THE BOMBAY DYEING AND MANUFACTURING COMPANY LIMITED,MUMBAI vs. INCOME TAX CENTRAL CIRCLE 2(1)(1), MUMBAI, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI

BEFORE SHRI OM PRAKASH KANT, JM AND MS. KAVITHA RAJAGOPAL, AM

ITA No.5274/Mum/2025 (Assessment Year: 2018-19)

M/s. The Bombay Dyeing and National Faceless Appeal Centre, Manufacturing Company Limited, Delhi (Deputy Commissioner of Neville House, JN Heredia Marg, Vs. Income Tax, Central Circle-2(1)(1), Ballard Estate, Mumbai – 400001 Mumbai – 400 001 PAN: AAACT2328K (Appellant) : (Respondent)

: Shri Yogesh Thar, A.R. Assessee by Ms. Sukanya Jairam, A.R & Shri Saurabh Surana, A.R. Respondent by : Shri Leyaqat Ali Aafaqui, Sr. AR

Date of Hearing : 22.12.2025 Date of Pronouncement : 18.03.2025

O R D E R Per Kavitha Rajagopal, J M:

This appeal has been filed by the assessee, challenging the order of the Learned

Commissioner of Income Tax (Appeals) [‘Ld. CIT(A)’ for short], National Faceless

Appeal Centre (‘NFAC’ for short) passed u/s. 250 of the Income Tax Act, 1961 (‘the Act'),

pertaining to the Assessment Year (‘A.Y.’ for short) 2018-19.

ITA No.5274/Mum/2025 M/s. The Bombay Dyeing and Manufacturing Company Limited

1.1. On the facts and in circumstances of the case and in law, the Id. CIT(A) erred in upholding the disallowance made by Id. AO of Rs.4,65,28,171/- u/s. 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 ('the Rules").

1.2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) while affirming the action of the Id. AO erred in holding that:

a) The AO had duly recorded his dissatisfaction with respect to the suo motu disallowance under Section 14A r.w.r 8D as computed by the Appellant;

b) The Appellant had failed to establish that it possessed sufficient interest-free own funds to make the relevant investments;

c) All equity instruments are capable of yielding exempt dividend income and long- term capital gains;

d) For the purposes of computation of disallowance under Section 14A of the Act, the fair market value of the investment was required to be considered, as opposed to the cost of investment adopted by the Appellant.

1.3. The Appellant therefore prays that the disallowance of Rs.4,65,28,171/- u/s. 14A r.w.r. 8D be deleted.

2.1. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in upholding the addition of Rs.1,35,52,012/- applying provisions of s. 43CA instead of s. 50C which was previously applied by Id. AO.

2.2. The Appellant prays that the addition of Rs.1,35,52,012/- made under section 43CA of the Act be deleted.

3.1. On the facts and in circumstances of the case and in law, the Id. AO, erred in levying excess interest u/s. 234B of the Act amounting to Rs.1,54,22,53,265/-.

3.2. The Appellant prays that the interest levied under section 2348 amounting to Rs.1,54,22,53,265/- be deleted/appropriately reduced.

ITA No.5274/Mum/2025 M/s. The Bombay Dyeing and Manufacturing Company Limited

GENERAL:

The Appellant craves leave to add, amend, modify, rescind, supplement or alter any of the Grounds stated hereinabove, either before or at the time of hearing of this appeal.”

manufacturing, trading of textiles, polyester staple fiber and also engaged in the business

of real estates. The assessee filed its return of income dated 30.11.2018 and had also filed

its revised e-return on 31.03.2019 declaring total income at Rs.Nil and book profits at

Rs.Nil u/s. 115JB of the Act. The assessee’s case was selected for complete scrutiny under

the e-assessment scheme, 2019 on the following issues: S.No. Issues i. Claim of Any Other Amount Allowable as Deduction in Schedule BP Ii Stock Valuation Iii Payment of Dividend Distribution Tax Iv Default in TDS & Disallowance for such Default v Refund Claim Vi ICDS Compliance and Adjustment Vii Unsecured Loans Viii Sales Turnover/Receipts ix Expenses Incurred for Earning Exempt Income x Income from House Property

3.1 Notices u/s. 143(2) & 142(1) of the Act were issued and served upon the assessee.

The Learned Assessing Officer (“Ld. AO” for short) passed the assessment order dated

31.10.2012 u/s. 143(3) r.w.s. 144B of the Act determining the total income at

Rs.970,82,91,170/- under the normal provisions as well as u/s. 115JB of the Act after

making various additions/disallowances.

order dated 03.06.2025 had partly allowed the appeal filed by the assessee.

ITA No.5274/Mum/2025 M/s. The Bombay Dyeing and Manufacturing Company Limited

CIT(A) on the abovementioned grounds.

the Act. The facts pertaining to the said ground are that the assessee company had shown

non current investment of Rs.950,24,32,695/- in its balance sheet as on 31.03.2018 and had

disallowed a sum of Rs.28,73,956/- towards expenditure incurred in relation to earning of

the exempt income for the year under consideration. It is observed that the assessee has

earned Rs.1,72,34,100/- as dividend income and Rs.98,83,00,996/- as long term capital

gain where the total exempt income aggregated to Rs.100,55,35,096/- as per schedule EI

of return of income. After considering the assessee’s working of the suo-moto

disallowance the Ld. AO duly recorded his dissatisfaction and invoked the provisions of

section 14A r.w.r 8D of the Act and made a further disallowance of Rs.4,94,02,127/- being

1% of the average value of investments yielding exempt income which amounted to

Rs.494,02,12,730/-. The Ld. AO determined the total disallowance after reducing the suo-

moto disallowance made by the assessee and arrived at the total disallowance of

Rs.4,65,28,171/-. The Ld. CIT(A) upheld the disallowance made by the Ld. AO.

the arguments stating that only investments that yielded exempt income are to be

considered for computing the average value of investment and not the entire investments

by excluding those which have not yielded exempt income during the year under

consideration. For this proposition, the Ld. A.R. relied on the decision of the Special Bench

ITA No.5274/Mum/2025 M/s. The Bombay Dyeing and Manufacturing Company Limited

of the Tribunal in the case of Vireet Investments (P.) Ltd. (2017) 165 ITD 27 (Delhi

Tribunal) (SB) and various other decisions which are as under:

“PCIT v. Caraf Builders & Constructions (P.) Ltd [(2019) 261 Taxman 47 (Delhi HC)]; Department's SLP Dismissed in (268 Taxman 317) (SC)

ACB India Ltd. Vs. ACIT [62 taxmann.com71 (Delhi HC)]

ACIT v. Vireet Investments (P.) Ltd. (2017) 165 ITD 27 (Delhi Tribunal) (SB)]

Godrej Agrovet Ltd. v. DCIT [ITA No.4375 of 2017 dated March 13, 2019 (Mumbai Tribunal)]

K. Raheja Corporation Pvt. Ltd. v. ACIT [ITA No.1004 of 2015 dated August 16, 2019 (Mumbai Tribunal)]

Piramal Enterprises Ltd. v. ACIT [(2018) 97 taxmann.com 352 (Mumbai Tribunal)]

Bellweather Microfinance Fund Pvt. Ltd. vs. ITO (ITA No. 1743/Hyd/2013) (Hyd. Trib.)”

The Ld. A.R. secondly contended that the assessee has prepared its financial

statement as per “IND-AS” where the assessee is required to calculate the investments in

equity shares at fair market value. The Ld. A.R. further relied on circular No.10/2017 dated

23.03.2017 issued by the CBDT where it has specified that Income Computation and

Disclosure Standard (ICDS) shall apply for computation of income under the head “profits

and gains of business or profession or income from other sources” irrespective of the

accounting standards adopted by the companies whether accounting standards “AS” or

“IND-AS”. The Ld. A.R. argued that since the ICDS provisions are applicable to all

companies which are following mercantile system of accounting the income tax provisions

are also equally applicable to these companies unless otherwise specified in the Act. The

ITA No.5274/Mum/2025 M/s. The Bombay Dyeing and Manufacturing Company Limited

Ld. A.R. reiterated that for computing disallowance u/s. 14A r.w.r 8D of the Act the

companies will have to follow the same principle whether it is a company following “AS”

or “IND-AS” and therefore for computing 1% of the annual average of the investment

made in equity shares the same has to be determined as per the actual cost of investment

and not the fair market value as per the books. The Ld. A.R.s contention is that there can

not be different rules for companies following “AS” or “IND-AS” for disallowing the

expenses on the basis of fair market value of investment or whether the same has to be on

the basis of the cost of investment for those following “AS”. The Ld. A.R. further

contended that the provisions of section 14A r.w.r 8D of the Act were introduced in the

Act prior to the introduction of “IND-AS” which was notified in 2015 and since “IND-AS”

was not in existence at that time the companies were preparing their financial statements

in accordance with the “AS” and therefore the investments were recorded at the cost and

not at fair market value. To support his contention the Ld. A.R. further stated that since

the concept of fair market value never existed at the time of introduction of rule 8D there

cannot be any applicability of determining the fair market value of investment which was

followed absurdly by the Ld. AO. The Ld. A.R. relied on the decision of the co-ordinate

Bench of the Tribunal in the case of M/s. National Engineering Industries Ltd. Vs. DCIT

in ITA No.982/Kol/2025 for A.Y. 2020-21 decided on 13.10.2025 and also the decision of

the Cochi Bench in the case of M/s. Synthite Industries (P) Ltd. Vs. DCIT in IT(TP)A

Nos.01 & 04/Coch/2024 decided on 13.03.2025.

contradicted the argument and contended that the assessee is required to determine the fair

ITA No.5274/Mum/2025 M/s. The Bombay Dyeing and Manufacturing Company Limited

market value of its investment in accordance with “IND-AS” accounting standards

introduced on 01.04.2017 for equity shares and not the cost of investment as adopted by

the assessee. The Ld. D.R. further contended that the assessee has adopted historical cost

mandated by “IND-AS” accounting standards for valuing the open stock of work in

progress as on 01.04.2017 but for disallowance u/s. 14A r.w.r 8D of the Act the assessee

has failed to adopt “IND-AS” method and had claimed the historical cost which is for

claiming double benefit. The Ld. D.R. argued that the Ld. AO has rightly adopted the

“IND-AS” method for determining the fair market value of non current investments for

making disallowance u/s. 14A r.w.r 8D of the Act. The Ld. D.R. relied on the orders of

the lower authorities.

With regard to the issue of disallowance u/s. 14A r.w.r 8D of the Act there has been two

folded arguments made by the rival parties where the first argument was on the issue of

determining the 1% of the average value of investments, it is observed that the Ld. AO has

considered the entire investments without bifurcating only those investments which have

yielded exempt income. The lower authorities had rejected the assessee’s contention by

holding that all equity instruments are for earning exempt income and relied on the decision

of Maxopp Investment Ltd. vs. CIT [(2018) 402 ITR 640 (SC)] stating that all investments

are to be considered whether it has earned dividend income or not. This, in our view, is

faulted for the reason that it is now a settled proposition of law that only investment which

has yielded exempt income is to be considered for the purpose of determining the average

ITA No.5274/Mum/2025 M/s. The Bombay Dyeing and Manufacturing Company Limited

investments prior to the amendment in Finance Act, 2022 and it has further been held that

the same applies prospectively only to assessment years 2022-23 onwards and not for the

impugned year. We also draw support from the decision of the Special Bench of the

Tribunal in the case of Vireet Investments (P.) Ltd. (supra) where it is now a settled

proposition of law that only investments which have yielded exempt income are to be

considered for computing average investments for making disallowance u/s. 14A r.w.r 8D

of the Act. We, therefore, direct the Ld. AO to restrict the disallowance only to the extent

of those investments which have yielded exempt income during the year under

consideration.

annual average of the monthly average of the opening and closing balances of the value of

investment, income from which does not or shall not form part of total income, whether

the value of investment would be at fair market value of its investment in equity shares as

per “IND-AS” accounting standards or the cost of investment method adopted by the

assessee. For this, the Revenue contends that it has to be the fair market value as per “IND-

AS” accounting standard which was introduced from 01.04.2017 and not as per the AS

which is the actual cost of investment. The Revenue relied on the “IND-AS” accounting

method which provides for fair market value of non current investment for the purpose of

making disallowance u/s. 14A r.w.r 8D of the Act which was also adopted by the Ld. AO

and upheld by the Ld. CIT(A) on the ground that the assessee itself has valued the opening

stock of work in progress as on 01.04.2017 applying the historical cost mandated by the

ITA No.5274/Mum/2025 M/s. The Bombay Dyeing and Manufacturing Company Limited

“IND-AS” accounting system and had rejected the assessee’s method of valuation on the

basis of the cost of investments which is in accordance with AS accounting standard. It is

pertinent to consider the provisions of Rule 8D(2)(ii) of the IT Rules which is worded as

below:

“An amount equal to 1% of the annual average of the monthly average of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income”

On a perusal of the said Rules the expression “value of investment” cannot be

interpreted as “fair market value” for the purpose of computing disallowance u/s 14A r.w.r.

8D. At the outset, it is observed that Rule 8D in itself is a self-contained computational

mechanism prescribing the method for determining the disallowance where there is no

substitution of the value of investment to be “fair market value”. The term “value of

investment” ought to be construed as actual investment and not the value of investment

appearing in the books, in the absence of any explicit provision. We are conscious of the

fact that the accounting standards adopted for financial reporting cannot override specific

provisions of the Act where the concept of fair valuation cannot be read into the Rule. The

Ld. A.R. extensively relied on the decision of the co-ordinate Bench of the Tribunal in the

case of M/s. National Engineering Industries Ltd. (supra) which held that for the purpose

of computing the disallowance u/s. 14A of the Act the cost price or acquisition cost in

accordance with ICDS is to be considered and not the fair market value. We, therefore,

direct the Ld. AO to recompute the disallowance in accordance with the above

observations.

ITA No.5274/Mum/2025 M/s. The Bombay Dyeing and Manufacturing Company Limited

The facts pertaining to this addition are that the assessee company had entered into the sale

transaction with regard to immovable properties for a consideration of Rs.5,01,01,516/-

and another property for a consideration of Rs.4,84,61,972/- for which the State

Government Authority determined jantri value at Rs.5,56,87,000/- and Rs.5,64,28,500/-

respectively. The details of the said transactions are tabulated herein under for reference:

Sr. No. Transaction Transaction ID Transaction Stamp duty Difference Date Amount value U/S.50C

Property -1 29.09.2017 6781/2017 5,01,01,516 5,56,87,000 55,85,484

Property -2 19.01.2018 502/2018 4,84,61,972 5,64,28,500 79,66,528 Total 9,85,63,488 11,21,15,500 1,35,52,012

why the assessee had not adopted the full value of sale consideration received nor the jantri

value of the property assessed by the State Government for determining the Long Term

Capital Gain (“LTCG” for short) which according to the Revenue resulted in understated

taxable income by way of LTCG. It is further observed that since the assessee did not

respond to the said query raised by the Ld. AO, Rs.1,35,52,012/- was added to the total

income of the assessee u/s 50C of the Act by the Ld. AO. The Ld. CIT(A) upheld the

ITA No.5274/Mum/2025 M/s. The Bombay Dyeing and Manufacturing Company Limited

addition made by the Ld. AO on the ground that the assessee has failed to substantiate its

claim even before the first appellate authority.

authorities.

engaged in the business of real estate development and had been following percentage

completion method for computing its “business income”. The Ld. A.R. further stated that

the assessee has sold 53 flats to various buyers offering the same as “business income” and

the transaction in dispute pertained to property 1 and property 2 for which the Ld. AO

added the difference of the sale value of the two properties u/s 50C of the Act. The Ld.

A.R’s contention was that these two properties were part of “stock in trade” of the assessee

for which addition ought not to be made u/s 50C of the Act and only section 43CA is

applicable in the assessee’s case. The Ld. A.R.’s second proposition was that the flats were

booked and allotted in A.Y. 2014-15 and 2017-18 respectively for which the stamp duty

valuation (“SDV” for short), as on the date of booking of the flat, should be taken into

consideration for determining the SDV and not the date of registration of the sale

agreement for the purpose of section 50C/43CA. The Ld. A.R. brought our attention to the

documentary evidences pertaining to the booking of the flat with the relevant documentary

evidences such as the allotment letter, the booking confirmation letter etc. and the details

of the advance amount received from the buyers. The Ld. A.R. further submitted that the

property 1 was allotted to Mr. Purushottam C. Mandhana vide allotment letter dated

ITA No.5274/Mum/2025 M/s. The Bombay Dyeing and Manufacturing Company Limited

02.09.2013 where the consideration was booked and an advance amount of Rs.25,00,000/-

was received through account payee cheque dated 31.03.2012. Further, the said flat was

transferred to Mr. Amit P. Jain at the request of Mr. Purushottam C. Mandhana vide letter

dated 23.11.2016 and 13.12.2016 for which the consent for transferring was also received

by Mr. Amit P. Jain vide letter dated 13.12.2016. The Ld. A.R. further stated that while

registering the property to Mr. Amit P. Jain the advance amount of Rs.25,00,000/- was

reduced and only the remaining was paid to the assessee which establishes the fact that the

final allotment was done on 15.12.2016 which ideally has to be the date for determining

the SDV u/s 43CA of the Act. The Ld. A.R. argued that with regard to the second property

the booking confirmation letter was issued on 27.06.2013 when the sale consideration was

also fixed and further the flat was allotted vide allotment letter dated 01.07.2013. It was

further submitted that the advance amount of Rs.25,00,000/- for booking the flat was

received from Mr. Shitanshu B. Vora on 02.02.2012 itself and that the allotment was

subsequently done on 01.07.2013 which was to be considered as the date for determining

the SDV. The Ld. A.R. reiterated that the lower authorities erred in considering the date

of sale registration to be the date for determining the SDV rather than considering the

allotment letter as per the provisions of law where the essential ingredient of fixing of sale

consideration and receiving part consideration by way of cheque was satisfied in the

present case. The Ld. A.R. relied on a catena of decisions in support of his claim.

It is a settled principle of law that the date of sale agreement where the consideration is

ITA No.5274/Mum/2025 M/s. The Bombay Dyeing and Manufacturing Company Limited

fixed and substantial amount was received towards consideration by any other mode other

than cash was to be considered for determining the SDV and not the date when the sale

was registered. This has been reiterated by various decisions in support of the assessee

where even the date of allotments of the flats are considered to be the date when the sale

consideration is fixed which is supported by payments made towards the said transaction

as part consideration. There is no dispute on this proposition in the present case in hand.

But it is also noted that the assessee has not furnished the relevant documentary evidences

in support of its claim during the assessment proceedings though the same was said to have

been filed during the first appellate authority. We do not find any remand report being

fault for from the Ld. AO. It is also observed that the assessee’s claim that the said

properties were part of “stock in trade” for the purpose of attracting section 43CA of the

Act was also not looked into by the lower authorities. In order to verify all these factual

aspects, we deem it fit to remand this issue back to the file of the Ld. AO who is hereby

directed to decide the issue in hand in light of the various judicial precedents relied upon

by the Ld. AR along with the documentary evidences filed by the assessee. Accordingly,

ground No.2 is allowed for statistical purposes.

adjudication.

purposes.

ITA No.5274/Mum/2025 M/s. The Bombay Dyeing and Manufacturing Company Limited

Order pronounced in the open court on 18.03.2026

Sd/-Sd- Sd/-Sd/- (OM PRAKASH KANT) (KAVITHA RAJAGOPAL) ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai; Dated: 18.03.2026

* Kishore, Sr. P.S.

Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT- concerned 4. DR, ITAT, Mumbai 5. Guard File BY ORDER,

(Dy./Asstt.Registrar) ITAT, Mumbai