H.T. Media Limited Vs PCIT (Delhi High Court)
Delhi High Court held that rejection of basis adopted by the assessee of the disallowance offered under section 14A after due application of mind and considering the reply furnished by the assessee is acceptable
Facts-
In AY 2012-2013, the Assessee earned dividend income of Rs. 5,80,00,000/-, which was claimed as exempt income u/s. 10(34) of the Act. The Assessee had suo moto disallowed a sum of Rs.1,00,000/- as expenditure towards administrative expenses u/s. 14A of the Act, in respect of the said tax-free income. The Assessing Officer (‘AO’) was not satisfied with the working of the disallowance made by the Assessee and he, therefore, determined a sum of Rs. 1,44,85,000/-as the disallowance towards administrative expenses under Rule 8D(2)(iii) of the Income Tax Rules, 1962 (‘IT Rules’). CIT(A) restricted the disallowance to Rs. 26.70 Lakhs. Whereas, Tribunal worked out disallowance at Rs. 55,12,500/-.
In AY 2013-2014, the Assessee had earned dividend income of Rs. 7.04 Crores and had suo-mouo disallowed Rs.9,75,000/- under Section 14A of the Income Tax Act, towards expenses pertaining to tax free income. The AO being unsatisfied with the suo-motu disallowance by the Assessee towards administrative expenses, determined a sum of Rs .1.15 Crores as the disallowance towards administrative expenses under Rule 8D(2)(iii) of the Income Tax Rules, 1962.
Conclusion-
In the present case as well, a perusal of the record reveals that the AO has applied his mind to the controversy as he firstly examined accounts, secondly duly invited the reply of the Assessee to explain the basis of the disallowance offered by the Assessee and thirdly after examining the explanation of the Assessee has recorded its dissatisfaction after observing that the ‘basis’ adopted by the Assessee for making such an estimate was unclear. The CIT(A) and ITAT, which are the fact finding authorities upon examination of record, have concurred with the said finding of dissatisfaction of the AO.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
The present appeals have been filed under Section 260A of the Income Tax Act, 1961, (‘Act’).
1.1 The Assessee has impugned order dated 22nd February, 2021, passed in ITA No. 4583/Del/2017 for the Assessment Year (‘AY’) 2012-13 in ITA No. 77/2022.
1.2 The Assessee has impugned order dated 26th August, 2021, passed in ITA No.1876/Del/2018 for the AY 2013-14 in ITA No. 95/2022.
AY 2012-13
2. The facts giving rise to the present appeal are that the Appellant, Assessee, had filed its return of income (‘ROI’) for the relevant assessment year, declaring an income of Rs. 198,88,65,682/-. The Assessee earned dividend income of Rs. 5,80,00,000/- in the said year, which was claimed as exempt income under Section 10(34) of the Act. The Assessee had suo moto disallowed a sum of Rs.1,00,000/- as expenditure towards administrative expenses under Section 14A of the Act, in respect of the said tax-free income. The Assessing Officer (‘AO’) was not satisfied with the working of the disallowance made by the Assessee and he, therefore, determined a sum of Rs. 1,44,85,000/-as the disallowance towards administrative expenses under Rule 8D(2)(iii) of the Income Tax Rules, 1962 (‘IT Rules’).
2.1. The Commissioner of Income Tax (Appeals) [‘CIT(A)’] relying upon the judgment of this Court in ACB India Ltd. vs. ACIT, (2015) 374 ITR 108 (Del), restricted the disallowance by ascertaining the amount of total investment and limiting it to the investment from which the tax-exempt dividend was earned. The CIT(A), however, excluded the investment held by the Assessee in its subsidiary company even though it had yielded dividend. The CIT(A), therefore, restricted the disallowance under Rule 8D(2)(iii) to Rs. 26.70 Lakhs.
2.2. The Income Tax Appellate Tribunal (‘Tribunal’) relied upon the judgment of this Court in Assessee’s own case for the AY 2010-11 to uphold the aforesaid disallowance under Rule 8D(2)(iii). However, the Tribunal modified the order of the CIT(A) to the extent it disallowed the value of Assessee’s strategic investment in its subsidiaries for the purpose of computation of disallowance and added the same. The Tribunal held that the said investment held by the Assessee in the subsidiary company has to be considered for the purpose of disallowance, following the judgment of the Supreme Court in Maxopp Investment Ltd. vs. CIT, (2018) 402 ITR 640 (SC). The Tribunal concluded that the disallowance under this Rule works out at Rs. 55,12,500/-. The working of the said disallowance has been set out as under: –
