In what comes as a big relief for under-stress NDTV, after a five year long battle, the Supreme Court has quashed a notice by the Income Tax department which had sought to reopen company’s books for assessment, citing sham transaction running into hundreds of crores.
The IT department had served a notice to NDTV in March, 2015. In the notice, the tax department had cited power under Section 147 of the I-T Act to reopen books of accounts of NDTV for AY 2008-09.
The underlying rationale of the IT department appeared to be the allegation that between FY 2006-2007 and FY 2008-2009, NDTV had engaged in round tripping of Rs 1,127 crore.
The department, in the course of proceedings stretching across the Income Tax Appellate Tribunal (ITAT), High Court and Supreme Court, had alleged that between FY 2007-20008 and FY 2011-2012, NDTV invested in foreign entities. These funds, as per the IT department's assertions, were routed back to NDTV between FY 2006-2007 and FY 2008-2009.
Of particular interest to the IT department, in this case, was the issuance of Step Up Coupon Bonds by UK-based subsidiary NDTV Network Plc (NNPLC). Bonds were issued for the period between 2007 and 2012. The department had argued that NNPLC was a letterbox-company, had capital of merely Rs 40 lakh, and lacked the where with all to undertake an issuance of bonds of $100 million.
The department also red flagged how the bonds, which were due to be redeemed at the end of five years with a premium of 7.5 percent were actually redeemed in advance at a discount of over 25 percent. This, the taxman argued, was evidence to suggest that funds received by NNPLC were funds belonging to NDTV.
Citing these arguments, the IT department had sought to defend the tax notice seeking to open books of accounts of AY 2008-2009 for re-assessment.
Importantly, subsequent, to the notice for reassessment of NDTV's books of accounts, the IT department had also moved to provisionally attach assets of NDTV under Section 281B of the I-T Act.
The company, meanwhile, had argued that the transaction of step up coupon bonds was not hidden. NDTV argued that the transaction was scrutinised by the department in great detail and was approved to be a bonafide transaction.
The IT department had met with some initial success in the ITAT in 2015 and the Delhi High Court in 2017. Both the ITAT and the Delhi HC had held in favour of the department, upholding the notice for reassessment and the order for provisional attachment of assets.
The Supreme Court, in its judgment however concluded, "Notice issued to the assessee shows sufficient reasons to believe on the part of the assessing officer to reopen the assessment but since the revenue has failed to show nondisclosure of facts the notice having been issued after a period of 4 years is required to be quashed."
While quashing the tax notice, the Supreme Court also clarified that it has not expressed any opinion on the facts of the case. The apex court also clarified that the tax department would be at liberty to issue a fresh notice, if permissible under law.
Sachit Jolly, Partner, DMD Advocates, appeared for and counselled NDTV in the five year long tax battle. He noted, "The court has laid two very important principles of law, (a) a mere allegation of transaction being sham does not amount to non-disclosure of material facts warranting reopening of the case after 4 years and (b) Tax department cannot go beyond the reasons recorded for initiating reassessment proceedings."
