ACIT 16(1), MUMBAI vs. AISHWARYA RAI BACHCHAN, MUMBAI

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ITA 5403/MUM/2025Status: DisposedITAT Mumbai31 October 2025AY 2022-23Bench: SHRI PAWAN SINGH (Judicial Member), SMT. RENU JAUHRI (Accountant Member)1 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the AO erred in not recording satisfaction for rejecting the assessee's suo-moto disallowance. The Tribunal also noted that the AO's computation of disallowance was unreasonable and without proper appreciation of facts. Therefore, the additional disallowance made by the AO was deleted.

What were the facts?

The Revenue appealed against the CIT(A)'s order, which allowed the assessee's appeal. The Assessing Officer (AO) disallowed expenses under Section 14A read with Rule 8D, which the assessee had already suo-moto disallowed. The AO's disallowance was higher than the assessee's.

What were the issues?

Whether the AO properly recorded satisfaction before making a disallowance under Section 14A when the assessee had already made a suo-moto disallowance, and if the AO's computation of disallowance was justified.

Which sections of the Income-tax Act were involved?

Section 14A,Section 8D,Section 250,Section 143(3)

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Before: SHRI PAWAN SINGH & SMT.RENU JAUHRI

For Appellant: Shri Mani Jain
For Respondent: Shri Surendra Mohan- Sr. DR
Hearing: 29.10.2025Pronounced: 31.10.2025

Date of Hearing 29.10.2025 Date of Pronouncement 31.10.2025 आदेश / O R D E R PER RENU JAUHRI [A.M.] :-

This appeal is filed by the Revenue against the order of the Learned Commissioner of Income-tax (Appeals), Mumbai/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] dated 16.06.2025 passed u/s. 250 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for the Assessment Year [A.Y.] 2022-23.

2.

The grounds of appeal are as follows:

“1. Whether the Ld. CIT(A) erred in not applying the principle laid down by the Hon'ble Supreme Court in Maxopp Investment Ltd. v. CIT (2018) 402 ITR 640 (SC) that Section 14A is attracted where the expenditure is incurred in relation to exempt income, and the availability of interest-free funds is not a standalone defense unless proven to be directly used for investments?”

3.

The brief fact of the case are that the assessee filed her return for A.Y. 2022-23 on 22.10.2022 declaring total income of Rs. 39,33,02,240/-. The case was selected for complete scrutiny for verification of several issues.

After considering the assessee response, the ld. AO proposed to make disallowance of expenses relating to exempt income u/s. 14A r/w Rule 8D of the Act. The assessee submitted that suo-moto disallowance of Rs. 49,08,657/- has already been made despite no expenditure being incurred for earning the exempt income.

However, ld. AO did not accept the assessee contention and made disallowance u/s. 14A r.w.s 8D as per the following computation:

S. Particulars Investment as on Investment on Total No. 31.03.2021 (Rs.) 31.03.200(Rs.) 1 Investment in Tax Free 4,49,43,98,145 4,71,82,79,581/- 9,21,26,77,726/- Income Earning Assests Avg. Value of investment 4,60,63,38,863/-

Disallowance @1% of above = Rs. 4,60,63,388/-

After reducing the suo-moto disallowance of Rs. 49,08,657/- balance amount of Rs. 4,11,54,731/- was disallowed u/s. 14A of the Act and assessment completed at an income of Rs. 43,44,56,971/- vide order u/s. 143(3) dated 16.03.2024.

3.2 Aggrieved, the assessee preferred an appeal before the ld. CIT(A). After detailed examination of the issue, ld. CIT(A) allowed the assessee’s appeal with the following observations:

Aggrieved with the order above of ld. CIT(A), the revenue is in appeal before the Tribunal.

4.

Before us, ld. DR has vehemently argued that the ld.AO has correctly applied the provisions of section 14A r.w.r. 8D to compute the disallowance of expenses incurred on earning the exempt income. He has further submitted that the ld. AO has duly recorded his satisfaction for invoking the provisions of section 14A r.w.r 8D in para 3.4 of his order. In view of these facts, the order of the ld. AO deserves to be upheld.

4.2 Ld. AR, on the other hand, has submitted that no proper satisfaction had been recorded by the ld. AO. In response to the show-cause notice, the assessee had submitted a detailed reply dated 09.03.2024 which has been reproduced in the assessment order by the ld. AO but it has been rejected without due consideration. Ld. AO has not given any findings on the merits of the assessee’s submissions and no satisfaction has been recorded as to why the AO disagrees with the explanation of the assessee.

Ld. AR has further pointed out that the total expenditure incurred by the assessee is only Rs. 2.48 cr as against which the disallowance of Rs. 4.60 cr has been computed by the ld. AO which is preposterous. Lastly, Ld. AR has also placed reliance on the ld. CIT(A)’s order for A.Y. 2014-15 wherein on similar facts, he had deleted the addition made by ld. AO.

5.

We have heard the rival submissions and perused the material available on record. Admittedly, the assessee had suo-moto made a disallowance of Rs. 49,08,657/- u/s. 14A in respect of total exempt income of Rs. 2,14,26,224/- at the time of filing her return of income. This amount includes direct expenses of Rs. 37,59,718/- transaction tax of Rs. 1,65,189/-, STT of Rs. 4,95,328/- and indirect expenses of Rs. 4,88,422/- being 5% of the total expenses. As per the settled legal position, in view decision of Hon’ble Apex Court in the case of Maxopp Investments Ltd. Vs. CIT(2018) 402 ITR 640, ld. AO had to record his satisfaction as to why the suo-moto disallowance made by the assessee was not acceptable which has not been done and, therefore, ld. CIT(A) has righty allowed relief to the assessee.

5.2 Further, the assessee had submitted the working as per section 14A r.w.r 8D after considering only those investments from which exempt income was earned during the year in view of the decision of the special bench in Vireet Investments Pvt. Ltd. V ACIT 165 TRD 27, as per which the disallowance works out to Rs. 21,95,734/-. Ld. AO simply rejected the computation submitted by the assessee and proceeded to compute the disallowance u/s. 14A r.w.r 8D at Rs. 4,60,63,388/- without segregating the investments from which exempt income was derived. Moreover, it is seen that the total expenses debited to the P&L account are only Rs. 2,48,11,639/- and thus the computation of disallowance of Rs. 4,60,63,38,863/- is devoid of any logic and clearly unreasonable. Thus it is clear that ld. AO has not considered the entire factual matrix of the case nor gone through the relevant accounts and the disallowance has been made without proper appreciation of facts in the light of the settled legal position. Accordingly, we are of the considered view, that the disallowance made by the ld. AO over and above the suo-moto disallowance made by the assessee is without any basis and deserves to be deleted.

6.

In the result, the appeal of the revenue is dismissed.

Order Pronounced in Open Court on 31.10.2025

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