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Facts
The assessee earned exempt income and made a voluntary disallowance under Section 14A. The Assessing Officer (AO) considered this inadequate and calculated a higher disallowance under Rule 8D. The CIT(A) restricted the disallowance to the extent of exempt income.
Held
The Tribunal held that the Assessing Officer had recorded sufficient dissatisfaction to invoke Rule 8D. It also reaffirmed that disallowance under Section 14A is to be limited to the extent of investments yielding exempt income, and that the AO's actions were justified based on legal precedents.
Key Issues
Whether the Assessing Officer correctly invoked Section 14A and Rule 8D without recording dissatisfaction and whether the disallowance was computed correctly.
Sections Cited
14A, Rule 8D
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Income Tax Appellate Tribunal, MUMBAI BENCH “B” MUMBAI
Before: SHRI OM PRAKASH KANT (ACCOUNT MEMBER) & MS. KAVITHA RAJAGOPAL
ORDER PER OM PRAKASH KANT, AM These two appeals by the assessee are directed against two separate orders, both dated 20th August, 2025 passed by the Ld. Commissioner of Income Tax (Appeals) 47, Mumbai [in short, “the Ld. CIT(A)] for assessment years 2014-15 and 2015-16 respectively.
In both these appeals, identical issue in dispute of disallowance u/s 14A of the Act is involved and, therefore, both
2 Nuvama Wealth Management Nuvama Wealth Management Limited ITA No s. 6760/MUM/2025 & 6761/MUM/2025 these appeals were heard together and disposed of heard together and disposed off by way of this by way of this consolidated order for the sake of convenience. consolidated order for the sake of convenience.
3. Now, we take up the appeal of the assessee for A.Y. 2014 ke up the appeal of the assessee for A.Y. 2014 ke up the appeal of the assessee for A.Y. 2014- 15. The sole ground raised
by the assessee is reproduced as 15. The sole ground raised by the assessee is reproduced as 15. The sole ground raised by the assessee is reproduced as under:
1. The Commissioner of Income Tax (Appeals) “1. The Commissioner of Income Tax (Appeals)-47, Mumbai [hereinafter 47, Mumbai [hereinafter referred as CIT(A)] erred in confirming the action of the Deputy Commissi referred as CIT(A)] erred in confirming the action of the Deputy Commissi referred as CIT(A)] erred in confirming the action of the Deputy Commissioner of Income Tax Circle of Income Tax Circle – 4(1)(1), Mumbai [hereinafter referred as AO] in making 4(1)(1), Mumbai [hereinafter referred as AO] in making disallowance u/s 14A of the Income Tax Act, 1961 (Act) r.w. Rule 8D of the disallowance u/s 14A of the Income Tax Act, 1961 (Act) r.w. Rule 8D of the disallowance u/s 14A of the Income Tax Act, 1961 (Act) r.w. Rule 8D of the Income Tax Rules, 1962 (Rules) without recording his dissatisfaction having Income Tax Rules, 1962 (Rules) without recording his dissatisfaction having Income Tax Rules, 1962 (Rules) without recording his dissatisfaction having regard to its books of regard to its books of accounts. The Appellant submits that it has made suo moto disallowance of The Appellant submits that it has made suo moto disallowance of The Appellant submits that it has made suo moto disallowance of Rs. 65,793/- u/s 14A r.w.r 8D of the Rules, hence, the disallowance in excess of u/s 14A r.w.r 8D of the Rules, hence, the disallowance in excess of u/s 14A r.w.r 8D of the Rules, hence, the disallowance in excess of Rs.65,793/- made by the AO shall be deleted. made by the AO shall be deleted.
We have considered the rival submission of the We have considered the rival submission of the We have considered the rival submission of the parties and perused the material on record. In the case assessee was engaged perused the material on record. In the case assessee was engaged perused the material on record. In the case assessee was engaged in the business of share broking and dealing in shares, securities in the business of share broking and dealing in shares, securities in the business of share broking and dealing in shares, securities and derivative investments. and derivative investments.
5. During the year assessee had earned exempt income of 5. During the year assessee had earned exempt income of 5. During the year assessee had earned exempt income of Rs.7,46,429/- and had volunt and had voluntarily disallowed Rs.65,793 arily disallowed Rs.65,793/- u/s 14A of the Income Tax Act, 1961 (in short, “the Act”) 14A of the Income Tax Act, 1961 (in short, “the Act”) 14A of the Income Tax Act, 1961 (in short, “the Act”) comprising salary of an employee and administrative expenses. The salary of an employee and administrative expenses. The salary of an employee and administrative expenses. The Assessing Officer, how Assessing Officer, however, found the disallowance inadequate, ever, found the disallowance inadequate, especially given the scale of investment especially given the scale of investments and the resources s and the resources involved in managing such investments. The Assessing Officer involved in managing such investments. The Assessing Officer involved in managing such investments. The Assessing Officer held that assessee’s claim of minimum expenditure towards held that assessee’s claim of minimum expenditure towards held that assessee’s claim of minimum expenditure towards earning exempt was not acceptable. Accordingly earning exempt was not acceptable. Accordingly, he relied on the he relied on the judicial precedents invoking Rule 8D of the Income T judicial precedents invoking Rule 8D of the Income T judicial precedents invoking Rule 8D of the Income Tax Rules
3 Nuvama Wealth Management Nuvama Wealth Management Limited ITA No s. 6760/MUM/2025 & 6761/MUM/2025 and computed the disallowance u/s 14A at Rs.99,23,192/ and computed the disallowance u/s 14A at Rs.99,23,192/ and computed the disallowance u/s 14A at Rs.99,23,192/- and after reducing the suo motu suo motu disallowance made by the assessee, a disallowance made by the assessee, a net disallowance of Rs.98,57,399/ net disallowance of Rs.98,57,399/- was made u/s 14A of the Act. was made u/s 14A of the Act. The income under the MAT provisions was also accordingly The income under the MAT provisions was also accordingly The income under the MAT provisions was also accordingly recomputed by the Assessing Officer including disallowance u/s ecomputed by the Assessing Officer including disallowance u/s ecomputed by the Assessing Officer including disallowance u/s 14A of the Act. On further appeal, the Ld. CIT(A) restricted the On further appeal, the Ld. CIT(A) restricted the On further appeal, the Ld. CIT(A) restricted the disallowance to the extent of exempted income following various disallowance to the extent of exempted income following various disallowance to the extent of exempted income following various precedents. The relevant finding of Ld. CIT(A) is reproduced as precedents. The relevant finding of Ld. CIT(A) is reproduced as precedents. The relevant finding of Ld. CIT(A) is reproduced as under:
“10. The issue involved in these grounds relates to disallowance U/s 14A of 10. The issue involved in these grounds relates to disallowance U/s 14A of 10. The issue involved in these grounds relates to disallowance U/s 14A of the Act. During the relevant previous year, the appellant had claimed exempt the Act. During the relevant previous year, the appellant had claimed exempt the Act. During the relevant previous year, the appellant had claimed exempt income u/s 10(34) of the Act of Rs. 7,46,429/ income u/s 10(34) of the Act of Rs. 7,46,429/- and the appellant had suo motu and the appellant had suo motu offered disallowance u/s 1 offered disallowance u/s 14A of Rs. 65,793/-. The AO has worked out . The AO has worked out disallowance U/s 14A of the Act r.w.r. 8D at Rs. 99,23,192/ disallowance U/s 14A of the Act r.w.r. 8D at Rs. 99,23,192/ disallowance U/s 14A of the Act r.w.r. 8D at Rs. 99,23,192/-. Considering the disallowance already offered by the appellant, the net disallowance of Rs. disallowance already offered by the appellant, the net disallowance of Rs. disallowance already offered by the appellant, the net disallowance of Rs. 98,57,399/- was made to the returned income u/s 14A r.w.r. 8D was made to the returned income u/s 14A r.w.r. 8D was made to the returned income u/s 14A r.w.r. 8D of the Act. The appellant has contended that no further disallowance u/s 14A of the Act The appellant has contended that no further disallowance u/s 14A of the Act The appellant has contended that no further disallowance u/s 14A of the Act is required in the facts of its case. Further, as an alternate argument, the is required in the facts of its case. Further, as an alternate argument, the is required in the facts of its case. Further, as an alternate argument, the appellant has stated that disallowance cannot exceed the claim of exempt appellant has stated that disallowance cannot exceed the claim of exempt appellant has stated that disallowance cannot exceed the claim of exempt income claimed in income claimed in the return of income for which it has relied on various the return of income for which it has relied on various judicial decisions. The appellant has also argued that the AO has not recorded judicial decisions. The appellant has also argued that the AO has not recorded judicial decisions. The appellant has also argued that the AO has not recorded satisfaction regarding the correctness of claim of the assessee in respect of satisfaction regarding the correctness of claim of the assessee in respect of satisfaction regarding the correctness of claim of the assessee in respect of expenditure related to earning of exempt i expenditure related to earning of exempt income which is mandatory ncome which is mandatory requirement for invoking provisions of section 14A(2) r.w.r. 8D of the Act. The requirement for invoking provisions of section 14A(2) r.w.r. 8D of the Act. The requirement for invoking provisions of section 14A(2) r.w.r. 8D of the Act. The appellant as also stated that the computation of disallowance under Rule appellant as also stated that the computation of disallowance under Rule appellant as also stated that the computation of disallowance under Rule 8D(2)(iii) should be limited to the investments which 8D(2)(iii) should be limited to the investments which actually yielded exempt actually yielded exempt income. 10.1 The AO has noted that the appellant has claimed salary of a mid 10.1 The AO has noted that the appellant has claimed salary of a mid 10.1 The AO has noted that the appellant has claimed salary of a mid-level employee handling investment to the extent of Rs. 50,000/ employee handling investment to the extent of Rs. 50,000/ employee handling investment to the extent of Rs. 50,000/- and Rs. 15,793/- on account of administrative and other miscellaneous expenses, as expenses on account of administrative and other miscellaneous expenses, as expenses on account of administrative and other miscellaneous expenses, as expenses related to earning of related to earning of exempt Income. The AO held that the appellant's exempt Income. The AO held that the appellant's quantification of quantification of expenses related to earning of exempt income is not justified empt income is not justified considering the quantum of exempt investments. The AO has also noted that considering the quantum of exempt investments. The AO has also noted that considering the quantum of exempt investments. The AO has also noted that the investment decisions require the involvement of Sr the investment decisions require the involvement of Sr. level management of . level management of the company and also other resources of the company for decision the company and also other resources of the company for decision the company and also other resources of the company for decision-making regarding utilization of funds. On this premise, the AO has rejected the regarding utilization of funds. On this premise, the AO has rejected the regarding utilization of funds. On this premise, the AO has rejected the correctness of claim of the assessee in respect of expenditure in relation to correctness of claim of the assessee in respect of expenditure in relation to correctness of claim of the assessee in respect of expenditure in relation to income which does not form part of total income. Therefore, the appellant's h does not form part of total income. Therefore, the appellant's h does not form part of total income. Therefore, the appellant's contention that the AO has invoked provisions of 14A r.w contention that the AO has invoked provisions of 14A r.w 8D without recordi D without recording satisfaction is not correct. satisfaction is not correct.
4 Nuvama Wealth Management Nuvama Wealth Management Limited ITA No s. 6760/MUM/2025 & 6761/MUM/2025 10.2 The Hon'ble Special Bench of Delhi Tribunal in the case of ACIT vs. Vireet 2 The Hon'ble Special Bench of Delhi Tribunal in the case of ACIT vs. Vireet 2 The Hon'ble Special Bench of Delhi Tribunal in the case of ACIT vs. Vireet Investments Pvt. Ltd. have held that for the purposes of stments Pvt. Ltd. have held that for the purposes of stments Pvt. Ltd. have held that for the purposes of calculating disallowance as per Rule calculating disallowance as per Rule 8D(2)(iii), only those investments are to be ), only those investments are to be considered for computing average value o considered for computing average value of investments which yield exemp f investments which yield exempt income during the year. Fur income during the year. Further, the Spl Bench decision has been followed in a ther, the Spl Bench decision has been followed in a number of other judgements such as (i r of other judgements such as (i) Sajjan India Ltd. vs. Addi.CIT (2018) ) Sajjan India Ltd. vs. Addi.CIT (2018) 89 Taxmann.com 21 (Mum Tribunal), (ii) DCIT vs. Bombay Oxygen Corporation 89 Taxmann.com 21 (Mum Tribunal), (ii) DCIT vs. Bombay Oxygen Corporation 89 Taxmann.com 21 (Mum Tribunal), (ii) DCIT vs. Bombay Oxygen Corporation Ltd. (2017) 86 Taxmann 88 (Mum Tribunal), (iii) Tata Ltd. (2017) 86 Taxmann 88 (Mum Tribunal), (iii) Tata Power Co Ltd. vs PCIT, Power Co Ltd. vs PCIT, Mumbai (2020), 121 Mumbai (2020), 121 Taxmann.com 127 (Mum Tribunal)
10.3 With the Spl. Bench decision in the case of Vireet Investment Ltd. (supra), e Spl. Bench decision in the case of Vireet Investment Ltd. (supra), e Spl. Bench decision in the case of Vireet Investment Ltd. (supra), law with respect to computation of disallowance under Rule 8D(2)(ii law with respect to computation of disallowance under Rule 8D(2)(ii law with respect to computation of disallowance under Rule 8D(2)(iii) of the Act is settled and the qu is settled and the quantum of disallowance has to be limited to the extent of antum of disallowance has to be limited to the extent of investments yielding exempt income. Further, the Spl Bench decision has been investments yielding exempt income. Further, the Spl Bench decision has been investments yielding exempt income. Further, the Spl Bench decision has been followed in several cases by the jurisdictional Mumbai Tribunal in several followed in several cases by the jurisdictional Mumbai Tribunal in several followed in several cases by the jurisdictional Mumbai Tribunal in several cases quoted in the previous paragraph. Hence, cases quoted in the previous paragraph. Hence, following the judgement of the following the judgement of the Spl Bench Delhi Tribunal and jurisdictional Tribunal, Spl Bench Delhi Tribunal and jurisdictional Tribunal, Spl Bench Delhi Tribunal and jurisdictional Tribunal, it is held that disallowance u/ disallowance u/s 14A of the Act has to be limited to the value of inve s 14A of the Act has to be limited to the value of investments yielding exempt income. yielding exempt income.
10.4 Further, the extent of disallowance u/s 14A in a 4 Further, the extent of disallowance u/s 14A in a 4 Further, the extent of disallowance u/s 14A in an instance where, dividend income earned during the relevant year is either nil or less than the dividend income earned during the relevant year is either nil or less than the dividend income earned during the relevant year is either nil or less than the amount of disallowance computed under section 14A, has been subjected to amount of disallowance computed under section 14A, has been subjected to amount of disallowance computed under section 14A, has been subjected to substantial debate. However, this issue is settled by the recent decision of the substantial debate. However, this issue is settled by the recent decision of the substantial debate. However, this issue is settled by the recent decision of the Hon'ble Supreme Court dated 02.07.2018 in the case of Chettinad Logistics P. le Supreme Court dated 02.07.2018 in the case of Chettinad Logistics P. le Supreme Court dated 02.07.2018 in the case of Chettinad Logistics P. Ltd. (95 taxmann.com 250) wherein the Revenue SLP against the decision of Ltd. (95 taxmann.com 250) wherein the Revenue SLP against the decision of Ltd. (95 taxmann.com 250) wherein the Revenue SLP against the decision of the Hon'ble Madras High Court (80 taxmann.com 221) has been dismissed. In the Hon'ble Madras High Court (80 taxmann.com 221) has been dismissed. In the Hon'ble Madras High Court (80 taxmann.com 221) has been dismissed. In this case, the Hon'ble Madras High C this case, the Hon'ble Madras High Court held that Rule 8 8D cannot over-ride the provisions of sec. 14 the provisions of sec. 14A. The Hon'ble Madras Court held that if provisions of . The Hon'ble Madras Court held that if provisions of sec 14A itself are not applicable, then there is no question of invoking Rule sec 14A itself are not applicable, then there is no question of invoking Rule sec 14A itself are not applicable, then there is no question of invoking Rule 8D and computing the disallowance. It was noted by the Hon and computing the disallowance. It was noted by the Hon'ble High Court that 'ble High Court that the language used in the provisions of sec. 14A makes it abundantly clear that the language used in the provisions of sec. 14A makes it abundantly clear that the language used in the provisions of sec. 14A makes it abundantly clear that the same is triggered only when there is an income which does not form part of the same is triggered only when there is an income which does not form part of the same is triggered only when there is an income which does not form part of the total income under the Act. It was held by the Hon'ble High Court that th the total income under the Act. It was held by the Hon'ble High Court that th the total income under the Act. It was held by the Hon'ble High Court that the provisions of sec. 14A cannot be invoked if no exempt income has been ear provisions of sec. 14A cannot be invoked if no exempt income has been ear provisions of sec. 14A cannot be invoked if no exempt income has been earned for the relevant year. The Hon'ble High Court granted relief to the said for the relevant year. The Hon'ble High Court granted relief to the said for the relevant year. The Hon'ble High Court granted relief to the said assessee on the disallowance made by the AO u/s 1 assessee on the disallowance made by the AO u/s 14A on the ground that no 4A on the ground that no exempt/dividend income was ear exempt/dividend income was earned during the relevant year. The relevant ed during the relevant year. The relevant portion of the decision of the Hon'ble Madras High Court in the case of portion of the decision of the Hon'ble Madras High Court in the case of portion of the decision of the Hon'ble Madras High Court in the case of Chettinad Logistics Chettinad Logistics P. Ltd. is reproduced as under-
"8. According to us, this exercise, in the given facts which emerge from "8. According to us, this exercise, in the given facts which emerge from "8. According to us, this exercise, in the given facts which emerge from the record, was the record, was clearly unnecessary, as the CIT(A) had returned the clearly unnecessary, as the CIT(A) had returned the finding of fact that no dividend had been ea finding of fact that no dividend had been earned in the relevant ed in the relevant assessment year, with which, we are concerned, in the present appeal. assessment year, with which, we are concerned, in the present appeal. assessment year, with which, we are concerned, in the present appeal.
In our opinion Section 14 A of the Act, can only be triggered, if 9. In our opinion Section 14 A of the Act, can only be triggered, if 9. In our opinion Section 14 A of the Act, can only be triggered, if the Assessee seek Assessee seeks to square off expenditure against income which does to square off expenditure against income which does not form part of the total income under the Act. not form part of the total income under the Act.
9.1 The legislature, in order to do away with the pernicious practice 9.1 The legislature, in order to do away with the pernicious practice 9.1 The legislature, in order to do away with the pernicious practice adopted by the Assessees', to claim expenditure, against income adopted by the Assessees', to claim expenditure, against income adopted by the Assessees', to claim expenditure, against income exempt from tax, introduced the said provision empt from tax, introduced the said provision
5 Nuvama Wealth Management Nuvama Wealth Management Limited ITA No s. 6760/MUM/2025 & 6761/MUM/2025
10. In the instant case, there is no disput 10. In the instant case, there is no dispute that no income i. e that no income i.e., dividend, which did not form part of total income of the Assessee was earned in which did not form part of total income of the Assessee was earned in which did not form part of total income of the Assessee was earned in the relevant assessment year. the relevant assessment year.
10.1 Therefore, to our minds, the a 10.1 Therefore, to our minds, the addition made by the Assessing ddition made by the Assessing Officer by relying upon Section 14 A of the Act, was completely contrary Officer by relying upon Section 14 A of the Act, was completely contrary Officer by relying upon Section 14 A of the Act, was completely contrary to the provisions of the sa to the provisions of the said Section.
10.2 Mr. Senthil Kumar, who appears for the Revenue, submitted that 10.2 Mr. Senthil Kumar, who appears for the Revenue, submitted that 10.2 Mr. Senthil Kumar, who appears for the Revenue, submitted that the Revenue could disallow the expenditure eve the Revenue could disallow the expenditure eve the Revenue could disallow the expenditure even in such a circumstance by taking recourse to Rule 8 circumstance by taking recourse to Rule 8D.
10.3 According to us, 10.3 According to us, Rule 8D, only provides for a method to determine y provides for a method to determine the amount of expenditure incurred in relation to income which does not the amount of expenditure incurred in relation to income which does not the amount of expenditure incurred in relation to income which does not form part of the total income of the Assessee. form part of the total income of the Assessee.
10.4 Rule 10.4 Rule 8 D, in our view, cannot go beyond what is provided in 8 D, in our view, cannot go beyond what is provided in Section 14 A of the Act. Section 14 A of the Act.
11. Furthermore, we may note that a similar argument was sought to 11. Furthermore, we may note that a similar argument was sought to 11. Furthermore, we may note that a similar argument was sought to be advanced by the Revenue in the matter conce be advanced by the Revenue in the matter conce be advanced by the Revenue in the matter concerning, Redington (India) Ltd. v. Addl (India) Ltd. v. Addl. CIT (2017) 77 taxmann.com 257 (Mad m 257 (Mad.) which was, subject matter of T.C.A.No.520 of 2016 subject matter of T.C.A.No.520 of 2016
11.1 A Co 11.1 A Co-ordinate Bench of this Court, vide judgment dated ordinate Bench of this Court, vide judgment dated 23.12.2016, rejected the plea of the R 23.12.2016, rejected the plea of the Revenue advanced in that behalf. evenue advanced in that behalf.
11.2 As a matter of fact, a perusal of the judgment would show 11.2 As a matter of fact, a perusal of the judgment would show 11.2 As a matter of fact, a perusal of the judgment would show that the Revenu the Revenue had sought to argue that because exempt income could be had sought to argue that because exempt income could be earned in future years, rned in future years, therefore, recourse could be taken to the therefore, recourse could be taken to the provisions of Section 144 of the Act, to disallow expenditure. In other provisions of Section 144 of the Act, to disallow expenditure. In other provisions of Section 144 of the Act, to disallow expenditure. In other words the stand taken by the Revenue was irre words the stand taken by the Revenue was irrespective of the fact spective of the fact whether or not income was ea whether or not income was earned in the concerned assessment year ed assessment year expenditure under Section 14A could be disallowed against anticipated expenditure under Section 14A could be disallowed against anticipated expenditure under Section 14A could be disallowed against anticipated income. income.
11.3 Pertinently, the Division Bench in Redington (India) Ltd. (supra) 11.3 Pertinently, the Division Bench in Redington (India) Ltd. (supra) 11.3 Pertinently, the Division Bench in Redington (India) Ltd. (supra) case has repelled th case has repelled this precise argument
12. The Division Bench, in our view, quiet co 12. The Division Bench, in our view, quiet correctly held that, the ectly held that, the computation of total income, in terms of Section 5 of the Act, is made computation of total income, in terms of Section 5 of the Act, is made computation of total income, in terms of Section 5 of the Act, is made qua real Income and qua real Income and not, vis-a-vis, national income
12.1 The Division Bench went on to hold that 12.1 The Division Bench went on to hold that Section 4 of the Act brings Section 4 of the Act brings to tax, that to tax, that income, which is relatable to the assessment year in issue. ome, which is relatable to the assessment year in issue. The Division Bench, thus, held that where no exempt income is ea The Division Bench, thus, held that where no exempt income is ea The Division Bench, thus, held that where no exempt income is earned in the previous year, relevant to the assessment year in issue, in the previous year, relevant to the assessment year in issue, in the previous year, relevant to the assessment year in issue, provisions of Section provisions of Section 14 A of the Act, read with Rule 8 D could not be Rule 8 D could not be Invoked. Invoked.
12.2 While coming to this conclusion, the Division Bench also took note 12.2 While coming to this conclusion, the Division Bench also took note 12.2 While coming to this conclusion, the Division Bench also took note of the aforementioned aforementioned Circular, issued by the Board." Circular, issued by the Board."
6 Nuvama Wealth Management Nuvama Wealth Management Limited ITA No s. 6760/MUM/2025 & 6761/MUM/2025 10.5 The Hon'ble Bom 10.5 The Hon'ble Bombay High Court in the case of M/s. Nirved Traders s. Nirved Traders Pvt. Ltd. (ITA No. 149 of 2017) in their decision dated 23.04.201 Ltd. (ITA No. 149 of 2017) in their decision dated 23.04.201 Ltd. (ITA No. 149 of 2017) in their decision dated 23.04.2019 approved the claim that the disallowance under section 14A was to be restricted to the tax claim that the disallowance under section 14A was to be restricted to the tax claim that the disallowance under section 14A was to be restricted to the tax- exempt income earned during the year. The High Court observed that exempt income earned during the year. The High Court observed that exempt income earned during the year. The High Court observed that:
This Appeal is filed by the 3. This Appeal is filed by the Assessee to challenge the Judgment of Assessee to challenge the Judgment of the income Tax Appellate Tribunal ( the income Tax Appellate Tribunal (‘the Tribunal’, for URS 1 of 7 2 3 , for URS 1 of 7 2 3- ITXA 149 ITXA 149-17.odt short). The Appellant Assessee is a private limited short). The Appellant Assessee is a private limited company and a non company and a non-banking financial company. In the Assessment banking financial company. In the Assessment Year 2008 Year 2008-2009, the Assessee had claimed interest expenditure of Rs the Assessee had claimed interest expenditure of Rs 6,87,57,951. 6,87,57,951.
During the same period relevant to the Assessment Year in question, During the same period relevant to the Assessment Year in question, During the same period relevant to the Assessment Year in question, the Assessee the Assessee had earned dividend income of Rs. 1,13,72,545 which ed dividend income of Rs. 1,13,72,545 which was exempt from tax. The Assessing Officer disa was exempt from tax. The Assessing Officer disall was exempt from tax. The Assessing Officer disallowed the interest expenditure of Rs.3,79,83,539. He further disallowed administrative expenditure of Rs.3,79,83,539. He further disallowed administrative expenditure of Rs.3,79,83,539. He further disallowed administrative expenditure and made a total disallowance of Rs 4.22,72,425/ expenditure and made a total disallowance of Rs 4.22,72,425/ expenditure and made a total disallowance of Rs 4.22,72,425/-under Section 14A of the Income Tax Act, 1961 (the Act, for short) read with Section 14A of the Income Tax Act, 1961 (the Act, for short) read with Section 14A of the Income Tax Act, 1961 (the Act, for short) read with Rule 8D D of the Rules. The Tribunal, by the impugned Judgment, e impugned Judgment, confirmed such disallowance upon which, the confirmed such disallowance upon which, the Assessee has filled this Assessee has filled this Appeal. Appeal.
4. At the outset, lea 4. At the outset, learned Counsel for the Appellant-Assessee submitted Assessee submitted that several that several High Courts have held that disallowance under Section owance under Section 14A of the Act read 14A of the Act read with Rule 8D of the Rules, cannot exceed the D of the Rules, cannot exceed the exempt income ea exempt income earned by the Assessee during the relevant year. She ed by the Assessee during the relevant year. She submitted that if such disallowance, therefore, is restricted to Rs. submitted that if such disallowance, therefore, is restricted to Rs. submitted that if such disallowance, therefore, is restricted to Rs. 1,13,72,545/ which is exempt income ea 1,13,72,545/ which is exempt income earned by the Assessee, the ed by the Assessee, the Assessee wo Assessee would accept the same.
5. Having heard the lea 5. Having heard the learned Counsel for the parties and having ed Counsel for the parties and having perused the documents on record, consistently different High Courts in perused the documents on record, consistently different High Courts in perused the documents on record, consistently different High Courts in the country have taken a view that the disallowance under Section 14 the country have taken a view that the disallowance under Section 14 the country have taken a view that the disallowance under Section 14A of the Act read with Rule of the Act read with Rule 8D of the Rules cannot exceed the Assessee's the Rules cannot exceed the Assessee's exempt income. The Delhi exempt income. The Delhi High Court, in the case of Cheminvest Ltd. High Court, in the case of Cheminvest Ltd. Vs. Commissioner of income Tax 1, has held that when the Assessee Vs. Commissioner of income Tax 1, has held that when the Assessee Vs. Commissioner of income Tax 1, has held that when the Assessee has not ea has not earned any income which was exempt from tax, disal ed any income which was exempt from tax, disallowance of the expenditu of the expenditure under Section 14A read with 8D of the Rules would D of the Rules would not be permissi not be permissible.
10.6 The Hon'ble Ka The Hon'ble Karnataka High Court, in the case of Pragati Krishna Gramin ataka High Court, in the case of Pragati Krishna Gramin Bank Vs Joint Commissioner of Income Bank Vs Joint Commissioner of Income-tax2, has held that expenditure in tax2, has held that expenditure in relation to income not includable lation to income not includable in the total income cannot exceed such in the total income cannot exceed such income. It was observed as under. come. It was observed as under.
"14. We make it clear that the expenditure for earning exempted income "14. We make it clear that the expenditure for earning exempted income "14. We make it clear that the expenditure for earning exempted income has to have a reasonable proportion to the income, so ea has to have a reasonable proportion to the income, so ea has to have a reasonable proportion to the income, so earned, going by the common financial prudence. the common financial prudence.
Therefore, Therefore, even if the Assessing Authority has to make an estimate of even if the Assessing Authority has to make an estimate of such an expenditure incurred to ea such an expenditure incurred to earn exempted income, it has to have a exempted income, it has to have a rational nexus with the amount of income ea rational nexus with the amount of income earned itself. Disallowan ed itself. Disallowance under Section 14A of Rs 2,48,85, under Section 14A of Rs 2,48,85,000/-as expenses to earn as expenses to earn exempted
7 Nuvama Wealth Management Nuvama Wealth Management Limited ITA No s. 6760/MUM/2025 & 6761/MUM/2025 Dividend income of Rs.
Dividend income of Rs. 1.80,30,965/- is per se absur is per se absurd and hypothetical. The disallowance under Section 8 hypothetical. The disallowance under Section 8D cannot exceed the expenses claimed by assessee under the Proviso to Rule expenses claimed by assessee under the Proviso to Rule expenses claimed by assessee under the Proviso to Rule 8D. Therefore, where the assessee c where the assessee claimed that assessee did not inc laimed that assessee did not incur any such expenditure during the year in question to ea expenditure during the year in question to earn rn Dividends of Rs. 1,80,30,965 1,80,30,965/- the burden was upon the assessing authority to the burden was upon the assessing authority to compute the interest on such borrowed funds which were dedicatedly compute the interest on such borrowed funds which were dedicatedly compute the interest on such borrowed funds which were dedicatedly used for investment in securities to ea used for investment in securities to earn such exem such exempted Dividend income. The disallowance under Section 14A cannot be wild guesswork income. The disallowance under Section 14A cannot be wild guesswork income. The disallowance under Section 14A cannot be wild guesswork bereft of ground realities. It has to have a reasonable and close nexus bereft of ground realities. It has to have a reasonable and close nexus bereft of ground realities. It has to have a reasonable and close nexus with the factually incurred expenses. it is not deemed disallowance with the factually incurred expenses. it is not deemed disallowance with the factually incurred expenses. it is not deemed disallowance under Section 14A of the act but a under Section 14A of the act but an enabling provision for assessing n enabling provision for assessing authority to compute the same on the given facts and figures in the authority to compute the same on the given facts and figures in the authority to compute the same on the given facts and figures in the regularly maintained Books of Accounts. The assessing authority also regularly maintained Books of Accounts. The assessing authority also regularly maintained Books of Accounts. The assessing authority also could not have called upon the Assessee himself to undertake the could not have called upon the Assessee himself to undertake the could not have called upon the Assessee himself to undertake the exercise of computi exercise of computing the disallowance under Section 80 of the Rules. ng the disallowance under Section 80 of the Rules. Such abdication of duty is not permissible in law. Since no such Such abdication of duty is not permissible in law. Since no such Such abdication of duty is not permissible in law. Since no such exercise has been undertaken by the assessing authority, the case exercise has been undertaken by the assessing authority, the case exercise has been undertaken by the assessing authority, the case calls for a remand." calls for a remand."
10.7 The Hon'ble Gujarat High Court, in the case of C 10.7 The Hon'ble Gujarat High Court, in the case of Commissioner of Income ommissioner of Income- tax-I Vs. Corrtech Energy (P) Ltd.3, has held and observed as under Vs. Corrtech Energy (P) Ltd.3, has held and observed as under Vs. Corrtech Energy (P) Ltd.3, has held and observed as under:
“4. Counsel for the Revenue submitted that the Assessin 4. Counsel for the Revenue submitted that the Assessin 4. Counsel for the Revenue submitted that the Assessing Officer as well as CIT (Appeal well as CIT (Appeals) had applied formula of rule 8D of the Income Tax D of the Income Tax Rules, since this case Rules, since this case arose after the assessment year 2009 arose after the assessment year 2009-2010. Since in the present case, we are the Revenue. We however, notice that Since in the present case, we are the Revenue. We however, notice that Since in the present case, we are the Revenue. We however, notice that sub-section (1) of section 14A provides that for the purpose of section (1) of section 14A provides that for the purpose of section (1) of section 14A provides that for the purpose of computing total income under chapter IV of 3 (2015) 372 ITR 97 URS 4 computing total income under chapter IV of 3 (2015) 372 ITR 97 URS 4 computing total income under chapter IV of 3 (2015) 372 ITR 97 URS 4 of 7 5 3 of 7 5 3-ITXA 149-17. odt the Act, no deduction shall be allowed in 17. odt the Act, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income respect of expenditure incurred by the assessee in relation to income respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. In the which does not form part of the total income under the Act. In the which does not form part of the total income under the Act. In the present case, the tribunal has recorded the finding of fact present case, the tribunal has recorded the finding of fact present case, the tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any income from assessee did not make any claim for exemption of any income from assessee did not make any claim for exemption of any income from payment of tax. It was on this basis that the tribunal held that payment of tax. It was on this basis that the tribunal held that payment of tax. It was on this basis that the tribunal held that disallowance under section 14A of the Act could not be made. In the disallowance under section 14A of the Act could not be made. In the disallowance under section 14A of the Act could not be made. In the process tribunal relied on the decision of Divisi process tribunal relied on the decision of Division Bench of Punjab and on Bench of Punjab and Haryana High Court in case of CIT v Winsome Textile Industries Ltd. Haryana High Court in case of CIT v Winsome Textile Industries Ltd. Haryana High Court in case of CIT v Winsome Textile Industries Ltd. [2009] 319 ITR 204 in which also the Court had observed as under [2009] 319 ITR 204 in which also the Court had observed as under [2009] 319 ITR 204 in which also the Court had observed as under:
“7. We do not find any me 7. We do not find any merit in this submission. The judgement of this t in this submission. The judgement of this court in Abhishek Industries court in Abhishek Industries Ltd. (2006) 286 ITR 1 was on the issue of Ltd. (2006) 286 ITR 1 was on the issue of allowability of interest paid on loans given to sister conce allowability of interest paid on loans given to sister conce allowability of interest paid on loans given to sister concerns, without interest. It was interest. It was held that deduction for interest was permissible when that deduction for interest was permissible when loan was taken for business purpose and not for diverting the same to loan was taken for business purpose and not for diverting the same to loan was taken for business purpose and not for diverting the same to sister conce sister concern without having nexus with the business. The without having nexus with the business. The observations made therein have to be read in that context. In the observations made therein have to be read in that context. In the observations made therein have to be read in that context. In the present case, admittedly the assessee did not make any claim for present case, admittedly the assessee did not make any claim for present case, admittedly the assessee did not make any claim for exemption. In such a situation section 14A could have no applicat exemption. In such a situation section 14A could have no applicat exemption. In such a situation section 14A could have no application.
5. We do not find any question of law arising. 5. We do not find any question of law arising. Appeal is therefore Appeal is therefore dismissed." dismissed."
8 Nuvama Wealth Management Nuvama Wealth Management Limited ITA No s. 6760/MUM/2025 & 6761/MUM/2025 10.8 The Hon'ble Bombay High Court, in a decision dated 4th February, 2019, 10.8 The Hon'ble Bombay High Court, in a decision dated 4th February, 2019, 10.8 The Hon'ble Bombay High Court, in a decision dated 4th February, 2019, in the case of The Pr. Commissioner of Income Tax in the case of The Pr. Commissioner of Income Tax-10 Vs. HSBC Invest Direct 10 Vs. HSBC Invest Direct (India) Ltd. had obs ia) Ltd. had observed as under. "4. Having heard learned Counsel for the parties and perused "4. Having heard learned Counsel for the parties and perused "4. Having heard learned Counsel for the parties and perused documents on record, we notice that in Cheminvest Ltd. (supra) Delhi documents on record, we notice that in Cheminvest Ltd. (supra) Delhi documents on record, we notice that in Cheminvest Ltd. (supra) Delhi High Court had referred to and reli h Court had referred to and relied upon its earlier decision in the ed upon its earlier decision in the case of CIT Vs. Holcim India (P) Ltd. ( case of CIT Vs. Holcim India (P) Ltd. (I.T.A. No. 486 of 2014, decided on of 2014, decided on 5 th September 2014). we further notice that this Court in Income Tax 5 th September 2014). we further notice that this Court in Income Tax 5 th September 2014). we further notice that this Court in Income Tax Appeal No.693 of 2015 by an order dated 21 st November, 2017 while Appeal No.693 of 2015 by an order dated 21 st November, 2017 while Appeal No.693 of 2015 by an order dated 21 st November, 2017 while dismissing dismissing the Revenue's appeal on similar issue had noted that the the Revenue's appeal on similar issue had noted that the decision of Delh decision of Delhi High Court in case of Holcim India (P) Ltd. (supra) had i High Court in case of Holcim India (P) Ltd. (supra) had adopted the same principles. In the present case, Counsel for the adopted the same principles. In the present case, Counsel for the adopted the same principles. In the present case, Counsel for the Revenue however, points out that this is not a case where the assessee Revenue however, points out that this is not a case where the assessee Revenue however, points out that this is not a case where the assessee had ea had earned no income which was exempt from tax. However, in o ed no income which was exempt from tax. However, in our opinion the ratio of the above noted decisions in the cases of opinion the ratio of the above noted decisions in the cases of opinion the ratio of the above noted decisions in the cases of Cheminvest Ltd. and Holcim India (P) Ltd. (supra) would include a facet Cheminvest Ltd. and Holcim India (P) Ltd. (supra) would include a facet Cheminvest Ltd. and Holcim India (P) Ltd. (supra) would include a facet where the assessee's income exempt from tax is not Nil, but has ea where the assessee's income exempt from tax is not Nil, but has ea where the assessee's income exempt from tax is not Nil, but has earned exempt income which is larger than the expendit exempt income which is larger than the expenditure incu ure incurred by the assessee in order to ea assessee in order to earn such income. In such a situation that such income. In such a situation that disallowance cannot exceed the exempt income so earned by the disallowance cannot exceed the exempt income so earned by the disallowance cannot exceed the exempt income so earned by the assessee during the year under consideration. We do not find any error assessee during the year under consideration. We do not find any error assessee during the year under consideration. We do not find any error in the view of the T in the view of the Tribunal. We record that the assessee had offered assessee had offered voluntary disallowance of expenditure of Rs.1.30 crores, which is not voluntary disallowance of expenditure of Rs.1.30 crores, which is not voluntary disallowance of expenditure of Rs.1.30 crores, which is not been disturbed by the Tribunal. been disturbed by the Tribunal.
The tax appeal is dismissed."
5. The tax appeal is dismissed." 10.9 The Hon'ble Punjab & Haryana High Court (CIT vs. State Bank of Patiala, 10.9 The Hon'ble Punjab & Haryana High Court (CIT vs. State Bank of Patiala, 10.9 The Hon'ble Punjab & Haryana High Court (CIT vs. State Bank of Patiala, 393 ITR 476) h 393 ITR 476) held that disallowance under section 14A cannot exceed exempt eld that disallowance under section 14A cannot exceed exempt income, a view also supported by the Hon'ble Delhi High Court (Cheminvest income, a view also supported by the Hon'ble Delhi High Court (Cheminvest income, a view also supported by the Hon'ble Delhi High Court (Cheminvest Limited vs. CIT, 378 ITR 33). The Revenue's SLP before the Hon'ble Apex Court Limited vs. CIT, 378 ITR 33). The Revenue's SLP before the Hon'ble Apex Court Limited vs. CIT, 378 ITR 33). The Revenue's SLP before the Hon'ble Apex Court against the decision of Punjab & Haryana Hi against the decision of Punjab & Haryana High Court in the case of CIT vs. gh Court in the case of CIT vs. State Bank of Patiala has been dismissed on merits vide order dated State Bank of Patiala has been dismissed on merits vide order dated State Bank of Patiala has been dismissed on merits vide order dated 08/10/2018. Based on legal precedent's, disallowance u/s 14A r.w.s. 8D is 08/10/2018. Based on legal precedent's, disallowance u/s 14A r.w.s. 8D is 08/10/2018. Based on legal precedent's, disallowance u/s 14A r.w.s. 8D is restricted to the exempt income claimed i.e. Rs 7,46,429/ restricted to the exempt income claimed i.e. Rs 7,46,429/ restricted to the exempt income claimed i.e. Rs 7,46,429/-. The ground of appeal
is Partly Allowed. s Partly Allowed.”
6. Before Before Before us, us, us, the the the assessee assessee assessee has has has challenged challenged challenged that that that no no no dissatisfaction was recorded by the Assessing Officer before dissatisfaction was recorded by the Assessing Officer before dissatisfaction was recorded by the Assessing Officer before invoking Rule 8D of the Income Tax Rules, 1962. Rule 8D of the Income Tax Rules, 1962. However, this However, this contention of the assessee is not justified as the Assessing Officer contention of the assessee is not justified as the Assessing Officer contention of the assessee is not justified as the Assessing Officer has duly rejected t has duly rejected the claim of the assessee of he claim of the assessee of suo-motu disallowance of Rs. 65,793 Rs. 65,793/- observing as under:
9 Nuvama Wealth Management Nuvama Wealth Management Limited ITA No s. 6760/MUM/2025 & 6761/MUM/2025 “4.2 The assessee was asked to submit working of the disallowance o The assessee was asked to submit working of the disallowance o The assessee was asked to submit working of the disallowance of expenses incurred in relation to exempt income earned. The assessee has expenses incurred in relation to exempt income earned. The assessee has expenses incurred in relation to exempt income earned. The assessee has submitted the same vide submission dated 12.12.2016, but the same is not submitted the same vide submission dated 12.12.2016, but the same is not submitted the same vide submission dated 12.12.2016, but the same is not found to be acceptable. The assessee has contended that the investments found to be acceptable. The assessee has contended that the investments found to be acceptable. The assessee has contended that the investments trade in the w wholly owned subsidiary/associate companies anies is purely and solely for the business business purpose and in the nature of strategic investment. The purpose and in the nature of strategic investment. The assessee has made the disallowance u/s 14A as under has made the disallowance u/s 14A as under:
(i) Rs.50000/ Rs.50000/- on account of salary of a mid level employee handling on account of salary of a mid level employee handling investments. investments. (ii) Rs.15793/ s.15793/- on account of administrative, statutory and on account of administrative, statutory and miscellaneous expenses expenses incurred on account of earning of exempt income. ing of exempt income.
It must be noted that in the case of Un It must be noted that in the case of United Breweries ed Breweries Limited vs. DCIT (Karnataka Hig High Court), it was held that Section 14A applies to a ca , it was held that Section 14A applies to a case where the motive of the of the assessee is to the acquire controlling interest in a company quire controlling interest in a company and not to earn dividends and not to earn dividends. Hence, the investments of the assessee in its sister Hence, the investments of the assessee in its sister concerns also need to be considered while wo concerns also need to be considered while working out disallowance u ng out disallowance u/s 14A of the Act. When it comes to s hen it comes to such huge investments, the decisions have to be the decisions have to be taken at a very senior level of management of the company, Not on taken at a very senior level of management of the company, Not on taken at a very senior level of management of the company, Not only the manpower, skill and resource but a manpower, skill and resource but also the office premise, the office premise, infrastructure and other resources of the company are used for resources of the company are used for the management and decision the management and decision making for the making for the be disallowed in view of provisions of Section 14A of the Act. be disallowed in view of provisions of Section 14A of the Act.
4.3 In view of the above, in no scenario it can be deduced that an employee In view of the above, in no scenario it can be deduced that an employee In view of the above, in no scenario it can be deduced that an employee with a monthly salary of Rs.4167/ with a monthly salary of Rs.4167/- has been handling all the investments has been handling all the investments capable of yielding exempt income. Further, an allocation of expenses of capable of yielding exempt income. Further, an allocation of expenses of capable of yielding exempt income. Further, an allocation of expenses of Rs.1397/- per month for handling such huge investments is not air and per month for handling such huge investments is not air and per month for handling such huge investments is not air and reasonable.
As per section 1 As per section 14A of the IT Act, 1961 no deduction shall be allowed in shall be allowed in respect of expenditure expenditure incurred by the assessee in relation to income assessee in relation to income which does form part of total income income under the IT Act 1961. Further, if assessing officer 1. Further, if assessing officer is not satisfied with the with the correctness of claim of assessee in respect of such correctness of claim of assessee in respect of such expenditure, assessing officer shall determine expenditure, assessing officer shall determine the amount of expenditure the amount of expenditure incurred in relation to such income which does not form part of the total income incurred in relation to such income which does not form part of the total income incurred in relation to such income which does not form part of the total income per method prescribed in rule 8D of the IT Rules. per method prescribed in rule 8D of the IT Rules.
4.4 It must be noted that the CBDT has It must be noted that the CBDT has issued Notification No. Notification No. Nos 45/2008 dated /2008 dated March 24, 2008, which provides for insertion of ich provides for insertion of Rule 8D in the Income Tax Rules 19 Tax Rules 1962. The said Rule 8D would apply in eith would apply in either of the following situations following situations- (a) Where the AO i Where the AO is not satisfied with the correctness of the claim of correctness of the claim of expenditure made by the assessee; or expenditure made by the assessee; or (b) Where the assessee claims that no expenditure ha as been incurred in relation to income which does not form part of the total income me which does not form part of the total income me which does not form part of the total income.
In view of the above discussion, the case of the assessee squarely falls under In view of the above discussion, the case of the assessee squarely falls under In view of the above discussion, the case of the assessee squarely falls under the provisions of the above notification.” the provisions of the above notification.”
10 Nuvama Wealth Management Nuvama Wealth Management Limited ITA No s. 6760/MUM/2025 & 6761/MUM/2025
Having considered the above finding of the Assessing Having considered the above finding of the Assessing Having considered the above finding of the Assessing Officer, we are of the opinion that Assessing Officer has expressly Officer, we are of the opinion that Assessing Officer has expressly Officer, we are of the opinion that Assessing Officer has expressly recorded dissatisfaction to the claim of the assessee. Further we recorded dissatisfaction to the claim of the assessee. Further we recorded dissatisfaction to the claim of the assessee. Further we note that Hon’ble Delhi High Court in the case of note that Hon’ble Delhi High Court in the case of note that Hon’ble Delhi High Court in the case of Indiabulls Financial Services Ltd. v. DCIT l Services Ltd. v. DCIT, has held that has held that even implied dissatisfaction on the claim of the assessee is also even implied dissatisfaction on the claim of the assessee is also even implied dissatisfaction on the claim of the assessee is also sufficient to invoke the provisions of the sufficient to invoke the provisions of the Rule 8D of the Income Rule 8D of the Income Tax Rules, 1962. Accordingly, Accordingly, we reject the contention of the the contention of the assessee that no dissatisfaction was recorded by the Assessing e that no dissatisfaction was recorded by the Assessing e that no dissatisfaction was recorded by the Assessing Officer before invoking Rule 8D of Income Tax Rules, 1962. ing Rule 8D of Income Tax Rules, 1962. ing Rule 8D of Income Tax Rules, 1962. The ground of the appeal of the assessee is accordingly dismissed. ground of the appeal of the assessee is accordingly dismissed. ground of the appeal of the assessee is accordingly dismissed.
Now, we take up the appeal of the assessee for assessment we take up the appeal of the assessee for assessment we take up the appeal of the assessee for assessment year 2015-16. The sole ground of the assessee is reproduced as The sole ground of the assessee is reproduced as The sole ground of the assessee is reproduced as under:
1. The Commissioner of Income Tax (Appeals) “1. The Commissioner of Income Tax (Appeals)-47, Mumbai [hereinafter 47, Mumbai [hereinafter referred as CIT(A)] erred in confirming the action of the Deputy Commissioner referred as CIT(A)] erred in confirming the action of the Deputy Commissioner referred as CIT(A)] erred in confirming the action of the Deputy Commissioner of Income Tax Circle of Income Tax Circle – 4(1)(1), Mumbai [hereinafter referred as AO] in making referred as AO] in making disallowance u/s 14A of the Income Tax Act, 1961 (Act) r.w. Rule 8D of the disallowance u/s 14A of the Income Tax Act, 1961 (Act) r.w. Rule 8D of the disallowance u/s 14A of the Income Tax Act, 1961 (Act) r.w. Rule 8D of the Income Tax Rules, 1962 (Rules) without recording his dissatisfaction having Income Tax Rules, 1962 (Rules) without recording his dissatisfaction having Income Tax Rules, 1962 (Rules) without recording his dissatisfaction having regard to its books of accounts. regard to its books of accounts. The Appellant submits that it has made suo mot The Appellant submits that it has made suo moto disallowance of o disallowance of Rs.13,18,665/- - u/s 14A r.w.r 8D of the Rules, hence, the disallowance in u/s 14A r.w.r 8D of the Rules, hence, the disallowance in excess of Rs. 13,18,665/ 13,18,665/- made by the AO shall be deleted. made by the AO shall be deleted.”
9. In the year under consideration also the assessee had In the year under consideration also the assessee had In the year under consideration also the assessee had claimed exempt income of Rs. claimed exempt income of Rs.19,16,42,793/- and m and made suo-motu disallowance of Rs.13,18,665/ disallowance of Rs.13,18,665/-. The Assessing Officer however, . The Assessing Officer however, worked out the disallowance invoking Rule 8D of the Income Tax worked out the disallowance invoking Rule 8D of the Income Tax worked out the disallowance invoking Rule 8D of the Income Tax Rules at Rs.1,27,02,451/ Rules at Rs.1,27,02,451/-. The Ld. CIT(A), following his . The Ld. CIT(A), following his
11 Nuvama Wealth Management Nuvama Wealth Management Limited ITA No s. 6760/MUM/2025 & 6761/MUM/2025 consistent finding, restricted the disallowance to the exten consistent finding, restricted the disallowance to the exten consistent finding, restricted the disallowance to the extent of exempted income but since the computation under Rule 8D was exempted income but since the computation under Rule 8D was exempted income but since the computation under Rule 8D was less than the exempted income, less than the exempted income, and sustained the disallowance sustained the disallowance made by the A.O. The relevant finding of the Ld. CIT(A) is made by the A.O. The relevant finding of the Ld. CIT(A) is made by the A.O. The relevant finding of the Ld. CIT(A) is reproduced as under: reproduced as under:
“10.7 The Hon'ble Punjab & The Hon'ble Punjab & Haryana High Court (CIT vs. State Bank of Haryana High Court (CIT vs. State Bank of Patiala, 393 ITR 476) held that disallowance under section 14A cannot exceed Patiala, 393 ITR 476) held that disallowance under section 14A cannot exceed Patiala, 393 ITR 476) held that disallowance under section 14A cannot exceed exempt income, a view also supported by the Hon'ble Delhi High Court exempt income, a view also supported by the Hon'ble Delhi High Court exempt income, a view also supported by the Hon'ble Delhi High Court (Cheminvest Limited vs. CIT, 378 ITR 33). The Revenue's SLP before (Cheminvest Limited vs. CIT, 378 ITR 33). The Revenue's SLP before (Cheminvest Limited vs. CIT, 378 ITR 33). The Revenue's SLP before the Hon'ble Apex Court against the decision of Punjab & Haryana High Court in Hon'ble Apex Court against the decision of Punjab & Haryana High Court in Hon'ble Apex Court against the decision of Punjab & Haryana High Court in the case of CIT vs. State Bank of Patiala has been dismissed on merits vide the case of CIT vs. State Bank of Patiala has been dismissed on merits vide the case of CIT vs. State Bank of Patiala has been dismissed on merits vide order dated 08/10/2018. Based on legal precedent's, the disallowance u/s order dated 08/10/2018. Based on legal precedent's, the disallowance u/s order dated 08/10/2018. Based on legal precedent's, the disallowance u/s 14A r.w.r. 8D is restricted t 14A r.w.r. 8D is restricted to the exempt income claimed. In this case, the o the exempt income claimed. In this case, the quantum of exempt income claimed by the appellant is Rs. 19,09,42,793/ quantum of exempt income claimed by the appellant is Rs. 19,09,42,793/ quantum of exempt income claimed by the appellant is Rs. 19,09,42,793/- and the disallowance computed by the AO invoking provisions of section 14A r.w.r. the disallowance computed by the AO invoking provisions of section 14A r.w.r. the disallowance computed by the AO invoking provisions of section 14A r.w.r. 8D is Rs. 1,13,83,786/ D is Rs. 1,13,83,786/-. Since, the quantum of disallowance u/s 14A r.w.r. 8D ance u/s 14A r.w.r. 8D computed by the AO is less than the claim of exempt income for the previous computed by the AO is less than the claim of exempt income for the previous computed by the AO is less than the claim of exempt income for the previous year relevant to AY 2015 year relevant to AY 2015-16, the disallowance is justified, subject to the 16, the disallowance is justified, subject to the comments in the succeeding paragraphs. s in the succeeding paragraphs.
10.8 The appellant has also contested that The appellant has also contested that computation of disallowance u/s computation of disallowance u/s 14A r.w.r 8D(2)(iii) should be made considering only those investments which 14A r.w.r 8D(2)(iii) should be made considering only those investments which 14A r.w.r 8D(2)(iii) should be made considering only those investments which have actually yielded exempt income. The Hon'ble Special Bench of Delhi have actually yielded exempt income. The Hon'ble Special Bench of Delhi have actually yielded exempt income. The Hon'ble Special Bench of Delhi Tribunal in the case of ACIT vs. Vireet Investments Pvt. Ltd. ITA Tribunal in the case of ACIT vs. Vireet Investments Pvt. Ltd. ITA Tribunal in the case of ACIT vs. Vireet Investments Pvt. Ltd. have held that for the purposes of calculating disallowance l/2012, have held that for the purposes of calculating disallowance l/2012, have held that for the purposes of calculating disallowance as per Rule 8D(2)(iii), only those investments are to be considered for as per Rule 8D(2)(iii), only those investments are to be considered for as per Rule 8D(2)(iii), only those investments are to be considered for computing average value of investments which yield exempt income during the computing average value of investments which yield exempt income during the computing average value of investments which yield exempt income during the year. Further, the Spl Bench decision ha year. Further, the Spl Bench decision has been followed in a number of other s been followed in a number of other judgements such as (i) Sajjan India Ltd. vs. Addl.CIT (2018) 89 Taxmanın.com judgements such as (i) Sajjan India Ltd. vs. Addl.CIT (2018) 89 Taxmanın.com judgements such as (i) Sajjan India Ltd. vs. Addl.CIT (2018) 89 Taxmanın.com 21 (Mum Tribunal), (ii) DCIT vs. Bombay Oxygen Corporation Ltd. (2017) 86 21 (Mum Tribunal), (ii) DCIT vs. Bombay Oxygen Corporation Ltd. (2017) 86 21 (Mum Tribunal), (ii) DCIT vs. Bombay Oxygen Corporation Ltd. (2017) 86 Taxmanın 88 (Mum Tribunal), (iii) Tata Power Co Ltd. vs PCIT, Mumbai Taxmanın 88 (Mum Tribunal), (iii) Tata Power Co Ltd. vs PCIT, Mumbai Taxmanın 88 (Mum Tribunal), (iii) Tata Power Co Ltd. vs PCIT, Mumbai (2020), 121 Taxmann.com 127 (Mum Tribunal). Taxmann.com 127 (Mum Tribunal).
12 Nuvama Wealth Management Nuvama Wealth Management Limited ITA No s. 6760/MUM/2025 & 6761/MUM/2025 10.9 With the Spl. Bench decision in the case of Vireet Investment Ltd. With the Spl. Bench decision in the case of Vireet Investment Ltd. With the Spl. Bench decision in the case of Vireet Investment Ltd. (supra), law with respect to computation of disallowance under Rule 8D(2)(iii) (supra), law with respect to computation of disallowance under Rule 8D(2)(iii) (supra), law with respect to computation of disallowance under Rule 8D(2)(iii) of the Act is settled and the quantum of disallowance has t of the Act is settled and the quantum of disallowance has t of the Act is settled and the quantum of disallowance has to be limited to the extent of investments yielding exempt income. Further, the Spl Bench decision extent of investments yielding exempt income. Further, the Spl Bench decision extent of investments yielding exempt income. Further, the Spl Bench decision has been followed in several cases by the jurisdictional Mumbai Tribunal in has been followed in several cases by the jurisdictional Mumbai Tribunal in has been followed in several cases by the jurisdictional Mumbai Tribunal in several cases quoted in the previous paragraph. Hence, following the several cases quoted in the previous paragraph. Hence, following the several cases quoted in the previous paragraph. Hence, following the judgement of the Spl Bench Delhi Tribunal and jurisdictional Tribunal, it is held the Spl Bench Delhi Tribunal and jurisdictional Tribunal, it is held the Spl Bench Delhi Tribunal and jurisdictional Tribunal, it is held that disallowance u/s. 14A of the Act has to be limited to the value of that disallowance u/s. 14A of the Act has to be limited to the value of that disallowance u/s. 14A of the Act has to be limited to the value of investments yielding exempt income. Therefore, the AO is directed to investments yielding exempt income. Therefore, the AO is directed to investments yielding exempt income. Therefore, the AO is directed to considering those investments which have actua considering those investments which have actually yielded exempt income to lly yielded exempt income to the assessee for the purpose of working out disallowance u/s 14A r.w.r. the assessee for the purpose of working out disallowance u/s 14A r.w.r. the assessee for the purpose of working out disallowance u/s 14A r.w.r. BD(2)(iii). The grounds of appeal are partly allowed. BD(2)(iii). The grounds of appeal are partly allowed.”
Before us, the assessee has only challenged Before us, the assessee has only challenged Before us, the assessee has only challenged that no dissatisfaction was recorded to the claim of dissatisfaction was recorded to the claim of the assessee, the assessee, however, we note that in the year under consideration also, the however, we note that in the year under consideration also, the however, we note that in the year under consideration also, the Assessing Officer duly recorded the dissatisfaction on the claim of Assessing Officer duly recorded the dissatisfaction on the claim of Assessing Officer duly recorded the dissatisfaction on the claim of the assessee. The relevant part of the assessment order is the assessee. The relevant part of the assessment order is the assessee. The relevant part of the assessment order is reproduced as under: reproduced as under:
“G) For the purpose of making For the purpose of making investment and thereafter control of investment investment and thereafter control of investment as well as purchase/sale of shares/mutual funds, assessee has used its as well as purchase/sale of shares/mutual funds, assessee has used its as well as purchase/sale of shares/mutual funds, assessee has used its office and incurred expenses such as Transport charges, Office expenses office and incurred expenses such as Transport charges, Office expenses office and incurred expenses such as Transport charges, Office expenses Telephones expenses Travelling expenses. All these expenses are Telephones expenses Travelling expenses. All these expenses are Telephones expenses Travelling expenses. All these expenses are to certain extent related to investment in Mutual funds. Moreover, the assessee has to extent related to investment in Mutual funds. Moreover, the assessee has to extent related to investment in Mutual funds. Moreover, the assessee has to keep track of various dividend incomes declared by the invested companies keep track of various dividend incomes declared by the invested companies keep track of various dividend incomes declared by the invested companies and also to keep track of the dividend income having been regularly received and also to keep track of the dividend income having been regularly received and also to keep track of the dividend income having been regularly received by the assessee. T by the assessee. This activity itself calls for considerable attention of the his activity itself calls for considerable attention of the assessee. H) In the absence of separate accounts by way of which the management and In the absence of separate accounts by way of which the management and In the absence of separate accounts by way of which the management and administrative expenditure could be segregated, there is no dispute and there administrative expenditure could be segregated, there is no dispute and there administrative expenditure could be segregated, there is no dispute and there cannot be any doubt that some expe cannot be any doubt that some expenditure is incurred for making or earning, nditure is incurred for making or earning, the income from dividend. In case of mixed accounting, the expenditure is not the income from dividend. In case of mixed accounting, the expenditure is not the income from dividend. In case of mixed accounting, the expenditure is not identifiable as such, which directly related to earning of dividend but that identifiable as such, which directly related to earning of dividend but that identifiable as such, which directly related to earning of dividend but that cannot be a ground to say that no expenditure is incurred cannot be a ground to say that no expenditure is incurred for earning dividend for earning dividend income or that no expenditure could be related to that income. income or that no expenditure could be related to that income. income or that no expenditure could be related to that income. I) I’m relying on the judgment of the jurisdictional tribunal in Asha Lalit I’m relying on the judgment of the jurisdictional tribunal in Asha Lalit I’m relying on the judgment of the jurisdictional tribunal in Asha Lalit Kanodia vs Additional Commissioner of Income Kanodia vs Additional Commissioner of Income-tax, Range- -12 (2), Mumbai (71
13 Nuvama Wealth Management Nuvama Wealth Management Limited ITA No s. 6760/MUM/2025 & 6761/MUM/2025 taxmann.com 84) where taxmann.com 84) wherein the ITAT Mumbai Bench ‘A’ held that Where in the ITAT Mumbai Bench ‘A’ held that Where assessee claimed that no expenditure was incurred to earn exempt dividend assessee claimed that no expenditure was incurred to earn exempt dividend assessee claimed that no expenditure was incurred to earn exempt dividend income, onus was on the assessee to substantiate her claim with her accounts income, onus was on the assessee to substantiate her claim with her accounts income, onus was on the assessee to substantiate her claim with her accounts and on failure to do so disallowance is to be made under sec and on failure to do so disallowance is to be made under sec and on failure to do so disallowance is to be made under section 14A, read with rule 8D.”
In view of the above, it is clear that Assessing Officer has In view of the above, it is clear that Assessing Officer has In view of the above, it is clear that Assessing Officer has clearly recorded the dissatisfaction on the claim of the assessee clearly recorded the dissatisfaction on the claim of the assessee clearly recorded the dissatisfaction on the claim of the assessee and thus the ground of the appeal is accordingly dismissed. and thus the ground of the appeal is accordingly dismissed. and thus the ground of the appeal is accordingly dismissed.
In the result, both the appeals In the result, both the appeals of the assessee are of the assessee are dismissed.
Order pronounced in the open Court on ronounced in the open Court on 27/02/2026. /02/2026.