ACIT, CIRCLE-5(1), HYDERABAD vs. USHODAYA ENTERPRISES PRIVATE LIMITED, HYDERABAD

ITA 1782/HYD/2025Status: DisposedITAT Hyderabad13 March 2026AY 2018-1930 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

For AY 2017-18, the Tribunal upheld the CIT(A)'s deletion of the Section 14A disallowance. The judgment indicates that the Tribunal found the CIT(A) had rightly appreciated the factual position regarding the deletion of the addition. The specific reasoning for this finding is not fully detailed in the provided excerpt, but it implies agreement with the CIT(A)'s rationale. For AY 2018-19, the Tribunal upheld the CIT(A)'s decision to allow the deduction of Rs. 2,09,08,248. The Tribunal reasoned that this amount represented a legitimate adjustment to the current year's income arising from the reversal of amounts previously added back to income in earlier assessment years due to disallowance. The AO's assertion of a double deduction was considered a mischaracterization, as the prior addition had effectively increased taxable income, and the reversal was a corrective measure. The argument regarding Section 40(a)(ii) was deemed irrelevant to the reversal of a prior year's disallowance. The Tribunal directed the AO to delete this addition. The issue of AO's satisfaction under Section 14A(2) and the treatment of investments not yielding exempt income were implicitly decided in favour of the assessee by upholding the CIT(A)'s order.

What were the facts?

The appeals by the Revenue challenge orders of the CIT(A) for Assessment Years (AY) 2017-18 and 2018-19. For AY 2017-18, the Assessing Officer (AO) disallowed Rs. 3,34,45,018 under Section 14A read with Rule 8D. The assessee, Ushodaya Enterprises Private Limited, is engaged in publishing, food products, power generation, and events. The AO made the disallowance after scrutiny, assessing total income at Rs. 227,24,12,048. The CIT(A) deleted this disallowance. For AY 2018-19, the AO disallowed a deduction of Rs. 2,09,08,248 claimed by the assessee as interest written back to the Profit & Loss Account, representing a reversal of a prior year's disallowance. The CIT(A) allowed this deduction, and the AO's addition was deleted.

What were the issues?

1. Whether the CIT(A) erred in deleting the disallowance made under Section 14A read with Rule 8D, without appreciating the AO's recorded satisfaction regarding the incorrectness of the assessee's computation of disallowable expenditure in relation to exempt income, as mandated by Section 14A(2)? 2. Whether the CIT(A) erred in holding that only investments yielding exempt income during the year are to be considered for Rule 8D computation, contrary to the express language of Section 14A, Rule 8D, and CBDT Circular 5/2014? 3. Whether the CIT(A) erred in accepting the assessee's claim that investments were made exclusively from surplus own funds, without considering the common pool of interest-bearing borrowed funds and own funds? 4. Whether the CIT(A) erred in excluding growth-oriented mutual funds from Section 14A/Rule 8D disallowance merely because they did not yield exempt income during the year? 5. Whether the CIT(A) erred in allowing the deduction of Rs. 2,09,08,248 claimed as interest written back to the Profit & Loss Account for AY 2018-19, when the AO contended it was a prohibited deduction under Section 40(a)(ii) and constituted a double deduction? Assessee's arguments: The AO failed to record proper satisfaction for recomputing the disallowance under Rule 8D. The assessee had sufficient own funds (Rs. 1,138.75 crores as on 31.03.2016 and Rs. 1,328.35 crores as on 31.03.2017) far exceeding investments. Only investments yielding exempt income should be considered for disallowance, citing ACB India Ltd. and Vireet Investment Pvt. Ltd. The deduction for interest written back is a legitimate adjustment for reversal of a prior year's disallowance, not a double deduction or prohibited expense. Revenue's arguments: The AO duly recorded satisfaction. The CIT(A) erred in deleting the disallowance, as investments considered by the AO included those not yielding exempt income and the assessee had borrowed funds. The disallowance was in accordance with law. The interest written back is not deductible under Section 40(a)(ii) and amounts to a double deduction.

Which sections of the Income-tax Act were involved?

Section 14A,Section 143(2),Section 143(3),Section 2(43),Section 40(a)(ii),Section 37,Section 234B,Section 234C

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, Hyderabad ‘A’ Bench, Hyderabad

Before: SHRI VIJAY PAL RAO & SHRI MADHUSUDAN SAWDIA

For Appellant: Shri Mathivanan S A, Sr. AR

PER MADHUSUDAN SAWDIA, A.M.:

The captioned appeals are filed by the Revenue feeling aggrieved by the different orders passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”) dated 01/08/2025 & dated 07/08/2025 for the Assessment Year (“A.Y.”) 2017-18 and A.Y. 2018-

19 respectively. Since both the appeals are related to the same assess

The order continues below.

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