BACHHRAJ AND COMPANY PRIVATE LIMITED,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX, MUMBAI

आदेश / O R D E R PER PRABHASH SHANKAR [A.M.] :- The above captioned appeals emanating from the appellate orders dated 12.09.2025 are preferred by the assessee against the order passed by the Learned Commissioner of Income-tax (Appeals), NFAC, Delhi [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”] for the

ITA No. 8157, 8158, 8159/Mum/2025; Bachhraj & Company Pvt.LTd. Assessment Years [A.Y.] 2017-18,2018-19 and 2020-21.As they all involve common issue of section 14A of the Act, having been decided by the ld.CIT(A) by orders of even date, they are being adjudicated vide this composite order for the sake of brevity. The grounds of appeal are also identical barring figurative difference. We take up appeal for AY 2017-18 as the „Lead case.Decision rendered here would apply mutatis mutandis to other appeals as well.

The grounds of appeal are as under: “1. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the disallowance of Rs. 1,90,84,951 under section 14A in respect of expenditure attributable to earning of exempt income. 2. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in invoking the provisions of Rule 8D for the purpose of computing disallowance under section 14A of the Act. 3. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in invoking the provisions of Rule 8D without recording non-satisfaction with the correctness of the disallowance of Rs. 25,00,608 made by the appellant on a reasonable basis. 4. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in holding that the Assessing Officer had categorically stated the reasons why he is not satisfied with the disallowance made by the assessee; whereas the Assessing Officer had only rejected the assessee's disallowance since it was not computed as per the method prescribed under Rule 8D without even examining the working of the disallowance made by the assessee. 5. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in not considering the suo moto disallowance under section 14A of Rs. 25,00,608 made by the appellant in the return of income which was worked out after analysing each and every head of expenditure debited to the Profit and Loss Account.

ITA No. 8157, 8158, 8159/Mum/2025; Bachhraj & Company Pvt.LTd. 6. Without prejudice to the above grounds of appeal and if it is held that Rule 8D is applicable for computing the disallowance under section 14A, the Commissioner of Income-tax (Appeals) erred in not giving any finding in respect of the following contentions of the appellant: (i) that only the investments which have yielded exempt income during the relevant year ought to be included while computing the disallowance as per Rule 8D; (ii) that investments in units under the Growth schemes of Mutual Funds ought to be excluded while computing disallowance as per Rule 8D; (iii) that the investments in mutual funds sold during the year, resulting in taxable income which has been offered to tax, ought to be excluded while computing disallowance as per Rule 8D (iv) that the disallowance as per Rule 8D ought to be computed at 1% of the annual average of the monthly averages of the opening and closing balances of the value of investments. 3. The assessee filed its return of income declaring total income of Rs.69,85,43,480/-.It is an NBFC company registered with the Reserve Bank of India engaged in activities of financing, bill discounting, etc. and holds investments in equity shares and preference shares of group companies. The case was selected for complete scrutiny under CASS, notice u/s 143(2) of the Act. Notices were issued from time to time, calling for certain details/information. During assessment proceedings, it was observed by the AO that the assessee had earned Dividend of Rs.3,48,02,865/- from domestic companies, Rs.3,74,,51,565/- income from units of Mutual funds, and sum of Rs.62,35,762/- as income from Tax free bonds, which it had claimed as exempt u/s.10 of the Act. It was also observed that the assessee had made a suo moto disallowance u/s. 14A of Rs.25,00,608/- on reasonable basis. However, the AO was satisfied this this disallowance was not as per the provision of section 14A of the Act read with Rule 8D.

ITA No. 8157, 8158, 8159/Mum/2025; Bachhraj & Company Pvt.LTd. 3.1 Ground nos. 1 t0 5 are discussed and adjudicated at the outset whereby the assessee has contested applicability of section 14A r.w. Rule 8D in making disallowance without taking due cognizance of the suo motu disallowance offered by the assessee on a reasonable basis and also without recording non satisfaction on the same. Facts emanating from the assessment order reveal that the assessee was asked by the Assessing Officer to furnish the details of expenditure for earning exempt income and the working of disallowance of expenditure as per the section 14A r.w.r 8D and also reasons why the same should not be disallowed? In response, it was submitted that the assessee company that it earned aggregate sum of Rs. 3,48,02,865/- as dividend from domestic companies, income from mutual funds and interest on tax-free bonds which were claimed as exempt under sections 10(34), 10(35) and 10(15) of the Act respectively. It made suo moto disallowed a sum of Rs. 25,00,608/- under section 14A of the Act which was computed on a reasonable basis after a detailed analysis of each and every head of expenditure debited to the Profit and Loss account. A statement showing computation of disallowance as per section 14A was also filed. It was submitted that as per the provisions of section 14A of the Act, only that expenditure could be disallowed which was incurred in relation to the income which did not form part of the total income. It is pleaded that apart from demat charges, no direct expenditure had been incurred for earning of exempt income. Further, as evident from the financial statements, the assessee had no borrowings at all. Accordingly, all the investments had been made out of its own funds. However, in compliance with the provisions of section 14A, it had 4

ITA No. 8157, 8158, 8159/Mum/2025; Bachhraj & Company Pvt.LTd. had out of abundant caution, allocated certain indirect expenses which might have a secondary nexus with the earning of exempt income and made a disallowance in respect of the same as per the reasonable basis. It submitted that the said disallowance more than sufficient to cover both the direct and indirect expenses in relation to earning exempt income. Rule 8D ought not to be invoked without recording non satisfaction with the correctness of the computation of disallowance made by the assessee. Further, the Assessing Officer must record reasons for non satisfaction of claim before invoking Rule 8D. Without prejudice to the above, it was submitted that even if the disallowance was to be made under section 14A of the Act as per Rule 8D, the same ought not to be made in respect of long-term legacy Investments in group companies since the same do not require day-to-day monitoring and accordingly no administrative expenditure was attributable to the earning of exempt income from such Investments. Without prejudice to the above further, it was submitted that even if disallowance was to be made under section 14A of the Act as per Rule 8D, the same ought to be made only on those investments which had actually yielded exempt income during the year In this connection, reliance was placed on the decision of Special Bench of ITAT, Delhi in the case of ACIT vs. Vireet Investments (P.) Ltd [2017] 82 taxmann.com 415. 3.2 It was further submitted without prejudice to the above, that even if the disallowance is made under section 14A of the Act as per Rule 8D, the same ought not to be computed on the growth mutual funds held by the assessee since they were never capable of yielding tax-free income during the 5

ITA No. 8157, 8158, 8159/Mum/2025; Bachhraj & Company Pvt.LTd. lifetime of the security. Even if the disallowance was made under section 14A of the Act as per Rule 8D, the same ought not to be computed on the mutual funds sold during the year which had yielded taxable capital gains during the year. 3.3 The contention of the assessee was not acceptable to the AO who observed that as per provisions of section 14A of the Act, any expense incurred to earn exempt income was not allowable in accordance with the procedure laid down in Rule 8D. A plain reading of this section makes it evident that if any expenditure has been incurred by the assessee in relation to income which does not form part of the total income under this Act, no deduction in respect of such expenditure shall be allowed to the assessee, irrespective of whether or not there is any yield of dividend on the shares purchased, the expenses incurred for the acquisition of investments is required to be disallowed u/s14A of the Act. 3.4 Reliance was also placed by him on the decision of Hon'ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT [Civil Appeal Nos. 104-109] dated 12.02.2018, where it was held that AO had to be satisfied from the financial statement of the assessee before applying Rule 8D. Hence, as per the this decision, Hon'ble Apex Court held that after satisfaction of the AO, there is no other option but to compute disallowance for earning exempt income as per Rule 8D. Assessee's reliance on the case of Hon'ble Special Bench of ITAT, Delhi in the case of ACIT v. Vireet Investment (P.) Ltd. (supra) was considered carefully. It was stated as the Revenue had filed further appeal against the decision in the case of Vireet Investments (P.) Ltd. (supra), on this 6

ITA No. 8157, 8158, 8159/Mum/2025; Bachhraj & Company Pvt.LTd. issue. The ssessee further contended that growth mutual funds which yielded taxable income should not be considered for the disallowance was acceptable, however, the same could not be considered as the assessee had not submitted any details of such funds. Its contentions that mutual funds sold during the year which gave taxable capital gain should not be considered for disallowance was not acceptable as those funds were capable of yielding exempt income. 3.5 The AO further stated that the assessee had earned huge amount of exempt income, which does not form part of its total income. The working of disallowance of expense related to earning such income made by the assessee was not computed as per Rule 8D. As per the provisions of Section 14A r/w Rule 8D disallowances of expenditure in earning exempt income had to be made if the AO is satisfied that such expenditure was incurred but not disallowed by the assessee. The disallowance is to be made even if the assessee contends that no expenditure has been incurred in earning exempt income. The investments cannot be managed without inherent expenses since no investments can be made without market analysis and expertise. The assessee could not have got the market expertise and the necessary staff for free and has to necessarily incur expenditure. It was not possible without sufficient expertise as to selection of securities and timely swaps. With increase in technicalities involved in market operations, the assessee was bound to have expert advice and would be in receipt of various daily reports, fortnightly reports and monthly reports at deployment / redemption of their investments in various schemes. These inputs had costs in terms of substantial time as well as cost on account of conveyance, travelling, telephone / mobile bills, 7

ITA No. 8157, 8158, 8159/Mum/2025; Bachhraj & Company Pvt.LTd. stationery, etc. It was difficult to ascertain such costs in quantitative terms. The assessee had non-current quoted/unquoted investment and for which it had incurred certain expenses which were to be determined as per Rule 8D. In it submission, the assessee stated that the legal & professional fees and audit fees were fixed charges for the assessee, but a part of these charges are incurred for the purpose of earning of exempt income. Apart from the same, from the audited financial statement of the assessee, it was observed that it had expenses like electricity charges, travelling & conveyance expenses, which were common expenses and needed to be apportioned for the purpose of managing investments which could potentially yield exempt income. These expenditures were incurred by the assessee for managing investments which was not related wholly and exclusively for its business. Accordingly, the assessee was given opportunity to show cause as to how other expense and miscellaneous expenses were related to managing its investment. The assessee did not furnish any explanation on such expenses as to how they were related wholly and exclusively to its business. Moreover, according to him, in view of the decision of ITAT Special Bench, Mumbai in the case of M/s. Daga Capital Management Pvt. Ltd. (ITA No. 8057/Mum/02), disallowance u/s 14A r.w. rule 8D needed to be made, wherein according to the majority view of the Special Bench of Tribunal was what is relevant is to work out the expenditure in relation to the exempt income and not to examine whether the expenditure incurred by the assessee had resulted into exempt income or taxable income.. As held by the jurisdictional High Court in the case of Godrej & Boyce Mfg. Co. Ltd. vs. DCIT [ITXA 626 of 2010] dated 12.08.2010, Rule 8D was applicable 8

ITA No. 8157, 8158, 8159/Mum/2025; Bachhraj & Company Pvt.LTd. from A.Y. 2008-09 onwards. Further, the methodology used by assessee was not as prescribed in I.T. Rules. Hence, the AO recorded his satisfaction that the disallowance u/s. 14A as per Rule 8D had to be made and the disallowance of Rs. 25,00,608/- made by the assesses was not as per Rule 8D. Once it was decided that the provisions of Sec.14A were applicable, the disallowance should be worked out as per Rule 8D which prescribes the method for computation of amount to be disallowed u/s.14A of the ActAs per the IT(Fourteenth Amendment) Rules, 2016 applicable w.e.f. 02.06.2016, the expenditure in relation to income which does not form part of the total income shall be the aggregate of the following amounts, namely, provided such expenditure should not exceed the total expenditure claimed by the assessee. The amount of expenditure directly relating to income which does not form part of total income and (ii) an amount equal to one percent of the annual average of the monthly averages of the opening and closing balances of the value of investment, income from which does not or shall not form part of the total income. As per the same, the monthly averages of the investment and expenditure directly relating to the exempt income had been called for and examined and rejecting the contentions of the assessee.Therefore, expenses to the tune of Rs. 1,90,84,951/- were disallowed by invoking the provisions of section 14A r.w.r 8D. Since the assessee had made suo moto disallowance of Rs.25,00,608/-, the disallowance in this regard was restricted to Rs. 1,65,84,343/- which was added to the total income of the assessee.

ITA No. 8157, 8158, 8159/Mum/2025; Bachhraj & Company Pvt.LTd. 4. Aggrieved by the above order, the asessee preferred appeal before the ld.CIT(A) reiterating the same contention and contesting the disallowance. It was inter alia argued that no disallowance ought to be made in the absence of direct and proximate nexus of the expenditure with the earning of exempt income and as per the provisions of section 14A, only that expenditure can be disallowed which is incurred in relation to the income which does not form part oftotal income. In this regard, attention was invited to the decision of the Supreme Court in the case of CIT vs. Walfort Share & Stock Brokers (P.) Ltd. [2010] 326 ITR 1 (SC).It was submitted that apart from demat charges, no direct expenditure has been incurred for earning of exempt income. Further, as is evident from the financial statements, the assessee had no borrowings at all. Accordingly, all the investments had been made out of own funds of BCPL. Therefore, in the absence of any direct or proximate nexus of the expenditure with the investment activities, no disallowance was required to be made under section 14A. Further, reliance is placed on the decision of the Punjab & Haryana High Court in the case of CIT vs. Hero Cycles Ltd. [2010] 323 ITR 518 (P&H). 4.1 It was also claimed that disallowance under section 14A required finding of incurring of expenditure where it is found that for earning exempted income no expenditure has been incurred, disallowance under section 14A cannot stand. It was further submitted that the Assessing Officer had rejected the suo moto disallowance made by the appellant only because it was not as per the formula prescribed in Rule 8D. The AO had not evaluated the working of the disallowance made on reasonable basis. The same was rejected since it 10

ITA No. 8157, 8158, 8159/Mum/2025; Bachhraj & Company Pvt.LTd. was not as per Rule 8D. Therefore, it is submitted that the AO had not recorded his satisfaction as to why the claim made by the appellant is incorrect as required by the section 14A. Reliance was place on the decision of Hon'ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT [Civil Appeal Nos 104-109] dated 12.02.2018, where it was held that AO has to be satisfied from the financial statement of the assessee before applying Rule 8D. 4.2 Further, attention was invited to the fact that the assessee company had given long term loans and advances aggregating to Rs. 508.36 cr. as on 31 March 2017 and had earned taxable interest income amounting to Rs. 72.39 cr. from the said loans and advances. The activity of advancing loans requires substantial monitoring on the part of the assessee, such as monitoring the credit worthiness of the parties, charging interest on periodic basis, collection of amounts due, follow-ups, etc. Further, during the year under consideration, it had passed 974 accounting entries in the books of account. Out of the same only 41 entries pertained to earning of exempt income i.e. 4.2% of total entries. Accordingly, time and efforts involved on support function for earning exempt income was as low as 4.2% compared to earning of taxable income. Therefore, substantial time and expenses were involved in relation to earning of taxable. Reliance was also placed on the decision of Bombay High Court in case of PCIT vs Reliance Capital Asset Management Ltd. [2017] 86 taxmann.com 200 (Bom).

ITA No. 8157, 8158, 8159/Mum/2025; Bachhraj & Company Pvt.LTd. 14A is clear. It desires to curb the practice to claim deduction of expenses incurred in relation to exempt income against taxable income and at the same time avail the tax incentive by way of exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income. The basic reason for insertion of Section 14A was that certain incomes are not includible while computing total income as these are exempt under certain provisions of the Act. The basic principle of taxation is to tax the net income, i.e., gross income minus the expenditure. On the same analogy the exemption is also in respect of net income. Expenses allowed can only be in respect of earning of taxable income. This is the purport of Section 14A. The principle laid down by the Hon‟ble Supreme Court in the case of Walfort (supra) has been reiterated by the hon'ble Supreme court in the case of "Godrej & Boyce Manufacturing Company Ltd. vs. Deputy Commissioner of Income-tax" reported in [2017] 81 taxmann.com 111 (SC) [2017] 247 Taxman 361 (SC).

5.1 The assessee had contended that the Hon‟ble ITAT in appellant‟s own case had given relief for AYs 2014-15 & 2015-16. The ld.CIT(A) observed that Hon‟ble ITAT while giving relief to the appellant had observed that the prerequisite for invoking Rule 8D r.w. section 14A is a satisfaction by the assessing officer that he is not satisfied with the calculation made by the appellant for the disallowance of the expenditure incurred for earning the exempt income. In these two years, the Hon‟ble ITAT has held that the satisfaction recorded by the AO was not adequate to invoke Rule 8D. For the

ITA No. 8157, 8158, 8159/Mum/2025; Bachhraj & Company Pvt.LTd. current year,the AO had recorded his satisfaction, before invoking Rule 8D, as under :-

“4.3 The contention of the assessee has been carefully perused however, the same is not acceptable. As per provisions of section 14A of the I.T. Act, any expense incurred to earn exempt income is not allowable in accordance with the procedure laid down in Rule 8D. In this background, it would be significant to cite the provision of sub section (1) of section 14A that reads as under: "14A(1) For the purposes of confuting 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.". A plain reading of this section makes it evident that if any expenditure has been incurred by the assessee in relation to income which does not form part of the total income under this Act, no deduction in respect of such expenditure shall be allowed to the assessee. Irrespective of whether or not there is any yield of dividend on the shares purchased, the expenses incurred for the acquisition of investments is required to be disallowed u/s14A of the Act. Reliance is place on the decision of Hon'ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT [Civil Appeal Nos. 104-109] dated 12.02.2018, where it was held that AO has to be satisfied from the financial statement of the assessee before applying Rule 8D. Hence, as per the this decision Hon'ble Apex Court held that after satisfaction of the AO, there is no other option but to compute disallowance for earning exempt income as per Rule 8D. Assessee's reliance on the case of Hon'ble Special Bench of ITAT Delhi in the case of ACIT v. Vireet Investment (P.) Ltd. (supra) is considered carefully. It is stated that long-term legacy investments in group companies should not considered for disallowance u/s 14A, which is not acceptable following the decision of Hon'ble Supreme Court in the case of Maxopp Investment Ltd. (supra). Assessee further stated that only those investments which actually yielded exempt income are to considered for the disallowance cannot be acceptable as Revenue has filed further appeal against the decision in the case of Vireet Investments (P.) Ltd. (supra), on this issue. Assessee further contended that growth mutual funds ad funds which yield taxable income should not be considered for the disallowance is acceptable, however, the same cannot be considered as the assessee has not submitted any details of such funds. Assessee contended that mutual funds sold during the year which gave taxable capital gain should not be considered for disallowance is not acceptable as those funds were capable of yielding exempt income. Finally, assessee contended that following the decision of Vireet Investments (P.) Ltd. no addition of disallowance should be made as per Rule 8D to the book profit u/s 115JB, is not acceptable as Revenue has filed further appeal against the decision in the case of Vireet Investments (P.) Ltd. (supra), on this issue. 4.4 Assessee had earned huge amount of exempt income, which does not form part of its total income. The working of disallowance of expense related to earning such income made by the assessee is not computed as per Rule 8D. As per the provisions of Section 14A r/w Rule 8D disallowances of expenditure in earning exempt income has to be made if the AO is satisfied that such expenditure was incurred but not disallowed by the assessee. The disallowance is to be made even if the assessee contends that no

ITA No. 8157, 8158, 8159/Mum/2025; Bachhraj & Company Pvt.LTd. expenditure has been incurred in earning exempt income. The investments cannot be managed without inherent expenses since no investments can be made without market analysis and expertise. The assessee could not have got the market expertise and the necessary staff for free and has to necessarily incur expenditure. It is not possible without sufficient expertise as to selection of securities and timely swaps. With increase in technicalities involved in market operations the assessee is bound to have expert advice and would be in receipt of various daily reports, fortnightly reports and monthly reports at deployment / redemption of their investments in various schemes. These inputs have costs in terms of substantial time as well as cost on account of conveyance, travelling, telephone / mobile bills, stationery, etc. It is difficult to ascertain such costs in quantitative terms. 4.5 The assessee had non-current quoted/unquoted investment and for which assessee had incurred certain expenses which are to be determined as per Rule 8D. In its submission assessee stated that the legal & professional fees and audit fees are fixed charges for the assessee, but a part of these charges is incurred for the purpose of earning of exempt income. Apart from the same, from the audited financial statement of the assessee it is observed that it had expenses like electricity charges, travelling & conveyance expenses, which are common expenses and needed to be apportioned for the purpose of managing investments which could potentially yield exempt income. These expenditures were incurred by the assessee for managing investments which is not related wholly and exclusively for its business. Assessee was given opportunity to show cause as to how other expense and miscellaneous expenses are related to managing its investment. Assessee has not furnished any explanation on such expenses as to how they are related to wholly and exclusively for its business. Moreover, in view of the decision of ITAT Special Bench, Mumbai in the case of M/s. Daga Capital Management Pvt. Ltd. (ITA No. 8057/Mum/02), disallowance u/s 14A r.w. rule 8D needs to be made, wherein according to the majority view of the Special Bench of Tribunal was 'what is relevant is to work out the expenditure in relation to the exempt income and not to examine whether the expenditure incurred by the assessee has resulted into exempt income or taxable income'. Prior to Rule 8D, the apportionment of expenditure was at the discretion of Assessing Officer. But, now Rule 8D has prescribed a formula for calculation of disallowance U/S.14A and the same is binding in nature. As held by the jurisdictional High Court in the case of Godrej & Boyce Mfg. Co. Ltd. vs. DCIT [ITXA 626 of 2010] dated 12.08.2010, Rule 8D is applicable from A.Y. 2008-09 onwards. Further, the methodology used by assessee is not as prescribed in I.T. Rules. Hence, I am satisfied that the disallowance u/s. 14A as per Rule 8D has to be made and the disallowance of Rs. 25,00,608/- made by the assesses is not as per Rule 8D. In view of the above, the following additions are made for purpose of Rule 8D.” 5.2 The ld.CIT(A) observed that a close examination of the above revealed that these were specific findings and not general observations as had been contended by the assessee. The AO had categorically stated the reasons why he was not satisfied with the disallowance made by the assessee. It was

ITA No. 8157, 8158, 8159/Mum/2025; Bachhraj & Company Pvt.LTd. concluded that the Hon‟ble ITAT‟s findings for the AYs 2014-15 and for 2015- 16 were distinguishable because in those years, the satisfaction recorded was general in nature. But in the current year, the AO had given categorical and specific findings that go into the roots of satisfaction required to be recorded. Accordingly, he upheld the disallowance dismissing the grounds of appeal in this regard. adequate to invoke the provisions of Rule 8D r.w. section 14A.

6.1 The ld.DR, however, placed reliance on the orders of the authorities below claiming that the AO had categorically drawn a satisfaction as to how the suo motu disallowance was not acceptable and the case of the assessee was within the purview of the provisions of the Act and more specifically under Rule 8D.The ld.DR also relied on the appellate order which clearly distinguished the orders passed in favour of the assessee by the ITAT in assessment years 2014-15 and 2015-16 in its own case,on the issue of satisfaction recorded.

ITA No. 8157, 8158, 8159/Mum/2025; Bachhraj & Company Pvt.LTd. 7. We have carefully considered all the relevant facts of the case, perused the records and have also gone through the cited decisions by both the sides. In so far as the issue of recording of satisfaction note is concerned,as considered in the previous paras,the ld.CIT(A) has verbatim narrated and reproduced the comments of the AO in this regard rejecting the estimated disallowance made by the assessee and how the provisions of section 14A Of the Act and the Rule 8D were directly applicable to the facts of the case.We do not find any infirmity in the conclusion drawn by both the authorities.The contention of the ld.AR that no objective satisfaction was recorded is devoid of any merits. Moreover, the ITAT order in the previous assessment years are clearly distinguishable as the AO has categorically drawn a satisfaction in the impugned year which was not the case in those assessment years. Therefore, the requirement of drawing satisfaction note is duly satisfied and there is no infirmity on this count.

7.1 The AO worked out the disallowance as per the formula laid down in Rule 8D.We find no infirmity therein as well since the provisions are very categorical and clear laying down a simple formula of working out the quantum of disallowance. In so far as the suo motu disallowance made by the assessee is concerned, there is absolutely no legal basis for the same in view of unambiguous language and methodology prescribed in the said Rule, leaving no scope for further analysis and working, else the entire legislation would stand defeated. Accordingly, we uphold the action of the AO in applying the provisions of section 14A r.w. Rule 8D to the facts of the case and finding no

ITA No. 8157, 8158, 8159/Mum/2025; Bachhraj & Company Pvt.LTd. infirmity in the appellate order either, uphold the same, dismissing ground nos. 1 to 5 of appeal in this respect.

7.2 However, in so far as the alternative claim of the assessee that only exempt income yielding investments need to be considered, we find merits therein as the same is duly supported specifically by the decision of the Special Bench of Delhi ITAT in ACIT v. Vireet Investment Pvt. Ltd.(2017) 165 ITD 27 (Del)(SB) which held that as per rule 8D(2), only those investments were to be considered for computing average value of investments which yielded exempt income during the year under consideration. Further, the said decision has been followed consistently in plethora of cases by the jurisdictional Mumbai Tribunal. Respectfully following the same, we find merits in the contentions of the ld.AR. Respectfully following the same, we find merits in the contentions of the ld.AR and accordingly, direct the AO to compute disallowance u/s 14A r.w.r. 8D in accordance with the ratio of law laid down by this order, allowing the ground in this regard for statistical purposes.

9.ITA No. 8158/MUM/2025(A.Y. 2018-19)

ITA No. 8157, 8158, 8159/Mum/2025; Bachhraj & Company Pvt.LTd. Assessing Officer in invoking the provisions of Rule BD for the purpose of computing disallowance under section 14A of the Act. 3. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in not considering the suo moto disallowance under section 14A of Rs. 11,16,553 made by the appellant in the return of income which was worked out after analysing each and every head of expenditure debited to the Profit and Loss Account. 4. Without prejudice to the above grounds of appeal and if it is held that Rule BD is applicable for computing the disallowance under section 14A, the Commissioner of Income-tax (Appeals) erred in not giving any finding in respect of the following contentions of the appellant: (i) that only the investments which have yielded exempt income during the relevant year ought to be included while computing the disallowance as per Rule 8D; (ii) that investments in units under the Growth schemes of Mutual Funds ought to be excluded while computing disallowance as per Rule 8D; (iii) that the investments in mutual funds sold during the year, resulting in taxable income which has been offered to tax, ought to be excluded while computing disallowance as per Rule 8D. 5. Without prejudice to the above grounds of appeal, the Commissioner of Income-tax (Appeals) erred in not giving any finding in respect of the contention of the appellant that if deduction is granted in respect of expenditure incurred for earning taxable income using the same formula which forms the basis of Rule 8D, viz 1% of the average value of assets yielding taxable income, the same would be a higher than the expenditure claimed in the return of income and therefore, no further disallowance ought to be made under section 14A of the Act. 10. Since all the grounds are identical to those in the appeal in ITA No.8157 for AY 2017-18 which has been partly allowed in para 7,7.1 and 7.2 above, the decision rendered therein would apply mutatis mutandis to the instant appeal as well which is, accordingly, partly allowed.

11.ITA No. 8159/MUM/2025(A.Y. 2020-21)

ITA No. 8157, 8158, 8159/Mum/2025; Bachhraj & Company Pvt.LTd. 2. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in invoking the provisions of Rule BD for the purpose of computing disallowance under section 14A of the Act. 3. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in not considering the suo moto disallowance under section 14A of Rs. 13,60,000 made by the appellant in the return of income which was worked out after analysing each and every head of expenditure debited to the Profit and Loss Account. 4. Without prejudice to the above grounds of appeal and if it is held that Rule BD is applicable for computing the disallowance under section 14A, the Commissioner of Income-tax (Appeals) erred in not giving any finding in respect of the following contentions of the appellant: (i) that only the investments which have yielded exempt income during the relevant year ought to be included while computing the disallowance as per Rule 8D; (ii) that investments in units under the Growth schemes of Mutual Funds ought to be excluded while computing disallowance as per Rule 8D; (iii) that the investments in mutual funds sold during the year, resulting in taxable income which has been offered to tax, ought to be excluded while computing disallowance as per Rule 8D. 5. Without prejudice to the above grounds of appeal, the Commissioner of Income-tax (Appeals) erred in not giving any finding in respect of the contention of the appellant that if deduction is granted in respect of expenditure incurred for earning taxable income using the same formula which forms the basis of Rule 8D, viz 1% of the average value of assets yielding taxable income, the same would be a higher than the expenditure claimed in the return of income and therefore, no further disallowance ought to be made under section 14A of the Act. Each of the above grounds of appeal is without prejudice and in the alternative to each other. The appellant hereby reserves the right to add to, alter or amplify the above grounds of appeal. I, Niraj Bajaj, Director, Bachhraj& Co. Private Limited, the appellant, hereby declares that what is stated above is true to the best of my information and belief. 12. Since all the grounds are identical to those in the appeal in ITA No.8157 for AY 2017-18 which has been partly allowed in para 7,7.1 and 7.2

ITA No. 8157, 8158, 8159/Mum/2025; Bachhraj & Company Pvt.LTd. above, the decision rendered therein would apply mutatis mutandis to the instant appeal as well which is, accordingly partly allowed.

Order pronounced in the open court on 08/06/2026.

Sd/- Sd/- SAKTIJIT DEY PRABHASH SHANKAR (उपाध्यक्ष/ VICE PRESIDENT) (लेखाकार सदस्य/ACCOUNTANT MEMBER)

Place: म ुंबई/Mumbai ददनाुंक /Date 08.06.2026 Soumili Das / PS

आदेश की प्रतितलति अग्रेतिि/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 अिीलीय अतधकरण