ACIT 1(1), MUMBAI vs. BENNETT COLEMAN & CO. LTD, MUMBAI

5. On the facts and in the circumstances of the case and in law, the Learned CIT (A) has erred in not relying on the auditor of the Appellant who, after due verification, have certified that the loans were used for the purposes for which they were obtained.

6. On the facts and in the circumstances of the case and in law, the Learned CIT (A) has failed to appreciate that interest paid on borrowed funds (i.e. working capital demand loan, buyers credit, etc. which are used for bridging temporary gaps in working capital requirements of the company) as well as interest paid on security deposits and dealers deposits should be excluded while computing the disallowance under Rule 8D since such interest expense is incurred by the Appellant in the course of normal business activities and not for making investments.

Department’s Grounds: 1. “Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in allowing software expenses related to website / portal to assessee amounting to Rs.58,68,459/- as revenue expenditure? 2. "Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.57,02,96,000/- on valuation of inventory using FIFO method? 3. The appellant craves leave to add to, amend or withdraw the aforesaid grounds of appeal

.” Brief facts of the case are as under:

2. The assessee is a company and filed its return of income 29.09.2009 declaring total income of Rs.605,80,58,129/-. The return was processed and the case was selected for scrutiny. Notice u/s. 143(2) and 142(1) of the act were issued to the assesse, in response to which, the assessee filed requisite details as called for. 2.1. The Ld.AO after considering all the details completed the assessment by making following additions:

& 6538/MUM/2024 M/s. Bennett, Coleman & Co. Ltd. Disallowance of payment to clubs- Rs.500000/- Disallowance of absolute stock written off- Rs. 4,57,54,188/- Software charges treated as capital expenditure- Rs.26,74,76,187/- Disallowance of website registration expenses- Rs.58,68,459/- Addition of closing stock- Rs.57,02,96,000/- And disallowance u/s. 14A – Rs.60,22,26,504/- Aggrieved by the order of the Ld. CIT(A), assessee preferred appeal before the Ld. CIT(A).

3. The Ld. CIT(A) after considering the submissions of the assessee upheld the disallowance made by the Ld.AO in respect of 14A in the hands of the assessee and other disallowances were deleted. Aggrieved by the order of the Ld.AO, assessee as well as revenue are in appeal before this Tribunal. Departmental Appeal: 4. The revenue has challenged in its appeal the deleting of addition pertaining to software expenses related to the website portal amounting to Rs.58,68,459/- and deleting the addition of Rs.57,02,96,000/- on valuation of inventory using FIFO method. 4.1. At the outset, the Ld.AR submitted that both these issues raised by the revenue are held in the favour of the assessee by coordinate bench of this Tribunal in assessee’s own case as well as decision of Hon'ble Bombay High Court in of 2019 dated 17.02.2012. & 6538/MUM/2024 M/s. Bennett, Coleman & Co. Ltd. 4.2. Ground No. 1 raised by the revenue is in allowing the software expenses related to website/portal. It is submitted that, for A.Y. 2008-09 revenue was in appeal before this Tribunal in on identical issue. This Tribunal vide order dated 08.01.2018 considered the issue by observing as under: “23. The only issue raised by the revenue in this appeal is against the deletion of the disallowance of Rs.50,64,781/- by the Ld. CIT(A) as made by the Ld.AO by disallowing software expenses relating to website portal as capital in nature.

5. It is noted from the order of the Ld. CIT(A) that this issue was considered by the authorities in favour of assessee for A.Y. 2007-08 and 2008-09. Nothing contrary to the above reproduced observation by this Tribunal is brought to our notice. 5.1. We therefore do not find any reason to interfere with a view to taken by Ld. CIT(A). Respectfully following view taken by coordinate bench of this Tribunal in assessee’s own case (supra), we uphold the view taken by the Ld. CIT(A). Accordingly Ground No. 1 raised by the appellant stands dismissed. Ground No. 2 raised by the revenue is against deleting the addition on valuation of inventory by accepting the LIFO method followed by the assessee.

& 6538/MUM/2024 M/s. Bennett, Coleman & Co. Ltd. We have perused the submission advanced by both sides in light of records placed before us.

7. It is noted that the Ld. CIT(A) accepted the LIFO method for valuing stock by observing as under: “6.3.I have considered the facts of the case, submissions of the appellant and assessment order. It is observed that identical issue has been decided by Hon'ble High Court, Mumbai in assessment years AY 1997-98 and by CIT(A) in A.Y. 2006-07 in favour of the appellant by holding that LIFO is an accepted method for valuation of stock and this method has been regularly followed by the assessee. This is not a case where the Assessing Officer was not satisfied with the completeness of the accounts of the assessee or where the method of accounting has not been regularly followed or does not comply with the accounting standards. Respectfully following the earlier years order, the AO is not justified in applying FIFO method for valuation of inventory. Ground is allowed. As observed by Hon'ble High Court LIFO method is consistent approach adopted by assessee and has been accepted by the authorities in the past. Respectfully following the same we do not find any infirmity in view taken by Ld. CIT(A) and the same is upheld.” 7.1. Considering the fact that the Ld. CIT(A) rely on the view of Hon'ble High Court in assessee’s own case. On this issue we do not find any infirmity in the view taken by the Ld. CIT(A) and the same is upheld. Accordingly Ground No 2 raised by the revenue stands dismissed. Assessee’s appeal 8. The only issue challenged by the assessee in its appeal is regarding the disallowance upheld by the Ld. CIT(A) u/s. 14A r.w.r. 8D of the rules. Page | 8 & 6538/MUM/2024 M/s. Bennett, Coleman & Co. Ltd. 8.1.The Ld.AR submitted that, the assessee earned exempt income being dividend from mutual funds/investment in shares amounting to Rs.20,80,14,971/- and Long Term Capital Gain on sale of investment that was treated as exempt u/s. 10(38) of the act at Rs.767,25,88,926/-. The Ld.AO called upon assessee to show cause as to why expenses towards earning of exempt income may not be disallowed as per section 14A r.w.r. 8D of the act. In response, it was submitted that, the assessee allocated sum of Rs.74,20,082/- from common expenses in the ratio of exempt income earned to the total income as a disallowance u/s. 14A of the act. 8.2. The Ld.AR submitted that, the assessee is primarily engaged in the business of publishing and printing of newspapers, music, multi media etc. and his not in the business of borrowing and deploying borrowed funds for investments in shares, securities of other body corporates, units of MF etc. he submitted that to earn the exempt income assessee has not incurred any direct or indirect expenses however it had suo moto disallowed sum of Rs.,74,20,082/- as inadmissible expenses within the meaning section 14A r.w.r.8D of the Income tax Rule. 8.3. The Ld.AR submitted that any interest expenditure made by the assessee cannot be attributed towards the earning of exempt income as assessee has surplus funds in the form of share capital, reserve and surplus and depreciation result amounting to 3,180 crores which is more than the investments made. He refered to & 6538/MUM/2024 M/s. Bennett, Coleman & Co. Ltd. relevant extract of the balance sheet for year ended 31/03/2008 and 31.03.2009 placed at page 47-48 and 49-50 of the paper book. The Ld.AR also relied on the decision of Hon'ble Bombay High Court in case of CIT vs. Reliance Utilities and Power Ltd. reported in 313 ITR 340. Ld.AR thus submitted that no disallowance under Rule 8D (2) (ii) of the Income tax Rules can be made. 8.4. The Ld.AR further argued that while computing disallowance under Rule 8D (2)(iii), the Ld.AO treated 0.5% of the average investments. The Ld.AR placed reliance on the coordinate bench of this Tribunal in assessee’s own case for A.Y. 2014-15 wherein the argument regarding non satisfaction by the Ld.AO with respect to disallowance offered by the assessee having regards to the accounts submitted by the assessee was accepted. He placed reliance on the observations of coordinate bench of this Tribunal for A.Y. 2012-13 to 2014-15 in vide order dated 30/09/2024 as under: “10. We have given thoughtful consideration to the rival submissions and perused the material on record.

12. Similar view was expressed by the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT: 347 ITR 272: "41. Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the AO." (Emphasis Supplied) 13. Thus, before proceeding to invoke provisions of Rule 8D of the IT Rules for computing disallowance under Section 14A of the Act the Assessing Officer was required to express his dissatisfaction regarding the computation of disallowance made by the Assessee.

14. In the present case the Appellant had not claimed that no expenses were incurred for earning exempt income. To the contrary, the Appellant had made suo-moto disallowance under Section 14A of the Act and had furnished the computation and the basis of making such computation during the assessment proceedings. The Appellant disallowed the Securities Transaction Tax Expenses of INR 1,26,808/- as expenses directly connected to earning of exempt income. In addition, the Appellant had claimed that only common expenses aggregating to INR 86,88,906/- could be said to have been incurred for earning both exempt and taxable income; and in respect of the same the quantum of disallowance under Section 14A was computed at INR.4,16,898/- on proportionate basis (Exempt Income/Total Revenue). While rejecting the suo-moto disallowance made by the Appellant under Section 14A of the Act, the Assessing Officer neither made reference to nor alluded to either the accounts of the Appellant or the expenditure debited by the Appellant to the Profit & Loss Account for the relevant previous year. On perusal of paragraph 3.3 to 3.7 of the Assessment Order, we find merit in the contention advanced on behalf of the Appellant that the Assessing Officer has failed to record requisite dissatisfaction before invoking Rule 8D of IT Rules. During the course of hearing it was contended on behalf of the Revenue that the Assessing Officer has recorded that the voluntary disallowance computed by the Appellant was not as per provision of Rule 8D of the IT Rules and Page | 11 & 6538/MUM/2024 M/s. Bennett, Coleman & Co. Ltd. the same constituted requisite satisfaction. We note that the aforesaid contention of the Revenue was rejected by the Hon'ble Bombay High Court in the case of Principal Commissioner of Income Tax-2 Vs. Bombay Stock Exchange Ltd: [2020] 113 taxmann.com 303 (Bombay) [15-10-2019] holding as under: "9. We note that it is evident from the extracted part of the assessment order referred to hereinabove that the Assessing Officer has come to the conclusion that the disallowance claimed by the Respondent was not consistent with Rule SD of the said Rules. It is only in view of the disallowances not being worked out as per Rule 8D of the Rules, that the Assessing Officer is not satisfied with the disallowance offered by the Respondent. This, to our mind, is putting the cart before the horse. The Assessing Officer must first record a conclusion that having regard to the accounts of the assessee, he is not satisfied with the disallowance offered by the Respondent in terms of section 14A(2) of the Act. It only on being dissatisfied with the above, does Rule 8D of the Rules can be invoked to compute the disallowance. XX XX 11. Non-satisfaction with the disallowance offered by the assessee has to be arrived at on the basis of the accounts submitted by the assessee. In this case, the Assessing Officer had not carried out the aforesaid exercise but rejected the disallowance claimed by the assessee only on the ground that it was not in accordance with Rule 8D of the Rules. The application of Rule 8D of the Rules would only arise once the Assessing Officer is not satisfied on an objective criteria in the context of its accounts, that suo motu disallowance claimed by the assessee is not proper.

8.5. He thus submitted that, rejecting disallowance computed by the assessee was not in accordance with Rule 8D would only arise once the Ld.AO is not satisfied of the suo moto disallowance made by the assessee having regards to the accounts of the assessee. The Ld.AR contended that once the assessee makes the suo moto disallowance tinkering can be made to the disallowance by the Ld.AO only after recording satisfaction that such a disallowance was not in consonance with the accounts of the assessee. He submitted that in present facts of the case the suo moto disallowance was tinkered by the Ld.AO merely by observing that it was not as per Rule 8 D, r.w.s. 14A of the act. He thus relied on the observations of Coordinate Bench in assessee’s own case to support his argument. 8.6. On the contrary, the Ld.DR referred to the observations of the Ld.AO in para 11.1 of assessment order, wherein it is noted that the assessee admitted in the preceding assessment years for disallowance u/s. 14A to the extent of 1% of the dividend income earned. The Ld.DR relied on the following observations of the Ld. CIT(A) in support of the disallowance computed by the Ld.AO. “7.3 I have considered the facts of the case, submissions of the appellant and assessment order. It is an admitted fact that the appellant has full-fledged treasury department which is associated with investment decisions. But it is not established by the appellant by facts and figures that at each instance of investment there was sufficient cash balance available and that no working capital or other loans were utilized for each investment. It is not sufficient merely to say that the auditor has certified that the loans were used for the purposes for which they were obtained and that short term Page | 13 & 6538/MUM/2024 M/s. Bennett, Coleman & Co. Ltd. funds were not used for long term purposes. The assertion has to be supported by actual evidence. 7.4 The A.O. at para 11.1 has mentioned that the assessee has incurred expenditure and has not given exact details of source of investment and thus he was not satisfied with the claim made by the assessee about the expenditure incurred in relation to investments. Thus, the satisfaction of A.O for invoking Rule 8D is apparent from the assessment order. 7.5 The other plea of the learned AR that its own funds viz. Capital and Reserves exceeded the amount of investment in shares and bonds yielding tax free income a d so, it can be presumed that no part of the borrowing has been used for the purpose of investment in the shares and bonds yielding tax free income is not acceptable. All the funds of the appellant are in common hotch potch and no direct nexus could be established between the interest free funds and the investments. The argument that since the share capital and reserves are more the investments in various years thus it should be presumed that there is no indirect interest cost associated with the investment does not appear to be correct as investments are made at different points of time and for each transaction the appellant needs to establish that no interest bearing funds/O.D. limits were utilized. This could be only possible if appellant had produced the day to day cash flow statement of not only the previous year but also of past years when the investments were made. It is very much possible that an assessee may have say Rs. 10 Cr. of share capital and reserves but no cash balance to invest and that he utilizes the O.D. a/c for making the investments. Thus, the comparison of share capital plus reserves vis-à-vis investment cannot lead to conclusion that investment was made out of interest free funds. It is also banai that interest is paid on outstanding balances and these could be continuing from past many years. In fact to overcome such complications and differences Rule 8D was brought in statute and onus is on the appellant to establish with cash flows that there was no interest bearing funds employed for making the investments and there was no indirect expenses relatable to such investments. In the case of Reliance Utilities and Power Ltd cited by the appellant there was a clear finding of fact that that assessee had interest-free funds of its own which had been generated in the course of year. There is no such confirmed finding in the present case. 7.6 In view of above, I am of the considered view that Rule 8D is applicable for instant assessment year. As regards, correctness of the disallowance under Rules 8D, I am partly in agreement with the Page | 14 & 6538/MUM/2024 M/s. Bennett, Coleman & Co. Ltd. appellant that only the investments which have generated or could generate tax exempt income alone should be considered. The said figure of average investment according to the appellant is Rs.2063.41 crores and the disallowance on the said basis comes to Rs.44.90 crores (furnished by the appellant in annexure 25 during appellate proceedings). The disallowance is thus sustained to the extent of Rs.44.90 crores subject to verification of figure by AO. Ground No. 5-7 are partly allowed.” 8.7. He thus placed reliance on the view expressed by the authorities below to support the disallowance computed by the Ld.AO. We have perused the submissions advanced by both sides in light of records placed before us.