Tata Sky Limited Vs. CIT (ITAT Mumbai)
The issue under consideration is whether the disallowance of expenditure under section 14A is justified if there is no exempt income?
In the instant case, the assessee has invested in various investments which, yield exempt income. Further, the assessee has not made suo moto disallowance of expenditure incurred in relation to exempt income u/s 14A of the IT Act, 1961. The AO has disallowed interest expenses and other expenses by invoking Rule 8D(2)(ii)and (iii) on the ground that although the assessee has debited huge interest expenses and other administrative expenses, but failed to disallow expenses relatable to exempt income, by following the decision of ITAT Delhi Special Bench in the case of Champ Investment Ltd. (378 ITR 33).
ITAT states that the issue is squarely covered in favour of the assessee by the decision of Hon’ble Bombay High Court in the case of Ballarpur Industries Ltd., wherein it was held that when there is no exempt income then no disallowance of expenses u/s 14A of the IT Act, 1961 can be made. The Hon’ble Delhi High Court in the case of Cheminvest Ltd. (378 ITR 33supra) has held that if there is no exempt income then no disallowance of expenditure u/s 14A of the Act can be made. The ITAT Delhi Special Bench in the case of ACIT vs. Vireet Investments (P.) Ltd. [2017] 58 ITR(T) 313 (Delhi – Trib.) (SB) has reiterated similar principles of law. Therefore, ITAT are of the considered view that once, there is no exempt income earned for the year, then disallowance contemplated u/s 14A of the Act cannot be pressed into. In this case, the Revenue has not disputed the fact that the assessee has not earned exempt income for the year under consideration. Since, there is no exempt income for the year, the disallowance of expenditure contemplated u/s 14A of the Act cannot be made. The CIT(A) after considering relevant facts has rightly deleted the addition made by the AO towards disallowance of expenses u/s 14A of the Act. There is no error in the findings of the learned CIT(A). Hence, ITAT are inclined to uphold the findings of the learned CIT(A) and dismissed appeal filed by the Revenue for both the AYs.
FULL TEXT OF THE ITAT JUDGEMENT
These cross appeals, by the assessee and by revenue, are arising out of the orders of Commissioner of Income Tax (Appeals)-13, Mumbai [in short CIT(A)], in appeal Nos. CIT(A)-13/Rg.7(3)/AP-269/11-12 and 127/12-13 dated 03.03.2014. The Assessments were framed by the Asst. Commissioner of Income Tax & Dy. Commissioner of Income Tax, Circle-7(3), Mumbai (in short ‘ACIT/DCIT/ AO) for the AY 2009-10 and 201011 vide different orders dated 31.12.2011 and 06.02.2013 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
2. The first common issue in these two appeals of assessee for AYs 2009-10 and 2010-11 in ITA Nos. 3214 & 3215/Mum/2014 is as regards to the order of CIT(A) confirming the action of the AO in making disallowance of discount and various other expenses like discount on sale of set-top box and hardware, discount on sale of recharge coupon vouchers, disallowance of bonus or credit provided by the assessee to subscribers, disallowance of sale promotion expenses and disallowance of channel support expenses for non-deduction of TDS by invoking the provision of section 40(a)(ia) of the Act.
3. The facts and circumstances of both the years are identical as admitted by Ld. Senior Counsel for the assessee as well by Ld. CIT-DR. Hence, we will take the facts from AY 2009-10 and decide the issues raised by the assessee in this year. For this, assessee has raised the following grounds in AY 2009-10: –
“1. On the facts and in the circumstances of the case and in law, the Hon’ble Commissioner of Income-tax (Appeals) – 13. Mumbai [C1T(A)] erred in upholding the disallowance of discount on sale of Set-top box & hardware aggregating to Rs. 23.50,51.772 (Rs. 1338,81.648 and Rs. 10,11,70,124 respectively) under Section 40(a)(ia) of the Act.
2. On the facts and in the circumstances of the case and in law, the Hon’ble 01(A) erred in upholding the disallowance of discount on sale of recharge coupon vouchers of Rs. 38,80,6 I .901 under Section 40(a)(ia) of the Act.
3. On the facts and in the circumstances of the case and in law, the Hon’ble CIT(A) erred in upholding the disallowance of bonus or credit provided by the Appellant to subscribers of Rs. 1,54,24,104 under Section 40(a)(ia) of the Act.
4. On the facts and in the circumstances of the case and in law, the Hon’ble CIT(A) erred in upholding the disallowance of sales promotion expenses of Rs. 1,30,37,124 under Section 40(a)(ia) of the Act.
5. On the facts and in the circumstances of the case and in law, the Hon’ble CIT(A) erred in upholding the disallowance of distribution channel support expenses of Rs. 10,81,11,728 under Section 40(a)(ia) of the Act.”
4. Briefly stated facts are that the assessee has given discount on the sale of Set-top Boxes and Recharge Coupon Vouchers, which is referred to as a primary discount. As a part of its sale promotion the assessee also provides additional discounts like a festival discount, quantity discount, etc. to the distributors to encourage them to purchase and in turn sell higher quantities of products. This additional discount is referred to as a secondary discount. The secondary discounts are recognized by the Assessee as Sale promotion expense or distribution channel support expenses. The AO during assessment of TDS had passed the order under sections 201 and 201(1A) of the Act for AY 2009-10 & AY 2010- 11, wherein the primary discount and secondary discount were held to be subject to provisions of section 194H of the Act. However, the Mumbai Tribunal has held that the primary discount and secondary discount provided by the assessee is not in the nature of commission and not subject to TDS under section 194H of the Act. In this regard, the Ld. Counsel for the assessee SH JD Mistry stated that the Tribunal has relied on the decisions of the Hon’ble Bombay High Court in the case of Piramal Healthcare Ltd (230 Taxman 505), Qatar Airways Ltd (332 ITR 253) and Intervet India (P.) Ltd (49 taxmann.com 14/3M ITR 238). Ld. Counsel filed a chart before us in regard to the issues decided by the Tribunal, which reads as under: –
Summary chart for AY 2009-10
