New Delhi Television Ltd. v. Asstt. CIT

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The Tax Publishers2017 TaxPub(DT) 1898 (Del-Trib) : (2017) 189 TTJ 0001 New Delhi Television Ltd. v. Asstt. CIT INCOME TAX ACT, 1961 --Capital or revenue expenses--Purchased accounting software and its upgradationNeed regular upgradation--No enduring benefit. --Where assessee had purchased accounting software and its upgradation and also incurred expenses on software such as Google earth, pro-Microsoft server, AO was not justified in treating it as capital expenditure since the software need regular up-gradation or change as per the requirements of fast changing environment and there was no enduring benefit to assessee. --Assessee had incurred certain expenditure on software expenses and claimed the same as revenue expenditure. AO was of the view that the expenses were capital in nature on the ground that assessee had purchased accounting software and its upgradation and also on software such as Google earth, pro-Microsoft server calls are purchased which gives the assessee an advantage of enduring nature and therefore depreciation @ 60% thereon was allowable and not the whole expenditure.Held: Software need regular up, gradation or change as per the requirements of fast changing broadcasting industry.The life of these software was for a shorter period and therefore, it could not be said that the same was providing enduring benefit to the assessee.Therefore, these expenditures were to be allowed. Income Tax Act, 1961 Section 37(1) *REFERRED :* FAVOUR : In assessee's favour A.Y. : 2009-10 INCOME TAX ACT, 1961 --Income from undisclosed sources--Addition under section 68Interest free loan from subsidiary--No proper explanation of source. --Where assessee raised unsecured loan through its subsidiary NL PLC and the amount involved was quite a large sum of money, and from a bare reading of the loan agreement copy, it was found that the loan was advanced without any interest, the reason for which had not been explained properly and satisfactorily, therefore AO was justified in adding amount under section 68. --Assessee through its subsidiary NL PLC had raised unsecured loan amounting to Rs. 254.75 crores. On query the assessee submitted that it had been raised from intermediate holding company NDTV Network, BV and the relevant details had been filed during the course of assessment proceedings. Assessee was informed that no such documents were found in the assessment record for assessment year 2008-09. Assessee further filed details that the above amount was disclosed in the books of NN PLC and NDTV Network BV. However, as the loan confirmation did not have the bank certificates along with the confirmation, therefore, AO was of the view that assessee had failed to discharge its onus of proving the identity and creditworthiness of the lender and genuineness of the transaction and added the amount under section 68.Held: Even after the production of the copy of the loan agreement assessee had not discharged its onus of explaining the genuineness of the transaction. From a bare reading of the so-called agreement copy, it was found that the loan was advanced without any interest, the reason for which had not been explained. The amount involved was quite a large sum of money. Further, as per this document, the interest free credit facility was to be granted on the basis of a duly completed utilization request, where as no such utilization request or basis for seeking the above credit facility had been produced by the assessee before revenue. Therefore, assessee had failed to discharge its onus of proving the genuineness of the transaction of raising unsecured loan through its subsidiary NDTV Networks PLC and hence, the amount was rightly added under section 68. Income Tax Act, 1961 Section 68 *REFERRED :* FAVOUR : Against the assessee. A.Y. : 2009-10 INCOME TAX ACT, 1961 --Income from undisclosed sources--Addition under section 69ANo conclusive evidence for selling shares at high premium--Bought back at very low price in short span of time. --Where assessee through its subsidiaries had sold certain shares to another person at an astronomical price of Rs. 7,015 which was 159 times of its face value and no valuation was carried out and in short span of time the shares were bought back from the investor at the price of Rs. 634.17 per share, and also no details/justification had been given as to how the buy back price was fixed and the only explanation was provided that the shares were sold at the future prospects of business which did not go as per planned way therefore, investor sold shares back to assessee, this theory does not satisfy the huge gap in buy-sell price, therefore AO was justified in lifting the corporate veil and making addition under section 69A for introducing amount in the books from undisclosed sources. --Assessee had a subsidiary, namely, NDTV Networks International Holdings BV (Investee Company) ('NNIH') formed in Netherland had received certain sum on account of subscription of its shares by one company, namely, M/s. Universal Studios International BV (Investor Company) (USBV) which was incorporated with limited liability in Amsterdam. Investor company was also wholly owned subsidiary of CA Holding CV legally seated in Amsterdam, Netherland. The issued share capital of the investor company was comprising of 2680 shares of Euro 453.78 each held by NBCU Dutch holding (Bermuda) Ltd. acting in its capacity as General Managing Partner of CA Holding CV, Bermuda. AO was of the view that the assessee had not discharged its primary onus in terms of sections 68 and 69A. Furthermore, there was no independent valuation for determining the value of the shares of the subsidiaries of the assessee was carried out, therefore, AO was of the view that the money received by the assessee through its subsidiary on account of this investment was not as per the fair value of the shares and the transaction was covered by the provisions of section 69A. Shares of a subsidiary company of the assessee located abroad was sold for Rs. 642.5 crores and bought back within a short span for Rs. 58 crores is the focal point of this controversy. The following information related to subsidiary was also not provided in audit report. However as per assessee the transactions were genuine and the parties to the transactions were real and their creditworthiness was beyond doubt. AO could not make an addition on mere suspicion since the subscription price was arrived at on the basis of negotiation between the parties based on proposed potential and business forecast and projections. Further the transaction was through banking channels, and the negotiated price of shares was based on the future projections and during the period when the transaction took place, the Indian economy was booming. The assessee, being in the creative field of television broadcasting, was in a position to 'sell the dream' to a prospective investor. However, 'the dream' went bust subsequently. Therefore, the investor sold back the investment to the assessee at a reduced price. This was a perfectly legal and normal investment from all angles.Held: DRP had considered entire gamut of transaction and was of view that the structure of holding/subsidiary companies and the transaction as narrated above, without any commercial substance, do warrant lifting the corporate veil to identify the true nature of the transaction. Though AO, in his remand report, had said that the money had not been recorded in the books of assessee, however after lifting the corporate veil, the sum had been found credited in the books of assessee/its subsidiary. Though the assessee had sought to explain the above amount through the lengthy and circuitous transactions, the commercial substance/economic rationale for such transaction had not been satisfactorily explained. Assessee's theory of having sold a “Dream” to the investor had not been substantiated by any credible evidence as no details have been filed for the so-called business projections and the basis for computation of the sale price of the share at the astronomical price of Rs. 7,015 which is 159 times of its face value of Rs. 45. The subject company whose shares were sold was incurring huge losses and there was hardly any worthwhile business to justify the above sale price. Assessee/subsidiaries have again repurchased the same share in the very next financial year at the price of Rs. 634.17 per share, and also no details/justification had been given by the assessee as to how the buy back price was fixed by the assessee when the so-called “Dream” went bust, as being claimed by assessee. The totality of the transaction clearly led to the inescapable conclusion that the entire transaction of sale and subsequent buy back of shares was a “sham” transaction entered into by the assessee with the sole motive of introducing Rs. 642.54 crores in its books and providing loss of Rs. 584.46 crores to Universal Studios BV, Netherlands. Therefore, addition under section 69A as proposed by AO was justified, as after lifting the corporate veil, the assessee is found owner/controller of the money under reference. Income Tax Act, 1961 Section 69A *REFERRED :* CIT v. Sofia Finance Ltd. 205 ITR 98; CIT v. Divine Leasing & Finance Ltd. 207 ITR 38; CIT v. Allahabad Bank Ltd. 73 ITR 745; Green Infra Ltd. v. ITO, ITA No. 7762/Mum/2012 FAVOUR : Against the assessee. A.Y. : 2009-10 INCOME TAX ACT, 1961 --Business disallowance under section 40(a)(ia)--Trade discount to advertising agency by media companyGoverned by INS rules not as per Will. ----Where assessee, a media company, had received payment from advertising agency after deducting trade discount @15% from the gross payment received from advertiser for the business booked through them, AO was not justified in disallowing the trade discount for want of TDS deduction treating it to be agency commission since the discount was governed by INS and was not as per Will of assessee and TDS was deducted by advertiser under section 194C while making payment to agency. --Assessee was a company engaged in the business of television news broadcasting through its three different channels. The assessee sold the space at a price through the agency/agents. The agents, further, in turn, sold it to the advertisers. The assessee sold such time slot to the agents. The agents book the times slot to end user, i.e., advertisers. The modus operandi explained by the assessee was that as per 'industry practice' 15% of gross amounts received/receivable by the assessee were withheld by the Agency as its 'commission', as shown in the invoices also. However, the assessee has claimed that it was 'discount or trade discount, which was being retained by the agency and net payment was being made to the assessee. AO disallowed the sum on the ground that the assessee should have deducted tax on the gross amount received by the advertisement agency.Held: There was no direct link between the print and electronic media and the advertiser. As per the rules of INS, accreditation was awarded by INS to the advertising agency which become eligible to receive 15 per cent discount from media companies on procuring advertisement space for/time in publication/broadcast for advertisers. It may be noted that even the discount was not at the Will or contractual discretion, it was governed by INS regulations. Therefore, AO was directed to not to make the addition. Income Tax Act, 1961 Section 40(a)(ia) *Relied:*CIT v. Living Media India Ltd. and in the case of JagranPrakashan Ltd. v. DCIT (345 ITR 288 (2012) *REFERRED :* FAVOUR : In assessee's favour A.Y. : 2009-10 IN THE ITAT, DELHI I-2 BENCH I.C. Sudhir, J.M. & Prashant Maharishi, A.M. New Delhi Television Ltd. v. Asstt. CIT IT Appeal Nos. 1212, 2658 of 2014, C.O. No. 233 (Delhi) of 2014 A.Y. 2009-10 14 July, 2017 Appellant by: C.S. Agarwal, Sr. Advocate Respondent by: Girish Dave O R D E R *Prashant Maharishi, A.M.* ITA No. 1212/Del/2014 (Assessment Year 2009-10) Appeal No. 1212/Del/2014 is filed by the assessee against the order of Assistant Commissioner, Circle-13(1), New Delhi (hereinafter referred to as the learned assessing officer) passed under section 144 read with section 144C(13) of the Income Tax Act, 1961 in pursuance of the direction issued by the learned Dispute Resolution Panel (hereinafter referred to as the learned Dispute Resolution Panel) under section 144C(5) of the Act dated 31-12-2013 against the draft assessment order of the learned assessing officer wherein, transfer pricing adjustments proposed in terms of order of Additional Director of Income Tax, Transfer Pricing Officer-II(1), New Delhi (hereinafter referred to as Transfer Pricing Officer, Transfer Pricing Officer) passed under section 92CA(3) of the Income Tax Act on 30-1-2013 and other corporate additions proposed were also incorporated therein. 2. The assessee is a company engaged in the business of television news broadcasting through its three different channels. It is also producing customized software, programmes for broadcasters. It filed its return of income on 30-9-2009 declaring loss of Rs. 64,83,91,422. Subsequently, the return was picked up for the scrutiny and notice under section 143(2) was issued on 19-8-2010. During the course of assessment proceedings reference under section 92CA of the Act was also made by the learned assessing officer to the learned Transfer Pricing Officer to determine the arms length price of international transactions entered into by the assessee with its Associate Enterprises (in short AE). The learned Transfer Pricing Officer passed order under section 92CA(3) of the act on 30-1-2013 proposing adjustment on account of business support segment of assessee of Rs. 1,53,73,846 against the price received of Rs. 7,46,87,177 whose ALP was determined at Rs. 9,00,61,023. The learned Transfer Pricing Officer further made an adjustment on account of corporate guarantee of Rs. 10,87,56,000 wherein, assessee has issued corporate guarantee in favour of its subsidiary for issue of coupon bonds of US$100 million, the learned Transfer Pricing Officer computed guarantee commission at 2.70% amounting to Rs. 10,87,56,000 considering it as international transaction. The learned assessing officer incorporating the above adjustment on account of transfer pricing adjustments passed a draft of proposed assessment order under section 144C of the Income Tax Act on 30-3-2013 making disallowance of following sums :-- SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2017 TaxPub(DT) 1898 (Del-Trib) : (2017) 189 TTJ 0001

New Delhi Television Ltd. v. Asstt. CIT

INCOME TAX ACT, 1961

--Capital or revenue expenses--Purchased accounting software and its upgradationNeed regular upgradation--No enduring benefit. --Where assessee had purchased accounting software and its upgradation and also incurred expenses on software such as Google earth, pro-Microsoft server, AO was not justified in treating it as capital expenditure since the software need regular up-gradation or change as per the requirements of fast changing environment and there was no enduring benefit to assessee. --Assessee had incurred certain expenditure on software expenses and claimed the same as revenue expenditure. AO was of the view that the expenses were capital in nature on the ground that assessee had purchased accounting software and its upgradation and also on software such as Google earth, pro-Microsoft server calls are purchased which gives the assessee an advantage of enduring nature and therefore depreciation @ 60% thereon was allowable and not the whole expenditure.Held: Software need regular up, gradation or change as per the requirements of fast changing broadcasting industry.The life of these software was for a shorter period and therefore, it could not be said that the same was providing enduring benefit to the assessee.Therefore, these expenditures were to be allowed.

Income Tax Act, 1961 Section 37(1)

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2009-10

INCOME TAX ACT, 1961

--Income from undisclosed sources--Addition under section 68Interest free loan from subsidiary--No proper explanation of source. --Where assessee raised unsecured loan through its subsidiary NL PLC and the amount involved was quite a large sum of money, and from a bare reading of the loan agreement copy, it was found that the loan was advanced without any interest, the reason for which had not been explained properly and satisfactorily, therefore AO was justified in adding amount under section 68. --Assessee through its subsidiary NL PLC had raised unsecured loan amounting to Rs. 254.75 crores. On query the assessee submitted that it had been raised from intermediate holding company NDTV Network, BV and the relevant details had been filed during the course of assessment proceedings. Assessee was informed that no such documents were found in the assessment record for assessment year 2008-09. Assessee further filed details that the above amount was disclosed in the books of NN PLC and NDTV Network BV. However, as the loan confirmation did not have the bank certificates along with the confirmation, therefore, AO was of the view that assessee had failed to discharge its onus of proving the identity and creditworthiness of the lender and genuineness of the transaction and added the amount under section 68.Held: Even after the production of the copy of the loan agreement assessee had not discharged its onus of explaining the genuineness of the transaction. From a bare reading of the so-called agreement copy, it was found that the loan was advanced without any interest, the reason for which had not been explained. The amount involved was quite a large sum of money. Further, as per this document, the interest free credit facility was to be granted on the basis of a duly completed utilization request, where as no such utilization request or basis for seeking the above credit facility had been produced by the assessee before revenue. Therefore, assessee had failed to discharge its onus of proving the genuineness of the transaction of raising unsecured loan through its subsidiary NDTV Networks PLC and hence, the amount was rightly added under section 68.

Income Tax Act, 1961 Section 68

REFERRED :

FAVOUR : Against the assessee.

A.Y. : 2009-10

INCOME TAX ACT, 1961

--Income from undisclosed sources--Addition under section 69ANo conclusive evidence for selling shares at high premium--Bought back at very low price in short span of time. --Where assessee through its subsidiaries had sold certain shares to another person at an astronomical price of Rs. 7,015 which was 159 times of its face value and no valuation was carried out and in short span of time the shares were bought back from the investor at the price of Rs. 634.17 per share, and also no details/justification had been given as to how the buy back price was fixed and the only explanation was provided that the shares were sold at the future prospects of business which did not go as per planned way therefore, investor sold shares back to assessee, this theory does not satisfy the huge gap in buy-sell price, therefore AO was justified in lifting the corporate veil and making addition under section 69A for introducing amount in the books from undisclosed sources. --Assessee had a subsidiary, namely, NDTV Networks International Holdings BV (Investee Company) ('NNIH') formed in Netherland had received certain sum on account of subscription of its shares by one company, namely, M/s. Universal Studios International BV (Investor Company) (USBV) which was incorporated with limited liability in Amsterdam. Investor company was also wholly owned subsidiary of CA Holding CV legally seated in Amsterdam, Netherland. The issued share capital of the investor company was comprising of 2680 shares of Euro 453.78 each held by NBCU Dutch holding (Bermuda) Ltd. acting in its capacity as General Managing Partner of CA Holding CV, Bermuda. AO was of the view that the assessee had not discharged its primary onus in terms of sections 68 and 69A. Furthermore, there was no independent valuation for determining the value of the shares of the subsidiaries of the assessee was carried out, therefore, AO was of the view that the money received by the assessee through its subsidiary on account of this investment was not as per the fair value of the shares and the transaction was covered by the provisions of section 69A. Shares of a subsidiary company of the assessee located abroad was sold for Rs. 642.5 crores and bought back within a short span for Rs. 58 crores is the focal point of this controversy. The following information related to subsidiary was also not provided in audit report. However as per assessee the transactions were genuine and the parties to the transactions were real and their creditworthiness was beyond doubt. AO could not make an addition on mere suspicion since the subscription price was arrived at on the basis of negotiation between the parties based on proposed potential and business forecast and projections. Further the transaction was through banking channels, and the negotiated price of shares was based on the future projections and during the period when the transaction took place, the Indian economy was booming. The assessee, being in the creative field of television broadcasting, was in a position to 'sell the dream' to a prospective investor. However, 'the dream' went bust subsequently. Therefore, the investor sold back the investment to the assessee at a reduced price. This was a perfectly legal and normal investment from all angles.Held: DRP had considered entire gamut of transaction and was of view that the structure of holding/subsidiary companies and the transaction as narrated above, without any commercial substance, do warrant lifting the corporate veil to identify the true nature of the transaction. Though AO, in his remand report, had said that the money had not been recorded in the books of assessee, however after lifting the corporate veil, the sum had been found credited in the books of assessee/its subsidiary. Though the assessee had sought to explain the above amount through the lengthy and circuitous transactions, the commercial substance/economic rationale for such transaction had not been satisfactorily explained. Assessee's theory of having sold a “Dream” to the investor had not been substantiated by any credible evidence as no details have been filed for the so-called business projections and the basis for computation of the sale price of the share at the astronomical price of Rs. 7,015 which is 159 times of its face value of Rs. 45. The subject company whose shares were sold was incurring huge losses and there was hardly any worthwhile business to justify the above sale price. Assessee/subsidiaries have again repurchased the same share in the very next financial year at the price of Rs. 634.17 per share, and also no details/justification had been given by the assessee as to how the buy back price was fixed by the assessee when the so-called “Dream” went bust, as being claimed by assessee. The totality of the transaction clearly led to the inescapable conclusion that the entire transaction of sale and subsequent buy back of shares was a “sham” transaction entered into by the assessee with the sole motive of introducing Rs. 642.54 crores in its books and providing loss of Rs. 584.46 crores to Universal Studios BV, Netherlands. Therefore, addition under section 69A as proposed by AO was justified, as after lifting the corporate veil, the assessee is found owner/controller of the money under reference.

Income Tax Act, 1961 Section 69A

REFERRED : CIT v. Sofia Finance Ltd. 205 ITR 98; CIT v. Divine Leasing & Finance Ltd. 207 ITR 38; CIT v. Allahabad Bank Ltd. 73 ITR 745; Green Infra Ltd. v. ITO, ITA No. 7762/Mum/2012

FAVOUR : Against the assessee.

A.Y. : 2009-10

INCOME TAX ACT, 1961

--Business disallowance under section 40(a)(ia)--Trade discount to advertising agency by media companyGoverned by INS rules not as per Will. ----Where assessee, a media company, had received payment from advertising agency after deducting trade discount @15% from the gross payment received from advertiser for the business booked through them, AO was not justified in disallowing the trade discount for want of TDS deduction treating it to be agency commission since the discount was governed by INS and was not as per Will of assessee and TDS was deducted by advertiser under section 194C while making payment to agency. --Assessee was a company engaged in the business of television news broadcasting through its three different channels. The assessee sold the space at a price through the agency/agents. The agents, further, in turn, sold it to the advertisers. The assessee sold such time slot to the agents. The agents book the times slot to end user, i.e., advertisers. The modus operandi explained by the assessee was that as per 'industry practice' 15% of gross amounts received/receivable by the assessee were withheld by the Agency as its 'commission', as shown in the invoices also. However, the assessee has claimed that it was 'discount or trade discount, which was being retained by the agency and net payment was being made to the assessee. AO disallowed the sum on the ground that the assessee should have deducted tax on the gross amount received by the advertisement agency.Held: There was no direct link between the print and electronic media and the advertiser. As per the rules of INS, accreditation was awarded by INS to the advertising agency which become eligible to receive 15 per cent discount from media companies on procuring advertisement space for/time in publication/broadcast for advertisers. It may be noted that even the discount was not at the Will or contractual discretion, it was governed by INS regulations. Therefore, AO was directed to not to make the addition.

Income Tax Act, 1961 Section 40(a)(ia)

Relied:CIT v. Living Media India Ltd. and in the case of JagranPrakashan Ltd. v. DCIT (345 ITR 288 (2012)

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2009-10

IN THE ITAT, DELHI I-2 BENCH

I.C. Sudhir, J.M. & Prashant Maharishi, A.M.

New Delhi Television Ltd. v. Asstt. CIT

IT Appeal Nos. 1212, 2658 of 2014, C.O. No. 233 (Delhi) of 2014

A.Y. 2009-10

14 July, 2017

Appellant by: C.S. Agarwal, Sr. Advocate

Respondent by: Girish Dave

O R D E R

Prashant Maharishi, A.M.

ITA No. 1212/Del/2014 (Assessment Year 2009-10)

Appeal No. 1212/Del/2014 is filed by the assessee against the order of Assistant Commissioner, Circle-13(1), New Delhi (hereinafter referred to as the learned assessing officer) passed under section 144 read with section 144C(13) of the Income Tax Act, 1961 in pursuance of the direction issued by the learned Dispute Resolution Panel (hereinafter referred to as the learned Dispute Resolution Panel) under section 144C(5) of the Act dated 31-12-2013 against the draft assessment order of the learned assessing officer wherein, transfer pricing adjustments proposed in terms of order of Additional Director of Income Tax, Transfer Pricing Officer-II(1), New Delhi (hereinafter referred to as Transfer Pricing Officer, Transfer Pricing Officer) passed under section 92CA(3) of the Income Tax Act on 30-1-2013 and other corporate additions proposed were also incorporated therein.

2. The assessee is a company engaged in the business of television news broadcasting through its three different channels. It is also producing customized software, programmes for broadcasters. It filed its return of income on 30-9-2009 declaring loss of Rs. 64,83,91,422. Subsequently, the return was picked up for the scrutiny and notice under section 143(2) was issued on 19-8-2010. During the course of assessment proceedings reference under section 92CA of the Act was also made by the learned assessing officer to the learned Transfer Pricing Officer to determine the arms length price of international transactions entered into by the assessee with its Associate Enterprises (in short AE). The learned Transfer Pricing Officer passed order under section 92CA(3) of the act on 30-1-2013 proposing adjustment on account of business support segment of assessee of Rs. 1,53,73,846 against the price received of Rs. 7,46,87,177 whose ALP was determined at Rs. 9,00,61,023. The learned Transfer Pricing Officer further made an adjustment on account of corporate guarantee of Rs. 10,87,56,000 wherein, assessee has issued corporate guarantee in favour of its subsidiary for issue of coupon bonds of US$100 million, the learned Transfer Pricing Officer computed guarantee commission at 2.70% amounting to Rs. 10,87,56,000 considering it as international transaction. The learned assessing officer incorporating the above adjustment on account of transfer pricing adjustments passed a draft of proposed assessment order under section 144C of the Income Tax Act on 30-3-2013 making disallowance of following sums :--