TaxTMI 
TaxTMI 
2026 (3) TMI 1109
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.... 3,60,748/- which was worked out by taking into account specific expenses incurred for earning exempt income in the form of salary expenses of employees involved in earning exempt income and charges paid for the demat account and accordingly no further disallowance was warranted. 2. On the facts and the circumstances of the appellant company's case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs. 36,15,769/- made by the Assessing Officer u/s 14A read with Rule 8D despite the fact that the appellant has made investments yielding exempt income from its own funds and while ignoring the decision of Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi and upheld by the co-ordinate Bench of Hon'ble Income Tax Appellant Tribunal, Mumbai, in the appellant's own case for the assessment year 2018-19 and 2020-21 on the identical facts and circumstances of the case and the legal grounds wherein it was held that the provision of Rule 8D cannot be invoked by the Assessing Officer as it is clear from the record of appellant that no borrowed funds were utilized and investment was made by appellant ....
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....ther observed that during the year the assessee had earned the following income claimed as exempt (i) dividend income of Rs. 21,41,195/- under section 10(34) of the Act; (ii) interest income of Rs. 1,68,72,735/- claimed exempt under section 10(15)(iv)(h) of the Act; and (iii) long- term capital gains of Rs. 4,73,00,987/- claimed exempt under section 10(38) of the Act. 2.3 The assessee submitted that it had, on its own, made a disallowance under section 14A of the Act in respect of expenditure relatable to exempt income by adding back demat charges of Rs. 22,838/- and salary expenditure of Rs. 3,37,910/- incurred for staff handling investment-related activities. It was contended that the total suo motu disallowance of Rs. 3,60,748/- adequately covered all expenditure incurred in relation to exempt income and that no further disallowance was warranted. The assessee also claimed that investments were made out of its own funds and no borrowed funds were utilised. 2.4 The Assessing Officer, however, did not accept the assessee's claim and recorded dissatisfaction with the correctness of the suo motu disallowance. The Assessing Officer observed that the assessee had not compute....
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....e maintained by the assessee and used in its business as well as making investment in share. It is pertinent to note that the assessee has claimed to have incurred merger any expenditure in relation to investments from which exempt income is earned, the assessee could not have invested or earned any exempt income from such investments without maintaining such infrastructure, expenses of which are claimed in the profit and loss account. Before making disallowance u/s. 144 r.w. Rule 8D, it would be relevant to quote section 14A and Rule BD at this juncture. Section 14A read as under: Expenditure incurred in relation to income not includible in total income 14A 1. For the purpose of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. 2. The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act, in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the ....
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....his regard is upon the assessee to prove that a particular does not come under the ambit of Sec. 14A. The ratio of this judgment is squarely applicable to the facts of the instant case. 4.5.3 Further, CBDT, vide circular No. 5 of 2014 dated 11/02/2014 has clarified that the disallowance u/s 14A is to be made even if no exempted income had been earned by the assessee during the year under consideration. It has been further clarified that even if the assessee claims that no expenditure in respect of exempted income are made, such disallowance has to be made. In view of the above judicial pronouncements as well as the circular of CBDT. the contention of the assessee, if so raised, is not acceptable. Thus, I am of the opinion that the fact remains undisputed that the disallowance is to be worked out mandatorily as per the norms prescribed under Rule 8D of the Income-tax Rule. The case of the assessee is covered under Rule 8D of Income-tax Rule wherein the method of working of disallowance of expenditure u/s. 14A of the IT Act is laid. 2.5 Being dissatisfied with the assessee's claim, the Assessing Officer invoked Rule 8D and computed disallowance under Rule 8D(....
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....s only disallowed staff salary of Rs. 3,37,910/- and no rental charges whatever has been disallowed. This holds true for other related expenditure such as electricity expenditure, computer, stationary etc. The space and other associated cost used by such staff in the office has not been taken into account. Thus, in my view, the AO's action in rejecting the claim of the appellant and drawing his satisfaction is valid in the eyes of law. This part of the contention of the appellant is rejected. 3.1 Further, the Ld. CIT(A) rejected the claim of the assessee of linkage of the net own fund for interest expenditure as no such disallowance was made by the assessing officer. After considering the decision of the Income Tax Appellate Tribunal in the assessee's one case the Ld. CIT (A) upheld the invocation of section 14A read with Rule 8D, while directing the Assessing Officer to recompute the disallowance strictly in accordance with the monthly average of investments furnished by the assessee as under: 8.8. The appellant has relied on the decisions of Hon'ble ITAT in its own case the Hon'ble ITAT has observed in vide ITA No.2853/Mum/2023 for AY 2018-19 & 2854/ M....
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....e us relates to the disallowance of Rs. 36,15,769/- under section 14A of the Act. The Assessee challenges the disallowance on three primary points: (i) Objective Satisfaction: That the AO failed to record a legally tenable "dissatisfaction" with the Assessee's suo motu computation as required by Section 14A(2). (ii) Sufficiency of Disallowance: That the suo motu disallowance adequately covered the specific salary and demat charges attributable to the exempt income. (iii) Judicial Consistency: That for subsequent years (AY 2018-19 and 2020-21), coordinate benches have accepted that Rule 8D cannot be invoked when investments are made from interest-free own funds. 4.1 It is undisputed that the assessee earned exempt income during the year and that it made a suo-motu disallowance of Rs. 3,60,748/- towards administrative expenditure. 4.2 At this juncture, it is apposite to recapitulate the settled legal position governing the recording of satisfaction under section 14A(2) of the Act. The Hon'ble Supreme Court in Maxopp Investment Ltd. v. CIT (402 ITR 640) has held that the Assessing Officer must, having regard to the accounts of the assessee, rec....
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....corded by the Assessing Officer in the present case meets the legal threshold mandated under section 14A(2), and the consequent invocation of Rule 8D cannot be faulted. 4.7 Once dissatisfaction is validly recorded, the Assessing Officer is statutorily mandated to compute the disallowance in accordance with Rule 8D. The Assessee's reliance on having "interest-free own funds" is misplaced in the context of the present disallowance. The AO has not made any disallowance on account of interest expenditure under Rule 8D(2)(i). The current disallowance is confined to administrative and indirect expenses under Rule 8D(2)(ii) (as amended w.e.f. 02.06.2016). Therefore, the question of borrowed funds vs. own funds is rendered purely academic and does not advance its case. The Ld. CIT(A) has also ensured that the computation is aligned with the monthly average of investments as required by law. 4.8 We have perused the orders for AY 2018-19 and 2020-21 cited by the Assessee. We find those orders factually distinguishable, as they primarily dealt with the Revenue's challenge to the quantum of investment to be considered (yielding vs. non-yielding). They do not grant a blanket immun....