Citation Codes

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Case Number

I.T.A. No. 7984/DEL/2018 (A.Y. 2015-16)

Disposition

in part

Attorney(S)

Sh. V. P. Gupta, Adv, ;
Sh. Ratan Singh, Sr. DR,

Judges

N.K. Billaiya, A.M.
Yogesh Kumar US, J.M.

Acts

INCOME TAX ACT
Rule 8D of Income-tax Rules
Rule 8D(2)(iii) of the Income Tax Rules
u/s 14A of IT Act R/w Rule 8D (2) (iii) of Rules
Rule 8D (2) (ii) of IT Rules
u/s 14A read with Rule 8D of Income- tax Rules

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Smart Summary

Concise Analytical Summary of the Opinion — ITA No. 7984/Del/2018 (A.Y. 2015-16)

Factual and Procedural Background

This is an appeal filed by the assessee, HT Media Ltd., against the order dated 20/09/2018 passed by the CIT(A)-35, New Delhi for Assessment Year 2015-16. The appeal was heard through video conferencing before a Bench comprising Shri N. K. Billaiya, Accountant Member, and Shri Yogesh Kumar US, Judicial Member (order pronounced 08/03/2022; hearing on 24/02/2022). The grounds challenge disallowances made by the Assessing Officer under section 14A and Rule 8D of the Income-tax Rules, including a challenged disallowance of Rs. 2,75,13,769/- (in addition to an amount of Rs. 13,75,000/- referred to by the appellant).

The Tribunal noted that similar issues had been considered by a Coordinate Bench of the Tribunal in ITA No. 1876/Del/2018 (Order dated 26/08/2021) and that the matter involved interplay with decisions of the Supreme Court and the Delhi High Court (including Maxopp Investment Ltd. v. CIT and a Delhi High Court order dated 29.03.2019 in the assessee's own case).

Legal Issues Presented

Whether the disallowance under section 14A read with Rule 8D of the Income-tax Rules was correctly made by the Assessing Officer and upheld by the CIT(A), particularly whether investment in the subsidiary should be included while computing average investments for Rule 8D.
Whether the Assessing Officer recorded the requisite satisfaction under section 14A before applying Rule 8D (i.e., whether the statutory pre-condition for applying Rule 8D had been met).
Whether any disallowance on account of interest expenditure is permissible when borrowed funds were not used for making investments yielding exempt income (i.e., apportionment of interest under section 14A/R.8D).
Whether the suo moto disallowance of administrative expenses made by the appellant in its return (Rs. 13,75,000) precluded the Assessing Officer from applying the ad-hoc approach under Rule 8D to determine administrative expenses disallowance.
Whether an alternate computation based on average investments that yielded exempt income (producing an alleged figure of Rs. 28,47,500 at 0.5%) should limit the disallowance to that amount.

Arguments of the Parties

Appellant's Arguments

The CIT(A) wrongly upheld the Assessing Officer's disallowance of Rs. 2,75,13,769/- in addition to Rs. 13,75,000/-, applying Rule 8D without properly considering the appellant's contentions.
The CIT(A) erred by relying on the Supreme Court decision in Maxopp Investment Ltd. v. CIT (2018) 402 ITR 640 (SC), which, the appellant contended, was not applicable to its facts and circumstances.
The Assessing Officer had not recorded the mandatory satisfaction under section 14A; therefore Rule 8D should not have been applied.
No disallowance on account of interest could be made because no borrowed funds were utilized for investments that generated exempt income; prior decisions in earlier years supported this position.
The appellant had itself made a suo moto disallowance of administrative expenses in its return (Rs. 13,75,000) based on calculations not rejected by the AO; consequently an ad-hoc Rule 8D disallowance should not be applied.
As an alternate contention, restricting the computation to average investments that generated exempt income would yield a lower disallowance (asserted by the appellant as Rs. 28,47,500 at 0.5%), and the disallowance ought to be limited to that amount.

The opinion does not set out detailed, separate arguments advanced on behalf of the Revenue in the text of the order beyond the presence of the Senior DR.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Maxopp Investment Ltd. v. Commissioner of Income Tax, (2018) 402 ITR 640 (SC)	Determination that investments in subsidiary companies are to be considered for the purpose of disallowance under Rule 8D (i.e., inclusion of such investments when computing average investments for Rule 8D).	The Tribunal applied Maxopp to reverse the CIT(A)'s exclusion of the average investment in the subsidiary and directed that investment made in the subsidiary be included while re-computing the Rule 8D disallowance (see paras referencing inclusion and reversal of exclusion).
ACB India Ltd. v. ACIT, (2015) 374 ITR 108 (Del.)	Principle that disallowance u/s 14A (as computed under Rule 8D) should, for certain elements, be confined to investments that derived tax-exempt income.	The Tribunal relied on ACB India Ltd. for the proposition that the calculation of disallowance can be confined to investments that derived tax-exempt income (this formed part of the analytical framework used by the Tribunal and Coordinate Bench).
Order of the Delhi High Court in HT Media Ltd.'s own case (ITA No. 281/2019) dated 29.03.2019	Consideration of two aspects: (i) calculation of average investments confined to income-generating investments, and (ii) exclusion of tax-exempt income derived from strategic investments; the High Court set aside the ITAT's observations regarding exclusion of strategic investments in light of Maxopp but upheld ITAT's position on confinement to income-generating investments per ACB.	The Tribunal followed the High Court's clarifications: it set aside the ITAT observations to the extent they excluded income derived from strategic investments (per Maxopp) but accepted the confinement of disallowance to investments that generated exempt income per the ACB ruling. The Tribunal used this High Court order to guide recomputation and to reverse the CIT(A)'s exclusion of subsidiary investments.
Reported decision referenced as "assessee's own case reported in 399 ITR 576" (Hon'ble Jurisdictional High Court)	Consideration of the interest disallowance question where the facts showed loans were taken for specific business/project purposes, supporting the view that apportionment of interest under section 14A does not arise if loans were not used for investments yielding exempt income.	The Tribunal relied on this High Court consideration to conclude that the Assessing Officer had not disputed the fact that loans were taken for specific purposes and that, consequently, disallowance on account of interest expenditure under Rule 8D(2)(ii) was not warranted; grounds on interest were allowed accordingly.
Coordinate Bench Order — ITA No. 1876/Del/2018 (Order dated 26.08.2021)	Recent Tribunal treatment of similar issues in the assessee's own case, applying the High Court and Supreme Court decisions to direct recomputation and to decide treatment of interest disallowance.	The present Bench respectfully followed that Coordinate Bench order and remitted the computation under Rule 8D(2)(iii) to the Assessing Officer for re-computation (including subsidiary investments) and allowed the grounds relating to interest expenditure in line with the Coordinate Bench reasoning.

Court's Reasoning and Analysis

The Tribunal's analysis proceeded by reference to earlier, directly-relevant authorities and a Coordinate Bench order dealing with substantially similar issues. The key steps in the Court's reasoning are:

The Tribunal observed that the legal position concerning inclusion or exclusion of certain investments when computing average investments under Rule 8D had been considered in the Supreme Court's decision in Maxopp and in a subsequent Delhi High Court order in the assessee's own case (ITA No. 281/2019 dated 29.03.2019). The High Court had set aside the ITAT's exclusion of income derived from strategic investments in light of Maxopp, while retaining the principle that the calculation may be confined to investments that actually generated tax-exempt income (following ACB India Ltd.).
Applying Maxopp, the Tribunal concluded that the CIT(A)'s exclusion of the average investment in the subsidiary (Rs. 56.85 crores as stated in the order) was not sustainable; the Tribunal therefore directed inclusion of the subsidiary investment while recomputing disallowance under Rule 8D. The Coordinate Bench's computations showed that inclusion increased the disallowance (the order gives figures showing disallowance at 0.5% as Rs. 55,12,500 in the revised computation).
On the question of interest expenditure (Rule 8D(2)(ii)), the Tribunal examined the factual record and noted that the Assessing Officer had not disputed that loans were taken for specific business/project purposes and that no material showed diversion of borrowed funds to make investments yielding exempt income. The Tribunal also observed that the overall investment position did not indicate fresh funds were used for investments (total investment at 31.03.2013 was less than at 31.03.2012; sale proceeds exceeded purchases), and that the AO had not made interest disallowances in preceding years.
Given these facts and the High Court consideration reported at 399 ITR 576, the Tribunal concluded that apportionment of interest under section 14A (and Rule 8D(2)(ii)) was not warranted and therefore allowed the appellant's ground relating to interest expenditure.
Overall, the Tribunal followed the Coordinate Bench decision (ITA No.1876/Del/2018) and remitted the computation under Rule 8D(2)(iii) to the Assessing Officer for re-computation (including subsidiary investments) while allowing the challenge to interest-related disallowance under Rule 8D(2)(ii).

Holding and Implications

Holding: The Tribunal APPEAL IS PARTLY ALLOWED (for statistical purposes).

Immediate consequences for the parties:

The matter relating to disallowance under section 14A read with Rule 8D(2)(iii) (administrative expenses tied to investments) is remitted to the Assessing Officer for re-computation in accordance with the legal position described in the order (including the inclusion of investments made in the subsidiary company as directed under Maxopp and as clarified by the Delhi High Court and Coordinate Bench reasoning).
The grounds challenging disallowance under Rule 8D(2)(ii) (interest expenditure) were allowed: the Tribunal found no basis for apportionment of interest where loans were taken for specific business/project purposes and not used for making investments yielding exempt income; accordingly, the disallowance on account of interest was deleted.

Broader implications:

The Tribunal applied and followed existing higher-court authority (Maxopp and the Delhi High Court's subsequent clarifications) and a Coordinate Bench decision; it did not purport to lay down a new principle of law. The decision's effect is procedural and case-specific: it directs recomputation by the Assessing Officer consistent with cited authorities and resolves the interest apportionment issue in favour of the assessee on the facts before it.

Order pronounced in open court on 08/03/2022. Copy directions and list of recipients appear at the end of the opinion (appellant, respondent, CIT, CIT(Appeals), DR: ITAT, Assistant Registrar, ITAT New Delhi).

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Ht Media Ltd. v. Additional Commissioner Of Income Tax Range-4, C.R. Building .

1 ITA No. 7984/Del/2018 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: 'C' NEW DELHI

BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER

AND

SH. YOGESH KUMAR US, JUDICIAL MEMBER

I.T.A. No. 7984/DEL/2018 (A.Y 2015-16)

(THROUGH VIDEO CONFERENCING)

HT Media Ltd. 18-20, Kasturba Gandhi Marg, New Delhi PAN No. AABCH3165P (APPELLANT)	Vs	Addl. CIT Range-4, C. R. Building, New Delhi (RESPONDENT)
Appellant by	Sh. V. P. Gupta, Adv

Respondent by	Sh. Ratan Singh, Sr. DR
Date of Hearing	24.02.2022
Date of Pronouncement	08.03.2022

ORDER

PER YOGESH KUMAR US, JM

This appeal is filed by the assessee against the order dated 20/09/2018 passed by the CIT(A)-35, New Delhi for Assessment Year 2015-16.

2. The grounds of appeal are as under:- "1. That the CIT(A) erred in upholding disallowance made by the Assessing Officer of Rs.2,75,13,769/- in addition to

disallowance of Rs. 13,75,000/- made by the appellant

company in the return of income u/s 14A read with Rule 8D of Income- tax Rules without properly considering and adjudicating the contentions of the company and by wrongly relying on the decision of Hon'ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT (2018) 402 ITR 640 (SC), which is not applicable to the facts & circumstances of the appellant company.

2. That the CIT(A) erred in not appreciating that the Assessing Officer had not recorded proper satisfaction in terms of section 14A of Income-tax Act, which is mandatorily required to be recorded considering the facts of the assessee and, therefore, the basis provided in Rule 8D of Income-tax Rules could not be applied.

3. That the CIT(A) also failed to appreciate that no disallowance on account of interest could be made in the case of the appellant company as no borrowed funds had been utilized for the purpose of investments and to this extent CIT

(A) erred in not following the holdings of CIT(A), ITAT and of High Court in earlier years.

4. That the CIT(A) also erred in not appreciating that the appellant had made suo moto disallowance on account of administrative expenses in it's return of income of Rs. 13,75,000/- on the basis of calculations of administrative expenses incurred by it, which calculations had not been rejected by the Assessing Officer and, therefore, ad-hoc basis provided in Rule 8D could not be applied for determining the disallowance on account of administrative expenses in the case of the appellant.

5. That the CIT(A) also erred in not considering and adjudicating the alternate contention of the appellant company that on the basis of average investments on which exempt income was received during the year, disallowance on account of administrative expenses as per Rule 8D worked out to be Rs.28,47,500/- at 0.5% and, therefore, disallowance on account of administrative expenses ought to have been restricted to the aforesaid amount.

6. That the order passed by CIT(A) is bad in law and, therefore, deserves to be quashed and addition made by the Assessing Officer needs to be deleted.

3. We have heard Ld. Counsel for the appellant and also the Ld. Sr. DR for the respondent. The similar issues involved in the present Appeal had came up for consideration before this Tribunal in Assessee's own case in ITA No. 1876/Del/2018. The Tribunal vide Order dated 26/08/2021, held as follows:

"13. We have considered the rival submissions as well as relevant material on record. So far as the issue of excluding the investment made in the subsidiary company while computing the average investment for the purpose of disallowing the indirect administrative expenses under Rule 8D(2)(iii) of the Income Tax Rules the issue is now covered by the decision of Hon'ble Supreme Court in the case of Maxopp Investment Vs. CIT (supra) as well as the decision dated 29.03.2019 of Hon'ble Jurisdictional High Court

in assessee's own case in ITA No. 281/2019. This Tribunal for the AY 2012-13 has considered this issue in para 6 & 7 as under:

"6. At the outset, the Counsels fairly brought to the notice of the Bench, the order of the Hon'ble Jurisdictional High Court clarifying the exclusion of income derived from strategic investments for the purpose of computation of disallowance. The order of the Hon'ble High Court is as under:

IN THE HIGH COURT OF DELHI AT NEW DELHI

ITA 281/2019 & CM APPL. 14303/2019 THE PR. COMMISSIONER OF INCOME TAX-4 ............Appellant Through : Mr. Ruchir Bhatia, Sr. Standing Counsel. Versus

H.T. MEDIA LTD. ............... Respondent Through : Mr. V.P. Gupta and Mr. Arunav Kumar, Advs.

CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE PRATEEK JALAN

ORDER

29.03.2019

"The question urged by the Revenue in its appeal is with respect to the correctness of the remand made by the ITAT in its impugned order; the remand was on two aspects i.e. the calculation of average investments (confined to the income generating part thereof) and the exclusion of tax exempt income derived from strategic investments.

The observation of the ITAT on the latter aspect, i.e. exclusion of tax exempt income derived from a strategic investments, is not a correct view in the light of the decision of the Supreme Court in Maxopp Investment Ltd. Vs. Commissioner of Income Tax, (2018) 402 ITR 640. Accordingly, the observations of the ITAT on this aspect are set aside. However, its observations with respect to the calculation of disallowance u/s 14A being confined to investments that derived tax exempt income are valid in the light of the Division Bench ruling in ACB India Ltd. Vs. ACIT, (2015) 374 ITR 108 (Del.). In view of the above clarification, the ITAT's order, to the extent that it makes observations with respect to exclusion of income derived from strategic investments, is hereby set aside."

7. Following the order of the Hon'ble High Court, the revised disallowance is comprehensively determined as under:

"CIT(A) vide para 5.1d of the order upheld the disallowance to the extent of Rs. 26,70,000/-, which was determined as under following the judgment of Hon'ble Delhi High Court in the case of ACB India Ltd. vs. ACIT, 374 ITR 108 (Del.). Particulars Investment as Investment Average on as on Investment

31.03.2011 31.03.2012 (crores)

(crores) (crores)

Investments on 117.75 102.75 110.25

which dividend

income was

received during

the year.

Less: Invesment in subsidiary company.	56.85	56.85	56.85
Remaining investment	60.90	45.90	53.40
Disallowance at 0.5%			Rs. 26,70,000

In view of judgment of Hon'ble Supreme Court in the case of

Maxopp Investment Ltd. (2018) 402 ITR 640 (SC), investment

in subsidiary company is also to be considered for the

purpose of disallowance. Accordingly, the order of CIT(A) is

to be reversed to the extent he had excluded average

investment of Rs. 56.85 crores in the subsidiary company.

Accordingly, disallowance following the judgment of Hon'ble

Delhi High Court in the case of ACB India Ltd. Vs. ACIT, 374

ITR 108 (Del.) and taking into consideration the aforesaid

judgment of Hon'ble Supreme Court in the case of Maxopp

Investment Ltd. disallowance as per Rule 8D would work out

as under: - Particulars Investment Investment Average

as on as on Investment

31.03.2011 31.03.2012 (crores)

(crores) (crores)

Investments 117.75 102.75 110.25

on which

dividend

income was

received

during the

year.

Disallowance Rs. at 0.5% 55,12,500

13.1 Accordingly, this issue is decided against the assessee and in favour of the Revenue and to that extent the order of the CIT(A) is set aside. The AO is directed to re-compute the disallowance by including the investment made in the subsidiary company.

14. As regards the disallowance made by the AO on account of interest expenditure, we find that the AO has not disputed the fact that there is no direct interest expenditure for earning the exempt income. Further, once the assessee has brought on record the fact that the loans were taken from the Banks for specific purpose of business as well as the projects then the same cannot be utilized for the purpose of investment made in shares and mutual funds and consequently the question of apportionment of interest expenditure u/s 14A read with Rule 8D does not arise. This issue was also considered by the Hon'ble Jurisdictional High Court in assessee's own case reported in 399 ITR 576. The CIT(A) has also recorded this fact that the loans taken by the assessee in the earlier years were utilized for the specific purpose as those were taken for setting up of the projects as well as for the purpose of financing import of raw material. These facts as recorded by the CIT(A) has not been disputed by the AO while filing the cross appeal. Even during the

course of hearing, the Revenue has not disputed the fact that the assessee has taken the loans for specific purpose and the AO has not brought any material or fact on record to say that the assessee has diverted the loan to the investment made in the shares and mutual funds. Further, during the year under consideration, though there is a change in the investment portfolio, however, the total investment as on 31.03.2013 is less than the investment as on 31.03.2012. Accordingly, there is no extra fund utilized by the assessee during the year for making the investment in shares or securities but the sale proceeds of the existing investment is more than the purchases, if any made during the year. The AO has not made any disallowance on account of interest expenditure u/s 14A of the I.T. Act in the preceding years. Therefore, when no fresh investment is made other than the proceeds of the sale of existing investment then the disallowance of interest expenditure is not warranted. Hence, we do not find any error or illegality in the impugned order of the CIT(A) qua this issue of deleting the disallowance made by the AO u/s 14A of the Act on account of interest."

4. In view of the above Order of the Coordinate Bench of this Tribunal, we respectfully follow the same. Accordingly, we remit the issue regarding to disallowance u/s 14A of IT Act R/w Rule 8D (2) (iii) of Rules to the file of the AO for re-computation as discussed in Para 13.1 of the above Order. Regarding disallowance under Rule 8D (2) (ii) of IT Rules on account of interest

expenditure, the grounds of Appeal are allowed as discussed in para 14 of the above Order.

5. In the result, the Appeal of the assessee is partly allowed for statistical purpose.

Order pronounced in the Open Court on this 08 th Day of March, 2022 Sd/- Sd/-

(N. K. BILLAIYA) (YOGESH KUMAR US)

ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 08/03/2022 R. Naheed * Copy forwarded to:

1. Appellant

2. Respondent

3. CIT

4. CIT(Appeals)

5. DR: ITAT

ASSISTANT REGISTRAR

ITAT NEW DELHI

Ht Media Ltd. v. Additional Commissioner Of Income Tax Range-4, C.R. Building .

Concise Analytical Summary of the Opinion — ITA No. 7984/Del/2018 (A.Y. 2015-16)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Ht Media Ltd. v. Additional Commissioner Of Income Tax Range-4, C.R. Building .

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