ITAT Grants Relief to NDTV; Deletes Multiple Disallowances and Remands Corporate Guarantee Issue

The assessee, New Delhi Television Ltd. (NDTV), engaged in news broadcasting, filed its return of income for the Assessment Year 2010-11 declaring a loss. The case was scrutinized, and the Transfer Pricing Officer (TPO) proposed an upward adjustment of Rs. 3.29 crore for international transactions.

The Assessing Officer (AO) passed a draft assessment order proposing further disallowances under Section 14A, Section 40(a)(ia) for transmission charges, and software expenses. The Dispute Resolution Panel (DRP) deleted some of these disallowances but upheld others.

Both the Revenue and the assessee filed cross-appeals before the Income Tax Appellate Tribunal (ITAT) challenging the DRP’s directions.

Main Issue: Whether the DRP was justified in deleting disallowances under Sections 14A and 40(a)(ia), treating software expenses as revenue, excluding certain comparables, and whether a corporate guarantee constituted an international transaction under Section 92B.

ITAT Held: The Income Tax Appellate Tribunal dismissed the Revenue’s appeal and partly allowed the assessee’s appeal. It upheld deletion of the Rs. 1.34 crore disallowance under Section 14A as no exempt income was earned, relying on Cheminvest Ltd. v. CIT. The Tribunal also confirmed deletion of the Rs. 3.44 crore disallowance under Section 40(a)(ia), holding that payments to Intelsat Corporation did not require TDS.

Further, it held that software expenses were revenue in nature due to their short useful life and frequent upgrades and directed exclusion of APITCO Ltd. and TSR Darashaw Ltd. from the set of comparables as they were functionally dissimilar to the assessee’s support services. However, the issue of the Rs. 2.90 crore corporate guarantee adjustment was remanded to the Assessing Officer to first determine whether it constituted an international transaction under Section 92B before making any transfer pricing adjustment, in line with directions of the Delhi High Court in the assessee’s earlier case.

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