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2025 Supreme(Online)(ITAT) 6261
INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH)
VIKAS AWASTHY, J, AVDHESH KUMAR MISHRA, AM
M/S AMADEUS INDIA PVT LTD NEW DELHI – Appellant
Versus
ASST.COMMISSIONER OF INCOME TAX CIRCLE 1(1) NEW DELHI DELHI – Respondent
ITA No.1656/Del/2022,A.Y.2018-19
For the Appellants/Petitioners: Tarandeep Singh, CA
For the Respondents: S.K. Jhadav, CIT-DR
Disallowance under section 14A of the Income Tax Act cannot be made if there is no exempt income for the assessment year.
Headnote:(A) Income Tax Act, 1961 - Sections 14A and 143(3)/144C - Assessment Year 2018-19 - Appeal against disallowance of advertising and promotional expenses and expense under section 14A - DRP upheld AO's findings on the additions proposed - Court ruled that disallowance under section 14A is not applicable if no exempt income is involved, thereby deleting the disallowance. (Paras 3-7)
(B) Transfer Pricing - Appellant argued no international transaction for AMP expenses and provided legal precedents for its position - Court acknowledged previous rulings in the appellant's favor and dismissed the additions on AMP expenses as unjustified. (Paras 4-4.1)
| Table of Content |
|---|
| 1. overview of the appeal concerned for ay 2018-19. (Para 1 , 2) |
| 2. court's observation on disallowance under section 14a. (Para 3 , 7) |
| 3. arguments regarding the disallowance of advertising expenses. (Para 4) |
| 4. court's ruling on disallowance under section 14a. (Para 6) |
| 5. final decision on the appeal. (Para 10) |
ORDER
PER AVDHESH KUMAR MISHRA, AM
This appeal of the assessee for the Assessment Year (hereinafter, the ‘AY’) 2018-19 is filed against the order dated 27.05.2022 passed under section 143(3)/144C of the of the Income Tax Act, 1961 (hereinafter, the ‘Act’) by the Assistant Commissioner of Income Tax, Circle-1(1), Delhi [hereinafter, the ‘Assessing Officer’/ ‘AO’].
2. Vide 10 grounds, the issues raised in this appeal are as under: -
(i) Addition on account ALP adjustment for Advertising, Marketing and Sales Promotion Expenses (AMP) (Ground Nos. 1 to 8)
(ii) Disallowance of expenses under section 14A of the Act rwr 8D of the I. T. Rules (Ground Nos. 9 to 9.2)
(iii) Rejection of revised computation of income (Ground No. 10 & 10.1)
3. The brief facts giving rise to this appeal are that the assessee, engaged in the business of providing data processing and related services to its Associated Enterprises (herein after, the ‘AE’). It provides software access to the subscribers Amadeus Products and Computer Database within India, Bangladesh and Nepal. The core activity of the assessee is to provide connectivity to the system by creation/modification/up-gradation of computer programmes online through Data Processing Center to its AE. The Transfer Pricing Officer (TPO)/AO has held that the assessee, by incurring substantial expenditure on Advertisement, Marketing & Promotion, has benefitted its AE by creating marketing in tangible. However, the AE has not suitably compensated the assessee. In the draft assessment order, the AO proposed protective addition of INR 146,700,000 applying bright line test method and substantive addition of INR 157,440,000. Further, the AO also proposed the disallowance of expenditure of INR 37,034,806 under section 14A of the Act r.w.r. 8D of the I. T. Rules. Aggrieved with the AO’s draft order, the assessee raised the matter before the Dispute Resolution Penal (hereinafter, the ‘DRP’). However, the DRP upheld the finding of the AO. Consequentially, the final assessment order was passed by the AO.
3.1 The AO further held that the assessee had made investments in its subsidiaries which could generate income non-chargeable to tax. Hence, the AO held that the direct & indirect expenditure incurred in the form of administrative expenditure, interest, etc. for earning exempted income could not be allowed under section 14A of the Act r.w.r. 8D of the I. T. Rules. The AO also found that the assessee had neither prepared separate account of expenditure in relation to the exempted income nor filed the bifurcation of expenditure relatable to the exempted income. Therefore, the AO invoked provisions of section 14A of the Act and thus, disallowed INR 37,034,806/- on this score, which was upheld by the DRP observing as under:-
“4.8.1. Ground no.1.4 & 14.1 – These relate to addition made by AO u/s. 14A of the IT Act read with Rule 8D.
The AO vide draft order dated 28.09.2021 at para no.6 & 7, has extensively discussed about the aforesaid issue. AO has recorded his/ her findings encompassing the various issues including the statutory provisions, facts of the case and also the judicial pronouncements.
The Panel takes a note in this regard that Section 14A of the Income-tax Act read with Rule 8D of Income-tax Rules which provide for disallowance of expenditure incurred in relation to income which does not form part of the total income, had been subject matter of a number of controversies. The issues had finally travelled up to the Supreme Court. The Supreme Court has settled many important issues in regard to application of provisions of section 14A read with Rule 8D of Income-tax Rules vide three judgments delivered
