Key Takeaways: - Facts of the Case - Issues Raised by the Department - Contentions of the Revenue and Assessee - Analysis and Ruling given by the Supreme Court

1. VALIDITY OF NOTICE ISSUED FOR INCOME
ESCAPING ASSESSMENT
NEW DELHI TELEVISION LTD VS. DEPUTY
COMMISSIONER OF INCOME TAX [2020] 116
taxmann.com 151 (SC)
CA Jugal Gala

2. RESEARCH CREDITS
Harsha D
Gracelin Lita P

3. LEGENDS USED
AO Assessing Officer
AY Assessment Year
DRP Dispute Resolution Panel
FY Financial Year
HC High Court
NDTV New Delhi Television Ltd
NNBV NDTV Networks BV
NNIH NDTV Networks International Holdings BV
PCIT Principal Commissioner of Income Tax
SC Supreme Court
TP Transfer Pricing

4. PRESENTATION SCHEMA
Facts of the Case
Issuance of Notice and Issues
Raised
Contentions and
Observations
Final Ruling of the Court Conclusion

5. FACTS OF THE CASE

6. ORIGINAL ASSESSMENT
*A step-up coupon bond is a bond that pays a lower initial interest rate but includes a feature that allows for rate
increases at periodic intervals.
• NDTV Ltd (the ‘assessee’) is an Indian company engaged in running television channels.
• Assessee had filed a loss return for AY 08-09, which was selected for scrutiny (original assessment)
About the Assessee
• Assessee’s indirect subsidiary in UK (NNLPC), during FY 07-08, had issued step-up coupon bonds*
of $100 million (Rs.405.09 crores), redeemable after 5 years, at a premium of 7.5%
• Assessee had agreed to furnish corporate guarantee for such issue. The same was disclosed by the
assessee in the return but no corporate guarantee fee was charged for the same
• These bonds were redeemed in advance by NNLPC at a discounted price of US$74.2 million which
resulted in a gain on buy back of Rs.128.28 crores (US$100 million – US$74.2 million = US$25.8
million expressed in equivalent amount of INR)
What was the subject matter of original assessment?
• NNPLC had only a small capital of Rs.40 lakhs and did not have any business activities, any fixed
assets, any place of business except a postal address in UK
• NNLPC, a new entrant without any performance record and a loss making company, had invested
in loss making companies and had its share's face value of Rs.40-45 per share and book value in the
negative.
Facts about the counter party (NNLPC)

7. FINAL ORDER OF ORIGINAL ASSESSMENT
NNLPC
HAD
NO
FINANCIAL
WORTH
Though the assessee had not
actually extended any corporate
guarantee, the AO held that NNLPC
had no financial worth, and hence
NNLPC could not have raised such a
huge amount ($100 million) without
NDTV’s assurance.
ARM’S
LENGTH
PRINCIPLE
TO
BE
APPLIED
Accordingly, TP adjustment was made
to impose a guarantee fee to be added
to its income, vide final assessment
order dated 03-08-2012 (for AY 2008-
09)

8. WHY REOPENING OF CASE?
• On 31.03.2015, the AO issued notice u/s 148 stating that the Department has “reasons to believe” that
net income chargeable to tax for AY 2008-09 has escaped assessment
• Reasons communicated by the AO for invoking Sec 148 relied upon the following:
AO’s order for AY 2009-10
proposing addition to income
of assessee on account of
monies raised through
assessee’s few other foreign
subsidiaries including NNLPC
DRP’s order dated 31-12-2013
which held one of the foreign
transaction of assessee to be a
sham and also contended upon
assessee’s guarantee
transaction with NNLPC
Petitions filed by minority
shareholders hinting round
tripping of funds by the
assessee
NNLPC placed under liquidation
The above is elaborated in further slides
1
3
2

9. REVENUE’S ORDERS IN PURSUANT YEARS
For AY 09-10
AO had proposed an addition of
Rs.642 crores on account of
money raised by the assessee
through its other foreign
subsidiaries NDTV BV
Netherlands, NNBV, Netherlands,
NNIH, Netherlands including
NNLPC (UK)
DRP’s order dated
31.12.2013
 On consideration of the facts, DRP confirmed the addition
 The DRP also came to a conclusion that all transactions with
subsidiaries in Netherlands were sham and bogus
transactions and that the same were done with a view to get
the undisclosed income, for which tax had not been paid, back
to India by circuitous round tripping
 Further, the DRP also enhanced the assessee's income by
another Rs.254 crores on account of unexplained unsecured
loans
Though the DRP did not rule out the transaction of “issue of step-up coupon bonds by NNLPC” to be a sham one,
the said transaction was contended upon and the DRP noted that “given the financial strength of NNLPC, it is
doubtful that investors purchased the Step-up coupon bonds only to resell at a loss in November 2009”.
Therefore, the AO inferred that funds received by NNPLC were actually the funds of the assessee as it could be
“naturally inferred” from the fact that it was unnatural for anyone to make such a huge investment in a virtually
non-functioning, loss-making company and thereafter get back only 72% of their original investment.
On petition made
to DRP by assessee

10. OTHER EVENTS RELIED UPON BY AO
The AO made mention of complaints received from a
minority shareholder in which it is alleged that the money
introduced in NNPLC was shifted to another subsidiary of
the assessee in Mauritius from where it was taken to a
subsidiary of the assessee in Mumbai and finally to the
assessee.
The revenue also placed reliance on various other tax
evasion petitions filed by the shareholders of NDTV in 2014
and 2015 raising issues of tax evasion by NDTV by raising
funds amounting to Rs.1100 crores through its foreign
subsidiaries
Further, NNPLC itself was placed under liquidation on
28.03.2011
NDTV Ltd, India
NDTV Network
Plc, UK (NNLPC)
Issues Step-up
Coupon Bonds
Mauritius
Subsidiary
Mumbai
Subsidiary
Indirect Subsidiary

11. CHRONOLOGY OF EVENTS
July 2007
Bonds issued by NNLPC
for which assessee
agrees to give corporate
guarantee
September 2008
Loss Return for AY 08-09
filed by NDTV.
Subsequently, picked up
for scrutiny
November 2009
Bonds prematurely
redeemed at a
discounted price of
$72.4 million
March 2011
NNLPC placed under
liquidation
03-08-2012
Final assessment order
passed for scrutiny
assessment for AY 2008-
09
31-12-2013
DRP order passed with
respect to money raised
by the assessee in its
foreign subsidiaries
1)FY 2014-15
2)Complaints raised by
minority shareholders,
hinting round-tripping of
funds by assessee
31-03-2015
Notice u/s 148 issued to
assessee
August 2017
Petition filed in HC,
Ruled in favour of
Revenue.

12. ISSUANCE OF NOTICE AND ISSUES
RAISED IN THAT REGARD

13. SECTION 147 and 148 – INCOME ESCAPING ASSESSMENT
Section 148 empowers the AO to issue a notice, to invoke the powers vested with him u/s 147, within the time
frame, as prescribed in section 149. It is to be noted that Sec 147 has to be read parallel with Sec 149 for the time
period of issuance of notice
Sec 147 empowers the AO to assess or reassess such income chargeable to tax which the AO states that he has
“reasons to believe”, has escaped assessment for any AY
However, if earlier, a scrutiny assessment or an assessment u/s 147 was already made, a fresh assessment u/s 147
cannot be made after expiry of 4 years unless such income has escaped assessment by reason of failure on part
of the assessee to “disclose fully and truly all material facts” necessary for his assessment and certain other
instances*
Further, the above mentioned condition shall not apply in a case where any income in relation to any asset
(including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for
any assessment year
Section 147
Section 148
*instant relevant for the case-in-hand is discussed here

14. SECTION 149(1): TIME LIMIT FOR NOTICE U/S 148
Time Limit for issue of
notice u/s 148
- Sec 149(1)
In case of income in
relation to any asset
(including financial
interest in any entity)
located outside India, has
escaped assessment
Notice u/s 148 has to
be issued within 16
years from the end of
relevant AY
Where the income which
has escaped assessment
amounts to or is likely to
amount to >= ₹ 1 lakh
Notice u/s 148 has to
be issued within 6
years from the end of
the relevant AY*
In any other case
Notice u/s 148 has to
be issued within 4
years from the end of
the relevant AY

15. TIME PERIOD UNDER CONTENTION
Assessee was already subject to scrutiny assessment (in original assessment pertaining to AY 08-09)
Therefore, action u/s 147 can be taken only till lapse of 4 years from the end of the relevant AY i.e. by 31-03-2013
On parallel reading of Sec 147 with Sec 149, it is understood that notice for taking action against income escaping
assessment (when scrutiny assessment is made earlier) can be issued beyond 4 years but within 6 years only when
there is failure on part of the assessee to disclose material facts and the income escaping assessment is likely to be
more than Rs.1 lakh
In the case in hand, income escaping assessment due to non-disclosure of material facts on assessee’s part, is
contended to be Rs.405.09 crores (i.e. $100 million raised by bonds in equivalent INR). Hence, the time limit of 6 years
would apply
The notice is issued by AO on 31-03-2015 i.e. exactly within 6 years from the end of the relevant AY 08-09
Further, it is to be noted that in case of income relating to a foreign entity, a limitation of 16 years would apply for the
issue of notice u/s 148.
Hence, in the case-in-hand, if the transaction involving foreign entity is taken into consideration for issuing notice u/s
148, then the AO can issue notice upto 31.03.2025 i.e. 16 years + 31.03.2009 (discussed in detail in further slides)

16. NOTICE U/S 148 FURNISHED BY AO
The AO’s “communication of reasons” of furnishing notice u/s 148 contained the following main
contentions
In view of the facts and circumstances of the assessee and considering the findings of the DRP holding
the funds received by NNPLC as the funds of the assessee under sham transactions, there is reason to
believe that the funds amounting to Rs. 405.09 crores introduced into the books of NNPLC during the FY
2007-08 in the form of Step Up Coupon Bonds pertain to the assessee only. I have therefore reason to
believe that the income of the assessee for AY 2008-09 amounting to at least Rs.405.09 crores has
escaped assessment. It is also recorded that the escapement is due to failure on the part of the
assessee to disclose fully and truly all facts material for assessment.
Contentions of the Assessee to the above notice
Contention Relevance
There was no failure to disclose fully and truly all material
facts necessary to make an assessment.
Hence, limitation of 6 years wouldn’t apply to issue
notice. Notice issued after 4 years is not valid
Proceedings had been initiated on a mere change of opinion
of the AO. Because, earlier AO had treated the transaction
to be genuine by levying guarantee fees and adding it back
to the income of the assessee
Hence, AO did not have “reasons to believe” to
reopen the assessment

17. AO’s DISPOSAL OF REJECTIONS
• The claim of the assessee was disposed off by the AO vide order dated 23-11-2015 wherein, the
AO held that there was non-disclosure of material facts by the assessee and,
• The notice would be within limitation since NNPLC was a foreign entity and income was being
derived through this foreign entity.
• Hence, the case of the assessee would fall within the 2nd proviso of Sec 147 and the extended
period of 16 years would be applicable.
• It is to be noted here that the assessee was put to knowledge of second proviso being invoked
(i.e. which stipulates 16 years time period) only in the “disposal of rejections” and not in the first
notice u/s 148
- Aggrieved, the assessee filed a writ petition in the High Court challenging the notice, where it was held
that the impugned reassessment notice is valid in law and can be sustained.
- The writ petition was dismissed, against which an appeal was preferred to the Supreme Court.

18. SUMMARY OF COMMUNICATION TO ASSESSEE ON
REOPENING OF CASE
First notice dated
31-03-2015
• AO issued notice u/s 148 intimating that he has “reasons to believe” that
assessee’s income pertaining to AY 08-09 has escaped assessment
Assessee’s reply to notice • Assessee requested reasons for issue of notice u/s 148
Communication of
reasons by Revenue on
04-08-2015
• “Assessee is guilty of non-disclosure of material facts with regard to income
escaping assessment and hence notice is issued within time period of 6
years”
Assessee’s objections
• “All facts were known to the Revenue at the time of original scrutiny
assessment”
Revenue’s disposal of
rejections vide order
dated 23-11-2015
• “There was non-disclosure of material facts and since foreign entity is
involved, the provisions of second proviso would apply and thereby the
time period of 16 years applies in this case”
1
2
3
4
5

19. CONTD…
Non-disclosure of material
facts
Income escaping
assessment > 1 lakh
First proviso to
Sec 147 applies
Hence, time limit for issuing notice is 6
years from end of relevant AY (i.e
within 31.03.2015)
Income escaping
assessment relates to
foreign entity
Second proviso to
Sec 147 applies
Sec 149(1)(b)
Hence, time limit for issuing notice is
16 years from end of relevant AY (i.e.
within 31.03.2025)
Sec 149(1)(c)
The following summaries as to how the Revenue contended to take benefit of 6 years and 16 years
First notice u/s 148
Disposal of rejections

20. ISSUES BEFORE THE HON’BLE SUPREME COURT
Whether the revenue had
valid reason to believe that
undisclosed income had
escaped assessment?
Whether the assessee did not
disclose fully and truly all
material facts during original
assessment which led to the
finalization of the assessment
order and undisclosed income
escaping detection?
Whether the notice dated 31-
3-2015 along with reasons
communicated on 04.08.2015
could be termed to be a
notice invoking the provisions
of the second proviso to
section 147 of the Act?
It may be noted that the Court did not have to look into the merits of the allegations made against the assessee
i.e. the genuineness of the transactions
Given the facts of the case, the Hon’ble SC had to decide on the following three issues:

21. CONTENTIONS AND
OBSERVATIONS

22. Q1: WHETHER THE REVENUE HAD VALID REASON TO BELIEVE
THAT UNDISCLOSED INCOME HAD ESCAPED ASSESSMENT?
• Once the transaction of step-up coupon bonds was scrutinized in detail and been accepted to
be correct, then the revenue cannot re-open the same and doubt the genuineness of the
transaction.
• While the DRP regarded the Netherlands transaction as a sham, transaction of bonds issued
by UK subsidiary (NNLPC) was not questioned.
• Attempt by Revenue to deliberately mix-up transactions relating to the Netherlands subsidiary
with the UK subsidiary is not tenable.
• Hence, there was no fresh material before AO but only a mere change of opinion (i.e. only
because DRP held other foreign transactions of the assessee to be a sham, AO contended the
same for assessee’s transaction with UK subsidiary (NNLPC) without material facts to
substantiate the same)
Assessee’s contention
• At the stage of issue of show cause notice on 31-03-2015, the revenue only has to establish a
tentative and prima facie ground to show that it had “reasons to believe” that income has
escaped assessment
• Only because fresh tangible material (DRP order, complaints of minority shareholders) was
discovered subsequent to the passing of the original assessment order for AY 2008-09, it
cannot be said that the AO did not have reasons to believe that income had escaped
assessment
Revenue’s contention

23. PRINCIPLE PROVIDED
Mere change of opinion of the AO is not sufficient to meet the standard of
'reasons to believe’
However, on perusal of past judicial precedents, it is clear that subsequent
facts which comes to the knowledge of the AO can be taken into account to
decide whether the assessment proceedings can be re-opened or not.
• It was in Dec ‘13 that the DRP in the case of AY 2009-10 raised doubts about the corporate structure
of the assessee and its subsidiaries.
• Tax evasion petitions were filed by minority shareholders in 2014 and 2015
It is opined that the following material disclosed in assessment proceedings
for subsequent years was sufficient to form a prima facie view.
Accordingly, it was held that, in the light of new information, there were
reasons to believe that income had escaped assessment in this case and it
wasn’t a mere change of opinion.

24. Q2: WHETHER THE ASSESSEE DID NOT DISCLOSE FULLY AND
TRULY ALL MATERIAL FACTS DURING ORIGINAL ASSESSMENT?
The case of the assessee was that it
had disclosed all facts which were
required to be disclosed during the
original assessment
The case of the revenue is that the
assessee did not disclose:
• The amount subscribed by each of the
entities and the management structure of
these companies.
• Relationship of the subscribers with the
assessee
• Details of the subsidiaries in its final
accounts, for the relevant period as was
mandatory under Companies Act

25. The assessee had made a disclosure about having agreed to stand guarantee for the transaction by NNPLC, the
factum of the issuance of convertible bonds, the entities which subscribed to the bonds and even their redemption
at a discounted price, before the assessment for AY 2008-09 was finalized.
In other proceedings relating to other subsidiaries (M/s. NDTV Labs Ltd. and M/s. NDTV Lifestyle Ltd), the same AO
had knowledge of addresses and the consideration paid by each of the bondholders.
Where the assessee had obtained an exemption from the competent authority, as prescribed by the Companies Act,
1956, from providing details of its subsidiaries in its final accounts, balance sheets, etc., it cannot be said that the
assessee was bound to disclose this to the AO.
In the given case:
• The assessee had disclosed all primary facts before the AO
• Basis the facts disclosed to him, the AO did not doubt the genuineness of the transaction set up by the
assessee.
• Discovery of facts subsequent to the assessment order cannot lead to the conclusion that there is non-
disclosure of true and material facts by the assessee
• It is for the AO to decide what inferences of facts can be reasonably drawn and what legal inferences have
ultimately to be drawn
PRINCIPLE PROVIDED
In holding as above, the SC differed with the HC’s view, wherein it was held that where the transaction of a
particular AY is found to be a bogus transaction, the disclosures made could not be said to be all "true" and "full".

26. CONTD…
"...It is evident from these facts that second proviso to section 147 is clearly attracted in this case and first
proviso to section 147 is not applicable to facts of this case....
…The second condition that the income should have escaped assessment due to failure on the part of the
assessee to disclose fully and truly all material facts necessary for making assessment is not relevant to
decide issue before the Hon'ble Court”
Revenue before SC There is non-disclosure and hence limitation of 6 years shall apply
Revenue before HC Foreign entity is involved and hence second proviso is invoked and thereby
16 years period would apply
Supreme Court’s say - The revenue cannot now turn around and urge that the assessee is
guilty of nondisclosure of facts.
- Even otherwise, the assessee had fully and truly disclosed all material
facts necessary for its assessment and, therefore, the benefit of the
extended period of limitation of 6 years was not available.
The SC also took note of the Revenue’s contradicting contention before HC and SC:
To quote a portion of the counter-affidavit, submitted in response to the assessee’s objection of
the reasons given by the AO,

27. Q3: WHETHER NOTICE COULD BE TERMED TO BE A NOTICE
INVOKING THE PROVISIONS OF THE SECOND PROVISO TO SEC 147?
CASE
OF
THE
ASSESSEE
No income was derived from the foreign
entity and a loan cannot be termed to be
an asset or an income
CASE
OF
THE
REVENUE
Mere non-naming of the second proviso
in the notice does not help the assessee.
It was urged that even if the source of
power to issue notice has been wrongly
mentioned, but all relevant facts were
mentioned, then the notice can be said
to be notice under the provision which
empowers the revenue to issue such
notice.
- It is to be noted with facts and extracts of notice mentioned earlier, that though AO made mention of assesee’s
transactions with foreign entities, no where in the first notice of Sec 148 issued to assessee, the Revenue had
mentioned of invoking second proviso of Sec 147 (i.e. to take benefit of 16 years because a foreign entity was
involved)
- With regard to this, the assessee contended as to “what if second proviso was invoked” and the Revenue
contended as to “why the first notice implied invocation of second proviso”
- The same is summarised below:

28. PRINCIPLE PROVIDED
There was no mention of any foreign entity in notice sent by AO on 31-03-
2015
• Nothing in such “communication of reasons” from the Revenue’s end indicated that the revenue
was intending to apply the extended period of 16 years.
• It was in the order of rejection that for the first time, a reference was made to the second proviso
by the revenue.
Even after the assessee was specifically asked for reasons, the revenue only
showed that the income escapement was due to the non-disclosure of
material facts.
Assessee must be put to notice of all the provisions on which the revenue
relies upon. He cannot be taken by surprise at the stage of rejection of its
objections or at the stage of proceedings
• The assessee cannot be deprived of this chance while replying to the notice
Had a notice been issued to the assessee stating that it relies upon the second proviso, the
assessee would have had a chance to show that it was not deriving any income from any foreign
asset or that the asset did not belong to it or any other ground which may be available.

29. RULING OF THE SUPREME
COURT

30. FINAL RULING
The court
established that
there were
sufficient reasons
to believe on the
part of the AO to
reopen the
assessment
However,
failure of the
Revenue to show
non-disclosure of
facts and the
notice having
been issued after
a period of 4
years*
Appeal allowed.
Ruled in favour of
the assessee
- Further, since Revenue’s first notice u/s 148 was silent on invoking second proviso, the SC held that the same
cannot be invoked to take benefit of 16 years
- However, the Court has not expressed any opinion on whether the revenue could take benefit of the second
proviso or not (i.e. whether extension of loan to a foreign entity can be considered for income escaping
assessment and thereby the benefit of 16 years).
- Therefore, the revenue may issue fresh notice taking benefit of the second proviso if otherwise permissible
under law. Both the parties shall be at liberty to raise all contentions with regard to the validity of such notice.
*Where non-disclosure of all material facts necessary for the assessment, could not be proved, the benefit of
extended period of 6 years was not available to the AO.

31. CONCLUSION

32. CURRENT PROVISIONS FOR INCOME ESCAPING
ASSESSMENT
• Vide Finance Act, 2021, various amendments were made in the assessment proceedings as the tax
administration in India is revamping into digitalization
• Amendments (w.e.f. AY 20-21) were also made in relevant sections for initiating action for income
escaping assessment (Sec 147, 148 and 149), notably, the time limit for issuance of notice u/s 148 was
put forward as below
In normal cases Within 3 years from the end of the relevant AY, if
permission granted by Principal Commissioner or
Principal Director or Commissioner or Director
In cases where income escaping assessment,
represented in the form of asset, amounts to Rs.50
lakhs or more
Within 10 years from the end of the relevant AY, if
permission granted by PCIT or Principal Director
General
The amended Sec 149 gave powers to issue notice for income escaping assessment represented in the form of
asset, for cases falling under 3 to 10 years category
It was clarified that asset shall include immovable property, being land or building or both, shares and
securities, loans and advances, deposits in bank account

33. KEY LEARNINGS
Though the underlying transaction which is the subject matter of the notice being issued is hinted to be a sham, it is
not the jurisdiction of the Court to get into its merits and the SC has just ruled out if the notice issued in first
instance itself is valid under the law
Revenue has to be specific in communicating to the assessee with proper mention of the law in order to avoid
ambiguity
As regards the issue of notice invoking second proviso, the Court is silent as to whether the said transaction of
“extending guarantee” can fall within its ambit and it is left to the Revenue to proceed with fresh notice, on its say
Therefore, the veracity of the transaction and the quantum of tax evasion is yet under loggerheads
It is now to be noted that the AO can proceed to issue a fresh notice invoking second proviso because 16 year time
limit ends by 31.03.2025 only. In such a case, the assessee’s transaction, though directly does not relate to income in
relation to a foreign entity, if studied in depth pertaining to round tripping of funds, may eventually be subject to
scrutiny
Since, the newly amended Sec 149 which imposes a new timeline of 3 years or 10 years (subject to certain
conditions) is made effective from AY 2020-21, the same would not be applicable to the case-in-hand which pertains
to AY before 01.04.2021 i.e. AY 08-09.

34. Thank You!
Scan the QR Code to Join our
Research Group on WhatsApp
Scan the QR Code to explore more
Research from our Website
DVS Advisors LLP
India-Singapore-London-Dubai-Malaysia-Africa
www.dvsca.com
Copyrights © 2021 DVS Advisors LLP