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Facts
The assessee challenged an order upholding a disallowance made under section 14A read with Rule 8D. The assessment order computed a disallowance of Rs. 64,12,623, which was upheld by the CIT(A). The assessee had earned exempt income of Rs. 2,97,345 and made a suo-moto disallowance of the same amount.
Held
The Tribunal held that the disallowance under section 14A read with Rule 8D cannot exceed the exempt income earned by the assessee. Relying on coordinate bench decisions and High Court pronouncements, the Tribunal decided to restrict the disallowance to the extent of exempt income.
Key Issues
Whether the disallowance under Section 14A read with Rule 8D can exceed the amount of exempt income earned by the assessee.
Sections Cited
14A, 8D, 250
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Income Tax Appellate Tribunal, “E” BENCH MUMBAI
Before: HON’BLE SHRI SANDEEP GOSAIN & HON’BLE SHRI OM PRAKASH KANT
Date of Hearing 23.06.2025 Date of Pronouncement 24.07.2025 आदेश / ORDER
PER SANDEEP GOSAIN, JM:
The present appeal has been filed by the assessee challenging the impugned order dt. 24.03.2025 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre, Delhi (NFAC) for the assessment year 2018-19.
The only ground raised
by the assessee in the present appeal relates to challenging the order of Ld. CIT(A) in 2 Kredence Multi Trading Ltd., Mumbai upholding the disallowance made by AO u/s 14A by invoking the Rule 8D of Income Tax Rules.
3. We have heard the counsels for both the parties, perused the material placed on record, judgments cited before us and also the orders passed by the revenue authorities.
From the records, we noticed that the assessment order was passed on 09.08.2021, wherein the AO computed disallowance u/s 14A r.w.r 8D of Rs. 64,12,623/- and the said order was also upheld by Ld. CIT(A).
At the very outset, it was brought to our notice that the issue in question is covered by the decision of the Coordinate bench of ITAT in assessee’s own case for A.Ys 2015-16 & 2016-17 in & 570/Mum/2024 dated 07.06.2024, wherein Coordinate Bench of ITAT has restricted the disallowance to the exempt income.
From the facts we also noticed that during the year under consideration the assessee had earned exempt income of Rs. 2,97,345/- only and in its return had made suo-moto disallowance of Rs. 2,97,345/- u/s 14A of the 3 Kredence Multi Trading Ltd., Mumbai Act itself. The computation of income has been placed on record at page 125 of paper book.
Apart from the above, we also noticed that the Jurisdictional Bombay High Court in the case of Pr. CIT Vs. Tata Industries Ltd in Income Tax Appeal No. 661 of 2018 dated 08.01.2025 has also held that the disallowance u/s 14A r.w.r 8D has to be ‘restricted to exempt income’. Moreover in assesees own case for A.Y 2012-13 in the Coordinate Bench of ITAT had restricted disallowance to exempt income earned by the assessee.
Therefore taking into consideration the above facts and circumstances of the present case and also the decisions of the Coordinate Bench of ITAT in assessee’s own case, we are also of the view that the disallowance u/s 14A r.w.r 8D cannot exceed the exempt income. Therefore we set aside the order of Ld. CIT(A) and direct the AO to restrict the disallowance to the extent of exempt income earned by the assessee and also to take into consideration the suo-moto disallowance made by the assessee. Hence we allow this ground raised by the assessee and order accordingly.
4 Kredence Multi Trading Ltd., Mumbai
In the result the appeal filed by the assessee stands allowed.