DELHI TELEVISION LTD. versus DEPUTY COMMISSIONER OF INCOME TAX

[2020] 7 S.C.R. 649

NEW DELHI TELEVISION LTD.

DEPUTY COMMISSIONER OF INCOME TAX

(Civil Appeal No. 1008 of 2020)

APRIL 03, 2020

[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 thatundisclosed income of the assessee has escaped assessment andthere were grounds to issue notice u/s.147 – Held: Information whichcomes to the notice of the assessing officer during proceedings forsubsequent assessment years can definitely form tangible materialto invoke powers vested with the assessing officer u/s.147 of theAct – At the stage of issuance of notice, the assessing officer is toonly form prima facie view – In the instant case, material disclosedin assessment proceedings for subsequent years was sufficient toform such view – Accordingly, there were reasons to believe thatincome had escaped assessment in this case.

Income Tax Act, 1961: s.147, first proviso – Limitation –Invocation of extended period – Allegation of non-disclosure ofmaterial facts – Allegation that the assessee was guilty of creatingnetwork of shell companies with view to transfer its untaxed incomein India to entities abroad and then bring it back to India therebyavoiding taxation – Revenue placed reliance on certain complaintsmade by the minority shareholders and it was alleged that thosecomplaints revealed that assessee was indulging in round trippingof its funds – Held: These complaints did not see light of the dayeither before the High Court or before this Court and, therefore, itwas unfair to the assessee if they were relied upon – Revenue cantake the benefit of the extended period of limitation of 6 years forinitiating proceedings under the first proviso s.147 of the Act, onlyif revenue can show that the assessee had failed to disclose fullyand truly all material facts necessary for its assessment – Assesseehad disclosed all the facts it was bound to disclose – If the revenuewanted to investigate the matter further at that stage it could haveeasily directed the assessee to furnish more facts – Assessee made

Adisclosure about having agreed to stand guarantee for thetransaction by NNPLC and it had also disclosed the factum of theissuance of convertible bonds and their redemption – The income,if any, arose because of the redemption at discounted price – Thiswas an event which took place subsequent to the assessment yearin question though it may be income for the assessment year – AllBrelevant facts were duly within the knowledge of the assessing officer– Assessing officer knew who were the entities who had subscribedto other convertible bonds and in other proceedings relating to thesubsidiaries the same assessing officer had knowledge of addressesand the consideration paid by each of the bondholders – The factCthat step-up coupon bonds for US$ 100 million were issued byNNPLC was disclosed; who were the entities which subscribed tothe bonds was disclosed; and the fact that the bonds were discountedat lower rate was also disclosed before the assessment wasfinalised – This transaction was accepted by the assessing officerand it was clearly held that the assessee was only liable to receiveDguarantee fees on the same which was added to its income – Itcannot be said that the assessee had withheld any materialinformation from the revenue.Income Tax Act, 1961: s.147, second proviso – Plea of revenuethat in terms of second proviso to s.147 r/w s.149(1)(c), limitationEperiod would be 16 years since assessee has derived income fromforeign entity – Held: The notice issued to assessee was silent withregard to second proviso – In the notice, there was no mention ofany foreign entity – There was only mention of s.148 – There wasnothing to indicate that revenue was intending to apply the extendedFperiod of 16 years – It was only after assessee filed its reply to thereasons given, that in the order of rejection for the first time,reference was made to the second proviso by the revenue – This isnot fair or proper procedure – Assessee could not be taken bysurprise at the stage of rejection of its objections or at the stage ofproceedings before the High Court that the notice is to be treatedGas notice invoking provisions of the second proviso of s.147 ofthe Act – Accordingly, the notice and the supporting reasons didnot invoke provisions of the second proviso of s.147 of the Act and,therefore, at this stage the revenue cannot be permitted to take benefitof the second proviso.

Allowing the appeal, the Court

HELD: 1. The material disclosed in the assessmentproceedings for the subsequent years as well as the materialplaced on record by the minority shareholders form the basis fortaking action under Section 147 of the Act. At the stage of issuanceof notice, the assessing officer is to only form prima facie view.The material disclosed in assessment proceedings for subsequentyears was sufficient to form such view. Accordingly, there werereasons to believe that income had escaped assessment in thiscase. [Para 23][664-E-F]

Claggett Brachi Co. Ltd., London v. Commissioner ofIncome Tax, Andhra Pradesh (1989) 2 Suppl. SCC 182: [1989] 2 SCR 731; M/s Phool Chand Bajrang Laland Another v. Income Tax Officer and Another (1993)4 SCC 77 : [1993] 1 Suppl SCR 28; Ess KayEngineering Co.(P) Ltd. v.Commissioner of IncomeTax, Amritsar (2001) 10 SCC 189 – relied on.

Whether there was failure on the part of the assessee tomake full and true disclosure of all the relevant facts.

2.1 The assessee had disclosed all the facts it was bound todisclose. If the revenue wanted to investigate the matter furtherat that stage it could have easily directed the assessee to furnishmore facts. The assessee made disclosure about having agreedto stand guarantee for the transaction by NNPLC and it had alsodisclosed the factum of the issuance of convertible bonds andtheir redemption. The income, if any, arose because of theredemption at discounted price. This was an event which tookplace subsequent to the assessment year in question though itmay be income for the assessment year. All relevant facts wereduly within the knowledge of the assessing officer. The assessingofficer knew who were the entities who had subscribed to otherconvertible bonds and in other proceedings relating to thesubsidiaries the same assessing officer had knowledge ofaddresses and the consideration paid by each of the bondholdersas is apparent from assessment orders dated 03.08.2012 passedin the cases of M/s. NDTV Labs Ltd. and M/s. NDTV LifestyleLtd. Therefore, there was full and true disclosure of all material

Afacts necessary for its assessment by the assessee. The fact thatstep-up coupon bonds for US$ 100 million were issued by NNPLCwas disclosed; who were the entities which subscribed to thebonds was disclosed; and the fact that the bonds were discountedat lower rate was also disclosed before the assessment wasfinalised. This transaction was accepted by the assessing officerBand it was clearly held that the assessee was only liable to receivea guarantee fees on the same which was added to its income. Itcannot be said that the assessee had withheld any materialinformation from the revenue. [Paras 26, 28, 29][665-D-E, H;666-A-E]CM/s Phool Chand Bajrang Lal and Another v. IncomeTax Officer and Another (1993) 4 SCC 77 : [1993] 1Suppl. SCR 28; Honda Siel Power Products Limited v.Deputy Commissioner Income-Tax and Another (2012)340 ITR 53 (Delhi) – referred to.

2.2 According to the revenue, the assessee to avoiddetection of the actual source of funds of its subsidiaries did notdisclose the details of the subsidiaries in its final accounts, balancesheets, and profit and loss account for the relevant period as wasmandatory under the provisions of the Indian Companies Act,E1956. It is not disputed that the assessee had obtained anexemption from the competent authority under the CompaniesAct, 1956 from providing such details in its final accounts, balancesheets, etc. As such, it cannot be said that the assessee was boundto disclose this to the Assessing Officer. The Assessing Officerbefore finalising the assessment of 03.08.2012 had never askedFthe assessee to furnish the details. It was for the assessing officerat this stage to decide what inference should be drawn from thefacts of the case. In the instant case, the assessing officer on thebasis of the facts disclosed to him did not doubt the genuiness ofthe transaction set up by the assessee. This the assessing officerGcould have done even at that stage on the basis of the facts whichhe 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 1961SC 372 : [1961] 2 SCR 241 – followed.

NEW DELHI TELEVISION LTD. v. DEPUTY COMMISSIONEROF INCOME TAX

3.1 The notice u/s. 148 is conspicuously silent with regardto the second proviso s. 147. It does not rely upon the secondproviso and basically relies on the provision of Section 148 of theAct. The reasons communicated to the assessee on 04.08.2015mention ‘reason to believe’ and non-disclosure of material factsby the assessee. There is no case set up in relation to the secondproviso either in the notice or even in the reasons supplied on04.08.2015 with regard to the notice. It is only while rejectingthe objections of the assessee that reference has been made tothe second proviso in the order of disposal of objections.[Para 38][671-D-E]

Mohinder Singh Gill & Anr. v. The Chief Election–Commissioner, New Delhi & Ors. [1978] 2 SCR 272 referred to.

3.2 If the revenue is to rely upon the second proviso andwanted to urge that the limitation of 16 years would apply, then inthe notice or at least in the reasons in support of the notice, theassessee should have been put to notice that the revenue reliesupon the second proviso. The assessee could not be taken bysurprise at the stage of rejection of its objections or at the stageof proceedings before the High Court that the notice is to betreated as notice invoking provisions of the second proviso ofSection 147 of the Act. Therefore at this stage the revenue cannotbe permitted to take benefit of the second proviso. [Para 43][672-G-H; 673-A]

From the Judgment and Order dated 10.08.2017 of the High Courtof Delhi at New Delhi in Writ Petition (Civil) No.11638 of 2015.

AArvind P. Datar, Sr. Adv., Sachit Jolly, Ms. Anuradha Dutt, RohitGarg, Ms. B. Vijayalakshmi Menon, Advs. for the Appellant.

Tushar Mehta, SG, Arijit Prasad, Sr. Adv., Zoheb Hossain, RajatNair, Piyush Goyal, Mrs. Anil Katiyar, Advs. for the Respondent.

The Judgment of the Court was delivered byB

DEEPAK GUPTA, J.

1. The appellant New Delhi Television Limited (hereinafterreferred to as ‘the assessee’) is an Indian company engaged in runningtelevision channels of various kinds. It has various foreign subsidiariesCto which we shall refer in detail later on but we are concerned mainlywith the subsidiary based in the United Kingdom (UK) named NDTVNetwork Plc., U.K. (hereinafter referred to as ‘NNPLC’).

2. The assessee submitted return for the financial year 2007-08i.e. assessment year 2008-09 on 29.09.2008 declaring loss. This returnDwas processed under Section 143 of the Income Tax Act, 1961(hereinafter referred to as ‘the Act’). The case was selected for scrutinyand notice under Section 143(2) of the Act was issued and noticeunder Section 142(1) of the Act was also sent to the assessee. Thereafter,the case of the assessee was taken up for consideration and finalassessment order was passed on 03.08.2012.

3. We are mainly concerned with that part of the assessmentorder which relates to the issue of step-up coupon bonds amounting toUS$100 million. These bonds were issued in July, 2007 through the Bankof New York for period of 5 years. The case of the assesee is thatNNPLC issued step-up coupon bonds of US$ 100 million which wereFarranged by Jeffries International and the funds were received by NNPLCthrough Bank of New York. The assessee had agreed to furnish corporateguarantee for this transaction. These bonds were subscribed to by variousentities to whom we shall refer to in detail at later stage. These bondswere to be redeemed at premium of 7.5% after the expiry of theperiod of 5 years. However, these bonds were redeemed in advance atGa discounted price of US $74.2 million in November, 2009.

4. The assessing officer held that NNPLC had virtually no financialworth, it had no business of the name and therefore it could not bebelieved that it could have issued convertible bonds of US$ 100 million,unless the repayment along with interest was secured. This was securedH

only because of the assessee agreeing to furnish guarantee in this regard.Though the assessee had never actually issued such guarantee, theassessing officer was of the view that the subsidiary of the assesseecould not have raised such huge amount without having this assurancefrom the assessee. The transaction was of such nature that the assesseeshould be required to maintain an arm’s length from its subsidiary, meaningthat it should be treated like guarantee issued by any corporateguarantor in favour of some other corporate entity. The assessing officerdid not doubt the validity of the transaction but imposed guarantee fee@ rate of 4.68% by treating it as business transaction and addedRs. 18.72 crores to the income of the assessee, vide orderdated 03.08.2012.5. On 31.03.2015, the revenue sent notice to the assesseewherein it was stated that the authority has reason to believe that netincome chargeable to tax for the assessment year 2008-09 had escapedassessment within the meaning of Section 148 of the Act. This noticedid not give any reasons. The assessee then asked for reasons andthereafter on 04.08.2015 reasons were supplied. The main reason givenwas that in the following assessment year i.e. assessment year 2009-10,the assessing officer had proposed substantial addition of Rs.642 croresto the account of the assessee on account of monies raised by theassessee through its subsidiaries NDTV BV, The Netherlands, NDTVNetworks BV, The Netherlands (NNBV), NDTV Networks InternationalHoldings BV, The Netherlands (NNIH) and NNPLC. The assesseehad raised its objection before the Dispute Resolution Panel (DRP) whichcame to the conclusion that all these transactions with the subsidiarycompanies in Netherlands were sham and bogus transactions and thatthese transactions were done with view to get the undisclosed income,for which tax had not been paid, back to India by this circuitous roundtripping.

6. The assessing officer relies upon the order of the DRP holdingthat there is reason to believe that funds received by NNPLC wereactually the funds of the assessee. It was specified that NNPLC had acapital of only Rs.40 lakhs. It did not have any business activities in theUnited Kingdom except postal address. Therefore, it appeared to theassessing officer that it was unnatural for anyone to make such hugeinvestment of $100 million in virtually non-functioning company andthereafter get back only 72% of their original investment. According to

Athe assessing officer “The natural inference could be that it wasNDTV’s own funds introduced in NNPLC in the grab of the impugnedbonds.” The details of the investors are given in this communicationgiving reasons. Mention has also been made of complaints received froma minority shareholder in which it is alleged that the money introduced inNNPLC was shifted to another subsidiary of the assessee in MauritiusBfrom where it was taken to subsidiary of the assessee in Mumbai andfinally to the assessee. NNPLC itself was placed under liquidation on28.03.2011. Therefore, the assessing officer was of the opinion that therewere reasons to believe that the funds received by NNPLC were thefunds of the assessee under sham transaction and that the amount ofCRs.405.09 crores introduced into the books of NNPLC during thefinancial year 2007-08 corresponding to the assessment year 2008-09through the transaction involving the step-up coupon convertible bondspertains to the assessee. The last portion of the communicationdt. 04.08.2015 giving reasons to the assessee reads as follows:-D“7. In view of the above facts and circumstances of the case andconsidering the findings of the DRP holding the funds received byNNPLC as the funds of the assessee New Delhi Television Limitedunder sham transactions, there is reason to believe that the fundsamounting to Rs.405.09 crores introduced into the books ofNNPLC during the FY 2007-08 in the form of Step Up CouponEBonds pertain to the assessee New Delhi Television Limited only.I have therefore reason to believe that the income of the assesseeNew Delhi Television Limited for AY 2008-09 amounting to atleast Rs.405.09 crores has escaped assessment. It is also recordedthat the escapement is due to failure on the part of the assesseeFto disclose fully and truly all facts material for assessment.”7. The assessee filed reply to the notice and reasons given, andclaimed that there had been no failure on the part of the assessee todisclose fully and truly all material facts necessary to make an assessment.Assessee also claimed that the proceedings had been initiated on mereGchange of opinion and there was no reason to believe. The assesseealso claimed that the transaction of step-up bonds was legal and validtransaction. In addition, it was claimed that the assessing officer had novalid reasons to believe that the income of the assessee had escapedassessment. According to the assessee the assessment officer hadaccepted the genuineness of the transaction wherein NNPLC, theH

subsidiary, had issued convertible bonds which had been subscribed bymany entities. It was urged that the assessing officer had treated thetransaction to be genuine by levying guarantee fees and adding it backto the income of the assessee. In the alternative, it was submitted thatthe 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 Section147 would not apply.

8. The assessing officer did not accept these objections. The claimof the assessee was disposed of by the assessing officer vide orderdated 23.11.2015 wherein the assessing officer held that there wasnon-disclosure of material facts by the assessee and the notice would bewithin limitation since NNPLC was foreign entity and admittedly asubsidiary of the assessee and the income was being derived throughthis foreign entity. Hence, the case of the assessee would fall within the2[nd] proviso of Section 147 of the Act and the extended period of 16years would be applicable. The objections were accordingly rejected.

9. Aggrieved, the petitioner filed writ petition in the High Courtchallenging 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 counselfor the assessee, Shri Tushar Mehta, learned Solicitor General and ShriZoheb Hossain, learned counsel appearing for the revenue.

11. In our opinion, the following issues arise for consideration inthis case:-

(i)Whether in the facts and circumstances of the case, it canbe said that the revenue had valid reason to believe thatundisclosed income had escaped assessment?

(ii)Whether the assessee did not disclose fully and truly allmaterial facts during the course of original assessment whichled to the finalisation of the assessment order and undisclosedGincome escaping detection?

(iii) Whether the notice dated 31.03.2015 along with reasonscommunicated on 04.08.2015 could be termed to be noticeinvoking the provisions of the second proviso to Section 147of the Act?

A12. At the outset we may note that it has been strenuously urgedon behalf of the assessee that its assessment was done under scrutinyprocedure and very detailed procedure was followed during the originalassessment proceedings and all aspects of the case were noted by theassessing officer. That may be true, but merely the fact that the originalassessment is detailed one, cannot take away the powers of theBassessing 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 themerits of the allegations made against the assessee. At this stage we areConly required to decide whether the revenue has sufficient reasons tobelieve that undisclosed income of the asseessee has escaped assessmentand therefore there are grounds to issue notice. Obviously, during theassessment proceedings the assessee will have the right to place materialon record to show that the transaction in question was genuinetransaction.D

14. It is trite law that an assessing officer can only re-open anassessment if he has ‘reason to believe’ that undisclosed income hasescaped assessment. Mere change of opinion of the assessing officer isnot sufficient to meet the standard of ‘reason to believe’. Relevantportion of Section 147 reads as follows:-

147. Income escaping assessment.-If the AssessingOfficer, has reason to believe that any income chargeable to taxhas escaped assessment for any assessment year, he may, subjectto the provisions of sections 148 to 153, assess or reassess suchincome and also any other income chargeable to tax which hasescaped assessment and which comes to his notice subsequentlyin the course of the proceedings under this section, or recomputethe loss or the depreciation allowance or any other allowance, asthe case may be, for the assessment year concerned (hereafterin this section and in sections 148 to 153 referred to as the relevantassessment year):

Provided that where an assessment under sub-section (3)of section 143 or this section has been made for the relevantassessment year, no action shall be taken under this section afterthe expiry of four years from the end of the relevant assessmentyear, unless any income chargeable to tax has escaped assessment

for such assessment year by reason of the failure on the part ofthe assessee to make return under section 139 or in response toa notice issued under sub-section (1) of section 142 or section148 or to disclose fully and truly all material facts necessary forhis assessment for that assessment year:

Provided further that nothing contained in the first provisoshall apply in 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 assessmentyear:

Provided also that the Assessing Officer may assess orreassess such income, other than the income involving matterswhich 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 ofaccount books or other evidence from which material evidencecould, with due diligence, have been discovered by the AssessingOfficer will not necessarily amount to disclosure within the meaningof the foregoing proviso.

Explanation 2.—For the purposes of this section, the followingshall also be deemed to be cases where income chargeable to taxhas escaped assessment, namely :—

(a)where no return of income has been furnished bythe assessee although his total income or the totalincome of any other person in respect of which he isassessable under this Act during the previous yearexceeded the maximum amount which is notchargeable to income-tax;

(b)where return of income has been furnished by theassessee but no assessment has been made and it isnoticed by the Assessing Officer that the assesseeGhas understated the income or has claimed excessiveloss, deduction, allowance or relief in the return;

(ba) where the assessee has failed to furnish report inrespect of any international transaction which he wasso required under section 92E;

A(c) where an assessment has been made, but—

(i)income chargeable to tax has beenunderassessed; or

(ii)such income has been assessed at too low arate; or

(iii)such income has been made the subject ofexcessive relief under this Act; or

(iv)excessive loss or depreciation allowance orany other allowance under this Act has beencomputed.

(ca)where return of income has not been furnished bythe assessee or return of income has been furnishedby him and on the basis of information or documentreceived from the prescribed income-tax authority,Dunder sub-section (2) of section 133C, it is noticedby the Assessing Officer that the income of theassessee exceeds the maximum amount notchargeable to tax, or as the case may be, the assesseehas understated the income or has claimed excessiveloss, deduction, allowance or relief in the return;

(d)where person is found to have any asset (includingfinancial interest in any entity) located outside India.

xxx xxx xxx

15. The case of the assessee is that the transaction of step-upFcoupon bonds was scrutinised in great detail by the assessing officerbefore he passed the order of assessment dated 03.08.2012. Accordingto the assessee there is an attempt on behalf of the revenue to deliberatelymix-up the transactions relating to the Netherlands subsidiary with theU.K. subsidiary. According to the assessee the order of the DRP for theassessment year 2009-10 is in two distinct compartments. While theGDRP held the Netherlands’ transactions of Rs.642 crores to be sham,the transaction of issuance of US$ 100 million convertible bonds wasnot questioned. Therefore, according to the assessee there was no freshmaterial before the assessing officer to have reason to believe that theundisclosed income of the assessee had escaped assessment.H

16. On behalf of the assessee it has been urged that once thetransaction of step-up coupon bonds has been accepted to be correct,then the revenue cannot re-open the same and doubt the genuiness ofthe transaction. We are not in agreement with the first part of thesubmission but we make it clear that we are not commenting on thegenuineness of the transaction, which will be considered by the concernedassessing officer.

17. On the other hand, on behalf of the revenue it is submittedthat at the stage of issue of show cause notice the revenue only has toestablish tentative and prima facie view. At this stage, this Court isnot expected to go into the merits of the case but can only ascertainwhether the revenue has prima facie ground to show that it had reasonsto believe that income has escaped assessment. It is further submittedthat the scope of judicial review in such matters is very limited. It is alsosubmitted that since the revenue discovered fresh tangible materialsubsequent to the assessment order of 03.08.2012, it cannot be said thatthe assessing officer did not have reasons to believe that income hadescaped assessment.

18. The main issue is whether there was sufficient material beforethe assessing officer to take prima facie view that income of theassessee had escaped assessment. The original order of assessmentwas passed on 03.08.2012. It was thereafter on 31.12.2013 that theDRP in the case of AY 2009-10 raised doubts with regard to the corporatestructure of the assessee and its subsidiaries. It was noted in the orderof the DRP that certain shares of NNPLC had been acquired by UniversalStudios International B.V., Netherlands, indirectly by subscribing to theshares of NNIH. As already noted above it was recorded in the reasonscommunicated on 04.08.2015 that NNPLC was not having any businessactivity 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 noother commercial business there. NNPLC had declared loss of Rs.8.34crores for the relevant year. It was also noticed from the order of theassessing officer that the assessee is the parent company of NNPLCand it is the dictates of the assessee which are important for runningNNPLC.

19. Pursuant to the directions of the DRP, the assessing officerpassed the final assessment order for AY 2009-10 on 21.02.2014 whichalso disclosed similar facts.

A20. According to the revenue Tax Evasion Petitions were filed bythe 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 complaintsdescribe in detail the communication between the assessee and thesubsidiaries and also allegedly showed evidence of round tripping of theassessee’s undisclosed income through layer of subsidiaries which ledBto the issuance of the notice in question.

21. Whether the facts which came to the knowledge of theassessment officer after the assessment proceedings for the relevantyear were completed, could be taken into consideration for coming tothe conclusion that there were reasons to believe that income had escapedCassessment is the question that requires to be answered. Though numberof judgments have been cited in this behalf, we shall make reference toonly few. In Claggett Brachi Co. Ltd., London vs. Commissionerof Income Tax, Andhra Pradesh[1], this Court held as follows:-“7. Two points have been urged before us by learnedDcounsel for the assessee. It is contended that the Income TaxOfficer has no jurisdiction to take proceedings under Sections147 and 148 of the Income Tax Act because the conditionsprerequisite for making the reassessments were not satisfied. There-assessments were made with reference to clause (b) of SectionE147 of the Act, and apparently the Income Tax Officer proceededon the basis that in consequence of information in his possessionhe had reason to believe that income chargeable to tax had escapedassessment for the two assessment years. From the material beforeus it appears that the Income Tax Officer came to realise thatincome had escaped assessment for the two assessment yearsFwhen he was in the process of making assessment for subsequentassessment year. While making that assessment he came to knowfrom the documents pertaining to that assessment that the overheadexpenses related to the entire business including the business ascommission agents and were not confined to the business ofGpurchase and sale. It is true, as the High Court has observed, thatthis information could have been acquired by the Income TaxOfficer if he had exercised due diligence at the time of the originalassessment itself. It does not appear, however, that the attentionof the Income Tax Officer was directed by anything before him

to the fact that the overhead expenses related to the entire business.The information derived by the Income Tax Officer evidently cameinto his possession when taking assessment proceedings for thesubsequent year. In the circumstances, it cannot be doubted thatthe case falls within the terms of clause (b) of Section 147 of theAct, and that, therefore, the High Court is right in holding againstthe assessee.”

In M/s Phool Chand Bajrang Lal and Another vs. IncomeTax Officer and Another[2], this Court held as follows:-

“19…Acquiring fresh information, specific in nature andreliable in character, relating to the concluded assessment whichgoes to expose the falsity of the statement made by the assesseeat the time of original assessment is different from drawing afresh inference from the same facts and material which wasavailable with the ITO at the time of original assessmentproceedings. The two situations are distinct and different. Thus,where the transaction itself on the basis of subsequent information,is found to be bogus transaction, the mere disclosure of thattransaction at the time of original assessment proceedings, cannotbe said to be disclosure of the “true” and “full” facts in the caseand the ITO would have the jurisdiction to reopen the concludedassessment in such case. It is correct that the assessing authoritycould have deferred the completion of the original assessmentproceedings for further enquiry and investigation into thegenuineness to the loan transaction but in our opinion his failure todo so and complete the original assessment proceedings wouldnot take away his jurisdiction to act under Section 147 of the Act,on receipt of the information subsequently. The subsequentinformation on the basis of which the ITO acquired reasons tobelieve that income chargeable to tax had escaped assessmenton account of the omission of the assessee to make full and truedisclosure of the primary facts was relevant, reliable and specific.It was not at all vague or non-specific.”

In Ess Kay Engineering Co.(P) Ltd. vs. Commissioner ofIncome Tax, Amritsar[3], this Court held as follows:-

2 (1993) 4 SCC 77

3 (2001) 10 SCC 189

A“This is case of reopening. We have perused thedocuments. We find there was material on the basis of which theIncome Tax Officer could proceed to reopen the case. It is not acase of mere change of opinion. We are not inclined to interferewith the decision of the High Court merely because the case ofthe assessee was accepted as correct in the original assessmentBfor this assessment year. It does not preclude the Income TaxOfficer from reopening the assessment of an earlier year on thebasis of his findings of fact made on the basis of fresh materials incourse of assessment of the next assessment year. The appeal isdismissed. No order as to costs.”

22. perusal of the aforesaid judgments clearly shows thatsubsequent facts which come to the knowledge of the assessing officercan be taken into account to decide whether the assessment proceedingsshould be re-opened or not. Information which comes to the notice ofthe assessing officer during proceedings for subsequent assessment yearsDcan definitely form tangible material to invoke powers vested with theassessing officer under Section 147 of the Act.

23. The material disclosed in the assessment proceedings for thesubsequent years as well as the material placed on record by the minorityshareholders form the basis for taking action under Section 147 of theEAct. At the stage of issuance of notice, the assessing officer is to onlyform prima facie view. In our opinion the material disclosed inassessment proceedings for subsequent years was sufficient to formsuch view. We accordingly hold that there were reasons to believethat income had escaped assessment in this case. Question No.1 isanswered accordingly.F

Question No.2

24. Coming to the second question as to whether there was failureon the part of the assessee to make full and true disclosure of all therelevant facts. The case of the assessee is that it had disclosed all factsGwhich were required to be disclosed.

25. The revenue has placed reliance on certain complaints madeby the minority shareholders and it is alleged that those complaints revealthat the assessee was indulging in round-tripping of its funds. Accordingto the revenue the material disclosed in these complaints clearly showsthat the assessee is guilty of creating network of shell companies withH

view to transfer its un-taxed income in India to entities abroad andthen bring it back to India thereby avoiding taxation. We make it clearthat we are not going into this aspect of the matter because thosecomplaints have not seen light of the day either before the High Court orthis Court and, therefore, it would be unfair to the assessee if we relyupon such material which the assessee has not been confronted with.

26. Even before the assessment order was passed on 03.08.2012,the assessing officer was aware of the entities which had subscribed tothe convertible bonds. This is apparent from the communicationdated 08.04.2011. The case of the revenue is that the assessee did notdisclose the amount subscribed by each of the entities and furthermorethe management structure of these companies. We are not in agreementwith this submission of the revenue. It is apparent from the records ofthe case that the revenue was aware of the entities which subscribed tothe 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 iswhether the revenue can take the benefit of the extended period oflimitation of 6 years for initiating proceedings under the first provisoSection 147 of the Act. This can only be done if the revenue can showthat the assessee had failed to disclose fully and truly all material factsnecessary for its assessment. The assessee, in our view had disclosedall the facts it was bound to disclose. If the revenue wanted to investigatethe matter further at that stage it could have easily directed the assesseeto 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 ProductsLimited vs. Deputy Commissioner Income-Tax and Another[4].We havealready referred to the judgment in Phool Chand’s case (supra), whereinit was held that where the transaction of particular assessment year isfound to be bogus transaction, the disclosures made could not be saidto be all “true” and “full”. Relying upon the said judgment the HighCourt held that merely because the transaction of convertible bondswas disclosed at the time of original assessment does not mean thatthere is true and full disclosure of facts.

28. We are unable to agree with this reasoning given by the HighCourt. The assessee as mentioned above made disclosure about having4 (2012) 340 ITR 53 (Delhi)

Aagreed to stand guarantee for the transaction by NNPLC and it had alsodisclosed the factum of the issuance of convertible bonds and theirredemption. The income, if any, arose because of the redemption at adiscounted price. This was an event which took place subsequent to theassessment year in question though it may be income for the assessmentyear. As we have observed above, all relevant facts were duly withinBthe knowledge of the assessing officer. The assessing officer knew whowere the entities who had subscribed to other convertible bonds and inother proceedings relating to the subsidiaries the same assessing officerhad knowledge of addresses and the consideration paid by each of thebondholders as is apparent from assessment orders dated 03.08.2012Cpassed in the cases of M/s. NDTV Labs Ltd. and M/s. NDTV LifestyleLtd. Therefore, in our opinion there was full and true disclosure of allmaterial facts necessary for its assessment by the assessee.29. The fact that step-up coupon bonds for US$ 100 million wereissued by NNPLC was disclosed; who were the entities which subscribedDto the bonds was disclosed; and the fact that the bonds were discountedat lower rate was also disclosed before the assessment was finalised.This transaction was accepted by the assessing officer and it was clearlyheld that the assessee was only liable to receive guarantee fees on thesame which was added to its income. Without saying anything furtheron merits of the transaction we are of the view that it cannot be said thatEthe assessee had withheld any material information from the revenue.

30. According to the revenue the assessee to avoid detection ofthe actual source of funds of its subsidiaries did not disclose the detailsof the subsidiaries in its final accounts, balance sheets, and profit andloss account for the relevant period as was mandatory under the provisionsFof the Indian Companies Act, 1956. It is not disputed that the assesseehad obtained an exemption from the competent authority under theCompanies Act, 1956 from providing such details in its final accounts,balance sheets, etc. As such it cannot be said that the assessee wasbound to disclose this to the Assessing Officer. The Assessing OfficerGbefore finalising the assessment of 03.08.2012 had never asked theassessee to furnish the details.

31. The revenue now has come up with the plea that certaindocuments were not supplied but according to us all these documentscannot be said to be documents which the assessee was bound to discloseHat the time of assessment. The main ground raised by the revenue is that

the assessee did not disclose as to who had subscribed what amount andwhat was its relationship with the assessee. As far as the first part isconcerned it does not appear to be correct. There is material on recordto show that on 08.04.2011 NNPLC had sent communication to theDeputy Director of Income Tax (Investigation), wherein it had not onlydisclosed the names of all the bond holders but also their addresses;number of bonds along with the total consideration received. This chartforms part of the assessment orders dated 03.08.2012 in the case ofM/s. NDTV Labs Ltd. and M/s. NDTV Lifestyle Ltd. The said twoassessment orders were passed by the same officer who had passedthe assessment order in the case of the assessee on the same date itself.Therefore, the entire material was available with the revenue.

32. number of decisions have been cited as to what is meant bytrue and full disclosure. It is not necessary to multiply decisions, as lawin this regard has been succinctly laid down by Constitution Bench ofthis Court in Calcutta Discount Co. Ltd. vs. Income-tax Officer,Companies District I, Calcutta and Another[5], wherein it was held asfollows :-

“(8)…The words used are “omission or failure to disclose fullyand truly all material facts necessary for his assessment for thatyear”. It postulates duty on every assessee to disclose fully andtruly all material facts necessary for his assessment. What factsare material, and necessary for assessment will differ from caseto case. In every assessment proceeding, the assessing authoritywill, for the purpose of computing or determining the proper taxdue from an assessee, require to know all the facts which helphim in coming to the correct conclusion. From the primary factsin his possession, whether on disclosure by the assessee, ordiscovered by him on the basis of the facts disclosed, or otherwise— the assessing authority has to draw inferences as regardscertain other facts; and ultimately, from the primary facts and thefurther facts inferred from them, the authority has to draw theproper legal inferences, and ascertain on correct interpretationof the taxing enactment, the proper tax leviable. Thus, when aquestion arises whether certain income received by an assesseeis capital receipt, or revenue receipt, the assessing authority hasto find out what primary facts have been proved, what other facts

can be inferred from them, and taking all these together, to decidewhat the legal inference should be.

(9) There can be no doubt that the duty of disclosing all theprimary facts relevant to the decision of the question before theassessing authority lies on the assessee. To meet possiblecontention that when some account books or other evidence hasbeen produced, there is no duty on the assessee to disclose furtherfacts, which on due diligence, the Income-tax Officer might havediscovered, the Legislature has put in the Explanation, which hasbeen set out above. In view of the Explanation, it will not be opento the assessee to say, for example — “I have produced theaccount books and the documents: You, the assessing officerexamine them, and find out the facts necessary for your purpose:My duty is done with disclosing these account-books and thedocuments.” His omission to bring to the assessing authority’sattention these particular items in the account books, or theparticular portions of the documents, which are relevant, willamount to “omission to disclose fully and truly all material factsnecessary for his assessment.” Nor will he be able to contendsuccessfully that by disclosing certain evidence, he should bedeemed to have disclosed other evidence, which might have beendiscovered by the assessing authority if he had pursuedinvestigation on the basis of what has been disclosed. TheExplanation to the section, gives 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 — includingparticular entries in account books, particular portions of documentsand documents, and other evidence, which could have beendiscovered by the assessing authority, from the documents andother evidence disclosed.

(10) Does the duty however extend beyond the full andtruthful disclosure of all primary facts? In our opinion, the answerto this question must be in the negative. Once all the primaryfacts are before the assessing authority, he requires no furtherassistance by way of disclosure. It is for him to decide whatinferences of facts can be reasonably drawn and what legalinferences have ultimately to be drawn. It is not for somebodyelse — far less the assessee — to tell the assessing authority

what inferences -—- whether of facts or law should be drawn.Indeed, when it is remembered that people often differ as regardswhat inferences should be drawn from given facts, it will bemeaningless to demand that the assessee must disclose whatinferences — whether of facts or law — he would draw fromthe primary facts.

(11) If from primary facts more inferences than one couldbe drawn, it would not be possible to say that the assessee shouldhave drawn any particular inference and communicated it to theassessing authority. How could an assessee be charged with failureto communicate an inference, which he might or might not havedrawn?”

careful analysis of this judgment indicates that the ConstitutionBench held that it is the duty of the assessee to disclose full and truly allmaterial facts which it termed as primary facts. Non-disclosure of otherfacts which may be termed as secondary facts is not necessary. In lightof the above law, we shall deal with the facts of the present case.

33. In our view the assessee disclosed all the primary factsnecessary for assessment of its case to the assessing officer. What therevenue urges is that the assessee did not make full and true disclosureof certain other facts. We are of the view that the assessee had disclosedall primary facts before the assessing officer and it was not required togive any further assistance to the assessing officer by disclosure of otherfacts. It was for the assessing officer at this stage to decide what inferenceshould be drawn from the facts of the case. In the present case theassessing officer on the basis of the facts disclosed to him did not doubtthe genuiness of the transaction set up by the assessee. This the assessingofficer could have done even at that stage on the basis of the factswhich he already knew. The other facts relied upon by the revenue arethe proceedings before the DRP and facts subsequent to the assessmentorder, and we have already dealt with the same while deciding IssueNo.1. However, that cannot lead to the conclusion that there is non-disclosure of true and material facts by the assessee.

34. It is interesting to note that whereas before this Court therevenue is strenuously urging that the assessee is guilty of non-disclosureof material facts, before the High Court the case of the revenue wasjust opposite. We may quote portion of the counter-affidavit filed by

Athe revenue in response to the writ petition filed by the assessee beforethe High Court which reads as follows:-

“…It is evident from these facts that second proviso to Section147 is clearly attracted in this case and first proviso to Section147 is not applicable to facts of this case, i.e. in this case, the onlyBrequirement to reopen assessment u/s 147 was that the AO hasreason to believe that any income chargeable to tax has escapedassessment. The second condition that the income should haveescaped assessment due to failure on the part of the assessee todisclose fully and truly all material facts necessary for makingassessment is not relevant to decide issue before the Hon’bleCCourt”

This submission has been repeated number of times in thecounter-affidavit. Therefore, in our opinion the revenue cannot now turnaround 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 blowDhot and cold at the same time.

35. We are clearly of the view that the revenue in view of itscounter-affidavit before the High Court that it was not relying upon thenon-disclosure of facts by the assessee could not have been permittedto orally urge the same. Even otherwise we find that the assessee hadEfully and truly disclosed all material facts necessary for its assessmentand, therefore, the revenue cannot take benefit of the extended periodof limitation of 6 years. We answer Question No.2 accordingly.

Question No.3

F36. It is urged before this Court by the revenue that in terms ofsecond proviso to Section 147 of the Act read with Section 149(1)(c) ofthe Act, the limitation period would be 16 years since the assessee hasderived income from foreign entity. We may make specific referenceto the second proviso and explanation 2(d) which reads as follows:-

Provided further that nothing contained in the first provisoGshall apply in 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 assessmentyear:

xxxxxx

xxx

Explanation 2.—For the purposes of this section, thefollowing shall also be deemed to be cases where incomechargeable to tax has escaped assessment, namely :—

xxxxxxxxx

(d) where person is found to have any asset (includingfinancial interest in any entity) located outside India.

xxxxxx

37. On behalf of the assessee it has been urged that no incomewas derived from the foreign entity and loan cannot be termed to bean asset or an income and it is submitted that the notice cannot be said tohave been issued under the second proviso.

38. In this regard we may make reference to the notice dated31.03.2015. The notice is conspicuously silent with regard to the secondproviso. It does not rely upon the second proviso and basically relies onthe provision of Section 148 of the Act. The reasons communicated tothe assessee on 04.08.2015 mention ‘reason to believe’ and non-disclosureof material facts by the assessee. There is no case set up in relation tothe second proviso either in the notice or even in the reasons supplied on04.08.2015 with regard to the notice. It is only while rejecting theobjections of the assessee that reference has been made to the secondproviso in the order of disposal of objections dated 23.11.2015.

39. The High Court relied upon the judgment in Mohinder SinghGill & Anr. vs. The Chief Election Commissioner, New Delhi & Ors.[6]and came to the conclusion that the revenue cannot rely upon the secondproviso because the notice was silent in this regard. However, the HighCourt held that the assessee was guilty of non-disclosure of materialfacts. We have already held that in our view the assessee was not guiltyof non-disclosure of material facts. The revenue has not challenged thejudgment of the High Court in so far as this finding against it is concernedbut the revenue is entitled to defend the petition even on ground whichmay have been decided against it by the High Court.

40. On behalf of the revenue it is urged that mere non-naming ofthe second proviso in the notice does not help the assessee. It has beenurged that even if the source of power to issue notice has been wronglymentioned, but all relevant facts were mentioned, then the notice can be

Asaid to be notice under the provision which empowers the revenue toissue such notice. There can be no quarrel with this proposition of law.However, the noticee or the assesee should not be prejudiced or betaken by surprise. The uncontroverted fact is that in the notice dated31.03.2015 there is no mention of any foreign entity. There is only mentionof the Section 148. Even after the assessee specifically asked for reasons,Bthe revenue only relied upon facts to show that there was reason tobelieve that income has escaped assessment and this escapement wasdue to the non-disclosure of material facts. There is nothing in the reasonsto indicate that the revenue was intending to apply the extended periodof 16 years. It is only after the assessee filed its reply to the reasonsCgiven, that in the order of rejection for the first time reference was madeto the second proviso by the revenue.41. In our view this is not fair or proper procedure. If not in thefirst notice, at least at the time of furnishing the reasons the assesseeshould have been informed that the revenue relied upon the secondDproviso. The assessee must be put to notice of all the provisions onwhich the revenue relies upon. At the risk of repetition, we reiterate thatwe are not going into the merits of the case but in case the revenue hadissued notice to the assessee stating that it relies upon the secondproviso, the assessee would have had chance to show that it was notderiving any income from any foreign asset or financial interest in anyEforeign entity, or that the asset did not belong to it or any other groundwhich may be available. The assessee cannot be deprived of this chancewhile replying to the notice.

42. Therefore, even if we do not fall back on the reason given bythe High Court that the revenue cannot take fresh ground, we areFclearly of the view that the notice and reasons given thereafter do notconform to the principles of natural justice and the assessee did not geta proper and adequate opportunity to reply to the allegations which arenow being relied upon by the revenue.

43. If the revenue is to rely upon the second proviso and wantedGto urge that the limitation of 16 years would apply, then in our opinion inthe notice or at least in the reasons in support of the notice, the assesseeshould have been put to notice that the revenue relies upon the secondproviso. The assessee could not be taken by surprise at the stage ofrejection of its objections or at the stage of proceedings before the HighHCourt that the notice is to be treated as notice invoking provisions of

the second proviso of Section 147 of the Act. Accordingly, we answerthe third question by holding that the notice issued to the assessee andthe supporting reasons did not invoke provisions of the second proviso ofSection 147 of the Act and therefore at this stage the revenue cannot bepermitted to take benefit of the second proviso.

Conclusion

44. We accordingly allow the appeal by holding that the noticeissued to the assessee shows sufficient reasons to believe on the part ofthe assessing officer to reopen the assessment but since the revenuehas failed to show non-disclosure of facts the notice having been issuedafter period of 4 years is required to be quashed. Having held so, wemake it clear that we have not expressed any opinion on whether onfacts of this case the revenue could take benefit of the second provisoor not. Therefore, the revenue may issue fresh notice taking benefit ofthe second proviso if otherwise permissible under law. We make it clearthat both the parties shall be at liberty to raise all contentions with regardto the validity of such notice. All pending application(s) shall stand(s)disposed of.

Devika Gujral

Appeal allowed.