POOJA COMMUNICATIONS PVT LTD,PUNE vs. INCOME TAX OFFICER-8(2)(1), MUMBAI SUBURBAN

This appeal filed by the assessee is directed against the order dated 16.12.2025 passed by the National Faceless Appeal Centre, Delhi [hereinafter referred to as “the Ld. CIT(A)”], under section 250 of the Income-tax Act, 1961 (“the Act”) for the assessment year 2023-24. The impugned appellate order arises from the assessment order dated 26.03.2025 passed by the Assessing Officer (“AO”) under section 143(3) read with section 144B of the Act.

The assessee has raised the following grounds of appeal:

The brief facts of the case are that the assessee is a company engaged in the business of creating, planning and handling advertisements and other forms of promotion and publishing media. It filed its return of income on 17.10.2023 declaring total income of Rs.51,90,630. The case was selected for complete scrutiny. During assessment proceedings, the AO noticed that payments aggregating to Rs.37,59,31,099 were reflected in the relevant data, whereas tax under section 194C had been deducted only on payments of Rs.4,29,31,086. Treating the balance payments of Rs.33,30,00,013 as liable to deduction of tax at source, the AO disallowed 30% thereof, amounting to Rs.9,99,00,003, under section 40(a)(ia). The assessee had also debited finance cost of Rs.29,02,000. Since, according to the AO, a categorical head-wise bifurcation and complete supporting evidence were not furnished, he made an ad hoc disallowance at 20%, amounting to Rs.5,80,400. The assessed income was accordingly determined at Rs.10,56,71,033.

In appeal, the Ld. CIT(A) confirmed both disallowances. In relation to payments made to newspaper and media houses, the Ld. CIT(A) held that CBDT Circular No.05/2016 dated 29.02.2016 dealt with section 194H and was not applicable to the disallowance made under section 194C. As regards finance cost, the Ld. CIT(A) observed that the certificate from Standard Chartered Bank reflected interest of Rs.23,56,952 as against the total finance cost of Rs.29,02,000 and that the HDFC Bank car loan was sanctioned in the name of Shri Narendra Bhaichand Darji Parmar, the director, and not in the name of the assessee-company. The Ld. CIT(A) further made an observation regarding possible applicability of section 2(22)(e). The appeal was therefore dismissed.

Before us, the Ld. Authorised Representative (“AR”) submitted that the assessee is an advertising agency and the impugned payments were made by it to newspaper companies and media houses for procuring advertisement space. Referring to paragraph 2 of CBDT Circular No.05/2016 dated 29.02.2016, she submitted that the Board has specifically clarified that no tax is deductible under section 194C on payments made by an advertising agency to a television channel or newspaper company. It was therefore contended that the disallowance of Rs.9,99,00,003 under section 40(a)(ia) was contrary to the binding circular and deserved to be deleted. 3

In respect of finance cost, the Ld. AR fairly conceded that the interest relating to the car loan obtained in the name of the director was not allowable in the hands of the assessee-company, since the borrowing was not shown to have been made for the use of the company. She, however, submitted that the entire remaining finance cost could not be subjected to an ad hoc disallowance of 20%, particularly when the major component represented interest charged by Standard Chartered Bank. She prayed that reasonable relief be granted.

The Ld. Departmental Representative (“DR”), on the other hand, relied upon the orders of the lower authorities and submitted that the assessee had failed to furnish complete and specific details before the AO. He accordingly prayed that the impugned order be upheld.

We have heard the rival submissions and perused the material available on record. Ground No.1 concerns the disallowance under section 40(a)(ia) on payments made by the assessee, an advertising agency, to newspaper companies and media houses. Paragraph 2 of CBDT Circular No.05/2016 dated 29.02.2016, after referring to Circular No.715 dated 08.08.1995, clarifies the position in the following terms:

Thus, the Circular itself deals with both categories of payments and expressly records that a payment made by an advertising agency to a television channel or newspaper company is not liable to deduction of 4 tax under section 194C. The Ld. CIT(A), while noticing only the clarification concerning section 194H, failed to give effect to the specific clarification contained in paragraph 2 regarding section 194C. On the facts recorded by the AO, the impugned amount represents payments made by the assessee advertising agency to newspaper and media companies for procuring advertisement space. Consequently, no tax was required to be deducted under section 194C on such payments. The very foundation of the disallowance under section 40(a)(ia) therefore fails. We direct the AO to delete the disallowance of Rs.9,99,00,003. Ground No.1 is allowed.

Ground No.2 relates to the finance cost of Rs.29,02,000, of which the AO disallowed 20%, amounting to Rs.5,80,400. The assessee did not furnish complete head-wise details and supporting evidence before the AO. The material referred to by the Ld. CIT(A) also shows that the interest certificate accounted for Rs.23,56,952 only and did not reconcile the entire amount debited. Further, the car loan stood in the name of the director. The Ld. AR has fairly conceded that interest on such loan is not allowable in the hands of the assessee-company because the borrowing was for the director and was not shown to be for the company’s use. The ground, to the extent it challenges disallowance of the said car-loan interest, is accordingly dismissed.

At the same time, the disallowance of the entire finance-cost claim at an ad hoc rate of 20% is on the higher side, particularly when a substantial part of the expenditure is supported by the bank interest certificate. Considering the failure of the assessee to furnish complete details before the AO, as well as the material now available, and in order to meet the ends of justice and fair play, we restrict the overall disallowance out of finance cost to 10% of Rs.29,02,000, i.e.

Ground No.3 challenges the observations of the Ld. CIT(A) regarding possible applicability of section 2(22)(e). No addition under that provision was made by the AO and no such issue arose from the assessment order. The observation was therefore neither necessary for deciding the appeal nor preceded by an opportunity to the assessee. The said observation shall not prejudice the assessee and Ground No.3 is allowed in these terms.

Ground No.4 relating to levy of interest under sections 234A, 234B and 234C is consequential and the AO is directed to recompute the same, if applicable, while giving effect to this order.

In the result, the appeal filed by the assessee is partly allowed.