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Facts
The Revenue preferred appeals against orders that restricted disallowances under Section 14A. The Assessing Officer had made substantial additions for disallowance of expenses related to exempt income, while the assessee had suo-motu disallowed a portion. The High Court had previously ruled that disallowance under Section 14A cannot exceed exempt income.
Held
The Tribunal held that the Commissioner's decision to restrict the disallowance based on the exempt income earned by the assessee, and considering the High Court's ruling in the assessee's own case, was correct and did not require interference.
Key Issues
Whether the disallowance under Section 14A of the Income Tax Act, r.w.r 8D of the Rules, can exceed the exempt income earned by the assessee. Whether the Commissioner correctly applied the High Court's ruling in restricting the disallowance.
Sections Cited
143(3), 153C, 14A, 8D, 250
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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI NARENDER KUMAR CHOUDHRY
Per : Narender Kumar Choudhry, Judicial Member:
These appeals have been preferred by the Revenue against the orders even dated 20.03.2025, impugned herein, passed by the Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2008-09 & 2013-14. in this case, the Assessing Officer (AO) vide assessment order dated 23.03.2016 u/s 143(3) r.w.s. 153C of the Act has made the addition of Rs.4,22,72,425/- u/s 14A r.w.r. 8D of the Income Tax Rules, 1962 (in short “the Rules”).
The Assessee, being aggrieved, challenged the said disallowance/addition by filing first appeal before the Ld. Commissioner who for deciding the issue qua 14A disallowance has taken into consideration following facts:
“That in the original assessment u/s 143(3) of the Act, similar disallowance u/s 14A r.w.r 8D of the Act to the tune of Rs.4,22,72,425/- has also been made which was also confirmed by the Tribunal. However, the Hon'ble High Court in the Assessee’s own case titled as M/s. Nirved Traders Pvt. Ltd. Vs. DCIT, Circle-1(2) in Income Tax Appeal No.149 of 2017 decided on 23.04.2019 ultimately held that “the disallowance u/s 14A of the Act r.w.r 8D of the Rules cannot exceed the exempt income earned by the Assessee during the relevant year. Therefore, the disallowance was restricted to Rs.1,13,72,545/- being exempt income earned by the Assessee. But still the AO vide assessment order dated 23.03.2016 u/s 143(3) r.w.s 153C of the Act has made the same addition/disallowance. The Assessee had suo- moto made a disallowance of Rs.2,64,63,801/- in the return filed u/s 153C of the Act, which is much higher than the amount of Rs.1,13,72,545/- as held by the Hon'ble High Court in respect of very same assessment year. The Assessee has received dividend income of Rs.1,13,72,545/- and long term capital gain of Rs.3,41,10,536/- which were claimed as exempt. Moreover, the Assessee himself has been fair enough to compute the figure of disallowance at Rs.2,64,63,801/- in the return filed in response to the notice u/s 153C of the Act. Thus, no further disallowance whatsoever is called for.
And ultimately deleted the disallowance of Rs.4,22,72,425/- made by the AO vide assessment order dated 23.03.2016 u/s 143 r.w.s. 153C of the Act.
We are of the considered view that the Ld. Commissioner by taking cognisance of the fact that the Assessee has already made the suo-moto disallowance of Rs.2,64,63,801/- and Hon’ble Bombay High Court, in the Assessee’s own case for the assessment year under consideration considering the original assessment order u/s 143(3) of the Act vide order dated 23.04.2019 (supra) has restricted the disallowance to the tune of Rs.1,13,72,545/-. Thus, the decision of the Ld. Commissioner is correct, as per facts and circumstances of the case and therefore the decision of the Ld. Commissioner does not require any interference, as the same neither suffers from any perversity nor malafide or illegality. Hence, the appeal filed by the Revenue Department is dismissed. in this case, the Assessee had earned dividend income of Rs.3,03,403/- and claimed the same as exempt, however, the AO vide assessment order dated 23.03.2016 u/s 143(3) r.w.s. 153C of the Act has made the disallowance of Rs.2,21,14,838/- u/s 14A r.w. rule 8D of the Income Tax Rules, 1962 (in short “the Rules”). The Ld. Commissioner by considering the peculiar facts and circumstances held that the AO had already disallowed the amount of Rs. 28,066/- and the Hon’ble Bombay High Court in the Assessee’s own case for the A.Y. 2008-09 vide order dated 23.04.2019 in of 2014 (supra) has held that the disallowance u/s 14A would be limited to the exempt income earned by the Assessee. As in the present case, the exempt income of the Assessee is of Rs.3,03,403/- and the Assessee has already disallowed an amount of Rs.28,066/-,hence the disallowance is restricted to Rs.2,75,337/- and balance disallowance of Rs.2,19,11,435/- stands rejected.
We observe that the Ld. Commissioner before coming to a conclusion and/or making the decision for restricting the disallowance not only considered the factual aspect but also the judgment of the Hon’ble Bombay High Court in the Assessee’s own case. Thus, the Ld. Commissioner has not committed any mistake and therefore the orders of the Ld. Commissioner does not require any interference, as the same are neither suffers from any perversity nor impropriety or illegality. Hence, the appeals filed by the Revenue Department stands dismissed.
In the result, both the appeals of the Revenue Department are dismissed.
Order pronounced in the open court on 30.09.2025.