1 REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 1008 OF 2020 NEW DELHI TELEVISION LTD. APPELLANT(S) VERSUS DEPUTY COMMISSIONER OF INCOME TAX RESPONDENT(S) JUDGMENT Deepak Gupta, J. 1. appellant New Delhi Television Limited (hereinafter referred to as assessee ) is Indian company engaged in running television channels of various kinds. It has various foreign subsidiaries to which we shall refer in detail later on but we are concerned mainly with subsidiary based in United Kingdom (UK) named NDTV Network Plc., U.K. (hereinafter referred to as NNPLC ). Signature Not Verified 2. assessee submitted return for financial year 2007 Digitally signed by ASHA SUNDRIYAL Date: 2020.04.03 15:27:12 IST Reason: 08 i.e. assessment year 2008 09 on 29.09.2008 declaring loss. 1 2 This return was processed under Section 143 of Income Tax Act, 1961 (hereinafter referred to as Act ). case was selected for scrutiny and notice under Section 143(2) of Act was issued and notice under Section 142(1) of Act was also sent to assessee. Thereafter, case of assessee was taken up for consideration and final assessment order was passed on 03.08.2012. 3. We are mainly concerned with that part of assessment order which relates to issue of step up coupon bonds amounting to US$100 million. These bonds were issued in July, 2007 through Bank of New York for period of 5 years. case of assesee is that NNPLC issued step up coupon bonds of US$ 100 million which were arranged by Jeffries International and funds were received by NNPLC through Bank of New York. assessee had agreed to furnish corporate guarantee for this transaction. These bonds were subscribed to by various entities to whom we shall refer to in detail at later stage. These bonds were to be redeemed at premium of 7.5% after expiry of period of 5 years. However, these bonds were redeemed in 2 3 advance at discounted price of US $74.2 million in November, 2009. 4. assessing officer held that NNPLC had virtually no financial worth, it had no business of name and therefore it could not be believed that it could have issued convertible bonds of US$ 100 million, unless repayment along with interest was secured. This was secured only because of assessee agreeing to furnish guarantee in this regard. Though assessee had never actually issued such guarantee, assessing officer was of view that subsidiary of assessee could not have raised such huge amount without having this assurance from assessee. transaction was of such nature that assessee should be required to maintain arm s length from its subsidiary, meaning that it should be treated like guarantee issued by any corporate guarantor in favour of some other corporate entity. assessing officer did not doubt validity of transaction but imposed guarantee fee @ rate of 4.68% by treating it as business transaction and added Rs. 18.72 crores to income of assessee, vide order dated 03.08.2012. 3 4 5. On 31.03.2015, revenue sent notice to assessee wherein it was stated that authority has reason to believe that net income chargeable to tax for assessment year 2008 09 had escaped assessment within meaning of Section 148 of Act. This notice did not give any reasons. assessee then asked for reasons and thereafter on 04.08.2015 reasons were supplied. main reason given was that in following assessment year i.e. assessment year 2009 10, assessing officer had proposed substantial addition of Rs.642 crores to account of assessee on account of monies raised by assessee through its subsidiaries NDTV BV, Netherlands, NDTV Networks BV, Netherlands (NNBV), NDTV Networks International Holdings BV, Netherlands (NNIH) and NNPLC. assessee had raised its objection before Dispute Resolution Panel (DRP) which came to conclusion that all these transactions with subsidiary companies in Netherlands were sham and bogus transactions and that these transactions were done with view to get undisclosed income, for which tax had not been paid, back to India by this circuitous round tripping. 4 5 6. assessing officer relies upon order of DRP holding that there is reason to believe that funds received by NNPLC were actually funds of assessee. It was specified that NNPLC had capital of only Rs.40 lakhs. It did not have any business activities in United Kingdom except postal address. Therefore, it appeared to assessing officer that it was unnatural for anyone to make such huge investment of $100 million in virtually non functioning company and thereafter get back only 72% of their original investment. According to assessing officer natural inference could be that it was NDTV s own funds introduced in NNPLC in grab of impugned bonds. details of investors are given in this communication giving reasons. Mention has also been made of complaints received from minority shareholder in which it is alleged that money introduced in NNPLC was shifted to another subsidiary of assessee in Mauritius from where it was taken to subsidiary of assessee in Mumbai and finally to assessee. NNPLC itself was placed under liquidation on 28.03.2011. Therefore, assessing officer was of opinion that there were reasons to believe that funds received by NNPLC were funds of assessee under sham transaction 5 6 and that amount of Rs.405.09 crores introduced into books of NNPLC during financial year 2007 08 corresponding to assessment year 2008 09 through transaction involving step up coupon convertible bonds pertains to assessee. last portion of communication dt. 04.08.2015 giving reasons to assessee reads as follows: 7. In view of above facts and circumstances of case and considering findings of DRP holding funds received by NNPLC as funds of assessee New Delhi Television Limited under sham transactions, there is reason to believe that funds amounting to Rs.405.09 crores introduced into books of NNPLC during FY 2007 08 in form of Step Up Coupon Bonds pertain to assessee New Delhi Television Limited only. I have therefore reason to believe that income of assessee New Delhi Television Limited for AY 2008 09 amounting to at least Rs.405.09 crores has escaped assessment. It is also recorded that escapement is due to failure on part of assessee to disclose fully and truly all facts material for assessment. 7. assessee filed reply to notice and reasons given, and claimed that there had been no failure on part of assessee to disclose fully and truly all material facts necessary to make assessment. Assessee also claimed that proceedings had been initiated on mere change of opinion and there was no reason to believe. assessee also claimed that transaction of step up bonds was legal and valid transaction. In addition, it was claimed that assessing officer had no valid reasons to 6 7 believe that income of assessee had escaped assessment. According to assessee assessment officer had accepted genuineness of transaction wherein NNPLC, subsidiary, had issued convertible bonds which had been subscribed by many entities. It was urged that assessing officer had treated transaction to be genuine by levying guarantee fees and adding it back to income of assessee. In alternative, it was submitted that notice had been issued beyond period of limitation of 4 years. According to assessee it had not withheld any material facts and, therefore, limitation of 6 years as applicable to first proviso to Section 147 would not apply. 8. assessing officer did not accept these objections. claim of assessee was disposed of by assessing officer vide order dated 23.11.2015 wherein assessing officer held that there was non disclosure of material facts by assessee and notice would be within limitation since NNPLC was foreign entity and admittedly subsidiary of assessee and income was being derived through this foreign entity. Hence, case of assessee would fall within 2 nd proviso of Section 7 8 147 of Act and extended period of 16 years would be applicable. objections were accordingly rejected. 9. Aggrieved, petitioner filed writ petition in High Court challenging notice. writ petition was dismissed on 10.08.2017. Against this assessee has filed present Appeal. 10. We have heard Shri Arvind P. Datar, learned senior counsel for assessee, Shri Tushar Mehta, learned Solicitor General and Shri Zoheb Hossain, learned counsel appearing for revenue. 11. In our opinion, following issues arise for consideration in this case: (i) Whether in facts and circumstances of case, it can be said that revenue had valid reason to believe that undisclosed income had escaped assessment? (ii) Whether assessee did not disclose fully and truly all material facts during course of original assessment which led to finalisation of 8 9 assessment order and undisclosed income escaping detection? (iii) Whether notice dated 31.03.2015 along with reasons communicated on 04.08.2015 could be termed to be notice invoking provisions of second proviso to Section 147 of Act? 12. At outset we may note that it has been strenuously urged on behalf of assessee that its assessment was done under scrutiny procedure and very detailed procedure was followed during original assessment proceedings and all aspects of case were noted by assessing officer. That may be true, but merely fact that original assessment is detailed one, cannot take away powers of assessing officer to issue notice under Section 147 of Act. Question No.1 13. We would like to make it clear that we are not going into merits of allegations made against assessee. At this stage we are only required to decide whether revenue has sufficient reasons to believe that undisclosed income of asseessee has escaped assessment and therefore there are grounds to issue notice. Obviously, during assessment proceedings assessee will have right to place material on record to show that transaction in question was genuine transaction. 9 10 14. It is trite law that assessing officer can only re open assessment if he has reason to believe that undisclosed income has escaped assessment. Mere change of opinion of assessing officer is not sufficient to meet standard of reason to believe . Relevant portion of Section 147 reads as follows: 147. Income escaping assessment. If Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in course of proceedings under this section, or recompute loss or depreciation allowance or any other allowance, as case may be, for assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as relevant assessment year): Provided that where assessment under sub section (3) of section 143 or this section has been made for relevant assessment year, no action shall be taken under this section after expiry of four years from end of relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of failure on part of assessee to make return under section 139 or in response to notice issued under sub section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year: Provided further that nothing contained in first proviso shall apply in case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year: Provided also that Assessing Officer may assess or reassess such income, other than income involving matters which are subject matter of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. 10 11 Explanation 1. Production before Assessing Officer of account books or other evidence from which material evidence could, with due diligence, have been discovered by Assessing Officer will not necessarily amount to disclosure within meaning of foregoing proviso. Explanation 2. For purposes of this section, following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely : (a) where no return of income has been furnished by assessee although his total income or total income of any other person in respect of which he is assessable under this Act during previous year exceeded maximum amount which is not chargeable to income tax; (b) where return of income has been furnished by assessee but no assessment has been made and it is noticed by Assessing Officer that assessee has understated income or has claimed excessive loss, deduction, allowance or relief in return; (ba) where assessee has failed to furnish report in respect of any international transaction which he was so required under section 92E; (c) where assessment has been made, but (i) income chargeable to tax has been underassessed; or (ii) such income has been assessed at too low rate; or (iii) such income has been made subject of excessive relief under this Act; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed. (ca) where return of income has not been furnished by assessee or return of income has been furnished by him and on basis of information or document received from prescribed income tax authority, under sub section (2) of section 133C, it is noticed by Assessing Officer that income of assessee exceeds maximum amount not chargeable to tax, or as case may be, assessee has understated income or has claimed excessive loss, deduction, allowance or relief in return; (d) where person is found to have any asset (including financial interest in any entity) located outside India. xxx xxx xxx 11 12 15. case of assessee is that transaction of step up coupon bonds was scrutinised in great detail by assessing officer before he passed order of assessment dated 03.08.2012. According to assessee there is attempt on behalf of revenue to deliberately mix up transactions relating to Netherlands subsidiary with U.K. subsidiary. According to assessee order of DRP for assessment year 2009 10 is in two distinct compartments. While DRP held Netherlands transactions of Rs.642 crores to be sham, transaction of issuance of US$ 100 million convertible bonds was not questioned. Therefore, according to assessee there was no fresh material before assessing officer to have reason to believe that undisclosed income of assessee had escaped assessment. 16. On behalf of assessee it has been urged that once transaction of step up coupon bonds has been accepted to be correct, then revenue cannot re open same and doubt genuiness of transaction. We are not in agreement with first part of submission but we make it clear that we are not commenting on genuineness of transaction, which will be considered by concerned assessing officer. 12 13 17. On other hand, on behalf of revenue it is submitted that at stage of issue of show cause notice revenue only has to establish tentative and prima facie view. At this stage, this Court is not expected to go into merits of case but can only ascertain whether revenue has prima facie ground to show that it had reasons to believe that income has escaped assessment. It is further submitted that scope of judicial review in such matters is very limited. It is also submitted that since revenue discovered fresh tangible material subsequent to assessment order of 03.08.2012, it cannot be said that assessing officer did not have reasons to believe that income had escaped assessment. 18. main issue is whether there was sufficient material before assessing officer to take prima facie view that income of assessee had escaped assessment. original order of assessment was passed on 03.08.2012. It was thereafter on 31.12.2013 that DRP in case of AY 2009 10 raised doubts with regard to corporate structure of assessee and its subsidiaries. It was noted in order of DRP that certain shares of NNPLC had been acquired by Universal Studios International B.V., Netherlands, indirectly by subscribing to 13 14 shares of NNIH. As already noted above it was recorded in reasons communicated on 04.08.2015 that NNPLC was not having any business activity in London. It had no fixed assets and was not even paying rent. Other than fact that NNPLC was incorporated in U.K., it had no other commercial business there. NNPLC had declared loss of Rs.8.34 crores for relevant year. It was also noticed from order of assessing officer that assessee is parent company of NNPLC and it is dictates of assessee which are important for running NNPLC. 19. Pursuant to directions of DRP, assessing officer passed final assessment order for AY 2009 10 on 21.02.2014 which also disclosed similar facts. 20. According to revenue Tax Evasion Petitions were filed by minority shareholders of assessee company on various dates, i.e., 11.03.2014, 25.07.2014, 13.10.2014 and 11.03.2015, which complaints describe in detail communication between assessee and subsidiaries and also allegedly showed evidence of round tripping of assessee s undisclosed income through layer of subsidiaries which led to issuance of notice in question. 14 15 21. Whether facts which came to knowledge of assessment officer after assessment proceedings for relevant year were completed, could be taken into consideration for coming to conclusion that there were reasons to believe that income had escaped assessment is question that requires to be answered. Though number of judgments have been cited in this behalf, we shall make reference to only few. In Claggett Brachi Co. Ltd., London vs. Commissioner of Income Tax, Andhra Pradesh1, this Court held as follows: 7. Two points have been urged before us by learned counsel for assessee. It is contended that Income Tax Officer has no jurisdiction to take proceedings under Sections 147 and 148 of Income Tax Act because conditions prerequisite for making reassessments were not satisfied. re assessments were made with reference to clause (b) of Section 147 of Act, and apparently Income Tax Officer proceeded on basis that in consequence of information in his possession he had reason to believe that income chargeable to tax had escaped assessment for two assessment years. From material before us it appears that Income Tax Officer came to realise that income had escaped assessment for two assessment years when he was in process of making assessment for subsequent assessment year. While making that assessment he came to know from documents pertaining to that assessment that overhead expenses related to entire business including business as commission agents and were not confined to business of purchase and sale. It is true, as High Court has observed, that this information could have been acquired by Income Tax Officer if he had exercised due diligence at time of original assessment itself. It does not appear, however, that attention of Income Tax Officer was directed by anything before him to fact that overhead expenses related to entire business. information derived by Income Tax Officer evidently came into his possession when taking assessment proceedings for 1 1989 Supp(2) SCC 182 15 16 subsequent year. In circumstances, it cannot be doubted that case falls within terms of clause (b) of Section 147 of Act, and that, therefore, High Court is right in holding against assessee. In M/s Phool Chand Bajrang Lal and Another vs. Income Tax Officer and Another2, this Court held as follows: 19 Acquiring fresh information, specific in nature and reliable in character, relating to concluded assessment which goes to expose falsity of statement made by assessee at time of original assessment is different from drawing fresh inference from same facts and material which was available with ITO at time of original assessment proceedings. two situations are distinct and different. Thus, where transaction itself on basis of subsequent information, is found to be bogus transaction, mere disclosure of that transaction at time of original assessment proceedings, cannot be said to be disclosure of true and full facts in case and ITO would have jurisdiction to reopen concluded assessment in such case. It is correct that assessing authority could have deferred completion of original assessment proceedings for further enquiry and investigation into genuineness to loan transaction but in our opinion his failure to do so and complete original assessment proceedings would not take away his jurisdiction to act under Section 147 of Act, on receipt of information subsequently. subsequent information on basis of which ITO acquired reasons to believe that income chargeable to tax had escaped assessment on account of omission of assessee to make full and true disclosure of primary facts was relevant, reliable and specific. It was not at all vague or non specific. In Ess Kay Engineering Co.(P) Ltd. vs. Commissioner of Income Tax, Amritsar3, this Court held as follows: This is case of reopening. We have perused documents. We find there was material on basis of which Income Tax Officer could proceed to reopen case. It is not case of mere change of opinion. We are not inclined to interfere with decision of High Court merely because case of assessee was accepted as correct in original 2 (1993) 4 SCC 77 3 (2001) 10 SCC 189 16 17 assessment for this assessment year. It does not preclude Income Tax Officer from reopening assessment of earlier year on basis of his findings of fact made on basis of fresh materials in course of assessment of next assessment year. appeal is dismissed. No order as to costs. 22. perusal of aforesaid judgments clearly shows that subsequent facts which come to knowledge of assessing officer can be taken into account to decide whether assessment proceedings should be re opened or not. Information which comes to notice of assessing officer during proceedings for subsequent assessment years can definitely form tangible material to invoke powers vested with assessing officer under Section 147 of Act. 23. material disclosed in assessment proceedings for subsequent years as well as material placed on record by minority shareholders form basis for taking action under Section 147 of Act. At stage of issuance of notice, assessing officer is to only form prima facie view. In our opinion material disclosed in assessment proceedings for subsequent years was sufficient to form such view. We accordingly hold that there were reasons to believe that income had escaped assessment in this case. Question No.1 is answered accordingly. Question No.2 17 18 24. Coming to second question as to whether there was failure on part of assessee to make full and true disclosure of all relevant facts. case of assessee is that it had disclosed all facts which were required to be disclosed. 25. revenue has placed reliance on certain complaints made by minority shareholders and it is alleged that those complaints reveal that assessee was indulging in round tripping of its funds. According to revenue material disclosed in these complaints clearly shows that assessee is guilty of creating network of shell companies with view to transfer its un taxed income in India to entities abroad and then bring it back to India thereby avoiding taxation. We make it clear that we are not going into this aspect of matter because those complaints have not seen light of day either before High Court or this Court and, therefore, it would be unfair to assessee if we rely upon such material which assessee has not been confronted with. 26. Even before assessment order was passed on 03.08.2012, assessing officer was aware of entities which had subscribed to convertible bonds. This is apparent from communication dated 08.04.2011. case of revenue is that assessee did not disclose amount subscribed by each 18 19 of entities and furthermore management structure of these companies. We are not in agreement with this submission of revenue. It is apparent from records of case that revenue was aware of entities which subscribed to convertible bonds. It has been urged that these are bogus companies, but we are not concerned with that at this stage. issue before us is whether revenue can take benefit of extended period of limitation of 6 years for initiating proceedings under first proviso Section 147 of Act. This can only be done if revenue can show that assessee had failed to disclose fully and truly all material facts necessary for its assessment. assessee, in our view had disclosed all facts it was bound to disclose. If revenue wanted to investigate matter further at that stage it could have easily directed assessee to furnish more facts. 27. High Court held that there was no true and fair disclosure in view of law laid down by this Court in Phool Chand s case (supra), and judgment of Delhi High Court in Honda Siel Power Products Limited vs. Deputy Commissioner Income Tax and Another4. We have already 4 (2012) 340 ITR 53 (Delhi) 19 20 referred to judgment in Phool Chand s case (supra), wherein it was held that where transaction of particular assessment year is found to be bogus transaction, disclosures made could not be said to be all true and full . Relying upon said judgment High Court held that merely because transaction of convertible bonds was disclosed at time of original assessment does not mean that there is true and full disclosure of facts. 28. We are unable to agree with this reasoning given by High Court. assessee as mentioned above made disclosure about having agreed to stand guarantee for transaction by NNPLC and it had also disclosed factum of issuance of convertible bonds and their redemption. income, if any, arose because of redemption at discounted price. This was event which took place subsequent to assessment year in question though it may be income for assessment year. As we have observed above, all relevant facts were duly within knowledge of assessing officer. assessing officer knew who were entities who had subscribed to other convertible bonds and in other proceedings relating to subsidiaries 20 21 same assessing officer had knowledge of addresses and consideration paid by each of bondholders as is apparent from assessment orders dated 03.08.2012 passed in cases of M/s. NDTV Labs Ltd. and M/s. NDTV Lifestyle Ltd. Therefore, in our opinion there was full and true disclosure of all material facts necessary for its assessment by assessee. 29. fact that step up coupon bonds for US$ 100 million were issued by NNPLC was disclosed; who were entities which subscribed to bonds was disclosed; and fact that bonds were discounted at lower rate was also disclosed before assessment was finalised. This transaction was accepted by assessing officer and it was clearly held that assessee was only liable to receive guarantee fees on same which was added to its income. Without saying anything further on merits of transaction we are of view that it cannot be said that assessee had withheld any material information from revenue. 30. According to revenue assessee to avoid detection of actual source of funds of its subsidiaries did not disclose details of subsidiaries in its final accounts, balance sheets, and profit and loss account for relevant period as was 21 22 mandatory under provisions of Indian Companies Act, 1956. It is not disputed that assessee had obtained exemption from competent authority under Companies Act, 1956 from providing such details in its final accounts, balance sheets, etc. As such it cannot be said that assessee was bound to disclose this to Assessing Officer. Assessing Officer before finalising assessment of 03.08.2012 had never asked assessee to furnish details. 31. revenue now has come up with plea that certain documents were not supplied but according to us all these documents cannot be said to be documents which assessee was bound to disclose at time of assessment. main ground raised by revenue is that assessee did not disclose as to who had subscribed what amount and what was its relationship with assessee. As far as first part is concerned it does not appear to be correct. There is material on record to show that on 08.04.2011 NNPLC had sent communication to Deputy Director of Income Tax (Investigation), wherein it had not only disclosed names of all bond holders but also their addresses; number of bonds along with total consideration received. This chart forms part 22 23 of assessment orders dated 03.08.2012 in case of M/s. NDTV Labs Ltd. and M/s. NDTV Lifestyle Ltd. said two assessment orders were passed by same officer who had passed assessment order in case of assessee on same date itself. Therefore, entire material was available with revenue. 32. number of decisions have been cited as to what is meant by true and full disclosure. It is not necessary to multiply decisions, as law in this regard has been succinctly laid down by Constitution Bench of this Court in Calcutta Discount Co. Ltd. vs. Income tax Officer, Companies District I, Calcutta and Another5 , wherein it was held as follows : (8) words used are omission or failure to disclose fully and truly all material facts necessary for his assessment for that year . It postulates duty on every assessee to disclose fully and truly all material facts necessary for his assessment. What facts are material, and necessary for assessment will differ from case to case. In every assessment proceeding, assessing authority will, for purpose of computing or determining proper tax due from assessee, require to know all facts which help him in coming to correct conclusion. From primary facts in his possession, whether on disclosure by assessee, or discovered by him on basis of facts disclosed, or otherwise assessing authority has to draw inferences as regards certain other facts; and ultimately, from primary facts and further facts inferred from them, authority has to draw proper legal inferences, and ascertain on correct interpretation of taxing enactment, proper tax leviable. Thus, when question arises whether certain income received by 5 AIR 1961 SC 372 23 24 assessee is capital receipt, or revenue receipt, assessing authority has to find out what primary facts have been proved, what other facts can be inferred from them, and taking all these together, to decide what legal inference should be. (9) There can be no doubt that duty of disclosing all primary facts relevant to decision of question before assessing authority lies on assessee. To meet possible contention that when some account books or other evidence has been produced, there is no duty on assessee to disclose further facts, which on due diligence, Income tax Officer might have discovered, Legislature has put in Explanation, which has been set out above. In view of Explanation, it will not be open to assessee to say, for example I have produced account books and documents: You, assessing officer examine them, and find out facts necessary for your purpose: My duty is done with disclosing these account books and documents. His omission to bring to assessing authority s attention these particular items in account books, or particular portions of documents, which are relevant, will amount to omission to disclose fully and truly all material facts necessary for his assessment. Nor will he be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discovered by assessing authority if he had pursued investigation on basis of what has been disclosed. Explanation to section, gives quietus to all such contentions; and position remains that so far as primary facts are concerned, it is assessee s duty to disclose all of them including particular entries in account books, particular portions of documents and documents, and other evidence, which could have been discovered by assessing authority, from documents and other evidence disclosed. (10) Does duty however extend beyond full and truthful disclosure of all primary facts? In our opinion, answer to this question must be in negative. Once all primary facts are before assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else far less assessee to tell assessing authority what inferences whether of facts or law should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that assessee must disclose what inferences whether of facts or law he would draw from primary facts. (11) If from primary facts more inferences than one could be drawn, it would not be possible to say that assessee should have drawn any particular inference and communicated it to assessing authority. How could 24 25 assessee be charged with failure to communicate inference, which he might or might not have drawn? careful analysis of this judgment indicates that Constitution Bench held that it is duty of assessee to disclose full and truly all material facts which it termed as primary facts. Non disclosure of other facts which may be termed as secondary facts is not necessary. In light of above law, we shall deal with facts of present case. 33. In our view assessee disclosed all primary facts necessary for assessment of its case to assessing officer. What revenue urges is that assessee did not make full and true disclosure of certain other facts. We are of view that assessee had disclosed all primary facts before assessing officer and it was not required to give any further assistance to assessing officer by disclosure of other facts. It was for assessing officer at this stage to decide what inference should be drawn from facts of case. In present case assessing officer on basis of facts disclosed to him did not doubt genuiness of transaction set up by assessee. This assessing officer could have done even at that stage on basis of facts which he already knew. other facts 25 26 relied upon by revenue are proceedings before DRP and facts subsequent to assessment order, and we have already dealt with same while deciding Issue No.1. However, that cannot lead to conclusion that there is non disclosure of true and material facts by assessee. 34. It is interesting to note that whereas before this Court revenue is strenuously urging that assessee is guilty of non disclosure of material facts, before High Court case of revenue was just opposite. We may quote portion of counter affidavit filed by revenue in response to writ petition filed by assessee before High Court which reads as follows: It is evident from these facts that second proviso to Section 147 is clearly attracted in this case and first proviso to Section 147 is not applicable to facts of this case, i.e. in this case, only requirement to reopen assessment U/s 147 was that AO has reason to believe that any income chargeable to tax has escaped assessment. second condition that income should have escaped assessment due to failure on part of assessee to disclose fully and truly all material facts necessary for making assessment is not relevant to decide issue before Hon ble Court This submission has been repeated number of times in counter affidavit. Therefore, in our opinion revenue cannot now turn around and urge that assessee is guilty of non disclosure of facts. We are also of view that revenue could not be permitted to blow hot and cold at same time. 26 27 35. We are clearly of view that revenue in view of its counter affidavit before High Court that it was not relying upon non disclosure of facts by assessee could not have been permitted to orally urge same. Even otherwise we find that assessee had fully and truly disclosed all material facts necessary for its assessment and, therefore, revenue cannot take benefit of extended period of limitation of 6 years. We answer Question No.2 accordingly. Question No.3 36. It is urged before this Court by revenue that in terms of second proviso to Section 147 of Act read with Section 149(1) (c) of Act, limitation period would be 16 years since assessee has derived income from foreign entity. We may make specific reference to second proviso and explanation 2(d) which reads as follows: Provided further that nothing contained in first proviso shall apply in case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year: xxx xxx xxx Explanation 2. For purposes of this section, following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely : xxx xxx xxx 27 28 (d) where person is found to have any asset (including financial interest in any entity) located outside India. xxx xxx xxx 37. On behalf of assessee it has been urged that no income was derived from foreign entity and loan cannot be termed to be asset or income and it is submitted that notice cannot be said to have been issued under second proviso. 38. In this regard we may make reference to notice dated 31.03.2015. notice is conspicuously silent with regard to second proviso. It does not rely upon second proviso and basically relies on provision of Section 148 of Act. reasons communicated to assessee on 04.08.2015 mention reason to believe and non disclosure of material facts by assessee. There is no case set up in relation to second proviso either in notice or even in reasons supplied on 04.08.2015 with regard to notice. It is only while rejecting objections of assessee that reference has been made to second proviso in order of disposal of objections dated 23.11.2015. 39. High Court relied upon judgment in Mohinder Singh Gill & Anr. vs. Chief Election Commissioner, 28 29 New Delhi & Ors.6 and came to conclusion that revenue cannot rely upon second proviso because notice was silent in this regard. However, High Court held that assessee was guilty of non disclosure of material facts. We have already held that in our view assessee was not guilty of non disclosure of material facts. revenue has not challenged judgment of High Court in so far as this finding against it is concerned but revenue is entitled to defend petition even on ground which may have been decided against it by High Court. 40. On behalf of revenue it is urged that mere non naming of second proviso in notice does not help assessee. It has been urged that even if source of power to issue notice has been wrongly mentioned, but all relevant facts were mentioned, then notice can be said to be notice under provision which empowers revenue to issue such notice. There can be no quarrel with this proposition of law. However, noticee or assesee should not be prejudiced or be taken by surprise. uncontroverted fact is that in notice dated 31.03.2015 there is no mention of any foreign entity. There is only mention of Section 148. Even after assessee 6 (1978) 2 SCR 272 29 30 specifically asked for reasons, revenue only relied upon facts to show that there was reason to believe that income has escaped assessment and this escapement was due to non disclosure of material facts. There is nothing in reasons to indicate that revenue was intending to apply extended period of 16 years. It is only after assessee filed its reply to reasons given, that in order of rejection for first time reference was made to second proviso by revenue. 41. In our view this is not fair or proper procedure. If not in first notice, at least at time of furnishing reasons assessee should have been informed that revenue relied upon second proviso. assessee must be put to notice of all provisions on which revenue relies upon. At risk of repetition, we reiterate that we are not going into merits of case but in case revenue had issued notice to assessee stating that it relies upon second proviso, assessee would have had chance to show that it was not deriving any income from any foreign asset or financial interest in any foreign entity, or that asset did not belong to it or any other ground which may be available. assessee cannot be deprived of this chance while replying to notice. 30 31 42. Therefore, even if we do not fall back on reason given by High Court that revenue cannot take fresh ground, we are clearly of view that notice and reasons given thereafter do not conform to principles of natural justice and assessee did not get proper and adequate opportunity to reply to allegations which are now being relied upon by revenue. 43. If revenue is to rely upon second proviso and wanted to urge that limitation of 16 years would apply, then in our opinion in notice or at least in reasons in support of notice, assessee should have been put to notice that revenue relies upon second proviso. assessee could not be taken by surprise at stage of rejection of its objections or at stage of proceedings before High Court that notice is to be treated as notice invoking provisions of second proviso of Section 147 of Act. Accordingly, we answer third question by holding that notice issued to assessee and supporting reasons did not invoke provisions of second proviso of Section 147 of Act and therefore at this stage revenue cannot be permitted to take benefit of second proviso. 31 32 Conclusion 44. We accordingly allow appeal by holding that notice issued to assessee shows sufficient reasons to believe on part of assessing officer to reopen assessment but since revenue has failed to show non disclosure of facts notice having been issued after period of 4 years is required to be quashed. Having held so, we make it clear that we have not expressed any opinion on whether on facts of this case revenue could take benefit of second proviso or not. Therefore, revenue may issue fresh notice taking benefit of second proviso if otherwise permissible under law. We make it clear that both parties shall be at liberty to raise all contentions with regard to validity of such notice. All pending application(s) shall stand(s) disposed of. .J. (L. Nageswara Rao) .J. (Deepak Gupta) New Delhi April 3, 2020 32 New Delhi Television Ltd. v. Deputy Commissioner of Income-tax