Claiming of Deduction under 35DD and Disallowance under Section 14A of the IT Act

The Delhi High Court has considered appeals concerning the claiming of deductions under Section 35DD of the Income Tax Act for expenses incurred during a demerger. The court is also reviewing the disallowance of expenses under Section 14A, specifically concerning investments that generated tax-exempt income. The judgement addresses whether the deduction is applicable to the resulting company and the extent of disallowance under Section 14A.

IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgement reserved on: 09.04.2021
Judgement pronounced on: 05.07.2021

ITA 213/2020
ITA 214/2020
ITA 215/2020

COFORGE LIMITED (FORMERLY KNOWN AS NIIT
TECHNOLOGIES LTD) .....Appellant

Through: Mr. Rohit Jain and Mr. Aniket D.
Agarwal, Advocates.

versus

ACIT .....Respondent
Through: Mr. Shailender Singh, Senior Standing
Counsel.

CORAM:
HON'BLE MR. JUSTICE RAJIV SHAKDHER
HON'BLE MR. JUSTICE TALWANT SINGH
RAJIV SHAKDHER, J:

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 35DD of the Act, being l/5th of expenses incurred in [the] assessment year 2004-05 on [the] demerger of certain units of NIIT 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 (NIIT) 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.

To know more in details find the attachment file