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Facts
The assessee's appeal pertains to assessment year 2017-18, challenging the disallowance of Rs.36,84,834/- related to exempt income from dividends amounting to Rs.23,67,926/-, made under Section 14A of the Income-tax Act, 1961.
Held
The tribunal rejected the assessee's argument that the lower authorities failed to record specific satisfaction regarding the assessee's books of account. It also rejected the argument that no expenditure was incurred for deriving exempt income. However, the tribunal directed the Assessing Officer to restrict the disallowance to the extent of the assessee's exempt income.
Key Issues
Whether the disallowance under Section 14A of the Income-tax Act, 1961, can exceed the amount of exempt income? Whether the lower authorities erred in not recording specific satisfaction regarding the assessee's books of account?
Sections Cited
14A, 14A(2), 143(3), 8D(2)(iii)
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Income Tax Appellate Tribunal, DELHI BENCH: “SMC” NEW DELHI
Before: SHRI SATBEER SINGH GODARA
Assessment Year: 2017-18 Vs. Income Tax Officer, HPL Mercantile Pvt. Ltd., 803, Vishal Bhawan, Ward-11(1), 95 Nehru Place, New Delhi New Delhi PAN: AAACH0109G (Appellant) (Respondent) Assessee by Sh. Manish Kumar, Adv. Department by Sh. Manoj Kumar, Sr. DR Date of hearing 29.10.2025 Date of pronouncement 29.10.2025 ORDER This assessee’s appeal for assessment year 2017-18, arises against the Commissioner of Income Tax (Appeals)/Addl./JCIT(A)- 1, Nashik’s DIN and order no. ITBA/APL/S/250/2025- 26/1078724561(1), dated 21.07.2025 involving proceedings under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’). Heard both the parties. Case file perused.
Learned counsel vehemently submits during the course of hearing that both the learned lower authorities have erred in law and on facts in invoking section 14A r.w. rule 8D(2)(iii) disallowances of Rs.36,84,834/- relating to the assessee’s exempt income from dividends amounting to Rs.23,67,926/-; in assessment order dated 20.12.2019 as upheld in the lower appellate discussion.
Learned counsel’s first and foremost argument in this factual backdrop is that both the lower authorities have nowhere recorded any specific satisfaction qua the assessee’s books of account which is mandatory in nature under section 14A(2) of the Act. He could hardly dispute that the assessee had not declared any expenditure in its books of account so as to justify the same before the learned lower authorities. The assessee’s instant first and foremost legal argument is rejected therefore.
Learned counsel’s second legal argument is that the assessee has not incurred any expenditure for the purposes of deriving the impugned exempt income; and, therefore, the administrative expenditure amount disallowed herein is not sustainable in law. This tribunal finds no merit in the assessee’s instant second argument as well in light of Maxopp Investment Ltd. Vs. CIT (2018) 402 ITR 640 (SC) that the impugned computation comes into play
2 | P a g e the moment an assessee declares it’s exempt income. Rejected accordingly.
Lastly comes the third important aspect of quantification of the impugned disallowance itself. The Revenue could hardly dispute that the case law Joint Investment Pvt. Ltd. Vs. CIT (2015) 372 ITR 694 (Del) has already settled the issue in the assessee’s favour that the impugned disallowance could not exceed the amount of exempt income itself. That being the case, I hereby direct the learned Assessing Officer to restrict the impugned disallowance to the extent of the assessee’s exempt income of Rs.23,67,926/- only. Necessary computation shall follow as per law. No other ground or argument has been pressed before us.