In a recent ruling, the Income Tax Appellate Tribunal (ITAT), Delhi bench, has delivered a mixed ruling in the case of New Delhi Television Ltd. (NDTV), striking down multi‑crore disallowances made by the Assessing Officer under Section 14A (expenses relating to exempt income) and Section 40(a)(ia) (non‑deduction of tax at source).

The matter arose after NDTV filed its return declaring a loss of over ₹20 crore. The tax department made several additions, including disallowances under Section 14A, treatment of satellite transmission charges, software expenses, transfer pricing adjustments, and ESOP costs. Both NDTV and the Revenue filed appeals.

The assessee, NDTV, submitted that the disallowance under Section 14A was unjustified since the company had not earned any exempt income during the relevant year, making the provision inapplicable. It was also stated that payments made to Intelsat Corporation, USA, for satellite transmission services were covered by the India–US tax treaty and therefore not taxable in India, and that no tax deduction at source was required under Section 40(a)(ia).

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NDTV also maintained that software expenses were routine revenue outlays, not capital investments, and challenged the transfer pricing adjustments, noting that the comparables selected by the tax authorities were functionally dissimilar.

On the other hand, the Revenue argued that expenses linked to investments should be disallowed under Section 14A, and that payments to Intelsat Corporation (USA) attracted tax deduction at source. NDTV countered that no exempt income was earned that year, and that the satellite payments were not taxable in India under the India–USA tax treaty.

After concerning all these matters, the tribunal observed that the Section 14A disallowance was not applicable since NDTV had not earned exempt income and satellite transmission charges paid to Intelsat Corporation (USA) were not taxable in India under the India–US tax treaty, and therefore no TDS was required.

The tribunal also accepted the assessee's claim that software purchases were revenue in nature, and not capital assets and also directed that transfer pricing adjustments be reduced by excluding comparables that were functionally dissimilar, clarifying that transfer pricing adjustments must be based on functionally comparable companies, and only transactions with genuine economic similarity can be used for benchmarking.

The bench of Madumita Roy (Judicial Member), Manish Agrawal (Account Member), thereby dismissed the Revenue’s appeal, while NDTV’s appeal was partly allowed.

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