oy Riley, INCOMD TAX DEPARTMENT-NEW DELHI Ay [Name ® address of the assessee [M/s New Delhi Television Limited |207, Okbla Industrial Estate, Phase-IIl, New Dethi - 110.020. IPANGIR No: [AANCNOBESD Ward] Circie/ Range (Cirele-Taliy, New Delhi Status (Company Aesesereat Year [2009-10 Whether Resident) RBOR/Non- [Resident [Methed sraccuntng ere Previous Vear Ending 31.03.2005 | Dates of hearing “As ber order sheet entries 10 [Date of Order [21.02.2014 Ti [Section & sub Section under |144 read with section 144C(13) of the |which the assessment is made her, Ac, 1961 ASSESSMENT ORDER In this case, return of income was filed electronically (¢ return) on 30.09.2009 therein declaring Toss of Rs. (+) 64,89,91,422/-. Return was processed u/s 143(2), Subsequently, the oase was selected for scrutiny. Notice U/s 143(2) dated 19.08.2010 was duly served upon the assessce. Further notice u/s 142(1) dated 14.12.2012, 15.02.2013 and 20.3.2013 were issued lo the assessee, In response to this notice and various other notices/questionnaire issued Shri Satish Munocha, Vice President-Taxation of the assessee, appeared from time to time anc lod vasious details, explanation ctc. ak and when ealled for. The case was siscussed with him. 2 The assessce is principally engaged ia the business of television news broadcasting through its three channele namely NDTV (247), 24 hours English sews channel, NDTV India, a 24 hours Hindi news channel and NDTV Profit, a 24 hours business news channel. It is also producing eustomized software/ Programs for broadcasters, 2.1 Against the draft assessment order passed in the case on 31.03.2013 u/s 143(3]/144C(2) of the Act, the assessee filed objéctions before the Hon'ble DRF, which issued directions u/s 144C(5) of the, Act on 31,49:2013. The said directions were received in this office on 02.01.2034. ‘The limitation for completion of assessment in the case will hence expire on,28,02.2014. The present assessment order is therefore within limitation. 9’ 63“Assessment Order for AY 2009-10 in the case of M/s. New Delhi Television Limited 3. In the draft assessment order passed in the! case on 31.03.2013 u/s 14363)/144C(1) of the Act, the AO had proposed for disallowance of software expenses claimed by the asseseee on the ground that such expenses were eapital in nature and only depreciation @ 60% was admissible to the assessee. The AO had ‘observed in the draft assessment order es under t= “1. Disallowance of Software Software Expenses: From the.details in the P & L a/e It was seen that 98 per Schedule -27 soltwaice expences to the tune of Ms, 3}2435,628/- have been claimed 3s revenue expenditure. The assestee Company was asked to show caute as to why nét the * software expenses claimed to the extent of §,24,35,619/- as revenue expenditure ‘be treated as capital in nature and the depreviation at the rate of 60% be allowed ‘thereof in view of the Supreme Court judgment in the case of TATA consultancy servloes Vs State of Andra Pradesh (2004) 271 ITR.401 and Rajasthan High Court judgment inthe cate of CIT Vs Arawalf Constructions company P. Ltd, (2003) 259 ATR 30. The assessee vide Ils ren dated 23.03.2039 and 22,0217019 submitted at near: using the relevant financial year the assessee Campany incurred on conovnt of 5s 6,88,36,355/- on Computer Software(s). Out of these the sofswore ommouiting © 86 360,00, 736/- were copitafeed in the Books being the expenses incurred on highend production software ond Is shown os Computer Softvore ~ tntoigible Assets- Fixed Assets under Schedule 6 to the Balance Sheet ond the remaining expenses R-3,24,35,618/- charged to profit & oss account ore purely revenue in iuature incurred in the ordinory course of business os the ossessee Compony either derives any benefit of enduriag noture from these expenses not ony copitel assets erected. ‘tis noteworthy that your assessee Compeny Iso television media company which Uses high end software for production. High end softwore conses with respective hardwore {mochines} to be used at various stages of production viz. editing. srophics ete. Ali these high end software purchosed hos already been capitalized ‘and is not charged off in the accounts. Ta justily ond for your goodself's better understandliag, we bifurccted the expenses shovin in Profit and Loss account into five below mentioned categories: Porticelors ‘Amount (in Rs) Software Maintenance (Annwal Mointenonce | 7,38,2,585 Contract) Upgradation of Software 759,405 Aecounting Software 315,079 = Ueense = right to use the software BAS 2655 = Gihare having ltd He waz ass Total 32435618 Page Sof 13a = 64Assessment Order for AY 200920 In the case of M/s; New Dethi Television Limited- Further note thot out of the total expenditure debited to Profit and Loss account under the head “Software Expenses", a large wmount of expense ie, s.1,18,21,585/- represents the expenses towards the Softwore Mointenance Expenses Le. Anauol Mointenance Expenses, which ore beyond doubt in the nature of revenue expenditure Further en amount of Rs.7,59,429 /- was incurred towards up-gradation of existing software(s). As Is apparent from the name, the expenses were Incurred {for upgroding software olreody avaiable with the assessee, Your good self will oppreciate thot an element of upgrading does rot ‘evtomotically mote the expendire’ capitol. The presence of an clement of upgrading, therefore, wil not necessclly couse the expenditure in question to be capital In the cose of CT v. 6B. Coptal Serdees tra {IT Appeal No. 560 of 2007, sdoted 10-7-2007 decided by the Hon'ble Delt High Coure, the finding of fact by the Trounat wos that the expenatture In question was for ypgredation and thot the sofware had o very limited fe, tt wos on these focts thatthe Hon‘ele Deth ‘High Court concurred with the view expressed by the. Telbunal thot the ‘expenditure was of e revende nature, the case of CTV KB Co, {2003} 184 CTR {Dethi) 378 decided by the Hon'ble Delhi High Court, the axpendlture in question 1s on mointenence and upgradation ond wes held to be révenve ia nature. In the cose of Seuthern Roedwoys La, (2006] 282 TR 373/355:Taxtaon 493 (Mod.) (oro 26), CF v. Southern Roadways Lic. (2007) 268 IT 28/358 Taxman 4 {ted}, the expenditure in question wes on upgradetion of Computer Softwore eth fing of ft wee ht the exenre wat cared ony for mprovog the efficiency ofthe existing syste Aa amount of Rs.23,15,179/- wes Incurred towords purchose of eccaunting: software which i again beyond doubt is revenue expenditure. These expenses have been incurred by the estessee Company to obtain the licenses to use ‘accounting softwore such os Vislon XL Financials, FAMS' software packages, limptementation of PIAS software etc. ‘An amount of f.3,01,26,929/- was Incurred toward procuring lcense towards ‘ight to use the software vi. License for ISM MS software, leense fee for single server for one year, license for ETDS wheord, 3D max subscription, CITRIX presentotion server etc. These licenses are usually procured fer some specific purposes An omount of 3.44,42,493/- wos incurred toward ‘ocqutsition/purchase of softwore which hed very lnited life. These softwares} are usually purchased for some specific purposes. - Page 8 of 112 65“Assessment Order for AY 2009-10 in the case of M/s, New Delhi Television timited- 6 6 ‘The treatment of software expenses as copitol or sevenue hos sometimes been 0 motter of dispute by toxotion authorities end courts havé generolly held it to be, even in nature as shown Ia the following cose-lows Business Information Processing Services vs, Asslstont Conwnlssloner of income Tax 999, 239/7R 19, Held os revenve by TAT Jolpur) Alembic Chernical Works Co Utd. vs CF (1988, 177 17R 377 (SC) “in Business Information Processing Services vs. ACIT {1999} 239 ITR (AT) 19 Jaipur ‘ wos “Held, that the software used by the assessee was not of ony endiring benefit os the ossessee had to change the software within o'short span of time, fie, four months of six months, Sometimes it wes of no use ot olf becouse it became outdoted because of chonges fn the system and changes in technotogy. Tames were fast changing ond the computer system wos emerging as a very ‘importont component during this period. Day by day systems are developed ia 8W way and softwere is needed lke o row materil for use In manufacturing, Therefore, these expenses were purely revenve in nature ond they should be ‘lflowed Ia full.” In Alembic Chemical Works Co ttd vs CIT (1989, 177 TR 37'(SC}) “The ropta strides in science ond technology In the field should make us 0 ittle slow iad rcumspect in too readily pigeon-holing on outlay such as thls vs.copital The Circumstance thot the agreement insofor os it placed tmitations on the right of the asséssee in dealing with know-how and the conditions as to non-portability Confidentiality cod eeerecy of the knowhow Incline towords the Inference thot the = right pertained more to the use of the know-how than to its exclusive QUESTION nn ‘The ratio of vorious judlelal precedents ard three tésts namely enduring benefit, ‘ownership rests and functional tests which wece preseribed by the Delhl TTAT Special Bench judgement in case of Amway Indie Enterprises {222 17D 342) to ascertoin whether softwore expenses are revenue in noture are folly sotsfied In the present case. Thus the above expenses need to be allowed in full ‘ woutd be relevant to mention here thot the said principle of law has been approved by the jurisdictional High Court in the cose CIF v. WM/s. Asatt indie Safety Glass Ltd, 203 TAXMAN 277 {DELJ and followed in subsequent decisions, 1s olso worthwhile to note that the above sold Issue is covered in fovour of the cassessee Compony by the decisions of the Hon‘ble CIT (A) vides their order dated 30th Sepkember2042 for the AY 2006-0? and é”March’20%3 for AY 2007-08 ‘respectively wherein sitar odditions were deleted ofter considering the decisons of émnsvax {supra} ond others.”~Assessment Unier for AY 2008-10;n the case of M/s. New Delh! Television Umited- ‘The detaled submissions of the assesse company were examined. From the breakup of the expenset given as above it Is seen that software expenses 10 the centent of Rs.1,18,21,589/- was on account of software maintenance {Annual Maintenance contract) and. hence is regarded as allowable as revere expenditure. As regards the balance Le, for software éxpenses totaling Rs. 2,06,14,020)' eelating to Accounting software, upgradation of software and others the same ore regarded 0s capital in nature and hence not allowable a5-expense because of following reasons:- ‘The income Tax Rules ays down that deprectation shall be allowable at the rata ‘of 60% on computers including computer software. Computer software has been defined as "Computer software" means any computer progranime recorded on any dis tape, perforated media or other information storage device. It may be seen that this is an aff en-compassing definition of compiter software fr the purpose of capitalization and allowing deprecation thereon, ‘The Hon'ble Supreme court in its judgment In the case of Tata consultancy services Vs State of Andhra Pradesh (2004)271 (TR 401 held that intellectual property when it is put on a media becomes goods. tt was held by the Supreme our that» software progremme may consist of various commands which enable the computer to perform a designated task The copyright inthe programme may remain with the originator of the programme,, But the moment copies are made ang marketed, it becomes goods whether It be In the form of books or canvas { in ‘the case of pointing) ocomuter cies or cssetts, and marketed would becdme goods. There is no difference between sale of a software programme ona Cf floppy ike ard ela of raoscon a cast) CP oe Ele of Incorporated on & mein for purposes of transfer. Sale snot just ofthe media whlch by Ise has vary tie value. The software and the mets cannot be split vp, What the buyer purchases and pays for is not the Bik or the CD, As i the case of printings oF books o ‘music or fins the buyer, Is purchasing the intelletuel propery and not the media, Lethe paper or cassette o esc or CO. Revocsted! Cement Companies itd Vs Commissioner of Customs (2004) 128 STC39 (Sc) (2002) @ SCC 553 tolowed. In view of the sbove judgment ofthe Suoreme court Ris clear that computer software has al the ingredients of & tangible asset and ia view oF the specific provision in the income Tax Rules is lgble for deprecation © 60%. The Special Bench Oethi ‘TAT tn Its judgement in the ease of Amway India Enterprises and others (2068) 30] ITR (001) has exemined the matter in detoll ‘3¢ held thatthe cardinal rei thet the question whether 9 certain expenditure 15 on capital or revenue account shoul be decided from the practical and business view point and in accordance with sound secountoscy principles and this rue is of special significance in dealing with expenditure on expansion and evelopment of business. Three tests generally applied to decide the nature of expenditure 35 to whether i 1s capital or revenue, ave the test ot enduring benefit the owmerghip-tec and the funclona test. Computer software hs not 67“osimeerravaosohecsecMichevbaTécmentnee GQ been defined in the incometax Act, 1963, but in Note 7 to Appendic 3 to the Income-tax Rules., 1962, tt has been explained to include, computer progyamme Fecorded en any disc, tape, perforated medi ot other ‘information storage Gevice, Therefore computer software (whether in canned form or uncanned form} s goods and » tangible asset by Itself. The question whether an assesses by purchase of @ disc comahning software has purchased 2 capital asset or not should net, therefore, be viewed from the angle of acquisition of any copyright or ‘any of the bundle of rights comprised in such copyright. An aseasceo purchasing szuch 2 software kecomes the owner thereof, Tata Consultancy Servicas v. State ‘of Andhra Pradesh [2004] 137 STC 620 ; (2004] 272 ITR 405 (SC) followed, The Hon'ble ITAT has held that the question whether experiditure for acquisition of computer software is copltel oF revetive cannot be decided on the bast: of the ‘ownership test afone but from the point of fs utity to & businessmain and how important an economic or funetfanal role it plays In his business, because of the ‘prcular nature of » computer software and its possBble use in diferent areas of business, The fact that generally computer software is scquired on a licence by self will not be sufficient vo conchade that the expenditure Is revenue expenditure, if tis found thot the expenditure operates to confer a benefit the ‘opital field. For ascertaining as to whether expenditure on computer software ‘ives an enduring banofit to an assessee, the duration of time for which the ‘assessee acquires right to use the software becomes relevant. Héving regard to the fact thot software becomes obsolete with technological innovation ond ‘dvanceraent within a short span of time, it can be seid that where the ile of the ‘computer software és shorter {say ess than 2 years), may be treated as revenue expenditure. Any software heving ts utility to the assessee for a period beyond ‘hwo yoare can be considered os accrual of benefit of enduring nature, The rature (of the advantage which the assessee derives has to be seen in a coramercal sense, Software narmally functions as a tool enabling business to be carried on ‘more efficiently. The scope, power, longevity of such a tool and its centrality to the functions ofthe business wil all bear on its treatment. With effect from April 1, 1999, computers were treated 98 a different cass of asset falling within the description of plant and depreciation was allowed at 60 per cent with effect fram ‘April 1. 2003 computer software was also included along whth computers. The amendment Is prospective. tts not clarifcatory for the reason that computer and computer software are two diferent ems of assets Ifthe Legislature wanted to tow depreciation at 60 per cent, with effect from Apr 4, 1989, on computer software, ft would have said so specifically by making the provisions ‘etospective. Depreciation can be alowed at 25 per cent, under section 3241} Fead with Appendix , Part A, Division | 3) to the Income-tax Rules, 2962 and ‘wlth effect from April 1, 2003, computer software having been classified as a tangible asset under the heading “Plant” in Appendix 1 to the Rules, is entitled to depreciation at 60 per sent, Marat! Udyog Ltd.3s-Reputy CT [2005] 92 70 329 {Delhi followed,-Aesessmnent Order for AY 2009-10 in the case of M/s. New Delhi Television Umites- 6 9 ‘When viewed against these parameters it was seen that the assessee Company hhas acauired the Accounting Softwares and its upgradations and also on such softwares stich a$ Google Earth Pro, Microsoft Server Cals, Flash Remoting, Flash Mix Pro, Adobe photo-shop which are al tems which’glve the assessée Company advantage of an enduring nature and functionally help profit apparatus of the Company. As such applying the parameters adopted by the Amway judgment the above said softwares are regarded as capital and the expense on them as Capital ‘expenditure. In Commissioner of income-tax v. Arawall Constructions Co, (P,) Ltd. 12003} 259 TR 0030{R)) the assessee-campary had acquired computer software the cost of ‘which the asvessee claimed 9s revenue expenditure. However, the Assessing Officer treated it as capital expenditure and allowed depreciation in accordance ‘with the roles. The Commissioner of Income-tax (Appeals) and the Tribunal held ‘that it was revenbe expenditure. On a reference the High Court held that the expenditure on requisition of technical know-how js, copital expenditure, therefore, the Assessing Olficer had rightly treated the expenditere on acqulring the computer software as expenditure of capital mature and rightly allowed depreciation in accordance with the rules. In view of the above facts and the case laws sighted above it is bald that the expenses claimed by the assessee company to the extent of RS2,06,14,030/- 9s Computer Software expenses in its P& L Account as revenue expenditire Is disallowed as being capital in nature. Depreciation: @ 60 % to the extent of sj23,88,a28/- is allowable on It as per the IT Rules . Thus after allowing Gepreciation a sum of Re.82/A5,612/- is disallowed and added to the taxable Income af tha assessee Company. { am satisflad thet the astessee has furnished inaccurate particulars ofits income and hes concealed its correct income on this fezue, therefore, penalty proceeding u/s 273(2}() of Lae Act have been separstely been initiated. {Addition of fs, 62,45,612/-)" 3.1 The Hon'ble DRP, vide its directions dated 31.12,2013 issued u/s 144C(5}, directed the AO to drop the proposed disallowance on this issue. Accordingly, the proposed disallowance on the issue is dropped as directed. 4 tm the draft assessment order passed in the case on 31,09.2013 u/s 143(3]/144C(2) of the Act, the AO had proposed fot disallowance of commission expenses u/s 40(a)(ia) on account of non-deduction of TDS. The AO had observed in the draft assessment order as under :- 2 Disal arti n During the year the assessee has shown total sulos of R.2,25,41,66,296/-. The ‘entry with regand-tecthe-advertisement income as shown in the Invoicés 3s shown Page 7 of 212“Assessment Order for AY 2008-10 in the cose of M/s. New Delhi Television Uimited- below Involce of TLG indi Private Limited (Agency) in the books of NOTV Ltd.t Gross Total 28,75,600 Tess Commission @ 38 00% 33130 Tet Amount PARE RES Add ; Service Tex @ 12% 2,93,511.20 “Add: Feveation Cass @ 3% 379034 Net Due BABSTOSE Vide Notice dt. 05.02.2013, 15.02.2013 and 20.02.2013, the assessee was ‘Fequested to furnish the details / quantum of commission pakd to Ad. - agencies ‘and also requested to explain as to why the same may not be treated as ‘Commission for the purpose of deduction of TDS and the ussessee was requested ‘0 furnish the quantum of commission paid and olso explain 2s to why the provision of section a0e}ie) may not be invaked for payment of commission without TDS. A Reply dt. 27.02.2013 end 22.08.2013 In this regard has been filed. However, no details with regard to quantum and commission paid has been Furnished. The relevant paras of submission dt. 22.08.2013 are reproduced as under: “The wssessee Curmuny tes nor pola ony commission to the advertising agencies 40 respect of sate of air time instead the omount was pald by the advertisers to the odvertising agencies. The advertising agencies were buying ait time from the ‘assessee Company for different advertisers. The odvertising agencies got © advertisement orders directly from the advertisers, who thereafter placed order to the assessce Company. Advertising agencies collect advertising revenues from Sifferent odvertisers in respect of cir time sold ond after retaining 15% the bolance 85% ore being remitted to the assessee Company. The amount retoined by the advertising agencies i in the nature of trade dlscount end not commission. As for as the cssessee Company is concerned, it roises the invoice on advertising ‘agencies for 85% and collects the some from agencies. Offering of incentives to customers is ot the elseretion ofthe agencies and wos ot their own risk. Agencies ‘morgia would depend on the price zhey are able to command in the market. Further, it may be worthwhile to note thot the advertising egencies ore pleclag orders for ocvertisement to various players In the medio Industry vie, television media, print media ete. ond are being texed on the profits so made by it, ond hence the tronscetions between the ossessee-company ond the odvertising fegencies are on 2 principal te-principal basis ond not on @ principal to-zgent basis. Hence, the paymvat by the assessee-company to advertising agencies could 70~Assessment Order for AY 2009-20 inthe case of 4/s, Nove Dell Television Limited aL ot be termed os payment of commission. The assessee Company paid the ‘coramission to NOTV Medio Linited (hereinafter referred to 08 “NDTVM") which ‘wos acting as sole selling agent to procure ond morket advertisements for its vorlous channels vis. NDTV india, NOTV 2X7 ond NDTV Profits. The corumission to NOTVM wos paid after deduction of taxes at the applicobie rates; copies of few TOS certificates issued were also placed on record for your reference, We here-in-below subrots the industry proctice In relation to the business of ‘odvertiserment in print and electronie media for your understanding: For the essessee/componies who are engaged in the business of running of print ‘and electronic media houses, the main source of revenue ls advertisement charges, The advertisers epprooch clossified agents or accredited edvertsing ‘ogencies to advertise. The ogents / ogencies upon recelpt of advertisement requirement procure the airtime from the media Companies at @ discount Advertisers white moiking payment to occretited apencies duly deduct tox as : required under law under section 394C.of the Act on the amount pold by the odvertizer. This customary practice is consistently followed in ths obove business and is governed in accordance with guidetines of inilan Newspoper Society {in short tN] for print or indian Broadcasters Federation fs short IBF} for electronic. The modus operand of business of advertisement in print and electronic medio is 05 follows: on advertiser engages an odvertising ogency ond the cdvertising ‘ogency In tum approaches print ond electronic medio for publication/broudcost of the edvertisement. There is no olrect link between the print and electronic medio ond the advertiser. in the normal course when orders are releaced by the ‘edvertsing agencies, the name of the client is ebways disclosed on lt, though there ‘s no principal agent relationship between the priat od electronic media on one ‘hand end the edvertising agencies on the other hand. As per the rules of INS, ‘cereditation is aworded by INS (0 the advertising ogenty which becomes efiglble fo receive 15 “per cem discount from media companies on procuring ‘odvertisement space for/time in publication/broadcast for advertisers. It mey be Aoted that even the alscount is not ot the will or contractual discretion; itis governed by INS regutarfons. Normolly, the transaction by the companies with advertising agencies fs buying space or air time in the print media and electronic media respectively by entering {nto the tranzoction on prineipol-to-prineipo! esis ond, therefore, no question crises for deduction of tax by the assessee on occount of poyment of commisslon/tvode discount to such odvertising agencies, os the sronsoctions are a complete Arm's Length and no solictations are done by the advertising ‘agencies on beholf of porticular media company so as to make ogent princiva! ‘relationship between the parties. The INS rules delineate the cleor picture of eeiotfonship between the newspeper ogencies and advertising agencies. It is seful to refer to certoia rules of INS witich clearly negate the relationship of oro. Page 9 of 21a-Assassmentt Order for AY 2009-10 in the case of M/s, New Delhi Television timjted= a. 2 principat ond ogent between the newspaper agency und the advertising ogency, Under the heading “Rules ond Reguiations Governing Accreditation of Advertising Agencies", Rule 20 clearly indicates that there is no control of newspopers egency oa the advertising agency wheress in @ relationship of principal ond ayent principal reioins full control over the activitles of agent. Rule 20(1), 20(b) ond 0fe) ore quoted below:- "JofoR tis free from control or Interference of ony business or person who owns cor controls any newspaper of athee advertising nredlum or media. (0) Its principal or principals are act the proprietor/portners/salaried employees of eny odvertisec or publisher of newspaper ar an advertising medium. (0) Any of its Directors, Proprietor, Partnars or Chief Executives d0 not hold any share or equity in any publication or any other form of scvertising media and have no connection finanelally or otherwise, with any publleation or with any firm of advertising media such as outdoor, hoardings, cinemas, radio, ete. or with any advertiser except as an advertising agent: Such persons can hold 2 smalt number of shares in public limited client companies." The above clearly provides that advertising agency is free from control or interference from any business or person who ovens or controls newspaper, the newspaper agency cannot be treated to be principal and advertising agency as PEM anne ‘The oisesee Compony most cerpéetfully submite the following pointe for your fovourable consideration om merits: 2) The assessee Company has given the trode discount to the advertising ogencles for procuring Air time from them, b) The essessea Company ond edveriiZement agencies tronsact on principol to rincipo! hosts, The advertising agencies ore nat ogents of the assessée Company nd they do not act on beholfof the essessee Company, ] There could not be any Kabity to deduct tax ot source under section 496H of the Act an such trode discount as the entre sum poid by the odvertiser to advertising agencies is olready subjected to deduction of tax under secthon 194C of the Act. 1) Commission was not required to be debited to profit & lass account by the assessee Company or claimed os expenditure, The revenue so recognized fn the profit & los occount is net off rode discount. €) Since the omaunt of 15% Js neither credited to any agency nor to ony suspense ‘account, the lability to deduct tax eid not get triggered. 2) Ferther, the position of tow inthis regard hos also been vecepted by the TDS officer fn TDS assessments in the ossesiée Company's own eese.“tenn Or raY20mG0m eee aa Nee Teeter tine. 73 We would like dave your goodsel's kind ottention to the following decisions which not only set out the facts of tis trade correctly but have also exomined the relationship of the vorious parties invalved inthe said transactions in the fight of ‘the provisions of the Act ond the benevolent circutors issued by the CEDT in this regord ‘(9 Jogran Prokashon Ltd. v. DCTT (345 1TR 288) (2012) (Alldhabed High Court). in this cose, the issue of applicebllty of section 184H of the Act of the trode discount retained by advertising ogencies has been deol with threadbare, The facts of the ‘cose ore that the Jagran Prakashan is a member of INS.and is govened'by its ules. The odvertising agencies get accredited with INS ond are alo bound by its Rules. INS Rules provide that — ‘newspaper agencies Have no controt over the advertising agencies ond that the ‘elationship between the tv/0 is that of principal and priricipal . Serespective of the fact whether or not clients pay, advertising agencies continue to be fable to pay its dues to the metnbers of INS, “4 the accredited advertising agencies are entitied to recelve {from the members of WS) trode discount @ 15% on the advertisement rates ot which the nevenoper / media wil publish the advertisement. n cose of previslondily accredited agencies, ‘such trode discoumt shi be 10%. Based on the obove, the High Court held that the relationship between newspaper ‘ogency and advertising agency Is of priacipal ond principal and whot wes pad to ‘odvertising agency was in essence discount and not Commnietins. Thuis, there is no ‘pplication of the pravistons of section 294H of the Act.:Whife doin so, the Allahabad High Court bos also dealt with the decision in the case OT vs Prasarbhorti, Doordarshan Kendra reported i 189 Texrion 925 on which the td, A0 ploced its heavy relionce white moking above displlowance. The Hon'ble Allobebod High Court inthis regard has correctly observed os under “nuAlow we comve (0 the judonvent ofthe Kerola High Court (supra) on which much vellence hes been ploced by the ossessing authority. The Prasar Bharett i fully ‘owned Govecnment of Indio undertaking engaged In telecost of news, vorious ‘sports, entertainments, cinemas ond ether programmes. The advertitements were canvassed through ogents under the agreement with them, The advertising ‘agencies ond the Director, Prasar Bharati were prineipol ond opeat as per the greement ond the Doordarshan provided 15% discount on the besis of which t wos contended that no deductton ot source wos required. The Tritumot held thot there was no Hobity for deduction of tox at source under Section 394H which Judgment was reversed by the Kerafo High Court. From the facts of the oforesoid cosertt is leor thot Doordorshen had appointed agents ie. adverting ogencies cha there wos uyreerment entered between them. n the oforesoié circumstancesAssessment Order for AY 2009-20 Inthe case of M/s. Naw Delhi Television Limited 74 commission poyable to the ogent by Doordarshan. There was explicit agreement between the ogency and the Doordarshan where both understood that payment mode to the agency was fiable to tax deduction. It is useful to quote Joliowing observations of the judgment of Kerala High Court Respondent fs @ fully owned Government of tndla undertaking engoged tn telecast of news, various sports, entertainments, cinemas andl other programmes. Advertisement income it @ major source of revenve for al telecasting companies Including tne respondent. Advertisements are. canvassed: through -agents ‘sppointed by the respondent under agreement with them. Advertsing agencies recognised by the respondent ore of two types, the uncegistered agencles vbleh ore not entitled to ony credit facility ond the other type are repistered agencies which ore glven cccredition ond creltfocilty with Deordorshan. in other words, ‘ehile the first cotegony will be oble to telecast odvertiement programmes tis relevont to ote that the income Tax Department filed Special Leove to ‘Appeol (Chil) N0.3433 of 2009 ogeiast the judginent of the Deiey High Court doted Sth May, 2008 which speciol eave to oppec! was dismissed by the Apex Count vide its order doted 11th December, 2008 ‘n the context of Section 198C, CBDT Circular no. 785 reported in 245 ITR (Stat.) 22, the following clarification has been given: * Avestion 4: whot would be the scope ofan advertising contract forthe purpose of section 1946 of the Act? ‘Answer: The term "odvertising" has not been defined In the Act. During the course of the consideration of the Finance Bil, 1995, the Finonce Misisterclorified on the ‘oor of the House that the emeniied provisions of tax deduction at source would ply when a ctent makes payment to an advertising opency ond nat when an— edvertising ogency mokes poyment to the medio, which tacludes both print and slectronie medi ion fs required to be mode ot the rote of 4 per eat. I Page 18 of 122 <Assessment Order for AY 2009-10 in the case Of M/s. New Delhi Television Linnited- 78 wos further clorfied thot when 01, advertising ogency make payment to their males, artists, photographers etc, the tox shall be deducted at the rate of 5 per cent as opplicable 10 fees for professional and technicel services under section 1941 of the Act." 411.1. Thos, intention of legislature fs pot to impose ability of Doordarshan for deduction of TDS on the amount received by the advertising agencies: 11.2. n view of the above, the provisions of section 494H are not opplicable to the ‘ssessee ond the assessee was not foble.to deduct tax: This fs more so becouse no ‘oyment wos made by the assessee to the advertising agency. Thus, the demand coksed u/s 201 is not legally justified: The demands tobe concefied.” Ja view of the submission made here-io-obove, the. ossessee Company most ‘respectfully submits that the electronie media industry olso operates star to the ‘orint media and therefore, the above cases are squorely opplicoble to the facts of ‘the case under consideration. 2 The assessee Company further submits thot the Board circular no. 725 dated August 8, 1995 further fortfies the obove view. Thé Said circular categorically stotes that the gross amount related to ad-time ts Giréady subjected to TDS when payment is made by advertiser to the advertising agencies under section 194C of the Act, thus mo further deduction of tax:s required under section 194H or 1941 of, ‘the Act. The circular stotes that ‘The term ‘advertising’ has iot been defined in the ‘Act, During the course of the consideration of the Finance Bil, 1995, the Finance ‘Minister clorified on the Floor of the House thet the'omended pravisior® of tox deduction at source would apply when o client makes payment to an advertising ‘gency ond mot when advertising agency makes poyment-to the media, which incledes both print ond electronic media. The deduction Is requited to be mace ot the sote of 1 per cent. it wos further clarified that when an advertising ogency makes poyments to their models, artists, photographers, etc, the tax shall be deducted at the rate of $ per cent as applicable to fees for professiono! ond technical services under section 194} of the Act.” ‘has further been clarified In enother Boord letter F, No, 133/19/95-tpl-111 doted 12.9.1995 thot “In o sitvction where media raises only a bill for an ‘edvertising contract including therein commission ot the specified percentage to be retained by the advertising agency out of the gross payment received / collected from the odvertiser, 21% under section 194¢ since such payment is subject to TOS by the advertiser ot the time of payment as clorfied in reply te Question No. 17. Of course where the media makes a direct payment to advertising agency ia respect of professionol or techoicel services, it shall deduct tax ot source @5% under sectlon 194) ofthe Act <= 28 elena i reply to Question No. 27." (OREN 5, Page 36 of 132“Assessment Order for AY 2609-10 In the case of M/s, New Dathi Television Limited- a 9 Hece, itis pertinent to refer to onother Board circutar no. 720 wherein it has been clarified that the same sum of money connor be subjected to withholding tox ‘vader more thon one section under Chapter XVI of the Act; the eiculer stotes thot "te is hereby cforfied thot each section, regarding TOS under Chapter XVi, {eos with o particular kind of payment to the exclusion of al other sections ta this ‘Chopter. Thus, payment of any sum shall be lable for deduction of tax only under ‘one section. Therefore, o payment is Iiable for tax deduction only under one section" Also the fact that the omiount of éiscount is neither creuited! nor pald to the advertising agencies mukes it clear that the Assessee Compony had no requirement to deduct tox Tous, in view ofthe voricus juleo! precedents and the Board Cleulars, no TOS is ‘required to be deducted on trade dscount provided to advertisement agencies, and the dsallowance, if any mede under section AO{aYfo) ‘of the Act will be conrgry to tow” ‘he reply of the assessee has been considerad and Is not found tenable, The ‘assessee has relied upon the case of CIT Vs Living Meda India Ltd (supra), whieh 's cleanly distinguishable from the fects in the present case of the assessee. The same are enumerated hereunder:- In the ease of tlving Media, the assessee vias a publisher of magazines lke india ‘Today, Gusiness Today ete., and was 2 principal on Its.own, It did not caery out directions of any other agencies and was the ultimate authority to publish the advertisements in its own magazines. The space cold to its advertising agency or - Sirectty through advertiser were direct and diract only and-no intermittent party ‘8F agency was Involved. To be very cleat itis Ling Metla india Vs Advertising ‘agency and that Is the reason why Hon'ble Court have held that the refationchip {s.0n principal to principals, : ‘The assessee sels the space at a price through the agency/agents, Thie agents, further, in tum soll it to the advertisers. The assessee sells such time slot to the ‘gents. The agents book the tines slot to end user Le, advertisers. This is done on behalf of the media (which is catering to all segments of public). Therefore, the ‘relationship between the assessea and the agency Is that of principal and agent end not the principal - principal as stated by the atsessee. The contention of ‘assesste that no services are sald to be rendered by the Agency for facitating sale particuteriy because it is the Azency only which is buying space from the media ie. the assessee is also factually incorrect. tI true that the services of the ‘Agency (to get advertisements) do not facilitate sale, But the services provided by the Agency’ definitely get a substantial amount of revenue in the form of Advertisement to the Assessee, Jn turn the hv the a in Page £7 of 122Assessment Order for AY 2009-20 in the case of M/s. New Delhi elevisfon Limited- 8 0 eis. a welt settled proposition thet a contract can exlst with mutual consent or ‘wth Intent, where there only has to be an offer and an acceptance which isthe case In the present matter. The modus operandi explained by the assessee was that 9s per ‘industry practice’ 18% of gross amounts recelved/reeeivable by the assestee Ware withhels by the Agency a5 its ‘commission’, as shown in the invoices also, However, the asseésee tias claimed that it Is'dscount. or trade 1) CITVs Director, Prasar Bhan! (Kerala High Court) ~ 2) CIT Vs Singapore Alrines ITA Nos 306/200 & 123/205 “dated 13.4.2009{0eIbt High Court. 3) CIT'Vs Ides Cellar Ltd ITA. Nos 145/2009 & 784/2009' dated 19.2.2020 {Beth High Court} 4} ACIT Vs Bharti Cellular Ltd ITA No 1678. & 1675/KoY/2005 dates 4.4.2005 TAT, Kolkata Bench.) 5) Bharti Celloler Ltd Vs ACIT (2014) 12 Texan 30 (Cul) (High Court of Caleutta) ©) Vodafone Esser Celular Vs ACIT dated 17.8.2020 (Kerala High Court) 71 Around the World (268 1TR 47 {Mad.) 8} Tube Investment (223 CTR 99), ‘The important aspects decided by Hon'ble Courts are discussed hereunder The Kerala Migh Coyrt in the case of Commissioner: of Income Tax, ‘Thirwansnthapuram vs, Olrector, Presarbharti, Doordarshan Kendra in ST ‘Appeal Nos. 27 and 62 of 2008 has, vide Its order dated 20.11.2009 discussed 0 similar Issue at length and has held as under = *Section 194h of the meome-Tex Act, 1964 - Deduction of tax at source Commission oF brokerage ete. Assessee wos a fly owned Government of ino undertaking engaged lo telecast of nes, varus sports, entertainment, cinema and other programmes - Advertisement Income wos Its mejor source of revente Agents appointed by ft convessed advertisement on fiz teholf ond ‘edvertisement chorges recovered from customers were in uecordance with tarif prescribed by asiessee -Assessce pold commission at rote'of 45 per-eent on ‘odvertisement changes remitted by advertising ogenties- Whether commision old by assessee would be subject o tax deduction ot source onder selon 19 Held, yes. \y Page 22 of 118 Al 84-Asvessment Order for AY 2009-10 inthe case of M/s, New Delht Television tinited- ‘The Hon'ble Court clso held that Advertisement charges tollected by ageats ore {for respondent ond agents are allowed to retaln 25 per cent of the consmission by the respondent only to. avoid the hassle of deposit of full amount end repayment of 15 percent thereof towards commission. Since permission given to ‘agents is to withhold 15 percent out of edvertisenvent Is nothing but 0 payment made to agents in edvonce by Doordarshan before remittance of net ‘advertising chorges to them by the ogents. We are thérefore of the view that emilssion grented by Doordarshan under the agreement to the agencies to ‘retain 15 per cent of the commission amount to payment of commission try them to agents which Is subject to deduction of tex at source under section 4184H of the Act, It Is clear from section 94H that payment includes credit of, such sum te the account of the payee or at the time of payment of such income in cosh or by the Issue of cheque or draft or by any other mode. When the ‘respondent recefves 95 percent of the advertising charges from the advertising ‘agency concemed. Doordarshan eccownt full emount as received from the ‘customer for whom advertisement was undertaken, crediting & per cent received in thelr account and simuitameously erediting 15 per cent In the ‘eccount of the advertising agency. Inespective of the pattem of account ‘molntoined by the respondent, what hoppens when the agent poy BS per cet of the advertisement charges collected from the customa is thot the agent simultaneously gets pald commission of 15 per ceat which he is fiee to ‘appropriate as his Incame. TOS on the commission charges of 25 per hos to be aid by the respondent to the Income tex department with reference to:the ate on which 85 per cent of the advertisement charges are received! from the ‘ovent. In fact, i is only to comply with’ the provision, clause 2fe} extractesd above te Incarparated inthe agreement wherein It s stated thot ogent will poy, fo the Doordorsivan through DD or cheque the TOS amount payable on the commission retained by agents which we have elready found 88 payment of commission by the respondent to the agent." {in the case of CIT Vs Singapora Airlines Uid., & Others reported in ITA No 306/205 & 123/2006, judgment delivered on : 13.42009 (Delhi High Court) the relationship between principal and agent as been dwelt upon in detail. t has been held by the Hon'bie jurisdictional High Court that once an obligation is cast, itis for the assessee to retrieve the necessary information from the agents {travel ‘agent) who works far the assessee and to deduct TDS om the actual income received by the agent on sale of such itemns. Even though the sald judgment «fated to airline-travel agent case, but relevant portion of the order, with regard to the present case of the assessee, fs summarized hereuntler « *.. where 0 person pays too resident ineamme whichis ofthe naire of commission then thot person is obliged to deduct tux ot source at any of the said stages, that ‘45, either ot the time of credit of such income/comimissian or et the time of Payment when moy toke tne form of cosh, cheque, croft or by anyother mode. 85Assessment Order for AY 2009-20 in the case of M/s. New Delhi Television Limited- 8 6 Commission under Explanation (i) to Section 194H of the Act is define! in: inclusive manaer. Commission under the definition includes payment recelved or secehoble, directly oF indirectly, by 6 person acti on behalf of another person for services rendered (not being professional services): or for any service in the course of Duyiog or selling of goods or in relation to any transaction relating to ‘ny ose, voleable ortcle or thing (nat being secures). Ie tokes ho account @ situation where @ person renders services to another person for which the person rendering service either receives or is entited to receive, drectiy or Indirectly, _pcyment from thot another person to wham the service is rendered Therefore, the first question that needs to be onswered'is whether there is o _peincipol-ogent relotionship between the dsséssee-alrline and the travel ogent? For this purpose it would be profitable to look to the definition ofon'agent lo Section 182 of the Contracts Act. Section 182 of the Controct'Act reads os {follows z 4 ‘4m ogent i person employed todo any ac of nother or to represent oncther in dectings with thd persons. The person for whom sold act is done, or who 8 $0 cepresented sailed the prinefpo." 1 is cleer from the defiation thot on agency comes into existence where one person is vested with the authority oF capacity to ereate.c lego! relationship between person referred to as a principal and an outside third party. Therefore, the basic and essential requisites of an apency ordinarily would be that: (The opent makes the priacipat answerable to third persons whereby the principal con sue third parties directly and renders himself, that i, the privcfpal, able to be sued directly by the third porties; fit} The person who purports to enter into a transaction of behalf of the peincipol would have the power to create, modify oF termincte contractual relotionship between his principal, thot 's, the person whom? he represents, and the thied porties; (it) 40 agent, though bound by instructions given by him by the princlpol does ‘not work under the rect control end supervision ofthe principal. The agent thus iso fof te principal subject tothe fits to his ‘authority prescribed by the principal. {iv} There is no necessity of a formal contract of ageney, it cin be implied which could orise from the act of partis or stuetions in which portes ore put.Assessment Orcier for AY 2008-10 in the case of M/s. New Delhl Television Lirnited- ‘also the case of Revenve the essentiat Inyredient of principal to agent as defined in Section 282 of Contract Act are ali presenitin the ease of the assessee, which is enumerated hereunder RELATIONSHIP BETWEEN PRINCIPAL AND AGENT ‘ihe agent makes the prinelpat answerable to third persons whereby the princ)pal can sue third parties directly and renders himselt, that is, the principal, able to be sued directly by the third parties Inthe ease of the assessee, advertisements are being received ‘through agents, apart from other direct motes. ti’s0 far as advertisements booked by asvessee through agents from advertisers, the assessee Is liable to publish the matertal/advertisement 9 per the ‘wish of the advertisers snd particularly on the date of publication, when the advertiser withes. Hance the assessee is directly would have the power tocreate, modify ‘terminate contractual relationship ‘between Bis principal, that I, the person ‘hom he represents, and the third parties; responsible nd unswerabe to third parties inthis case, the advertisers Tiifhe petion who purports enter nto | Theagent, who Teempaweredio a transaction on behaif ofthe principal | cntet into a transaction on behalf of the principal (the assessee) possess the power to-create, modify or terminate, the order If he finds abnormality or any illegal contents the advertisement material, Til Ar agent, though bound by Instructions given by him by the prineipat ‘does not work under the direct control ‘The agent in his case bs free to use his own diseretion to act. The Pincipal (assessee) ished 87 ‘and supervision of the principal. The | responsible for any deviation oF agent thos uses hie own discretion to | omission committed egainst the acton behelfof the principal subject to | advertisers, even though the the limits to his authority prescribed by | advertisement is booked through the principal, nts, ‘The transactions entered Into by the assesse clearly establishes the fact that the agencies act on behalf of the assesse whereby # legal relationship is established. between the assesse end the third party (advertisers), Thus, the agents, by ‘entering into suct a legal: relationship on behalf of the principal, that it the ‘asseese, by issuing receipts of azverisement material and the date on which the advertisement fs to be telecast, the agent makes the assesse fable to. 2 legal action by the advertisorsie, the third party. fe 25, Page 28 of 113Assessment Order for AY 2009-10 inthe case of M/s. New Delhi Tefevision Umited- 8 8 Further relying upon to the decision of Hon’ble High court of Delhi In the fend case of OT Vs Singapore Alrines(Supra}, The Hon'ble Court held that ‘the word Hiscout is normally used to describe a deduction from the fll amount orvatue of something, especialy 9 price (sce Black's Law Dictionary Vith éltion page 477) whereas a commission is defined in Explanation (2) to Section 94H as any reyment received or recehiabe, directly or indirectly by an agent for services rendered acting on behalf of the assesse, fs defined in explanation (1) to section 1198H as any payment received or receivabie directly or tidlrectly by an agent for services rendered acting on behalf of the assessee. In view oF the foc, relying upont the decision of Hon'ble High Court: is concluded that the payment retained by the agent fs inextricsbly linked to the advertsement to be published by the assessee, it cannot but lead to 9 that the payment retained by the agents s 9 commission within the mesning 284H of the ‘Att. This Is especially so, as indicated above, at no point in time obtains proprietary rights to the advertisement, tis clearly nota case of disc cave since there Is no value or price pad by the assessee on which the a deduction, The azent from the advertisers which is also one of the fate's of services offered by the. rice or Valve of the be published i received the a chal of t st i wi Sf th etch of 25“ To say that the revenue is seeking to cast the iablty on the assessee tox when there is no evidence of income received by the: agent is factually an Incorrect submission. 1t should be remembered that what is relevant i¢- whether the Section 194H casts on the assessee to dethict tax at source, Once an obligation is ‘cst it Is for the assessee to retrieve the necessary information feom the agent ‘who works for the assesses and put itself ns position to deduct tax on the actuat Jncome received by the agent ftom the advertisers/third parties, Further reliance Is places on the judgment of Hon'ble High Court of Delht in the case of CIT vs idles Coltuler Ltd, In ITA No 145 af 2009 with ITA No 784-of 2009 dated 192.2010. Though the sve Imolved related to mobile phone -pre pald/post paid, but there sre certain facts which are:common/relevant to the case of the assessee. The Issue "whether the transaction In question between the assessee and the agents amounted to-contract of sale (thereby constituting relationship of principal and principal) or i amounted to contract of agency {thereby resulting In principal end agent) relationship has been discussed in etal. The important Issues culled out ofthe sald ttecisfon of Hon'ble High CourtAssessment Order for AY 2009-10 inthe case of M/s. Neur Dathl Television Limited- (oltie expression ‘commission’ of ‘brokerage’ was not. given in. stotutory definition under the Act, one had to toke inte account the expression os judicially defined. {o)two provisions which would be relevant for determining the issue ond to decide the real nature of transaction between the parties are Section 4 of the Sale of goods Act ond Section 382 of the Indian Contract Ack. Sectlon of the Sole of Goods Act defines ‘coe’, where discounts ore dealt with. Section 182 ofthe Indan CCamtact Act, on the ther hond, defines an ogent; which aefaion Becomes Important to consider 2s:to whether the reictionship between the assessee ond the agents is thot of principal and ogent, where commission are deat with (Commission is prima focie the payment mace to an ogant for ogency work, usually eccording to a sole, it may be on advotorem scale, but not necessorily on 2d yolorem scale. tis the most genera! word that can be used to describe the ‘remuneration poid to on agent for aa agency work other than a salary. (4) Again, e commission is the recompense of reward of on agent, foctor, broker tor ballee, when the same Is calculated 0s 0 percentage on the amount of his trengaction ar an the profit tothe principal. (0) Commission generally denotes the compensotion which an agent receives on Sates. (Commission 's compensotion poid to another for services sendered In the hhondting of another's business or propertgaand based proportionately upon the ‘omount or value thereof. {o) Me Hon'ble Court in the above cited cose has given @ passing remarks, thot the principal osked to dedvet tax ot source in respect of commissions pold to their opents, It does not effect the principals, The concerned agent con ahwoys fie tec income tax retures and claim the erelt for the poymentsalebdy mode on thelr behoif by the assessee. On the other hand, such z provision serves public purpose inasmuch os viz, such distributors who would be otherwise fable to pay ton, but ae evading the tax, would come under the income Tax Act This i only ‘0ssing remorks, which justifies the Incorporation of such a provision fe putting ‘obligation on the payer to deduct the tex at source ond the view we hove taken subserves tis rationale behind such 8 provision os well. Applying the eaid ratio to the present case, t Is seen that In the instant matter 100, the smount withheld by the Agent isin the nature of a recompense thet is calculated a8 2 percentage of the amourit of transaction Le, @ 35% of gross 89“Assessment Order for AY 2009-10 in the case of M/s New Delhi Television Umited- 9 0 Further reliance Is also placed in the case of ACIT Vs Bhartt Cellulor Ltd., ITAT Kolkata Bench in ITA Nes. 1678 & 1679/Kot/2005 dated 4.4.2006, whereby the Hon'ble Tribunal held that there exists relationship of principal and agent where ‘the agent acts on behalf of the principal ond executes and sells the products of the principal ‘The Hon'ble High Cour of Calcutta in the above cite! case as upheld the order of ITAT end has further held that Wwe conclude thus that there has been indirect Payment by the assessee to the franchisee of the commission ond the some is atractabie under section 194H of the Act. {In the Guidance Note on Terms used in Financial Statements published by ICAL, the expression ‘Commission on soles’ Includes sales payable to the cconsignee/third person and it should not be deducted from the figure of ‘tumover. Therefore, the assesseé should have récognlzed ts revenuie at gross value instead of net of commissions allowed ro. agents. There are three rungs starting from the advertiser, then comes the agent, finally isthe assessee . ‘The assessee has also contended thot dsollowonce of the smounts not shown in the profit and loss or not clalmed or not debited as nn expenditure cannot be eligible for disaowance u/s 40(a)la) n this context, the provisions of Section 40 a1@ elaborated hereundk 'seetion 40 - wotwAthstonding anything to the contrary in Sections 30 to 38, the following omounts shol! not be deducted in computing the income chorgeable Lnder the heed ‘profits and goins of business or profesctonl{aHin tha core of ony ossessee- ta) any interest, commission or brokerage, rent inna» OP which to Is deductible 2t source under Chopter XVI-B ond sith tex hot not been dedocted or, after eduction has not been paid oF before the due date spetified in sub section (2) of section 139° ‘The question that remains is that only when the expenses are claimed as 2 ‘deduction, only then the related amount would be disalioweld on account of non: compliance of the provisions. From the invoice ralsed, 2s per method of accounting guidance note of ICAL, the assessee Is supposed to credit the gross amount of fs-28,75,000/- In the receipt side and debit Rs431,340/- under the head agency commission in the profit ané loss account. The net effect would be offering income of RS.24,44,260/- in P&L a/c. instead, the assessee has straight awey credited the net smount on Ré. 24,4,260/- In the recelats side. What has missod is that the expenditure of Rs 31,340/- which Is supposed to be routed through profit and loss account is — shadowed end omitted to be debited in the net income but Ir does not mean that the said expenses tayeypat been incurred, Page 29 of 112 :Assessment Order for A¥ 2009-10 in the case of M/s. New Dalht Television Umited- 9 if The provisions of Sec 40 as discussed supra contein the expression ‘following amounts shall not be deducted in computing the income chargeable under the head ..'. The word ‘deducted’ in the section Is not followed by the word in ‘profit and loss account’, The Intent of Legislature Is very dear that even if the gross ‘amount is ‘deducted’ by any sum, which Is not shown directly in the P&L a/c, net effect will be'same and carries the same meaning es itt hes been routed through profit and Joss account, Let us see this in 2 mathematical manner, Suppose the Gross receipt of an assessee Is say Rs 100/-, hve expended a sum of KS-20/-related 10 earning of such gross amount, and offers balance Rs 80/+ as net profit in the books of accounts. It bears only one meaning that (a) Total. Receipts from such venture is Rs 100/-(b) Expenses involved are Ré 20 and (c} Net profit offered for taxation ts Rs 20/-, There is no Second! alternative lef in this scenario, What has to be seen Is whether any expenditure has been ‘deducted" from the total receipts. Even if the said expenditure is not appearing In the profit and loss account, it does not mean that the assessee has not expended any sum, 1m the case of the assessee, the important question is not whether the said expense has been routed through P&L u/c or not routed through P&L a/c. The {question Is that the gross mount is ‘reduced’ by sums 9 given In the Tax Invoice “ Issued to agents and the net amounts offered for taxation. It does not mean that no expenses have been ciaimed os expenditure. in this case whether any ‘expenditure Is ‘deducted! or not. The answer is, yes, expenditure Is ‘deducted, Since agency commission of Rs.4,34,340/~is deducted from the gross receipt, It will have the same meaning as If such sum is ‘deducted In computing the Income = chargeable under the head profits and gains of business’ as per the provisions of Section 40, Since TDS has-not been deducted 68 provided under Chapiter XViK8, the provisions of sub section (2}(a) of Section 40 ofthe Act are clearly attracted. Relonce is placed in the case of CIT'Vs WX Deleia, 207 ITH 89, and inthe case of CIT Vs Durgadass More 82 ITR 540 (Supreme Court), the hon’ble Apex Court has held thet ‘@ fittle probing wos sufficient in the present cose to show that opporent ‘was not real. The taxing cuthorities were not required to put on blinkers white ‘ooking ot the documents produced before them, Ther. were entitled to jook into suctoundion circumstances. to find out the reality of cechois mode inthe documents.’ \f Corporate veil is lifted one can see the real picture and modus operandi of the business activities carried out by the assessee, As per ceply dt. 07.03.2013, the assessee has subiitted dotalls of quentum of ‘advertisement revenue generated to advertsing agencies, which amounts to Rs. 235,41,66,296/-, which fs net of corimitesion paid to the agencies @15%6, The assesiee was asked-ty firnish gross amount. charged during the year underat -Assessment Order for AY 2009-10 In the case of M/s. New Deihi Tetevision Limited+ considetation but no details have been furhished by assessee. Therefore considering the 25% commission pald by the assessee, as per assessee's letter dated 07.03.2013, on » revenue of Rs, 735,44,66,236)- the grossed up revenve comes to Rs.276,95,07,407/- and commission on the gross revenue @15% comes 0 Rs.41,54,41,112/- which tas been pald by the assessee. In view of the facts as dacusted in the foregoing paragraphs itis clear that the transections (on which discount as claimed by the assessee) was not pald on principat to principal basis but was in the nature of prinelpal- agents for the, seevices revered to 3 parties, and by no stretch of imagination can be termed 25 discount and the azsessee has itself in Is Invoices cbtegories the said ammount ‘as commission. Therefore, the discount (as dalmed by astestee) paid by the assessed is nothing but agency commission lable for deduction of TOS elther in ection 294H of 294) or both. However, it has not deducted the TDS at all om such ‘amount, Therafore Rs 41,54,41,121/- is dialloved u/s ADali) of the Income Tax ‘Act, 1961 ond added tothe Income ofthe assessee. inthis context, the assessee may plead that no amount of Commission has actualy been-paid to the Act. However, as discussed in the preceding paras the amounts withheld by the “Agencies in the form of Comission sre actualy constructive recelpts In their hands and the said amounts having been netted from the recelvable of the assessee construe constructive payment er constructive debit in the accounts of the assesses as amplified in CBOT Circular No, 619 also (dlcussed supra). Accordingly, 4 amount of Rs. 41,54,43,121/- is disallowed and added back to-the totah income of the assessee, | am satisfled that the assessee has fumished Inaccurate particulars of its Income and has concealed Its correct facome-on tls leave, therefore, ponalty proceeding U/e 27A{t}( oF hy Tax Aet have been separately been inated. {Addition Rs, 62,54,42,221/-)" ‘Tne Hon'ble DRP, vide its directions dated 31.12.2019 issued u/s 144015), directed the AO t drop the proposed disallowance on-this issue, Accordingly, the proposed disallowance on the issue is dropped as directed, 5 In the draft asscesment order passed in the case on 33.03.2013 u/s 143(3}/144C(1) of the Act, the AO had proposed for disallowance of expenses u/s 14A of the Act. The AO had observed in the draft assessment order as under "3. Plgallowance w/e 14 During the year the assessee has shown investment of Rs.49.42 cr, 36 on 31.03.2009 howsver, no expenses under the provisions of section 144 read! with ‘ule 8D have been added back in the computation for income. Vide order sheet de, 14.22.2012, tho agroecee wae requestad to axplatn 3 to why the provision of section 248 read with Rul 6D may not be invoked in régpeet to the Investment ONPage 00 013 92“Assessment Order for AY 2008-10 In the tase of M/s. New Delhi Television Umited- ‘made. tn his reply dt. 11.03.2018 and 22.03.2013, a Getalled submission in regard ‘te non-applicablty of provisions of section 14A was given. The relevant paras of the assessee submissions are reproduced as under: Aieplv.tt 11.03.2013 (filed on 22.03.2013) You have osked us to show cause os to why the disaliowaiice be not mode u/s 14A occording to Rule 80? tn response to this we would ike to subenif that durtng the year under consideration, the ossessee company réveived cn amount of Fs. 25,12,924/- In the form of cividend only from Jaiprokosh Power Ventures Limited. We have already replied on this issue vide our submission dated 31” Morch'2043. Further with regord to the remoiniog investments, we would Ike to submit that uring the yeor under consideration the ossessee compdiny has aot received any ividend from these componies. AS ft has not eoined/ clolmed any income from hese companies exempt from tox, 0 the question of exmenseslicurte in relation {0 earn exempt income does not orise. As per subsection (1) of Section 24A, ‘no deduction is to be alowed in respect of expencitire Incurred by the assesses tn relation to income whieh does net form part of total Income. Subsection (2) of Section 4A provides the procedure for determination of such expenditure by the Assessing Officer. The Boerd hos also prescribed Rule 80 for determining the expenditure incurred by the assessee for eoraing of exempt income, Thus, the dtslfowance con be made under sub-section (2) forthe expencltre incurred for eorning of exempt tncome. In the present cose, the assessee Company had not clotmed ony dividend income except from Joiprokesh Bower Ventures tinted 0s exempt from tax and therefoee the provisions of section 1A coin be Invoked. Onty when there ison income which does not form pat of tala income wnder the ‘Act dining any relevant assessment year, no deduction in respect of expenditure ‘neurred for earning such Incorie i oftowable. During the relevent essessinent ‘ear the ossessee did not have ony income except dvidend free Soiprakash Power Ventures United which did not form part of total iicome ond therefore no disallowance under section 144 could be mode, Section 24A hos the tite “Expentture incurred in relation te inconre not includible {in totot income". re says for computing totat income under Chopter IV (consisting of five heads of income} no deduction shall be alowed in respect of expenditure ‘ncurred by the assessee In relation to Income which does not form port of the total income. The Assessing Officer has to determine the omount of expenditure incurred in relotion 20 such income which does not form port of the toto! income, jn accordance with rule 80 of the lacome-tax Rules If he is not satisfied with the correctness of the clcim made by the assessee, ‘Stesion 1483) soys thot such ornoumt of expenditure to be disoliowed shail be determined. by the Assessing Officer even where the oésessee cloims that no-Assessment Order for AY 2009-10 in the case of N/s. NeW Delhi Television Limited- 9 4 expenditure wes tncurred by him ta relation to suctt Income, which does not form port of the totat Income under the Act. From the above, the conditions for opplying section 144 are > no expenditure will be ollowed os a deduction sere the icome does notform part of toto income; > the Assessing Officer wil determine the omount of ezpendltire incurred In region ta euch come when he b not satisfied with the correctness ofthe clolm of the cossessee; and : > such asollowonce of expencirure will apply even where the oisetsee clits 20 ‘expenditure wes incurred in respect of such income 6 exenipt come. The mandote of section 24% isto prevent claims for deduction of expenditure fn ‘elation ta Income which does not form part of the toto! ncome of the assess. This section wos enacted to ensure that only expenses Incurred in respect of ‘eoening taxable income are allowed. The principle of apportionment of expenses is widened by section 344 to include even the apporttonmnent of expentiture between taxable ond por-toxoble income of an indivisible business. The basic principle of taxation is'to tox net income. This prncole appies even Jor the purposes of section 24A ond expenses towords nontaxable income’ rhust be excluded, Once a proximate couse for disallowance is established = which i: the relationship of the expenditure with income which does oot form port of the toto! Income —0 disallowance has tobe effected. Therefore for application of section 14A there must be fj) Income which is taxable under the Act for the relevant assessment yeor; and {i} there should otso be an Income wbich does not form part of the total Income vader the Act dering the relevant ossessment year. If elther one is absent, section 14A(2) has no ‘pplicabitty. Thus once there I no claim of income which does not form port of the total Jncome, there cannot be ony disollowonce in relation to.on tnvestmeiit which may ‘or moy not give rise to any income which does not form part of toto incerbe. Therefore, if the investment mode Is ia the shores of « compony does not ‘generate ony exempt income then the same sholl not be Included in compartiag the dizellowonce, Since the investments mode by the assessee Company hove not generated ony aividend income, the disallowance of expenditure would not orise inthis case. Hon'ble Punjab & Haryana High Court in their decision in CIT vs, Hero Gycles itd. 323 ITA $28 have observed that dlsallowance under sect fon 14a requires finding of incurring of expenditure ond where itis found that for earing exempted income no expenditure hos been Incurred, dsollowance under sect fon 148 connot stand. 11 further subnvitted that as per the provisions of Section 148 of the Att, no ‘eduction shal be ollowed in respect of expenditure incurred by the asressée in ‘elotion to income which does not form port of thé totol income under the Ket. As 2 Page 92 of 112-Assessment Order for AY 2008-10 in the case of M/s. New Delhi Television Limited- explained obave, the Assessee Compony has not incurred any expenses In relation to earning of such exempt income. The expression “in relation to" signifies erly @ direct end proximote relationship between the expenditure and income. All the ‘expenses incurred by the Assessee Company are wholly ond exclusively for the purpose of eorning business income and hence, no alsoliowance con be made v/s 1A Further, section 24A of the Act, nether deems any expense to be incurred in relation to exempt incame, nor does it provide for ottrbution/ allocation of the toto! expenditure incurred by the Assessee Company (for whatever: purpose) to the exempt Income. it does not refer to expenditure cttriburoble to exempt Jncome {ivhich i wider than “in relation to") but only to expenditure which wae Jncoreed fa relation to exempt income. The words “expenaiture Incurred” suggest thatthe act of spending must be in relotion to exempt Income (real relationship} and i 1s only such expense which would not be deductible. At the asseszee Company has not incurred ony expenditure which con be drectly ottritutable to tie earning of exemat income, no dseliowance u/s 4A of the Acti colle for. The ossessee is @ compory ond hos made investment in equity shares of the {fotowing Companies Inclvding foreign Companies os per details given below: ‘S| Parttettars | Nawwreof | Yearof | Amount | Dividend No | Investment | Investmen| invested | Received | daring the fin, Year 2008-09 TT ROT News| Eauity Share | Prieto | 9880500) WE | United Capital 2002-03 +4,99,800 Equity Share | 2002-03 copia 2 |NOTV Medfa | Equity Share | 2002-03 ‘507.000; wit United Copitol 2003-04 | 79,93,000 = [Noi ~BVT Equity Shore |” 2006-07 | 57.45,960| NR (Foreign | Copitot Company) t a [wv Equity Shore | 2006-07 02,490 | Nt Convergence | Copital 2008-08 10,930 Umited Equity Share Copitat : | Emerging | Equity Share |~ 2006-07 517500 | We Market 8) Copieal 2008.09 | 6,22,92,000 (foreign | Shore Cormpony) | Application = Loney TQ” Page 83 of 112“Assessment Order for AY 2009-10 in the case of M/s. New Delhl Television Limited %& | Metronction | Equity Shore | 2007-08 | 32,04,080 Wit chennai —_| Copitol 7008.09 | 3,55.95,920 Television | Equity Share | 2008-09 | 73,86,000 Limited Copito! Shore Application Money 7% | NDT One| Equity Shove | “200809 | ~~ 2252800 |~— Ni Holding td. | Capito! (Foreign Compony) | Emmor MGF| Equity Shore | 70009 | 4252,89565| NL tond United | Copttot ‘B_| Delhi Stock | Equity Share | 2007-08 |~2,09,52,000 | Ni ‘Exchange ‘Capitol 10. | Jolprakash | EquityShare | 2008-09" | 23,00,06,682 | 25,15,924 Power Copitat Ventures Umived Toto BAZ STAAT ‘Ac the outset it may be noted thot out ofthe totainvestients of Rs. 49.42 Crores, {© rnojor portion of the savestments le. RS. 6.97 Crores [, NO. 5 & 6) 18 shore ‘pplication raoney against which shares were yet to be alotted to the assessee Company. Therefore, these were not capable of generating ony income during the relevant yeat 08 the omount wes putin Share Application Money aginst which shores were pending for allotment, 50 the questiin of ecrning income Le, dividend does not orise, hence the provisions of section 144 are not applicable, Further on ‘amount of Rs. 85.16 Lacs (S: No. 35 & 7} has been iovested in equity shores of foreign corspanies. Te lvidend earned from foreign companies is aot exempt Under the income tax, $0 the question of disallowance of expenditure agoinst corning the foreign dividend iacome oso does not arse, Further the lavestment ‘mode ia NOTV News Lrited and NOTV Medio Limited (S.No. 1 & 2) pertoies to quite ofd period and wes alse mode out ofthe retained eornngs. We reiterate thot the provisions of section 244 are net applicable even on the investments other than mentioned In above tables os the assessee Company has not earned / claimed any income exempt irom tax from the obove sold Jnvestments, therefore the question of expenses incorred in eeletion ta-eorm exempt income does not arise. ss per sub-section’ (2) of Section 244, no deduction isto be pifowed in respect of expenditure Incurred by the asiessee in relation to income yhi¢hndaes not form part of total come, (APSO page a of 1319 96Assessment Order for AY 2009-10 in the case of M/s, New Dothl Television Limited- Section 144 has the ttle “Expenditure incurred in relation ta income not includible 4n total income”, t says for computing total Income wader Chapter IV feonsisting of five heads of income} no deduction shall be ollowed in respect of expenditure incuered by the ossessee In relation to income which does not form port of the total income. ‘The Assessing Officer hos to determine the mount of-expenditure incurred in elation to such income which does not form port of the total income, i ‘accordance wit rofe 80 of the Incomestax Rules if he is not sotisfled with the ‘correctness of the claim meide by the assessee, From the above, the conditions for applying section 148 ore > noexpenditore will be allowed as a deduction where the inconve does not form part of totot income; > the Assessing Officer will determine the amount of expenditure incurred tt relation to such income when he is not satisfied with the correctness of the clolm of the cassessee; anit : > such disallowance of expenditure wilt opoly even where the assessee claims no ‘expenditure was incurred in respect of such income i.e, exempt income. The mondote of section 144 i to prevent coims for deduction of expenditure ia ‘elation to income which does not form part ofthe total income of the assessee. This section was enacted to ensure thot ofly expenses incurred In respect of ceuming toxoble income ore oifowred. The principle of opportionment of expenses 's widened by section 144 to include even the apportionment of expenditure between roxable ond non-tarcble income of om indivisible boslness. The bosic princiole of toxotion is to tox net income. This principle applies even for the purposes of section 14A ond expenses towords nor-toxable Income must be excluded. Once o proximate couse for dsallowance is established — whieh is the ‘lationship of the expenciture with incom which does not form port of he total Income ~ 0 dsotowance has to be effected. Therefore for application of section 144 there must he fi) iacome which ls taxable under the Act for the relevant assessment yeor; and fi) there should olso be on! lscome which does not form port of the tual Income under the Act during the relevont assessment year. ether one is absent, section 14A(1) has no oppticabilty, Thus once there 1s 10 claim of Incorie which does not form part of the total income, there cannot be anj-disollowcice in relation to on Investment which moy ‘or may not give rise to ony income which does not form port of tote! Income. Therefore, if the investment made is tn the shores of @ compony does not generate any exempt income then the sone shall not be included in computing the dlsollowance, Since the investments made by the ossessee Compony hove notAssessment Order for AY 2008-10 In the case of M/s. New Delhi Television Limited- Hon'tle Punjab & Horyana High Court in their decision in Cit ws. Hero Ces ted. 323 TR 528 have observed thot disoliowaace under sect ion 144 equices finding ‘of inowring of expenditure ond where its found that for earning exempted ‘Income no expenditure has been incurred, dsellowanee under sect ion 444 cornet stand, ‘The arguments of the assessee company ore considered carefully and the same {is not acceptable In view of the following reasons: ‘As the assessee compory has made investment in sharés,.Intorne from which shall be tax free In the hands of the Company, its held that interest Income paid by the assessee company and also administrative and Indirect costs incurred by the assessee company In paying the management anid others In taking the complex decisions of investments in the subsidiaries and other company selection of Partnérs and the selactlon of the business venture for the subsidisries, cost Is incurred by the assesseé company whithr is for the purposes. cof earning tax free income, As per section 14A of the Act; such expenses are.not allowable. in the absence of clear Klentification, recourse Is taken-to Rule 8D ot the b¥. Rule to dacide the quantum of disallowance U/S 14A of the Act. ‘The argument of the assessee Company that no dlvdend income or tax free Income Is earned by the sssasseo company during the year and hence no disatowance u/s 244 can be made during the year is alto-not acceptable because respective ofthe tax free income effort in term of cost and time of professionals ‘who are pald for their time had beer invested by'the-atsessee company for the atting up of the subsidiary businese as such regardless of Incamé axpancos have been incurred which would fall within the emblt of section 24A of the Act, This ‘Yew Is also supported by the Delhi STAT Special Bench jasigment in the case of M/s Cherninvest Utd. Vs ITO (Order ét, 05.08.2009) In which the Spl. Bench held 2s under: “whether eisallownce u/s 4A of the Act con be made tn 0 year in whieh no exempt income has Been eared or received by the ossessee, is onswered offirmacively ogatnst the assessee ond in favour of revenue,” 15 held that section 14A would opply to an exernpt inconte whether recelved/ corned or not received or not earned. Further, section 248 does nat use the word “income of the Yeor", but income under this Act ond therefore, the receipt of Income in 0 porticutar year i nok moterial for disoiowing the expenditure, This ‘orgument is further sterigthened by the decision of the special Bench In the cose of Aquarius Travels Pt. Lie. vs. 170 (DEL) ($8), 303 {TRU —e-the speciol Bench judgment of M/s Cheeninvest Ltd'the Spectol Bench clearly held as under: 98Assessment Order for AY 2005-10 in the case of M/s, New Delhi Television Limited- “whet one has to see is whether ony expenditure were incurred by on'assessée In ‘elation to an income that does not form port of totol Income of the ossessee ‘under thls Act, and ifthe onswer isin offirmative then that expenditure connot be ollowed irespective ofthe fact that it was allowable under different provisions of the Act where 0 olfferent phraseology is used in ollowing that expertdture as the Jocus has to on disoHlowonce within porameters of section 244, on overriding provision over allewonce provisions It would result in, ctallowonce. even f no, fecome has resulted or made or earned by the ‘assessee lh the yer under consideration.” 1h view of the Jegol postion as clarified sbove and in’ view oF tha: katisadtion. recorded in para above with respect to the fact that tertain expenditures have bbeen incurred during the year by the assessee company in refotion to the earning of exempt Income, dissilowance of such expenditure u/s 148 of the Act, is requires to he made to determine the correct taxable Income tn absence of any estimate made by the assessee, dsallowanice u/s 1AA Is sought to be quantified os per rule 80 of the Income tax Rule, 2962 in the following manner: (On the facts in the present case the same is determined by the same rhethod as provided for in rule 80 as under: 1} The amount of expenditure directly relating to income whieh does not from part of total income = Ni 1) The amount cslculated 8s per the prescribed formula as under: (A) The assessee has Incurred total expenses of Rs.14,64,77,381/.- under the head Interest on teem tozns and others. Out of total Interest expenses Rs. 4,21,22,422/-have been incurred against the term loan. Singe, the term loaf is far specific purposes therefore, the interest cost attributable to term losn,js not ‘being considered for calculating disallowance for the purpose of section 144, The interest classified under others amounting to Rs. 20,83,54,959/- is being taken for working of the disallowance u/s 144, {(B) The astessee's claim that investment in Equity Captain Forelgn com. Amounting to Rs. 85,16,260/- shouid be excluded for the purpose of calculating the isallowence under Rule 8D is being accepted as these shares do not result In ‘leldng exempt income. Similarly, the assessee has aso argue thatthe provisions ‘of section 248 read with Rule 89 are not applicable in respect to the share application money of Rs.6,96,78,000/,, hence, the samme should not be included in valve of investment for the purposes oF caleulating disallowance under Rule 80 as the share appitcation money does not result in dividend income: Since, the provision of sectior THA read with Rule 8D are deeming provisions and they are to be applied / construed strictly 2s per the provisions therefore, the submission of the assessee to thisextent are eeceptable, Page 87 of 112Assessment Crder for AY 260010 In the caso of M/s, New Delhi Television Limited: ‘Average of the value of investment, Income from which does not or shall not from part of the total income, as appearing inthe balance sheet on the fist day ‘nd the last day ofthe previous year as below: Opening value ofthe investment forthe F.¥.2008-09: Rs. 4.5 crores/- Closing value of total Investment forthe F.Y, 2008-08: Rs. 03.60 érores/- Average Value: {4.5iecorn+41,60crore) : 6:23.05 crores 2 {C) The average of the total assets as Inthe balance sheet ofthe assessee on first day ‘and the last day of thie previous year a under: Opening value ofthe totat assets for the FY. 200808; R&320.22 crores Closing value ofthe total assets for the F-Y.2008-09: Rs, 389.05 crores: ‘Averoge Value: Rs. (330.21 crores 289.05 croves): RS. 359.63 crores 2 ‘Average of the value of Investment, income from which does not or shill not form part of axBe 0,43.54,959 23.05 crore c 359.63 crore = Rs.66,28,490/- fA) An amount equal to half percent of the average of the valve of Investment, income from wihich does not or shall not from part of the total income, as appearing In the balance sheet of the assassee , on the first day and the last day of the previous year; le. 1/2 %oFRs, 23.05 crore Rs. 11,52,500/- Total disallowance ws 244 comes to’ Rs, O00/-. In view of the above, 1s.78,40,880/- Is held to be expenses Incurred In relation to earning the tox free Jncome during the year and hence added back to the income of the assessee. {adaiion: .78,40,990/-)" 5.1 The Hon'ble DRP, vide its directions dated 31.12.2019 issued u/s 144C(5}, observed that the assessee had cared exempt income but had stated that no expenditure was incurred to cam it. The AO celeulated the expenditure by resorting to Rule 8D and the assessee had not objected to the method of calculation before the DRP. However, the assessce raised the objection that the AO had not recorded her reasons before invoking Rule 8D. Accordingly, th DRP diected the AO to record his reasons and proceed as per section 14A of the Act. 5:2 On this issue, it is observed that no managesiel expensés in respect of investment made by the assessee in group companies and other companies have been reflected or disallowed and offered for taxation. ‘The nssessee has cinimed having incurred Nil expenditure in respect of these investments. It ix pertinent to mention here that the asseasee company has common infrastructure and common personnel: for earning peunder various heads, but still, ‘no’ separate NPage 88.0f112 100~Assessment Order for AY 2009-10 in the case of M/s. Neve Delhi Television Limited- expenditure was booked for earning the exempt income comprised in the mutual funds, Therefore, it is fair and reasonable to conclude that the assessee hes cared both exempt as well as taxable income by using common facilities and common manpower. Hence, it cannot be said that no part of expenditure was incurred to receive income under any particular head: In the absence of separate accounts being maintained by the aseessee, the expenditure in relation to the jncome, which does not form part of total inceme, has beén worked out an the basis of guidelines provided in Notification No. 48/2008 dated 24:03.2008 and the riethod prescribed under Rule SD of 1.Tax Rules, which Has not been objected by the assessee, as recorded by the DRP in its difettions, and which is as summarized as follows :- [.No._| expenditure in relation to exempt income “T |The amount of expenditure directly relating to the income, which does not form part of total income 2” | Where the assessee has incurred expenditure by | Re, 66,88,450/" way of interest, which is not directly attributable | to any particular income or seceipt, then. the i amount comptited © {A x B)/ C [SI Procedure to be followed to work out the = disaliowable NE As Intt. Other than interest included in clause (i) | ‘B= average value of itivestment in Balance sheet on the I day and last day of previows year, income from which does not or shall not forut < | part of the total income Ce average of total assets in Balance sheet on the 1s day and last day of previous year An amount equal to 4% of average valud of Rs, 11,52.500/-* investment in Balance sheet on the 1 day and | last day of previous year, income from which does. 1 not or shall not form part of the total income a r Expenditure incurred in relation to exempt { income Bs. _78,40,990/- | | * As computed in draft assessment order and reproduced in para $ above, 5.3 _In view of the above discussion, disallowance of Rs. 78,40,990/- is made u/s 14A of LTax Act being the amonnt of expenditure incurred in relation to caring of exempt income, which does not form part of total income. 5.4 Lam satisfied that the assessee has furnished inaccurate particulars of ite income and has concealed {te correct income on this. issue, therefore, penalty proceedings u/s 271(2){c) of l,Tax Act have separately been initiated. (Addition : Rs. 78,40,990/-) 101Assessment Over forAY2000 10m tha cent. tow Debi Toetiontiies |] () 6. In the draft assessment order passed in the case on 31.03.2019 ufs 143(3)/144C(1) of the Act, the AO had proposed for disallowance of transmission and uplinking charges u/s 40(a)(i) of the Act. The AO hed observed in the draft assessment order as under “4, ‘Transmission and uplinking Charges lithe P & L Account the assessee had debited Aii4,52,52,704/- under the ‘head Transmission and Uplinking Charges: In the notes to account the assessee hhas furnished the details of expenditure in foreign currency. It has been reported ‘that Rs. 14,52,51,704 has been incurred under the head subscription, uplinking and news service charges. Vide order sheet dt15.02.2013, the assesses was required to furnish the details regarding TOS on upfinking and transmission charges. The assessce in its reply dk. 11.03.2013 and 22.08.2023, submitted that the payment hos been made to a foreign comparly and in view of the decision of Hon'ble ITAT Dethl, ln DCIT vs. PanArnsat International System tnc. 103 TT) 861 {O4l), it is not obliged to deducts TDS. The relevant para of reply dt. 12.03.2013 ‘and 22.03.2013 are reproduced as under: ‘Reply dated 12.3.2033 {filed on 22.03.2013) We have been show-coused as to why disallowance be mot be mode in respect of tronsmission ond uplitlag chorges for the non-deduction of TOS u/s 40{1}i0) Paid to intelsot? Please rote that we have already given the details of :ronsmiision and uplinking chorges to your honour vide our submission dated 22" ‘Morch'2013. We reiterate that the provisions of TOS/withholding taxes were fully complied with. The payments were made after obtoining the requisite certicotes {fiom the Chartered Accoontont os defined inthe explonotion to. section 2888 of the lncome Tox°Act'1961. Coples of Form 25CA/CB sued by an Independent chorcered occountont were afso placed before you. We respectfully submit thot there should not be ony csollowance on occount of non-deduction of TOSAutinholding taxes from the payments made to Intelsat Corporation, we ore giving below 6 brief note-on the same: ‘During the yeor under considerotion, the assessee Compony booked the expense of As. 7,81,23,855/- on account of transponder services received from M/s Intelsat Corporation {iatebat) In terms of its agreement for the use of sorelite {transponder copacity: ‘Before we procéed to our specific submission and a fact of the cose, we here-In- below svbmits the noture of transaction entered between the assessee Cormpany ‘and intelvat Corporation to understand it taxmbilty ond application of provisionsfemmes rer ¢tnao inne ct ew ei Tomsontmnee. | ()3 The assessee Company is engoged in the business of broadeasting, aperoting a TV. chonnel. The assessee Compony video-graghs events thot takes ploce as ond when they happen in the form of programs und by using transmission and up- Linking facitties, it sends signals to a sotelte that i hovering in space. The signals sent to the sotetite are decoded ond down-linked over the areo covered by the satelite. A tronsponder is 0 port of the sotelite which recelves sueh signee from ‘the earth stotlons ond re-transmits the same bock to the earth with or without complying therm ‘The ossessee Compony entered into an arrangement with Intelsat Corporation, a Company incorporated in ond resident of USA for using such’ tronsporicdee copacity, to make the signals avoilabie to the cable operators, who in tura beam the signals to the viewers in thelr homes, ‘he above services are ite stondard fochty used for transmission of progroms by various media companies. The ossessee Company makes use of Sich facility ‘during the yeor provided by the latelset Corporation, The ossessee Company most respectfully submits the following polnts for favourable consideration on merits: The payments in question made to Intelsat Corporation ate rit @ “Royatty” within the provisions of Act os they exist during the year in questioa. {A retrospective amendment is mote in Section 9{2}{W) by the Finance Act 2032 to include dark shadow on the genuineness of the transaction, therefore, the assesses Was: asked as to why the sald transaction may ‘not ‘be proposed to be treated as sham and the amount be not proposed to be added as its taxable income. aaa Vide Jeter dated 29.12.2013, the assess contended that the addition ds 69A vias proposed by the AO In the daft sesessment order, but the assassee had Tred séditional svidence on 29.08.2013 208 On 74,10,2013 and had therefore discharged its onvs u/s 62A. Further, the ASsessee ‘also discussed the applicability of section 68 of the Act and stated that im view of the adedtlonal evidence fited by 8, (he snus regarding the identity of the payer, (Re eroditworthiness of the payer and the genuineness of the transaction was uly “charged: It was stated that the transaction was carried out through- banking ‘channels, It was duly recorded in {the account books, ee " 124“assessment Ordet for AY 2609-10 in the case-of M/s, New Osihl Television Limited she capacity of shareholders cauld not be doubted, It was disclosed in the Annual Report, requisite Information was duly fled with stock’ exchanges ond other ‘egulators, share premium could not be taxed as revenue receipt ond hence, it was 9 genuine transaction. 23.10. | have gone through the additicnal evidence filed by the assessee vide Ite ‘pplications dated 29.04.2013 and 24.10.2013, The assessee has filed in the following docurnents in the shape of additlonal evidence vide Its letter dated 29.04.2013 :- {i) Copy of Share Subseription Agreement deted 23.05.2008 and share Certificate, Ui) Coples of Annual Reports of NBCU for FY: 2008 to 2020 filed before Securities Exchange Commission, US. lit) Copy of Annual Report of NOTV for FY 2009-10. (iv) Copy of Annual Report of GE. |x) Copy of Form 30K filed by the Comcast Corporation before US Securities and Exchange Commission. tui) Copy of bank account of NIH in ING Bank, Netherlands. (vi) Copy of Audited Accounts of NNIH. 2340.2 Further, vide letter dated 24.10.2013, the assessee has fled copies of submissions claimed to have been filed during the assessment proceedings, copy of ti. CIT{AY's order far AY 2007-08 in the case and copes of some notices issued by the 20. 13,103 Noconfirmation from NBCU regarding the transaction has been fled at al. ad it been a normal business transaction, tt would be necessary for the astessee to: fie confrmotion from NBCU, which would be subject to verification by the AD, by calling upon the assessce to file an affidavit from NBCU or to produce the authorized representative of NECU to contitm the assertions, However, no such confirmation hes teen filed by the assessee and therefore, it cannot be said that the onus has been discharged by the assessee even inthe context of section 68 or section 69A of the Act. ‘as sought to be justified by the assessee in its letter dated 29.11.2013. 22:14 Mowever, the fact remsins that the transattion of subscription of shares of NIH by NBCU is not a normal transaction and tacks commercial purpose oF econornlc substance in view of the Facts as discussed In para 2.3.9 above. Hence, not only the cesestee has failed to dehange its onus u/s 68 / 69A as etoimed by the assessee, but also in the present case, the facts of the case: cast a serious shadow on the geriineness of the impugned transaction, which has nether any commercial purpose nor arly economnic substance, 25aszessment Order fr A¥ 2008-10 the ES ft/s: New Datn Television United: paar the assessee bas 2160 contended that regarding the subseription rate, Share premium forms part of Share apral and is #0 be decided by the Board of rectors tis contended that there 609 arin taw ragarding the amount OF Prem that # company can charge, However uremains to be a partof the share capital only. wre further contended that the channels OENDTV had a huge potential for growth and hence, it formed direct and indirect subsidiaries abroad to attract foreia™ investment, come of which &s NNPLC, It Is #50 contended by the assessee that Che investments of sanptc én various companies of entertainment verticals already ‘existed much before the share subscription and all Hose vested companies were functional: On this basis; Tromas ealmed that the amount of share premium charged was genuine ngaxa onthe issve, ts observed that the foctual matrix of the case revesls that x59ge chares of NIH having face "Value of Rs. 50 approx. per share were purported to be subscribed by NOCU @ FS. 7015.05 per share. Aithovah correct thet it appropriate cireumstarees # cOmPHNY can always decide the amount 12 PE chorged 25 here premium and there is 0 DATS Taw, which prohibits the company fore doing $0, yet Inthe present cost, mere assertion regarding tthe right to charge the desired share premiurs does not absove whe Teeesses, when Wt 1s estabtohed ot ‘there is 90 rrmmmerctal purpose or economic ubstence to the transaction for acd, The ‘cotanation that NNPLE was sirens holding investments in running entertainment verticals is of no value, when its bverved that NNPLE was making [OSes and during ‘he relevant year, NNPLC had made > toss of Rs. 8:34 crores app. and the book valve of ne shace war in the negative. What Sonora substance or commercial PAPO? could be there for NBCU in subseEINE ‘ares of a company, waose stares PINE? fece salue of only Rs, 40-45 Bar shore eryeh would result in aeaulring 26% effective Vedinect stake in NNPLC, which Is OnE Tvestment company, fas no BUSITESS of its ‘mn, having recertiy formed, does NF howe any proven performance record. Whose shares have @ negative book ‘value and which wos raetuatty quidated witha 3 % Years of the transaction. Needless to SY, 47¥ Investment, nat to say am investment of Rs. 42.54 crores, would be made only woth a view to earn profits, because Tat is the only commercial purpose oF the vreonorsie substance. 11 a0 pertinent 59 reiterate nat no independent valuation 25 e¥E! vented out by the group companies oF BY the BCU and the tesue rate as well 29 1PE repurchase rate ae caimed 10 Be solely based ton estimates and business prolecuons Hence, there could not be any commercial purpose or the econornic substance or NBCU to invest RS 642.54 crores IN ‘ntl and ‘barely a year later, to sell the ‘aid equity back to NOTV eFouP company for merely ie. 58.08 crores, The only PUrROse apparent from the ‘transaction is to create 2 108s ie, 584.46 crores for NBCU 0nd to bring the taxable income of the assessee amounting to Rs. 842.54 grores, eared From *inaigclosed sources wo whe BOOKS of accounts of thie sssesven! tirtaugh Us DSCNS ‘This substription of shares: of the assessee’s ‘group company, hevinatace valve ‘of Rs. 40-85 per share by NBCU @ fs. 7,015.05 per Page 64 0F 282 126“Assessment Oreler for AY 2008-10 in the cese of M/s, Hew Dslhi Television Limited: share and its subsequent sale back to the assessee’s another group company @ Rs, $34.17 per share, Is therefore a sham transaction and its @ fit case, which requires ‘the fting of the corporate vell 23.12 tt Js settled faw that if an arrangement hes no commercial purpose or economic substance and its purpose fs merely to evade tax and to constitute sham, colourable or bogus transactions with the pretence of corporate’and. commercial trading, then in such circumstances, it is not only. possible but necessary to lift the corporate veil. Once we left the corporate veil in the :context of the. impugned tronsbetion la the present case, the cleor facts emerging regording the trensaction reveal that the transaction Is engineered to result In clalm’ of loss. to NBCU and corresponding routing of the assessee’s own undisclosed money through its subsidiary. 4 2342 Regarding the NNPLC’s accounts being signed in India and its directors being India, it was contended that this was factually incorrect. The accounts of NNPLC placed on record were stated to be those which were used for the purpose of consolidation of financial statements of NOTV group as a whole to comply wth: the provisions of the Companies Act. The assessee further clalmed trat this office hed received information from HMRC, UK through the Treaty provisions, whereby the existence of NNPLC was confirmed. 23.424 On this issue, it 1s observed that the assessee was the ultimate parent company and the issue of shares and subsequent repurchase as above by its group companies was not without its directions. Rather, the assessee. Was itself a party to the agreement ond thus, it was the assessee, whith dictated terms as to the transaction. The position of the group company NNIH or NNPLC was no more then an agent of the assessee. Regarding the money amounting to Rs. 642.54 crores also, it ‘was the assessee, which was in ultimate control of the money. As discussed above, the ‘acts only necessitate lifting of corporate veil In the case, es the assessee cannot be permitted to hide behind the corporate veil in 2 case of the Impugned colourable device engineered to result in tax evasion, 23.13 Reliance in this regard was also placed by the assessee on the following case faws + () Ci vs Sofia Finance Ltd. 205 TR 9B (i) Crt vs Divine Leasing & Finance Ltd, 207 1TR 38, (lip COT vs Allahabad Bank Ltd. 73 TR 745 (iv) Green Infra Lid, Vs ITO ITA No, 7762/Mum/2012 Page 65 of 112 127“Assessment Order for AY 2009-20 in tha case of M/s. New Delhi Television Limited- 23,134 The cited eases do not help the assessee, because these are all diferent ‘on facts. In none of the cited cages, there is any finding of buyback of shares at 2 nominsl price or that of being a colorable deviee In place, resulting In tax evasion. 23.14 Lastly, the assessee also stated that the Hon'ble DRP's directions were Timid to objections with respect to additions made under section 69A of the Act and weve to exemine the additional evidence filed by the essessee vide applications dated 39.02.2013 ond- 24.10.2013, but the quertes raised by this office regarding the tansoction of NNIH were stated by the assessee: as not arising from the: sald directions. The assessee also suggested that this office was changing its opinion to make fishing and roving enquiries to tax the aforesaid sum on one pretext or the other. 23141 Regarding the above, it is observed that the assessee’s contention if factual incorfect. It ls Incorreet to suggest that the Hon'ble DRP"s directions were tinted to objections with respect to adltions made under section 69A of the Act ‘and were to exarnine the additional evidence filed by the assessae vide applications ssated 29.08.2013 and 24.10.2038. As stated In pard 2.1.4 above, the How’ble DRP ‘emanded the matter regarding proposed addition of Rs, 642,54,22,000/- u/s 69A uith directions to ascestain the taxabiity of this sum for AY 2009-20. Hence, the assessee's contention, being based on a factual Insccuracy, Is not acceptable, Ja5° in view of the above, i is subsnitted that it is necessary to It the corporate vei in the case and to assess the transaction in view of ts real purport. 33.6 Inite further reply deted 10.42.2033, the assessee has reiterated its earlier contentions, which are repetitive in nature and have already been addressed! in the curler post of this report. The assessee has further discussed the ingredients of section 69A and has contended that these are not present in Its case. 23.16.21 Im respect of the assessee’s above contentions, It Is observed that upon ifting the corporate veil, which Is both permissible and necessary in ‘the case, it Is clearly visible that the assessee is the ultimate parent company and the issue of shares and subsequent repurchase a¢ above by your group companies was: under the dictates of the assessee, which as per agreement also, was also a party to the transaction. ‘Accordingly, the assessee was In ultimate control of the money. The real ownership of ‘money was with the assessee. Hence, the addition u/s 69A ts correctly made by the ‘AO iin the draft assessment order. The condition for applicability of section B9A is not that the money should be In actual possession or control of the assessee. Rather, the condition is that the assessee should be the owner of.the monoy, whietrts fulfilled in the present case, © -<—~— * - 128‘Assessment Order for AY 2000-0 in the ease of M/s, Mew Delhi Television Limited- 2.1.6.2 The second condition of section 69A is that the money is not recorded in she books of accounts of the assessee. In the present case, It is undisputed that the money is not recorded in the assessee’s account books. 2.1163 The third condition is that the explanation offered by the assessee about the nature and source of money is not satisfactory, As elaborately discussed in the above paras of this report, the explanation given by the assessee about the nature and source of this money fs neither satisfactory nor tenable, 23.47 — Condluston 2.17.1 In view of the above facts and clrcumstances of the case, involving the round tripping Involving such: huge vartations in the rates without any basis or valuation, the transaction lacks economfc substance and commercial purpose and necessitates the piercing of corporate vel. It js therefore submitted that the amount of Rs, 642,54,22,000/- represents the asséssee’s own taxable income earned by it from undisclosed sources and the same Is taxable u/s 69. 2.3.18 Taxability of capital gains In respect of transaction involving receipt of, Rs, 642,$4,27,000/- 2.3181 As discussed shove, the receipt of Rs. 642,54,22,000/- represents the assessee’s own taxable Income earned by it from undisclosed sources and the same is taxable u/s 69A end the AO has correctly proposed the addition on this account in the draft assessment order? However, without prejudice to the above, tis submitted that the transaction also results in arising of income from capital gsins in the hands of the assessee. 23.182 At the cost of repetition, it is stated that during the yeor under consideration, the assesse New Delhi Television Ltd. (NDTV), along with four of Its subsidiaries nomely NDTV BV, NDTV Networks BV {NNBV}, NDTV Networks International Holdings BV (NNIM) and NDTV Networks Plc (NNPLC], had entered Into an agreement dated 23.05.2008 with NBC Universal Inc. {N@C) and Universal Studios International 8 {USBV). AS a Fesult, an amount of Rs. 642,54,22,000/- (US $150 millon) was received during the year by NNIH. The amount was received on account of subscription of 915,498 shares into NDTV Networks International Holdings BV equivatent to 26% effective indirect stake in NDTV Networks Pie. Page 67 of 112 @ Estate im 129-nsseserauntOrdet for AY 2008-101n the cate of M/s. New Delhi Television Limited: 25.183 The corporate structure used for the transaction is #5 under > Seiters_}[ 915.498 shares of NNPLC [Poconasers | [ J T NOTV holds 100% of REV Nec holds 68.6% of use NIH holds 90% of NoTV ey holds 92% of NNPLC 23.184 From the above, it is cleat that NOTV hada 86.80% stake in its indirect subsidiary NNPLC, 925,498 shores: {6% equity) of which was reduced on ‘account of referred transaction with NBC and USBV 3s stated above. As per the provisions of the income Tax Act, 1964 ("the Act"), the transaction attracts tex on resultant capital gains in the hands of NOTV. 23,185 NOTV Isa tax resklent of tndta and section § of the Act provides that its iabal income is taxable In Yada. Under section 45 of the Act, gain erlsing from aorvater of a capital asset Ts chargeable to tax under the head ‘agcome from Capital ‘Catna’, Copitah asset has been detined by section 2{24) 9s being property of any kind held by the assessee and Explanation of section 2(24) provides ‘that property includes the rights of management end control, oF any rights whatsveve in a company by virtue of shareholding In the company 2,318.6 Prior tothe referred transaction, NOTV was having 56.80% stake In NNPLC- ‘As such, it was having the rights of participation, management and control in the NNPLC to that extent, which was tbe property Of NDTV and was also a capital asset of NOTV within the: meaning ‘of section 2(14) of the Act. Vide agreement dated abe 2008, tis capita asset ovine by NDTV was tonsferel 99 NaC and USBV. tecause by disposing of 268% equity in NNPLC, the: stoted stake, and consequently, the 130sessment Order for AY 2008-10 in the case of fui/s. New Delhi Television Lined corresponding rights of participation, management and control owned by NOTY In NRVPLC are extinguished to that extent. As such, the gains tising to NDTV as 9 result of this transfer of capita asset were chargeable to tax under section 45 of the Act. 2.2.18.7 As such, vide letter dated 11.11.2013, the assessee was asked to explain the issue. tn response, vide reply dated 26.11.2013, the assesses contended that it ‘was a case of fresh Issue of shares and there was no transfer of property within the meaning of section 2(47) of the Act. It was, further contended that mere transfer will not trigger copital gains tax unless it results in accrual of consideration. However, its Shserved that as explained above, the txensactlon has resulted in tranctor of intrest in equity as defined in section 2(14) of ‘the Act, Further, the assessee wes itself 2 party to the transaction eed was therefore Instrumental In dictating the terms of the ‘agreement. Although the consideration 1s claimed to have been credited in the + sccount books of NNIH, vet in reality, the owner of the money isthe assessee ony. 3.3188 In view of the above, It is submitted that without prejudice to the subenissions that the impugned arnount Is taxable u/s 694 in the assessee’s hands, it's submitted that the sald amount is otherwise also taxable u/s 45 of the Act. 8.1) Vide its directions dated 31.12.2013 issued u/s 144C(5) of the Act, the Hon'ble DRP held that the corporate veil was required to be pierced in the case, The DRP further held that the transaction of issue of equity and ite subsequent buyback was a sham transaction. Accordingly, the DRP held that the amount of Re, 642,84 ,22,000/- was required to be added back to the asseasee’s taxable Income. ‘The relevant extract of the observations made by the HEn’ble DRP on this issue are reproduced as under : sideration of thi 5.20. DRP has considered ail the material available with it, the draft assessment order and the remand reports of the AO. Before proceeding further, it will be of use to put the entire controversy In globe! perspective. Organization for Economic Co-operation and Development (OECD) and G20 countries are running a project known as Base frogon and Profit Shifting (BEPS. The. website of - OECD hitp://www.oeed.org/cto/beps.titm (accessed on 24.12.2013) tas the following on this issue "ig an increasingly interconnected work, natlonel tax laws have not kept poce with global corporations, fluid capltol, amd the digital economy, leaving gaps thot can be ‘exoloited by compenies-who avoid taxation in thelr home countries by pushing Page 69 of 122 131sesesement Order for AY 2008-101n the case of M/s New Pel Television Limited cctvines abroad to tow or to fax jursdictions. This undermines the foirness ond ineegrity of tox systems: The project, quickly known 6S EPS (Bose Erosion ond Profit Shifting) is looking ot whether the current rules ‘allow for the oflacation of toxable profits to locations afferent from those where the octual business activity takes ploce ‘and if not, what could be dane to change ths ‘at the request of G20 Finance Ministers, in July 2013 the OECD launched on Action tan on Bose Erosion ond Profit Shifting (BEPS) ‘identifying 15 spedific actions needed im order to equip governments with the domestic ond international instruments to “cdéress this ehaltenge, The plan recognises: the importance of addressing the tporderless digital econonty, and will develop @ new Se¢ of stundords to prevent double ron-toxotton This wil require closer internationot co-operation, greater transparency, vate and reporting requirements, To ensure that the ‘actions can be implemented quickly, a mantilaterol instrument to amend bilatero! tox treaties wil be developed. ‘This Action Plan wos fully endorsed by the 620 Finonce Ministers and Centrol Bone Governors at their July 2013 meeting in Moscow os well ag the 620 heads of state ot sie meeting In Saint-Petersburg in September 2029, The actions outlined in the plon ore aimed to be delivered within the coming 18 to 24 months. For the first time ever in tax matters, non-OECD/G20 countries ore involved on an equal footing. osm Bs ot the core of counties! sovereignty, ut In eaens Yam multinational reempanies have avoided exation i thelr ome counties PY pushing activities obrood Cor no tax jurisdictions. The G20 axed OBCD to address His ro1ging problem by ‘reoting this action plon ta address bose erosion ‘ond profit shifting. This plan Identifies a serles of domestic ‘and international ‘actions to address the problem and sets timelines for the implementation.” ‘The Introduction to Action Plan On Base Erosion And Profit Shifting document has the fotling statement which Is pertinent in his case which If reproduced for the ease of reference. eqhese developments have opened up apportarities for MNEs to greatly minimize shale tox burden. This hos fed to a tense situation which eitizens have become More sensitive to tox foness issues. It hos become o cite ISS for atl porties: Many governments have to cope with less revenue ond a higher eost to ensure compliance. Moreover, Base Erosion and Profit Shifting (BEPS) undermines the integrity of the tox system, asthe public, Ure media ond some toxpoyers deem reparted low corporate taxes (0 be unfair. n developing countries, the tock of tox revenue feads to critical under-funding of pitblic investment that could help ‘promote economic growth, Overall resource ‘allocation, affected by taxmotivated ‘ehavfor, is not optimal, =~ . 132Assessment Ortler for AY 2009-10 in the case of M/s. eur Delhi Television Limited © ladiuitkval tox payers are harmed, When tax rules permit businesses to reduce their tax burden by shifting their income away from jurisdictions where Income producing activities ore conducted, other taxpoyers in thot jurisdiction bear @ greater shore of the burden. = Businesses ore harmed. MNEs may face significont reputational risk if their. effective tex rote is viewed as being too low. At the some time, different businesses may assess suich risk differently, end failing to toke advantages legal opportuiitties to reduce’on enterprise's tox burden can put it ot © competitive disadvantage. Stmniforty, corporations that operate only in domestic markets, including formilyawned businesses ‘or new innovative companies, have difficulty competing with MNEs that have the bility to shift their profits across borders to ovold or reduce tox, Fair competition is harnved by the distartions induced by BEPS." ia is a signatory and pert of G20 Project. 3.11, The above references are important and pertinent In this case. Two conglomerates are involved in this transaction. One is the assessee- NDTV India Ltd, and its subsidiaries. The second Is GE Group of Compantes, Asis well known, NDTV has its operation mainly In india and the proposed venture of NDTV Labs otc. (please see the diagram above) were also loeated in India. tt ts not possible to fathom out the intention of the”assessee or the business rationale to float the companies in Netherlands to indulge in such oomnptex and layered transactions. This is the precise kind oF holding structures which are the subject matter of BEPS project. 5.42, The decision of the Constitutional Bench of the Hon'ble Supreme Court in the case of MeDowell and Co. Ltd, v. CTO (1985) 3 SCC 230 fs squarely applicable to this cose. Further, even the judgment in the ease of Vodafone International Holdings BV vs. Union of india (345 ITR 1} has held as follows: "67 suman Stintarly, If on acteat controlting Non-Resident Enterprise (NRE) makes an indirect transfer through “abuse of organisation form/legal form and without reasonable business purpose” which results in tox avoldance ar avoidance of withholding tax, then the Revenue may disregard the form of the arrangement or the fmpagned action through use of Nan-Resident Holding Company, re-charactertze the equity transfer according to its economic substance and impose the tax on the ‘actual controlling Non-Resident Enterprise-Thus, whether a transaction Is used prinelpally as @ colourable device for the distribution of earnings, profits and pains, is determined by @ review of oll the facts and circumstances surrounding the transaction’. tt is in the above cases that the principle of lifting the corporate vell or the doctrine of form or the concept of beneficlo! ownership or the 133_assessrnemt Order for AY 2002-10{n the cave of M/s, New Delhi Television Umited concapt of alter ego arises, There are many circumstances, apart from the one given snoce, where separate existence of diferent companies, that are pert of the some group, will be totally of partly ignored as = device OF ® conduit (In the peforetive sense). 68, The common low jorisierons do invariably Impose taxation agenst 2 corporation oced on the legal prgctple thot the corporation's “a person thet Js separate from its members itis the decison of the House of Lords in Solem v. Solomon (1897) AC. 22 thot opened the door to the formation of © corporate. afevP- fa “one man” emporetion could be incorporated, then it would follow that one cerporation could be [ Purchasers x i T | now [ olds 100% of vies homie NNBY, Nec holds 68,6% of : sev nt holds 90% of Now ev holds 92% of INPLC 2.3.18.4 From the obove, it is clear that NDTV had a $6.80%6 stoke in Its indirect ‘subsidiary NNPLC, 915,498 shares (2696 equity) of which was reduced on account of referred transaction with NBC and USBV as stated above. As per the provisions of the Income Tox Act, 1961 ("the Act"), the transaction ottracts tox.on resultant capitol gains in the hands of NOTV. 23.185 DTV is ¢ tox resident of India and section 5 of the Act provides that ls global Income Is taxable In india. Under section 45 of the Act; goin orising {from teansfer of 2 capital osset Is chorgeable to tax under the head ‘Income from Copitel Goins’. Capitol asset has been defined by section 2(14) os being property of ony kind held by the assessee and Explanation of section 2(24) provides thar ‘property includes the rights of management and control, or any rights whatsoever, In @ company by virtue of shoreholding In the company. 2.3,18.6 Prior to the referred tronsaction, NDTV was having 56.80% stake in NNPLC, As such, it was having the rights of participation, management and ontrol in the NNPLC to that extent, which was the property of NDTV and was ‘lso a copie) esset of NDTV within the meoning of section 2(14) of the Act. Vide ‘ogreement dated 23.05.2008, this capital asset owned by NDTV was transferred to NBC ahd USBV, because by disposing of 26% equity in NNPLC, the stated 141“assessment order for AY 2008-20 Inshe case of Mi/a: New Dethi Television Limited: stoke, ond consequently, the corresponding Pts of participation, management ‘and control owned by NOTY In NNPLC ore extinguished to that extent. As such, the gains risiag to NDTV aso result OF this tronsfer of copital asset were horgeoble to tax under section 45 of the Act 2318.7 As such, vide letter dated 11.11.2013, the assessee was asked £0 explain the fesue. In response, vide reply dated 26.12.2013, the. assessee cntended thot it was o cose of fresh issue of Sr and there wasno tronsfer of property withio the meoning of section 12(47) of the Act twas further contended that mere transfer wil not eigger eapltal gains tax unless # resis Io occrual of consideration. However, irs observed thot as explained above, the transaction thas resulved in transfer of interest in equity 25 defined in section 2(24) ofthe Act. Forther, the assessee was Kseif 2 porty €0 the transaction and was therefore instrumental in dictating the terms of the agreement. Although the consideration is cloimed to have been credited In ‘he account books of NNIH, yet fa realty, the ‘owner of the money is the ossessee ‘only. 2318.8 inviewof the above, it submitted that without prejudice to the submissions that the impugned amount is Taxable u/s 69A in the assessee’s honda, is submited that ee sovd omount 5 ‘otherwise also toxoble u/s 45 of the Act.” 5.45. Further, the AO was asked £0 $0 mamanze Wis oral submissions presented before the DAP during the course of hearing of 23.12.2013. The AO surmmarized hls oral Srqument and filed @ letter dated cepreduced below: 36.12.2012, The relevant part of which is gezft It is observed that the maaessee compony had incorporated WNPLC In uKin November, 2006 05 Its 100% subsidlory ‘ond thereafter, NNPLC. wos made subsidiary of NNBV, when month ofter Incorparotion of NNPLC, NNBV wos incorporated in December, 2006. Thus, being 100% subsidiary, NNPLC wos conceived and controlled by NDTY, Atthough NNPLC cannot be said to be an St ace MTV oe OL ay 100% subsidiary of NTDV, the facts regording the ‘controt exercised by NOT over the voffasrs of NNPLC oF discussed below We 142“Assessment Order for AY 2008-10 In the case of M/s. New Delhi Television Uimited- 2.1.18 NNPLC wos incorporated on 30.11.2006 with 0 meager capital of cbout Rs, 40 locs only ond was liguidated on 20.10.2011. The stated purpose of NNPLC wos to create new business areas for NDTV os well as to unlock valve of existing operations and skills, however, NNPLC did not corry on any business activities on ‘ts own. In between its incorporation and itquldation, the activities of NNPLC os the role of NDTV therein, are summarized belows- Financed ‘Activities Role of NOT Year 2007-08 | USD 100 million were| WNDLE hod only a meager cophel of rolsed through Step Up | Rs. 40 lacs and did not have any Coupon Convertible | business activities, any fixed assets, any Bonds. Ploce of business except. a postal address in UK, was-a new entrant without ony performonce record, was 0 Joss making compony hoving incurred loss of about As. 8.34 crores during the year, hod invested in toss making ‘companies ond had Its share’s face value of fs, 40-45 par shate and book value in the negotive. The raising of USD 100 million ws possible sotety because the assessee company NOTV had given an undertaking to provide a corporate guarantee for ond on beholf of NMPLC, 3 ond when required, in accordance With the terms of the Contracts and the Supplemental Trust Deed to be executed by the Company, 2008-08 | 26% of its stuke wos Wwonsferred to NBCU for Rs. 642,84 crores by way of issue of ‘subscription equity of orent company NNIH. ‘Agaln, NNPLE hod only a meoger capitol of Rs. a0 locs and did not have any business activities, ony fixed assets, ony place of business except a postal oddress in UK, was o new entrant without ony performance record, was ¢ oss making company hoving incurred oss of obout Rs. 8.34 crores during the yet, had Invested in toss making ‘compontes oind hoi its share’s face value f Rs, 40-45 per share and book velue in Page 81 of 112 143"Assessment Oreer for AY 2009-10 In the case of M/s. New Belhl Television limited- — t the negative. Looking at the focts| objectively, no prudent investor would be investing Ris. 642.54 crores in such 0 loss making compony having investments also in loss making componies, more so, 00 prudent investor would be paying a rate of Rs. 7,025/- per share in the situotion. The reflected tronsection of subscription of shares ot the stated rate, os aireatly submitted in the remand report dated 11.12.2013, is ‘a stom transaction. Not only this, the entity NNPLC is no more than @ controlled agent of NDTV, which Reelf| dictated the terms by being @ party to the purported Agreement and thus, j Introduced its own unaccounted income ‘from undisclosed sources with the helo | of this reflected transaction. Out of this, Rs. 254,75 crores is stoted to hove been transferred in the account books of) NNPLC In the shape of unsecured loon | from NDTV~BY. Again, the ossessee NOTV és a porty to the Loan Agreement. Networks repurchosed Dy NOT through its | U NDTV hes stated in its Annual Report subsidlory NDTV| thot NDTV through its subsidtary DTV BV| Networks BV, repurchased 26 percent 26 | indirect stake held by NEC Universat percent indirect stoke | Ine In Its subsidiary NDTV Networks held by NCU NNPLC. in\Ple, Though the shares purportedly subscribed, not purchased, by NBCU were those of NIH and not of NNPLC, | the 2% in vertical subsidtary of NNIM, yet | it con be seen that the emphasis is on NNPLC ond there is no reference to NNIH ‘orNOTVBY. : eel it is further pertinent to mention thot ‘the repurchase, occurring borely ofter 18 months, wos for about Rs. 58 crares only Page 82 of 112 144Nisei RNC a ‘os against the ‘purchose’ for Rs. 642.54 crores, There is no rationale in this transaction ~no commercial purpose or economic substance, other than to { create o loss of Rs. 584 crores for NECU | ‘ond introduction of own unaccounted i money for NDTV. | {i) NNPLC repurchosed | (i) The final transoetion before the US$ 100 Miléon Step | Nquidetion of NNPLC vos the purported | up Coupon Convertible | repurchase of Step Up Coupon | Bonds issued by it Convertible Bonds, However, the pice of| \ earlier. the coupons reflected at Rs, 399 crores | 2 as’ on 31.03.2008 aad ot Rs. 509.50 crores 0s on 31.03.2009 {the alfference | of Rs. 14050 crores stoted to be on 5 ccount of currency fluctuation) would j further escalate ot the tine of | rrepurchose ond when WNELC hod 0 | capital of Rs 40 lacs only ond | investment in lass moking companies, then it remains to be verified 0s to how NOTV / NNPLC discharged Its lability towards the pacino! ond interest payable to the investors on the said repurchose. - {the generation of taxable revenues in nda — factor as in Vodafone case) pod 2219 From the above, the Inevitable conclusion is thot NNPLC was o ‘special Purpose Vehicle (SPV) created by NDTY, which acted as agent of NOTV for the purposes of NOTV ond was liquidated as soon as it had outttved the purpose of its creotion, {the continulty of business on such quit - factor as in Vodafone case) 2120 In the case of Adams vs Cape Industries Pic (1990) 2 WA 6578), it ‘wos held that one of the three circumstances in which the corporate veil may be Lifted would bé in o situation, where the subsicipry fs an agent of the company. to the present ease, the sitvation is the same ond the business affairs of the holding compony NOTY and the-subsidiary NNPLC dre 0 Intertwined that itis not only ate x 145-ageacernent Order for AY 2009-20 inthe case of M/s. New Dethi Television Umited- permissible but necessory to ift the corporate vei, The intertwining fs evident ram the foct that NNPLC carried out only two major transactions during is existence « the 2° transection wos to raise USD 100 million through Step Up Coupon Convertible Bonds, which was possible only due to undertaking for corporate guarontee offered by NDTV and NDTV was a party to the Agreement ‘along with NNPLC and the 2" transaction wos the indirect transfer of 265 of its stoke to NBCU by way of subscription in equity of porent company NM, in whieh goin, NDTV was 0 party t0, the Agreement olong with NNPLC. in, both tronsoctions, it was NTYDV which dictated the terms ond in neither of the two tronsoctions, NNPLC acted independently. Under. these circumstances, it i evident that NNPLC Is 0 mere facade entity on beholf of NDTV ; ond without prejudice to'this, NNPLC Is beyond doubt an ogent of NOTV. 212t —* Assuch, It fit cose, in which corporate vel.needs to be ifted sind once the vellis lifted, with regard to the present proceedings for AY 2009-10, itcon be observed os under i a NOTV through NNPLC has jotroduced its own urtoccounted Income from undisclosed sources: amounting to Rs, 642.54 crores in the garb of equity subscription, Detoiled report regarding toxability of this sum has already been submitted to the Hon'ble of? vide letter no. 1794 dated 12.12.2013. NDTV through NNPLC has enhonced the liability on account of Step Up Coupon convertible Bonds by Rs. 110.50 crores in the Balance Sheet of NNPLC from ze. 399 crores to Rs. 509.50-crares, which is stoted to be on account of currency tronslotion. Further, NDTV fas Introduced uasecuced foane amounting to fe. 254,75 crores from NOTV BV in the books of NNPLC. The tax implications of this Issue ore the subject matter of the present report, which nacessitated the iting of corporate vel fs, os aiscssed in the precedlng paras of this report.” [old and underlined lines in flower brackets are added bythe DAPI 5.16089 has carefully considered the entire gamut of transaction and is of the opinion that the structure of holding/subsidiary companies and the transaction a5 narrated above, without any commercial substence, do warrant lifting the corporate veil to Tent the tre nature of the tronsaction. Though AO In is remand report nas said that the money has-niot becn recorded inthe books of assesses, efter Hing the corporate veil, the DRP finds that in this case 3 sum of Rs. 642,54,22,000/- has been ound credited In the books of assesste/ its subsidiary for the previous yéer (FY 2008- 05) under consideration. ‘Though the assessee hes Sought to explain the above amount ON page 84 of 232 146°Assessment Order for AY 2009-10 jn the case of M/s. New Delhi Television Limited= through the lengthy and cireultous 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 catled business projections and the basis for computation of the sale price of the share at the astronomical price of Rs. 7,035/- which ts 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 s: orice, interestingly, the assessee/ subsidiaries have again repurchased the same share in the very next financial year at the price of Re_ 634.17 per share totalling Rs. 58 crores. Here also 00 details/ justification has been given by the assessee as to how the above buy back price was fixed by the assessee when the $0 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 valve 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 8V Netherlands. 5.16.2. tn view of the facts and finding as mentioned above and taking the totality of the pleture into consideration, it is held-thot assessee has brought en amount of Rs, 642,54,22,000/- being unexplained money in to its books through its subsidiery NOTV Networks BY Netherlands. It is pertinent to mention thet, as per the admission of the assessee the above subsidiary has been subsequently tiquidsted, which shows that the same was fluated only to create a front for introducing the sbove pmount. 5.16.2, The DAP has considered the addition proposed by the AO and finds the addhion 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 aftes lifting the corporate vell, the assessee Is found owner/ controller of money under reference.” 8.22. In view of the conclusion made by the Hon'ble DRP on the issue in para 5.16.2 of ite directions dated 31.12.2013 u/s 144C(5) of the Act, vide this office Jeter no, 1963 dated 16.01.2014, the Hon’ble DRP was requested to clarify a5 under : re ~~ iindly refer to the directions Issuied 6h 31.12.2013 u/s 144C{5) of the Act in the above mentioned case. % tenis 147-Aasessment Order for AY 2009-10 in the case of M/s. New Delhi Television Umited- 2. inthis regard, itis submitted that in the draft assessment order, the AO had proposed an addition of Rs, 642,54,22,000/- u/s 69A on account of ‘unexplained money. Vide para 5.16.2 at page : 22 of the directions dated 34.12.2013, the Hon'ble DRP has observed as under : "8.46.2 The DRP has considered the addition proposed by the AO and finds the addition is fully justified in view of facts mentioned above, The DAP is of the considered opinion that the facts of the case fits for making ‘addition uis 68 of the IT Act as unexplained cash credit. Even addition ws 69A as proposed by the AO Is also justified, as after lifting the corporate veil, tha assessee is found ewnerfcontroller of the money under reference.” 3 eis respectfully submitted that the provisions of section 68 and section 9A are mutually exclusive. While section 68 of the Act applies if an amount Is ‘recorded in the books of accounts, section 69A will apply if the amount fs not ‘recorded in the books of accounts. As such, while giving effect to the directions, it may not be possible to make addition u/s 69A in the alternative of addition v/s 68 of the Act. Further, it is not clear as to whether addition proposed v/s 69A as proposed by the AQ stands confirmed, becaise the facts of the case have been held to be fit for making addition u/s 68 of the Act. 4. taview of the above, It Is requested that the Hon’ble DRP may Kindly be pleased to clarify/modify its directions to the extent of applicability of section '69A of the Act as proposed by the AO in the draft assessment order dated 31,03,2013 as augmented by remand reports dated 14.17.2013 and 26,12.2013." 8.12 In response to the above referred request for clarification, the Hon'ble DRP communicated as unde: *Aner going through the order of the DRP dated 31/12/2013 in the above case, the DRP finds that it has come to @ conclusion that the AO has justified thet the: transection of Ree. 642,84,22,000/- is a "sham transaction, Further, on the event of “ifing of corporate vei DRP finds thet this Is a fi case where addition is ateo justified uls 68A of the Income Tax Act in this case. The Assessing Officer, therefore, cen conclude the assessment based on the above direction.” 8.14 In view of the above detailed facts and circumstances of the case and in compliance with the directions of the Hon‘ble DRP as reproduced above, it ie held that the transaction involving the receipt of Rs. 642,54,22,000/- by the assessce's subsidiary company during the year is a “ham” transaction, through which. the 148LRosessment Order for AY 2009-10 In the caso of M/s. New Deihi Television timited- 1 4 9 sutce of which the assessee bas not been able to offer satisfactory explanation, The amount of Re, 642,54,22,000/- is hence added to the aseessee" taxable income a fs O9A of the Act 8.15 As 1 am satisfied that on this issue, the assessee has concealed the jarticulars of its income within the meaning of section 271(I}{c) of the Act, therefore, penalty proceedings are separately initiated. {Addition : Re, 642,54,22,000/-) 0. Addition on account of unsecufed loans ainounting to Rs, 254.75 etores 9.1 It was observed that during the year, the assessee company, through its guarantees, raised an amount of Rs. 365,25,00,000/- as unsecured tons through. les subsidiary NDIV Networks Plo ("NNPLO’), United Kingdom. However, the reply om the issue was furnished by the assessee during the assessment proceedings on. 30.03.2013, i.e. one day before expiry of imitation for completion of assessment. ‘Therefore, the DRP was requested to exercise its powers u/s 144C{7) of the Act and lo cause further enquiry as it thinks fit on the facts and in the circumstances of the 9.2 Consequently, the DRP remanded the matter to the AO u/s 144C(7) of the ‘Act and directed the AO to conduct further enquiries in the ease, as directed vide he following letters issued by the DRP :- ()_ F.No. DRP-I/Del/2013-14/259 dated 24.10.2013 ti} F.No, DRP-II/Del/2013-14/262 dated 28,10,2013 Gi) No. DRP-I/Del/2013-14/278 dated 01,11.2013 2.9. During the resmund proceedings, the asecssce wa eoked to explain regarding the impugned transaction and after examining the issue and considering the carious aspects of the transaction, report was submitted to the Hon'ble DRP vide this office's letter F.No, ACIT/Circle-13{1)/NDTV/2013-14/ 1794 dated 11,12,2013, the relevant extract of which is reproduced as under :- "2.4.Tax Implication of unsecured loans emounting to Rs. 365.25 crores received by NDTV through Its subsidiary NNPLC 2.4.1 Tho Hon'ble ORP vide letter no. 262 dated 28.10.2013 had directed further quiries to be made regarding the unsecured loans amounting to Rs. 365.25 crores allegedly received by NDTV through Its subsidiary NDTV Network Plc (“NNPUC") and ‘the taxlinplication thereof. 5 24.2” Vide this office's letterno. 1705 dated 12.11.2033, the assessee was asked‘Assessment Order for AY 200010 in the case of M/s, New Delhi Television Limited 2.3 During the year, the aesessee company, through Its guarentees, raised an amount of Rs. 365,25,00,000/- 25 unsecured loans throuph its subsidiary NNPLC. Please furnish the complete details along with documentary evidence regarding the source thereof, ve, the identity of the payers, the creditworthiness of the payers and the genuineness of the transactions. 243 im response, vide letter dated 26.11.2023, the assessee contended thet during the year under consideration, there was an Increase of Rs. 110.50 crores in the mount of unsecured loans In the Batance Sheet of NNPLC, which represented an inerease due to currency fluctuation. The assessee further stated that during the previous AY 2008-08, it had ralsed loans amounting to Rs. 999 crores by way of Stet Up Coupon Bonds and the enquiry regarding the source and genuineness thersof hed ajready been completed during the course of assessment proceedings for AY 2008-09, it was claimed that complete evidence regarding the same had been filed before the ‘AO during the sald assessment proceedings and the AO had also obtained information from HMRC through FT & TR. Vide further reply dated 29.12.2013, the assesses also {ited copy of exchange tates for the relevant period, 24a Vide this office’ letter dated 05.12.2013, the assessee was confronted as under "2.2 Regarding the ralsing of Rs, 365.25 crores as unsecured loans 224 Regarding the raising of an amount of Rs, 365,25,00,000/- es unsecured tans through your subsidlary NNPLC, vide letter dated 14.14.2033, you were requasted to furnish the complete details along with documentary evidence regarding ‘he zource thereof, viz. the entity of the payers, the creditworthiness of the payers and the genuineness of the rransactions. You have stated in your reply fled on 26.11.2013 thet sum of Re. 254.75 crores was ralsed by NNPLC from its immediate subsidiary NDTV Networks BV. Another addition of Rs, 110.5 crores Is stated to be on sccount of currency translation. However, no evidence has been filed by you in cupport of your assertions. 22.2 _Inyour above reply, you have also alleged as under > “purther, the complete list of the subscribers of bonds, subscription agreement and caher relevant details were duly filed during the course of the assessment of AY. 08-09, The above bond amount is duly confirmed by NNPLC fo HMRC, UK on the, recuishlon of FF & TR Further, the compete Information with respect to rtsing of trans ware duty fled before vestigation Ofier ond OFF (ht) daring the course of camemant and wat also discosed in the Audited Accoants ofthe NDTV for 20069 and omwapir ie ‘of the above, we request your goodself to kindly aoe Page 89 of 112, 150‘Assessment Order for AY 2009-20 In the case of M/s. New Delhi Television Limited consider the decuments submitted in the assessment: of AY 2008-08 and report cbtained in the course of assessment from HMRC which are already on rotor.” 2.22 Ih this regard, it is stated that the assessment record in your case for AY 2008-09 has been perused and:it Is found that there are no such documents on record. Accordingly, you are glen an opportunity to now file the following documents, which are stated to have beer fled by you earlier = i) Complete list of the subscribers of bonds, subscription: agreement and other relevant details claimed to have been filed duting the course of the assessment proceedings for AY 2008-09. (i) Complete information with respect to raising of bonds claiined to have been flied ‘before Investigation Officer and DIT (intl) during the course of assessment proceedings, 2.24 Im this regard, please also refer to Setter filed by you on 29.12.2013, wherein you have stated that the increase of Rs. 130.50 crores In the Step Up Coupon Bonds is merely the reinstatement of foreign currency lability. in this regard, please furnish the relevent coples of accounts along with complete book entries made in Journal, Ledger, etc. in respect of the said increase reflected In the accounts. Also furnish copies of accounts regarding interest pakd to the sald investors during the year. 225 Regarding the balance addition of Rs, 254.75 crores in the unsecured loans, you have claimed that the relevant documents havé been filed during the assessment proceedings, Perusal of the assessment record reveals that there are no such documents on record. Accordingly, you are given an opportunity to: naw file these documents, which are claimed to have been fited by you earter. 226 In the absence of the discharge of onus by you In respect of the above ‘transactions of raising unsecured loans, in the light of facts of the case discussed In the foregoing paras of this letter read with letter dated 27.11.2013, please explain and substantlate your position.” 245 Iiresponse, vide letter dated 10.12.2013, the assessee stated that out of, the total addition of Rs. 365.25 crores appearing iri the Balance Sheet of NNPLC, an amount of Rs. 110.50 crores was on account of adjustment of fluctuotion in exchange rate of curteney and regerding the balance amount of Rs. 254.75 crores, the assessee. sated that. this wos the unsecured loan obtained from NDTV BV. However, no confirmation was filed-nor-thls office was afforded arly verification regarding the 151—nasesement Order for AY 2009-10 nthe case of M/s. ew Delhi Television Limited creditworthiness ofthe fender or the genuineness of the transuction In the absence st these, the assessee has not dicherged its onus u/s 6B arid thers 5 80 alteraative tut to propose that the amount of Rs. 258.75 crores may be added fo the assesseo's taxable Income for the year under consideration. Further, [tis pertinent to mention that although the assessee calmed that “the complate ist of the subseribers of bonds, vubserigtion agraement and other relevant detail were duly fed during the course of the aisessment of AY 08-06", yet no such detatts were found in the assessment records, nich was specifically confronted to the assessee and Yet, the assessee has failed to substantiate its claim.” 9.4 The copy of the remand repuit dated 11.42.2013 referred to and reproduced in para 9.3 above was forwerded by the Hon'ble DRP to the assessec on 16.12.2013 and the assessee Was asked to treat the same ‘as enhancement notice by the DRP. In response, the assessec sought to furnish additional evidence, which was handed a se ethe DRP to this office for report on the same, Consequenit, werlhe remand report dated 11.12.2019, another report we subshitted to the ‘Yon'ble DRP vide this office's letter P.No. "ACET/ Citcle-13(1) /RDIV/2013-14/ 1832 dated 26.12.2013, the relevant ‘extract of which is reproduced as under : s kindly refer to the proceedings during the hearing conducted by the tion'ble RP on 23.12.2013, wherein the assessee was to furnish documentary svidence inthis office on 24.12.2013 and the undersigned wast sabrnit the final ‘eport on the issue of unsecurad Teens to the tune of RE. 365.25 crores. 2. tmthis regard, and in continuation to this office's letter no 1705 dated 11.12.2013, the report in the matter i submitted es under = 2.1 Tax tmplication of unsecured! Yoans aurounting £0 BS 365.25 crores recelved by NDTV through its subsidiary NNPLE 2.1.1 The Hon'ble DRP vide letter no. 262 dated 28.10.2013 had directed ‘orther enquiries to be made regarding the unsecured loans amounting to RS. 3365.25 crores allegedly received by NDTV through fee subsidiary NDTV Network ole (CNNPLC") and the tax Implication thereof. 212 Vide this office's letter no. 1705 dated 12.11.2015, the assesse2 was, ‘asked to explain on the Issue as under 152-Assessment Order for AY 2009-10 In the case of M/s, New Del felevision Limited 1538 2.4.3 In response, vide letter dated 26.11.2013, the assessee contended as under 5, Furnish the details in connection with aeseseee company, through guarantees, raising an amount of Rs. 362,25,000/- as unsecured loans through its subsidiary NNPLC end show causo why the penal provisions and other echseguence may not be invoked for this default $4 Atthe outset, I submited that the sald show cause is misconceived and \withour Jutiedietion 2 the proceedings wiich are pending on date are pursuant to Graf assessment order passed under section 143(9) sead wih section 1446 of the ‘Act which in no manner suggest thal the ssseszing officer could ‘niGate penal provisions ot issue show cause for penal provisions and other consequences. 52 Be that I may 0 dnd without prejudice to above and the right to-challenge ‘the velidty of the ‘shove show cause al an appropriate or appelets stage, tis submitted that the show cause is completely misconoeived in the assessment of NDTV as the unsecured foons which are in question are part of the Finencial Statements and Belance Sheet of the NNPLC which Is a separate legal entity and this hes no effect and consequence on the assessment of the assessee, Thus, Kis prayed thal the same may kindly be wihdrawn. 153. Hoving said co and without prejucce, itis aleo submitied that te amount Which ig etsted In the show cause seems to be incorrect 28 no such amount was, ‘ised by the NNPLC through the guerantees issued by NDTV duting the year in ‘quosion, On the coniraty. the amount slated in the ¢eid show cause Ie a difference between the liabities 23 exist on March 31, 2008 and Marciy 34, 2008 in the Balance Sheet of the NNPLC. {The copy of the same is already om record eric for the ready referance Is enclosed as Annexure — f of this submission) 54 tn View ie above, the essea0e6 hercin below explains the noture of the above Kabiities of NNPLC as undersiocd in Para. §.3 of this lettet In order fo faeciitate completion of the remand proceedings arising in course of the ‘proceedings pending before fhe Hon'ble DRP for the year in question 5 During the year under consideration NNPLC reised 2 sum of Re, 254.75 Groves from Rs intermediate holding company NDTV Networks BV. Further, there is an increase in the lability towards the repayment of Bond holders. from Ra. 399 Crores to Rs. 600.5 Crores as on Stet Marclv2009, thus, there is an increase of Re. 110.5 Crores due to currency tansiaton, ‘Therefore, the total increase in Habis ducing the year was Rs. 365 Crores. The copy of account in this regard Is enclosed as Annexe - 2 of this submieston. £6 respect of the loan febity of Step, vp Coupon: Bonds, during the immediately preceding year Le. AY 06-09, the complete enquiry wes made by AO ‘of NOTV In respect of Issuance of bonds ay NNPLC. In this regard that the relerence wos also mode to FT & TR end the Information was called fon HMRC, UK. The ‘as (08.09 wis completed and the addton of guarantee eae \Page D1 of 212 GED 7 () S)Assessment Order for AY 2009-10 in the case of M/s. New Detht Television Limited fee under vestion 620 of the Act was made. The reason for sek! addfion was based on premise thel NDTV hos provided en undertaking to give guarentee fo Cenuholders ducing the period of bond holders agreerhent, thus, it ought to hove ‘horged guarantee fe, being an internalone transaction under tre scion 226 of tho nat fom NOTY Networks Pi, The simfer adaliion of Guarentee fea was also eae in AY 00-10 by TPO. Further, the complete list of the subsertbers of Donde, subscription agreement and other relevant detalls were duly filed during the course of the assessment of AY 08-09. The above bond amount fe duly confirmed by NNPLE to'HMRC, UK on the voquiestion of FT & TR. Further, the complete information with respect Te vataing of honds wore duly filed before Investigation officer and Dir nth during the couree of aésctsment and wae also disoloved In the Audited Accounts of the NDTV for AY 2009-09 and onwards. in vigor bf the above, we request your goodself to kindly conalder the Usoumonts suomitted in the astesement of AY 2998-09 and report Sbrained tn tho course of saccssment from HMRG whict ere already on record. 157 Inogerd to an ftom NDTV Networks BV, the amounts duly dleloeed fo 57 ocks of NNPLE end NDTV Networks BV and the copies of the financials Stetoments of both the above subcidiories were fled before the Ld. AO during the Source of assessment. This loan was given out of the proceads of share scbserpion received fro NECU. All recessaiy documents wiih respect 10 the Gmount recelved trom NECU thet Is confimetion, identity, crediworthiness is sroady placed on recotd before your goodsel by the Hon'ble DAP, thus, we ‘quest tome may sls kindly be considered in respact ofthe trensaciion. In order ve substantiate the ian of tre Creditor, ts creditworthiness snd the geiuineness of gha tencacion, the copy of the Audlted Accounts of NOTY Networks BV #= snelosed ag Annexure —~ 3 ofthis submission. 58 AL this juncture, the essossee ferventy believes io tant of the fos Somited above thot there is no cause of acon oF default commited by the esessee which warrents iniSation of penal provislors or. other consequences Graer the Act thus, ts prayed thet the sbeve show cause may Kindly be wanda, 214 Vide letter no, 1741 dated 27.11.2013, the sssessae was again confronted on this issue as under 2.2 Regoeding the raising of an amount of Rs, 365,26,00,000/- 98 unsecured loans through your subsidiary NNPLC, vide letter dotad 11.11.2048, you were requested te fomish the complete details atong wih documentary evidence regerding the ‘Soutoa thereef, viz. the Wnty of the payers, the creditworthiness of the payers Sra the genuineness of the tansactons, You have staled in your reply fled Je112088 tat sum of Re. 264,76 crores was reised by NNPLC from Bs imanadiota subeitiary NOTY Networks BV. Another addition of Ri. 110.5 crores is ‘Gated to be on account of currency Wransition. However, no evkdercs has been ‘led by you in support of your assertions.” 154‘Assessment Order for AV 2008-10 in the case of Mi/s. New Delhi Telovision Limited- | 5 5 215 Vide the same letter, the control and management of M/s. NDTV Network Plc, UK being with the assessee company M/s, New Delhi Television’ Uimited was also confronted as under = “2.1.1 Neither NNIH nor NNPLC were having any business ectivities. NNIH was @ holding company and HNPLC was incorporated to promote the inferosts of NIE ‘and other group companies. NNPLC did not have any business activities. It had no fixed assets and there was no rent paid. Apart trom incorporation, in UK, NNPLC had no presence in. UK, The address. of NNPLC in UK waa that of the Company Secretary dealing with te tox matiors, The Directors of NNPLC were Indion ens ne vdit report of NNPLC was signed! at Gurgaca In India, The authorized hore caphatot NLC Was enly auOUt RS. 47 208, ln response, the assessee vide its letter dated 29.11.2023 replied os “'1.43 Without prejudice to our submission, .e. the transaction in question is genuine transaction end has been done through tanking channel and in ccordance with shares subscription agreement, hetefore no: adverse inference: could be drawn in any manner, your attention Is also drown to the recent ‘amendment of Finaxce Act, 2012 wherein the legisaiure has inéerted section 5b) wherein they have intended to tax the mount of share premium received in excess of the Far Market Value ax other source of Income, The said provision (28 amendment) is olso not applicable to esesctee Company os NDTV i a Compony In which public is substantialy Interested end’ said provision ia not _sppicable forthe year in question. 1.44 It is well seitled that a typical large business cofporation consists oF ‘subsiciaies and each of sch entities is Jegal entty which I3'also recognized by ‘company Inw end laws of taxation: Thus, your assertion that NNPLC hes no fixed ‘sees and sto rent paid is not materta! for detereinaion of the premier. 4.45 In the subsequent pera of your showeause, your goodseif hes alleged thet {he NAH and NNPLC. were holding companies faving rio bubiness activites apart from holding fhe investments in vartous group companies. Therefore, the premium ‘hich hag been paid by USBV on the face value on shares of NIH is prima facie ‘ot in the realm of the possibilty. You wil appreciate thet the investments of NISPLC in the verlous componies of entartsinment verticals steady existed much before entering Info the share subscsiption agreement and all those invested companies were functional and doing theit business. Thus. the above fact also shows that the amount invested. by the Investor by way.of share capital was ‘commensurate with the business prospect. Accordingly, I submitted that the chare premlum receivéd by the NIH is a gentbine taisscton. 1.18” In oué eartler submission, vs haye eleady informed you that NNPLC is UK ‘tax resident and your allegation that the aocounts were signed in Inca and the. rectors were also Sndanig not corect. Or he contrary, the fact fs thatthe-Assessment Order for AY 2009-10 In the cave of M/s. New Delhi Teievision Umited- 1 5 6 ‘2ecounte whieh you have perused are the accounts which have been used for the purpose of consolidation of Financial Statements of NDTV group 2s 2 whole in ‘order to comply with Companies Act provisions. Thus, the financiais statement fontied part of the consoltiéted financial ststernents of NOTV (including its subsidiaries) and used far only tht limited purposes. Its elso submitted that itis factually incorrect that afl the directors 2r6 Indian on the board of NNFLC as there _are other non-resident directors 2s wall. 4.49 Further, in our catlier submissions, we have informed your goodself that ‘{hrouah proper channels under India WK treaty, the HMRC UK hes sent = report te ET & TR to your office wlierein they have provided all the Information regarding existence of NNPLC and tax compliance in accordanco with UK tax laws, Lie fling of ts tax retume, WHT returns, el. 3. Fumniehing of evidence in relation to reinstatemont of forex lability ‘amounting to Rs. 110.5 Crores ‘As eather submitted, the increase of Rs. 110.5 Crotes in the Stop up Coupon Bonds at year end in books of NNFLC is merely the reinstatement of foreign currency Kabilty in eecordancs with Accounting Standards. It is most respectfully ubimittad thet no fresh loan whatsoaver wes raises by NNPLC in respect of the Step. up Coupon Bonds. The amount so increased in debited to Currency ‘Transtation Reserve in the books of accounts of NINPLG (Please refer to Schedule -2 Reserves & Suphis). In respect of your specie query with respect of the evidence of such reiststement, please find aflached the complete details of wie quarterly feinetatoment as Annexure «1 to this submission, In respect of the evidence ol the exchange rates applied in the ebeve computation, the quarterly rates 5 aveilable are annexed aa Annexure 2 ofthis eubmaission.” 2.4.7 Further, vide this office letter dated 05.12.2013, the assessee was confronted as under =~ "2.2 Regarding the ratsing of Rs. 985.25 crores as unsecured loans 2.2.1 Regateing the raising of an amount of Rs, 365,26,00,000/- ae unsecured loans through your subsidiary NNPLC, vide letter dated 11.17.2013, you were requested fo furnish the complete detaila slong with documentary evidence fegarding the source therent. vi. the identiy of the payers, the creditworthiness of ‘the payers and the genvinenass of the transactions. You have elated in your reply filed on 2.11,2049 that eum of Rs. 264.76 crores was raised by NNPLC from its innmodiate subsidiary NOTV Networks BY. Another addition of Re. 110.5 crores Is siatéd to ba on account of currency transation. However, no evidence hes been fled by you In support of your assertions. f 2.22 In your above reply, you have aleo alleges 2s under “further, the conipiete list of the subscelbers of boncts, eubscription agreement and other-televant dotalls ware'dily Tiled during the course of the 1 oe ON Page 84 of ha“Assessment Order for AY 2009-10 in the case of M/s. New Dolhl Teteviston Limited- assossmont of AY 98-09. The above bond amount is duly confirmed by RNPLC to HRC, UK on the requisition of FT & TR. Further, the complete Information with respect to ralsing of bonds were duly filed before lovestigation Officer and DIT (int) duting the course of assessment and was also disctosed In the Auéited Accounts of tha NDTV for AY 2008-08 and onvards. In view of the abovo, wa request your goodoetf to kindly consider the Gocuments submitted In the assessment of AY 200%09 and report cobtalned In the course of assosemont from HMRC which ere already on record." 2.2.3 In this regard, Its stated that the essessment reco‘d'In your case for AY 2008-09 nas been perused and it is found that thera aré no stich documents on ‘eeord. Aecordingly, you ere given an spportunty fo ow fle the folowing ‘documents, which ere stated to have been fled by you eerie (Compete lst of the subscribers of bonds, subscription agreement énd other Tolovart detalis claimed to have beon filed during the course of the assessment pipceedings for AY 2008-09, (i) Complete information with respect to raising of bonds claimed to have been fied before investigation Oificer and DIT (Int) during the course of assessment proceedings, 2.24 In his regerd, plesse also refer to eter fled by you on 29.11.2013, wherein you have stated thet the inerease of Rs. 110.50 crores in the Step Up Coupon ‘Bonds is merely the reinstatement of foreign curency Hablty. in tho regard, please furnish the relevant copies of accounts along with complate book enirles made In Journal, Ledger, etc in respect of the said increase reflected inthe aoccunts. Also furnish copies of accounts regerciing Interest paid to the ssid Investors during the ‘yer. 2.2.5. Regarting the valence addition of Rs, 264,75 crores in the unsecured loars, you have clsimed that the relevent dacuments have-besh fied. during the ‘assessment proceedings, Perusal of the zssessment record reveals that thers are ‘no such documents en fecord. Accordingly, you er® given an opportunity fa now fle these documents, which are claimed to have been ed by you eae, 226 In the absence of the discharge of onus by you fn respect of the sbove. \rensactions of raising unsecured loans, in the ight of facts of the cave viecussed In the foregoing paras of this letler resd with Jeter dated 27.11.2013, please explain and substantiate your position * 241.8 The assessee filed reply dated 09.12.2013 stating as under :- Regording the ralsing of Rs. 368.28 Crores ae unsecured loans {In this regard and as eartiar submitted, the amount in question in not related to the books of accounts (standalone) of te essersbe which is Hw subject matter of the present assessment proceedings. The amouris yore shown ox a Ebiiy in one of the aubsicieries of he assessee company, namely NOTV Pls. Lis 7“Assessment Order for AY 2002-20 In the case of M/s. ew Delhi Telovision Uraited- Be that es A may, the foloming documents are enclosed as desired by your goodeetl- ‘ A copy of the submission daied 6” February’'12 filed in the couse of assessment of AY 2008-09 before the Ld. AO which consis of bre completo ist of the subverbers fo bonds, subscription agreement and other relevant details and ‘ocuments i encosed as Annexure &, We are eso enclosing herewith the copies of eubmissions dated 28" May't2, 2t" Mey'12, 11% June"? and 20" Juy'2 fled before the then AO aré also enclosed as Annexure B-1 to B4, 1. Copy of submistions dated 18 February't1, 3° March’11, 20" March’, 30" March’1? and 8" Marct”11 fled before the lnvestigtion Officer and OFT are ‘enciosed as Annexure C1-C5. : Hore Its pertinent to edd thet you have not adverted fo the fact that the reference had been made to FT & TR for seeklog Information trom HMRC, UK with respect to __ business of NDTV Pic ln the assessment year 2008-09. We have been given to ‘understond by the then Ld. AO that he was in recolpt of the said information and the assoissment was completed alter considering the sarhe. ‘A-copy of the ledger zocounts of the Step-p Coupon Bonds since beginning a recorded it the books of eocounts of NDTV Pic. made in the Indian Currency and used fer the purposes of consoldation of the sovounts in the Annuat Report of NOTV group is enclosed as Annexure D. With respect to the balance amount of Rs. 254.75 Crores, its elteady submited that represents the loan form NDTV Networks BY and the amount is duly diaclosed in the books of RNPLC end NDTV Networks BV and the copies of the financials ctatoments of both the sbove subsidiaries were filed before the Ld, AO“ during the course of sssesement vide submission daled 27" February'13 & 11" March't3. The copy of tha submission is duly enclosed as Annexure E1 & E2 for your kind reference.” 2.9 Keeping in view the above facts and circumstances of the case, the facts ofthe case emerge as under = 2.1.10 While passing the draft assessment order, the then AO had recorded in the Office Note to the Draft Assessment Order dated 31.03.2013 as under > “During the year the assessee company | through its guarantees raised an amount ‘of Rs.265,25,00,000/- as unsecured loans through its subsidiary M/s NOTV Hletworks Ple. AL the present stage the assessee has not discharged its primary onus regarding receipt of this amount by way ‘of unsecured loan and therefore is iiable to be proceeded against undek the provisions of section 68 and G9A of IT ‘act, 1964: However, the assesses has not bean afforded, the. reasonable opboetuinity to discharge Its primary ontué for the simple reason that the relevant and materiét Information was furnished by the assessee only on 30.03.2013 and there was simply so time hurranty available to ‘afford such an opportunity to shoes! \ page 96 of 22 158Assessment Order for AY 2009-29 in the ease of M/s, New Delhi Television Limited drow @ balance between the Interest of public revenue and the rights of the assessee, for the present the adverse inference against the assessee is not being drawn end appropriate remedial measures will be taken in due course.” 241 Accordingly, vide this office's letter no, 961 dated 29.08.2013 as forwarded vide CIT, Delhi-V, New Delhi's letter no. 1269 dated 03/09.09.2013, the Hon’ble DRP was requested to consider causing further enquiries to be made Io the case u/s 148C(7) of the Act. The Hon’ble DRP vide fetter no. 262 dated 28.10.2023 directed further enquiries to be made on the impugned Issue, 2.1.12 The facts of the case are that NDTV Network Ple, UK (“NNPLC") is an Indicect subsidiary of the assestee and it was incorporated by the assessee In UK ‘on 30.11.2006, It Is stated in the assessee’s Annual Report for FY 2006-07 that. NNPLC became a subsidiary of 2 newly created intermediate holding company, NOTV Networks BV {"NNBV"), incorporated In the Netherlands on December 28, 2006 the Netherlonds Company being 2 100% subsidiary of the assessee company. The aim of NTUPLC Is stated to be both to create new business areas for NDTV as well as to unlock value of existing operations and sills. 2.4.13" As per the referred Annual Report, NNPLC had proposed to raise funds by issuing $100m convertible bonds due 2012. In connection with this, the assessee Company had given an undertaking to provide 2 corporate guarantee for and on behalf of NNPLC, 2s and when required, In ateordance with the terms of the Contracts and the Supplemental Trust Deed to be executed by the company. 2.1.24 Inthe Annual Report for FY 2007-08, itis stated that NDTV Networks Plc has successfully raised US $ 100 Million by issue of Convertible bonds through a private placement. This became possible solely due to the undertaking given by the sssessee for and on behalf of NNPLC and the resultant Nabitity has been accepted by the assessee and stated under the head “Contingent Liabilities not provided for in respect of” in Part B. Notes to Accounts of Schedule 24 to the assessee’s Balance Sheet. 2.2.15 mits Annual Report for FY 2009-10, itis stated as under “The Compeny through Its subsidiary NDTV Networks 8, repurchased 26 percent Indirect stake held by NBC Universal Inc., in its subsidiary NOTV Networks Pla” 24.16 159[Assassenent Order for AY 2002-10 in the ease of M/s, New Delhi Television Liraited- “NDTV Networks Ple repurchased US$ 100 Million Step up Coupon Bonds issued by it earlier.” 21a? From the 2bove position as reflected in the Annual Reports of which are also available on the assessee’s website nvergen f_reports, ‘aze=tf, i is observed that the assessee company hed Incorporated NNPLC In UK in November, 2006 es Its 100% subsidiary and. thereafter, NNPLC was made subsidiery of NNBV, when @ month after incorporation of NNPLC, NNBV was Incorporated in December, 2005, thus, being 100% subsidiary, NNPLE was ‘conceived and controlled: by NDTV, Although NNPLC canriot be said to be an agent or mere extension of NDTV solely on the ground of its being 100% subsidiary of NTOV, the facts regarding the control exercised by NDTV over the affairs of NNPLC are discussed below. 2.1.18 NNPLC was incorporated on 30.21.2006 with a meager copital of about 6. 40 lacs only and was liquidated on 20.10.2011. The stated purpose of NNPLC ‘was to create new business areas for NDTV as wall as to unlock valte of existing operations and skills, however, NNPLC did net carry on any business activities on Its own. tn between its Incorporation and liquidation, the activities of NNPEC as the role of NDTV therein, are summarized below = Rote of NDTV PERU steal etree ee NNPLC had only a meager capital of Rs. 40 lacs and did not have any business activities, any fixed assets, any place of business except @ postal address In UK, was 0 new entrant without any performance record, was 2 loss. making company having Incurred less of about Rs. 6.34 crores during the year, 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. The raising of USD 100 milion was possible solely because the assessee company NDTV had given an undertaking to provide 8 corporate guarentee for and on behalf of NNPLC, as ‘and when required, In accordance with the terms of | the Coxtracts and the Page 98 of 112) 160Ascassmient Order for AY 2009-10 In the case of M/s. New Delhi Television Limited- | Supplemental Trast Deed to be executed by the Company. 2008-08 26% of its stoke was transferred to NBCU for Rs. 642.54 crores by way of issue ‘of subseription equity of parent company NAH, ‘Again, NNPLC had only @ meager capital of Rs, 40 lacs and did not have any business ‘activités, any fixed assets, any place of business except a postal address in UK, was 3 new entrant without any performance record, was.a loss making company having incurred foss of about Rs. 8.24 crores during the year, 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. Looking at the facts objectively, no prudent investor would be investing Rs. 642.54 crores in such a loss making company having jnvestments also in loss making companles, more so, no prudent investor would be paying a vate of Rs. 7,015/- per share In the situation. The reflected ‘transection of subscription of sheres at the stated rate, as already submitted in the remand report dated 12.12.2013, Is a sham ‘transaction. Not only this, the enitity NNPLC Is ne more than a controlled agent of NDT, which Itself dictated the terms by being © party to the purported Agreement and thus, Introduced its own wiaccounted income from undisclosed sources with the help of this reflected transaction, Out of this, Rs. 254,75 crores is stated to have been transferred in the account books of NNPLC in the shape of unsecured toan from NDTV BV. Agaln, the assessee NDTV is @ party to the Loan Agreement, TW NOTV has stated in its Annual Report that NDTV through its subsidtary NDTV Networks BY, repurthased 26 percent indirect stake held by NBC Universal Inc., in:its subsidiary NDTV Networks Pie. Though the shares 161“Accesement Order for AY 2009-10 in the case of M/s. New Delhi Television Limited Ps vepurchased i 26 percent indirect stake held by NBCU in NNPLC. NNR ' repurchased uss. 200 Million Step up Coupon Convertible Bonds tssued by it earlier. NBCU were those of NNIH and not of NNPLC, the 2" in vertical subsidiary of NNIH, yet it can be seen that the emphasis is on NNPLC and there is no reference to NNIH or NDTY BV. It is further pertinent to mention thet the repurchase, octwering barely after 18 months, was for about Rs. 58 crores only as against the ‘purchase’ for Rs. 642.54 erores, There Ie no retionale in this transaction — no ‘commercial purpose of economie substance, other than to create @ lost of Rs, $84 crores for NBCU and introduction of own | unaccounted money for NDTV. (i) The final transaction before the figuidation of NNPLC wes the purported repurchase of Step Up Coupon Convertible Bonds, However, the price of the coupons reflected at Rs. 399 crores as on 31.03.2008 ‘and at Rs, $09.50 crores as on 31.03.2009 {the difference of Rs. 110.80 crores stated to ‘be on account of currency fluctuation) would forther escalate at the time of repurchase ‘and when NNPLC had a capital of Rs. 40 fecs ‘only ond investment in loss making. ‘companies, then it remains to be verified as to how NDTY / NNPLC discharged its Rabilty towards the principal and interest payable to ‘the investors on the sald repurchase. purportedly subscribed, not purchased, by 2.4.19 From the_above, the Inevitable conclusion ts that NNPLC was 9 Special Purpose Vehicle (SPV) created by NDTV, which acted 9s agent of NDTV for the purposes of NDTV and was liquidated as soon as it had outlived the purpose of, its creation. 2.4.20, In the case of Adams ve Cape Industries Plc [(2890) 2 WLR 6578), Ik was held that one circumstances In which the corporate vell may be 162Assessment Order for AY 2009-10 in the case of M/s. New Dathi Television Limites- lifted would be In a situation, where the subsidiary Is an agent of the company. in the present case, the situation js the same and the business affairs of the holding company NDTV and the subsidiary NNPLC are so lntertwined that It is not only permissible but necessary to lift the corporate veil. The intertwining is evident from the fact that NNPLC cétvled out only two major transactions during its existence ~ the 1% transection was to raise USD 100 million through Step Up Coupon Convertible Bonds, which was possible only due to undertaking for corporate guarantee offered by NDTV and NOTY was a party to the Agreement song with NNPLC and the 2" transaction was the indirect transfer of 26% of its stake to NCCU by way of subscription In equity of parent company NAIM, in which again, NOTV was 2 party to the Agreement along with NNPEC. In both tronsactions, it was NYDV which dictated the terms and in nelther of the two rransactions, NNPLG acted independently. Under these circumstances, it is evident that NNPLC is # mere fagade entity on behalf of NDTV ; and without prejudice to this, NNPLCIs beyond doubt an agentt of NDTV. 24.21 As euch, it Is'@ fit case, In which corporate vell needs to be lifted and once the veil is lifted, with regard ta the present proceedings for AY 2009-10, It ‘can be observed as under i {)—— NDTV through NINPLC has introduced its own unaccounted income from, undisclosed sources amounting to Rs. 642.54 crores in the gare of equity subscription, Detalted report regarding taxability of this sum has already been submitted to the Hon'ble ORP vide letter no. 1794 dated 11.12.2013. (i) NDIV through NNPLC has enhanced the lability.on account of Step Up. ‘Coupon Convertible Bends by Rs. 110.50 crores in the Balance Sheet of NNPLC from Rs, 399 crores to Rs. $09.50 crores, which Is stated to-be on account of currency transiatlon, Further, NDTV has introduced unsecured loans amounting so Rs. 254.75 crores from NOTV BY in the books of NNPLC. The tax implications of this issue are the subject matter of the present report, which necessitated the lifting of corporate vell first, as discussed in the preceding paras of this report. 2.2 Regarding enhancement of fiabiity on account of Step Up Coupon Convertible Bonds by Rs. 110.50 crores 22.1 As discussed sbove, USO 100 million were reflected to have been relsed ‘through Step Up Coupon Convertible Bonds during FY 2007-08. As stated in para 2.1.2 of this report, vide this office’s letter no, 1705 dated 11.11.2013, ‘the ‘assessee was asked to explain on this issue, and in response, vide letter dated 26.11.2033, the ageseseir stated that the source of investment ‘in Bonds was duly 163_agsesament Order for AY 2008-201 the case of M/s. New Qethl Television Limiced= verifies by the AO during the assessment proceedings for AY 2008-59 and also ‘rough inforenation obtained from UX tax authorities through FT & TR, ft was contended that complete details regarding investors and Fourse of investment wear ven to the AO at the relevant time, The datas were 2169 stated to have cree furnishes before Investigation officer and DIT (Int) during enquiries by these officers. 2.2.2 Vide this office fetter dated 05.12.2013, the assess00 WS informed thet ws such documents were found In the assessment record for AY 2008-09. The wr csoce vide lettor dated 09.12.2013 stated thet it was g8in filing copy of the seamission dated 08.02.2012 filed in the course of assessor ‘of AY 2008-09 before AO, which consisted of the complete lst of the subscribers to bonds, subscription agreement and other relevant details and documents enclosed a5 annexure 8. Coples of submissions dated 28.05.2012, 31.05.2012, 11.06.2012 snd 20.07.2012 stated to have been filed before the ther AD and copies of Submissions dated 12.02.2012, 03.03.2011, 08.03.2034, 29.03.2011 and 30.03.2011 stated to have been filed before the Investigation Officer and OT syere also claimed to have been enclosed as Annerure C1-C5. 2.2.3. However, perusal of the documents enclosed by the sssesi5% reveals thas in vesponse tb requisition to prove the identity of the Investors, their credaworthiness and genuineness of the transactions, the assessse has filed sverely a fist titled “The Initial investors, listing out & entities, ‘many of them trom caymen Islands ond furnishing of such ist does not dscharke the assessee ch ns onus to prove the Kentty and creditvestiness of the entities of the genuineness of the traneactions 2.2.4 Its pertinent to mention that even though the original amounts on vrcount of these bonds are claimed to have been received las: Yoo! and not in the financial year relevant to AY 2003-10, yet when the original amount itself is not proved to be on account of genuine transaction, 3mY escalation in the same ivhether due to currency translation or otherwise must necessarily meet the vome fate, Hence, the amount of Rs. 13050 crores, Delng ‘enhancement during the year, inthe original ably from unproved souree proposed to be added to the assessee’s taxable Income for AY 2009-10, 2:3. Regarding Introduction of unsecured loans emounting to Rs. 254.75 ‘rores from NOTV BV In the books of NNPLC naa ° During the year unsder consideration, NDTV through NNPLC has raised unsecured ouinting fo AS. 258.75 crores as mentioned In the ‘Page 102 of 113 164Assessment Orcler for AY 2009-10 in the ease of M/s. New Delhi Television Limited relevant Schedule to Balance Sheet as on 31.02.2003. When asked vide this office's letter no, 1705 dated 11.11.2033, the gssessee replied that the unsecured loan amounting to Rs. 254.75 crores had been ralsed from NNPLC's intermediate holding company NDTV Networks BV and the relevant detatls had ‘been filed during the course of assessment proceedings for AY 2008-09, 23.2 vide letter dated 05.12.2013, it was intimated to the assessee that on perusal of assessment record for, AY 2008-09, no such documents were found. ‘Accordingly, the assessee was given an opportunity to now file these documents, which were being claimed te have been fifed by it earlier. The assessee was aso intimated that it had not discharged the onus east upon itn respect of the above transactions of raising unsecured loans. 23.3. In response, the assesse filed reply dated 09.12.2023 stating that with respect to the unsecured loans amounting to Rs, 254,75 crores, the source thereof was loan form NDTV Networks BV and the amount was duly disclosed In the books of NNPLC and NDT Networks BV and the coples of the financials statements of both the above subsidiaries were fled before the Ld. AO during the course of assessment vide submission dated 27.02.2013 & 11.03.2013. The copies of the said submissions were clairted to be duly enclosed as Annexure £2. £2 of the reply dated 09.12.2013. 2.3.4 — thave perused the aisessee’s letters dated 27.02.2013 {running Into 30 pages) & 21.03.2013 (running into 2 pages) marked a Annexure €1 and Annexure E2 respectively. At the outset, itis submitted that there is no reference to the impugned issue of unsecured loans amounting to Ns. 254,75 crores raised during the yeer. The contents of the referred letters address certain queries ralsed by the AO and query regarding unsecured loans is not one of such queries. The bere letters are not even supported by any Annexures mentioned ion the said letters, 2.5 Under the circumstances, when the sttached ennexure-tess letters do not contain any reference to query regarding unsecured loans nor attempt to address such query, therefore, filing of such letters does not serve any purpose. 23.6 __ItIs pertinent to mention that during the course of hearing before the Hon'ble DRP of 23.12.2013, the assessee has filed 2 reply on the issue. It has been stated by the assessea that the impugned unsecured loan has been raised pursuant to Loan Agreement dated 10.21.2008 between Universal Studios international BV, NDTV, NNPLC and NDTV Networks BV. Confirmation from 165‘assessment Order for AY 2008-40 In the case of M/s, Wew Delhi Televison Umited- serosal ofthe attached confirmation reveals that although there I © mention regarding the bank account of Univarsal Studios Internations! BY, namely BNP taribas and copy of bank certificates stated to have been attached, yer no bbank certificate has been actually attached. 2.37 _ inview of the above, it is submitted that the assessee cannot be said to have discharged its onus of proving the identity of the lender, creditworthiness. gf the lender and the genuineness of the transaction, Even the copies of slocuments, wherever furnished by the assesse®, are photocopies not subject to ‘any vetification oF enquiries. its pertinent to place on record that any speclfic jeaues ean be proved only by spesific evidence and not on the strength of claimed reputation or volume of business of the lender. Hence, the assessee has not teen able to prove the source of addition In unsecured loans ‘and the same is proposed to be added to the assessee’s taxable Income, 3, The reports submitted for kind perusal and consideration.” 9.5 Aer considering the above facts, the Hon'ble DRP we its directions dated 95 g013 iamued u/s 144C{S) of the Act held that ut of Bs 365,25 crozes Siireied an increase in Wabilites, an smount of Rs. 110.5 clone due to vetatement of the original amount pertaining to te transaction occurring in Ter aGO7.08 relevant to AY 2008-09. Regarding the balance. of Re, 254.75 sean. the DRP held that the sxsessee failed to discharge its vs of proving the Femnineness of the transaction. The observations ‘of the DRP are repvoduced below = 5.17. AO has brought to the notice of the DRP through his letter dated 20.08.2013 ormarded by the Adel. CT, Range-13, New Dein that an amour of TS, 365,25 crores sore ised by the assessee company whieh needed further examination: “The relevant part of the letter of the A is as under: 130, another issue involved in the case Is thot during the Yeo", the assessee company, through Mts guarantees, raised on amount of RS. '365,25,00,000/- as unsecured loans through Its subsiatory NNPLC. As the information was ‘stated to be furnished by the ‘assessee on 30.03.2013, Le. just one day before the expiry of limitation, therefore, this varece so could not be probed By tht AG eso the Mently f POV? the creditworthiness of the payers ond the genuineness of the ‘ronsactions.” 5.48. 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 sce by the AO Tn the remand ceport. The remand report dated 11.12.2038 and the summery of the ore! argument of-the AO dated 26.12.2013 are reproduced below: 166‘Ascessrment Order for AY 2009-10 tn the caso of M/s. New Delhi Television timnited- Extract of remand sevort dated 11.12.2013 "2.4 Tax implication of unsecured loans amounting to Rs. 265.25 crores received by NDTV through Its subsidiary NAPLC 241 The Hon'ble DRP vide fetter no. 262. dated 28.10.2013, had directed further enguidtes to be made regarding the unsecured loans cmounting to Rs, 365.25 crores ollegedly received by NDTV through its subsidiory NOTV Network Ple'('NNPLC") ond the tax implication thereof. 24.2 Vide thls office's ietter no. 1705 dated 11.13.2023, the assessee was asked to explain on the issue as under = A "2.3 During the yeor, the assessee company, through fts uorentees, roised on omount of Rs. 365,25,00,000/- as unsecured loans through its subsidiary NNPLC. Please furnish the complete details ofong with documentary evidence regarding the source thereof, viz. the identity of the payers, the creditworthiness of the payers and the genuineness of the transactions. 43 In response, vide letter dated 26.11.2013; the assessee contended that during the year under considerotion, there was dn Incréase of Rs. 140.50 erores in the omount of unsecured foans in the Bolonce Sheet of NNPLG- which représented an increase due to currency fluctuation. The assessee further stated thot during the previous AY 2008-08, it had raised fans amounting to Rs. 399 crores by way of Step Up Coupon Bonds and the enquiry regarding the source and genuineness thereof had already been completed during the course of assessment proceedings for AY 2008-09. It wos claimed that complete evidence regarding the same had been fled before the AO during the soid essessment proceedings ond the AO had also obtained information from HMRC through FT & TR. Vide further reply dated 29.11.2013, the ossessee olso {filed copy of exchange rates for the relevant period. 2.4.4 Vide this office's letter dated 05.12.2013, the ossessee was confronted as under > "2.2. Regarding the ralsing offs. 365.25 crores as unsecured foons 2.2.1 Regarding the ralsing of on omount of Rs. 365,25,00,000/- at unsecured Toons through your subsidiary WNPLG, vide letter dated 11.21.2013, you. were requested to furnish the complete details ofong with documentory evidence regarding the source thereof, viz. the identity of the payers, the creditworthiness of the payers ond the genulneness of the transactions. You have stoted in your ip shee 160 or id d : 167Assessment Order for AY 2009-10 in the ease of Ms. New Dethi Television Limited eply fled on 26.11.2023 that surn of Rs. 254,75 crores wos raised by NNPLC from its immediate subsidiary NDTV Networks BV. Another addition of Rs. 110.8 crores is stoted to be on account of currency translation. However, no evidence hos been {filed by you in support of your assertions. 2.2.2. In your above reply, you have olso alleged as under :- “further, the complete list of the subscribers of bonds, subscription agreement dnd other relevant detalis were duly filed during the course of the assessment of AY 08-09. The above bond amount Is duly confirmed by RINPLE to HVIRG UK on the requisition of FT & TR. Further, the complete: information with respect to raising of bonds were duly filed before Investigation Officer and DIT (inti) during the course of assessment and was also disclosed in the Audited Accounts of the NDTV for AY 2008-09 ‘ond onwards, In view of the above, we request your goodself to Kindly consider the documents submitted in the assessment of AY 2008-09 and report obtained In the course of assessment from HMRC which are ‘already on record.” 2.23 In this regard, itis stated that the assessment record in your case for AY 2008.09 has been perused and It is found thot there ore no such documents on yecord Accordingly, you ore given an opportunity to now file the following documents, which ore stated to hoe been filed by you eariter 6) Complete fist of the subscribers of bonds, subscription ‘agreement ond other relevant detoils cfoimed to hove been filed during the course of the assessment proceedings for AY 2008-03. fi} Complete Information with respect to raising of bonds clalmed to have been filed before Investigotion Officer ond DIT {Intl} during the course of assessment proceedings. 2.24 In this regord, please also refer to letter filed by you on 29.11.2013, wherein you have stated that the increase of Rs, 110.50 crores In the Step Up Coupon Bonds Is merely the reinstatement of foreign currency ability. In this regard, please furnish the relevont copies of accounts ofong with complete book entries made in Journal, Ledger, etc. in respect of the sald Increase reffected in ‘the accounts. Also furnish copies of accounts regarding interest paid to the sold lnvestors during the yeor. a 2.25 — Regarding the bolance oddition-of Rs, 254.75 crores In the ansecured toans, you have clolmed.that the relevant documents have been filed during the ‘page 108 of 112 168sssesument Order for AY 2009-10 In the case of M1/3. New Delhi Television Limited: ossessment proceedings. Perusal of the assessment record reveals that there are no such documents on record. Accordingly, you are given on opportunity fo now file these documents, which ore claimed to have been filed by you earlier. 2.26 In the absence of the discharge of onus by you in respect of the above teansactions of raising unsecired loans, in the fight of focts of the case discussed in the foregoing pares of this letter read with letter doted 27.11.2013, please explain ond substantiate your position.” 2.4.6 In respensa, vide letter dated 10.12.2023, the ossessee stated that out of the total odtition of Rs. 365.25 crores appearing in the Bolance Sheet of NNPLC, an amount of Rs, 110.50 crores was an account of adjustment of fluctuation in exchonge rote of currency ond regarding the balance amount of Rs. 254.75 croies, the assessee stated «that this was the unsecured loon obtained from NDTV BY. However, no confirmation was filed nor this office wos afforded any verification regarding ‘the creditworthiness of the lender of the genuineness of the transaction. n the absence of these, the assessee hos not dischorged its onus u/s 68 and there Is no afternative but to propose that the omount of Rs. 254.75 crores moy be added to the assessee’s taxable Income for the yeor uiider consideration. Further, itis pertinent ta mention that although the assessee claimed thot "the complete list of the subscribers of bonds, subscription agreement ond other relevant deteits were duly fled during the course of the assessment of AY 08-09", yet no such details were found in the assessment records, which was specticatty confronted to the ossessee and yet, the assessee hos failed to substantiate its claim." 5.19. The copy oF the comand report was given to the assassee on 26.12.2013 to submit its rejoinder and on the day of heoring le, on 17.12.2013 they were asked to treat the forwarding letter of the ORP enclosing the remand report as enhancement notice by ORP to cut short the time as matter is getting time barred on 31.12.2013, The same wos racorded in the order sheet vide entry dated 17.42.2023. 5.20. inveeponse to the above, the assessee vide its letter dated 23.12.2013 has fied =: document which Is purported to be a foan agreement concluded between NBCU, NDTV Limited, NDTV PLC and NDTV Networks BY and requested to admit the same. The ssessee has further submitted as below: . The-appellant wos not able to produce the above documents since the issve came up for the first time before the DRP ond the assessee os unable to submie the. some due to paucity of time. ‘ « "The loan agreement was not specifically asked for by the Ld. AD. 169assessment Order for AY 200910 inthe case of M/s. New Delhi Television Lrited- «The evidence submitted in this submission Is correet and very much relevant for deciding the appeot of the appellant, + itis reqbested to your goodself that the evidences be odmitted and be considered {for deciding the matter. your goodself mey exercise the powers conferred on yourself by the ow, which are very much required t0 be exercised in the light of facts and crcuinstonces of the case, 521. The edditional evidence in the form of copy of the purperted loan agreement {cupii has been admitted in the Interest of natural justice and was handed over to the AAO for his response. The response ts recelved, the extract of which is reproduced below: ‘paract of response of the AO dated 26.12.2013 "2.2 Regarding enhancement of Hability on zccount of Step Up Coupon Convertible % eontis by Rs. 110,50 crores 221 ‘as elscussed above, USD 100 milion were reflected to have been raised through Step Up. Coupon Convertible Bonds during FY 2007-08. As stated in para 2.1.2 of this report, vide this office's Setter no, 1705 doted 11.11.2013, the assessee WO8 ‘asked to explain on this Issue, and In response, vide letter dated 26.11.2015, the ossessee stated thet the source of investment in Bonds was duly verified by the AO during the assessment proceedings for AY 2008-09 and alo through information obtdined from UK tox cenhoriies through FT & TR. It was contended that complete detals regarding Investors ott cource of investment was given tothe AO at the relevant ime. The detalls were oso sored to have been furoished before Investigation officer ond OFT (int) during enauires by these officers. 222 Vide this office letter doted 05.12.2013, the ossessee was informed thet sto such documents were found Jn the assessment record for AY 2008-09. The assessee ave letter dated 09.12.2013 stared thot it was agoln flag copy of the suberission doved +32.02.2012 fted in the course of assessment of AY 2008-09 before AO, which consisted of the complete lst of the subscribers to bonds, subscription agreement ond other relevant ‘Geral ond documents enclosed as Annexure B. Copies of submissions dated 28.05.2012, 31.05.2012, 11,06.2012 and 20.07.2032 stoted to have been fled before the ther AO and copies of submissions doted 18,02,2011, 03.03.2012, 08.03.2014 29.03.2014 and 30.05.2012 stated to Kove been filed before te Investigation Officer and DIT wore atso ‘claimed to have been enclosed as Annexure... C1-C 223 However; eerisal of the documents enclosed by the ossessee reveals. that in espe to requis prove the Kei fhe etn, Hel eevee EL page 300 of 139 170Assessment Order far AY 2009-10 tn the case of Ms, New Delbi Television timited- ond genuineness of the transactions, the assessee hos filed merely a list titled "The Soltiat investors", listing out & entities, many of them from Coymon Islands and furnishing of such ¢ does not dlschorge the ossessee of Its onus to prove the identity ond creditworthiness of the entities or the genuineness of the transactions. 2.24 It #8 pertinent to mention thot even though the original omounts on coccount of these bonds ore claimed to have been received. last year and not tn. the finonclol year relevort to AY 2009-10, yet when the original amount itself ls not proved 10 be on account of genuine transaction, ony escolation in thie same whether due te currency translation or otherwise must necessarily meet the same fote, Flence, the mount of Rs, 110.50 crores, being enhancement during the yeor, in the original ability from unproved source, is proposed to be odded to the assessee’s taxable income for AY 2008-10, 2.3. Regarding introduction of unsecured loans amounting to Rs. 254.75 crores from NDTV BVin the books of NNPLC 232 uring the yeor under consideration, NDTV through NNPLE has raised unsecured Joan amounting to Rs, 254.75 crores as mentioned in the relevant Schedute to Balance Sheet as on 34.03.2009. When asked vide this office's letter no. 2705 doted 12.21.2023, the ossessee replied that the unsecured loon amounting to Rs. 254.75 crores hod been raised from NNPLCs Intermediate holding company: NOTV Networks BV and the relevant details hed been filed during the course of assessment proceedings for AY 2008-09. 232 Vide tntter dated 05.22.2013, it wos intimated to the assessee that on peruse! of assessment record for AY 2008-09, no such documents were found. Accordingly, the assessee was given an opportunity to now file these documents, which were being claimed to hove been filed by it eorller. The assessee was olso intimated thot ited! not discharged the onus cast upon it in respect of the obove transactions of raising unsecured loons. 23.3 In response, the ossesse filed reply dated 09.12.2013 stating that with respect to the unsecured loans amounting to Rs, 254.75 crores, the source thereof wos loon form MDTV Networks BV and the amount was duly disclosed in the books of NNPLC and NOTV Networks BV and the copies ofthefinancials statements of bath the obove subsidiaries were filed before the Ld. AQ.during the course of ossessment vide ‘submission dated 27.02.2013 & 12.03.2013. The copies of the sald submissions were cloimed to be duly enclosed as Annexure &1 & €2 of the reply dated 09.12.2013. x 4 ‘Page 109 of 112, & 171assessment Order for AY 2009-10 in the ease of M/s. New Delhi Tetevision Limited 234 hove perused the ossessee's letters dated 27.02.2013 (running into 20 tpoges} & 11.03.2013 {running into 2 poges) marked as Annexure El ond Annexure £2 respectively. At the outset, itis submitted thot there fs no reference, to the impugned Issue of unsecured loans omounting to Rs. 254.75 crores raised during the year. The contents of the referred letters address certain queries raised by the AO and query regarding unsecured loans Is not one of such queries. The bare letters ore not even supported by any Annexures mentioned fon the soid letters. 235 Under the circumstances, when the attached onnextrre-less letters do ot contain ony ceference to query regarding unsecured foons hor attempt to address such query, therefore, fling of such letters doce not serve ony purpose. 236 1 is pertinent to mention thot during the course of hearing. before the Hon'ble OAP on 23.42.2013, the assessee has filed 0 reply on the issue. #t has been stoted by the assessee that the Impugned unsecured loan has beeo ralsed pursuant to Loan Agreement dated 10.11.2008 between Universo! Studios International BV, NOTV, NWNPLC ond NDTV Netivorks BY. Confirmation from Universal Studlas International BV is also stated to be ottached. However, perusol of the attached confirmation reveots that olthough there is a mention regarding the bork account of Universal Studios internotional BV, namely BNP Paribas and copy of bonk certificate is stated to hove been attached, yet ne bank certificate has been actually ottached. 23.7 tn view of the above, itis subriftted that the ossessee cannot be said to hhove dischorged its onus of proving the identity of the tender, creditworthiness of the lender ond the genuineness of the transaction. Even the copies of docurnents, wherever |fornithed by the assessee, are photocopies, aot subject to any verification or enquiries ‘tls pertinent to ploce on record that any specific issues can be proved only by specific evidence ond not on the strength of claimed reputation or volume of business of the ender. Hence, the ossessee hes not been able to prove the source af addition in unsecured loans ond the some is proposed to be added to the assessee's taxable focome,” 5.22 DRP has carefully considered this issue, Out of Rs, 365.25 crores representing unsecured foan, under reference, an amount of Rs. 1205 crores is due to the restatement of the original amount pertaining to 2 transaction happened in the ad 2007-08 which wes the subject matter of assessment for the AY 2008-09. It appears from the report that there was no disallowanice 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 arnount fs not called for as rightly mentioned by the AQ In his rérhand report dated 11.12.2013. (quoted inthe earlier paragraph no, 5:28 on Pege no- 22onwards) 172“Assessment Ortler for AY 2009-10 in the case of M/s, Hew Dothi Television Limited- 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 bare reading of the so called agreement copy by the ORP, itis found that the above foan is advanced without any Interest, the reason for which has riot been explained. The amount Involved i quite @ large sum of money. Further, as per this document, the interest free credit faclty was to be granted on the basis of duly completed. utilization request, whiere as no such Utilization request or basls for seeking the above credit facility has heen produced by the essessee before the AO of before the DAP. 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 rnake addition of Rs. 254.75 crores.” 9.6 In view of the above detailed facts and circumstances of the case and in compliance with the directions of the Hon'ble DRP as reproduced above, it ie held that the assessee has failed to discharge its onus of proving the genuineness of the transaction of raising unsecured loan through its subsidiary NDTV Networks Ple and hence, the amount of Re. 254.75 crores representing the amount of such nsecured loan is added to the assessee’ taxable income u/s 68 of the Act, 9.7 As Ivam satisfied that on this issue, the assessee has concealed the particulars of its income within the meaning of section 271(1)(c) of the Act, therefore, penalty proceedings are separately initiatgd. (Addition : Rs. 284,75,00,000/-) 10, With these remarks, the totel income of the assess¢ company is computed as follows: {Total love las declared by the asecsse) Fe.) SABES ARE aa {i Disallowance u/s 1A [ as per para 8] 78 A0 S50 Ti Transfer pricing adjustments u/s S2CA@) S65 ED fas per psra 7} | Ti Unexpiained Money 07s 6A (ae per para 8] Re 6 A254 33,000 | “ii Unexplained unsecured loans u/s 68 Re. 284,75,00,000 [as pet para 9] ‘Total income Rs, 838,33,37,197 t (ee Liagome rounded off, Rs. 838,83,37,197 eres reaea ‘Page 111 of 112 173_-Assesement Onder for AY 2009-20n the case of M/s. New Dethi Television Limited: 1 7 4 wat Li. Assessed at total income of Rs. 838,33,37,197/-+ Issue demand notice and challan. [/L.N.S. 150 giving computation of tax and interest thereon is enclosed. As the advance tax paid by the asseasee is lews than 90% of the assessed tax, the lasseasee is liable to pay interest u/s 2348 of the Act, which is charged accordingly. Charge interest u/s 234D of the Act and withdraw interest u/s 244A(3) of the Act. Penalty proceedings u/s 271{1\6) of the Income Tax Act, 1961 are being initiated separately. SM- Dated : 21.02.2014 (Bhay it: Kamar} Asstt inziones of Income Tax Sirele-i3f}, New Dethi Copy to the assessee * : aye note SUN RSRSe Hscome Tax Cucte-13[2), New Delhi Page 112 of 122