DSP INVESTMENT PVT LTD,MUMBAI V. NFAC, DELHI

ITA 5803/MUM/2024

AI Insights

The case involves DSP Investment Pvt. Ltd., which appealed against the orders of the Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi, for the Assessment Years 2018-19 and 2021-22. The primary issue in both appeals was the computation of disallowance under section 14A of the Income Tax Act, 1961, related to expenses incurred in earning exempt income. For AY 2018-19, the assessee contested the AO's application of Rule 8D for calculating disallowance, which significantly increased the disallowance amount compared to what the assessee had calculated. The Tribunal found that the method used by the assessee had been consistently upheld in previous years and by the Bombay High Court, thus allowing the appeal for AY 2018-19. For AY 2021-22, although the dividend income became taxable, the assessee mistakenly treated it as exempt while computing disallowance under section 14A. The Tribunal directed the AO to re-examine this issue, allowing the appeal partly.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 471315 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2018-2019
• Other Referred Cases: ACIT vs. Vireet Investments Ltd (2017) (165 ITD 27) (Del) (SB)
• Laws Referred To: Income Tax Act, 1961, Income Tax Rules, 1962
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R.R. MAKWANA
• Assessee Lawyers: MADHUR AGRAWAL
• Keywords: Set aside; Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI “D” BENCH : MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI SUNIL KUMAR SINGH, JUDICIAL MEMBER ITA No. A.Y. Appellant Respondent 5803/Mum/2024 2018-19 DSP Investment Pvt. Ltd., 11th Floor, Mafatlal Centre, Nariman Point, Mumbai [PAN: AAACB1574H] ACIT-2(1)(2), 5th Floor, Aayakar Bhavan, M.K.Road, Mumbai 5804/Mum/2024 2021-22 Assessee by : Shri Madhur Agrawal, Adv. Revenue by : Shri R.R. Makwana, Sr.DR Date of Hearing : 31-12-2024 Date of Pronouncement : 01-01-2025 ORDER PER B.R. BASKARAN, A.M : Both these appeals have been filed by the assessee challenging the orders passed by the Ld. Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi [„Ld.CIT(A)‟] and they relate to AYs. 2018-19 & 2021-22. Both these appeals were heard together and are being disposed of by this common order, for the sake of convenience. 2. We shall first take up the appeal for the AY. 2018-19. The only issue contested in this appeal is related to disallowance made u/s.14A of the Income Tax Act, 1961 („the Act‟). 2 ITA Nos. 5803 & 5804/Mum/2024 3. The Ld.AR submitted that the assessee-company is engaged in the business of making investments in securities. During the year relevant to AY 2018-19, the assessee has earned both exempt income and taxable income. The assessee is consistently following practice of apportioning the expenses in the ratio of exempt income to the gross income for the purpose of computing disallowance under section 14A of the Act. However, the AO took the view that the disallowance u/s.14A has to be computed in accordance with Rule 8D of the Income Tax Rules, 1962 („the Rules‟). Hence, as against the disallowance of Rs. 48.53 lakhs made by the assessee, the AO computed disallowance of Rs. 6.65 crores. In the appellate proceedings, the Ld.CIT(A) confirmed the same and hence, the assessee has filed this appeal. 4. The Ld.AR submitted that this is a recurring issue in the hands of the assessee. The Hon‟ble Tribunal has examined the computation made by the assessee in the year 2008-09 to 2011-12 in the common order dt. 19- 12-2016 passed in ITA No. 6214/Mum/2011 and others and Tribunal has upheld the working of disallowance u/s. 14A of the Act made by the assessee. The said order has been followed by other benches of ITAT in the assessee‟s own case in other years including in AY. 2016-17 in its order dated 06-03-2024 passed in ITA No. 3714/Mum/2023. The Ld.AR further submitted that identical method of computation made in one of the group concerns, namely, M/s.DSP Adiko Holding Pvt. Ltd., has been upheld by the Hon‟ble Bombay High Court in ITA No. 459 of 2017 and others, dt. 03-06-2019. Accordingly, the Ld.AR submitted that the method consistently followed by the assessee and which has been upheld by the Tribunal and the Hon‟ble High Court may be directed to be followed, which will result in deletion of the addition made by the AO. 3 ITA Nos. 5803 & 5804/Mum/2024 5. We have heard the Ld.DR and perused the record. We notice that the methodology followed by the assessee to compute the disallowance u/s. 14A of the Act has been consistently followed by it. Further, it has also been approved by the Tribunal in the assessee‟s own cases in other years and also by the Hon‟ble Bombay High Court in the case of a group concern. Further, it is the requirement of sec.14A of the Act that the AO should record his dissatisfaction over the method followed by the assessee for computing disallowance u/s 14A, having regard to the accounts of the assessee. Admittedly, the AO did not record any dissatisfaction before resorting to comply Rule 8D of Income Tax Rules. Accordingly, we are of the view that the AO was not justified in computing disallowance as per Rule 8D. Accordingly, we set aside the order passed by the Ld.CIT(A) in the AY. 2018-19 and direct the AO to accept the disallowance computed by the assessee u/s. 14A of the Act. In the result, the appeal of the assessee for the AY. 2018-19 is allowed. 6. We shall now take up the appeal filed for the AY. 2021-22. The Ld.AR submitted that the dividend income has become taxable in this year. However, the assessee has also committed a mistake while computing the disallowance u/s.14A of the Act in this year, i.e., the assessee has followed the very same methodology as followed in the earlier years in computing disallowance u/s.14A treating the dividend income as exempt. The AO also computed the disallowance following Rule 8D of Income Tax Rules and accordingly enhanced the amount of disallowance to be made u/s.14A of the Act. The Ld.CIT(A) also confirmed the same. 7. The Ld.AR submitted that the dividend income should not be considered as part of exempt income. However, the assessee has earned exempt income from some of the tax-free investments. He submitted that 4 ITA Nos. 5803 & 5804/Mum/2024 considering the quantum of exempt income, the disallowance u/s. 14A of the Act may be computed in this year in accordance with Rule 8D of Income Tax Rules by considering only those investments, which have yielded exempt income for computing average value of investments. 8. We have heard the Ld.DR and perused the record. Since the assessee and the AO have committed mistakes in considering dividend income as exempt income in this year, we are of the view that this issue requires fresh examination at the end of the AO. It is the submission of the assessee that the disallowance u/s. 14A r.w. Rule 8D may be computed by considering only those investment shall not yield exempt income. We notice that the above said plea of the assessee is not in accordance with the decision of the Delhi Special Bench of the Tribunal in the case of ACIT vs. Vireet Investments Ltd (2017) (165 ITD 27) (Del) (SB). Accordingly, we direct the AO to compute the disallowance u/s.14A r.w. Rule 8D by considering only those investments which have yielded exempt income for the purpose of computing average value of investments. 9. To sum-up, the appeal for the AY.2018-19 is allowed and the appeal for the AY.2021-22 is treated as partly allowed for statistical purposes. Order pronounced in the open court on 01-01-2025 Sd/- Sd/- [SUNIL KUMAR SINGH] [B.R. BASKARAN] JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated: 01-01-2025 TNMM 5 ITA Nos. 5803 & 5804/Mum/2024 Copy to : 1) The Appellant 2) The Respondent 3) The CIT concerned 4) The D.R, “D” Bench, Mumbai 5) Guard file By Order Dy./Asst. Registrar I.T.A.T, Mumbai "