THE HINDUSTAN TIMES LTD., NEW DELHI vs. ADDL. CIT, SPECIAL RANGE- 9, NEW DELHI

The assessee made suo moto disallowance of Rs.36,54,208/- by considering the salary of Key Managerial Personnel (KMP), salary of Accountant, Communication Cost, Travelling and Conveyance Exps. & Printing and Stationary. Since the total , 2957 & 2956//Del/2017 The Hindustan Times Ltd. 4 dividend income contributed 16.86% of the total Revenue of the Company, the assessee took 16.86% of the aforesaid expenses as attributable to earning of dividend income and disallowed a sum of Rs.36,54,208/- under section 14A of the Act. The working of the same is enclosed at page 94 of the paper book. The learned AO completely ignored the suo moto disallowance made by the assessee and proceeded on the premise that no suo moto disallowance was made by the assessee. This is evident from observation made by the learned AO in para 3.4 of the assessment order. The learned AO thereafter, directly proceeded to apply the computation mechanism provided in Rule 8D(2) of the Rules. However, while computing this disallowance, he took cognizance of the suo moto disallowance made by the assessee in sum of Rs.36,54,208/- and treated the same as an amount to be disallowable under Rule 8D(2)(i) of the Rules. The learned AO further made disallowance under Rule 8D(2)(iii) of the Rules in the sum of Rs.1,92,21,848/- both under normal provisions of the Act as well as in the computation of book profits under section 115JB of the Act. The Learned CIT(A) upheld the disallowance in principle and gave partial relief to the assessee by holding that only those investments which had actually yielded dividend income/exempt income to the assessee should be considered. Aggrieved by this order, the assessee is in appeal before us.

At the outset, we find that the learned AO had apparently proceeded on the premise that no suo moto disallowance was made by the assessee. No way in the assessment order he had , 2957 & 2956//Del/2017 The Hindustan Times Ltd. 5 bothered to discuss as to why the basis adopted by the assessee for making suo moto disallowance is incorrect. The learned AO directly proceeds to apply the computation mechanism provided in Rule 8D(2) of the Rules. In our considered opinion, if suo moto disallowance of the expenditure has been made by the assessee and basis thereon has been explained by the assessee, then the learned AO ought to have recorded an objective satisfaction with the cogent reasons as to why such disallowance made by the assessee is incorrect and thereafter resort to proceed with the computation mechanism provided in Rule 8D(2) of the Rules. This is mandate of law provided in section 14A(2) of the Act r.w. Rule 8D(1) of the Rules. Since the same is conspicuously absent in the instant case, we hold that the disallowance made by the learned AO under section 14A of the Act deserves to be deleted. Hence, we hold that only a sum of Rs.36,54,208/- being the suo moto disallowance made by the assessee in the return of income under section 14A should be sustained. Accordingly, Ground Nos.1 and 1.1 raised by the assessee are allowed.

The ground Nos. 2, 2.1 & 2.2 raised by the assessee are challenging the disallowance of expenses under section 14A r.w. Rule 8D of the Rules while computing the book profits under section 115JB of the Act.

We have heard the rival submissions and perused the material available on record. The facts relevant for the purpose of adjudication of these grounds had already been considered , 2957 & 2956//Del/2017 The Hindustan Times Ltd. 6 hereinabove. The Special Bench of Delhi Tribunal in the case of Vireet Investments Pvt. Ltd. reported in 165 ITD 27 (Del ITAT) (SB) had categorically held that computation mechanism provided in Rule 8D(2) of the Rules cannot be imputed in the book profit computation under clause (f) of Explanation 1 to section 115JB(2) of the Act . However, the direct expenses identified by the assessee in the sum of Rs.36,54,208/- as explained attributable to the earning of exempt income requires to be disallowed. Hence, we direct the learned AO to disallow Rs.36,54,208/- while computing book profits under section 115JB of the Act. Accordingly, ground nos. 2, 2.1 and 2.2 raised by the assessee are partly allowed.

Ground Nos. 3 & 3.1 raised by the assessee are challenging the disallowance of painting expenditure of Rs.1,38,53,944/- by treating it as capital expenditure and on without prejudice basis, not granting depreciation thereon.

We have heard the rival submissions and perused the material available on record. At the outset, both the parties agreed that this issue has already been decided by this Tribunal in assessee’s own case for A.Y. 2008-09 in dated 31.01.2024. The only difference being in earlier years, the assessee had raised an additional ground claiming the cost of painting as a Revenue expenditure before the Tribunal. Whereas for the year under consideration, the same was raised as an additional ground before the learned CIT(A) itself. The learned CIT(A) also placed reliance on the order passed by his predecessor , 2957 & 2956//Del/2017 The Hindustan Times Ltd. 7 for A.Y. 2008-09 and disallowed the depreciation on paintings by also making an enhancement thereon by treating the cost of painting as a capital expenditure. As stated earlier, this issue is no longer res integra in view of the decision taken by this Tribunal in assessee’s own case for A.Y. 2008-09 in dated 31.01.2024. For the sake of convenience the relevant operative portion of the order is reproduced herein below: “8. The Ground No. 3 and Additional Ground No. 3.1. raised by the assessee are challenging the allowability of expenditure incurred on Paintings. 8.1. We have heard the rival submissions and perused the materials available on record. The assessee during the year incurred expenditure of Rs 61,49,308/- towards paintings, which were meant for display in the office of the assessee. The said paintings were capitalized as furniture and fixtures in the fixed assets schedule and depreciation @ 10% was claimed by the assessee depending upon the date on which they were put to use in accordance with provisions of section 32 of the Act. The ld.AO disallow the depreciation claimed by the assessee on the ground that the paintings were „personal effects‟ and not „ capital assets‟. The ld. CIT(A) held that though the paintings are used in the business premises of the assessee, depreciation thereon is not allowable as the same constitutes „personal effects‟ and the value of paintings increases with the passage of time rather than diminishing. The assessee had challenged the disallowance of depreciation before us and had also raised an additional ground alternatively that the said cost of paintings which is being used in the business premises of the assessee would be eligible for deduction as revenue expenditure. 8.2. We find that the assessee rents out office / commercial space and provides facility management services to its tenants. During the year under consideration, the assessee had earned service income of Rs 6.81 crores. It was submitted that the paintings / works of art constitute part of interior decoration to improve aesthetics of the reception and common area of the buildings, which are regularly visited by its clients and from the assessee is deriving income. The assessee buys customized paintings which are regularly replaced after few years with other contemporary paintings, shuffles the location of the paintings, puts them in new locations in the common areas etc, in order to provide world class interiors to its clients, both existing and prospective, with a view to obtain more prestigious clients and consequently increase revenues through new clients. The paintings acquired have short life in so far as , 2957 & 2956//Del/2017 The Hindustan Times Ltd. 8

In the result, the appeal of the assessee for A.Y. 2011-12 is partly allowed. for A.Y. 2012-13

All the grounds raised by the assessee in its appeal for A.Y. 2012-13 are identical with those grounds raised by it in A.Y. 2011-12 except with variance in figures. Hence, the decision , 2957 & 2956//Del/2017 The Hindustan Times Ltd. 9 rendered by us for A.Y. 2011-12 shall apply mutatis mutandis for A.Y. 2012-13 also in view of identical facts except with variance in figures. Accordingly, the appeal of the assessee for A.Y. 2012-13 is partly allowed.

The only ground raised by the Revenue in its appeal for A.Y. 2012-13 is that the disallowance under section 14A of the Act is required to be made even if no exempt income is earned by the assessee on certain investments. This issue is no longer res integra in view of the decision of Hon’ble Jurisdictional High Court in the case of M/s Era Infrastructure (P) Ltd. (2022) 141 taxmann.com 289. By placing reliance on the same, the ground raised by the Revenue is hereby dismissed.

To sum up, the appeal of the assessee for A.Y. 2011-12 is partly allowed; appeal of the assessee for A.Y. 2012-13 is partly allowed and appeal of the Revenue for A.Y. 2012-13 is dismissed.