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Facts
The assessee, R. M Commercial Pvt. Ltd., filed its e-return for AY 2017-18 declaring a total income. The Assessing Officer completed assessment u/s 143(3) by making an addition of Rs.10,50,029/- u/s 14A r.w. Rule 8D, which was confirmed by the CIT(A). The assessee had already self-disallowed Rs.1,66,116/- (including 1% of investment in NHAI Interest Bonds of Rs.98,90,000/- yielding tax-free income) in its return.
Held
The tribunal held that the assessee had no exempt income from shares/dividends, only from NHAI Interest Bonds, for which it correctly made a self-disallowance based on 1% of the relevant investment. Citing legal precedents, it reaffirmed that disallowance u/s 14A r.w. Rule 8D(ii) applies only to investments yielding exempt income, not the entire investment portfolio. Thus, the AO's additional disallowance of Rs.10,50,029/- was deleted.
Key Issues
Whether the additional disallowance made by the Assessing Officer under Section 14A read with Rule 8D was justified, considering the assessee had already self-disallowed expenses related to investments yielding exempt income and that disallowance should be restricted only to investments that actually give rise to exempt income.
Sections Cited
250, 143(2), 142(1), 143(3), 14A, Rule 8D
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Income Tax Appellate Tribunal, “D” BENCH KOLKATA
Before: Shri Rajesh Kumar & Shri Pradip Kumar Choubey
order
: December 17, 2025 ORDER
Per Pradip Kumar Choubey, Judicial Member:
This appeal filed by the assessee is directed against the order dated 11.09.2025 of the Addl/JCIT(A), Panaji [‘CIT(A)’] passed under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for the assessment year 2017–18.
Brief facts of the case are that the assessee is a domestic company and had filed its e-return for AY 2017-18 on 26-10-2017 declaring a total income of Rs.2,68,77,750/-. The case was selected for complete scrutiny assessment under CASS and notices were issued u/s 143(2) and 142(1) of the Act, against which the assessee filed all the details along with books of accounts. The Assessing Officer completed the assessment of the assessee u/s 143(3) vide order dated 18-12-2019 on a total income of Rs.2,79,27,779/- by making an addition of Rs.10,50,029/- u/s 14A r.w.r 8D.
R. M Commercial Pvt. Ltd 3. Being aggrieved by the said order, the assessee filed an appeal before the Ld. CIT(A) and the Ld. CIT(A) confirmed the order of the Assessing Officer.
Being aggrieved and dissatisfied by the order of the Ld. CIT(A), the assessee has filed this appeal before us challenging the impugned order thereby submitting that the assessee had submitted details of said disallowance in the return of income and disallowed an amount of Rs.1,66,116/- by taking into consideration an amount of Rs.98,900/- being 1% of the annual average of the monthly opening and closing investments of value of those investments in which gave rise to exempt income and further the assessee added back an amount of Rs.67,216/- additionally on ad hoc basis resulting in aggregate disallowance made of Rs.1,66,116/- (98900 + 67216). The ld. AR submits that the assessee was not having any exempt income in the form of dividend and no part of the investment in shares give rise to any exempt income and the only tax-free income was on account of investment in 8.2% NHAI Interest Bonds of Rs.98,50,000/-. The ld. AR further submits that the assessee correctly considered the said disallowance 1% of the investments of Rs.98,90,000/- amounting to disallowance of Rs 98,900/- and further took into disallowance Rs.67,216/- aggregating to total disallowance made by the assessee in the return filed of Rs.1,66,116/- (98900+67216). His submission is that it is settled principles of law that the disallowance u/s 14A r.w r. Rule 8D(ii) is to be made only on those investments which has given rise to exempt income and entire investments cannot be taken into consideration. He relied on the following case laws: i. ACB India Ltd. vs. ACIT 374 ITR 108 (Delhi) ii. DCIT vs. GKK Capital Markets Ltd. ITA 805/Kol/2012 iii. ACIT vs. I.P Support Services India P Ltd. of 2014 2 R. M Commercial Pvt. Ltd 5. Contrary to that, the ld. DR supports the impugned order.
Upon hearing the submissions of the counsels of the respective parties, we have perused the records. We find that the assessee is a domestic company and had filed its e-return for A.Y 2017-18 declaring a total income of Rs.2,68,77,750/- and the Assessing Officer completed the assessment of the assessee making disallowance of Rs.10,50,029/- u/s 14A r.w.r 8D. We also find that the assessee submitted the details of said disallowance in the said return of income and disallowed an amount of Rs.1,66,116/- after considering an amount of Rs.98,900/- being 1% of the annual average of the monthly opening and closing investments of those investments which gave rise to exempt income and added back an amount of Rs.67,216/- additionally on ad hoc basis resulting in aggregate disallowance made of Rs.1,66,116/- (98900 + 67216) and the assessee has submitted the following chart:
We further find that during the year, the assessee was not having any exempt income in the form of dividend and no part of the investment in shares which gave rise to any exempt income of the assessee and there was only tax-free income was on account of investment in 8.2% NHAI Interest Bonds of Rs.98,50,000/- and the assessee rightly considered the said disallowance @1% on the amount of investment of Rs.98,90,000/- amounting to disallowance of Rs.98,900/- and further took into disallowance Rs.67,216/- aggregating to total disallowance made by the assessee in the return filed of Rs.1,66,116/- (98900+67216). We have gone through the cited decision of Coordinate Kolkata Bench of the Tribunal in the case of DCIT vs. GKK Capital Markets Ltd. (supra), wherein it was held as under:
The AO has not examined the accounts of the assessee and there is no satisfaction recorded by the AO about the correctness of the claim of the assessee and without the same he invoked Rule 8D of the Rules. While rejecting the claim of the assessee with regard to expenditure or no expenditure, as the case may be, in relation to exempted income, the AO has to indicate cogent reasons for the same. From the facts of the present case it is noticed that the AO has not considered the claim of the assessee and straight away embarked upon computing disallowance under Rule 8D of the Rules on presuming the average value of investment at 12% of the total value. Even otherwise, on merits also the assessee had made disallowance itself for an amount of Rs.37,28,966/- and filed computation of disallowance as per rule 8D of the Rules. The AO could not find any fault in the computation of disallowance made by assessee (CIT Vs. R.E.I. Agro Ltd. in GA 3022 of 2013, ITAT 161 of 2013 dated 23.12.2013, wherein the order of Tribunal in DCIT Vs. R.E.I. Agro Ltd. of for AY 2009-10 dated 14.05.2013 was confirmed followed)
In view of the above discussion, we find that the disallowance u/s 14A made by the Assessing Officer of Rs.10,50,029/- is not justified as the disallowance u/s 14A r.w. Rule 8D(ii) should be made only on those investments which give rise to exempt income and entire investments cannot be taken into consideration and the said disallowance of Rs.10,50,029/- is hereby deleted.
R. M Commercial Pvt. Ltd 9. In the result, the appeal filed by the assessee is allowed.
Kolkata, the 17th December, 2025.