New Delhi Television Limited v. Deputy Commissioner of Income Tax Circle - 18(1), New Delhi & Anr

order is relied on.

• Most of investors were located in known tax heavens namely British Virgin Islands, Cayman Islands and Switzerland. Even the bifurcation of the amounts of investment by each of eight investors was not disclosed by the petitioner company during assessment proceedings for AY 2008-09 and not even during of subsequent assessment year, i.e. AY 2009-10.

¶30In addition to credible information from above referred to Source 1,the AO has also taken into account several specific tax evasion petitions received from a shareholder of the petitioner company that money introduced in the NNPLC through money laundering activities was actually transferred to the petitioner company through liquidations and mergers. The Director of the complainant company was part of the team of the petitioner at some point of time, which designed the complex corporate structure to route and reroute funds and layering of funds. Copies of these tax evasion petitions received from 11.03.14 onwards, i.e. 18 months after the date of finalization of original assessment order now form part of the official record.

¶31It is stated that after receipt of initial complaint on11.03.2014, further complaints against the petitioner were received from the shareholder on various dates, i.e. on 25.07.2014, 13.10.2014and 11.03.2015, wherein further details regarding the raising and routing of funds through round tripping were given. The AO took note of information contained in these tax evasion petitions, because the complaints of tax evasion were received from NDTV's shareholders, who were aware of its internal affairs and aim and object of floating complex corporate structure by the petitioner; therefore, the AO had reason to believe that information was credible. The tax evasion petition contained detailed information regarding the complex corporate structure created by petitioner to route funds and evade taxes and most of this

information was corroborated with the findings of the DRP for AY 2009-10. The revenue also refers to WP(C)984/2015, which is pending before this court and in which the complainant/petitioner has alleged that no action was being taken by the Enforcement Directorate and the Investigation Wing of the Income Tax Department on the complaints filed by it. The revenue had also subsequently been impleaded as a party in this writ petition. All these complaints are treated as confidential. On the basis of such information from two different sources and after having considered material on assessment record for the year under consideration, the AO formed a belief that investment of US$ 100million,the source of which was not explained in the books of accounts of the NNPLC as evident from the findings of DRP relied upon by the AO while recording the reasons that the petitioner introduced its own money.

¶32It is pointed out that NDTV is one of the signatories of the Underwriting Agreement in order to raise US $ 100 million from alleged investors. NNPLC is a subsidiary company 100% owned and managed by NDTV. According to the revenue, the money raised through bonds was ultimately transferred to NDTV after liquidation of the NNPLC in the year 2011 and merger of NDTV Mauritius Media Ltd. (subsidiary of the petitioner) with NDTV One Holdings Limited (subsidiary of the petitioner) on 30.09.2011 and finally, the merger of NDTV One Holdings Limited with the petitioner company and thus becomes NDTV's income, which is liable to be taxed. These facts lead to a reasonable belief that undisclosed income of `

405.09 crores(equal to US$ 100 Million) chargeable to tax for the year under consideration has escaped assessment. It is evident from the above that reason to belief of the AO was based on credible information and material,

which came to the knowledge of the AO after a gap of more than one year from the date of finalization of the original assessment order under Section 143(3) for the year under consideration.

¶31The present issue concerns the application of Section 147 of the Act. Section 147 provides: "Section 147: If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recomputed the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section

(1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. 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 India, chargeable to tax, has escaped assessment for any assessment year."

¶33The first question requires firstly an analysis of the proposition as to whether the AO can supplement the reasons for re-opening the assessment under Section 147/148 by way of a counter-affidavit. At the outset, what must be noted is that the requirement for providing reasons for re-assessment was recognized by the Supreme Court in GKN Driveshafts (India) Limited v. Income Tax Officer and Others [(2003) 259 ITR 19 (SC)], wherein the Court held: "However, we clarify that when a notice under Section 148 of the Income Tax Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the assessing officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years."

¶34Thus, an assessee can object to the re-opening of the assessment under Section 147 only when the correct reasons are provided by the AO.

¶35Having said that, the issue of whether reasons can be supplemented by a counter-affidavit was considered by this Court in Haryana Acrylic Manufacturing Company v. The Commissioner of Income Tax and Anr. [2009] 308 ITR 38 (Delhi). In that case, the Respondents alleged that the reasons provided in the notice under Section 148 were not the actual reasons for re-opening of the assessment. The actual reasons had been filed by way of a counter-affidavit. The Court frowned upon the supplementing of reasons. A similar approach was adopted by the Bombay High Court in

Hindustan Lever Ltd. v. Assistant Commissioner of Income Tax and Others [2004] 268 ITR 339 (Bom). Furthermore, there can be no question that the reasons for an executive or statutory order are to be reflected in the concerned file or public document, and not improved through pleadings in court (See Mohinder Singh Gill and Anr. v. The Chief Election Commissioner and Ors [1978]2SCR272). This Court is of the view that the revenue, therefore, cannot be allowed to supplement the reasons recorded for re-opening of the assessment by way of a counter-affidavit.

¶36However, the above analysis does not dispose of the petition relating to re-opening of assessment. The real issue before the Court is whether there were "reasons to believe" under Section 147 of the Act to justify the re-opening of the assessment. The scope of the phrase "reason to believe" was examined by the Supreme Court in M/s. Phool Chand Bajrang Lal & Anr (supra) where the Court held that: "The court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income-tax Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief."

¶37Similarly, in Kelvinator (supra), the Supreme Court held that the AO has power to re-open the assessment if there is tangible material to come to the conclusion that there has been escapement of income. As to whether something disclosed during the regular assessment proceeding, upon scrutiny is per se excluded, because there was some inquiry into the matter, was explained in Commissioner of Income Tax v. Velocient Technologies Ltd.

(2015) 376 ITR 131. The Division Bench of this court, observed in that judgment as follows: "19. Phool Chand Bajrang Lal (supra) is an authority for the proposition that acquisition of "fresh information, specific in nature and reliable in character, relating to the concluded assessment" which exposes "falsity" of the assessee's statement during the original statement is a legitimate basis for re-opening (the assessment). The court significantly noted that "the mere disclosure of that transaction at the time of original assessment proceedings, cannot be said to be disclosure of the "true" and "full" facts in the case and the I.T.O. would have the jurisdiction to reopen the concluded assessment in such a case." That decision had taken note of Lakhmani Mewal Dass and Calcutta Discount (supra). This court also notes that the subsequent ruling of a three judge bench of the Supreme Court in Commissioner of Income Tax v Kelvinator India Ltd (2010) 320 ITR 561 (SC) crystallizes the acceptable standard for upholding a reassessment notice (under Section 147/148) as something beyond the existing record, in the form of "tangible material" available to the AO which provides a "live link" to the formation of a legitimate belief that reassessment is called for. In the present case, the formation of opinion is recorded in the note (i.e "reasons to believe") dated 30-03-2001 which noted that for AY 1996-97, the forfeiture of the loan was treated as cessation of trading liability and that even in its submissions before CIT (A) the assessee "failed to establish the truthfulness of its claim of the receipt of loan of Rs. 10.65 crores despite being afforded specific opportunities. The CIT (A) also in his order has not commented on the veracity of the evidence furnished by the assessee in this regard...the assessee was not able to accurately and specifically establish the fact that this money indeed belonged to the Russian Company nor the reason for the unilateral forfeiture as discussed in the earlier paras." Now, these facts facially were sufficient, in the light of the ruling in Phool Chand and Kelvinator (supra) for the AO to form a valid opinion that reassessment was necessary. The judgment in Honda Siel Power Products v Dy. CIT340 ITR 53

(Del) of this court is authority to say that the term failure" on the part of the assessee is not restricted to the income-tax return and the columns of the income-tax return or the tax audit report. The court held that the expression "failure to fully and truly disclose material facts" also relates to the stage of the assessment proceedings and that there can be omission and failure on the part of the assessee to disclose material facts fully and truly during the course of the assessment proceedings."

¶38In the present case, the Revenue relies on the assessment proceedings for the AY 2009-10, the DRP directions as well as the tax evasion petition received by the AO to form the belief that the transaction of raising of funds through the Step Up Coupon Bonds by NNPLC was a bogus transaction. The investment of US$ 150 million made in NNBV by USBV, that was the subject of AY 2009-10, was held to be a sham transaction, to hide the unaccounted income of NDTV. In that transaction the shares of NNBV were issued at a price much greater than its share value and later bought back at a cheaper rate, thus resulting in losses for the investors. Similarly, the Step Up Coupon Bonds were issued at a higher price, and yet were prematurely redeemed leading to a loss for the investors. In this regard, the AO has provided specific details regarding the new or tangible information that was received subsequent to the assessment proceedings for the year 2008-09. The DRP's observations, in its order dated 31-12-2013 (for AY 2009-10) are extracted below: "Though AO in his remand report has said that the money has not been recorded in the books of assessee, after lifting the corporate veil, the DRP finds that in this case a sum of Rs. 642,54,22,000/- has been found credited in the books of assessee/ its subsidiary for the previous year (FY 2008-09)

under consideration. Though the assessee has sought to explain the above amount through the lengthy and circuitous transactions, the commercial substance/ economic rationale for such transaction has not been satisfactorily explained. Assessee's theory of having sold a "Dream" to the investor has not been substantiated by any credible evidence as no details have been filed whatsoever for the so called business projections and the basis for computation of the sale price of the share at the astronomical price of Rs. 7,015/- which is 159 times of its face value of Rs. 45/ -.Needless to mention that the subject company whose shares were sold was incurring huge losses and there was hardly any worthwhile business to justify the above sale price. Interestingly, the assessee/ subsidiaries have again repurchased the same share in the very next financial year at the price of Rs. 634.17 per share totalling Rs. 58 crores. Here also no details/ justification has been given by the assessee as to how the above buy back price was fixed by the assessee when the so called "Dream" went bust, as being claimed by assessee. What was the justification for the assessee to buy back the shares of nearly defunct and own subsidiary company at a value which was more than 12 times of the face value. The totality of the transaction clearly lead to the inescapable conclusion that the entire transaction of sale & subsequent buy back of shares was a "sham" transaction entered into by the assessee with the sole motive of introducing Rs. 642,54,22,000/- in its books and providing loss of Rs.

584.46 crores to Universal Studios BV Netherlands.

5.16.1. In view of the facts and finding as mentioned above and taking the totality of the picture into consideration, it is held that assessee has brought an amount of Rs.642,54,22,000/- being unexplained money in to its books through its subsidiary NDTV Networks BV Netherlands. It is pertinent to mention that, as per the admission of the assessee the above subsidiary has been subsequently liquidated, which shows that the same was floated only to create a front for introducing the above amount."

5.16 DRP has carefully considered entire gamut of transaction

and is of the opinion that the structure of holding/subsidiary companies and the transaction as narrated above, without any commercial substance, do warrant Ming the corporate veil to identify the true nature of the transaction. Though AO in his remand report has said that the money has not been recorded in the books of assessee, after lifting the corporate veil, the DRP finds that in this case a sum of Rs. 642,54,22,000/- has been found credited in the books of assessee/its subsidiary for the previous year (FY 2008-09) under consideration. Though the assessee has sought to explain the above amount through the lengthy and circuitous transactions, the commercial substance/economic rationale for such transaction has not been satisfactorily explained. Assessee's theory of having sold a "Dream" to the investor has not been substantiated by any credible evidence as no details have been Wed whatsoever for the so called business projections and the basis for computation of the sale price of the share at the astronomical price of Rs. 7,015/- which is 159 times of its face value of Rs. 45/-. Needless to mention that the subject company whose shares were sold was incurring huge losses and there was hardly any worthwhile business to justify the above sale price. Interestingly, the assessee/subsidiaries have again repurchased the same share in the very next financial year at the price of Rs. 634.17 per share totaling Rs. 58 crores. Here also no details/justification has been given by the assessee as to how the above buy back price was fixed by the assessee when the so called 'Dream" went bust, as being claimed by assessees. What was the justification for the assessees to buy back the shares of nearly defunct and own subsidiary company at a value which was more than 12 times of the face value. The totality of the transaction clearly lead to the inescapable conclusion that the entire transaction of sale & subsequent buy back of shares was a "sham" transaction entered into by the assessee with the sole motive of introducing Rs. 642,54,22,000/- in its books and providing loss of Rs.

584.46 crores to. Universal Studios BV Netherlands.

5.16.1 In view of the facts and finding as mentioned above and taking the totality of the picture into consideration, it is held

that assessee has brought an amount of Rs. 642,54,22,000/- being unexplained money in to its books through its subsidiary NDTV Networks BV Netherlands. It is pertinent to mention that, as per the admission of the assessee the above subsidiary has been subsequently liquidated, which shows that the same was floated only to create a front for introducing the above amount.

5.16.2 The DRP has considered the addition proposed by the AO and finds the addition is fully justified in view of facts mentioned above. The DRP is of the considered opinion that the facts of the case fits for making addition u/s. 68 of the IT Act as unexplained cash credit. Even addition u/s. 69A as proposed by the AO is also justified, as after lifting the corporate veil, the assessee is found owner/controller of the money under reference.

5.17 AO has brought to the notice of the DRP through his letter dated 20.08.2013 forwarded by the Addl. CIT Range-13, New Delhi that an amount of Rs. 365.25 crores was raised by the assessee company which needed further examination. The relevant part of the letter of the AO is as under:

"10. Another issue involved in the case is that during the year, the assessee company, through its guarantees, raised an amount of Rs. 365,25,00,000/- as unsecured loans through its subsidiary NNPLC. As the information was stated to be furnished by the assessee on 30.3.2013 i.e. just one day before the expiry of limitation, therefore, this aspect also could not be probed by the AO as to the identity of the payers, the creditworthiness of the payers and the genuineness of the transactions."

5.18 Accordingly, the AO was directed to examine this issue and send a remand report. The remand report was given to the assessee who strongly objected to the proposed addition made by the AO in the remand report. The remand report dated

11.12.2013 and the summary of the oral argument of the AO dated 26.12.2013 are reproduced below:…."

¶39After extracting the remand report dated 11-12-2013 and the assessee/NDTV's contentions, the DRP held:

"5.19 The copy of the remand report was given to the assessee on 16.12.2013 to submit its rejoinder and on the day of hearing i.e. on 17.12.2013 they were asked to treat the forwarding letter of the DRP enclosing the remand report as enhancement notice by DRP to cut short the time as matter is getting time barred on

31.12.2013. The same was recorded in the order sheet vide entry dated 17.12.2013.

5.20 In response to the above, the assessee vide its letter dated

23.12.2013 has filed a document which is purported to be a loan agreement concluded between NBCU, NDTV limited, NDTV PLC and NDTV Networks BV and requested to admit the same. The assessee has further submitted as below:

• The appellant was not able to produce the above documents since the issue came up for the first time before the DRP and the assessee as unable to submit the same due to paucity of time.

• The loan agreement was not specifically asked for by the Ld. AO.

• The evidence submitted in this submission is correct and very much relevant for deciding the appeal of the appellant.

• It is requested to your good self that the evidences be admitted and be considered for deciding the matter.

Your goodself may exercise the powers conferred on yourself by the law, which are very much required to be exercised in the light of facts and circumstances of the case.

5.21. The additional evidence in the form of copy of the

purported loan agreement (supri) has been admitted in the interest of natural justice and was handed over to the AO for his response. The response is received, the extract of which is reproduced below:

Extract of response of the AO dated 26.12.2013

******

**********

5.22 DRP has carefully considered this issue. Out of Rs. 365.25 crores representing unsecured loan, under reference, an amount of Rs. 110.5 crores is due to the restatement of the original amount pertaining to a transaction happened in the FY 2007-08 which was the subject matter of assessment for the A.Y. 2008-09. It appears from the report that there was no disallowance made on the amount in the first place in the AY 2008-09. Therefore, to disallow Rs. 110.5 crores on account of reinstatement of the amount is not called for as rightly mentioned by the AO in his remand report dated 11.12.2013. (quoted in the earlier paragraph No. 5.18 on Page No. 22 onwards)

5.23 The AO has examined the said agreement and in his response dated 26.12.2013 has clearly brought out that even after the production of the copy of the agreement assessee has not discharged its onus of explaining the genuineness of the transaction. From a bare reading of the so-called agreement copy by the DRP, it is found that the above loan is advanced without any interest, the reason for which has not been explained. The amount involved is quite a large sum of money. Further, as per this document, the interest-free credit facility was to be granted on the basis of a duly completed utilization request, where as no such utilization request or basis for seeking the above credit facility, has been produced by the assessee before the AO or before the DRP. We are therefore in agreement with the AO's finding that the onus of proving the genuineness of the loan transaction has not been discharged by the assessee. The AO is, therefore, directed to make addition of

Rs. 254.75 crores."

¶40At this juncture, it is to be noted that re-opening of the assessment proceedings on the basis of fresh information received is permissible under the law as held by Clagett Brachi Co. Ltd. v. CIT (1989) 177 ITR 409 (SC) and Phool Chand (supra). In Clagett Brachi (supra) it was observed as follows: "It is contended that the Income Tax Officer has no jurisdiction to take proceedings under Sections 147 and 148 of the Income-tax Act because the conditions pre-requisite for making the re-assessments were not satisfied. The re-assessments were made with reference to Clause (b) 30 of Section 147 of the Act, and apparently the Income Tax Officer proceeded on the basis that in consequence of information in his possession he had reason to believe that income chargeable to tax had escaped assessment for the two assessments years. From the material before us it appears that the Income Tax Officer came to realise that income 35 had escaped assessment for the two assessment years when he was in the process of making assessment for a subsequent assessment year. While making that assessment he came to know from the documents pertaining to that assessment that the overhead expenses related to the entire business including the business as commission agents and 40 were not confined to the business of purchase and sale. It is true, as the High Court has observed, that this information could have been acquired by the Income Tax Officer if he had exercised the due diligence at the time of the original assessment itself. It does not appear, however, the attention of the Income Tax Officer was directed by any-45 thing before him to the fact that the overhead expenses related to the entire business. The information derived by the Income Tax Officer evidently came into his possession when taking assessment proceedings for the subsequent year. In the circumstances, it cannot be doubted that the case falls within the terms of cl. (b) of Section 147 of the Act, and that, therefore, the High Court is right in holding against the assessee."

¶41In the background of these circumstances, this court is of opinion that the complex and circuitous structure of subsidiaries and the transactions entered therein are closely connected and provide a live link for the formation of the belief of the AO that there has been escapement of income in AY 2009-10 and for the previous assessment year, AY 2008-09 as well because the investments continued that year.

¶42The next question deals with the issue of true and full disclosure of the transaction at the time of assessment proceedings. Proceedings under Section 147 of the Act, beyond a period of 4 years can only be initiated if the AO has reason to believe that there has been escapement of income and this escapement is owing to the lack of true and fair disclosure by the assessee. In this regard, it is essential to understand the meaning of the phrase "true and fair disclosure". This Court in has considered the meaning of this phrase in Honda Siel Power Products Ltd. v. Deputy Commissioner Income Tax

(2012) 340 ITR 53 (Delhi) where the Court held that that the term "failure" on the part of the assessee is not restricted to the Income-tax return and the columns of the Income-tax return or the tax audit report. The Court held that there can be omission and failure on the part of the assessee to disclose material facts fairly and truly during the course of the assessment proceedings.

¶43More specifically, the Supreme Court in Phool Chand (supra) was dealing with the issue of disclosure related to bogus and sham transactions. The Court there held: "Thus, where the transaction itself on the basis of subsequent information, is found to be a bogus transaction, the mere

disclosure of that transaction at the time of original assessment proceedings, cannot be said to be disclosure of the "true" and "full" facts in the case and the I.T.O. would have the jurisdiction to reopen the concluded assessment in such a case. It is correct that the assessing authority could have deferred the completion of the original assessment proceedings for further enquiry and investigation into the genuineness to the loan transaction but in our opinion his failure to do so and complete the original assessment proceedings would not take away his jurisdiction to act under Section 147 of the Act, on receipt of the information subsequently".

¶44This has also been reiterated by the Patna High Court in Kapoor Brothers v. Union of India (2001) 247 ITR 324 (Pat) and by the Bombay High Court in Nickunj Exim Enterprises (P) Ltd. v. Assistant Commissioner of Income Tax(2014) 270 CTR (Bom) 494 where the Court held: "In case there is a prima facie doubt about the truthfulness and/or completeness of the disclosure at the time of original assessment in view of information obtained later the provisions cannot aid the petitioner at the stage of notice under s. 148 of the Act. It is likely that during the assessment proceedings the assessee may be able to satisfy the AO that there was a true and full disclosure. Once the AO has received information that invoices issued by M/s. Rahul Industries are bogus then the same is necessarily to be the subject matter of enquiry during the reassessment proceedings."

¶45It is clear from the above judicial pronouncements that the mere disclosure of a transaction at the time of the original assessment proceedings does not protect the assessee from a re-assessment under Section 147 if the AO has information that indicates that the transaction is sham or bogus. In the present case, NDTV has alleged that the details of the corporate guarantee issued by NDTV to NNPLC regarding the Step Up Coupon Bonds

was intimated to the Revenue during the original assessment proceeding. This argument of NDTV falls flat in light of the judicial decisions mentioned above considering that the AO has reason to believe that this transaction is bogus. For these reasons, this Court is of the view that the impugned reassessment notice is valid in law and can be sustained. The Writ Petition No. 11638/2015 is hereby dismissed. Issue 2:

¶46It is urged and argued by the learned counsel for NDTV that the order for provisional attachment of NDTV's assets is mala fide, patently illegal and in violation of the provisions of Section 281B of the Act. It is submitted that the Respondent has failed to demonstrate that NDTV was likely to thwart the attempt of the Revenue to recover legitimate taxes. In this regard, NDTV stressed that it had regularly assessed to tax for the past two decades. Further, NDTV argued that the extraordinary power under Section 281B cannot be invoked merely on grounds of difficulty in recovering taxes and the Respondent has failed to indicate any overt activities of NDTV in alienating its assets to the detriment of the Respondent. NDTV argued that there were no enforceable tax demands at present and the estimated tax demand of ` 328.96 crores, if arises, can be enforced against the assets of NDTV which are valued at `675.35 crores.

¶47On behalf of the Revenue, it was submitted that the order of provisional attachment was legal and valid and had been passed with the due approval of the Commissioner. The Respondent contended that it is not essential to prove that NDTV will thwart the recovery of future demand. For passing an order of attachment under Section 281B of the Act, the AO must

be of the opinion that such an order is necessary to protect the interests of the Revenue.

¶48The revenue placed reliance on the tax evasion petitions filed by the shareholders of NDTV raising issues of tax evasion by NDTV by raising funds amounting to `1100 crore through its foreign subsidiary, NNPLC. The Revenue took into consideration the findings of the DRP for the AY 2009-10, wherein the DRP had noted that the investment in NNPLC were sham transactions and required lifting of the corporate veil. Even for the AY 2008-09, the investigation in raising of `405 crores through Step Up Coupon Bonds issued by NNPLC and guaranteed by NDTV were in progress. In addition to this, the revenue argued that the declining net worth of NDTV as against the estimated tax liability will make it difficult to recover the tax demand. It was further contended that NDTV had also pledged its assets to the tune of `3.5 crore and `5 crore to issue an irrevocable and unconditional guarantee to secure a term loan for its subsidiary, NDTV Convergence Limited. This, the revenue argues, is in clear violation of the CBDT Circular No. 4 of 2011, dated 19.07.2011, wherein prior permission of the AO is required for the assessee to create a charge on its assets.

¶49This issue involves the application of Section 281B of the Act. For convenience, the relevant provision of the Act is reproduced below: "Section 281B-

(1) Where, during the pendency of any proceeding for the assessment of any income or for the assessment or reassessment of any income which has escaped assessment, the Assessing Officer is of the opinion that for the purpose of protecting the interests of the revenue it is necessary so to do, he may, with the previous approval of the Principal Chief Commissioner or Chief Commissioner, Principal Commissioner or

Commissioner, Principal Director General or Director General or Principal Director or Director, by order in writing, attach provisionally any property belonging to the assessee in the manner provided in the Second Schedule….."

¶50The question that arises for consideration is whether the AO was of the opinion that for the purposes of protecting the interests of the Revenue, it was necessary to attach the assets of NDTV. The scope of judicial review over the powers of the AO under Section 281B was considered by this Court in VLS Finance Ltd. v. Commissioner of Income Tax[2000] 246 ITR 707 (Delhi). The Court stated that the review over the powers of the executive was limited and held: "The Court must while adjudicating validity of an executive decision grant a certain measure of freedom of play in the joints to the executive…..It is only palpably arbitrary exercise which can be declared void. Only when the action of the administrative authority is so unfair or unreasonable that no reasonable person would have taken that action, can the court intervene."

¶51In VLS Finance (supra), the Court relied upon the prima facie investigations conducted by the investigation wing that indicated the manipulation of the Profit & Loss A/c by the assessee to indicate losses despite profits earned in that year. Holding in favour of the Revenue, the Court did not interfere with the orders under Section 281B. In this context, while interpreting this provision in Society for Integrated Development in Urban and Rural Areas v. Commissioner of Income Tax and Anr. [2001] 252 ITR 642 (AP), the Court noted that there must be "reasonable apprehension that the assessee may default the ultimate collection of demand, i.e., likely to be raised on completion of the assessment". The power under Section 281B

must not be invoked unless there is sufficient and relevant material on record to prove that the assessee is about to dispose of the property to thwart the collection of tax liability. [Raghuram Grah P. Ltd. and Another v. ITO [2006] 281 ITR 147 (All)]. Mr. Ganesh, senior counsel for the assessee had argued that ordinarily the principles applicable to Order XXXVIII, Rule 5 Civil Procedure Code (CPC) which empowers a court to attach property before judgment, would be applicable to AOs who exercise powers under Section 281 of the Act. In this context, it is asserted that unless the authority or court (in this case the AO) concludes on the basis of materials on record, that there is a real danger or likelihood of the assessee fleeing his jurisdiction or squandering or frittering away its assets, the order under Section 281B should not be invoked, because it would place severe and impossible restraints on the commercial functioning of the assessee.

¶52In this case, the reasons provided are to be viewed in the background of the tax evasion allegedly conducted by NDTV by floating paper companies to raise approximately `1100 crore and later dissolving them. Owing to these transactions, the investors in these companies have suffered significant losses within a short span of time. The AO also specifically points out to the declining net worth of NDTV and records: "12. The Balance Sheet of the assessee company as on 31.

03.2015 reflects reserves & surplus amounting to Rs.313.63 crore. At the same time, the assessee company has current liabilities of Rs.335.93 crore in the form of trade payables, short term & long term borrowings and the other current short term provisions and liabilities. Apart from this, the assessee company had issued bank guarantee to its subsidiary amounting to Rs.40 crore. After excluding the figures of cumulative outgo on account of trade payables, short term & long term borrowings and the other current short term

provisions and liabilities of the assessee company, the assessee company would be left with assets of nearly Rs.339.42 crore. As the figures mentioned above pertain to the previous financial year, the possibility of .the availability of assets being even lower as on date cannot be ruled out. As against this, the anticipated demand as mentioned above comes to Rs.328.96 crore apart from an existing demand of Rs.449.47 crore. It is apprehended that existing outstanding demand as well as the tax liability which would arise on completion of pending assessments/reassessments will be difficult to recover."

¶53In addition to this, NDTV has also issued guarantees to obtain a term loan for its subsidiary NDTV Convergence.

¶54The AO relies on the CBDT Circular No. 4 of 2011 dated 19 July, 2011, which inter alia, states as follows: "3. The circumstances under which prior permission u/s 281 should be granted by the Assessing Officers are as follows: ***************

*********

(iv) If demand is likely to arise in the next six months, then the AO should explore the possibility of action prescribed u/s 281B."

¶55The revenue states that the annual reports and financial statements of the assessee show that its net worth has constantly declined over the years and has in fact declined to ` 339.42 crore, as on 31.03.2015from ` 421.06 crore as on31.03.2012. In addition, it also urges that NDTV has created further charge on its assets without taking previous permission from the AO. In terms of Para 10 of the provisional attachment order dated 14.09.2015, NDTV issued unconditional and irrevocable guarantee to the extent of ` 3.5 crore and ` 5 crore for obtaining a term loan from Yes Bank by its subsidiary NDTV Convergence Limited. However, while pledging these assets, NDTV failed to seek permission from the Department as per the provisions of

section 281 of the Act read with CBDT's Circular No. 4 of 2011 dated

19.07.2011. It is submitted that NDTV is aware of the Circular, because the AO had issued an advisory to the petitioner by letter no. 529 dated

01.08.2014.

¶56This Court is of the view that a reasonable apprehension that NDTV may liquidate the assets thwarting the recovery of tax liability is not unwarranted. This court further notes the AO's decision not to attach the bank accounts and other trade receivables of NDTV so as to ensure unhampered operation of its business. This decision is in line with the judgment of the Bombay High Court in Gandhi Trading v. Assistant Commissioner of Income Tax and Others [1999] 239 ITR 337 (Bom) wherein the Court held that the action taken under Section 281B must not hamper the business activities of the assessee and accordingly, attachment of bank accounts must be the last resort.

¶57For these reasons, this Court is of the opinion that the impugned order under Section 281B does not suffer from any infirmities and is valid under the Act. The Writ Petition No. 9120/2015 has to therefore, fail.

¶58In view of the foregoing analysis, both petitions WP Nos. No. 9120/2015 and 11638/2015 have to be and are dismissed, without any order as to costs.

S. RAVINDRA BHAT (JUDGE)

NAJMI WAZIRI (JUDGE) AUGUST 10, 2017

* IN THE HIGH COURT OF DELHI AT NEW DELHI Reserved on: 08.03.2017 Pronounced on: 10.08.2017 + W.P.(C) 9120/2015 + W.P.(C) 11638/2015 NEW DELHI TELEVISION LIMITED ..... Petitioner Through : Sh. S. Ganesh, Sr. Advocate with Sh. Sachit Jolly and Sh. Gautam Swarup, Advocates. versus DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-18(1), NEW DELHI AND ANR. ..... Respondents Through : Sh. P.S. Patwalia, ASG with Sh. N.P. Sahni, Sh. Rahul Chaudhary, Sr. Standing Counsel and Ms. Lakshmi Gurung, Jr. Standing Counsel. CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE NAJMI WAZIRI MR. JUSTICE S. RAVINDRA BHAT % Facts: 1. The present writ petitions have been filed by NDTV Ltd. (hereinafter, "NDTV") against the notice proposing reassessment proceedings initiated by the Commissioner of Income Tax (hereinafter, "Respondent" or "CIT" or "Revenue") under Section 147/148 of the Income Tax Act, 1961 (hereinafter, "Act") and the order of provisional attachment of Petitioner's assets under Section 281B of the Act. Since the two writ petitions arise out of common set of facts, the brief facts are set-out below. 2. NDTV operates news channels. In the FYs 2007-08 to 2011-12, it invested in a number of foreign subsidiaries, primarily in the UK and Netherlands. During the FY 2006-07 and FY 2008-09, NDTV received funds amounting to ` 1127 crore through these subsidiaries as under: a. US $ 20 million (` 86 crores) through investment made in M/s. NDTV Networks Plc, UK (hereinafter, "NNPLC") by M/s. Com Ventures, V.I., L.P. during FY 2006-07. b. US $ 100 million (` 405 crores) through Step Up Coupon Bonds due 2012 issued by NNPLC during FY 2007-08. c. US $150 million (` 642 crores) through investment made in M/s. NDTV Networks International Holding BV (hereinafter. "NNIH") by M/s. Universal Studios International BV, Netherlands (hereinafter, "USBV") during FY 2008-09. 3. NDTV filed its Return of Income for the AY 2008-09, which was selected for scrutiny during the original assessment proceedings under Section 139 of the Act. The Assessing Officer (hereinafter, "AO") examined the issue of Step Up Coupon Bonds issued by NNPLC, for which NDTV stood as guarantor and revised the assessment income by adding the guarantee commission for this transaction. In addition, the AO also made certain additions relating to commission on advertisement income that was later set aside by the Commissioner of Income Tax (Appeals) (Appeal No. 50/2012-13/CIT(A)-XX). With regard to the AY 2008-09, NDTV thus, earned a right to refund of over ` 19.88 crores. 4. With respect to the AY 2009-10, the investment of ` 642 crores in NNIH by USBV was examined by the AO after a reference to the Transfer Pricing Officer (TPO). The AO was of the view that the introduction of funds in NNIH was actually NDTV's unaccounted money and concluded that it was a sham transaction. This was further examined by the Dispute Resolution Panel (hereinafter, "DRP"), which allowed the lifting of the corporate veil. The DRP, examining the said transaction held: "DRP has carefully considered entire gamut of transaction and is of the opinion that the structure of the holding/ subsidiary companies and the transaction as narrated above, without any commercial substance, do warrant lifting the corporate veil to identify the true nature of the transaction. Though AD in his remand report has said that the money has not been recorded in the books of assessee, after lifting the corporate veil, the DRP finds that in this case a sum of Rs.642,54,22,000/-has been found credited in the books of assessee/ its subsidiary for the previous year (FY 2008-09) under consideration. Though the assessee has sought to explain the above amount through the lengthy and circuitous transactions, the commercial substance/ economic rationale for such transaction has not been satisfactorily explained. Assessee's theory of having sold a "Dream" to the investor has not been substantiated by any credible evidence as no details have been fi