ASSISTANT COMMISSIONER OF INCOME TAX, 15(3)(2), MUMBAI vs. SHAREKHAN LIMITED, MUMBAI

ITA 4287/MUM/2026Status: DisposedITAT Mumbai30 September 202615 pages
AI SummaryPartly Allowed

What were the facts?

This case involves cross-appeals by Sharekhan Limited (assessee) and the DCIT (revenue) for Assessment Year 2020-21. The assessee's appeal challenges the confirmation of disallowances related to reversal of excess provisions for expenses (₹17,89,01,092), reversal of provision for litigation (₹1 crore), and claim of education cess (₹86,66,000). The revenue's appeal challenges the deletion of a disallowance of ₹6,62,35,000 made under section 14A. The Assessing Officer had made these disallowances and additions, assessing total income at ₹1,30,53,39,622. The CIT(A) deleted the section 14A disallowance but confirmed the others. The Tribunal is to decide on these disputed amounts.

What did the Tribunal hold?

The Tribunal held that the disallowance of ₹17,89,01,092 was deleted. The Tribunal found that the assessee had distinguished the prior-year provision, which was added back, from the current-year provision, which was separately disallowed. The amount in dispute was traceable to the prior-year computation and not an unexplained amount appearing for the first time. The authorities below treated the reversal as a fresh claim without establishing a double deduction or that the amount did not represent business expenditure. The Tribunal also deleted the disallowance of ₹1 crore for the reversal of litigation provision. It found that the amount was referable to an earlier-year provision disallowed in the preceding year and separately identified as a reversal. The disallowance below rested on the proposition that a reversal not routed through the profit and loss account is inadmissible, which the Tribunal found did not address the tax effect of the earlier-year disallowance. The disallowance of ₹86,66,000 for education cess was confirmed, as Explanation 3 to Section 40(a)(ii) clarifies that 'tax' includes cess. The deletion of the disallowance under Section 14A was upheld, as the CIT(A) correctly noted the absence of exempt income, and the revenue did not provide material to show otherwise. The Department's ground on this was dismissed. The assessee's appeal was partly allowed, and the Department's appeal was dismissed.

What were the issues?

1. Whether the disallowance of ₹17,89,01,092, representing the reversal of excess provisions for expenses of earlier years, was correctly treated as a fresh expenditure claim in Assessment Year 2020-21, or if the authorities below failed to examine the accounting and tax treatment across two years, turning on Section 37(1) of the Income-tax Act, 1961. 2. Whether the disallowance of ₹1 crore, representing the reversal of a provision for litigation made in an earlier year, was correctly confirmed, or if the assessment and appellate orders failed to distinguish this adjustment from a claim for a fresh, unsubstantiated provision, turning on Section 37(1). 3. Whether the disallowance of ₹86,66,000 claimed as education cess was correct, considering Explanation 3 to Section 40(a)(ii) of the Act. 4. Whether the deletion of the disallowance of ₹6,62,35,000 made under Section 14A was justified, given the absence of exempt income, turning on Section 14A read with Rule 8D. Assessee's contentions: The assessee argued that the reversal of excess provisions for expenses and litigation represented adjustments to prior-year provisions that were disallowed, not fresh claims. They provided accounting and tax computation details to support this. For education cess, they relied on the Tribunal's decision in Tech Mahindra Business Services Ltd. The revenue contended that reversals by themselves do not establish actual expenditure and that the assessee failed to provide sufficient evidence of incurrence. For section 14A, the revenue did not dispute the absence of exempt income but argued that the mere existence of investments justified the disallowance.

Which sections of the Income-tax Act were involved?

Section 14A,Section 37(1),Section 40(a)(ii),Section 143(3),Section 144B,Section 142(1),Section 250(4),Section 234A,Section 234B,Section 234C

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘G’ BENCH

For Appellant: Shri Dharan V Gandhi
For Respondent: Shri Nishant Samaiya, CIT, DR a/w. Shri Dhiraj Kumar
Hearing: 22/09/2026Pronounced: 29/09/2026

PER AMIT SHUKLA (J.M): These cross appeals for Assessment Year 2020–21 arise from the order passed by the learned CIT(A).

The Department’s appeal in ITA No. 4287/Mum/2026 challenges the deletion of the disallowance of ₹6,62,35,000 made under section 14A of the Income-tax Act, 1961 (“the Act”). The assessee’s appeal in ITA No. 1935/Mum/2026 challenges the confirmation of the disallowances relating to reversal of excess provisions for expenses of ₹17,89,01,092, reversal of provision for

The order continues below.

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