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Facts
The assessee earned exempt dividend income of Rs. 23,79,600/-. The AO disallowed Rs. 4.57 crore under Section 14A, partly attributing it to Rule 8D(i) and 8D(iii), and added it to the book profit under Section 115JB. The CIT(A) upheld the disallowance but allowed relief for the book profit adjustment.
Held
The Tribunal held that disallowance under Section 14A cannot exceed the amount of exempt income. For the revenue's appeal, the Tribunal upheld the CIT(A)'s decision that expenses disallowed under Section 14A cannot be added to book profit under Section 115JB.
Key Issues
Whether disallowance under Section 14A can exceed exempt income, and whether expenses disallowed under Section 14A can be added to book profit under Section 115JB.
Sections Cited
14A, 8D, 10(35), 115JB, 254(1)
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2013–14) Income Tax officer Ward Vs. Akshaya Holdings Pvt ltd. 3(1)(1), Aayakar Bhawan, C-9, Elder House, Dalia 6th Floor, Room No. 666, IND. Estate, Andheri (W) M.K. Road, Churchgate, off Veera Desai Road, Mumbai- 400020 Mumbai- 400053 PAN: AABCA 0224 E (Appellant) (Respondent) .. Assessee by Shri. Prateek Jain CA Revenue by Shri. Pravin Salunkhe, Sr. DR Date of Hearing 07/10/2025 Date of Pronouncement 08/10/2025 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. These two cross appeal by the assessee as well as revenue are directed against the order of Learned Commissioner of Income Tax (Ld. CIT(A)) dated 30.03.2025. The assessee in its appeal has raised following ground of appeal:- “The following grounds of appeal are without prejudice to each other:-
1. On the facts and circumstances of the appellant's case in law the Ld. CIT(A) erred in confirming the action of Ld. AO in making disallowance u/s 14A r.w.r 8D of Rs. 1,22,89,690/- as per the grounds stated in the order or otherwise.
2. The appellant craves leaves to alter, amend, withdraw or substitute any ground or grounds of appeal on or before the hearing.
& 3369/MUM/2025 Akshaya Holdings Pvt Ltd. The appellant prays Your Honour to direct the Learned Assessing Officer to delete the additions/disallowance made in the impugned order.”
Revenue in its cross-objection has raised following grounds of appeal. “i) "On the facts and circumstances of the case and law, whether the Ld. Addl./JCIT (A) was justified in deleting the enhancement of book profit computed u/s 115JB by an amount of Rs. 4,57,00,370/-, being disallowance made u/s 14A r.w.Rule 8D of the I.T. Act, 1961, without appreciating the facts that Explanation (1) of clause (f) specifically provides for such adjustment being disallowance of expenditure related to exempt income."
3. Rival submissions of both the parties have been heard and record perused. The learned Authorized Representative (Ld.AR) of the assessee submits that during the relevant financial year the assessee earned dividend income of Rs. 23,79,600/-only. The assessee received such exempt income in the form of dividend from investment in Mutual Funds. Such dividend is exempt under section 10(35) of Income Tax Act. During the assessment proceedings the assessing officer invoked the provisions of Rule 8D of Income Tax Rules 1962 and computed disallowance under section 14A of Rs. 4.57 crore, such disallowances consist of disallowances under Rule 80D(i)of Rs. 4.54 crore and disallowances in Rule 8D(iii) of Rs. 2.39 Lakhs. The assessee disallowed interest paid of Rs. 3.34 crore in its computation of income. The assessing officer allowed set off of such interest disallowances and worked out the figure of disallowance in 14A of Rs. 1.22 crore and also added to the book profit under section 115JB. On appeal the Ld. CIT(A) upheld the action of assessing officer on disallowances of 14A, however, allowed relief for making adjustment of such addition in book profit under section 115JB. Now, the assessee has challenged the order of Ld. CIT(A) in confirming the disallowances under section 14A. On the other hand, revenue has challenged the action of Ld. CIT(A) in allowing relief for deleting such addition to book profit under section 115JB. The ld.AR of the 2 & 3369/MUM/2025 Akshaya Holdings Pvt Ltd. assessee further submits that in the series of decision various benches of Tribunal as well as Higher Courts have taken a consistent view that disallowance under section 14A cannot be exceed to the figure of exempt income. Thus, the disallowance under section 14A may be restricted to the exemption income. To support his submissions he relied on the decision of Mumbai Tribunal in DCIT Vs Welspun Steel Ltd (2024) 167 taxmann.com 720(Mum). Against the grounds of appeal in revenue appeal the Ld.AR of the assessee submits that ground of the appeal as raised by the revenue is covered against revenue by decision of special Bench of Delhi Tribunal in ACIT V/s. Vireet Investment Pvt. Ltd. reported in [2017] 82 taxmann.com 415.
4. On the other hand, Learned Senior Departmental Representative (Ld. Sr. DR) for the revenue supported the order of assessing officer. The ld. Sr. DR submits that assessing officer made disallowances under section 14A by applying the formula prescribed in Rule 80D. So far as revenue appeal is concerned, he also supported the order of assessing officer.
5. We have considered the rival submission of both the parties and have gone through the orders to lower authorities carefully. We have also deliberated on various case laws relied by lower authorities as well as by ld. AR of the assessee. We find that very limited controversy is involved in both the appeals. So far as appeal of assessee is concerned, we find that exempt income is only of Rs. 23,79,600/-. The assessing officer made disallowance of Rs. 4.57 crore by invoking the procedure of Rule 8D. We find that settled position under law is that disallowance under section 14A cannot exceed the figure of exempt income & 3369/MUM/2025 Akshaya Holdings Pvt Ltd. as has been held by Delhi High Court in Cam investment limited vs. CIT (2015) 61 taxmann.com 118 (Delhi). Similar view was taken by coordinate bench of Mumbai Tribunal in DCIT Vs Welspun Steel Ltd (2024) 167 taxmann.com 720(Mum). Thus, the assessing officer is directed to restrict the disallowances under section 14A of the extent of exempt income. In the result, the ground of appeal raised by the assessee is partly allowed. In the result, the appeal of the assessee is partly allowed.
6. So far as grievance raised by revenue in their cross appeal we find that such ground of appeal is squarely covered by the special bench in case of ACIT V/s. Vireet Investment Pvt. Ltd. (Supra), wherein it was held that disallowances made under section 14A cannot be applied while computing book profit under clause (f) of explanation (1) to section 115 JB. Similarly view was taken by coordinate bench of Mumbai DCIT vs Welspun Steel Ltd. [2024] 167 taxmann.com 720 (Mumbai-Trib.). The ld CIT(A) while allowing relief to the assessee held that Delhi High Court in CIT Vs Bhushan Steel Ltd (2013)
66. Taxman 117 (Delhi) held that the expense disallowed under section 14A cannot be added to book profit under section 115JB. Thus, we affirm the order of ld CIT(A). I the result, the ground of appeal raise by the revenue is dismissed.