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2016 (2) TMI 928 - ITAT CHENNAI

2016 (2) TMI 928 - ITAT CHENNAI - TMI - Addition u/s 14A - sufficiency of funds - Held that:- When the assessee has sufficient share capital, reserves and surplus, this Tribunal is of the considered opinion that there cannot be any disallowance towards the interest paid on the borrowed funds under Section 14A of the Act. For the purpose of disallowing interest income under Section 14A read with Rule 8D, there should be nexus between the borrowed funds and investment made by the assessee in the s .....

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e sister concern uses the funds only for business purpose, there was commercial expediency for making investment. Therefore, this Tribunal is of the considered opinion that there cannot be any disallowance under Section 14A of the Act read with Rule 8D of the Income-tax Rules, 1962. - Decided in favour of assessee - ITA Nos.1340 & 1341/Mds/2015, ITA Nos. 1577, 1578 & 1579/Mds/2015 - Dated:- 19-2-2016 - SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER Assessee .....

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ogether and disposing of the same by this common order. 2. First, Let s take Revenue s appeals. The only issue arises for consideration is with regard to treatment of expenditure on the cost of television serial rights and feature film rights. The assessee claimed the expenditure on television serial rights and feature film rights as revenue expenditure. However, the Assessing Officer treated the same as intangible asset and allowed depreciation at the rate of 25%. However, on appeal by the asse .....

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who air their own programmes. The producers earn income from advertising. According to the Ld. D.R., apart from the time slot allotted to the producers who air their programmes, the remaining time slot available for broadcasting was exploited by the assessee-company. The assessee earns income from pay channels which is subscription fees paid by cable operators. The assessee claimed the expenditure on rights to telecast the films and serials as revenue expenditure. Referring to the assessment ord .....

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is eligible to claim the expenditure which was wholly incurred for the purpose of business or profession. According to the Ld. D.R., the rights acquired by the assessee in the films/serials have the enduring benefit, which do not expire on the date of telecast. Referring to the contention of the assessee before the Assessing Officer that the expenditure has to be amortized in toto, the Ld. D.R. submitted that the claim of the assessee to amortise the expenditure cannot be allowed since the righ .....

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ials as capital asset. Therefore, according to the Ld. D.R., the right on the films and serials has to be treated as capital in nature. 5. Referring to the order of this Tribunal for the earlier assessment years, which was referred by the CIT(Appeals), the Ld. D.R. submitted that no doubt, this Tribunal allowed the claim of the assessee as revenue expenditure in the earlier assessment years. However, an appeal was already filed in the High Court against the order of this Tribunal and the same is .....

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iting off the entire cost of the asset at the first telecast itself on the ground that the future revenue are not ascertainable with reasonable accuracy cannot be accepted. Therefore, the Ld. D.R. submitted that the expenditure incurred by the assessee on acquisition of rights in the films and serials has to be capitalized and the assessee at the best can claim only depreciation. 6. On the contrary, Sh. N. Devanathan, the Ld.counsel for the assessee, submitted that the only issue arises for cons .....

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ssessing Officer is not correct. The CIT(Appeals) by following the order of this Tribunal found that the treatment of expenditure by the Assessing Officer is erroneous and incorrect. The only contention of the Ld. D.R. is that an appeal is pending before the High Court. According to the Ld. D.R., mere pendency of appeal before High Court cannot be a reason for not following the decision of this Tribunal. 7. We have considered the rival submissions on either side and perused the relevant material .....

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ng Officer treated the expenditure as capital in nature. However, he allowed depreciation at 25%. The question arises for consideration is whether the expenditure incurred by the assessee for acquiring rights on the films/serials is revenue expenditure or capital expenditure? This Tribunal in the assessee's own case for the earlier assessment years examined this issue elaborately and found that the expenditure of similar nature has to be allowed as revenue expenditure. The CIT(Appeals), in f .....

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hen the CIT(Appeals) followed the order of this Tribunal, we do not have any reason to interfere with the orders of the lower authority. Merely because an appeal is said to be pending before the High Court, in the absence of any change of material facts during the years under consideration, this Tribunal do not find any reason to interfere with the orders of the lower authority. Accordingly, the orders of the CIT(Appeals) are confirmed. Thus, the appeals of the Revenue stand dismissed. 8. Now co .....

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ounsel, the strategic investments in the subsidiary companies constitute major portion of investments of the company. Referring to Annual Report, more particularly page 41 of the Report, the Ld.counsel submitted that the available share capital with the assessee was ₹ 2385.7 Crores. What was invested by the assessee in the subsidiary companies and in mutual funds was only to the extent of ₹ 541.11 Crores. Therefore, the assessee has not invested the borrowed funds either in the subsi .....

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come, there cannot be any disallowance under Section 14A of the Act. 10. On the contrary, Ms. Jayanthi Krishnan, the Ld. Departmental Representative, submitted that for making investment, the assessee has to necessarily incur expenditure on overheads. The assessee has to incur substantial expenditure for taking a managerial decision for making investments in mutual funds and the shares of the subsidiary companies. Therefore, the CIT(Appeals) found that Section 14A read with Rule 8D is mandatory. .....

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11) 339 ITR 296, the Ld. D.R. submitted that any expenditure incurred for earning income which was not taxable under the Act cannot be allowed while computing the taxable income. Referring to Section 10(33) of the Act, the Ld. D.R. pointed out that dividend income was exempt from taxation. The dividend earned by the assessee on the shares acquired by it with borrowed funds did not constitute part of the total income. Therefore, the assessee has to necessarily disallow the expenditure incurred fo .....

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either side and perused the relevant material available on record. The main contention of the assessee is that the available share capital including reserves and surplus was ₹ 2385.7 Crores as on 31.03.2010. The available share capital is ₹ 1970.4 Crores and Reserves and surplus is ₹ 21,886.7 Crores. The investments made in mutual funds including subsidiary companies are only ₹ 541.11 Crores. Therefore, it cannot be said that the assessee has diverted the borrowed funds .....

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