure. If not in
\nthe first notice, at least at the time of furnishing the reasons the
\nassessee should have been informed that the revenue relied upon
\nthe second proviso. The assessee must be put to notice of all the
\nprovisions on which the revenue relies upon. At the risk of
\nrepetition, we reiterate that we are not going into the merits of
\nthe case but in case the revenue had issued a notice to the
\nassessee stating that it relies upon the second proviso, the
\nassessee would have had a chance to show that it was not
\nderiving any income from any foreign asset or financial interest in
\nany foreign entity, or that the asset did not belong to it or any
\nother ground which may be available. The assessee cannot be
\ndeprived of this chance while replying to the notice.
\n30
\n31
\n42. Therefore, even if we do not fall back on the reason given by
\nthe High Court that the revenue cannot take a fresh ground, we
\nare clearly of the view that the notice and reasons given
\nthereafter do not conform to the principles of natural justice and
\nthe assessee did not get a proper and adequate opportunity to
\nreply to the allegations which are now being relied upon by the
\nrevenue.
\n43. If the revenue is to rely upon the second proviso and wanted
\nto urge that the limitation of 16 years would apply, then in our
\nopinion in the notice or at least in the reasons in support of the
\nnotice, the assessee should have been put to notice that the
\nrevenue relies upon the second proviso. The assessee could not
\nbe taken by surprise at the stage of rejection of its objections or
\nat the stage of proceedings before the High Court that the notice
\nis to be treated as a notice invoking provisions of the second
\nproviso of Section 147 of the Act. Accordingly, we answer the
\nthird question by holding that the notice issued to the assessee
\nand the supporting reasons did not invoke provisions of the
\nsecond proviso of Section 147 of the Act and therefore at this
\nstage the revenue cannot be permitted to take benefit of the
\nsecond proviso.
\n31
\n32
\nConclusion
\n44. We accordingly allow the appeal by holding that the notice
\nissued to the assessee shows sufficient reasons to believe on the
\npart of the assessing officer to reopen the assessment but since
\nthe revenue has failed to show nondisclosure
\nof facts the notice
\nhaving been issued after a period of 4 years is required to be
\nquashed. Having held so, we make it clear that we have not
\nexpressed any opinion on whether on facts of this case the
\nrevenue could take benefit of the second proviso or not.
\nTherefore, the revenue may issue fresh notice taking benefit of
\nthe second proviso if otherwise permissible under law. We make
\nit clear that both the parties shall be at liberty to raise all
\ncontentions with regard to the validity of such notice. All
\npending application(s) shall stand(s) disposed of.
\n\u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026.J.
\n(L. Nageswara Rao)
\n\u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026.J.
\n(Deepak Gupta)
\nNew Delhi
\nApril 3, 2020
\n32<\/p>\n","protected":false},"excerpt":{"rendered":"
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 give any further assistance to the assessing officer by disclosure of other facts. It was for the assessing officer at this stage to decide what inference should be drawn from the facts of the case. In the present case the assessing officer on the basis of the facts disclosed to him did not doubt the genuiness of the transaction set up by the assessee. This the assessing officer could have done even at that stage on the basis of the facts which he already knew. The other facts relied upon by the revenue are the proceedings before the DRP and facts subsequent to the assessment order, and we have already dealt with the same while deciding Issue No.1. However, that cannot lead to the conclusion that there is nondisclosure of true and material facts by the assessee<\/p>\n