TaxTMI 
TaxTMI 
2026 (1) TMI 1609
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....procedure laid down in Rule 8D of the IT Rules, 1962 which has to be necessarily followed whenever a disallowance u/s 14A was to be made 3. Whether the Ld. CIT (A) right in law and facts of the case by deleting the addition of disallowance u/s 14A of the IT Act to the book profit of the assessee without appreciating the clause (f) of explanation 1 to section 11SJB(2) of the IT Act 2. Briefly stated, facts of the case are that the assessee is a domestic company engaged in the construction activity and is also running a hotel at Madh Marve Road, Malad in the name and style "The Resort". The assessee is also engaged in various business activity i.e. Real Estate Development, leasing of properties etc. The assessee company owns a 5 star hotel at Mumbai and is also a partner at various partnership firms which are in the business of real estate development, hospitality etc. 2.1 The assessee filed its return of income declaring total income at Rs. 1,94,15,430/- and book profit of Rs. 56,91,386/-. While filing the said return, the assessee had suo-motu disallowed Rs. 1,45,32,176/- and Rs. 740/- u/s 14A of the Income-tax Act, 1961 (in short 'the Act') while....
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.... JUHU BEACH RESORT LTD 5,82,70,710 K RAHEJA IT PARK (HYDERABAD) P 50,000 SUNDEW PROPERTIES LTD 10,000 INTIME PROPERTIES LTD 3,35,820 INFRASTRUCTURE DEVELOPMENT 45,833 Zodiac Clothing Company Ltd 33,151 Prism Cement Ltd 65,000 Kothari Products Ltd 4,62,717 SHOPPERS STOP LIMITED 25,36,653 DLF Limited 73,200 Balaji Telefilms Ltd 16,000 Ambuja Cements Ltd 7,500 JM Financial Limited 45,000 FAERING CAPITAL INDIA EVOLVING 43,95,827 INDIA VALUE FUND SCHEME 'B' 2,02,820 Total 6,65,50,231 (ii) A working for the same suo moto disallowance computed was submitted which is reproduced as under: Particulars Amount JUHU BEACH RESORT LTD 96,12,85,508 K RAHEJA IT PARK (HYDERABAD) P 50,000 SUNDEW PROPERTIES LTD 0 INTIME PROPERTIES LTD 0 INFRASTRUCTURE DEVELOPMENT 13,56,910 Zodiac Clothing Company Ltd 83,33,296 Prism Cement Ltd 33,97,940 Kothari Products Ltd 3,87,86,642 SHOPPERS STOP LIMITED 32,58,86,651 DLF Limited 20,02,864 Balaji Telefilms Ltd 18,89,415 Ambuja Cements Ltd 12,26,649 JM Fina....
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....111) wherein it was held that Rule 8D cannot be applied mechanically and must be consistent with the facts of each case. Since, a suo moto disallowance is made, it is possible that the additional disallowance under Rule 8D(2)(iii) might not be justified. The appellant relied on various other Tribunal order and High Court decisions. (vii) In Ground No. 2, the appellant contended that the Ld. AO erred in disallowing Rs. 2,71,98,549/- u/s 14A of the Act while computing the book profits under section 115JB of the Act. (viii) Further in relation to the explanation to section 14A inserted vide Finance Act 2022, the appellant contented that the said Explanation comes into force only with effect from AY 2022-23 i.e. effective prospectively and not retrospectively. In this regard the assessee has relied on the following decision of the Hon'ble Supreme Court: a) MM Aqua Technologies Vs CIT (436 ITR 582) b) Sedco Forex International Drilling Inc Vs CIT (279 ITR 310) Also, appellant has relied on various other decisions of High court and tribunal. 7.3 I have considered the facts of the case, statement of facts, grounds of appe....
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....eemed to have always applied in a has not accrued or arisen or has not been received during the previous year case where the income, not forming part of the total income under this Act. relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such income not forming part of the total income." 7.9. The legislative intent behind insertion of the aforesaid Explanation to section 14A of the Act was to clarify that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where exempt income has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such exempt income. 7.10. However, the Hon'ble ITAT Mumbai vide its order dated 29.06.2022 in the case of Bajaj Capital Ventures (P) Ltd. (2022) 141 taxmann.com 1 (Mumbai-Trib) has held that the amendment by way of insertion of the aforesaid explanation was prospective in nature and that prior to 1.4.2022, no disallowance could be made....
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....wance u/s 14A of the Act, only those investments are to be considered from which exempt income has been received during the year under consideration. The appellant relied on the decision of Hon'ble Delhi High Court in the case of Cargo Motors (P.) Ltd V. Deputy Commissioner of Income Tax ([2022] 145 taxmann.com 641) wherein it was held that while calculating disallowance made under Rule 8D @ 0.5% of the average investments, only those investments have to be considered which has yielded exempt income during the previous year. 7.13. The issue raised by the appellant and interpretation that evolved is that the investments which do not give rise to exempt income are to be excluded from working of disallowance under rule 8D. Rule 8D is to be applied only in respect of investment yielding exempted income. During the period under consideration in the present case of the appellant, Rule 8D(2)(ii) postulated that in the calculation of the disallowance amount "1% of the annual average of the monthly averages of the opening and closing balances of the value of investment which does not or shall not form part of the total income" should be taken into consideration. The appellant h....