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Facts
The assessee, a company owning the "Vadilal" brand, filed its return for AY 2017-18, declaring exempt dividend income. It made a suo motu disallowance of Rs. 11,571/- under Section 14A. The AO enhanced this disallowance to Rs. 15,00,327/- under Section 14A and also disallowed Rs. 15,12,078/- under Section 115JB. The CIT(A) upheld the Section 14A disallowance but deleted the Section 115JB disallowance, leading to the current appeal.
Held
The Tribunal dismissed the assessee's ground regarding the AO's failure to record dissatisfaction for invoking Rule 8D, noting that sufficient explanation was sought. It found the assessee's suo motu disallowance of Rs. 11,571/- under Section 14A to be inappropriate and directed the Assessing Officer to make a disallowance of Rs. 30,000/- under Section 14A.
Key Issues
Whether the CIT(A) erred in confirming the disallowance under Section 14A read with Rule 8D without properly considering the assessee's submissions and without the AO recording dissatisfaction regarding the assessee's own computation.
Sections Cited
14A, 143(3), 115JB
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AHMEDABAD “A” BENCH
Before: DR. BRR Kumar & Shri T. R. Senthil Kumar
ITA No: 1982/Ahd/2024 Assessment Year: 2017-18 M/s. Vadilal International The DCIT, Private Limited Circle-4(1)(2), “Vadilal House”, Vs Ahmedabad Shrimali Society, Nr. Nav Rangpura Railway Crossing, Navrangpura, Ahmedabad-380009 Gujarat PAN: AABCV3843N (Respondent) (Appellant) Assessee Represented: Shri Parin Shah, A.R. Revenue Represented: Smt. Trupti Patel, Sr.D.R. Date of hearing : 25-06-2025 Date of pronouncement : 30-06-2025 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-
This appeal is filed by the Assessee as against the appellate order dated 25.09.2024 passed by the Additional Commissioner of Income Tax (Appeals)-13, Mumbai arising out of the assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2017-18.
A.Y. 2017-18 Page No 2 M/s. Vadilal International Pvt. Ltd. vs. DCIT
Brief facts of the case is that the assessee is a Company engaged in the business of providing of Trademark and Copyright of brand “Vadilal”. The assessee is the owner of the brand name “Vadilal”. For the Asst. Year 2017-18, assessee filed its Return of Income on 31-10-2017 declaring total income of Rs. 3,29,13,300/-. The return was taken for scrutiny assessment. The assessee made investments of Rs.15,12,07,885/- and earned dividend income of Rs.35,14,380/- which is claimed as exempt income. The assessee suo motu disallowed Rs. 11,571/- u/s. 14A of the Act. As the disallowance made by the assessee was not as per the rule laid down under Rule 8D of the Rules, the Assessing Officer calculated the disallowance and made addition of Rs.15,00,327/- u/s. 14A read with Rule 8D and also made disallowance of Rs.15,12,078/- u/s. 115JB of the Act.
Aggrieved Against the assessment order, assessee filed an appeal before Addl. CIT(A) who has confirmed the addition made u/s. 14A read with Rule 8D however deleted the addition made u/s. 115JB of the Act.
Aggrieved against the appellate order, the assessee is in appeal before us raising the following Grounds of Appeal:
1. On the facts and circumstances of the case, and in law, the Ld. Commissioner of Income-tax (Appeal) ['the CIT(A)'] erred in confirming the disallowance amounting to Rs. 15,00,327 made under section 14A of the Act by the Deputy Commissioner of Income-Tax, Circle 4(1)(2)- Ahmedabad ('Ld.AO') without considering the submission filed.
2. In doing so, the CIT(A) further erred in upholding the disallowance under section 14A read with Rule 8D without addressing the fundamental requirement that the AO must record dissatisfaction with the appellant's A.Y. 2017-18 Page No 3 M/s. Vadilal International Pvt. Ltd. vs. DCIT computation of expenses relating to exempt income having regard to the books of account of the Appellant before invoking Rule 8D for disallowance.
We have heard rival submissions and perused the materials available on record. It is seen from the assessment order, the assessing officer after looking into the suo motu disallowance made by the assessee and the profit and loss account wherein exempt income as per Schedule BP is significantly lower as compared to the investments made to earn exempt income and called for explanation from the assessee. Thus the Ground No. 2 raised by the assessee, the assessing officer has not recorded the dissatisfaction does not arise, so ground no. 2 raised by the assessee is hereby dismissed.
5.1. Further perusal of the assessment order, the assessee replied that the dividend income of Rs. 35,14,380/- was received from Vadilal Industrial Ltd. only, all other investments, no dividend was received by the assessee company. However the assessee has not made new investments from which exempted income is received, which can be verified from the balance sheet. Further the interest received Rs. 1,89,61,848/- by the assessee is more than the interest paid Rs. 30,00,260/-, therefore no disallowance was made by the assessee. As no administrative expenses claimed in relation to the exempted dividend income, so no portion of administrative expenses is disallowed u/s. 14A of the Act. Further, as. As the dividend income earned on total income which works out to 8.73%, the same percentage is used for the apportionment of common expenses at Rs. 1,32,587/- and the assessee suo motu disallowed Rs. A.Y. 2017-18 Page No 4 M/s. Vadilal International Pvt. Ltd. vs. DCIT 11,571/-. In our considered view, this disallowance made by the assessee is also not found to be appropriate. Therefore we direct the Assessing Officer to make a disallowance of Rs.30,000/- u/s. 14A of the I.T. Act.
In the result, the appeal filed by the Assessee is partly allowed.
Order pronounced in the open court on 30-06-2025