DCIT, NEW DELHI vs. M/S SAHARA INDIA MASS COMMUNICATION LTD., MUMBAI

Order : 15.04.2026 O R D E R PER S. RIFAUR RAHMAN, AM : 1. These appeals are filed by the Revenue against the order of Learned Commissioner of Income Tax (Appeals)-I, New Delhi [“Ld. CIT(A)”, for short] dated 25.02.2011 for the Assessment Years 2005-06, 2006-07 and 2007-08 by raising following grounds of appeal :- “AY : 2005

06. On the facts and in the circumstances of the case the Ld. CIT(A) has erred in :-

1. The order of the Ld. CIT(A)-is not correct in law and facts.

3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing the claim of Rs.3,30,00,000/- out of professional fees paid.

4. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing the claim of Rs. 49,32,507/- on account of fees paid to JV company as reimbursement of expenses.

5. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing the claim of Rs.5,00,000/- made u/s 14A.

6. Whether on the facts and in the circumstances of the case, the Ld. CIT(A has erred in allowing the claim of Rs.1,10,487/- out of reimbursement of fuel expenses and telephone expenses.” “AY : 2006-07 "On the facts and in the circumstances of the case the Ld. CIT(A) has erred in :-

1. The order of the Ld. CIT(A) is not correct in law and facts.

2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing the claim of Rs.3,63,66,000/- out of professional fees paid.

3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing the claim of Rs.4.70,04,390/- on account of fees paid to JV company as reimbursement of expenses.

4. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing the claim of Rs.20,263/- made u/s 14A.

5. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing the claim of Rs.2,00,413/- out of reimbursement of fuel expenses and telephone expenses.”

“AY : 2007-08 "On the facts and in the circumstances of the case the Ld. CIT(A) has erred in :-

1. 1. The order of the Ld. CIT(A) is not correct in law and facts.

2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing the claim of Rs.1,10,00,000/- out of professional fees paid.

3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing the claim of Rs.1,19,50,329/- on account of fees paid to JV company as reimbursement of expenses.

4. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing the claim of Rs.8,91,153/- made u/s 14A.

5. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing the claim of Rs.97,026/-/- out of reimbursement of fuel expenses and telephone expenses incurred by the assessee.

6. On the facts and in the circumstances of the case, the Ld. CIT(A has erred in allowing the claim of Rs.1,81,000/- out of business promotion expenses incurred by the assessee.

7. On the facts and in the circumstances of the case, the Ld. CIT(A has erred in allowing the claim of Rs.13,29,998/-.

8. On the facts and in the circumstances of the case, the Ld. CIT(A has erred in allowing the claim of Rs.87,288/- on account of interest on delay deposit of TDS.”

2. Since the issues are common and the appeals are connected, hence the same are heard together and being disposed off by this common order. For the sake of brevity, we are taking the facts from the Assessment Year 2005-06 as most of the grounds are common.

3. Ground No.1 in all the three assessment years is general in nature, hence not adjudicated.

4. With regard to Ground No.2 of AY 2005-06 regarding allowing the claim of Rs.1,34,94,094/- u/s 40(a)(ia) of the Act by the ld. CIT (A), ld. DR of the Revenue submitted the brief facts and her submissions as under :- AO's Reasoning &Findings: The AO, in para 3 of the assessment order, I. identified the following factual and legal deficiencies: a) Book-entry nature: The entire claim rests on two journal entries passed on 31.03.2005 (voucher nos. 1390 and 1601), with no supporting invoices, service bills, or commercial papers from SITV showing that SITV actually incurred advertisement expenses or paid vendors. b) Shifting pleadings: When queried for details of advertisement expenses and publicity vouchers, the assessee initially responded (dated 18.12.2007) that "expenses have been shared" with SITV on the basis of "mutual understanding." Subsequently (reply dated 20.12.2007), the assessee contradicted itself by asserting "there is no sharing of expenses" but only "reimbursement of actual expenses" without any written or oral agreement. c) TDS non-compliance: The assessee admitted to the AO that no TDS was deducted u/s 194C on the Rs. 1,34,94,094 reimbursed to SITV, claiming SITV had deducted TDS at the vendor level when it initially incurred the expenses. d) Absence of agency documentation: The assessee offered no contemporaneous evidence (agency letter, authorization, or agreement) showing that SITV was authorized to incur advertisement expenses as the assessee's agent. The assessee's later claim of "agency" was a post-assessment rationalization. Revenue's Legal Arguments II. Proposition A: Shifting Pleadings Constitute Admission Against Interest: An assessee's own statements during assessment proceedings are binding and admissible against the assessee. The principle of "admissions against interest" holds that an admission is presumptively reliable because it runs counter to the admitter's self-interest. Here, the assessee's initial statement ("expenses are shared") is more credible than the subsequent statement ("expenses are reimbursed") because: The initial statement reflected the contemporaneous understanding at the • time of transaction The later retraction, offered in response to AO's TDS query, appears to be • a post-facto rationalization designed to evade TDS liability The AO's inference that the shifting pleading suggests the entire claim was manufactured to circumvent TDS—is reasonable and supported by the record. Proposition B: Book Entries Without Substantive Evidence Cannot Constitute Allowable Expenditure: Section 37(1) of the I.T. Act requires expenditure to be "wholly and exclusively laid out for the purposes of the business." This requires: Actual incurrence of the expense (not mere commitment or accounting 1. entry) Payment to the recipient (real economic outflow) 2. Documentary evidence of the transaction (invoices, receipts, etc.) 3. The assessee's claim fails on all three criteria: No evidence that SITV actually paid advertisement vendors • No invoices or service bills from SITV or the advertising agencies • engaged by SITV No TDS certificates from SITV substantiating its tax deduction • No bank statements showing transfer of funds from assessee to SITV in • relation to this claim A book entry—especially one passed on the last day of the financial year and supported only by a debit note (essentially a one-sided document)—does not constitute satisfactory proof of expenditure. Established principle: In CIT v. Narayan Rao (1965) 55 ITR 129 SC, the Supreme Court held that the burden of proof on an assessee to establish expenditure is heavy, and book entries unsupported by commercial documentation are insufficient. See also Sumati Banerjee v. CIT (1997) 227 ITR 475 SC. Proposition C: The Assessee Cannot Unilaterally Recharacterize Another Entity's Expense as Its Own The fundamental defect in the assessee's claim is the absence of any prior authorization or agreement for SITV to incur advertisement expenses on the assessee's behalf. If the transaction is genuine reimbursement, the following must be established: Prior authorization: The assessee authorized SITV to incur the expenses • Agency relationship: SITV acted as the assessee's agent • Actual incurrence: SIT V actually incurred the expenses at the assessee's • direction Contemporaneous documentation: The agency arrangement was • documented contemporaneously None of these elements are present here. Instead, the assessee claims that SITV "incurred" expenses and later debited them to the assessee, and the assessee is now seeking to treat these as its own for deduction purposes.This is not reimbursement; it is a post-facto claim to appropriate another company's expenditure by crediting its account. Under established principle, a company cannot unilaterally decide that another company's expense is its own merely by issuing a debit note. Proposition D: Section 40(a) (ia) Correctly Applied Section 40(a) (ia) requires disallowance of any sum paid without deduction of TDS if the sum is of a nature that the Act requires TDS to be deducted. The question is: What is the nature of the sum paid to SITV? If the sum represents payment for advertisement services rendered by SITV (or reimbursement of advertisement services procured by SITV), then it falls within the category of payments for which TDS u/s 194J is mandated. The assessee's recharacterization of the payment as "reimbursement of expenses" (with a "no income element" argument) is legally flawed: a. The principle of "no income element in reimbursement" has limited applicability: This principle applies in specific contexts (e.g., demerger reapportionments, overhead cost allocations in restructurings) where reimbursed amounts are truly neutral pass-throughs. It does not apply to situations where the "reimbursement" represents a shifted obligation for payment of services. b. The critical distinction: In Cairn Energy India Pvt. Ltd. v. ACIT (2 ITR Trib. 38 Chennai), the tribunal held that reimbursement of expenses does not involve "income" where the reimbursed entity is merely advancing overhead costs on behalf of the group. However, that case involved genuine overhead expenses in a demerger context, not advertisement services in an operating company context. Similarly, Expeditors International (India) Pvt. Ltd. v. ACIT (118 TTJ Del. 652) involved reimbursement of global accounts manager costs, where the "manager" was neither a service provider nor receiving payment as income. Here, SITV is essentially functioning as a service intermediary for advertisement services, and the payment should attract TDS. c. The temporal issue: If SITV genuinely incurred advertisement expenses as the assessee's agent, the assessee should have booked these expenses in its own accounts at the time of incurrence (when SITV paid the vendors), not through year-end debit notes. The deferment and recharacterization suggest the assessee is attempting to avoid the TDS obligation that would arise if it booked the expense contemporaneously. d. The assessee’s own admissions undermine the agency claim: If SITV was acting as agent, the assessee would have known of the expenses as they were incurred and would have been in continuous communication with SITV. Yet the assessee has no documentation of the agency arrangement, prior authorization, or progress updates. The year-end debit note suggests SITV simply lumped together its advertisement expenditure and debited the assessee without prior agreement. Proposition E: Distinguishing the Case Law Relied Upon by Assessee On Expeditors International: The assessee relies on the tribunal's observation that reimbursement of global accounts manager costs does not attract TDS because no "income element" is involved. However, Expeditors involved a structured transfer of a manager function within a corporate group, where the managing entity was neither in the business of providing management services nor receiving payment as compensation. Here, SITV is performing an advertising intermediation function (connecting with advertising agencies, negotiating costs, etc.), which is service-like in nature. The distinction is material.

On Cairn Energy: The assessee relies on Cairn Energy's holding that reimbursement of expenses lacks an "income element" and thus does not fall within TDS provisions (section 195).However, the Tribunal's holding in Cairn Energy was context-specific. That case arose in the demerger of a single company into multiple entities, where apportionment of preexisting overhead between the demerged entities is a necessary and routine accounting exercise. The tribunal's finding that such apportionment involves no "income" applied only in that restructuring context. Sahara's case involves a non-demerger, operating company context. There is no restructuring, no apportionment of corporate overhead, and no shared historical business. SITV and the assessee are distinct operating entities. The fact that SITV incurred advertisement expenses and the assessee later claimed them through a debit note does not fit the Cairn Energy paradigm.”

Assessee Submission It is respectfully submitted that the genuineness of the expenditure is not disputed by the assessing officer/CIT(A). SITV network was a group company with whom the assessee had an understanding that the expenditure incurred by SITV network for movie promotion shall be reimbursed by the assessee on cost-to-cost basis. An expenditure is allowable as a deduction under section 37 of the Act if the same is incurred wholly and exclusively for the purposes of business. It is respectfully submitted that entering into a formal agreement is not a requirement of allowability of any expenditure under section 37 of the Act. The debit notes raised by SITV Network for reimbursement of expenditure was submitted before the assessing officer.(Page no. 83-84 of the Paperbook) Further, it is submitted that the assessing officer failed to appreciate that the said payments, not being in the nature of income in the hands of the SITV Network on account of absence of element of income therein, did not call for deduction of tax at source. Reliance in this regard is placed on the decision of Supreme Court in the case of CIT vs Tejaji Farasram Kharawalla Ltd: 67 ITR 95 (SC) wherein, part of the total commission, @ 5%, payable to the assessee, was in lieu of contingency expenses which the assessee had to meet such as commission to dyeing masters, agents, etc. The assessee claimed such part of the total selling agency commission, as relatable to actual expenses. The relevant extract of the decision is as below: “The expression "incurred" means for reasons already set out incurred or to be incurred. But that has no bearing on the question whether the unexpended surplus in the hands of the employee is taxable. And we do not feel impressed by the second consideration. The allowance may be in respect of a period longer than the accounting year or which runs into the succeeding accounting year or years. But on that account the whole receipt reduced by the expenses actually incurred in the year of account is not liable to be brought to tax. If it appears from a review of the circumstances that a special allowance is made for a period longer than the year of account, or that the period covered by the grant of a special allowance extends beyond the close of the account year, it would in our judgment, be the duty of the Income-tax Officer to determine the amount allowed in respect of the year of account in which the expenditure has been incurred, and the difference between the amount so determined and the amount actually expended would alone be brought to tax.” It may be noted that the Supreme Court in the case held that to the extent of the receipt representing reimbursement of the expenses the same were not taxable and it is only when there was surplus that the same should be taxed.

Reliance is further placed on the decision of Hon'ble Delhi High Court in the case of CIT vs. DLF Commercial Project Corporation: 379 ITR 538 (Delhi). The relevant extract of the decision are as below: “19. In arriving at the aforesaid conclusion, this court derives support from the Gujarat High Court's decision in CIT v. Gujarat Narmada Valley Fertilizers Co. Ltd. [2013] 35 taxmann.com 638/217 Taxman 114/ [2014] 361ITR 192, where the facts were similar to those in the present case. The court therein rejected the Revenue's contention that non-deduction of TDS on reimbursement expenses would lead to disallowance of such reimbursement expenditure. The court noted that the payee therein had already deducted tax on the various payments made by it to third parties (such as towards transport charges and other charges). Since the payments made by the assessee therein were only for the reimbursement of expenses incurred by the payee on behalf of the assessee, the court held that no TDS was required to be deducted by the assessee. A special leave petition preferred by the Revenue against the High Court's decision was dismissed by the Supreme Court on January 17, 2014 (in SLP CC No. 175 of 2014). This court is also supported in its reasoning by the text of section 194C (TDS for "work") and section 194J (TDS of income from "professional services"—the latter expression defined expansively by section 194J(3) Explanation (a)). Neither the provision obliges the person making the payment to deduct anything from contractual payments such as those made for reimbursement of expenses, other than what is defined as "income". The law thus obliges only amounts which fulfil the character of "income" to be subject to TDS insuch cases ; for other payments towards expenses, the deduction to those entitled (to be made by the payee) the obligation to carry out TDS is upon the recipient or payee of the amounts.

(Guwahati), wherein the Hon’ble Tribunal held that the amendment made to section 40a(is) vide the Finance Act 2014, w.e.f. 01.04.2015 thereby reducing the disallowance on no-deduction of TDS on payment to resident from 100% of expenditure to 30%, is curative in nature and hence applicable retrospectively. Further, we place reliance on decision of Hon'ble Mumbai Tribunal in case of NeenaKaul v. Asstt. CIT [IT Appeal No.1386 (Mum) of 2017 and decision of Hon'ble Ahmedabad Tribunal in case of Amruta Quarry works v. ITO - ITANo. 1481/Ahd.2013. In view of the above facts and legal position, we respectfully submit that the CIT(A) had rightly deleted the disallowance made by the assessing officer under section 40(a)(ia) of the Act.”

by the revenue is dismissed.

7. With regard to Ground No.3 of AY 2005-06, Ground No.2 of AYs 2006-07 & 2007-08 regarding deletion of professional fees claim of Rs.3,30,00,000/- by the ld. CIT (A), in this regard, ld. DR submitted as under:- AO's Findings: The AO, in para 4 of the assessment order, identified the 1. following critical deficiencies in the retainership fee claim: Vague and incomplete MOU terms: The MOU dated 16.08.2004 lacked 2. essential terms, particularly: o No clear basis for fee calculation (one-time, monthly, annually, or percentage-based?) o No specified period of applicability or service duration o No defined deliverables or performance metrics o Critically, Annexure A (stipulating profit-sharing percentages between Sahara and Percept) was not filed, despite being identified in the MOU as "integral" to the profit-sharing arrangement

3. Absence of corresponding revenue/loss in P&L: Despite booking Rs. 3.30 crores as retainership fee in A.Y. 2005- 06, the assessee's profit & loss statement reflected no corresponding revenue, loss, or operational benefit from the Percept engagement or the JVC. This is a significant anomaly.

4. Disconnect between .JVC formation and expense booking: The MOU contemplated formation of a JVC to organize and supervise Sahara's media entertainment businesses. However, the retainership fee was booked directly in the assessee's P&L, not reflected in the JVC's books. This suggests the assessee was unilaterally expensing a cost that, by the MOU's own logic, should have been borne by the JVC.

5. Dubious commercial purpose: The AO concluded that the assessee "is not able to establish the justification of incorporation of JVC when the expenditure have been incurred directly ignoring the existence of MOU and J VC," thereby rendering the expense "dubious and unjustifiable." Revenue's Arguments -Proposition A: The Supreme Court's Doctrine 11. on Business Judgment Does Not Protect Unsubstantiated Expenditure The CIT(A) and assessee rely heavily on CIT v. Dhanrajgiriji Raja Narasingirji (91 ITR 544 SC), Walchand& Co. Pvt. Ltd. v. CIT (65 ITR 381 SC), and J.K. Woollen Manufacturers v. CIT (72 ITR 612 SC) for the proposition that revenue cannot prescribe business expenditure. However, these cases do not shield unsubstantiated or uncommercial expenditure. A careful reading reveals:FromWalchand (65 ITR 381 SC): "It is not open to the Department to prescribe what expenditure an assessee should incur and in what circumstances he should incur that expenditure." But the same judgment establishes: "The reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the revenue, provided there is real nexus between the expenditure and the business carried on. "The operative word is "real nexus." An expenditure must have actual, demonstrable connection to the business. In Walchand, the Court upheld the assessee's deduction because the expenditure, though heavy, was shown to be incurred for a genuine business purpose with documentary support.Here, the assessee has failed to establish "real nexus": 1. The JVC was never materially operationalized in the relevant year 2. No identifiable services were rendered by Percept as retainer 3. No corresponding revenue or loss emerged in the P&L 4. The MOU itself lacks clear terms defining the retainership arrangement Proposition B: Vague and Incomplete Contractual Terms Negate Allowability:Section 37(1) requires expenditure to be laid out "wholly and exclusively for the purposes of the business." This requires: 1. Clear identification of the expenditure's purpose 2. Documentary evidence of agreement 3. Evidence of actual service delivery or consideration provided The Percept MOU fails all three criteria: (a) Undefined fee basis: The MOU states Sahara would pay Percept a "retainer of Rs. 3.30 crores per annum or that as may be mutually agreed upon." This phrasing suggests the Rs. 3.30 crores was a negotiating position, not a finalized commitment. If it was finalized, why the caveat "or as may be mutually agreed"? (b) Missing Annexure A: The MOU explicitly references Annexure A as containing the profit-sharing percentages between Sahara and Percept. The assessee's failure to file Annexure A is fatal because: o It was stated to be "vital" to the transaction's commercial logic o Its non-filing raises the inference that either it did not exist or was unfavorable to the assessee o Without it, the tribunal cannot evaluate whether the Rs. 3.30 crores retainer was reasonable given the profit- sharing contemplated The principle that missing integral parts of a contract undermine its enforceability applies equally to disallowance. See CIT v. Scindia Steam Navigation Co. Ltd. (1972) 85 ITR 252 SC, where Supreme Court held that contracts lacking essential terms are not enforceable. (c) No clear deliverables: The MOU states Percept would "deploy management resources," but what resources? For how long? With what qualifications? The absence of specificity is telling. Proposition C: Absence of Service Delivery in the Relevant Year The assesses claimed the retainership fee in A.Y. 2005-06. What services did Percept render in that year?The assessee has provided no evidence that: Percept deputed any personnel to the JVC • Percept conducted supervision or management activities • Percept provided consultancy or strategic guidance • The JVC itself commenced material operations • The assessee's own submission (recorded in CIT(A)'s order) states: "No Incentive was paid during the assessment year 05- 06 to JVC." This suggests the JVC was not even operational in the relevant year, yet the assessee paid Rs. 3.30 crores to Percept for services to the (non-operational) JVC.This absence of performance is a powerful indicator that the expenditure was not driven by operational necessity but by other motives (tax planning, profit manipulation, etc.). Established principle: In CIT v. KailashNath Associates (1996) 220 ITR 189 SC, the Supreme Court held: "An expenditure must have real nexus with the business operations and be incurred during the course of carrying on the business. Isolated or contingent expenditures not relatable to the normal functioning of the business cannot be allowed.'' The Percept fee is precisely such an isolated expenditure: large in quantum, vague in purpose, and devoid of performance documentation. Proposition D: The Absence of Revenue Correlation Is a Damaging Admission The AO highlighted a critical fact: despite paying Rs. 3.30 crores, the assessee's P&L reflected zero corresponding revenue or loss from the Percept engagement or JVC. This is not merely evidentiary weakness; it is substantive evidence of the transaction's lack of business purpose: If Percept genuinely supervised the JVC for the assessee's operational benefit, • there should have been corresponding accounting entries reflecting the benefit If the JVC was supposed to increase market share (as per the MOU), the assessee's • revenue or profit should have reflected improvement The fact that a Rs. 3.30 crore expense was booked without any correlating • operational impact suggests the expense was not driven by business necessity In CIT v. Anisminic Ltd. (1969) 72 ITR 174 SC, the Court held that business expenses must be validated by the operational results they produce. An expense that produces no identifiable operational result is suspect. Proposition E: Misapplication of the Businessman's Judgment Doctrine The assessee argues: "The department cannot sit in the shoes of the businessman for deciding the nature and quantum of expenditure." However, this doctrine permits the businessman to make inefficient or even losing business decisions, provided they are genuine and documented. It does not permit the businessman to book unsubstantiated or imaginary expenditure.The distinction is critical: Permitted: Paying Rs. 10 crores for an advertising campaign that yields • minimal sales (inefficient but genuine) • Impermissible: Claiming Rs. 10 crores as advertising expense without evidence of agency, contract, or payment : (unsubstantiated) Sahara's case falls into the second category. The assessee has not merely made an inefficient business decision; it has failed to substantiate the decision with documentation and performance evidence.”

(i) retainership fees of Rs. 3.3 crores to Percept Finserve P Ltd.(unrelated party), for media management and marketing services. (ii) reimbursed the operating expenses of SIEMCL amounting to Rs.49,32,507/-. Assessing officer's Contention Re: Retainership Fees: The assessing officer disallowed the payment of Rs. 3,63,66,000/- on the following observations: - If JVC is floated all the payments/receipts with respect to the income/expenditure should be incorporated through joint venture only - The terms of MOU are arbitrary, confusing and incomplete. Basis of expenditure has not been stated properly one time, monthly, yearly based on certain percentage of income. - It is not clear that the purpose of paying such huge fees to Percept would be in the interest of JVC or the assessee company. If benefit is for JVC then expenditure should be booked in JVC. On the other hand, if expense is for exclusive benefit of the assessee then there is no purpose of entering in MOU and incorporating JVC. - Annexure A of the agreement is not submitted. Hence, the relevance of MOU is doubted. - Expenditure of Rs. 3,30,00,000 appears to be dubious and unjustifiable since no direct revenue was generated to the assessee against such expenditure. Re Reimbursement of expenses :Assessing Officer disallowed the reimbursement of Rs. 49,32,507alleging the below: - MOU does not appear to be fair and in larger interest of SIEMCL, - under the Act, there is no section under which such reimbursements of expenses are allowable - assessee failed to produce compliance with TDS on payments of these expenditure CIT(A) Order Re Retainership Fees: CIT(A) deleted the disallowance observing that - The assessee is engaged in business of production of programmes and films, acquisition of rights of feature films, songs, programmes for telecasting/broadcasting. - The JVC was formed, as per MOU, with Percept and A.R.M.D. Media Pvt. Ltd to organize and set up management team of its own to assess, supervise the business of media entertainment of Sahara. - The JVC was also assigned to supervise and assess so as to increase the market share which was to help them to improve the entertainment business of Sahara.

- In the MOU, it was provided that assessee will pay M/s Percept retainership fee of Rs. 3.30 crores per annum or that as maybe mutually agreed upon on account of reimbursement of cost of management resources to be deployed by M/s Percept to start the JV company. - Sum total of the Operating cost of the JV company shall also be paid by media entertainment companies of Sahara - Percept was expert in field of advertising and media industry, marketing, event and entertainment management, fashion, sports marketing, etc. and therefore, there service were availed by the assessee company on payment of Rs. 3.30 crores per annum so as to enable them to join the JV Company names Sahara India Entertainment Management Co. Ltd. to carry the above work. - The payment made to Percept FinservePvt. Ltd. was not dubious and unjustifiable. - Percept Finserve Pvt. Ltd. doesn’t belong to Sahara Group of companies. - Due tax has been deducted at source on the payment made to Percept. - The payment made to M/s Percept Finserve Pvt Ltd. ha direct nexus with the business of the assessee company - The expenditure is incurred as per business decision of the assessee which cannot be challenged by the Assessing Officer.[Reliance placed on : CIT vs. Dhanrajigirji Narasingirji 91 ITR 544 (SC),Walchand & Co. Pvt Ltd. 65 ITR 381 (SC), JK Woollen Manufacturers V. CIT 72 ITR 612. Re Reimbursement of expenses: CIT(A) deleted the disallowance observing as under: (i) The entire expenditure is relatable to business activities of the assessee and has been incurred during the course thereof (ii) the expenditure booked by the assessee is reimbursement of actual expense only without any element of profit. Therefore, there was no liability for deduction of tax at source on reimbursement. Assessee Submission Re Retainership Fees: It is respectfully submitted that the assessing officer failed to appreciate the terms of MOU, objective of joint venture and the nature of business of assessee. During the year under consideration, the assessee was in the business of producing “serials”, “ TVprogrammes” and “movies” to be telecast on TV channel, satellite radio which are owned by Sahara group. It is clearly mentioned in the MOU that in order to boost the activities and increase the market share and perception of the media and entertainment companies of Sahara, the joint venture with Percept was agreed.

Further, the MOU clearly specifies the business of the Joint Venture Company which are directly connected to the benefit of the business of the assessee. (Page 85-90 paperbook) With respect to the allegation of the assessing officer that basis of payment has not been stated in the MOU, we respectfully submit that the said allegation is baseless. The MOU clearly provides that the retainer of Rs. 3.30 crores plus cars/car & maintenance, travel & entertainment expenditure per annum will be paid to Percept. The same is also observed by the CIT(A). Further, the parties have also agreed that Sahara will continue, as in the past accord “preferred Partner/Vendor Status” to all the Percept Group Companies. With reference to Annexure A of the MOU, we submit that Annexure A of MOU provides for percentage that Sahara would share with Percept, if Percept were to aid in increase profits/reducing loss. The said Annexure A has no bearing on the retainer fees agreed and the same is not relevant for the year under consideration, since the same would be effective if percept aid in increase profits or reducing loss. It is further submitted that the M/s Percept Finserve Pvt. Ltd. is an unrelated party. The CIT(A) has also observed that Percept was expert in field of advertising and media industry, marketing, event and entertainment management, fashion, sports marketing, etc. and therefore, there service were availed by the assessee company on payment of Rs. 3.30 crores per annum so as to enable them to join the JV Company names Sahara India Entertainment Management Co. Ltd. to carry the above work. The assessing officer has not brought anything on record to justify his allegation of expense being dubious and unjustifiable. The purpose and objective of JVC, which has been clearly mentioned in the agreement with M/s Percept Finserve Pvt. Ltd. (an unrelated party) is ignored. On the basis of the facts, it is submitted that the retainership fees was paid as per MOU for the purposes of business of assessee. The assessing officer has also alleged the terms of the MOU are arbitrary and confusing without understanding the nature of business, the business of the parties of the MOU, the objectives of the joint venture company and have held that the expense is dubious and unjustifiable. Assessing Officer has not challenged the payment made or genuineness of the parrty but have merely stepped into the shoes of the assessee and decided whether the expenditure is in the benefit of the assessee and whether the assessee should have incurred the expenditure or whether assessee should have entered into JVC or not. We respectfully submit that assessing officer has no jurisdiction to decide what expenditure a business shall make for its business. Reliance is placed on the decision of Hon'ble Supreme court in case of CIT vs Dhanrajigiriji Narasingirji 91 ITR 544 (SC) wherein, the court held that " it is not open to the department to prescribe what expenditure an assessee should incur and in what circumstances he should incur that expenditure, every business man knows his interest best." Further reliance is placed on decision of Hon'ble Supreme Court in the case of Walchand& Co. Pvt. Ltd. 65 ITR 381 (SC) and J.K. Woollen Manufacturers v. CIT 72 ITR 612 (SC).”

by the revenue in this regard and we do not see any reason to disturb the operative findings of the Ld CIT(A). However, the assessee had agreed to reimburse the retainership fees at Rs. 3.30 crores per annum. We observed that the MOU was signed by the parties on 16th August 2004. It must have been implemented from 01.09.2004. Therefore, in the AY 2005-06, the assessee is eligible to claim the same for 7 months. Even though the assessee had paid full amount for the period 01.09.2004 to 31.08.2005, hence, it is applicable for 7 months in this year and balance to be claimed in the next assessment year. In the result, we direct the AO to allow proportionate amounts to the extent of Rs. 1.925 crores. In the result, the ground no.3 of AY 2005-06 raised by the revenue for this AY is partly allowed. With regard to other AYs under consideration, the AO may allow full remuneration for the whole year. Therefore, the ground no 2 is dismissed for AYs 2006-07 and 2007-08.

10. Ground No.4 of AY 2005-06 and Ground No.3 of AYs 2006-07 & 2007-08 regarding in allowing the claim of Rs.49,32,507/- on account of fees paid to JV company as reimbursement of expense by the ld. CIT (A), ld. DR submitted as under :- AO's Findings: The AO, in para 5, disallowed this claim on the following I. grounds:

1. 1. No statutory' head for "reimbursement": The AO noted that the Income-tax Act does not contain a specific section allowing deduction of "reimbursement of expenses." Any expenditure must fall within Section 37 (business expenses) or another statutory head.

2. Vague apportionment: The MOU states JVC shall receive "mutually agreed fees" equal to operating costs, but no clear methodology for apportioning costs between Sahara and Percept (the JVC partners) is documented.

3. TDS non-compliance: The assessee failed to produce evidence of TDS deduction on the reimbursement payment to JVC.

4. Unreconciled difference: A massive difference of Rs. 58,85,443 existed between the assessee's booking of reimbursement (Rs. 49,32,507) and the JVC's recording of receipt of these funds (Rs. 10,39,2583 [sic in original document]). The assessee's explanation (differing finalization dates) was unsatisfactory . Revenue's Arguments: Proposition A: "Reimbursement" Is Not a II. Statutory Category of Deduction: A fundamental principle of tax law is that deductions are permitted only if authorized by statute. Section 37 allows deduction of "any expenditure wholly and exclusively laid out for the purposes of business," but this expenditure must qualify as such—it cannot be merely a payment labeled "reimbursement." "Reimbursement" is a mode of settlement, not a category of expenditure. The question is whether the underlying expense qualifies: Was the underlying expense incurred by the JVC? • Does it qualify as business expenditure under Section 37? • Is it supported by invoices/documentation? • Is the assessee's share arm's length and documented? • None of these are satisfied here. Proposition B: The Reconciliation Failure Destroys the Claim-The AO found a Rs. 58,85,443 unreconciled difference between the assessee's books and JVC's books. The assessee's explanation was: "SOMEL was finalized in June 05 and SIEMCL was finalization in August 05. Some entry booked in the Sahara India Entertainment Management Company books after finalize the result of SOMEL. "This explanation is plainly unsatisfactory: (a) Both entities are part of the same group; entries should reconcile across a year-end cutoff through proper reconciliation mechanisms (b) The quantum is material: claimed reimbursement, suggesting either booking errors or missing documentation (c) The explanation is vague: It provides no specific entries, no supporting schedules, and no evidence of proper accounting controls In transfer pricing and group accounting jurisprudence, such unreconciled differences are red flags. They suggest either: The transaction was not properly documented • The apportionment methodology was unclear or arbitrary • The assessee's accounting controls were inadequate • Established principle: In CIT v. Global Shares Ltd. (2005) 269 ITR 311 SC, the Supreme Court held that inter-company transactions must be supported by clear documentation and reconciliation. An unreconciled difference undermines the claim. Proposition C: No Demonstrable Service Delivery-The assessee claims Rs.49,32,507 as reimbursement of JVC operating costs. However, the assessee has not provided: JVC's cost invoices or statements • Breakdown of operating costs (staff, premises, utilities, etc.) • Evidence of actual incurrence of these costs • Apportionment formula used to determine assessee's share • Section 37 requires the assessee to establish that the underlying expenditure was "wholly and exclusively laid out for the purposes of the business." A vague claim of "JVC operating costs" without itemization or documentation does not satisfy this requirement. Proposition D: Transfer Pricing Principles Apply-The reimbursement to JVC (a related party controlled 51% by Sahara) must satisfy transfer pricing principles under Section 40A(2) and Chapter X-A. The assessee must establish: (a) The operating costs were arm's length (b) The apportionment to assessee was arm's length (c) Documentation was contemporaneously maintained The assessee has failed on all three counts. The vague "mutually agreed" language in the MOU, the absence of detailed cost accounting, and the unreconciled difference all suggest the transaction was not documented at arm's length.

closely connected to the ground no 3 raised by the revenue. We already held that the assessee had entered in to MOU with Percept, the remuneration is fixed along with the reimbursement of the related expenses. Therefore, we already decided the issue in favour of the assessee, this ground is closely related to the same. Hence, the claim of the assessee is justified and therefore, we direct AO to allow the expenses claimed by the assessee. Therefore, we are inclined to dismiss the ground no 4 in AY 2005-06 and ground 3 in other years raised by the revenue.

13. With regard to Ground No.5 of AY 2005-06 and Ground No.4 of AYs 2006- 07 & 2007-08 regarding allowing the claim of Rs.5,00,000/- made u/s 14A by the ld. CIT (A), ld. DR submitted as under :- AO's Reasoning-The AO disallowed Rs. 5 lakh on the ground that: I. Assessee earned Rs. 25 lakh as dividend income (exempt u/s 10(34)) • Some administrative expense must have been incurred in • holding/managing the dividend-yielding shares A proportionate disallowance of Rs. 5 lakh (20% of dividend) is • reasonable Revenue's Legal Arguments-While acknowledging CIT(A)'s correct II. analysis of Section 14A's retrospective applicability, the disallowance is justified on principle. Proposition A: Section 14A(1) Still Applied; CIT(A) Overcorrected-The CIT(A) correctly held that Section 14A (2) (inserted w.e.f. 01.04.2007) did not apply retrospectively to A.Y. 2005-06. Under the predecessor Section 14A (1), the provision required disallowance of "any expenditure incurred for the purpose of making or earning any income not included in total income."However, the CIT(A) then held that the AO could not make a disallowance absent specific identification of expenditure. This interpretation is overly rigid. Section 14A (1) required disallowance of identifiable expenditure related to exempt income. However, where an assessee holds investments and earns dividend income, some administrative expense necessarily accrues: board deliberation on investment strategy, portfolio monitoring, communication with custodians, dividend recordation, etc. These expenses may not be separately invoiced, but they are incurred nonetheless. Proposition B: The Assessee Failed to Prove Zero Expenditure-The assessee claimed: i Shares were old investments brought forward from prior years • "No direct expenses" were incurred • However, this argument conflates "no direct, separately invoiced expenses" with "zero expenses." A company holding shares incurs continuing administrative overhead in managing its portfolio, whether or not separately billed. The assessee bore the burden of proving that no expense whatsoever was incurred in relation to dividend earning. Its failure to provide detailed evidence of investment management processes (board minutes, valuations, monitoring, etc.) undermines this claim. Proposition C: The AO's Proportionate Approach Is Reasonable-The AO estimated Rs. 5 lakh as approximately 20% of the dividend earned. Given: The necessity of administrative expense for holding shares • The assessee's lack of specific documentation • The conservative nature of the 20% estimation • The disallowance is reasonable and justified. Established principle: In CIT v. Walfort Share & Stock Brokers Pvt. Ltd. (326 ITR 1 SC), the Supreme Court held that disallowance under Section 14A requires establishment of "proximate link" between expenditure and exempt income. Here, the link is clear: shareholding generates dividend, and shareholding necessitates administrative expense.”

“During the year assessee claimed dividend of Rs. 25 lakhs as exempt income. The said dividend was received only from one investment i.e., preference shares of Sahara India financial corporation Ltd. held by the assessee for a long period (acquired in FY 2000-01, thus no fresh investment was made, and no expenses were actually incurred by the assessee towards such investments during the year). Assessing officer's Contention: Assessing officer made an arbitrary disallowance of Rs. 5 lakhs under section 14A on ad hoc basis with a view that generation of any income with no corresponding expenses is a ruled-out situation The assessing officer failed to record any satisfaction for making such disallowance. CIT(A) Order: CIT(A) deleted the disallowance observing Assessing officer has not pointed out any expenditure which can be attributed by him in the earning of the exempted income and entire addition has been made only on estimates and conjectures. Assessee Submission: During the year under consideration, no fresh investments were made by the assessee and no expenditure was incurred for earning dividend income. The observations of the assessing officer are based on surmises and conjectures. Further, assessing officer has not shown any nexus between expenses incurred by the assessee and the exempt income earned by it. Re: Absence of proximate nexus between expenses disallowed and exempt income The provision of section 14A postulates disallowance of expenditure only in a case where it is proved that the expenses incurred have a real relationship with the income which does not form part of the total income. It is the respectful submission of the assessee, on the facts of the case, the apportionment of the expenses made by the assessing officer as relatable to earning of exempt income is erroneous. The assessing officer has made disallowance under section 14A of the Act on a hypothetical basis without realizing that the mandate of the Legislature is to correlate the expenses incurred to the earning of exempt income. In fact, as submitted above, there is no correlation between the earning of the said exempt income and the expenses incurred and no disallowance under section 14A of the Act was called for. It is the respectful submission of the assessee that disallowance under section 14A cannot be made on ad-hoc basis. In order to justify disallowance of any part of the expenditure under the said section, the onus is on the Revenue to bring on record nexus between the expenditure and the exempt income. Further, even from assessment year 2008-09 and onwards, the provisions of sub- section (2) and (3) to section 14A of the Act, as inserted by Finance Act 2006, empowers the assessing officer to compute disallowance as per prescribed formula, only if the assessing officer, having regard to the accounts of assessee is not satisfied with the claim of assessee that no expenditure in relation to exempt income has been incurred by assessee. Accordingly, the assessing officer must first reject the claim of the assessee of having not incurred any expenditure in relation to earning exempt income with cogent reasons, before proceeding to make any disallowance under section 14A of the Act. In the absence of such finding, it is submitted, that the assessing officer does not have power to compute disallowance under section 14A of the Act. Your Honour’s attention, in this regard, is invited to the decision of Supreme Court in the case of CIT vs. Walfort Share & Stock Brokers 326 ITR 1 wherein it has been held that by the Apex Court that there must be a proximate relationship of expenditure with exempt income, for the purposes of making disallowance of same under section 14A of the Act. In the case of Godrej & Boyce Mfg. Co. Ltd. v. DCIT: 328 ITR 81, the Bombay High Court, while deciding the issue of disallowance under section 14A of the Act, following the aforesaid Supreme Court decision in Walfort Shares & Stock Brokers (supra), observed that disallowance under section 14A can be effected only when a proximate cause for disallowance is established, stating the relationship of the expenditure with income which does not form part of the total income. The relevant observations of the Court are reproduced as under: “….. In order to determine the quantum of the disallowance, there must be a proximate relationship between the expenditure and the income which does not form part of the total income. Once such a proximate relationship exists, the disallowance has to be effected. All expenditure incurred in the earning of income which does not form part of the total income has to be disallowed subject to compliance with the test adopted by the Supreme Court in Walfort and it would not be permissible to restrict the provisions of Section 14A by an artificial method of interpretation. ……. Hence, the intention of Section 14A is clearly to disallow all expenses relating to the non taxable income, and to curb the practice of claiming allowances for expenditures on exempt income. All that is required is to show that there is a ‘proximate cause’ between the expenditure incurred and the exempt income. A ‘proximate cause’ connotes a relationship between the expense and the exempt income (Walfort). ……” (emphasis supplied) Your Honour’s kind attention, in this regard, is further invited to the decision of the Delhi High Court in the case of Maxopp Investment Ltd: 203 Taxman 364 wherein the High Court, while approving the contention raised by the assessee that the term “expenditure incurred” appearing in section 14A(1) of the Act would mean “actual” expenditure incurred, held that no disallowance could be made under the said section where no expenditure has 'actually' been incurred by the assessee in relation to earning of the exempt income. The relevant findings are reproduced as under: “26. It was contended by the learned counsel for the assessees that the words “expenditure incurred” as appearing in section 14A(1) clearly mean that there must be actual expenditure. Of course, the actual expenditure must be for earning the exempt income. We have already pointed out above, that we do not subscribe to the narrow interpretation sought to given to the words “in relation to” which the learned counsel for the assessees are espousing. Thus, we will have to consider the argument of the assessees in respect of the expression “expenditure incurred” in the context of the ITA 687/09 &Ors Page 25 of 38 expenditure being in connection with or pertaining to income which does not form part of the total income under the said Act.

Further reliance is also placed on the following decisions, wherein it has been held that where no expenditure was actually incurred to earn dividend income, disallowance under section 14A cannot be made on the basis of mere presumption:  CIT v. Hero Cycles : 323 ITR 518(P&H)  CIT v. Metalman Auto P. Ltd.: 336 ITR 434 (P&H)  CIT v. Reliance Utilities and Power Ltd.: 313 ITR 340 (Bom)  CIT v. Reliance Industries Ltd.: 339 ITR 632 (Bom)  CIT Vs Ms.Sushma Kapoor: 319 ITR 299 (Delhi)

Reliance in this regard is further placed on the following decisions wherein the Courts and various benches of the Tribunal have repeatedly held that recording of satisfaction is condition precedent for assumption of jurisdiction to apply Rule 8D of the Rules:  Eicher Motors v. CIT: 398 ITR 51 (Del) – SLP dismissed in CIT v. Eicher Motors Ltd.: S.L.P. (C) 27628 of 2018. / 408 ITR-OL 22 (St.)  PCIT vs. U.K. Paints (India) (P.) Ltd.: 392 ITR 552 (Del.)  CIT v. Abhishek Industries Ltd.: 380 ITR 652 (P&H)  CIT vs. I.P. Support Services India (P) Ltd: 378 ITR 240 (Del)  Joint Investments (P.) Ltd. v. CIT: 372 ITR 694 (Del)  CIT v. Taikisha Engg. India Ltd.: 370 ITR 338 (Del.)  DCIT vs. Jindal Photo Limited: ITA Nos. 814/Del./2011 (Del)  PTC India Ltd. v. DCIT: and 581 (Del) 2009 (Del)  Auchtel Products Ltd vs. ACIT: 52 SOT 39 (Mum) (URO)  Kodak India (P.) Ltd. v. Addl. CIT: ITA No. 7349/Mum./2012 (Mum)

The legal position that emerges from the aforesaid decisions is that for making disallowance under section 14A of the Act: (a) there must be some actual expenditure incurred; (b) such expenditure must be incurred “in relation to” the earning of exempt income, which means that there must be some nexus between the actual expenditure and the actual exempt income; and (c) the assessing officer must, on facts, record satisfaction that having regard to the accounts of the assessee, suomoto disallowance, if any, under Section 14A of the Act is not correct.

Only if the aforesaid conditions are cumulatively satisfied, the assessing officer can proceed to make any disallowance under section 14A of the Act. Re: No satisfaction recorded by the assessing officer before making disallowance As stated above, the assessing officer must, in order to make any disallowance under section 14A of the Act, record satisfaction that having regard to the accounts of the assessee, suomoto disallowance, if any, made under that section is not correct. Recording of satisfaction, it is submitted, requires objective application of mind on the part of the assessing officer, having regard to the accounts of the assessee, that suo-moto disallowance, if any, made by the assessee is not correct. It is our respectful submission that merely presuming that the assessee must have incurred expenditure for earning exempt income, without specifying the nature of expenses, leave alone its quantification, does not tantamount to recording of satisfaction as referred to in section 14A of the Act. Further, the assessing officer cannot, it is submitted, apply the provisions of section 14A of the Act, automatically once the assessee is found to have earned exempt income. In this regard, it is submitted that the assessing officer has proceeded on the following fallacious premise: (a) Exempt income cannot be earned without incurring any expenditure, accordingly, disallowance has to be made under section 14A of the Act; (b) Invocation of section 14A is automatic and comes into operation as soon as exempt income is earned. It is further respectfully submitted that this issue stands covered in assessee’s favour by the decision of the Hon’ble Delhi Bench of the Tribunal in the case of Gujarat Guardian Limited and 3596 & 3595/Del/2014. The relevant findings of the Tribunal are reproduced hereunder for your Honour’s reference: “17 Considering the above undisputed facts material to the issue of validity of disallowance made u/s.14A read with Rules 8D, we are of the view that the learned CIT (Appeals) following the ratio laid down by the Hon’ble Jurisdictional High Court of Delhi in the case of Maxopp Investments Ltd. (supra) was justified in holding that the Assessing Officer was not right in rejecting the claim of the assessee in a summary manner without verifying the reasonableness of disallowance of Rs.3,04,866/- made by the assessee itself towards the expenses incurred in the form of administrative cost, in the form of any fraction of the salary of the concerned employees were also performing other duties in the finance section and whose job was not exclusively to make investments, keep finance section and whose job was not exclusively to make investments, keep record of it and deposit the income in the bank as well as the important aspect that the dividend received in the mutual funds were deposited in the bank account of the assessee through ECS facility. The view taken by the CIT (Appeals) is well supported by several decision cited by the learned AR hereinabove including the decision of Hon’ble Jurisdictional High Court of Delhi in the case of Maxopp Investment Ltd. (supra) holding that the lack of satisfaction of the Assessing officer should of cogent reasons. In the present case before invoking Rule 8D the Assessing Officer has failed in his duty as per the provisions laid down under section 14A read with Rule 8D to point out any discrepancy in the claim made by the assessee having regard to its accounts. It was the case of the assessee that the dividend income earned by it was with respect to certain investments of its surplus funds in the mutual funds in respect of which the concerned mutual fund charges fund management charges as permitted by SEBI. It was submitted that in case of assesse, an amount of Rs.46,00,000/- was charged by the mutual fund which were effectively in the nature of directly related administrative expenses in respect of such investment. The assessee explained that other than this it had only to fill up mutual funds standard printed requisition form and issue cheque. It was submitted that assessee does not have particular persons exclusively engaged in the investment activity and personnel from the accounts department do the same as integral part of the day to day accounting work. Since the first appellate order on the issue is reasoned one and supported with the ratio laid down by the Hon’ble Jurisdictional High Court of Delhi in the case of CIT Vs. Maxopp Investment Ltd. (supra), we are not inclined to interfere therewith. The same is upheld. The ground no. 1 of the appeal (ITA No. 3595) and the ground of the appeal (ITA No.3596) of the revenue are accordingly rejected.” (emphasis supplied) The Hon’ble Delhi High Court, while dismissing Revenue’s appeal (ITA No. 1106/2017) against the aforesaid order of the Tribunal, relied on the decision of the Apex Court in the case of Godrej & Boyce Manufacturing Co. Ltd. v. DCIT: 394 ITR 449 (SC) and held as under: “The Revenue’s appeal in this case concerns with the correctness of the ITAT’s order in regard to disallowance under Section 14A (2). The Assessing Officer (AO) disallowed certain amounts after rejecting the assessee’s explanation with respect to the statutory disallowance on an application of Rule 8D of the Income Tax Rules. The appellate Commissioner granted the relief which was confirmed by the ITAT. The issue in the opinion of this Court is now covered by the judgment of the Supreme Court in Godrej & Boyce Manufacturing Co. Ltd. v. DCIT (2017) 394 ITR 449 (SC). In that judgment, the Court confirmed the opinion of various High Courts bringing to tax any amount under Section 14A and applying the Rule 8D, the Assessing Officer has to record prima facie satisfaction that the claim of the assessee is inadmissible. In the present case, no such satisfaction was recorded. The ITAT’s conclusions are, therefore, justified. No substantial question of law arises; the appeal is dismissed, accordingly, along with pending In view of the above, it is our respectful submission that merely presuming that the assessee must have incurred expenditure for earning exempt income without specifying the nature of expenses, leave alone its quantification, does not tantamount to recording of satisfaction as referred to in section 14A of the Act and as explained in the above decisions. Further, the assessing officer cannot, it is submitted, apply the provisions of section 14A of the Act, automatically once the assessee is found to have earned exempt income. It is thus, respectfully submitted that disallowance of expenditure under section 14A of the Act is without jurisdiction and bad in law and calls for being deleted in toto, on this preliminary ground itself. Without prejudice, the disallowance, if any, should be restricted to a reasonable percentage of exempt income earned during the year. Reliance in this regard is placed on the decision of the Hon’ble ITAT, Delhi Bench in the case of DCIT vs. Eicher Motors Ltd. 37 ITR(T) 427 wherein the assessee claimed that the dividend was earned from old investments and no expenses was incurred on earning on such income. The assessing officer made disallowance of expense out of total interest and administrative expense. The CIT(A) restricted the disallowance to 0.05% the average value of investments. The relevant extract of the decision is as below: “11.1 As regards the disallowance of administrative expenditure, the CIT(A), following the judgment of the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2010] 328 ITR 81/194Taxman 203, held that the Rule 8D is not retrospective and applicable for and from A.Y. 2008-09. The CIT(A) had, however, held that some administrative expenditure is relatable for earning of dividend income. The CIT (A) calculated the disallowance at 0.05% of the average value of investments in shares (2,534.21X.05%)which works out to Rs.1,26,710/-. This estimation of administrative expenses relatable to the earning of dividend income is reasonable and justifiable on the facts and circumstances of this case. Therefore, we find no infirmity in the order of the CIT (A), warranting our interference. It is ordered accordingly.” Further, reliance can be placed on the decision of Hon’ble Delhi High Court in the case of CIT vs. Oriental Structural Engineers (P.) Ltd: 216 Taxman 92 (Del.) wherein the High Court affirmed the order of the CIT(A) in disallowing reasonable proportion, being 2% of dividend income earned when expenses were not incurred towards earning exempt income. The relevant extract of the decision is as below: “2. It was the contention of the revenue that Rule 8D of the Income Tax Rules, 1962 had not been applied properly in respect of the assessment year 2008-09.

This aspect has been considered by the Tribunal in detail and it has observed as under: - "6.3 We have carefully considered the submissions and perused the records. We find that Ld. Commissioner of Income Tax (Appeals) has given a finding that only interest of Rs.2,96,731/- was paid on funds utilized for making investments on which exempted income was receivable. Further, Ld. Commissioner of Income Tax (Appeals) has observed that in respect of investment of Rs.6,07,775,000/- made in subsidiary companies as per documents produced before him, they are attributable to commercial expediency, because as per submission made by the assessee, it had to form Special Purpose Vehicles (SPV) in order to obtain contracts from the NHAI and the SPVs so formed engaged the assessee company as contract to execute the works awarded to them (i.e. SPVs) by the NHAI. In its profit and loss account for the year, the assessee has shown the turnover from execution of these contracts and therefore no expense and interest attributable to the investments made by the assessee in the PSVs can be disallowed u/s 14A r.w. Rule 8D because it cannot be termed as expense/interest incurred for earning exempted income. Under the circumstances, Ld. Commissioner of Income Tax (Appeals) is correct in holding that disallowance of a further sum Rs.40,556/- calculated @ 2% of the dividend earned is sufficient. Under the circumstances, we do not find any infirmity in the order of the Ld. Commissioner of Income Tax (Appeals), hence we uphold the same."

AO's Reasoning : The AO disallowed 5% of miscellaneous expenses I. (fuel, telephone, etc., totaling Rs. 22,09,749) on the ground that company vehicles and telephones may be partly for personal use of directors/officers. Revenue's Arguments-Proposition A: Corporate Personality Does Not II. Immunize Personal-Use Disallowance The assessee and CIT(A) argued: "The assessee is a company (artificial juridical person) and therefore cannot have personal use; hence no disallowance is justified."This argument misunderstands the legal principle. While a company is an artificial person under company law, Section 37 of the LT. Act applies the test of "wholly and exclusively for the purposes of business" to all assessee-types, including companies. Where a company maintains vehicles or telephones that are partly for personal use by directors/officers, the personal-use component is not laid out "wholly and exclusively for the purposes of business" and is hence disallowable. Established precedent: Sayaji Iron & Engineering Co. v. CIT (253 ITR 749 Guj.): Court held that for • a corporate assessee, expenses with personal-use element can be disallowed. The corporate form does not shield personal-use disallowance. Dinesh Mills Ltd. v. CIT (269 ITR 503 Raj.): Court held that fuel and vehicle • maintenance can be partially disallowed if there is evidence or reasonable inference of personal use, even for a company. These cases establish that the substance of the expenditure (whether it is for personal use) trumps the form of the assessee (whether it is a company). Proposition B: The 5% Disallowance Is Conservative-The AO disallowed only 5% of the miscellaneous expenses as a conservative estimation of personal-use component. Given that: Directors and senior officers of a media company regularly use company vehicles • for both business and personal purposes Company telephones are often used for personal calls by senior • management The assessee provided no logs, call records, or mileage documentation • segregating business from personal use A flat 5% is a modest estimation and not excessive • The AO's approach was reasonable. Proposition C: The Assessee's Failure to Segregate Use-If the assessee's claim that 100% of fuel and telephone expense was for business use is correct, it should have: Maintained vehicle logs segregating business and personal mileage • Documented call records segregating business and personal calls • Provided evidence of restricted access to company vehicles/phones • Provided alternative evidence of business-only use • The assessee's mere assertion (without documentation) that the company is artificial and therefore has no personal use is insufficient to discharge its burden of proof.”

18. Considered the rival submissions and material placed on record. We observed that AO had disallowed the expenses relating to reimbursement of fuel expenses and telephone expenses on ad hoc basis merely observing that there is personal element in it. They are incurred for the purpose of the business and we are in agreement with the findings of Ld CIT(A) that there is no personal element and it is incurred during execution of the interest of the company. Hence, the ground no 6 in AY 2005-06 raised by the revenue is dismissed. With regard to ground no 5 in other AYs are also dismissed.

- The assessing officer has not disputed the facts that (i) the expenditure was incurred, (ii) expenditure relates to giving of gift to a Director of a movie which was produced by the assessee under its own banner; and (iii) the movie generated substantial revenue for the assessee and as a token of appreciation of the services the gift was given to the director by the assessee company. - The expenditure may not be contractual nature but has been incurred by the assessee as a business man in the course of carrying on of it’s business thereof” - ……………………………….

by the revenue.

22. With regard to Ground No.7 of AY 2007-08 regarding disallowance of TDS default of Rs.13,29,988/-, ld. DR of the Revenue submitted as under :- “Statutory Framework & Issue: The AO, based on the tax audit report, noted two categories of payments without TDS or with short TDS: (a) Rs. 1,58,365 to Vibzap Soft Solutions with no TDS deducted, and (b) Rs. 11,71,623 (proportionate disallowance on Rs. 62,04,815 to Vibzap and Arjun Punji with short TDS deduction). The AO added both back under section 40(a)(ia). The assessee objected that (i) Rs. 1,58,365 was already voluntarily added back in its return (double addition), and (ii) the TDS deducted and deposited was adequate when surcharge rates are considered, and the proportionate disallowance methodology was wrong. The CIT(A) gave conditional relief, directing the AO to delete the disallowance subject to verification that Rs. 9,72,000 (part of the Vibzap payment) was not claimed as an expense in the P&L.

Revenue's Position: Double Addition Claim—Factual Verification Required: The assessee's contention that Rs. 1,58,365 was already "offered for assessment" (meaning voluntarily added back in the return) is a question of fact. The CIT(A) did not undertake to verify this claim against the assessee's filed return and the AO's computation sheet. The CIT(A) accepted the assessee's assertion at face value and directed the AO to delete subject to verification—but verification after the CIT(A) order is illogical; it should have been undertaken before. The Department should insist that the assessee produce its original return computation and contemporaneous working papers showing that Rs. 1,58,365 was indeed added back as an expense. If the assessee cannot produce this evidence, the disallowance stands. TDS Short-Deduction Disallowance Under Section 40(a)(ia)— 1. Proportionate Methodology: Section 40(a)(ia) provides that if an assessee tails to deduct or deducts short TDS on specified payments (sections 194A-194N), the amount shall be disallowed. The question is: how much? The statute is not clear on whether the AO should disallow (A) the entire payment amount, (B) only the TDS shortfall, or (C) a proportionate amount reflecting the shortfall as a fraction of the gross payment. The AO adopted methodology (C): he calculated that TDS of Rs. 3,48,090 should have been deducted, but only Rs. 2,82,362 was deducted, leaving a shortfall of Rs. 65,728. He then computed: (Rs. 62,04,815 x Rs. 65,728) / Rs. 3,48,090 = Rs. 11,71,623. This methodology is defensible and is used by most AOs. It reflects the proportionate relationship between the TDS shortfall and the gross payment. However, there is an alternative line of reasoning: under section 40(a)(ia), the entire payment is disallowable if TDS is not deducted or is deducted at the wrong rate. This view has support in some ITAT decisions. Given the settled practice and the proportionate nature of the AO's approach, the proportionate disallowance is reasonable.

Name of the party Amount (in Remark Nature of Rs.) payment 4,41,315 Nature of contractual payment TDS Contractual deducted under section 194C payment M/s Vbizap Soft 1,58,365 TDS was not deducted and the same was Solution Disallowed by the assessee in its return of income under section 40 9,72,000 Payment was made to M/s Sahara India Commercial Corporation Limited and associates concerns and same was not charged as an expenditure in Profit and Loss account of the assessee Mr. Arjun Punjj 47,91,500 TDS deducted under section 194J Professional fees The tax auditor in its tax audit report under clause 17(f) read with annexure VI of the Form 3CD, mentioned that Rs. 1,58,365/- the amount paid to professional was inadmissible under section 40(a)(ia) of the Act. The assessee suo-moto disallowed the same at the time of filing its return of income. Assessing officer’s Contentions The assessing officer referred to the tax audit report (Annexure-XIG), and observed there were instances of non-deduction of TDS and short deduction of TDS with respect to the payments mentioned above. - On payments totalling to Rs. 62,04,815/- TDS of Rs. 3,48,090/- should have been deducted but the assessee deducted only Rs. 2,82,362. Short fall in deducting TDS of Rs.65,728. - Proportionate disallowance of Rs. 11,71,623 (62,04,815 X 65,728/3,48,090) and Rs. 1,58,365,aggregating to Rs. 13,29,988 is disallowed. CIT(A) Observations CIT(A) deleted the disallowance of Rs. 13,29,988/- on the following basis: - The assessing officer has only referred the tax audit report and has not made any query to the assessee - The tax has been deducted and deposited was fully justified. Assessee’s Submission At the outset the provisions of section 40(a)(ia) of the Act is reproduced below: “40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",— (a) in the case of any assessee— ………. (ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or subcontractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200 : Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Explanation………” It may kindly be noted that section 40(a)(ia) of the Act is applicable on fulfillment of the below conditions: - The expenditure is charged under section 30 to 38 of the Act - tax is deductible at source under Chapter XVII-B on such expenditure and such tax has not been deducted or, after deduction, has not been paid during the previous year. It is respectfully submitted that the said section is not applicable in case of short- deduction of TDS.

The section only applies in case where tax was deductible under Chapter XVII-B but no tax was deducted under the said chapter or was deducted but not paid during the previous year. To substantiate our view, we would like to reproduce section 201 of the Act; “201(1) If any such person referred to in section 200 and in the cases referred to in section194, the principal officer and the company of which he is the principal officer does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax : …….” It may be observed that the language of section 201(1) of the Act, specifically mentions “as required by or under this Act”. Such specific language covers the case where the assessee has deducted the short TDS. Hence, on such cases section 201 of the Act applies. Such specific language as provided in section 201 is not provided in section 40(a)(ia) of the Act. Absence of such language clearly indicates that in the case of short TDS section 40(a)(ia) of the Act is not applicable. Revenue can only invoke section 201 of the Act in such cases. Reliance is placed on the decision of Hon’ble Delhi High Court in the case of Principal Commissioner of Income-tax v. Future First Info Services (P.) Ltd.: 447 ITR299 (Delhi) wherein the court has held that the disallowance under section 40(a)(ia) cannot be made in a case of short deduction of TDS. The relevant extract of decision is as below: “5. Further, this Court is of the opinion that in cases of short deduction of TDS, disallowance under section40a(ia) of the Act cannot be made and the correct course of action would have been to invoke Section 201 of the Act. On similar facts, the Calcutta High Court in CIT v. S.K. Tekriwal [2014] 46 taxmann.com 444/361ITR 432/[2013] 260 CTR 73/2012 SCC Online CAL12147 dismissed the Revenue's appeal. The relevant para of the said judgement is reproduced herein below: "We are satisfied that the order under challenge is a just order. The reasoning appearing at paragraph 6 of the judgment and/or order under challenge reads as follows : "In the present case before us the assessee has deducted tax u/s. 194C(2) of the Act being payments made to sub-contractors and it is not a case of non-deduction of tax or no deduction of tax as is the import of section 40(a)(ia) of the Act. But the revenue's contention is that the payments are in the nature of machinery hire charges falling under the head 'rent' and the previous provisions of section 194-I of the Act are applicable. According to revenue, the assessee has deducted tax @ 1% u/s. 194C(2) of the Act as against the actual deduction to be made at 10% u/s. 194I of the Act, thereby lesser deduction of tax. The revenue has made out a case of lesser deduction of tax and that also under different head and accordingly disallowed the payments proportionately by invoking the provisions of section 40(a)(ia) of the Act. The Ld. CIT, DR also argued that there is no word like failure used in section 40(a)(ia) of the Act and it referred to only non-deduction of tax and disallowance of such payments. According to him, it does not refer to genuineness of the payment or otherwise but addition u/s. 40(a)(ia) can be made even though payments are genuine but tax is not deducted as required u/s.40(a)(ia) of the Act. We are of the view that the conditions laid down u/s.40(a)(ia) of the Act for making addition is that tax is deductible at source and such tax has not been deducted. If both the conditions are satisfied then such payment can be disallowed u/s. 40(a)(ia)of the Act but where tax is deducted by the assessee, even under bona fide wrong impression, under wrong provisions of TDS, the provisions of section 40(a)(ia) of the Act cannot be invoked. Here in the present case before us, the assessee has deducted tax u/s. 194C(2) of the Act and not u/s. 194I of the Act and there is no allegation that this TDS is not deposited with the Government account. We are of the view that the provisions of section 40(a)(ia) of the Act has two limbs one is where, inter alia, assessee has to deduct tax and the second where after deducting tax, inter alia, the assessee has to pay into Government Account. There is nothing in the said section to treat, interalia, the assessee as defaulter where there is a shortfall in deduction. With regard to the shortfall, it cannot be assumed that there is a default as the deduction is not as required by or under the Act, but the facts is that this expression, 'on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction has not been paid on or before the due date specified in sub-section (1) of section 139'. This section 40(a)(ia) of the Act refers only to the duty to deduct tax and pay to government account. If there is any shortfall due to any difference of opinion as to the taxability of any item or the nature of payments falling under various TDS provisions, the assessee can be declared to be an assessee in default u/s. 201 of the Actand no disallowance can be made by invoking the provisions of section40(a)(ia) of the Act."' (Emphasis Supplied)” Reliance is further placed on the decision of Hon’ble ITAT, Delhi Bench in case of DCIT v. Daawa tFoods Ltd.: 91 ITR(T) 110 wherein the Hon’ble bench held that no disallowance under section40(a)(ia) in case of short deduction of TDS. The relevant extract of the decision is as below: “14. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the issue relating to non deduction of TDS is decided against the assessee in its own case for A.Y.2008-09 in Dawaat Foods Ltd.'s case (supra) wherein the Tribunal while relying upon the decision of Hon’ble Supreme Court in case of Shree Choudhary Transport Co. (supra) held that the amendment made to provisions of Section 40(a)(ia) of the Act vide Finance Act, 2014 do not have retrospective application and thus, confirmed the disallowance made by the Assessing Officer under section 40(a)(ia) of the Act. Thus, issue of non-deduction of TDS is decided against the assessee in this year as well as the facts are identical in the present assessment year. As regards to short- deduction of TDS, the Ld. AR submitted that the issue is covered in assessee's own case by the Tribunal in A.Y. 2008-09 in Dawaat Foods Ltd.'s case (supra) wherein it is held that no disallowance under section40(a)(ia) is sustainable in cases of short-deduction of TDS. Thus, the issue relating to disallowance on account of short deduction of TDS is allowed. Hence, Ground No. 10 to13are partly allowed.” It was similarly held in the following cases: - CIT v. Kishore Rao & Others (HUF): 387 ITR 196 (Kar HC) - CIT v. Hewlett-Packard India Sales (P.) Ltd.: 382 ITR 496 (Kar HC) - CIT v. S. K. Tekriwal: 361 ITR 432 (Cal HC) - Three Star Granites (P.) Ltd v. ACIT [32 ITR(T) 398] (ITAT Cochin) - M.V.A. SeetharamaRaju v. DCIT [194 ITD 359] (ITAT Chennai) In view of the above facts and legal position, it is respectfully submitted that in the assessee’s case, there are two types of payment:

1. 1. Payment of Rs. 1,58,365 to M/s Vbizap Soft Solution without deducting tax which was reported in tax audit report and assessee has suo-motu disallowed the same in its return of income. Therefore, the disallowance made by assessing officer of Rs.1,58,365 is ought to be deleted.

2. Payment of Rs. 62,04,815 to the above referred parties where, as alleged by the assessing officer, short TDS was deducted was out of the purview of section 40(a)(ia) of the Act. Therefore, the entire disallowance of Rs, 11,71,623/-, related to the payment of Rs. 62,04,815,made by the assessing officer is bad in law and ought to be deleted.”

25. With regard to Ground No.8 of AY 2007-08 regarding interest on late deposit of TDS of Rs.87,288/-, ld. DR of the Revenue submitted as under :- “Statutory Framework & Issue: The assessee claimed a deduction of Rs. 87,288 for "interest on TDS delay deposit." The facts are: a survey was conducted by the TDS wing; short TDS was identified; the assessee deposited the short TDS and paid interest thereon (Rs. 87,288) during the year. The assessee argued that this was a valid business expense. The AO disallowed the amount as "interest on TDS is in no case an allowable expense." The CIT(A) confirmed the disallowance but gave a consolatory direction: if the assessee receives a refund on appeal of the TDS assessment, the refund should not be taxed. Revenue's Position: Interest on Payments of Tax/TDS—Not a Business Expense 1. Under Section 37: The Supreme Court has consistently held that interest paid on tax or TDS does not qualify as a business expense under section 37. The leading authorities are CIT v. Apex Films Ltd. and CIT v. Ratan Bazaz, which hold that interest on tax is a charge imposed by law and is not laid out for the purpose of business but for the purpose of meeting a legal obligation. Similarly, interest on late payment of TDS (under section 201 read with section 221) is interest on a statutory default, not a business expenditure. The assessee cannot deduct penalties, fines, or interest on non-compliance as business expenses. Section 40 and Its Relationship to TDS Interest: 2. Section 40 specifies deductions that are not allowed. While section 40(a)(ia) addresses TDS non-deduction, section 40's broader principle is that certain charges (interest on borrowings used for tax payment, penalties, etc.) are not deductible. Interest on late TDS deposit falls within the principle that costs of non-compliance are not deductible.

Assessee's Fallback Argument—"Disputed Demand": 3. The assessee's alternative argument is that because the TDS assessment was disputed and the assessee won on appeal, the interest paid was related to a "disputed demand" and should therefore be deductible. However, this confuses the status of the underlying TDS assessment with the deductibility of interest on non-compliance. Even if the assessee's TDS assessment is later set aside on appeal (meaning the AO was wrong to demand TDS), the assessee's failure to deposit TDS timely remains a fact. Interest on late payment is levied on the delay, not on the correctness of the demand. The fact that the demand was ultimately reversed does not retroactively convert the interest into a deductible expense. CIT(A)'s Direction on Non-Taxing Refund—Correct But 4. Symptomatic of Weakness: The CIT(A) confirmed the disallowance of the interest but directed that if a refund is received on the disputed TDS assessment, it should not be taxed. This is a correct and benevolent direction, and the assessee's actual remedy lies there: the refund will arrive without tax, offsetting the interest cost. However, the fact that the CIT(A) felt compelled to provide this "relief" (directing that refunds not be taxed) suggests that the assessee's hardship is acknowledged. But hardship is not a basis for departing from section 37. The AO and CIT(A) were correct. Counter to Assessee: The assessee's reliance on the disputed status of the TDS assessment is unavailing. A disputed demand is still a demand, and interest on late payment of a disputed demand is not a business expense. The assessee's remedy is to appeal the TDS assessment and obtain a refund, not to deduct interest on its own non- compliance. Revenue's Submission: The disallowance of Rs. 87,288 should be sustained. Interest on late payment of TDS is not allowable under section 37. The CIT(A)'s confirmatory ruling is correct and should be upheld on appeal.”

26. On the other hand, ld. AR of the assessee submitted as under :- “Interest paid on delay in deposit of TDS was claimed as expenditure by the assessee. The said expenses had been disallowed by the assessing officer. The CIT(A) upheld the said disallowance dismissing the assessee's ground of appeal

. Assessee accepted the said disallowance and did not file appeal against the order of CIT(A). Accordingly, this ground of appeal of the Department is infructuous.”

27. Considered the rival submissions and material placed on record. We observed that Ld CIT(A) had already dismissed the ground raised by the assessee. Therefore, the ground raised by the revenue is infructuous, hence the same is dismissed.

28. In the result, appeals filed by the Revenue are partly allowed. Order pronounced in the open court on this 15th day of April, 2026.

Sd/- sd/- (VIMAL KUMAR) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 15.04.2026 TS