JUDGMENT

Rajiv Shakdher, J. - Table of Contents

Background facts:

ITA 213/2020

ITA 214/2020

ITA 215/2020

Submissions on behalf of the appellant/assessee:

Submissions advanced on behalf of the revenue:

Analysis and reasons:

Deduction claimed under Section 35DD:

Disallowance under Section 14A of the Act:

Commuted/discounted one-time lease rent:

Conclusion:

Preface: -

1. The above-captioned appeals are directed against a common order dated 28.01.2020, passed by the Income Tax Appellate Tribunal [in short "Tribunal"] Pertinently, ITA 213/2020 and ITA 215/2020 concern assessment year [AY] 2007-2008 while ITA 214/2020 concerns AY 2008-2009.

1.1. On 13.01.2021, all three appeals were admitted and the following questions of law were framed.

Questions of law framed in ITA 213/2020 and 214/2020

"(i) Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in upholding the disallowance of Rs.44,00,739/- claimed under section 35 DD of the Act, being l/5th of expenses incurred in [the] assessment year 2004-05 on [the] demerger of certain units of NUT and vesting of the same in the Appellant, on the incorrect premise that such deduction is allowable only in the hands of the demerged company (NUT) and not the resulting company (Appellant)?

(ii) Whether on the facts and in the circumstances of the case, the Tribunal erred in law in sustaining and not deleting the disallowance under Section 14A of the Act, to the extent of 0.5% of [the] average value of investments which yielded exempt income during the year?"

Questions of law framed in ITA 215/2020

"(i) Whether on the facts and in the circumstances of the case, the Tribunal erred in law in not deleting in-toto the disallowance of one-time commuted/discounted lease rent amounting to Rs. 77,98,042/- (equivalent to 11 times annual rent) made by the assessing officer?

(ii) Whether the Tribunal erred in law in travelling beyond the scope of the appeal and the case set-up by the assessing officer/CIT(A) and argued by the Revenue, contrary to the mandate of Section 254 of the Act, and that too, without confronting the said reasoning/basis to the Appellant (through its counsel) at the time of hearing?"

Background facts: -

2. Before we proceed further to adjudicate upon the questions of law framed in the captioned appeals, the following broad facts are required to be noticed in each of the appeals.

ITA 213/2020

3. The appellant/assessee had filed its return for AY 2007-2008, on 30.10.2007, declaring its taxable income as Rs. 1,03,47,200/-. Via this return, deduction of Rs. 1,06,43,88,624/- was claimed under Section 10(b) of the INCOME TAX ACT , 1961 [in short "Act"].

3.1. The assessment concerning the appellant/assessee was framed under Section 143(3) of the Act. An order to that effect was passed on 30.12.2010, wherein the appellant/assessee's taxable income was assessed at Rs. 36,28,88,570/-. The assessing officer [in short "AO"] while passing the assessment order, inter alia, made the following disallowances.

i. The amortised legal and professional expenses amounting to Rs.44,00,739/-; being l/5th of the total amount incurred under this head i.e. Rs.2,20,03,694/- in the AY 2004-05, in connection with demerger. The deduction was claimed by the appellant/assessee under Section 35DD of the Act.

ii. Disallowance of Rs. 1,79,17,211/-; this disallowance was ordered by the AO based on the provisions of Section 14A of the Act and Rule 8D of the INCOME TAX RULES , 1962 [in short "Rules"]. Althou