Addl. CIT, Special Range- 9, New Delhi V. Times Internet Ltd., New Delhi

ITA 4418/DEL/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 7878 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2012-2013
• Appeal Filed On: 03-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAKASH DUBEY
• Assessee Lawyers: MUKESH GUPTA CA MS NEHA
• Keywords: Depreciation; Earning of tax free income; Wholly owned subsidiary; TDS; Rule 8D
• Section: 14A; 13

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI G BEN CH, NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER, AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ITA NO. 4418/DEL/2017 [ASSESSMENT YEAR: 2012-13] THE ADDL. C.I.T. VS. M/S TIMES INTERNET LTD SPECIAL RANGE 10, DARYA GANJ, NEW DELHI NEW DELHI PAN: AABCT 1559M [APPELLANT] [RESPONDENT] DATE OF HEARING : 30.03.2021 DATE OF PRONOUNCEMENT : 30.03.2021 ASSESSEE BY : SHRI MUKESH GUPTA, CA MS. NEHA, CA REVENUE BY : SHRI PRAKASH DUBEY, SR. DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER:- THIS APPEAL BY THE REVENUE IS PREFERRED AGAINST THE ORDER OF THE LD. CIT(A) - 9, NEW DELHI DATED 24.03.2017 PERTAINI NG TO A.Y 2012-13. 2 2. THE GRIEVANCES OF THE REVENUE READ AS UNDER: 1. THAT THE LD. CIT (A) HAS ERRED ON FACTS AND LAW IN IGNORING THE LEGISLATIVE INTENTION BROUGHT FORWARD BY CIRCUL AR NO. 5/2014 THAT THE DISALLOWANCE U/S 14A ARE ALLOWED EVEN IF N O EXEMPT INCOME IS EARNED. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE T HE LD.CIT(A) HAS ERRED IN DELETING DISALLOWANCES OF EXPENSES OF RS. 1,89,45,379/- BY NOT ADJUDICATING ENTIRELY ON MERITS ON THE COGENT R EASONS BROUGHT ON RECORD BY THE AO IN THE ASSESSMENT ORDER JUSTIFY ING THE DISALLOWANCES. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE T HE LD.CIT(A) HAS ERRED IN DELETING DISALLOWANCE MADE ON ACCOUNT OF D EPRECIATION ON SOFTWARE LICENCES @ 25% BY RELYING ON THE ORDER OF HIS PREDECESSOR AND WITHOUT ASSIGNING ANY SPECIFIC REAS ONS. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE T HE LD. CIT(A) HAS ERRED IN DELETING DISALLOWANCE MADE ON ACCOUNT OF DEPRECIATION ON SOFTWARE LICENCES BY CATEGORIZING BETWEEN SOFTWA RE AS INTEGRAL AND UTILITY ON ARBITRARY ASSUMPTIONS. 3 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONDUCTING ITS BUSINESS OF RENDERING VARIOUS ACTIVITIES AND SALE OF WEB SPACE FOR ADVERTISEMENT THROUGH ITS WEB PORTALS IN THE NAME OF INDIATIMES.COM. THE ASSESSE E IS ALSO PROVIDING E-COMMERCE I.E. SALE OF GOODS THROUGH WEB PORTAL. THE ASSESSEE COMPANY IS A WHOLLY OWNED SUBSIDIARY OF M/S BENNETT COLEMAN & CO. LTD, TIMES OF INDIA GROUP [BCCL]. 4. THE ORIGINAL RETURN OF INCOME WAS E-FILED ON 17. 09.2012 DECLARING TOTAL LOSS OF RS 40.33 CRORES, WHICH WAS REVISED ON 22.04.2013. REVISED INCOME/LOSS WAS THE SAME, BUT THE FIGURE OF TDS CLA IM AS PER 26AS WAS REVISED. THE RETURN WAS SELECTED FOR SCRUTINY AND, ACCORDINGLY, STATUTORY NOTICE WAS ISSUED AND SERVED UPON THE ASS ESSEE COMPANY. 5. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEED INGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS EAR NED DIVIDEND INCOME OF RS. 3,67,35,594/- WHICH WAS CLAIMED AS EXEMPT. THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY DISALLOWANCE U/S 14A OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT] READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 SHOULD NOT BE MADE . 4 6. IN ITS REPLY, THE ASSESSEE STATED IT HAS NOT MAD E ANY INVESTMENT FOR THE PURPOSE OF EARNING DIVIDEND. THE INVESTMEN T IS MAINLY FOR STRATEGIC BUSINESS REASONS AND, THEREFORE, NO DISAL LOWANCE U/S 14A OF THE ACT R.W.R. 8D OF THE RULES IS CALLED FOR. 7. REPLY OF THE ASSESSEE WAS CONSIDERED BUT WAS NOT ACCEPTED BY THE ASSESSING OFFICER WHO WAS OF THE FIRM BELIEF TH AT FOR EARNING EXEMPT INCOME, CERTAIN EXPENSES NEED TO BE DISALLOW ED AS PER PROVISIONS OF SEC. 14A OF THE ACT R.W.R. 8D OF THE RULES. THE ASSESSING OFFICER, ACCORDINGLY, COMPUTED THE DISALLOWANCE AT RS. 20,84,878/-. 8. PROCEEDING FURTHER, THE ASSESSING OFFICER NOTICE D THAT THE ASSESSEE HAS CLAIMED EXPENSES OF RS. 1,89,45,379/- OUT OF TOTAL EXPENSES CLAIMED. 9. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEED INGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CAR RIED ON THE ACTIVITY OF SALE OF CONTENTS ON BEHALF OF BCCL FROM A.YS 200 1-02 TO 2005-06. ACCORDING TO THE ASSESSING OFFICER, UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION CLAIM OF ONLY THOSE EXPENS ES CAN BE ALLOWED WHICH HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF 5 BUSINESS. THE ASSESSING OFFICER WAS OF THE FIRM BE LIEF THAT THE ALLEGED EXPENSES WERE PARTLY INCURRED FOR THE BUSINESS OF B CCL AND ACCORDINGLY, DISALLOWED 62.8% OF THE RECEIPT AND MA DE ADDITION OF RS. 1,89,45,379/-. 10. PROCEEDING FURTHER, THE ASSESSING OFFICER NOTIC ED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION @ 60% ON SOFTWARE . THE ASSESSING OFFICER WAS OF THE FIRM BELIEF THAT THE ELIGIBLE RA TE OF DEPRECIATION WAS 25% AND, ACCORDINGLY, RESTRICTED THE CLAIM OF DEPRE CIATION ON SOFTWARE @ 25% AND MADE ADDITION OF RS. 32,12,253/-. 11. THE ASSESSING OFFICER FURTHER NOTICED THAT THE ASSESSEE HAS CLAIMED SOFTWARE EXPENSES OF RS. 1,79,30,749/- AS R EVENUE IN NATURE. THE ASSESSING OFFICER WAS OF THE FIRM BELIEF THAT S UCH EXPENSES WERE OF CAPITAL IN NATURE AND ALLOWING DEPRECIATION @ 25% M ADE ADDITION OF RS. 1,34,48,062/-. 12. THE ASSESSEE STRONGLY ASSAILED THE ASSESSMENT ORDER BEFORE THE LD. CIT(A). 6 13. THE LD. CIT(A), THOUGH CONVINCED THAT THE DISAL LOWANCE NEEDS TO BE MADE U/S 14A OF THE ACT R.W.R. 8D OF THE RULES, HOWEVER, SINCE THE ASSESSEE HAS RECEIVED DIVIDEND INCOME FROM ONLY ONE COMPANY, NAMELY, TIMES OF MONEY LTD, DIRECTED THE ASSESSING OFFICER TO RECOMPUTE THE DISALLOWANCE U/R 8D OF THE RULES CONS IDERING ONLY THAT INVESTMENT WHICH HAS YIELDED EXEMPT INCOME. 14. BEFORE US, THE LD. DR STRONGLY SUPPORTED THE FI NDINGS OF THE ASSESSING OFFICER. 15. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE RE ITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. 16. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW. IT IS TRUE THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME WHICH HAS BEEN CLAIMED AS EXEMPT. IT IS EQU ALLY TRUE THAT CERTAIN EXPENSES NEED TO BE DISALLOWED U/S 14A OF T HE ACT R.W.R. 8D OF THE RULES. THERE IS NO DISPUTE THAT THE ASSESSEE H AS RECEIVED DIVIDEND INCOME ONLY FROM ONE COMPANY, NAMELY, TIMES OF MONE Y LTD. WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSING OFFICER S HOULD HAVE CONSIDERED ONLY THOSE INVESTMENTS WHICH YIELDED EXE MPT INCOME. WE 7 FIND THAT THE DIRECTIONS OF THE LD. CIT(A) ARE IN C ONSONANCE WITH THE PROVISIONS OF THE LAW. WE, THEREFORE, DO NOT FIND ANY REASON TO INTERFERE WITH THE SAME. 17. IN SO FAR AS THE DISALLOWANCE OF RS. 1,89,45,37 9/- IS CONCERNED, THE LD. CIT(A) NOTICED THAT SIMILAR ISSUES WERE CON SIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN A.YS 2006-07 TO 2008-09 AND FOLLOWING THE FINDINGS OF THE TRIBUNAL, THE LD. CIT (A) DELETED THE SAME. 18. THE LD. DR COULD NOT BRING ANY DISTINGUISHING D ECISION IN FAVOUR OF THE REVENUE. 19. WE FIND THAT THE TRIBUNAL, IN ITA NO.2986, 4130 & 4132/DEL/2011, VIDE A CONSOLIDATED ORDER FOR A.YS 2 006-607 TO 2008-09 HAS DELETED THE DISALLOWANCE. THE RELEVANT FINDING S OF THE TRIBUNAL READ AS UNDER: GROUND NO.1 OF THE REVENUES APPEAL IS AGAINST THE DELETION OF DISALLOWANCE OF RS. 16,12,31,000/-. THE FACTS APROP OS THIS GROUND ARE THAT THE AO OBSERVED THAT THE ASSESSEE DECLARED REVENUE RECEIPTS OF RS.112.97 CRORE FOR THE CURRENT YEAR AS AGAINST THE 8 REVENUE RECEIPTS OF RS. 124.67 CRORE FOR THE IMMEDI ATELY PRECEDING YEAR. THE ASSESSEE WAS FOUND TO HAVE INCURRED EXPEN DITURE DURING THE INSTANT YEAR AT RS. 1230.02 CRORE AS AGAINST TH E EXPENDITURE OF RS. 94.80 CRORE IN THE PRECEDING YEAR. ON THE PERUS AL OF DETAILS IT WAS OBSERVED THAT THE ASSESSEE HAD NOT SHOWN ANY IN COME DURING THE YEAR IN RESPECT OF (I) MEDIANET: (II) CONTENT S ELLING: AND (III) SALE OF STANDALONE PUBLICATION. ON BEING CALLED UPON TO EXPLAIN THE REASONS FOR NOT SHOWN INCOME FROM THESE SOURCES, TH E ASSESSEE STATED THAT THE MEDIANET BUSINESS CONSISTED OF A PR BRAND WHICH WAS MANAGED BY THE ASSESSEE COMPANY ON BEHALF OF IT S HOLDING COMPANY, BENETT COLEMAN AND CO. LTD TILL 30.09.2004 . THE HOLDING COMPANY WITHDREW THIS RIGHT FROM THE ASSESSEE COMPA NY FROM 30.09.2004 AND HANDED OVER THIS BUSINESS TO A NEW G ROUP COMPANY CALLED OPTIMAL MEDIA SOLUTIONS LTD. AFTER THE TERMI NATION OF THIS LINE OF BUSINESS IN THE IMMEDIATELY PRECEDING YEAR, THE ASSESSEE CLAIMED NOT TO HAVE BEEN ENGAGED IN RENDERING ANY S ERVICES RELATING TO MEDIANET BUSINESS. THE ASSESSEE ALSO FURNISHED P ARTICULARS OF INCOME EARNED BY NEW COMPANY, M/S OPTIMAL MEDIA SOL UTIONS LT., FROM THE BUSINESS. SIMILARLY, REGARDING THE SALE OF CONTENTS, THE ASSESSEE SUBMITTED THAT THIS BUSINESS HITHERTO ENTR USTED TO THE ASSESSEE BY ITS HOLDING COMPANY WAS WITHDRAWAN W.E. F 1.10.2004. 9 NECESSARY COMMUNICATIONS WITHDRAWING THE ABOVE BUSI NESS FROM THE ASSESSEE WERE ALSO FURNISHED TO THE AO. IN THIS BACKDROP OF THE FACTS, THE AO NOTICED THAT ALBEIT SUCH BUSINESS ES WERE NOT CARRIED ON BY THE ASSESSEE DURING THE YEAR, THE OVE RALL EXPENSES OF THE ASSESSEE WERE STILL ON NORTHWARDS SOJOURN. THIS WAS HELD ON THE STRENGTH OF THE PERCENTAGE OF THE EXPENSES TO REVEN UE AT 62.85 FOR THE AY 2004-05 WHEN THE ASSESSEE WAS HAVING THE SE BUSINESS: DURING THE ASSESSMENT YEAR 2005-06 WHEN THESE BUSIN ESSES REMAINED WITH THE ASSESSEE FOR A PART OF THE YEAR, THE PERCENTAGE OF EXPENSES WENT UP TO 73.5%; AND DURING THE YEAR U NDER CONSIDERATION WHEN THESE BUSINESSES WERE NOT AT ALL CARRIED ON BY THE ASSESSEE, THE PERCENTAGE OF EXPENSES INCREASED TO 107.8%. THE AO INFERRED THAT THOUGH: THERE IS NO INCOME ON THE ACCOUNT OF THESE TWO BUSINESSES TO THE ASSESSEE, BUT, STILL , IT IS INCURRING EXPENSES FOR THESE TWO BUSINESSES. APPLYING THE PE RCENTAGE OF EXPENSES AT 62.8% AS RELEVANT FOR THE AY 2004-05, T HE AO MADE DISALLOWANCE FOR THE REMAINING EXPENSES OF RS. 16,1 2,31,000/-. THIS DISALLOWANCE WAS DELETED IN THE FIRST APPEAL. THE R EVENUE IS AGGRIEVED AGAINST SUCH DELETION. HAVING HEARD THE R IVAL SUBMISSIONS IN THE LIGHT OF THE MATERIAL PLACED ON RECORD, IT I S OBSERVED THAT THE AO MADE THE DISALLOWANCE BY RETAINING THE PERCE NTAGE OF 10 EXPENSES TO THE REVENUE AT 62.8%>. THIS WAS DONE IN ACCORDANCE WITH THE PERCENTAGE OF EXPENSES INCURRED BY THE ASS ESSEE FOR THE A Y 2004-05 WHEN THE ASSESSEE WAS HAVING THESE BUSI NESS FROM ITS HOLDING COMPANY. SUCH BUSINESSES WERE WITHDRAWN BY THE HOLDING COMPANY FROM THE ASSESSEE W.E.F 1.10.2004. THE OPIN ION OF THE AO THAT THOUGH THERE WAS NO INCOME TO THE ASSESSEE FRO M THESE BUSINESSES, STILL IT WAS INCURRING EXPENSES FOR THE M, IS UNFOUNDED. ON A SPECIFIC QUERY, THE ID. DR FAILED TO DRAW OUR ATTENTION TOWARDS ANY SPECIFIC EXPENDITURE INCURRED BY THE AS SESSEE QUA THESE BUSINESSES WITHDRAWN BY THE HOLDING COMPANY. THE AO MADE DISALLOWANCE OF RS.16.12 CRORE SIMPLY BY MEANS OF A MATHEMATICAL EXERCISE CARRIED OUT BY HIM. IF HE FOUND THE EXPEND ITURE INCURRED BY THE ASSESSEE TO BE ON HIGHER SIDE, IT WAS INCUMB ENT UPON HIM TO SPECIFICALLY POINT OUT AS TO W HICH EXPENSES WERE NOT INCURRED FOR THE PURPOSES OF BUSINESS. NO SUCH EXERCISES WORTH T HE NAME HAS BEEN CARRIED OUT. IN OUR CONSIDERED OPINION, THE LD . CIT(A) WAS FULLY JUSTIFIED IN DELETING THIS ADDITION MADE BY T HE AO ON AD HOC BASIS. THIS GROUND IS THEREFORE, NOT ALLOWED. 20. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-O RDINATE BENCH, WE DECLINE TO INTERFERE. 11 21. THE NEXT GRIEVANCE OF THE REVENUE RELATES TO DE LETION OF DISALLOWANCE OF RS. 32,12,253/-. 22. THE ASSESSING OFFICER HAS TAKEN A VIEW THAT THE EXPENDITURE TOWARDS SOFTWARE IS ELIGIBLE FOR DEPRECIATION @ 25% INSTEAD OF 60%. 23. THE LD. CIT(A) FOUND THAT SIMILAR ISSUE WAS DEC IDED BY HIS PREDECESSOR IN A.Y 2009-10 IN FAVOUR OF THE ASSESS EE. FOLLOWING THE FINDINGS, THE LD. CIT(A) DELETED THE DISALLOWANCE. 24. THE LD. DR STRONGLY SUPPORTED THE FINDINGS OF T HE ASSESSING OFFICER. 25. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHA T HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. 26. WE FIND THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN THE ORDER FOR A.Y 2006-07 TO 2008-09 [SUPRA]. SINCE THE FIRST APPELLATE AUTHORITY HAS FOLLOWED TH E BINDING DECISION OF THE CO-ORDINATE BENCH, WE DECLINE TO INTERFERE. 12 27. SIMILAR WOULD BE THE FATE OF THE DISALLOWANCE M ADE ON ACCOUNT OF DEPRECIATION ON SOFTWARE LICENSES. 28. WE FIND THAT THE SAME WAS DELETED BY THE LD. CI T(A) FOLLOWING THE FINDINGS OF THE TRIBUNAL IN A.YS 2006-07 TO 200 8-09 WHEREIN THE CO- ORDINATE BENCH HAS FOLLOWED THE ORDER OF THE HON'BL E DELHI HIGH COURT IN ASSESSEES OWN CASE FOR A.YS 2004-05 AND 2005-06 . SINCE THE DELETION HAS BEEN MADE FOLLOWING HIS PREDECESSOR, W E DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDINGS OF THE LD. CIT(A ). 29. IN THE RESULT, THE APPEAL FILED BY THE REVENU E IN ITA NO. 4418/DEL/2017 IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT IN THE PR ESENCE OF BOTH THE REPRESENTATIVES ON 30.03.2021. SD/- SD/- (BHAVNESH SAINI) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 30 TH MARCH, 2021. VL/ 13 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT ASST. REGISTRAR 4. CIT(A) ITAT, NEW DELHI 5. DR DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P S/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER