ITAT Delhi Upholds Deletion Of ₹1.34 Crore Tax Addition Against NDTV

The Income Tax Appellate Tribunal (ITAT) at Delhi on Friday upheld relief granted to New Delhi Television Ltd. (NDTV) in a dispute over a Rs 1.34 crore disallowance under Section 14A of the Income Tax Act for the assessment year 2010–11.

The tribunal held that expenditure cannot be disallowed under the provision where the taxpayer has not earned any tax-exempt income during the relevant year.

A bench comprising Judicial Member Madhumita Roy and Accountant Member Manish Agarwal dismissed the Income Tax Department's appeal challenging the deletion of the disallowance.

Section 14A of the Income Tax Act bars deduction of expenditure incurred in relation to income that does not form part of total income under the Act, such as certain tax-exempt dividends or income from tax-free investments.

In NDTV's case, the Assessing Officer invoked Section 14A on the ground that the company had made investments in shares and securities capable of generating exempt income. On this basis, the officer disallowed ₹1.34 crore as expenditure attributable to those investments.

The tribunal noted that although NDTV had made such investments, the company had not earned any exempt income during the relevant year.

“In the instant case, AO has made disallowance of INR 1,34,19,838/- by invoking the provisions of section 14A of the Act, ignoring the fact that assessee had not earned any exempt income during the year under appeal. Though it had made investments in shares and securities but since no exempt income was earned, thus in terms of the judgment of Hon'ble High Court of Delhi in the case of Cheminvest vs CIT (supra), no disallowance could be made NDTV, which operates television news channels including NDTV 24x7, NDTV India and NDTV Profits, had filed its income tax return for the Assessment Year 2010–11 declaring a loss of ₹20.18 crore.", the tribunal observed.

The case was selected for scrutiny, and the tax department issued a draft assessment order proposing several additions and disallowances. Among the proposed additions in the draft assessment order was a Rs 1.34 crore disallowance under Section 14A read with Rule 8D of the Income Tax Rules.

According to the assessing officer, NDTV had invested in shares and securities that could potentially generate tax-exempt income. On that basis, a portion of the company's expenditure was attributed to those investments and disallowed.

NDTV disputed this before the Dispute Resolution Panel (DRP). The company argued that Section 14A could not be invoked because it had not earned any exempt income during the relevant assessment year.

The DRP agreed and directed the tax authorities to drop the disallowance.

The revenue carried the issue to the tribunal. It argued that the purpose of Section 14A was to prevent deduction of expenses connected with investments capable of producing tax-free income, regardless of whether such income was actually earned in that year.

The tribunal did not accept that position. Referring to the Delhi High Court's ruling in Cheminvest v. CIT, it reiterated that the provision cannot be applied where no exempt income is earned in the relevant year.

The bench also noted that similar disallowances had been deleted in NDTV's own cases for earlier assessment years, including 2008–09 and 2009–10.

The tribunal was dealing with cross appeals filed by NDTV and the Revenue arising from the same assessment order.

“Thus, by respectfully following the judgement of Hon'ble Delhi High Court and of the Co-ordinate Bench of Tribunal in the case of assessee itself for immediately preceding assessment years, we find no error in the order of Ld. DRP in deleting the disallowances made by AO u/s 14A of the Act after invoking the provisions of section 14A of the Act. Accordingly, Grounds of appeal Nos. 1 to 3 raised by the Revenue are dismissed," the tribunal said while dismissing the Revenue's appeal on the issue.

While the revenue's appeal challenging the deletion of the Section 14A disallowance and certain other additions was dismissed, NDTV succeeded on its claim relating to the disallowance of employee stock option plan (ESOP) expenses.

The tribunal allowed the company's appeal on that issue by directing deletion of the addition made by the Assessing Officer. Other transfer pricing issues raised by NDTV were however, not accepted