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Facts
The assessee filed its return of income and claimed exemptions under Section 10. The AO noted a suo moto disallowance made by the assessee and then invoked Section 14A read with Rule 8D to compute a higher disallowance, making an addition to the total income.
Held
The Tribunal held that the AO should consider only those investments that yield exempt income when computing disallowance under Section 14A read with Rule 8D, following a Special Bench decision.
Key Issues
Whether the AO erred in considering all investments made by the assessee for disallowance under Section 14A read with Rule 8D, instead of only those yielding exempt income.
Sections Cited
10, 14A, 8D
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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, HON’BLE & SHRI NARENDRA KUMAR BILLAIYA, HON’BLE
Assessee by : Shri Aditya Ramchandran, A/R Revenue by : Shri Vivek Perampurna, CIT D/R सुनवाई की तारीख/Date of Hearing : 04/08/2025 घोषणा की तारीख /Date of Pronouncement: 07/08/2025 आदेश/O R D E R
PER NARENDRA KUMAR BILLAIYA, AM:
This appeal by the assessee is preferred against the order of the ld. CIT(A)/Addl./ JCIT(A)-1, Visakhapatnam [hereinafter the ‘ld. CIT(A)’] dated 21/05/2025 pertaining to AY 2017-18.
The solitary grievance of the assessee is that the ld. CIT(A) erred in confirming the disallowance of Rs. 9,23,013/- u/s 14A r.w.r. 8D. Briefly stated the facts of the case are that the assessee filed its return of income electronically on 26/10/2017 declaring total income at Rs. 2,10,17,240/-. The return was selected for scrutiny assessment and accordingly statutory notices were issued and served upon the assessee. While scrutinizing the return of income, the AO noticed that the assessee 2 has claimed exemption u/s 10 of the Act totaling to Rs. 18,85,679/-. The AO found that the assessee has made a suo moto disallowance of Rs. 51,587/- and exempt long term capital gain of Rs. 18,34,092/-. The AO found that the assessee has made a suo moto disallowance of Rs. 51,587/- u/s 14A of the Act. Invoking the provisions u/s 14A r.w.r. 8D, the AO computed the disallowance at Rs. 9,74,600/- and refusing the suo moto disallowance, made addition of Rs. 9,23,013/-. The assessee carried the matter before the ld. CIT(A) but without any success. 3. Before us, the ld. Counsel for the assessee stated that while computing the disallowance, the AO has taken all the investments of the assessee whereas he should have considered only those investments which yielded exempt income. Per contra, the ld. D/R strongly supported the findings of the AO. 4. We have carefully considered the orders of the authorities below. It is an undisputed fact that while invoking Rule 8D for the computation of disallowance u/s 14A of the Act, the AO has considered all the investments made by the assessee. Before us, the assessee has furnished a chart of investments which yielded exempt income. We are of the considered view that the AO should consider only those investments which yield exempt income as held by the Special Bench in the case of ACIT v/s Vireet Investments Pvt. Ltd. (2017) 58 ITR (T.) 313. 5. We accordingly restore the issue to the file of the AO. The assessee is directed to furnish the details of investments which yield exempt income and the AO is directed to examine the same and decide the issue afresh after affording a reasonable and adequate opportunity of being heard to the assessee.