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Facts
The appeals concern assessment year 2018-19, arising from an order under Section 153A, which was later appealed to the CIT(A). The Assessing Officer made additions for unexplained money (Section 69A) and disallowed CSR expenses. The CIT(A) allowed partial relief on the unexplained money addition and allowed CSR expenses. The revenue is aggrieved by the deletion of additions, while the assessee is aggrieved by the confirmation of part of the addition.
Held
The Tribunal held that the addition under Section 69A for Rs. 1.35 crores was wrongly made as the evidence was not substantiated and statements were retracted. The Tribunal also held that CSR expenses are eligible for deduction under Section 80G subject to fulfillment of requisite conditions and remanded the matter to the AO for verification. The Tribunal further held that the assessee was entitled to revise its return in an abated assessment under Section 153A, including reducing disallowances under Section 14A to the extent of exempt income.
Key Issues
1. Whether additions for unexplained money under Section 69A are justified based on retracted statements and unsubstantiated evidence. 2. Whether CSR expenses are eligible for deduction under Section 80G. 3. Whether the assessee can revise its return and reduce disallowances under Section 14A in an abated assessment under Section 153A.
Sections Cited
250, 153A, 69A, 132, 37(1), 80G, 135, 139(1), 14A, 8D, 10
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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI ANIKESH BANERJEE & SHRI PRABHASH SHANKAR
& 3038. /Mum/2025 Hubtown Limited O R D E R Per Bench: Both the appeals filed by the assessee and the revenue are directed against the order of the Learned Commissioner of Income-tax (Appeals)-48, Mumbai [hereinafter called ‘Ld.CIT(A)] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’) for Assessment Year 2018-19, date of order 25/02/2025. The impugned order emanated from the order of the Learned Assistant Commissioner of Income-tax, Central Circle-2(4), Mumbai (in short, ‘Ld AO’) passed under section 153A of the Act, order dated 30/09/2021.
The following grounds are raised by the respective parties:-
(Assessee’s Appeal) “Being aggrieved by the order u/s 153A of the Income-tax Act, 1961, passed by Deputy Commissioner of Income Tax Central Circle 2(4), Mumbai upheld by the Commissioner of Income Tax (Appeals)-48, Mumbai, this appeal petition is being submitted on the following grounds, which it is prayed may be considered independently and without prejudice to one another.
On the facts and circumstances of the case as well as in Law, the order passed u/s 153A of the Income tax act, 1961 is bad in law and infructuous ab-initio.
2. On the facts and circumstances of the case as well as in Law, the Learned Deputy Commissioner of Income Tax, Central Circle-2(4), Mumbai has grossly erred in directing addition of alleged unexplained money of Rs. 1,05,00,000/- under section 69A of the Act. The Learned Commissioner of Income Tax (Appeals) -48 has erred in confirming the same as directed by the Learned Deputy Commissioner of Income Tax, Central Circle-2(4), Mumbai.
The order under appeal is not only bad in law and invalid, but also against the principals of natural law of equity and justice.
& 3038. /Mum/2025 Hubtown Limited 4. The appellant reserves its rights to add, to amend, alter/delete and/or modify the above grounds of appeal before or during the course of appellate proceedings.”
(Revenue’s Appeal) “1. (i) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has justified in deleting the addition of Rs.6,66,20.298/- made by the Assessing Officer on account of less income shown in the return filed in response to notice u/s 153A of the Income-tax Act, 1961 without the appreciating the assessment proceedings initiated under Section 132 of the Act cannot be utilized by the assessee to revise its return downward by reducing the disallowance made under Section 14A?
(ii) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has justified in deleting the addition of Rs. 30,00,000/-out of the total addition of Rs. 1,35,00,000/- made by the Assessing Officer under Section 69A of the Act on account of unexplained money without appreciate that the statement of Shri Bhavesh Sanghvi recorded under Section 132(4) of the Act, as well as statements from multiple individuals and WhatsApp message, which indicated the receipt of unexplained cash in relation to the sale of flats?
(iii) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has justified in directing the Assessing Officer to allow the claim of Corporate Social Responsibility (CSR) expenses of Rs.3,85,25,000/- under Section 80G of the Act, subject to verification without appreciating that CSR expenses are mandatory under Section 135 of the Companies Act, 2013, and do not constitute voluntary donations, which is a prerequisite for claiming deduction under Section 80G?
(iv) On the facts and circumstances of the case and in law, the Ld CIT(A) has overlooked the fact that granting deduction under Section 80G would indirectly nullify the statutory disallowance under Section 37(1) and create an undue tax advantage, contradicting the principle that CSR expenditure should be an obligation of the company and not a means of tax reduction.
& 3038. /Mum/2025 Hubtown Limited 2 The appellant craves leave to add, delete, alter, modify, rectify, substitute or otherwise any or all of the grounds of appeal at or before the time of hearing of the appeal
3 The appellant, therefore, prays that on the ground(s) stated above, the order of the Ld. CIT (A), Mumbai, may be set aside and that of the Assessing Officer to be restored.”
3. The brief facts of the case is that the assessee filed the return declaring loss amount to Rs. 102,05,81,294/- which was revised to a loss of Rs.108,72,01,592/- in response to notice u/s 153A on 25/02/2021. The search was conducted u/s 132 of the Act on dated 30/07/2019. The notice was duly issued by the Ld.AO and the assessee has made the reply. After considering the submission, the Ld.AO made the addition amount to Rs.3,85,25,000/- related to ‘other adjustments’, amount to Rs.10,51,45,298/- for CSR disallowance u/s 37(1) and Rs.1,35,00,000/- for unexplained money u/s 69A of the Act with the total income of the assessee. The aggrieved assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A) allowed the CSR expenses read with section 80G and related to addition of Rs.1.35 core, the Ld.CIT(A) allowed Rs.30 lakh relief to the assessee and in respect of rest of the amount of Rs.1.05 crore, the addition was sustained. Further, in the original return filed under section 139(1) on 31/10/2018, the assessee declared a loss of Rs.102,05,81,294/-. Subsequently, a search action under section 132 was conducted on 30/07/2019. In response to the notice issued under section 153A, the assessee filed a return on 25/02/2021 declaring a total loss of Rs.108,72,01,592/-. Thus, the assessee claimed an additional loss of Rs.6,66,20,298/-. This enhancement of loss arose due to a lower disallowance under section 14A only Rs.34,60,505/- was disallowed in the return filed under & 3038. /Mum/2025 Hubtown Limited section 153A, whereas a disallowance of Rs.7,00,80,808/- had been made in the original return filed under section 139. The Ld. AO added back the excess loss amount to Rs. 6,66,20,298/-. The assessee challenged the addition before the Ld. CIT(A). The Ld. CIT(A) deleted the said addition. Being aggrieved, the revenue and the assessee filed an appeal before us.
Addition related to Rs.1.35 crores The alleged addition was made by the Ld.AO considering the statement recorded during the search for receiving cash through broker, Shri Bhavesh Sanghvi, amount to Rs.30 lakhs and the transaction pertaining to Mr. D.V. Prabhu, who is senior employee of the assessee, amount to cash of Rs.1.05 crores. The statements are recorded U/s 132(4) of the Act. The Ld.AO finally found that the total cash transaction was made at Rs.1.76 crores and out of that the addition was confirmed related to Rs.1.35 crores. The observations of the Ld.AO in impugned assessment order pages 40 & 41 are extracted below:- “The submission of the assessee has been carefully perused. The assessee stated that some of the individuals have now retracted from such statements and gave statements under duress. However, no such incident is reported in the Panchnama and the assessee has not produce any substantive documents or evidence that the statements are given under tremendous pressure, it is just an after-thought that the Assessee is resorting to such Retractions to do away with its inability to substantiate non-existence of cash transactions when confronted with clear evidence. Therefore the retraction of the assessee that the statements are given under fear or pressure is not acceptable. Moreover, there is ample evidence on record which have pointed to Cash consideration being received as stated by Customers, brokers and inferred from the WhatsApp messages of various people associated with Sales. The assessee has failed to submit any relevant evidence to deny the above mentioned transactions. From the statements of Shri Bhavesh Sanghvi, Shri Tirthraj Singh, Shri Rajesh Jha and Shri D. V. Prabhu and the physical & & 3038. /Mum/2025 Hubtown Limited digital evidences found during search investigation, it is clear that cash is received in sale of flats. In view of the above, Rs. 1,35,00,000/- is treated as unexplained money during the AY 2018- 19 and added to the total income of the assessee u/s 69A of the Act. Penalty proceedings u/s 271AAC of the Act is initiated as income determined u/s 69A of the Act.”
The assessee filed an appeal before the Ld. CIT(A) and the Ld.CIT()A), in its order found that the parties, Shri D.V. Prabhu has retracted his statement and also the agent, Shri Bhavesh Sanghvi. Finally, the Ld.CIT(A) deleted the addition amount to Rs. 30 lakhs by holding that the cash pertains to Shri Bhavesh Sanghvi, whose statement cannot be relied upon.
In argument, the Ld.DR stated that the said addition is found in the whatsapp chat of the employee. Finally, he prayed to uphold the addition of Rs.30 lakhs. He relied on the order of the assessing authority.
On the other hand, the Ld.AR argued that the allegation against the assessee was for receiving cash of Rs.1.35 crores, but the addition was duly made u/s 69A, which is bad in law. Plain reading of the section 69A of the Act is as follows:- “Unexplained money, etc. 69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.”
& 3038. /Mum/2025 Hubtown Limited He further stated that the Ld.AO had relied on the statement recorded and the whatsapp chat of the employee of the assessee, who has finally retracted the statement on dated 01/08/2019 before the Ld.AO. The number, which is referred in the whatsapp chat was not cross verified by the assessee. Even the cash received from the parties was not verified by the Ld.AO. Considering this, the addition should be deleted. We find that the implementation of section 69A of the Act itself is wrong in respect of receiving of cash from the other party. So the Ld. AO erred in imposition of section 69A of the Act. So the addition made by the Ld.AO of Rs.1.35 crores is duly deleted.
Accordingly, revenue’s ground no. 1(ii) is dismissed & assessee’s ground no. 4 is allowed.
In revenue’s appeal, the revenue challenged the disallowance u/s 80G amount to Rs.3,85,25,000/-. The assessee had incurred CSR expenses and alternatively, the assessee claimed that such amount is eligible for deduction u/s 80G of the Act. The ld. AR argued that the assessee has not claimed deduction u/s 37(1) of the Act, in the alternative, claimed the deduction u/s 80G of the Act. The Ld.CIT(A) relied on the order of the ITAT, Bangalore Bench in the case of Allegis Services (India) Pvt Ltd vs ACIT, dated 29/04/2024 and the co-ordinate bench of ITAT-Kolkata in the case of JMS Mining Pvt Ltd vs ACIT (2021) 130 taxmann.com 118 (Kol–Trib.). The Ld. CIT(A) had made the observation at para 6.4 to 6.4.6 of his order, which is extracted below:- “6.4. Decision on Ground 5 & 6: In these two grounds, appellant has challenged the disallowance of Rs. 3,51,25,000/- U/s 37(1) of the Act on account of expenses incurred towards Corporate Social Responsibility (CSR). Alternatively, appellant has claimed that such amount is eligible as deduction u/s 80G of the Act.
6.4.1 I have gone through the facts of the case and submission made by the appellant. Incurring at least two per cent of the average net profit towards CSR is an act of compulsion under section 135 of Companies Act, 2013 for companies having net worth of rupees five hundred crores or more or turnover of rupees one thousand crores or more or a net profit of five crore rupees or more during any financial year. The existing provisions of section 37(1) of the Act provide that deduction for any expenditure, which is not mentioned specifically in section 30 to section 36 of the Act, shall be allowed if the same is incurred wholly and exclusively for the purposes of carrying on business or profession.
6.4.2 As the CSR expenditure, being an application of income, is not incurred for the purposes of carrying on business, such expenditures cannot be allowed under the existing provisions of section 37 of the Income-tax Act. Therefore, in order to provide certainty on this issue, it is proposed to clarify that for the purposes of section 37(1) any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to have been incurred for the purpose of business and hence shall not be allowed as deduction under section 37. However, the CSR expenditure which is of the nature described in section 30 to section 36 of the Act shall be allowed as deduction under those sections subject to fulfilment of conditions, if any, specified therein. However, not allowing CSR would lead to additional tax liability for the companies pursuing CSR.
6.4.3 The issue in dispute is no longer res-integra. The allowability of CSR under the provision of section 80G is decided in the case of Motilal Oswal Securities Ltd in dated 18.08.2023 by Hon'ble ITAT, 'D' Bench Mumbai as under:
“9. The issue arising in ground no. (iv), raised in Revenue's appeal, is pertaining to the deletion of disallowance of deduction claimed under section 80G of the Act on Corporate Social Responsibility ("CSR") expenses.
10. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the year under consideration, the assessee incurred CSR expenses of Rs 2.25,71,775, and claimed donation under section 80G of the Act amounting to Ra 2,21,41,893. The assessee was asked to show cause as to why the claim of deduction under section 80G of the Act of Rs. 1,10,70.947, against the CSR expenses should not be disallowed. The AO vide order passed under section 143(3) of the Act did not agree with the submissions of the assessee and held that the expenditure incurred by the assessee under the provisions of the Companies Act, 2013, cannot be claimed as a donation under section 80G of the Act. The AG further held that the expenditure under the aforesaid provisions of the Companies Act, 2013 is a mandatory contribution and not a voluntary contribution and this expenditure has categorically been disallowed under section 37 & 3038. /Mum/2025 Hubtown Limited of the Act. The AO further held that if the tax deduction is allowed on CSR expenses then this would result in subsidising the expenses by one-third amount Accordingly, the AO disallowed the deduction of Rs. 1,10,70,947, claim under section 80G of the Act and added the same to the total income of the assessee.
11. The learned CIT(A), vide impugned order, allowed the ground raised by the assessee on this issue following the judicial precedents rendered by the coordinate benches of the Tribunal. Being aggrieved, the Revenue is in appeal before us
We have considered the submissions of both sides and perused the material available on record We find that the coordinate benches of the Tribunal have consistently taken the view in favour of the assessee and held that the CSR expenses even though not allowed under section 37 of the Act pursuant to insertion of Explanation-2 to section 37 vide Finance Act, 2014 with effect from 01/04/2015 However, the said expenditure is allowable under section 80G of the Act.”
6.4.4 Further in the case of Allegis Services (India) Pvt. Ltd. in dated 29.04.2020 by Hon'ble ITAT, Bangalore, wherein it was held that : "18 In present facts of case, Ld AR submitted that all payments forming part of CSR does not form part of profit and loss account for computing Income under the head "Income from Business and Profession" It has been submitted that some payments forming part of CSR were claimed as deduction under section80G of the Act, for computing "Total taxable income" which has been disallowed by authorities below. In our view, assessee cannot be denied the benefit of claim under Chapter VI A, which is considered for computing Total Taxable Income". If assessee is denied this benefit, merely because such payment forms part of CSR, would lead to double disallowance which is not the intention of Legislature
On the basis of above discussion, in our view, authorities below have erred in denying claim of assessee under section 80G of the Act. We also note that authorities below have not verified nature of payments qualifying exemption under section 80G of the Act and quantum of eligibility as per section 80G(1) of the Act.
Under such circumstances, we are remitting the issue back to LdAO for verifying conditions necessary to claim deduction under section 80G of the Act. Assessee is directed to file all requisite details in order to substantiate s claim before Ld. AD. Ld.AD is then directed to grant deduction to the extent of eligibility."
6.4.5 Further, Hon'ble ITAT, Kolkata in the case of JMS Mining Pvt. Ltd. in (2021] "Since Parliament intended certain restrictions to only CSR expenditure in respect of two donations included by an assessee as CSR expenditure Le [Swachh Bharat Kosh and Clean Ganga Fund) has impliedly not made any prohibition/restriction in respect of claim of CSR & 3038. /Mum/2025 Hubtown Limited expenses in other cases if i otherwise eligible under section 80G. In this context, it is found that the assessee has made donation by RTGS through bank which is received by Shree Charity Trust which was approved under section 80G(5)(vi). The assessee has also made payment to Pt. Jashraj Music Academy Trust which is also approved under section 80G(5)(vi) and certificate given by Director (Exemption) is found placed. Therefore, since the assessee satisfies the condition under section 80G of the donees, the assessee's claim for deduction of CSR expenses/contribution under section 80G was allowed after enquiry by the Assessing Officer. Thus, the action of the Assessing Officer allowing the claim under section 80G is a plausible view"
6.4.6 As the facts of the case identical to the cases decided by Hon'ble ITAT (supra), therefore, the AO is directed to allow the claim of CSR in ITR subject to verification of donation forming part of CSR are eligible for deduction under the provision of section 80G of the Act. Accordingly, these grounds of appeal are partly allowed.”
The Ld. DR argued and stands in favour of the order of the Ld.AO, but the Ld.DR was unable to rebut by submitting any contrary judgment against the submission against the observation of the Ld.CIT(A).
We heard the rival submission and perused the documents available in record. The provisions of section 80G of the Act permits deduction for the contributions made by an assessee to specified relief funds and charitable institutions except were CSR expenditure. Respectful reliance is placed on judicial precedents where it was held that CSR expenditure is eligible for deduction under section 80G of the Act subject to satisfaction of the conditions mentioned in the said section. We respectfully relied on the order of the coordinate bench of ITAT- Bangaluru in Allegis Services (India) Pvt. Ltd. (supra) & in the case of JMS Mining Pvt Ltd vs ACIT (supra) by the Kolkata Bench of ITAT. In our considered view, we remand the matter to the file of the Ld. AO with direction to allow the deduction U/s 80G of the Act of expenses amount to Rs.3,85,25,000/- subject to fulfillment of requisite conditions. So, we find no infirmity in the impugned appellate order related to this ground. The ground of the revenue stands dismissed.
Revenue’s Ground Addition of Rs.6,66,20,298/- The issue pertains to the addition amount of Rs.6,66,20,298/- on the ground that the income returned in response to notice u/s 153A cannot be lower than the return filed us 139(1) of the Act. The search was conducted on 30/07/2019. So the impugned assessment year is abated year. In the original return filed u/s 139(1) on dated 31/10/2018 declaring loss of Rs. 102,05,81,294/-. Thereafter, search action 132 of the Act was undertaken on 30/07/2019. In response to notice u/s 153A of the Act, the return was filed on 25/02/2021 declaring total loss of Rs.108,72,01,592/-. It is found that the assessee has claimed excess loss amount to Rs.6,66,20,298/-. The loss was incurred on account of lesser disallowance made u/s 14A amount to Rs.34,60,505/- u/s 153A whereas the disallowance u/s 14A filed with the return of income u/s 139 was Rs.7,00,80,808/-. Accordingly, the Ld.AO rejected the additional claim of Rs.6,66,20,298/-. The aggrieved assessee filed an appeal before the Ld. CIT(A). The Ld.CIT(A) considering the order of the higher judicial forum, had made the following observations, which are at pages 43 to 47 of the appellate order, which are extracted below:- “6.2.4 Therefore, it can be concluded that since the proceedings are abated for a particular assessment year, hence, it is open for both the side, ie, appellant as well as revenue to take a fresh start of assessment and return filed u/s 153A offers a fresh opportunity to the appellant to file fresh claims. In view of this, the ground of appeal is decided in favour of appellant.
6.2.5 Now coming to the merit of the claim of the appellant wherein suo-moto disallowance was made u/s, 14A r.w.r 8DD. Appellant has taken 1 per cent of average investment of Rs. & 3038. /Mum/2025 Hubtown Limited 706,38,98,063/-. Accordingly, disallowance of Rs. 7,06,38,980/- was made on this account. Thereafter, appellant has restricted the disallowance to Rs. 34,60,505/-, i.e. to the extent of exempt income earned during the year. It is now well settled through judicial pronouncement that disallowance made u/s. 14A r.w.r 8DD should not exceed the exempt income earned during the year. Hon'ble Supreme Court in the case of State Bank of Patiala (2018) 99 taxman.com 286 (SC) and Hon'ble Delhi High Court in the case of CIT Vs. Joint Investment Pvt. Ltd. (2015) 372 ITR 69 (Delhi) held that disallowance is to be restricted to the extent of exempt income earned by the appellant. Therefore, following the decision of Hon'ble Apex Court and High Court, disallowance is to be restricted to the extent of exempt income shown by the appellant. In decision of Caraf Builders and Constructions P Ltd.,] 101 taxmann.com 167 (Delhi) Hon'ble Delhi High Court has held that: “25. Total exempt income earned by the respondent-assessee in this year was Rs. 19 lakhs in these circumstances, we are not required to consider the case of the Revenue that the disallowance should be enhanced from Rs. 75.689 crores to Rs. 144.52 crores. Upper disallowance as held in Pr. CIT v. McDonalds Indie (P) Ltd. ITA 725/2018 decided on 22nd October, 2018 cannot exceed the exempt income of that year. This decision follows the ratio and judgment of the Supreme Court in the case of Maxopp Investments Ltd. v. CIT 7120161 402 ITR 640/254 Taxman 325/91 taxmann.com 154 and the earlier judgments of the Delhi High Court in Cheminvest v CIT (2015) 378 ITR 33/234 Taxman 761/61 taxmann.com 118 and CIT v. Holcim (P) Ltd (2015) 57 taxmann.com 28 (Delhi). Relevant portion of the judgment in McDonalds India (P.) Ltd. (supra) reads:-
"8. The decision in the case of Maxopp Investment Ltd. (supra) is significant and does answer the question in issue. This decision does not support the Revenue as the Assessing Officer in the case of Maxopp Investment Ltd. (supra) had himself restricted the disallowance to the extent of exempt income. After referring to Walford Share and Stock Brokers P. Ltd. (supra) it was held- "Axiomatically, it is that expenditure alone which has been incurred in relation to the income which is includable in total income that has to be disallowed if an expenditure & 3038. /Mum/2025 Hubtown Limited incurred has no causal connection with the exempted Income, then such an expenditure would obviously be treated as not related to the Income that is exempted from tax, and such expenditure would be allowed as business expenditure. To put it differently, such expenditure would then be considered as incurred in respect of other income which is to be treated as part of the total income.”
10. The decision of the Delhi High Court in Holcim India Pvt. Ltd. (supra) had referred to the issue whether disallowance of expenditure under Section 14A of the Act would be made even when no exempt income in the form of dividend was earned in the year, and it was observed "14. On the issue whether the respondent-assessee could have earned dividend Income and even if no dividend income was earned, yet Section 14A can be invoked and disallowance of expenditure can be made, there are three decisions of the different High Courts directly on the issue and against the appellant-Revenue. No contrary decision of a High Court has been shown to us. The Punjab and Haryana High Court in Commissioner of Income Tax, Faridabad v. M/s. Lakhani Marketing inci decided on 02.04.2014, made reference to two earlier decisions of the same Court in CIT v. Hero Cycles Limited, 120101 323 ITR 518 and CIT v. Winsome Textile Industries Limited, [20091 319 ITR 204 to hold that Section14A cannot be invoked when no exempt income was earmed. The second decision is of the Gujarat High Court in Commissioner of Income Tax- v. Cortech Energy (P) Ltd. (2014) 223 Taxman 130 (Guj) The third decision is of the Allahabad High Court in Income Tax Appeal No. 88 of 2014, Commissioner of Income Tax (Kanpur, M/s. Shivam Motors (P) Ltd. decided on 05.05.2014 in the sad decision it has been held: "As regards the second question, Section 14A of the Act provides that for the purposes of computing the total income under the Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. Hence, what Section 14A provides is that if there is any income which does not form part of the income under the Act, the expenditure which is incurred for earning the income is not an allowable deduction. For the year in question, the finding & 3038. /Mum/2025 Hubtown Limited of fact is that the assessee had not earned any tax free income. Hence, in the absence of any tax free income, the corresponding expenditure could not be worked out for disallowance. The view of the CIT (A), which has been affirmed by the Tribunal, hence does not give rise to any substantial question of law. Hence, the deletion of the disallowance of Rs. 2,03,752/- made by the Assessing Officer was in order.”
Income exempt under Section 10 in a particular assessment year, may not have been exempt earlier and can become taxable in future years. Further, whether income earned in a subsequent year would or would not be taxable, may depend upon the nature of transaction entered into in the subsequent assessment year. For example long term capital gain on sale of shares is presently not taxable where security transaction tax has been paid but a private sale of shares in an off market transaction attracts capital gains tax, it is an undisputed position that respondent assesse is an investment company and had invested by purchasing a substantial number of shares and thereby securing right to management Possibility of sale of shares by private placement etc: cannot be ruled out and is not an improbability, Dividend may or may not be declared. Dividend is declared by the company and strictly in legal sense, a shareholder has no control and cannot insist on payment of dividend. When declared it is subjected to dividend distribution tax" 11. Decision in Holcim India (P) Ltd. (supra) was followed and elaborated in Cheminvest Ltd. (supra)’ 6.2.6 Hon'ble Madras High Court in Case of Marg Ltd Vs CIT has cleared the doubts in following manner: 14. it is well settled that the Rule cannot go beyond the main parent provoion Therefore, what has been provided as computation method in Rule 8D cannot go beyond the roof limit of section 14A itself under any circumstances. The Courts have time and again reiterated this correct, reasonable and clear position of law. But, merely to somehow make more disallowance and impose tax on the hypothetical income of the Assessee, in contrast to the concept of "real income" to be taxed as per section 5 of the Income-tax Act, the authorities under the Income-tax Act keep on adopting such absurd procedures. The disallowance to this extent if it was to have & 3038. /Mum/2025 Hubtown Limited its way, will constitute a hypothetical income taxable in the hands of the Assessee, which could never be the intention of section 14A of the Act, providing for a proportionate disallowance of expenditure incurred to eam the exempted income 15. The expenditure incurred to earn any income has to be always below the extent of income itself and bear a reasonable proportion thereto, as the commercial prudence does not permit any one to spend more and earn less. The investment in shares of which dividend is eamed and dividend being exempted income, the expenditure incurred for earning such dividend in the form of interest on the borrowed funds, which are employed to buy such shares can obviously be not more than the dividend itself and even if the interest paid on such borrowed funds is more than the actual dividend earned during the year in question, the disallowance of interest cannot go beyond the amount of dividend itself. As such, interest paid on borrowed funds by the Assessee does not constitute income of Assessee for that year. Section 14A has been introduced not to allow expenditure incurred to earn such exempted income in the form of dividend as an allowable expenditure against the exempted income of the Assessee and therefore, obviously the disallowance too cannot exceed the extent of dividend itself. The Tribunal itself in many such cases has upheld the disallowance under section 14A only to the extent of 2% of the Dividend Income or other exempted income even if Assessee claimed that no expenditure was incurred to earn such Dividend income and even appeals filed by the Assessee against such 2% disallowance have been dismissed by this Court. Therefore, such an inconsistent approach on the part of the Tribunal cannot be sustained.
6.2.7 Hon'ble Courts have decided another outcome of application of Rule 8DD rws 14A wherein disallowances have been made in case of nil exempt income. Hon'ble Supreme Court in its decision in the case of Delhi International Airport Pvt Ltd [2022] 143 taxmann.com 209 (SC) held that where appellant did not have exempt income, no disallowance could be made under section 14A read with rule 8D. In Pr. CIT v. Oil Industry Development Board 103 taxmann.com 326/262, Taxman 102 (SC), the Hon'ble SC confirmed the decision of the Delhi High Court in Oil Industry Development Board's case wherein it was held that no disallowance uls. 14A could be made in the absence of any exempt income.
& 3038. /Mum/2025 Hubtown Limited Similar view is taken in the following case. Tamilnadu Road Development Co. Ltd. v. Dy. CIT 124 taxmann.com 599/436 ITR 298 (Mad.). Pr. CIT v. Dipesh Lalchand Shah 143 taxmann.com 419 (Guj.) Pr. CIT v. Adani Wilmar Ltd. 133 taxmann.com 443 (Guj) CIT v. Chettinad Logistics (P.) Ltd 95 taxmann.com 250/ 257 Taxman 2 (SC). Pr. CIT v. GVK Project & Technical Services Ltd. 106 taxmann.com 181/264 Taxman 76 (SC)
6.2.8 It is further decided by Hon'ble Delhi High Court in ACB India Ltd 62 taxmann.com 71 and by Ho'ble ITAT in case of Vireet Investment Pvt Ltd 82 taxmann.com 415 that in computation of disallowance u/s 14A only investment yielding exempt income should be considered and such disallowance can not be made in book profit.
6.2.9 Considering the facts and circumstances of the case and relying on the decision of various courts as discussed above, it is held that the disallowance of Rs.34,60,505/- i.e. to the extent of exempt income is justified. This ground of appeal is allowed.”
14. The Ld. DR argued and specifically contended that the assessee could not revise the return by reducing the income while filing the return in compliance with the notice issued under section 153A of the Act. He submitted that the loss declared in the return filed under section 153A was higher than the loss declared in the return filed under section 139, and therefore, supported the order of the Ld. AO.
15. We have heard the rival submissions and perused the material available on record. The issue raised by the revenue is twofold. First, whether the assessee is eligible to reduce the disallowance under section 14A in the return filed under section 153A vis-à-vis the return originally filed under section 139 of the Act. In the original return filed under section 139(1) on 31/10/2018, the assessee & 3038. /Mum/2025 Hubtown Limited declared a loss of Rs.102,05,81,294/-. Subsequently, a search action under section 132 was conducted on 30/07/2019. In response to the notice issued under section 153A, the assessee filed a return on 25/02/2021 declaring a total loss of Rs.108,72,01,592/-. Thus, the assessee claimed an additional loss of Rs.6,66,20,298/-. This enhancement of loss arose due to a lower disallowance under section 14A only Rs.34,60,505/- was disallowed in the return filed under section 153A, whereas a disallowance of Rs.7,00,80,808/- had been made in the original return filed under section 139. Second, whether the assessee’s computation of disallowance under section 14A is legally tenable. The assessee had originally disallowed Rs.7,00,80,808/-, computed at 1% of the total average investment. Subsequently, in the return filed under section 153A, the disallowance was restricted to Rs.34,60,505/-, being the amount of exempt income earned during the year. It is now a settled position of law, through various judicial pronouncements, that disallowance under section 14A read with Rule 8D cannot exceed the exempt income earned during the year. The Hon’ble Supreme Court in State Bank of Patiala (supra) and the Hon’ble Delhi High Court in Joint Investments Pvt. Ltd. (supra) have held that such disallowance must be restricted to the amount of exempt income. We find that the Ld. CIT(A) has correctly appreciated the facts and the assessee has rightly computed the disallowance under section 14A. The next issue is whether the assessee is entitled to claim a higher loss in the return filed under section 153A. It is noted that the present assessment year is an abated year, and the second proviso to section 153A mandates that any assessment or reassessment pending as on the date of initiation of search shall stand abated. The proviso further clarifies that the return filed under section & 3038. /Mum/2025 Hubtown Limited 153A(1)(a) shall be deemed to be a return filed under section 139. Consequently, once an assessment stands abated, the original return filed under section 139 loses its significance, and the return filed under section 153A takes its place for all purposes of the Act. Section 153A explicitly provides that all provisions of the Act shall apply to a return filed under section 153A as if such return were a return filed under section 139(1). Therefore, the legal rights and obligations that apply to a return filed under section 139(1) equally apply to a return filed under section 153A in an abated assessment. In such circumstances, it is well within the rights of the assessee to lodge a fresh or additional claim in the return filed under section 153A, even if such claim was not made in the original return, since the assessment had not attained finality. The Hon’ble Bombay High Court in Pr. CIT v. JSW Steel Ltd. [2020] 115 taxmann.com 165 / 270 Taxman 201 / 422 ITR 71 (Bom.) has clearly held that an assessee is entitled to raise new claims in an abated assessment under section 153A. Accordingly, since the provisions of the Act applicable to returns filed under section 139(1) also apply to returns filed under section 153A in an abated assessment, the assessee is legally permitted to make additional claims in the return filed under section 153A for the assessment year 2018–19. In view of the above discussion, we uphold the observations and findings of the Ld. CIT(A). The ground 1(i) raised by the revenue is dismissed.