Income Tax Appellate Tribunal (ITAT), Mumbai: The present appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) (‘CIT(A)’), Mumbai, wherein the disallowance made by the Assessing Officer (‘AO’) under Section 14-A of the Income Tax Act, 1961 (‘the Act’) was deleted. The Bench comprising Pawan Singh (Judicial Member) and Renu Jauhri (Accountant Member) held that the disallowance made by the AO, over and above the suo-moto disallowance made by the assessee is without any basis and deserves to be deleted. Thus, the Tribunal dismissed the Revenue’s appeal.
Background
The respondent-assessee, Aishwarya Rai Bachchan, filed her return of income for the Assessment Year 2022—23 declaring total income of Rs. 39,33,02,240. The case was selected for scrutiny to verify issues and thereafter, the AO proposed to make disallowance of expenses relating to exempt income under Section 14-A read with Rule 8-D of the Income Tax Rules, 1962.
The assessee submitted that suo motu disallowance of Rs. 49,08,657 was already made despite no expenditure was actually incurred to earn the exempt income of Rs. 2,14,26,224. However, the AO rejected this contention, reduced the suo-moto disallowance of Rs. 49, 08, 657, and disallowed the remaining amount of Rs. 4,11,54,731, under Section 14-A. Further, vide order dated 16-3-2024, the assessment was completed at a total income of Rs. 43,44,56,971 under Section 143(3) of the Act.
Aggrieved by the AO’s computation, the assessee preferred an appeal before the CIT(A), whereby the AO was directed to delete the addition made of Rs. 4,11,54,731. Hence, the revenue filed the present appeal.
The issue for consideration was “whether CIT(A) erred in not applying the principle laid down by the Supreme Court in Maxopp Investment Ltd. v. CIT, (2018) 15 SCC 523 that Section 14-A is attracted where the expenditure is incurred in relation to exempt income, and the availability of interest-free funds is not a standalone defence unless proven to be directly used for investments?”.
Analysis, Law, and Decision
The Tribunal noted that the assessee had sou moto disallowed Rs. 49,08,657 under Section 14-A in respect of total exempt income of Rs. 2,14,26,224 at the time of filing her return of income, and the said amount included (a) direct expenses of Rs. 37,59,718; (b) transaction tax of Rs. 1,65,189; (c) STT of Rs. 4,95,328; and (d) indirect expenses of Rs. 4,88,422, being 5% of the total expenses.
The Tribunal relied on Maxopp Investments Ltd. v. CIT, (2018) 15 SCC 523, and opined that the AO had to record his satisfaction as to why the suo-moto disallowance made by the assessee was not acceptable, but the same had not been done. Therefore, CIT(A) rightly allowed relief to the assessee.
The Tribunal noted thatthe assessee submitted the working as per Section 14-A read with Rule 8-D after considering only those investments from which exempt income was earned during the year, disallowance works out to Rs. 21,95,734.
The Tribunal stated that the AO simply rejected the computation submitted by the assessee and proceeded to compute the disallowance under Section 14-A read with Rule 8-D at Rs. 4,60,63,388 without segregating the investments from which exempt income was derived. The Tribunal noted that the total expenses debited to the P&L account are only Rs. 2,48,11,639 and thus, opined that the computation of disallowance of Rs. 4,60,63,38,863 is devoid of any logic and clearly unreasonable.
The Tribunal also stated that AO did not consider the entire factual matrix of the case nor had gone through the relevant accounts, and the disallowance was made without proper appreciation of facts.
The Tribunal dismissing the revenue’s appeal, held that the disallowance made by the AO over and above the suo-moto disallowance made by the assessee is without any basis and deserves to be deleted.
[ACIT v. Aishwarya Rai Bachchan, ITA No.5403/MUM/2025, decided on 31-10-2025]
Advocates who appeared in this case:
For the Appellant (Revenue): Mani Jain
For the Respondent (Assessee): Surendra Mohan, Sr. DR