ASSISTANT COMMISSIONER OF INCOME TAX 8 2 1, MUMBAI vs. PAN INDIA NETWORK LIMITED, MUMBAI

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ITA 3397/MUM/2026Status: DisposedITAT Mumbai08 September 2026AY 2017-185 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The CIT(A) restricted the disallowance to the extent of the exempt income earned by the assessee, i.e., Rs. 15,58,058. The Tribunal upheld this decision, relying on various High Court judgments stating that disallowance under Section 14A cannot exceed the total exempt income.

What were the facts?

The Assessing Officer (AO) made a disallowance of Rs. 59,65,38,787 under Section 14A read with Rule 8D for expenditure related to tax-exempt income. The assessee had only offered a disallowance of Rs. 15,58,058, which was the total exempt income.

What were the issues?

Whether the disallowance under Section 14A can exceed the total exempt income earned by the assessee. Applicability of the newly inserted explanation to Section 14A w.e.f. 01.04.2022.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI

Before: SHRI SANJAY GARG & SHRI JAGADISH

आदेश / ORDER

Per Sanjay Garg, Judicial Member:

This appeal is filed by the Department against the order of Ld. Commissioner of Income Tax (Appeal) (in short “Ld. CIT(A)) vide DIN: ITBA/APL/S/250/2025-26/1085294585(1) dated 29-Jan-2026 for the Assessment Year 2017-18. The Department has raised the following grounds of appeal:

1) Ground No 1 Whether on the facts and circumstances of the case and in law, the Ld CIT (A) has erred in restricting the disallowance made us 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962 to the extent of exempt income of Rs 1558058 as against the disallowance of Rs.59,65,38,787 computed by the Assessing officer in accordance with Rule 8D of the Income Tax Rules, 1962 2) Ground No 2 Whether on the facts and circumstances of the case and in law, the Ld CIT (A) has failed to appreciate that the Assessing Officer had rightly invoked the provision of section 14A(2) of the Income Tax Act, 1961 after recording dissatisfaction regarding the correctness of the assessee claim and had computed the disallowance as per the mandatory method prescribed under Rule 8D of the Income Tax Rules, 1961 and therefore the restriction of disallowance to the extent of exempt income is contrary to the provisions of the Act

2.

The sole issue involved in this appeal is relating to disallowance made by the AO u/s 14A of the Income Tax Act, 1961 (in short “the Act”) r.w.r. 8D of the Income-tax Rules in respect of notional expenditure incurred by the assessee for earning of the tax exempt income. The assessee during the year under consideration earned tax exempt income of Rs. 15,58,058/-. The assessee suo moto offered disallowance of expenditure u/s 14A of the Act @ 10% of the total exempt income earned by the assessee only. The Assessing Officer noted that the assessee had made huge investments and whereas, the disallowance offered u/s 14A r.w.r 8D of the rules was very less, he therefore invoked the provisions of Sec. 14A of the Act r.w.r 8D of the Income Tax Rules and calculated the disallowance as per prescribed formula under Rule 8D and made the disallowance of Rs. 59,65,38,787/- and added the sme to the income of the assessee.

3.

Being aggrieved by the said order of the AO, the assessee preferred appeal before Ld. CIT(A). The Ld. CIT(A) relying upon the various decisions of the Hon’ble High courts of the country, held that the disallowance u/s 14A of the Act cannot exceed the total exempt income earned by the assessee during the year under consideration. He therefore restricted the disallowance to the extent of exempt income earned by the assessee at Rs. 15,58,058/-.

4.

Being aggrieved by the said order of the Ld. CIT(A), the department has preferred the present appeal before us.

5.

At the time of hearing none appeared on behalf of the assessee despite service of notice, however considering the issue involved in this case being covered by the decisions of the various Hon’ble Courts of the Country, we proceed to adjudicate the appeal on merits.

6.

The issue relating to disallowance of notional expenditure u/s 14A of the Act is no more res-integra and is covered by the various decisions of the Hon’ble High Courts, who are unanimous to hold that the disallowance u/s 14A of the Act cannot exceed the total exempt income earned by the assessee during the relevant year, and further that no disallowance is attracted u/s 14A of the Act in case the assessee has not earned any income not forming part of the total income. Reliance in this respect can be place on the following case laws: CIT, Faridabad Vs. Lakhani Marketing Inc.' 226 Taxman 45 (P&H); CIT Vs. Winsome Textiles (2009) 319 ITR 204 (P&H) Cheminvest Ltd Vs. ITO' (2015) 378 ITR 33 (Delhi) Corrtech Energy P. Ltd. (2014) 45 Taxman.com 116 (Gujarat High Court) CIT Vs. M/s Shivam Motors (P) Ltd' (2014) 272 CTR (All) 277.

6.1. The Ld. DR however, has submitted that in view of the newly inserted explanation to Section 14A of the Act w.e.f. 01.04.2022, the disallowance I/s 14A of the Act is attracted of the expenditure incurred in relation to income not forming part of the total income, irrespective of the fact that such tax exempt income has not accrued or arisen or has not been received during the previous year relevant to an assessment year. The said explanation to section 14A is extracted hereunder, for the sake of ready reference:- "14A. [(1)] [Notwithstanding anything to the contrary contained in this Act, for the purposes of] computing the total income under this 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 this Act.] ************************ *********************** [Explanation.--For the removal of doubts, it is hereby clarified that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where the income, not forming part of the total income under this Act, has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such income not forming part of the total income.]"

6.2. However, we note that the said issue is also covered by the decision of the Hon'ble Delhi High Court in the case of PCIT Vs. Era Infrastructure (India) Ltd. (ITA 204/2022) judgment dated 20/07/2022, wherein, it has been held that the aforesaid explanation inserted to Section 14A of the Act is applicable prospectively. In view of the above discussion, we do not find any infirmity in the order passed by the Ld. CIT(A), and the same is , hereby, upheld.

7.

In the result, the appeal filed by the revenue is dismissed.

Order pronounced in the open court on 08.09.2026

Sd/- Sd/- Jagadish Sanjay Garg ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai Dated: 08.09.2026 KRK, Sr. PS Copy to: ASSISTANT COMMISSIONER OF INCOME TAX 8 2 1, ROOM NO. 621A, AAYAKAR BHAWAN, MK 1 ROAD, CHURCHGATE, MUMBAI-400020, MUMBAI-400020, MAHARASHTRA PAN INDIA NETWORK LIMITED, 135, CONTINENTAL BUILDING ,DR ANNIE 2 BESANT ROAD WORLI MUMBAI 400018 ,MAHARASHTRA, MUMBAI-400018, MAHARASHTRA 3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAIBENCH 5 GUARD FILE

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