PARIKH ENTERPRISE PRIVATE LIMITED,AHMEDABAD vs. THE DY.CIT,CIRCLE 3(1)(1), AHMEDABAD

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ITA 2465/AHD/2025Status: DisposedITAT Ahmedabad15 May 2026AY 2018-195 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal found the disallowance of Rs. 22.20 lakhs to be unjustified given the exempt income earned. It considered it fit to restrict the disallowance to 10% of the amount, i.e., Rs. 2.20 lakhs.

What were the facts?

The assessee made substantial investments in mutual funds during the assessment year, earning exempt income of Rs. 8.17 lakhs. The Assessing Officer disallowed expenses of Rs. 22,20,686 under Section 14A read with Rule 8D, which was confirmed by the CIT(A).

What were the issues?

The primary issue was the quantum of disallowance of expenses under Section 14A for earning exempt income, considering the extent of investments and exempt income earned.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD

Before: SHRI SANJAY GARG & SMT. ANNAPURNA GUPTA

For Appellant: Shri Jyotish M. Shah, AR, Shri Rameshwar P Meena, SR.DR
For Respondent: Shri Rameshwar P Meena, SR.DR
Hearing: 15/05/2026

PER ANNAPURNA GUPTA, AM:

The present appeal has been filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (hereinafter referred to as “NFAC”), Delhi (hereinafter referred to as “CIT(A)”) dated 30.10.2025 passed under Section 250 of the Income Tax Act,

ITA No.2465/Ahd/2025 [Parikh Enterprise Private Limited vs. Dy.CIT] A.Y. 2018-19 - 2 –

1961 (hereinafter referred to as the “Act”) and relates to Assessment Year (A.Y.) 2018-19.

2.

The grounds of appeal raised by the assessee read as under:

“1. Ground No. 1-Invalid and Bad Order (Not taken before AO/CIT(A)) 1.1. On the facts and in the circumstances of the case and in law, the order passed by the learned Assessing Officer is invalid and bad in law as the notice was issued for reasons different from those on which the order has been passed. 2. Ground No. 2-Non-grant of Virtual Hearing 2.1. On the facts and in the circumstances of the case and in law, the learned Assessing Officer erred in not granting virtual hearing despite specific request made by the Appellant. 3. Ground No. 3-Violation of Principles of Natural Justice 3.1. On the facts and in the circumstances of the case and in law, the learned Assessing Officer erred in passing the order without considering detailed submissions filed by the Appellant, thereby violating principles of natural justice. 4. Ground No. 4-Invalid Service of Notice under Section 143(2) 4.1. On the facts and in the circumstances of the case and in law, the notice under section 143(2) was not validly served. The Appellant learnt about the notice by chance while going through the Income Tax Portal. The Appellant did not receive any email intimation of the notice being uploaded. 5. Ground No. 5-Addition under Section 14A is contrary to facts and binding precedents 5.1. On the facts and in the circumstances of the case and in law, the Assessing Officer has erred in making addition of 22,20,686 under section 14A read with Rule 8D by presuming that some portion of Employee Benefit Expenses and Other Expenses debited to the Profit & Loss account is attributable to dividend income earned by the Appellant.

ITA No.2465/Ahd/2025 [Parikh Enterprise Private Limited vs. Dy.CIT] A.Y. 2018-19 - 3 –

5.2 On the facts and in the circumstances of the case and in law, the action of the Assessing Officer to make addition under section 14A read with Rule BD is mechanical, without appreciating the facts of the case 5.3. On the facts and in the circumstances of the case and in law, the Assessing Officer has erred in not dealing with the various judicial decisions relied upon by the Appellant, including decisions of the Hon'ble Supreme Court. The Assessment Order is passed ignoring binding decisions. 6. Ground No. 6-CIT(A) Ignored Facts Brought to Notice 6 6.1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in passing the order ignoring the facts that were specifically brought to their notice by the Appellant 7. Ground No. 7-Incorrect Levy of Interest under Sections 2348 and 234C 7.1. On the facts and in the circumstances of the case and in law, the interest under sections 2348 and 234C has been incorrectly levied due to no fault of the Appellant. The appeal was filed on 06-10-2021, but was taken up late. There was only one notice issued dated 25-01-2024. The Appellant filed a request to take up the appeal and requested for hearing on 26-06-2025. 8. Ground No. 8-Initiation of Penalty under Section 270A 8.1. The AO has erred in initiating penalty proceedings u/s 270A which is invalid on facts of the case.”

3.

The solitary issue in the present appeal relates to disallowance of expenses incurred allegedly for the purposes of earning exempt income as per Section 14A of the Act. The assessee was noted to have made substantial investment in mutual funds, however, no disallowance of expenses u/s.14A of the Act was made while computing the income liable to tax during the impugned year. The AO, accordingly, invoked Rule 8D and

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computed the disallowance at Rs.22,20,686/-, which was confirmed by the Ld. CIT(A).

4.

Before us, the contention of the Ld. Counsel for the assessee was that the assessee had earned exempt income only to the tune of Rs.8.17 Lakhs and disallowance of expenses to the tune of Rs.22.20 lakhs was grossly unjustified.

5.

We have heard the rival contentions. The facts relating to the issue are that the assesse had substantial transaction in mutual funds during the impugned financial year with purchases amounting to Rs.83,72,21,521/- and sales totaling to Rs.79,55,86,800/-. The opening balance of investments was Rs.20,08,57,703/- and the closing balance stood at Rs.24,24,92,425/-. The employee benefits expense during the year amounting to Rs.6,69,69,631/- and other business expenses amounting to Rs.7,91,41,875/-. The exempt income earned by the assessee admittedly was to the tune of Rs.8.17 Lakhs. Considering the above facts, it is evident that the assessee had made substantial investments / transaction in mutual funds during the year. These huge investments cannot logically be made without incurring any cost either by way of time of several managerial level employees or others involved in the activity of investments. The expenses incurred in relation to these investments which had resulted in the earning of exempt income cannot be completely ruled out, but, at the same time considering that the assessee had earned exempt income only to the tune of Rs.8.17 Lakhs, disallowance of expense to the tune of Rs.22 lakhs

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is highly unjustified. We, therefore, consider it fit to restrict the disallowance made by the AO to the extent of 10% i.e. 2.20 Lakhs considering the entire facts and circumstances of the case.

6.

In the result, the appeal filed by the asessee is partly allowed in above terms.

This Order pronounced on 15/05/2026

Sd/- Sd/- (SANJAY GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 15/05/2026 S. K. SINHA True Copy आदेश क� �ितिल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. 2. ��यथ� / The Respondent. संबंिधत आयकर आयु� / Concerned CIT 3. आयकर आयु�(अपील) / The CIT(A)- 4. 5. �वभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad गाड� फाईल / Guard file. 6. आदेशानुसार/ BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad

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