ITAT grants Dual Relief to Bennett Coleman: Deletes ₹6.26 Crore Disallowance and Allows Indexation Benefit on STT Paid Securities [Read Order]

The appeal was filed by Bennett Coleman & Co. Ltd., who is engaged in the business of buying and selling media properties, against the order dated 27 March 2024 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [CIT(A)], Delhi for the Assessment Year (A.Y.) 2017-18.

The assessee had declared a total income of ₹3.63 crore, with tax liability computed under Section 115JB of the Income Tax Act, 1961 on book profit of ₹23.52 crore. During scrutiny assessment, the Assessing Officer (AO) noted that the assessee had earned an exempt dividend of ₹2.16 crore and had offered a suo-moto disallowance of ₹8.92 crore under Section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962.

However, being unsatisfied with the assessee’s computation, the AO made a further disallowance of ₹6.26 crore and also added ₹15.18 crore to book profit under Section 115JB. Further, the AO denied the deduction of ₹20.02 crore representing the difference between book profits and indexed capital gains arising from transfer of Securities Transaction Tax (STT) paid securities while computing book profit under Section 115JB of the Income Tax Act, 1961.

The CIT(A) upheld the AO’s action in sustaining the disallowance under Section 14A read with Rule 8D and disallowed the indexation benefit on capital gains from STT-paid securities while computing book profits under Section 115JB, prompting the assessee to approach the Tribunal.

Represented by Madhur Agarwal and Kshitij Kasi, the Assessee contended that the suo-moto disallowance of ₹8.92 crore already exceeded the exempt dividend income of ₹2.16 crore, and hence no further disallowance could be justified. It was argued that the AO made additional disallowance without recording any specific satisfaction regarding the correctness of the assessee’s computation as mandated under Section 14A of the Income Tax Act, 1961.

It was further submitted that the benefit of indexation while calculating book profits should be allowed, relied on the Karnataka High Court’s ruling in Best Trading and Agencies Ltd. v. CIT [2020].

Represented by Satyaprakash R. Singh, the Revenue supported the orders of the AO and CIT(A). It was argued that the disallowance under Section 14A read with Rule 8D was correctly made as per statutory computation and that the indexed cost of acquisition could not be reduced for the purpose of computing book profit under Section 115JB. Further reliance was placed upon the Tribunal’s decision in Chheda Electricals and Electronics (P) Ltd. [2022].

The Bench comprising Vice President, Saktijit Dey and Accountant Member, Narendra Kumar Billaiya held that the suo-moto disallowance made by the assessee was much higher than the exempt income. Since the AO had not identified any defect in the assessee’s computation, there was no justification for an additional disallowance.

The Tribunal, therefore, directed deletion of the further disallowance of ₹6.26 crore under Section 14A read with Rule 8D. Relying on the Special Bench ruling in ACIT v. Vireet Investments Pvt. Ltd. (2017), the Tribunal also directed deletion of the addition made under Section 14A while computing book profit under Section 115JB.

Regarding the denial of indexation benefit, the Tribunal followed the Karnataka High Court’s decision in Best Trading and Agencies Ltd. v. CIT (supra), upheld that indexed cost of acquisition must be considered even under the MAT provisions.

Accordingly, the appeal of the assessee was partly allowed.

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