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Facts
The assessee earned dividend income and claimed it as exempt, also suo-moto disallowing certain expenses under Section 14A. The Assessing Officer (AO) recomputed the disallowance under Rule 8D(II) of the Income Tax Rules, 1962, leading to a higher disallowance. The Commissioner restricted the disallowance to investments that actually yielded income.
Held
The Tribunal held that if the disallowance under Section 14A, as calculated according to legal principles and court pronouncements, is reduced below the suo-moto disallowance made by the assessee, the assessee should be allowed the benefit. The Revenue's appeal was dismissed, and the Assessee's cross-objection was allowed.
Key Issues
Whether the disallowance under Section 14A can be reduced below the suo-moto disallowance made by the assessee, considering only investments yielding exempt income.
Sections Cited
14A, 10(34), 142(1), 115JB, 8D(II), 143(3), 143(2), 147
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI NARENDER KUMAR CHOUDHRYSHRI PRABHASH SHANKAR&
Assistant Commissioner of Hathway Investments Income Tax 4 (2) (1) Pvt Ltd. Room No. 640, Aayakar Bhavan, 4th Floor Rahejas, Corner of VS. Churchgate 400020 Main Avenue and VP Road, Santacruz west, Mumbai 400054. PAN: AAACH1675B (Appellant) (Respondent) Present for: Assessee by : Shri Priyesh Vora (Virtually) Revenue by : Shri Himanshu Joshi (SR DR) Date of Hearing : 25.04.2025 Date of Pronouncement : 06.06.2025 O R D E R Per: Narender Kumar Choudhry, Judicial Member: This appeal has been preferred by the Assessee against the order dated 29.03.2024, impugned herein, passed by the National Faceless Appeal Center (NFAC), Delhi/ u/s 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2016-17. alongwith CO No. 90/Mum/2025) Hathway Investments Pvt Ltd.
These appeals filed by Revenue Department and Cross Objections filed by the Assessee are having involved identical issue and therefore, for the sake of brevity, the same were herd together and are being disposed of by this composite order, by taking into consideration the facts and circumstances and the issue involved in CO No.90/Mum/2025, as lead case.
Assessee for assessment year under consideration, it was observed by the Assessing Officer {in short ‘AO”) that the Assessee has earned dividend income of Rs.8,90,21,612/- and claimed the same as exempt u/s. 10(34) of the Act. The Assessee has also suo-moto disallowed an amount of Rs.53,17,532/- u/s. 14A of the Act, as incurred qua earning of such exempt income. The Ld. AO further observed that suo-moto disallowance was not done in accordance with Rule 8(D) of the Income Tax Rules, 1962 (in short ‘Rules’) and consequently, by issuing a notice dated 10.05.2019 u/s.142(1) of the Act, the AO asked the Assessee to furnish working of inadmissible expenses u/s 14A as worked out, in accordance with rule 8(D) and to explain “as to why such expenses should not be disallowed in computing total income and also for computing for computing books profits u/s. 115 JB for the purpose of MAT liability”.
4. The Assessee vide letter dated 12.06.2019 submitted working of disallowance of Rs. 21,39,207/- u/s. 14A of the Act, being 1% of the average value of the current investments, which was not found proper and accurate by the Ld. AO and therefore, he accordingly, determined the amount of expenditure incurred in relation to exempt income, to the tune of Rs. 3,79,87,373/- being disallowance @ 1% of the average investments, as per rule 8D(II) of the Rules and consequently, while deducting the amount of expenditure directly deleted to the income to the alongwith CO No. 90/Mum/2025) Hathway Investments Pvt Ltd. tune of Rs.53,17,532/- on account of suo-moto disallowance made and shown by the Assessee from the amount of Rs. 3,79,87,373/- as determined by the Ld. AO as per Rule 8D(II) of the Rules, ultimately, made the disallowance of Rs. 3,26,70,021/- u/s. 14A of the Act.
On appeal, the Ld. Commissioner by considering and following various relevant judgments including in the case Cheminvest Ltd. Vs CIT (2105) Delhi 61 taxman.com 118, restricted the disallowance made in respect of investments/stock in trade which yielded income only and consequently directed the AO to recompute the disallowance u/s. 14A of the Act r.w.r. 8D of the Rules, considering only such investments, which have yielded dividend income.
The Ld. Commissioner further directed the AO to restrict the disallowance to the amount actually claimed/shown by the Assessee, while verifying the computation of total expenses of Rs. 2,54,28,387/- as relied upon by the Assessee.
The Revenue Department being aggrieved, challenged the said decision of the Ld. Commissioner in restricting the disallowance made u/s. 14A along with rule 8(D) of the Rules to the extent of only investments/shares which yielded income, while following the judgment of the Tribunal at Delhi in the case of ACIT vs. Vireet Investments private limited (2017) 58 ITR (T) 313 (Delhi - Tribunal) (SB). Admittedly, the said judgment of the special bench has stands affirmed by the Hon’ble High Court of Delhi, thus, in our considered view, there is no infirmity in the decision of the Ld. Commissioner in deterring and directing so. Thus, the appeal filed by the Revenue Department stands dismissed.
Coming to the Cross Objection No. 90/Mum/2025 filed by the Assessee, we observe that there is a delay of 10 days in filling of the cross objection by the Assessee, on which the Assessee by filing an application alongwith CO No. 90/Mum/2025) Hathway Investments Pvt Ltd. for condonation delay along with duly sworn affidavit has submitted that the Assessee was awaiting for the order giving effect order by the AO and therefore, the present cross objections could not be filed within the prescribed period, but after receiving notice for the Revenue’s appeal, the appeal was filed immediately but with a delay of 10 days. The delay was neither malafide nor intentional but the same was bonafide and un- intentional therefore, the same may be condoned. On the contrary, the Ld. DR refuted the claim of the Assessee. Considering the explanation given by the Assessee for condonation of delay, as bonafide, genuine and un- intentional, the delay of 10 days is condoned.
Coming to the cross objection filed by the Assessee, we observe that the Assessee has claimed that the Ld. Commissioner could have directed the Ld. AO for computing the disallowance u/s. 14A r.w.r 8(D) of the Rules, considering only such investment which have actually yielded exempt income, even if the disallowance leads to deduction of assessed income and therefore, the Ld. AO may be directed to compute the disallowance correctly and actually, even if assessed income, becomes below than the returned income.
The Assessee in support of its claim, also relied on judgment passed by the Co-ordinate Bench of the Tribunal in the Assessee’s own cases pertaining to AY 2012-13 and 2015-16, as decided by the Tribunal on dated 31.01.2022 in and ITA No.7105/Mum/2019. The conclusion drawn by the Hon’ble Co-ordinate Bench of the Tribunal in said decision dated 31.03.2022, is reproduced herein below, for gravity and ready reference.
9. We have heard the submissions made by rival sides and have examined the orders of authorities below. The short issue in appeal before us is whether the disallowance under section 14A should be restricted to suo-moto disallowance made by the assessee at Rs. 28,96,745/- or the disallowance under section 14A of the Act can be alongwith CO No. 90/Mum/2025) Hathway Investments Pvt Ltd. below the suo-moto disallowance after computing disallowance in accordance with the decision of Special Bench in the case of ACIT Vs. Vireet Investments (P.) Ltd. (supra).
10. The quantum of suo-moto disallowance made by assessee in return of income under section 14A is not disputed. Subsequently, in the light of decision of Special Bench, the assessee re-computed its disallowance under section 14A of the Act Rs. 10,31,598/- after considering only investments yielding exempt income. The CIT(A) in principle agreed with the proposition that for the purpose of computing disallowance under rule 8D(2)(iii), only those shares which yielded exempt income during the relevant previous year should be considered, but expressed his reservation in applying the above principle as after accepting the above proposition disallowance would have reduced to Rs. 10,31,598/- i.e. below the suo-moto disallowance made by the assessee at Rs. 28,96,745/-.
We are of considered view that if by virtue of law expounded by Courts the disallowance u/s 14A is reduced below suo-moto disallowance made by the assessee, there would not be any impediment in assessee getting the benefit.
Similar issue had come up before the Co-ordinate Bench in the case of Tejaskiran Pharmachem Industries Pvt. Ltd. Vs. DCIT (supra), the Co- ordinate Bench decided the issue in favour of assessee by observing as under: “The last grievance under these appeal is of the assessee as to whether the disallowance u/s 14A can fall below disallowance suo motu voluntarily made by the assessee in the return of income filed with the Revenue. The assessee has claimed that if his several contentions are favourably considered by tribunal keeping in view legal position, the disallowance u/s 14A can fall below the voluntary disallowance made by the assessee suo motu in return of income filed with the Revenue. The assessee has relied on decision of Hon‟ble Gujarat High Court in the case of Principal CIT v. UTI Bank Limited (2017) 398 ITR 514(Guj) and decision of ITAT, Mumbai in the case of Rupee Finance and Management Private Limited v. DCIT (2017) 57 ITR(Trib.) 205(Mumbai). We find merit in the contention of the assessee that once tribunal has adjudicated matter in assessee‟s favour then merely because disallowance was made in return of income voluntarily under a wrong belief , the assessee cannot resile from its position is not acceptable . The mandate of the 1961 Act is to tax real income and not an income which was never the income chargeable to tax in the hands of the alongwith CO No. 90/Mum/2025) Hathway Investments Pvt Ltd. assesseee but was declared under a wrong belief or notion. The mandate of the 1961 Act is to tax real income and tax can only be levied under the authority of law. Thus, if after verifications and following the ratio of law decided by the tribunal in the instant case, if the disallowance falls below the disallowance u/s 14A offered by the assessee in return of income, be it may the Revenue cannot charge tax on income which never was the income of the assessee chargeable to tax within the mandate and provisions of the 1961 Act as the tax can only be levied by the authority of law. The Hon‟ble Andhra Pradesh High Court in the case of CIT v. Bakelite Hylam Limited(1999) 237 ITR 392(AP) as well Hon’ble Gujarat High Court in the case of Gujarat Gas Company Limited v. JCIT reported in (2000) 245 ITR 84(Guj) has taken a similar view. Hon‟ble Gujarat High Court in the case of Gujarat Gas Company Limited(supra) has arrived at the said decision after considering CBDT circular No. 549 dated 31-10-1989 (1990) 182 ITR (st) 1 while arriving at the said decision that assessed income can fall below returned income in proceedings u/s 143(3) r.w.s. 143(2). The Hon’ble Supreme Court decision in the case of CIT v. Sun Engineering Work Private Limited (1992) 198 ITR 297(SC) was in context of re-assessment proceedings initiated u/s 147 wherein Hon’ble Supreme Court held that reassessment proceedings initiated u/s 147 are for the benefit of revenue and not the assessee, wherein the mandate is to bring to tax income which has escaped assessment while presently we are concerned with proceedings initiated u/s 143(3) r.w.s. 143(2). We order accordingly.”
Thus, in view of our above observations, we find merit in ground no.3 of the appeal, hence, the same is allowed.
As identical issue as involved in this case, has been dealt with by the Hon’ble Co-ordinate Bench of the Tribunal in the Assessee’s own cases {supra} and the facts are not deviated and therefore, for substantial justice, we direct the AO to re compute the disallowance as per directions made by the Ld. Commissioner and in actual and without being influenced by suo-moto disallowance made by the Assessee. Thus, the cross objection filed by the Assessee, is allowed for statistical purposes. alongwith CO No. 90/Mum/2025) Hathway Investments Pvt Ltd.
In the result, both the revenue’s appeals are dismissed, whereas the cross objections filed by the Assessee’s are allowed, for statistical purposes.
Order pronounced in the open court on 06.06.2025.