The Supreme Court on Thursday dismissed the Income Tax Department’s appeal against a Delhi High Court judgment that had quashed reassessment proceedings initiated against NDTV’s holding company, RRPR Holdings Private Limited. [Deputy Commissioner of Income Tax v. RRPR]

A Bench of Justices PS Narasimha and Alok Aradhe dismissed the appeal on the ground of delay, thereby affirming the High Court’s ruling.

The case relates to assessment year 2009–10, during which the tax officer noted that the company had incurred substantial finance costs, including interest on borrowings, while also earning a small amount of exempt income. The officer took the view that these expenses were linked to investments generating exempt income and invoked provisions to disallow such expenditure.

The disallowance was computed at over ₹66 crore under the prescribed formula, despite the exempt income being only about ₹38 lakh.

The company challenged this before appellate authorities.

In its order dated August 18, 2021, the Income Tax Appellate Tribunal (ITAT) held that disallowance of expenditure linked to exempt income cannot exceed the amount of exempt income itself. The Tribunal directed that the disallowance be restricted to the actual exempt income earned by the company. The ITAT also held that interest income earned by the company from fixed deposits had to be netted off against interest expenditure, rather than being separately taxed on an estimated basis.

Both the Revenue’s appeal and the company’s cross-objection were partly allowed.

Parallelly, the tax department had issued a reassessment notice dated August 8, 2014 alleging irregularities relating to interest-free loans.

The Delhi High Court noted that the original addition itself was based on the same disallowance provisions that had been examined in appellate proceedings. By the time the writ petition was heard, the Tribunal had already held that those provisions could not be invoked in the absence of exempt income.

A Division Bench of Justices Yashwant Varma and Ravinder Dudeja held that this finding struck at the very root of the reassessment. The Court observed:

“On this short ground alone, we find ourselves unable to sustain the impugned action.”

Holding that the Tribunal’s ruling was binding on the parties, the High Court quashed the reassessment notice.

With the Supreme Court dismissing the Revenue’s appeal on delay, the High Court judgment has now attained finality.

The ruling underscores that reassessment proceedings cannot survive where the foundational tax claim itself is materially altered or rejected in appellate proceedings.