UDAY SHANKAR, JT. COMMISSIONER OF INCOME TAX(OSD)-13(1)(2), MUMBAI, MUMBAI vs. NESCO LIMITED, MUMBAI

PDF · subscribers
ITA 2472/MUM/2026Status: DisposedITAT Mumbai09 June 2026AY 2018-195 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that disallowance under Section 14A cannot exceed the amount of exempt income earned. Following various judicial precedents, the excess disallowance made by the AO was deleted.

What were the facts?

The assessee earned exempt dividend income and made a suo motu disallowance. The Assessing Officer (AO) computed a higher disallowance under Section 14A read with Rule 8D, adding the differential amount to the income.

What were the issues?

Whether disallowance under Section 14A read with Rule 8D can exceed the exempt income earned by the assessee.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Before: SHRI AMIT SHUKLA & SHRI PRABHASH SHANKAR

For Appellant: Shri Satish R.Mody,AR
For Respondent: Shri Abhishek Meshram – CIT (DR)
Hearing: 21.05.2026Pronounced: 09.06.2026

आदेश / O R D E R PER PRABHASH SHANKAR [A.M.]:- The present appeal emanating from the appellate order dated 09.12.2025 is preferred by the Revenue against the order passed by the Learned Commissioner of Income-tax (Appeals), (DRP -1) [hereinafter referred to as “CIT(A)”] pertaining to the assessment order passed u/s. 143(3) of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 16.08.2021 for the Assessment Year [A.Y.] 2018-19.

2.

The grounds of appeal are as under:

ITA No. 2472/Mum/2026; Nesco Limited “1. Whether on the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) has erred in deleting the disallowance made by the Assessing Officer under Section 14A read with Rule 8D, without appreciating that the Assessing Officer had recorded proper satisfaction as required under Section 14A(2) and correctly computed the disallowance in accordance with the prescribed method?” 2. The appellant prays that the order of the CIT(A) on the grounds be set aside and that of the Assessing Officer be restored.” 3. The brief facts of the case are that the assessee, a company, filed its return of income declaring total income at Rs.1,77,84,11,310/-. The return was selected for scrutiny. The AO noticed that the assessee had earned exempt dividend income but had not provided monthly opening and closing balances of investments or sufficient evidence to justify its claim that no expenditure was incurred in relation to such exempt income. The AO, after applying the provisions of Rule 8D(2)(iii), quantified the disallowance relatable to exempt income at Rs. 4,18,30,234/-. Considering that the assessee had already made a suomoto disallowance, he restricted the addition to the differential sum of Rs.2,10,95,844/-, which was brought to tax.

4.

Aggrieved, the assessee filed appeal before the ld.CIT(A) contesting the disallowance by claiming that the Assessing Officer proceeded to make an enhanced disallowance without properly appreciating the fact that the appellant had already made a full and adequate suo-moto disallowance equivalent to the exempt income earned during the year. The total exempt income received, being dividend from mutual funds amounting to Rs.2,07,34,390/-, had been fully disallowed in the original computation, and therefore, no further disallowance could be made in excess of such exempt income. This fact was clearly reflected in the computation of income filed 2

ITA No. 2472/Mum/2026; Nesco Limited along with the return. It was further submitted that it is a well settled legal position, consistently upheld by various judicial authorities, that the disallowance u/s 14A of the Act read with Rule 8D could not exceed the amount of exempt income earned during the relevant year.

5.

The ld.CIT(A) agreed with the contentions of the AO holding that judicial pronouncements supported the claim. He mentioned that in Nirved Traders (P) Ltd. (supra)where the assessee had earned exempt dividend income of Rs. 1.13 cr. but the AO disallowed Rs. 4.22 cr. u/s 14A r.w. Rule 8D,it was held that such disallowance could not exceed the exempt income. The disallowance was accordingly restricted to the quantum of dividend income. Similar decision were rendered in CIT v. HSBC Invest Direct (India) Ltd. (2020) 421 ITR 125 (Bom.), Cheminvest Ltd. (Delhi HC) and Holcim India (P.) Ltd. (Delhi HC) etc. Accordingly, in light of these decisions, the assessee having already already disallowed the entire exempt income of Rs. 2,07,34,390/-, additional disallowance of Rs.2,10,95,844/- was unsustainable in law and was therefore, directed to be deleted.

6.

Before us, the ld.DR did not controvert the above judicial precedents squarely applying to the facts of the instant case. The ld.AR on the other hand relied on the appellate order.

7.

We have considered the submissions of both sides and perused the material available on record. In the present case, there is no dispute regarding the fact that the assessee earned dividend income of Rs. 2,07,34,390/- from

ITA No. 2472/Mum/2026; Nesco Limited Mutual Funds , which was claimed as exempt while filing the return of income. There was no dispute regarding the fact that the assessee suo motu computed the disallowance under section 14A r.w. Rule 8D of the Rules to this extent. However, the AO, after applying the provisions of Rule 8D(2)(iii), quantified the disallowance relatable to exempt income at Rs. 4,18,30,234/- and considering that the assessee had already made a suo moto disallowance, he restricted the addition to the differential sum of Rs.2,10,95,844/-, which was added to the returned income.

7.1 On careful consideration of the relevant facts and the legal position emerging from the cited decisions, we do not find any infirmity in the appellate order deleting the excess disallowance. We further find that the Hon'ble Jurisdictional High Court in Nirved Traders Pvt. Ltd. vs. DCIT, in ITA No.149 of 2017, vide judgment dated 23.4.2019, held that the disallowance under section 14A of the Act cannot be more than the exempt income.Similar decisions have also been quoted by the ld.CIT(A) as narrated in the preceding paras. The Hon'ble Supreme Court in the case of Pr.CIT Vs State Bank of Patiala (99 taxmann.com 286), while dismissing SLP filed by the Revenue against order of the Hon'ble Punjab & Haryana High Court in the case of Pr.CIT Vs State Bank of Patiala, held that disallowance u/s.14A could be restricted to amount of exempt income only. The Hon'ble MadrasHigh Court in the case of Marg Ltd Vs. CIT (2020) 120 Taxmann.com 84, has taken a similar view and held that disallowances under Rule 8D r.w. Section 14A of the

ITA No. 2472/Mum/2026; Nesco Limited can never exceed exempt income earned by the assessee during particular assessment year.

7.2 Therefore, respectfully following the aforesaid decisions, we do not find any merit in grounds raised by the Revenue. Accordingly, the appellate order is upheld and the grounds of appeal are dismissed.

8.

Consequently, the above appeal of the Revenue is dismissed.

Order pronounced in the open court on 09/06/2026.

Sd/- Sd/- AMIT SHUKLA PRABHASH SHANKAR (न्याययक सदस्य /JUDICIAL MEMBER) (लेखाकार सदस्य/ACCOUNTANT MEMBER)

Place: म ुंबई/Mumbai ददनाुंक /Date 09.06.2026 Soumili Das / PS

आदेश की प्रयियलयि अग्रेयिि/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त / CIT 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER,

उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अविकरण

More judgments on Section 14A

All 15,875 judgments and leading authorities on Section 14A →

Recent GST High Court judgments

Search GST case law →