ACIT CIRCLE 6 1 1 MUMBAI, MUMBAI V. M/S CYQUATOR MEDIA SERVICES PVT LTD, MUMBAI

ITA 4048/MUM/2025

AI Insights

The case involves the Income Tax Department (Revenue) appealing against the order of the learned CIT(A) which had deleted the disallowance made under section 14A read with Rule 8D of the Income Tax Rules, 1962, concerning the Assessment Year 2013-14. The primary issue was the method of disallowance applied by the Assessing Officer, which was contested by the assessee, Cyquator Media Services Pvt. Ltd., on the grounds that it had used only interest-free funds for its investments in tax-free instruments. The Tribunal examined the financial records and previous rulings on similar issues, ultimately siding with the assessee.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 713316 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Assessment Year: 2013-2014
• Other Referred Cases: CIT v. HDFC Bank Ltd. [2014] 366 ITR 505 (Bom), South Indian Bank Ltd. v. CIT [2021] 438 ITR 1 (SC)
• Laws Referred To: Income Tax Act, 1961, Income Tax Rules
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIRABHADRA S MAHAJAN
• Assessee Lawyers: PRATIKSHA JAIN
• Keywords: Gift; Earning of tax free income; Rule 8D
• Section: 143(3); 14A

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, ‘C’ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No.4048/Mum/2025 (Assessment Year :2013-14) ACIT Circle 6(1)(1) Mumbai Vs. M/s. Cyquator Media Services Pvt. Ltd., 18th Floor, Marathon Futurex, N M Joshi Marg Delisle Road S.O. Mumbai – 400 013 PAN/GIR No.AAECP0069P (Appellant) .. (Respondent) Assessee by Shri Pratiksha Jain Revenue by Shri Virabhadra S Mahajan Date of Hearing 29/07/2025 Date of Pronouncement 31/07/2025 आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeal has been filed by the Revenue against the order dated 11/03/2025 for the quantum of assessment passed under section 143(3) for the Assessment Year 2013–14. 2. The only ground raised by the Revenue is in relation to the disallowance made under section 14A read with Rule 8D Printed from counselvise.com ITA No.4048/Mum/2025 Cyquator Media Services Pvt. Ltd., 2 and the corresponding disallowance while computing book profit under section 115JB. 3. The brief facts qua the issue involved are that the assessee company is engaged in selling of advertising space, subscriber management services and other related services. The Assessing Officer noted that the assessee had invested in instruments yielding exempt income. The assessee had made a suomoto disallowance under section 14A read with Rule 8D to the tune of Rs.8,21,54,351/- on exempt income of Rs.36,21,04,362/- earned from investments in Zee Entertainment Enterprises Ltd. (ZEEL). The assessee computed the disallowance under Rule 8D(2)(iii). However, the Assessing Officer, without recording his dissatisfaction as mandated under section 14A(2), proceeded to invoke Rule 8D(2)(ii) and determined the disallowance at Rs.77,69,33,907/-. 4. It was submitted before us that the assessee had acquired Rs.24.14 crore shares of ZEEL in F.Y. 2011–12, of which Rs. 13.08 crore shares were acquired pursuant to amalgamation of Essel Business Process Ltd. (EBPL) with the assessee. These were valued at Rs.1,466.60 crores in the books of the assessee, though originally recorded by EBPL at a nominal Rs.27. EBPL itself had acquired them at nil cost, thus no expenditure much less interest bearing was incurred. 5. In addition, the assessee received 9.62 crore shares of ZEEL as gifts from various group concerns. The remaining Printed from counselvise.com ITA No.4048/Mum/2025 Cyquator Media Services Pvt. Ltd., 3 1.42 crore shares were acquired for Rs.176.47 crores from interest-free funds borrowed from Edison Continental Laboratories Pvt. Ltd. The assessee submitted ledgers, confirmations and bank statements demonstrating that no interest-bearing funds were used. 6. The financials reflected own funds as under (Rs. in lakhs): • Share Capital: 95.00 • Reserves & Surplus: 93,005.08 • Total Interest-Free Funds: 95,100.08 • Total Investments: 17,647.78 7. We have carefully considered the rival submissions, perused the relevant material placed on record, and examined the impugned order of the learned CIT(A) in the light of applicable legal principles and precedents. The core issue involved in the present appeal pertains to the disallowance made under section 14A of the Income Tax Act, 1961, read with Rule 8D of the Income Tax Rules, which was subsequently deleted by the learned CIT(A), both under the normal provisions and while computing book profits under section 115JB. 8. At the outset, it is imperative to underscore that the assessee had, on a suomoto basis, disallowed an amount of Rs.8,21,54,351 under section 14A read with Rule 8D(2)(iii), acknowledging the expenditure incurred in relation to the earning of exempt income. The Assessing Officer, however, proceeded to invoke Rule 8D(2)(ii) as well, thereby enhancing Printed from counselvise.com ITA No.4048/Mum/2025 Cyquator Media Services Pvt. Ltd., 4 the disallowance to Rs.77,69,33,907, without recording any objective dissatisfaction with the assessee’s method of computation, as required under section 14A(2). 9. The factual substratum of the case reveals that the assessee held a substantial investment in the shares of Zee Entertainment Enterprises Ltd. (ZEEL), aggregating to Rs.24.14 crore shares. These shares were acquired through various modes, the most significant of which was by way of amalgamation with Essel Business Process Ltd. (EBPL), pursuant to a scheme sanctioned by the Hon’ble Bombay High Court. Out of the total investment, Rs.13.08 crore shares were acquired from EBPL, which had recorded these shares at a nominal value of Rs.27, having received them at nil consideration. The assessee, in turn, recorded these shares at a fair value of Rs.1,466.60 crores post- amalgamation. It is not in dispute that neither EBPL nor the assessee incurred any interest-bearing expenditure for acquiring these shares. 10. Further, 9.62 crore shares were received by the assessee as gifts from various group concerns, which again involved no cost or borrowing. The remaining 1.42 crore shares were purchased by the assessee for Rs.176.47 crores, financed entirely through interest-free loans received from Edison Continental Laboratories Pvt. Ltd. The ledger account of Edison, confirmations, and bank statements were duly placed on record in preceding years, substantiating that no interest- bearing funds were utilized for these acquisitions. Printed from counselvise.com ITA No.4048/Mum/2025 Cyquator Media Services Pvt. Ltd., 5 11. Moreover, from the financials of the assessee, it is evident that as on 31st March 2013, the assessee was in possession of substantial own funds, comprising share capital and reserves amounting to Rs.95,100.08 lakhs, which far exceeded the value of investments at Rs.17,647.78 lakhs. Therefore, it would be a fallacy to presume that any part of the investment in tax-free instruments was funded through interest-bearing borrowings. 12. The learned CIT(A) has rightly relied upon the binding decisions of the Tribunal in the assessee’s own case for A.Ys. 2014–15 and 2015–16, where the identical issue had arisen and was adjudicated in favour of the assessee. In the decision rendered in ITA No. 1209/Mum/2023 for A.Y. 2014–15, the Tribunal meticulously analysed the nature and source of investments, particularly the shares acquired under amalgamation, and held that no disallowance under Rule 8D(2)(ii) was called for, as there was no utilisation of interest bearing funds. 13. The coordinate bench further observed that the balance investments were amply covered by the assessee’s own capital and free reserves. The Tribunal placed reliance on the decision of the Hon’ble Jurisdictional High Court in CIT v. HDFC Bank Ltd. [2014] 366 ITR 505 (Bom), which held that if the assessee’s own funds are sufficient to cover investments, a presumption arises that the investments were made out of such funds, thereby ruling out disallowance under section Printed from counselvise.com ITA No.4048/Mum/2025 Cyquator Media Services Pvt. Ltd., 6 14A. This view finds further affirmation in the judgment of the Hon’ble Supreme Court in South Indian Bank Ltd. v. CIT [2021] 438 ITR 1 (SC), which enunciates the same principle with authoritative clarity. 14. In the backdrop of the settled legal position and the factual matrix, we find no infirmity in the order of the learned CIT(A) in deleting the disallowance made under section 14A, both under the normal provisions and under section 115JB. The Revenue has not brought on record any cogent material or persuasive reasoning to depart from the findings recorded by the Tribunal in earlier years or to rebut the assessee’s demonstration of non-utilisation of interest-bearing funds. 15. Accordingly, we uphold the order of the learned CIT(A) and dismiss the appeal of the Revenue. 16. In the result, the appeal of the Revenue is dismissed. Order pronounced on 31st July, 2025. Sd/- (GIRISH AGRAWAL) Sd/- (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 31/07/2025 KARUNA, sr.ps Printed from counselvise.com ITA No.4048/Mum/2025 Cyquator Media Services Pvt. Ltd., 7 Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// Printed from counselvise.com "