{"id":6923,"date":"2020-04-09T16:41:51","date_gmt":"2020-04-09T11:11:51","guid":{"rendered":"http:\/\/itatonline.org\/articles_new\/?p=6923"},"modified":"2020-04-09T16:41:51","modified_gmt":"2020-04-09T11:11:51","slug":"reassessment-u-s-147-of-the-income-tax-act-key-legal-principles-laid-down-by-the-supreme-court-in-ndtv-vs-uoi","status":"publish","type":"post","link":"https:\/\/itatonline.org\/articles_new\/reassessment-u-s-147-of-the-income-tax-act-key-legal-principles-laid-down-by-the-supreme-court-in-ndtv-vs-uoi\/","title":{"rendered":"Reassessment U\/s 147 Of The Income-Tax Act: Key Legal Principles Laid Down By The Supreme Court In NDTV vs. UOI"},"content":{"rendered":"

\"\"Advocate Ajay R. Singh has culled out in a systematic manner the important principles of law emanating from the recent judgement of the Supreme Court in New Delhi Television Ltd vs. DCIT<\/a>. He has also applied his mind to the applicability of the second proviso to section 147 with respect to an asset or financial interest in a foreign country. He has also considered whether the amendment to section 150(1) to lift the embargo of limitation under section 149 applies prospectively or has retrospective effect<\/strong> <\/p>\n

In midst of the Covid-19 lockdown the Hon Supreme court rendered yet another landmark judgement under Income tax Act in New Delhi Television Ltd vs. DCIT<\/a><\/strong>. The Supreme court once again reiterate the important legal principles in context to reopening of assessment beyond the period  4 years. The decision also deals with basic principles related to issuance of notice, recording of reasons  and opportunity of hearing . Though the decision needs to be read in context of the facts of the case, however the decision will go a long way in understanding the legal -principles in relation to reopening of assessment.<\/p>\n

<\/p>\n

FACTS: <\/u><\/strong><\/p>\n

The appellant New Delhi Television Limited is an Indian company engaged in running television channels of various kinds.  It has various foreign subsidiaries however for present case  we are concerned mainly with the subsidiary based in the United Kingdom   (UK) named   NDTV   Network  Plc.,   U.K.   (NNPLC’). <\/p>\n

The reassessment proceeding deals with  the  issue  of  step­up  coupon bonds amounting to US$ 100 million, therefore certain facts revolving around these bonds needs to be known.  These bonds were issued in July, 2007 through the Bank of New York for a period of 5 years.    The case of the assessee is that NNPLC issued step­up  coupon bonds of US$ 100 million which were 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.   <\/p>\n

These bonds were subscribed to by various entities.  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 a discounted price of US $74.2 million in  November, 2009.  The ROI for AY: 2008-09 was filed on 29.09.2008 declaring a loss. In the original assessment proceeding the assessing officer held that NNPLC had virtually no financial worth, it had no business of the name and therefore it could not be believed that it could have issued convertible bonds of US$ 100 million, unless the repayment along with interest was secured. This was secured only because of the assessee agreeing to furnish guarantee in this regard. 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. <\/p>\n

The transaction was of such a nature that the assessee should   be   required   to   maintain   an   arm’s  length   from  its subsidiary, meaning that it should be treated like a guarantee issued by any corporate guarantor in favour of some other corporate  entity. <\/p>\n

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 croresto the income of the assessee, vide order dated 03.08.2012.<\/p>\n

REOPENING OF ASSESSMENT:<\/strong><\/p>\n

On 31\/3\/2015 (beyond 4 years from end of relevant AY) the dept issued notice u\/s. 148 of the Act on the ground  that net income chargeable to tax for the AY: 2008-09  had  escaped  assessment . On 4\/8\/2015 reasons were supplied . <\/p>\n

The main reason given was that in the following assessment year i.e AY: 2009­10, 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, and others.<\/p>\n

The assessee  for AY 2009-10 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, for which tax had not been paid, back to India by this circuitous round tripping.  <\/p>\n

For issuing the reassessment notice the assessing officer relied 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.  <\/p>\n

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 Rs.405.09 crores introduced into thebooks of NNPLC during the  AY: 2008­09  through   the   transaction involving the step­up coupon convertible bonds  pertains  to the  assessee.<\/p>\n

OBJECTIONS RAISED BY ASSESSEE:<\/strong><\/p>\n

The assessee filed its objection  to the notice and reasons given, and claimed that <\/p>\n

a) there had been no failure on the part of the assessee to disclose fully and truly material facts necessary to make an assessment ;<\/p>\n

b) that the proceedings had been initiated on a mere change of opinion and there was no
\n reason to believe that the transaction of step­up bonds was a legal and valid transaction.<\/p>\n

c) In addition, it was claimed that the assessing officer had no valid reasons to believe that the income of the assessee had escaped assessment.<\/p>\n

d) According to the assessee the assessment officer had accepted the   genuineness   of   the   transaction    by levying guarantee fees and adding it back to the income of the assessee.<\/p>\n

e) 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, therefore, limitation of 6 years as applicable to the first proviso to Section 147 would not apply.  <\/p>\n

REJECTION OF OBJECTION:<\/strong><\/p>\n

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 non­disclosure of material facts by the assessee and the notice would be within limitation since NNPLC was a foreign entity and admittedly a subsidiary  of the assessee and the income was being derived through a foreign entity.  Hence, the case of the assessee would fall within the 2nd proviso of Sec.147 of the Act and the extended period of 16 years would be applicable.  The objections were accordingly rejected. <\/p>\n

The assessee’s  writ petition was dismissed by  the High Court  on 10.08.2017. Against  the said order  the assessee  filed the present Appeal before Supreme Court. <\/p>\n

HELD:<\/strong><\/p>\n

1. The court repeatedly observed that it will not go in to the merits  of the allegations made by the dept against the assessee.  At this stage court will only  decide whether the revenue has sufficient reasons  to  believe that undisclosed income of the assessee has escaped assessment and therefore there are  grounds to issue notice.<\/p>\n

2.Whether the facts which came to the knowledge of the assessing  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   assessment  . <\/p>\n

On behalf of the assessee it has been urged that once the transaction of step­up coupon bonds  has been accepted to be correct,   then the revenue cannot re­open the same and doubt the genuineness  of the transaction based on the subsequent    order   of   the   DRP   for the assessment  year  2009­10.   According to the assessee there is an attempt on behalf of the revenue to  deliberately  mix­up the transactions relating to the Netherlands subsidiary with the U.K.  subsidiary. <\/p>\n

According to the revenue Tax Evasion Petitions were filed by the minority shareholders of the  assessee company on various dates, 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 to the issuance of  the notice in question.<\/p>\n

The Hon. Court relied on the decisions in  case of Claggett Brachi Co. Ltd., London    vs. CIT, Andhra Pradesh [(1989) 177 ITR 409 (SC)] ;  M\/s Phool Chand Bajrang  Lal  and  Another    vs.   ITO  and Another[(1993) 203 ITR 456 (SC)] and Ess Kay Engineering Co.(P) Ltd.   vs.   CIT, <\/strong>Amritsar<\/strong> [(2001) 247 ITR 818 (SC)]<\/strong>, for the proposition  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 re­opened or not. 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.  <\/p>\n

Therefore the  court disagreed with the submission of the assessee and observed 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 escaped assessment. <\/p>\n

At the stage of issuance of notice, the assessing officer is to only form a prima facie view. Thus the court held that the material disclosed in assessment proceedings for subsequent years was sufficient to form  such a view and that there were reasons to believe that income had escaped assessment in this case. <\/p>\n

3.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<\/em><\/strong>.  <\/p>\n

The case of the assessee was that it had disclosed all facts which were required to be disclosed. <\/p>\n

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 a view to transfer its un­taxed income in India to entities abroad and then bring it back to India thereby avoiding taxation. <\/p>\n

The court refused to go  into the above  aspect  of the matter  because  these complaints have not seen light of the day either before  the High Court or before Supreme  Court . 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. <\/p>\n

The court observed that 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.  The court observed that it was apparent from the records of the case that the revenue was aware of the entities which  subscribed to the convertible bonds.     <\/p>\n

The fact that step­up 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 a  guarantee fees on the same which was added to its  income.  The court held that it cannot be said that the assessee  had withheld  any  material  information from the revenue.<\/p>\n

The court further  observed that  the revenue can take the benefit of the extended period of limitation of 6 years for initiating proceedings under the first proviso section 147 of the Act only  if the revenue can show that the assessee had failed to disclose fully and  truly  all material facts necessary for  its assessment.  According to the court the 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. <\/p>\n

4). Whether the assessee  had disclosed all the primary facts necessary for assessment of its case to the assessing officer ?<\/strong><\/p>\n

On the argument of  the  revenue that 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, 1956. The court observed that it was 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 the  assessee to  furnish the details.  <\/p>\n

The revenue also  came up with the plea that certain documents were  not  supplied  but according to court  all these documents  cannot be said  to be documents  which  the  assessee was bound to disclose at the time  of assessment.    The court noted the fact that  there was material on record   to   show   that  the assessee  had not only disclosed the names of all the bond holders  but  also   their addresses; number of bonds along with the total consideration received .  <\/p>\n

This  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 which 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. The court held that, all relevant facts were duly within the knowledge of the assessing officer. <\/p>\n

Therefore, there was full and true disclosure of all material facts necessary for its assessment by the assessee.<\/p>\n

The court held  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.   <\/p>\n

The Hon. court relied on the decision in case of Calcutta Discount Co. Ltd.  vs.  Income­tax Officer, Companies District I, <\/strong>Calcutta<\/strong> and Anr [(1961) 41 ITR 191 (SC)]<\/strong> , wherein it was held that non disclosure of other facts which may be termed as secondary facts is not necessary. <\/p>\n

The court therefore held that  the assessee disclosed all the primary facts necessary for assessment of its case to the assessing officer.<\/p>\n

The Court also noted the fact that  revenue in  its counter­affidavit before the High Court had stated that it was not relying upon the non­disclosure of facts by the assessee, therefore before Supreme court  the revenue had taken a contrary stand and therefore could not have been permitted to orally urge the same. Even  otherwise  court held that the assessee had 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.<\/p>\n

5). The next  arguments  urged before the Court by the revenue was that in terms of second proviso to section 147 of the Act r.w.s 149(1)(c) of the Act, the limitation period would be 16 years since the assessee has derived income from a foreign entity. The second proviso and explanation 2(d) reads as follows:<\/p>\n

Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside <\/em><\/strong>India<\/em><\/strong>, chargeable to tax, has escaped assessment forany assessment year:<\/em><\/strong><\/p>\n

xxx xxxxxx<\/em><\/strong><\/p>\n

Explanation 2.—For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :—<\/em><\/strong><\/p>\n

xxx xxxxxx<\/em><\/strong><\/p>\n

(d) where a person is found to have any asset(including financial interest in any entity) located outside <\/em><\/strong>India<\/em><\/strong>.<\/em><\/strong><\/p>\n

xxx xxxxxx<\/em><\/strong><\/p>\n

The assessee contented 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 have been issued under the second proviso. <\/p>\n

The court noted that  the notice dated 31.03.2015 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 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 was only while rejecting the objections of the assessee that reference has been made to the second proviso in the order of disposal of objections dated23.11.2015.<\/p>\n

The High Court relied upon the judgment in Mohinder Singh Gill &Anr. vs. The Chief Election Commissioner, New Delhi &Ors.(1978) 2 SCR 272\/ AIR 1978 SC 851<\/strong> 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 facts and upheld the reopening. <\/p>\n

The Supreme court observed that it had already held that the assessee was not guilty of non disclosure of material facts and the revenue has not challenged the judgment of the High Court in so far as the  findings against it is concerned. However the court permitted the revenue to defend the petition even on a ground which may have been decided against it by the High Court.<\/p>\n

On behalf of the revenue it was urged that mere non naming of the second proviso in the notice does not help the assessee.<\/p>\n

The court held that the noticee or the assessee should not be prejudiced or be taken by surprise<\/strong>. The uncontroverted fact is that in the notice dated31.03.2015 there is no mention of any foreign entity. There is only mention of the Section 148. Even after the assessee specifically asked for reasons, 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 16years. It is only after the 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.<\/p>\n

According to the court this was not a fair or proper procedure. The assessee must be put to notice of all the provisions on which the revenue relies upon<\/strong>.<\/p>\n

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 was being relied upon by the revenue<\/strong>. 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 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 Section 147 of the Act.<\/p>\n

The Hon. Court allowed the appeal of the assessee 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 .<\/em><\/strong><\/p>\n

As obiter the Hon court also stated  that they  have not expressed any opinion on whether on facts of this case the revenue could take benefit of the second proviso to S 147 read with S 149(1)(c).or not. Therefore, the revenue may issue fresh notice taking benefit of the second proviso if otherwise permissible under law. <\/em><\/strong><\/p>\n

ISSUE LEFT OPEN:<\/strong><\/p>\n

Thus a major issue in context to  applicability of second proviso to sec 147 of the Act  i.e asset or financial interest in foreign country , is left open . As per second proviso to section 147 of the Act. inserted by the Finance Act 2012 w.e.f.1.7.2012, provides that nothing contained in the first proviso 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 in any assessment year. According to the second proviso the condition of  first proviso  to sec 147 will not be required to be fulfilled i.e disclosure of  fully and  truly  all  material  facts<\/em> . Thus if a  notice u\/s. 147\/148  is issued relying on the second proviso , the dept need not satisfy the requirement of first proviso ,i.e even if an assessee has  disclosed fully and  truly  all  material  facts for assessment<\/em>, the  Dept can reopen the assessment. <\/p>\n

However one should note that if at the time when the order which was subject matter of appeal or revision was passed, the time-limit for issuance of notice u\/s 148 had already expired, prior to insertion of second proviso then  the time limit of extended period of 16 years  will not apply.<\/p>\n

The law of limitation is intended to give certainty and finality to legal proceedings and to avoid exposure to risk of litigation to litigant for indefinite period on future unforeseen events. Proceedings, which have attained finality under existing law due to bar of limitation cannot be held to be open for revival unless the amended provision is clearly given retrospective operation so as to allow upsetting of proceedings, which had already been concluded and attained finality. The amendment to subsection (1) of section 150 is not expressed to be retrospective and, therefore, has to be held as only prospective. <\/p>\n

The amendment made to sub- section (1) of section 150 which intends to lift embargo of period of limitation under section 149 to enable authorities to reopen assessments not only on the basis of orders passed in proceedings under the Act but also on order of a Court in any proceedings under any law, has to be applied prospectively on or after 1.4.1989 when the said amendment was introduced to sub-section (1). The provision in sub-section (1), therefore, can have only prospective operation to assessments, which have not become final due to expiry of period of limitation prescribed for assessment under section 149.<\/p>\n

Summary of ratios laid down by the Supreme Court. <\/strong><\/p>\n

1. In a challenge to reopening  proceeding the court should not go in to the merits  of  the  allegations made by the dept against the assessee (in present case Tax Evasion Petitions  filed by minority shareholders).  At this stage court will only   decide  whether  the revenue has sufficient reasons  to  believe that  undisclosed  income of  the  assessee has escaped assessment and whether  there are  grounds to issue notice.<\/p>\n

2. At the stage of issuance of notice, the assessing  officer is to only form  a  prima  facie  view.<\/p>\n

3. The  material  disclosed  in  assessment proceedings  for subsequent years are sufficient  to  form  a view that  there  were  reasons to believe that income had escaped assessment    in  a  case. <\/p>\n

4. 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.<\/p>\n

5. Revenue  can take  the benefit  of the extended  period of  limitation  of 6 years  for  initiating proceedings under the first  proviso  section 147 of the Act only   if the  revenue can show that the  assessee had failed to disclose  fully and  truly  all  material  facts necessary for  its assessment .<\/p>\n

6. Mere change of opinion of the  assessing officer is not a sufficient to meet the standard of ‘reason to believe’.<\/p>\n

7. The requirement of law is   that the assessee must 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.  <\/p>\n

8. It was for the assessing  officer  to  decide  what  inference should be drawn from the primary facts disclosed .   Non disclosure of other facts  which may be termed  as  secondary facts is not necessary. <\/p>\n

9. The revenue cannot be permitted to take  a contrary stand and therefore could not   be permitted to orally  urge the same before the court .<\/p>\n

10. The assessee must be put to notice of all the provisions on which the revenue relies upon. The assessee could not be taken by surprise at the stage of rejection of its objections or at the stage of proceedings before the Court that the notice is to be treated as a notice invoking  a particular provision of the Act.<\/p>\n

11. The notice and reasons given should confirm to the principles of natural justice and the assessee must get a proper and adequate opportunity to reply to the allegations which was being relied upon by the revenue.The court held that, the noticee or the assessee should not be prejudiced or be taken by surprise.<\/p>\n

12. There is no bar in issuing second reopening notice if notice satisfy the other condition .<\/p>\n

CONCLUSION:<\/strong><\/p>\n

By virtue of Article 141 of the Constitution of India, the judgments pronounced by the Supreme Court have the force of law and are binding on all the Courts in India. <\/p>\n

Thus in the  ongoing  reassessment proceedings and upcoming one’s, the ratio of the above decision will be helpful .However the ratio of the above decision has to be read in context of the fact before it as held in  CIT vs. Sun Engineering Works (p.) Ltd. (1992) 198 ITR 297 (SC)<\/em><\/strong>. One needs to note the above key legal principles while dealing with reassessment proceedings and raise appropriate contentions while filing reply\/objections  to the reasons recorded for reopening of assessment . It is settled position in law now that department cannot improve the reasons recorded and the courts shall not rely on any new explanation from department either in form of affidavit or orally submitted in court nor from the order rejecting the assessee’s objection .Further one should note that there is no bar in law in issuance of second notice u\/s. 147 \/148 of the Act  subject to other conditions are satisfied .<\/p>\n

One can also make reference to the detail article on reopening: <\/p>\n

A Comprehensive Guide To The law Of Reopening Of Assessments Under Sections 147 To 153 Of The Income-tax Act, 1961 (Updated: July 2020)<\/a><\/p><\/blockquote>\n