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Income Tax Appellate Tribunal, DELHI BENCHES “C”: DELHI
Before: SHRI R.K. PANDA & SHRI VIJAY PAL RAO
2 ITA.No.1876 & 1920/Del./2018 HT Media Ltd. ORDER PER VIJAY PAL RAO, J.M.
These cross appeals are directed against the order dated 07.12.2017 of Ld. CIT(Appeals) for the AY 2013- 14.
The assessee is a Public Limited Company and engaged in the business of printing and publication of newspapers and periodicals and FM broadcasting. The assessee filed its return of income on 29.11.2013 declaring total income of Rs. 60,51,920/- which was subsequently revised on 25.03.2015 to declare the income under the provisions of section 115JB of the Income Tax Act, 1961. During the scrutiny assessment, the AO noted that the assessee has made investments in quoted shares, mutual funds, etc. on which the assessee has earned dividend income of Rs. 7.04 crores which is exempt from tax. The AO further noted that the assessee has made suo moto disallowance u/s 14A of Rs. 9,75,000/-. The AO asked the assessee to explain the basis of the suo moto
3 ITA.No.1876 & 1920/Del./2018 HT Media Ltd. disallowance of Rs. 9,75,000/- but the assessee has not explained the basis as to how this figure of Rs. 9,75,000/- has arrived. Accordingly, the AO proceeded to make the disallowance u/s 14A as per the formula of apportionment of the indirect expenses provided under Rule 8D of Income Tax Rules, 1962. The AO consequently computed the disallowance on account of interest expenditure at Rs. 1,89,86,065/- and disallowance on account of administrative expenses @ 0.5% of the average investment which comes to Rs. 1,15,50,027/-. Thus, the AO has computed the total disallowance u/s 14A of Rs. 3,05,36,092/- as against the suo moto disallowance of Rs. 9,75,000/- consequently a differential disallowance of Rs. 2,95,61,092/- was made by the AO. The assessee challenged the AO before the CIT(A) and submitted that the disallowance made by the AO u/s 14A on account of indirect interest expenditure is unjustified and unwarranted as assessee has not utilized any borrowed funds for the purpose of investments made
4 ITA.No.1876 & 1920/Del./2018 HT Media Ltd. in the shares and securities/mutual funds. The assessee further contended before the CIT(A) that the assessee has not incurred any expenditure for earning the exempt income. However, the assessee has estimated the disallowance of expenditure of Rs. 9,75,000/- against which the AO has made a huge disallowance without even recording the satisfaction as to how a disallowance made by the assessee is not reasonable and proper. The assessee also relied upon the order of the CIT(A) for the AY 2011-12 & 2012-13.
The CIT(A) while allowing the part relief to the assessee has accepted the contention of the assessee regarding the disallowance made by the AO on account of interest expenditure as well as exclusion of the amount of investment made in the subsidiary company of the assessee. Therefore, the substantial relief was granted by the CIT(A) while restricting the disallowance u/s 14A to Rs. 13.71 lacs as against the disallowance of Rs. 2,95,61,092/-. Thus, both the Revenue as well as Assessee are aggrieved by the impugned order of the 5 ITA.No.1876 & 1920/Del./2018 HT Media Ltd.
CIT(A) and filed these cross appeals. The assessee as well as Revenue has raised the following grounds of appeal: - Grounds of Assessee’s appeal read as under: - Grounds of Revenue’s appeal read as under: -
1. “On the facts and circumstances of the case the Ld. CIT(A) erred in law in restricting the disallowance of Rs. 2,95,61,092/- to Rs. 13.71 lacs made by the Assessing Officer u/s 14A of the Income Tax Act, 1961 r.w.r. 8D of the Income Tax Act, 1961.
2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law as Ld. CIT(A) has not given any basis for deleting the disallowance of interest expenses and changing the computation of disallowance of interest u/s 14A r.w.r. 8(D(2)(iii) of Income Tax Rules, 1962.
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Whether for application of section 14A(1) of the Income Tax Act, 1961 the purpose for making investment and earning tax exempt income thereon is an essential legal requirement.
4. Whether the term “in relation to” as used in section 14A of the Act contemplates a direct and proximate nexus between “expenditure incurred” and “earning of exempt income”. 5. Whether the CIT(A) is legally justified in not upholding disallowance u/s 14A of the Income Tax Act, 1961 without considering legislative intent of introducing section 14A by the Finance Act, 2001 as clarified by CBDT Circular No. 5/2014 dated 10.02.2014. 6. Whether the CIT(A) is legally justified in not upholding disallowance u/s 14A of the Income Tax Act, 1961 without considering a legal principle that allowability/disallowability of expenditure under the Act is not conditional upon the earning of income as upheld by Hon’ble Supreme Court in the case of CIT vs. Rajendra Prasad Moody (1978) 115 ITR 519? 7. Whether the CIT(A) is justified in excluding the investment in subsidiary company, namely, Hindustan Media Venture Ltd. for working out disallowance u/s 14A r.w.r. 8D, without appreciating that investment in subsidiary company also result in non-taxable income against the law of land decided by the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. vs. Commissioner of Income Tax, New Delhi. 8. The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal.”
3. The solitary issue in the cross appeals is regarding the disallowance made by the AO u/s 14A while computing the income under normal provisions of the Income Tax Act as well as adjustment while computing book profit u/s 115JB of the Income Tax Act.
The Ld. AR of the assessee has submitted that the Assessing Officer has not recorded any satisfaction
7 ITA.No.1876 & 1920/Del./2018 HT Media Ltd. while rejecting the suo moto disallowance made by the assessee u/s 14A of the Income Tax Act, 1961 and, therefore, the disallowance made by the AO is not justified and liable to be deleted. In support of his contention he has relied upon the decision of the Hon’ble Jurisdictional High Court in assessee’s own case i.e. M/s HT Media Ltd. Vs. CIT 399 ITR 576. The Ld. AR has pointed out that an identical issue was considered by the Hon’ble Jurisdictional High Court in assessee’s own case and it was held that since there was a failure by the AO to comply with the mandatory requirement of section 14A(2) of the Act read with Rule 8D of the Income Tax Rules and to record his satisfaction as required there under the question of applying Rule 8D(2)(iii) of the Rule did not arise. Thus, the Ld. AR has given more stress to the argument that in the absence of the satisfaction recorded by the AO against the suo moto disallowance made by the assessee invoking of the provisions of the Rule 8D(2)(iii) is not valid and consequently the 8 ITA.No.1876 & 1920/Del./2018 HT Media Ltd. disallowance sustained by the CIT(A) is liable to be deleted.
On the other hand, Ld. DR has submitted that the AO has discussed the issue in detail while rejecting the claim of suo moto disallowance of Rs. 9,75,000/- which amounts to record satisfaction by the AO while invoking the provisions of Rule 8D(2)(iii) of the Income Tax Rules. She has referred to the order of the AO in para 3.2 and submitted that the AO has discussed each and every aspect of the issue by referring the relevant facts and, therefore, it cannot be said that the AO has made a disallowance u/s 14A without recording his satisfaction.
We have considered the rival submissions as well as relevant material on record. The AO has recorded the primary facts regarding the investment made by the assessee in the shares/mutual funds as on 31.03.2013 to the tune of Rs. 162.89 crores. The AO further noted that the working of suo moto disallowance by the assessee u/s 14A was considered
9 ITA.No.1876 & 1920/Del./2018 HT Media Ltd. but no basis was explained by the assessee to arrive at the said figure of Rs. 9,75,000/-. Thus, in computation of the suo moto disallowance of Rs. 9,75,000/- the assessee has not explained as what is the basis of the suo moto disallowance. Once the AO has specifically asked the assessee to explain the basis of the suo moto disallowance and there was no satisfactory reply by the assessee to explain a reasonable and proper basis of such disallowance then proceeding further by the AO to take up the issue under the provisions of section 14A read with Rule 8D cannot be said to be without his satisfaction on the claim of suo moto disallowance. The Assessing Officer has discussed this issue in para 3.2 as under:
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Thus, the initiation of the proceedings u/s 14A is in pursuant to failure of the assessee to show the reasonable and proper basis of suo moto disallowance.
We further note that there is a change and churning in the investment portfolio of the assessee during the year under consideration which shows that the assessee has sold some of the investments and also made certain new investments. The assessee being a Public Limited Company is required to take the decision of making the investment, timing of investment, selection of the securities and selling of the certain investments at the top level of the 11 ITA.No.1876 & 1920/Del./2018 HT Media Ltd. management. Therefore, the decision of making and selling the investments involves the top management of the assessee and hence, claim of the assessee that no expenditure has been incurred is contrary to the basic facts and thus, not acceptable. Even otherwise once the assessee has made a suo moto disallowance the claim of no expenditure is self contradictory. Before the CIT(A) the assessee itself has pleaded that the disallowance may be restricted to Rs. 13.71 lacs as recorded in para 5.2 of the impugned order:
12 ITA.No.1876 & 1920/Del./2018 HT Media Ltd. 8. The CIT(A) after considering the submissions of the assessee has decided the issue in para 5.3 and 5.4 as under:
Accordingly, the CIT(A) has restricted/sustained the disallowance to the extent of 13.71 lacs as pleaded by the assessee.
13 ITA.No.1876 & 1920/Del./2018 HT Media Ltd. 10. In view of the above facts and circumstances of the case, we do not find any substance or merits in the objection of the assessee regarding non recording of satisfaction by the AO while making the disallowance u/s 14A of the Income Tax Act. So far as the quantum of the disallowance sustained by the CIT(A), we find that this issue is common in both the appeals, therefore, the objections raised by the Revenue are to be considered before giving any concluding finding on the quantum disallowance.
The Ld. DR has submitted that the CIT(A) has granted the relief to the assessee by deleting the disallowance made by the AO on account of interest and further by reducing the investments made by the assessee in the subsidiary company while computing the administrative expenditure @ .5% of average investment. The Ld. DR has submitted that the CIT(A) has granted this relief which is contrary to the decision of Hon’ble Supreme Court in the case of Maxopp Investment Ltd. Vs. Commissioner of Income Tax 402
14 ITA.No.1876 & 1920/Del./2018 HT Media Ltd. ITR 640. The Ld. DR has also referred to the decision of this Tribunal in assessee’s own case for the AY 2012-13 dated 22.02.2021, wherein this Tribunal has decided this issue in favour of the Revenue and against the assessee by following the decision of Hon’ble Jurisdictional High Court in assessee’s own case.
Thus, the Ld. DR has contended that the impugned order of the CIT(A) is not sustainable to the extent of excluding the investment made in the subsidiary company while computing the average investment.
She has relied upon the order of the Assessing Officer as regards the disallowance made on account of interest income.
On the other hand, the Ld. AR of the assessee has accepted that so far as the exclusion of the investment in the subsidiary company the issue is covered by the decision of Hon’ble Supreme Court as well as decision of Hon’ble High Court in assessee’s own case. However, as regards the disallowance made on account of interest expenditure the same is 15 ITA.No.1876 & 1920/Del./2018 HT Media Ltd.
unjustified and unsustainable as the assessee has not utilized any borrowed fund for the purpose of making investment.
We have considered the rival submissions as well as relevant material on record. So far as the issue of excluding the investment made in the subsidiary company while computing the average investment for the purpose of disallowing the indirect administrative expenses under Rule 8D(2)(iii) of the Income Tax Rules the issue is now covered by the decision of Hon’ble Supreme Court in the case of Maxopp Investment Vs. CIT (supra) as well as the decision dated 29.03.2019 of Hon’ble Jurisdictional High Court in assessee’s own case in ITA No. 281/2019. This Tribunal for the AY 2012-13 has considered this issue in para 6 & 7 as under:
“6. At the outset, the Counsels fairly brought to the notice of the Bench, the order of the Hon’ble Jurisdictional High Court clarifying the exclusion of income derived from strategic investments for the purpose of computation of disallowance. The order of the Hon’ble High Court is as under: IN THE HIGH COURT OF DELHI AT NEW DELHI ITA 281/2019 & CM APPL. 14303/2019 THE PR. COMMISSIONER OF INCOME TAX-4 ............Appellant
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Through : Mr. Ruchir Bhatia, Sr. Standing Counsel. Versus H.T. MEDIA LTD. ............... Respondent Through : Mr. V.P. Gupta and Mr. Arunav Kumar, Advs. CORAM: HON’BLE MR. JUSTICE S. RAVINDRA BHAT HON’BLE MR. JUSTICE PRATEEK JALAN ORDER 29.03.2019 “The question urged by the Revenue in its appeal is with respect to the correctness of the remand made by the ITAT in its impugned order; the remand was on two aspects i.e. the calculation of average investments (confined to the income generating part thereof) and the exclusion of tax exempt income derived from strategic investments. The observation of the ITAT on the latter aspect, i.e. exclusion of tax exempt income derived from a strategic investments, is not a correct view in the light of the decision of the Supreme Court in Maxopp Investment Ltd. Vs. Commissioner of Income Tax, (2018) 402 ITR 640. Accordingly, the observations of the ITAT on this aspect are set aside. However, its observations with respect to the calculation of disallowance u/s 14A being confined to investments that derived tax exempt income are valid in the light of the Division Bench ruling in ACB India Ltd. Vs. ACIT, (2015) 374 ITR 108 (Del.). In view of the above clarification, the ITAT’s order, to the extent that it makes observations with respect to exclusion of income derived from strategic investments, is hereby set aside.”
7. Following the order of the Hon’ble High Court, the revised disallowance is comprehensively determined as under: “CIT(A) vide para 5.1d of the order upheld the disallowance to the extent of Rs. 26,70,000/-, which was determined as under following the judgment of Hon’ble Delhi High Court in the case of ACB India Ltd. vs. ACIT, 374 ITR 108 (Del.). Particulars Investment Investment Average as on as on Investment 31.03.2011 31.03.2012 (crores) (crores) (crores) Investments on 117.75 102.75 110.25 which dividend income was received during the year. Less: 56.85 56.85 56.85 Invesment in subsidiary company. Remaining 60.90 45.90 53.40 investment
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Disallowance Rs. 26,70,000 at 0.5% In view of judgment of Hon’ble Supreme Court in the case of Maxopp Investment Ltd. (2018) 402 ITR 640 (SC), investment in subsidiary company is also to be considered for the purpose of disallowance. Accordingly, the order of CIT(A) is to be reversed to the extent he had excluded average investment of Rs. 56.85 crores in the subsidiary company. Accordingly, disallowance following the judgment of Hon’ble Delhi High Court in the case of ACB India Ltd. Vs. ACIT, 374 ITR 108 (Del.) and taking into consideration the aforesaid judgment of Hon’ble Supreme Court in the case of Maxopp Investment Ltd. disallowance as per Rule 8D would work out as under: - Particulars Investment Investment Average as on as on Investment 31.03.2011 31.03.2012 (crores) (crores) (crores) Investments on 117.75 102.75 110.25 which dividend income was received during the year. Disallowance Rs. 55,12,500 at 0.5% 13.1 Accordingly, this issue is decided against the assessee and in favour of the Revenue and to that extent the order of the CIT(A) is set aside. The AO is directed to re-compute the disallowance by including the investment made in the subsidiary company.
As regards the disallowance made by the AO on account of interest expenditure, we find that the AO has not disputed the fact that there is no direct interest expenditure for earning the exempt income.
18 ITA.No.1876 & 1920/Del./2018 HT Media Ltd. Further, once the assessee has brought on record the fact that the loans were taken from the Banks for specific purpose of business as well as the projects then the same cannot be utilized for the purpose of investment made in shares and mutual funds and consequently the question of apportionment of interest expenditure u/s 14A read with Rule 8D does not arise.
This issue was also considered by the Hon’ble Jurisdictional High Court in assessee’s own case reported in 399 ITR 576. The CIT(A) has also recorded this fact that the loans taken by the assessee in the earlier years were utilized for the specific purpose as those were taken for setting up of the projects as well as for the purpose of financing import of raw material.
These facts as recorded by the CIT(A) has not been disputed by the AO while filing the cross appeal. Even during the course of hearing, the Revenue has not disputed the fact that the assessee has taken the loans for specific purpose and the AO has not brought any material or fact on record to say that the assessee has 19 ITA.No.1876 & 1920/Del./2018 HT Media Ltd. diverted the loan to the investment made in the shares and mutual funds. Further, during the year under consideration, though there is a change in the investment portfolio, however, the total investment as on 31.03.2013 is less than the investment as on 31.03.2012. Accordingly, there is no extra fund utilized by the assessee during the year for making the investment in shares or securities but the sale proceeds of the existing investment is more than the purchases, if any made during the year. The AO has not made any disallowance on account of interest expenditure u/s 14A of the I.T. Act in the preceding years. Therefore, when no fresh investment is made other than the proceeds of the sale of existing investment then the disallowance of interest expenditure is not warranted. Hence, we do not find any error or illegality in the impugned order of the CIT(A) qua this issue of deleting the disallowance made by the AO u/s 14A of the Act on account of interest.
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The assessee has also raised an additional ground vide application dated 07.08.2021 under Rule 11 of the Income Tax Appellate Tribunal Rules, 1963.
The additional ground raised by the assessee reads as under:
“2. That the Applicant/Appellant seeks the permission of Hon’ble Tribunal to raise, urge and argue the below mentioned additional ground of appeal in addition to grounds of appeal raised in the appeal filed by it: - “On the facts and circumstances of the case & in law, the Ld. AO, while computing the income of the Appellant under the head ‘Profits and Gains from Business and Profession’, ought to have allowed the deduction in respect of ‘Education Cess’ and ‘Secondary and Higher Education Cess’ of Rs. 1,07,09,737/- as determined by him vide order of assessment.”
We have heard the Ld. AR as well as the Ld. DR on the admission of the additional ground. At the outset, we note that for the AY 2012-13 the assessee has raised an identical additional ground before this Tribunal which was admitted and decided by this Tribunal in para 9 to 13 as under:
21 ITA.No.1876 & 1920/Del./2018 HT Media Ltd. 22 ITA.No.1876 & 1920/Del./2018 HT Media Ltd. 23 ITA.No.1876 & 1920/Del./2018 HT Media Ltd. 24 ITA.No.1876 & 1920/Del./2018 HT Media Ltd.
To maintain the rule of consistency, we follow the earlier order of this Tribunal in assessee’s own case for the AY 2012-13. The AO is directed to consider the claim of deduction of Education Cess as per law in the same terms as directed by this Tribunal in the earlier decision.
In the result, the assessee’s appeal is partly allowed for statistical purpose and Revenue’s appeal is partly allowed.
Order pronounced in the open Court on 26.08.2021