TaxTMI 
TaxTMI 
2026 (7) TMI 1688
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...."lead case." 2. The grounds of appeal raised by the assessee in ITA No.610/Mum/2026 (AY 2014-15) are as under: "A) Additional disallowance u/s. 14A-Rs. 51,33,451/- 1. On the facts and circumstances of the case, learned Commissioner of Income Tax (Appeals), Income Tax Department [CIT(A)] failed to appreciate that the learned Assessing officer should record his dissatisfaction regarding correctness of claim of assessee in respect of expenditure and to arrive at such dissatisfaction, he should give cogent reasons., The learned assessing officer having not recorded any specific dissatisfaction, the order of learned CIT(A) confirming the disallowance may be directed to be deleted. 2. The learned CIT(A) erred on facts and in law in confirming the additional disallowance made by the learned Assistant Commissioner of Income Tax, Circle 6(3)(2), Mumbai (AO) u/s. 14A of Rs. 51,33,451/-. 3. The learned CIT(A) failed to appreciate that the borrowed money was not utilised for investments hence disallowance of interest of Rs. 12,22,981/- while computing the disallowance under section 14A of the Act may be directed to be deleted. 4. The learned CIT(....
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.... the mandate of clause (f) of Explanation 1 to section 115JB." 4. The grounds of appeal raised by the assessee in ITA No.611/Mum/2026 (AY 2015-16) are as under: "A) Additional disallowance u/s, 14A-Rs. 2,15,80,178/- 1. On the facts and circumstances of the case, learned Commissioner of Income Tax (Appeals), Income Tax Department [CIT(A)] failed to appreciate that the learned Assessing officer should record his dissatisfaction regarding correctness of claim of assessee in respect of expenditure and to arrive at such dissatisfaction, he should give cogent reasons. The learned assessing officer having not recorded any specific dissatisfaction, the order of learned CIT(A) confirming the disallowance may be directed to be deleted. 2. The learned erred on facts and in law in confirming the additional disallowance made by the learned Assistant Commissioner of Income Tax, Circle-6(3)(2), Mumbai (AO) u/s. 14A of Rs. 2,15,80,178/- 3. The learned CIT(A) failed to appreciate that the borrowed money was not utilised for investments hence disallowance of interest of Rs. 1,33,73,698/ while computing the disallowance under section 14A of the Act may be direct....
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....ted for the purpose of clause (f) of Explanation 1 to section 115JB, thereby rendering the said statutory provision ineffective?" 6. Fact of the case, in brief, are that the assessee filed its return of income for AY 2014-15 on 24.11.2017 declaring total income at Rs. 8,67,19,200/-. The assessee company was engaged in the business of financial service sector as share broker, sub-broker etc. and others. The assessee had earned exempt dividend income of Rs. 9,99,97,827/-. The assessee had suo moto disallowed Rs. 41,86,377/-. The AO was not satisfied with the computation of disallowance u/s 14A of the Act and worked out disallowance as per section 14A read with Rule 8D at Rs. 87,11,134/-. After reducing the disallowance made by the AO, he determined the net disallowance at Rs. 51,33,541/- and added it to the total income. 6.1 The AO also disallowed ESOP expenses of Rs. 7,18,66,566/-. The assessee had relied on the decision of the Special Bench of Bangalore in case of Biocon Ltd. vs. DCIT, but the same was not followed in view of direction from the Range head u/s 144A of the Act. 6.2 The AO also disallowed "Mark to Market" loss of Rs. 40,000/- and added to the total income. ....
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....relied upon by both sides. We find that similar issue had come for consideration before the Tribunal in appellant's own case for AY 2020-21 in ITA No.6146/Mum/2025 dated 19.02.2026 where the issue was decided in favour of the assessee by observing as under: 8. We have heard both the parties and perused the materials on record. We have also deliberated on the decisions relied upon by both sides. There is no dispute that the appellant had received exempt dividend income of Rs. 16,16,90,070/-. The assessee had suo moto disallowed Rs. 88,17,030/- u/s 14A on the exempt dividend income. The assessee had given working of the said disallowance at page 38 of the paper book, which was placed before both AO and CIT(A) and it includes salary allocated to the MD, CFO and staff of the account section of Rs. 59,56,980/-, general expenses of Rs. 26,75,347/- and STT/Demat charges of Rs. 1,84,703/-. The total comes to Rs. 88,17,030/-. The Ld. AR submitted that there was no direct expenses incurred during the year as dividend income from the companies, venture capital funds and other investment funds was directly credited to the bank account. Further, the majority of the investments were str....
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....considered all the investments of the assessee instead of considering only those investments which had yielded exempt income. 7.1.1. We find that the issue in dispute is decided in favour of the assessee in the case of JM Financial Consultants P Ltd (now known as JM Financial Institutional Securities P Ltd) vs DCIT in ITA No. 1863/Mum/2013 for Asst Year 2009-10 dated 7.10.2015 wherein it was held that the Id AO had not rejected the computation made by the assessee and hence the Id AO could not invoke the computation mechanism provided in Rule 8D(2) of the Rules mechanically. It was also held that the Id AO had not recorded any satisfaction in terms of Section 14A(2) of the Act read with Rule 8D(1) of the Rules by examining the accounts of the assessee and correctness of the claim of the assessee. We find that this decision of the tribunal was upheld by the Hon'ble Jurisdictional High Court in Income Tax Appeal No. 1482 of 2016 dated 29.1.2019 wherein the question raised by the revenue before the Hon'ble High Court and the decision rendered thereon are as under- "1. Revenue is in the appeal against the judgment of the Income Tax Appellate Tribunal ("the Tri....
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....essee is not correct. The CIT(DR) submitted that the satisfaction of the AO is implied from the assessment order. However, he has not been able to substantiate the above assertion by cogent material or reasons. Satisfaction of the AO regarding incorrect claim of assessee is a statutory precondition under sub-section (2) of Section 14A for determination of the amount of expenditure for disallowance. The Hon'ble Bombay High Court in case of Bajaj Finance (supra) has held that in terms of section 14A, satisfaction of AO about correctness of has expenditure offered for disallowance by assessee is a precondition and thus, where the AO did not in any manner reject explanation of assessee but merely proceeded to make disallowance by invoking section 14A rwr 80, the Tribunal was justified in deleting the same. In the later decision, the Hon'ble High Court, in case of Godrej and Boyce Mfg. Co. Ltd. (supra), has held that where the assessee earned exempt income and submitted computation of inadmissible expenditure u/s 14A, since the AO had not recorded any satisfaction that working of inadmissible expenditure u/s 14A by assessee was incorrect, interest expenditure could not be disall....
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.... the appellant by stating as under: 6. Ground No.2 raised by the revenue is with regard to the action of the Id. CIT(A) directing the Id. AO to delete the disallowance Rs. 56,48,000/- made on account of mark to market losses. 6.1. We have heard rival submissions and perused the material available on record. We find that the brief facts of this issue are that the assessee had acted as a Lead Manager to the public issue of certain listed companies. One of the activities of the assessee company is to act as underwriter for the public issue wherein the assessee had undertaken to subscribe to the unsubscribed shares in the public issue, the consideration for which was derived by the assessee in the form of underwriting commission. Pursuant to such underwriting contract, the assessee had acquired 693700 shares of Axis IT & T Ltd. during the F.Y.2003- 04 relevant to the A.Y.2004-05. These shares were held by the assessee as stock in trade in its books of accounts and have been shown consistently as such from A.Y.2004-05 onwards till A.Y.2015-16 which is evident from the tabulation filed by the Id. Counsel for the assessee before us. The assessee has been valuing these sh....
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....he appellant's case decided by the ITAT above. The Ld. Sr. DR has not brought on record any change in facts or law as compared to those of the case cited supra so as to warrant interference in the order of CIT(A). Hence, following the above decision, the order of CIT(A) deleting the above addition is confirmed and the ground of revenue is dismissed. 15. The next ground is adjustment of Rs. 51,33,451/- made by computing the book profit u/s 115JB of the Act. The above amount was the additional disallowance u/s 14A r.w.r 8D. The CIT(A) deleted the said addition. The Ld. AR submitted that the issue is covered by the decision of the Special Bench of Delhi ITAT in case of ACIT vs. Vireet Investments Pvt. Ltd. (2017) 165 ITD 27 (Del.)(SB). We have already deleted the additional disallowance u/s 14A of Rs. 51,33,451/-. We also find that the Tribunal in appellant's own case in AY 2013-14 in ITA No.6961/Mum/2017 has dismissed similar ground raised by the revenue by observing as under: "7. The Ground No.3 raised by the revenue is with regard to the action of the Id. CIT(A) deleting the disallowance made u/s.14A while computing the book profit u/s.115JB of the Act. 7.1. We....
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....ard the rival contentions and perused relevant material on record including judicial pronouncements as cited before us. Some undisputed facts that emerge out of the facts as narrated by us here-in-above are that there is no increase in the Share Capital of the assessee rather the shares have been issued by its holding company to the assessee's employees and the assessee has funded the differential amount i.e. difference between issue price and the market price of the shares. The Ld. CIT(A), in our opinion, has clearly flawed in equating the same with Sweat Equity Shares which is not the case here and therefore, reliance paid on the decision of Future Agrovet Limited was erroneous. 5.2 The lower authorities, in our opinion, were misled by the fact that the impugned payments were made to make up for the shortfall in the share premium account and therefore, the same was on capital account. However, in our opinion, the nature of receipts in the hands of holding company was not relevant factor to determine the true nature of payment in the hands of the assessee payer. The same is akin to a situation where the assessee acquires certain moveable properties for the benefit of ....
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....d is as to whether it is the expenditure of the assessee or that of the parent company. We are of the view that the observations of the CIT(A) in para 5.6 of his order that these expenses are the expenses of the foreign parent company is without any basis and lie in the realm of surmises. The foreign parent company has a policy of offering ESOP to its employees to attract the best talent as its work force. In pursuance of this policy of the foreign parent company, allowed its subsidiaries/affiliates across the world to issue its shares to the employees. As far as the assessee in the present case which is an affiliate of the foreign parent company is concerned, the shares were in fact acquired by the assessee from the parent company and there was an actual outflow of cash from the assessee to the foreign parent company. The price at which shares were issued to the employees was paid by the employee to the Assessee who in turn paid it to the parent company. The difference between the fair market value of the shares of the price at which shares were issued to the employees was met by the Assessee. This factual position is not disputed at any stage by the revenue. In such circumstances....
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....ere that the assessee company incurred certain expenses on account of payments made by it for the shares allotted to its employees in connection with the ESPP. The AO had disallowed Rs. 9,06,788/- incurred by the assessee on the ground that this expenditure is not the expenditure of assessee company but that expenditure is of parent company and the benefit of such expenditure accrues to the parent company and not assessee. The CIT(A) deleted the addition made by the AO. The CIT(A) found that the common shares of Accenture Ltd. the parent company, have been allotted to the employees of ASPL, the Indian affiliate/Assessee and not to the employees of the parent company. The CIT(A) also found that though the shares of the parent company have been allotted, the same have been given to the employees of the Assessee at the behest of the Assessee. The CIT(A) thus held that it was an expense incurred by the assessee to retain, motive and award its employees for their hard work and is akin to the salary costs of the assessee. The same was therefore business expenditure and should be allowable in computing the taxable income of the assessee. The tribunal upheld the view of the CIT(A)....
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.... 5.4 So far as the quantification of the expenditure is concerned, the working of the same has been provided on Page number-54 of the paper-book. The Ld. AO is directed to verify the same and allow the claim of the assessee keeping in view the fact that the deduction would be available to the assessee only to the extent of shares which are ultimately allotted by the issuer to the assessee's employees and no deduction would be available against cancelled / un-allotted shares since the amount paid by assessee in respect of those shares would accrue to the assessee as refund from holding company. 16.2 Since the facts are similar, following the above, the ground of revenue is dismissed 17. In the result, the appeal of the revenue is dismissed. ITA No.611/Mum/2026 (AY 2015-16) 18. The only effective ground raised by the assessee is in respect of additional disallowance of Rs. 2,15,80,178/- u/s 14A of the Act. The assessee had filed its return of income on 27.11.2015 declaring total income of Rs. 51,53,18,420/-. The assessee had claim exempt income by way of dividend of Rs. 4,67,22,355/-. The assessee itself disallowed Rs. 11,68,703/- towards earning of the exempt incom....