J.M FINANCIAL AND INVESTMENT CONSULTANCY SERVICE PRIVATE LIMITED ,MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 3(2)(1), MUMBAI

ITA 5768/MUM/2025

AI Insights

The case involves J.M. Financial and Investment Consultancy Services Pvt. Ltd., which appealed against the order of the Commissioner of Income-tax (Appeals) - National Faceless Appeal Centre, Delhi, for the assessment year 2015-16. The primary contention was regarding the disallowance made under section 14A read with Rule 8D of the Income Tax Act, 1961, amounting to Rs.1,46,29,110. The assessee argued that the disallowance was made without proper satisfaction and contrary to law. The Tribunal examined the application of Rule 8D and the basis of the disallowance, ultimately deciding to uphold the use of Rule 8D but requiring a recomputation of certain components in line with judicial precedents.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 786883 (ITAT-MUMBAI)
• Duration Of Justice: 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-11-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2015-2016
• Appeal Filed On: 19-09-2025
• Other Referred Cases: Godrej & Boyce Mfg. Co. Ltd. vs. DCIT, Daga Capital Management Pvt. Ltd. vs. ITO, United Breweries Ltd vs. DCIT, PCIT vs Nirma Credit and Capital (P) Ltd
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KAVITA KAUSHIK
• Assessee Lawyers: K SHIVRAM AW
• Keywords: Capital Gains; Source of fund; Earning of tax free income; Rule 8D
• Section: 14A; 115JB

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “F” MUMBAI BEFORE SHRI SANDEEP GOSAIN (JUDICIAL MEMBER) AND SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) ITA No. 5768/MUM/2025 Assessment Year: 2015-16 J.M. Financial and Investment Consultancy Services Pvt. Ltd., 141, Maker Chambers III, Nariman Point, Mumbai-400021. Vs. The Dy. CIT Circle 3(2)(1), Aayakar Bhavan, M.K. Marg, Mumbai-400020. PAN NO. AAACJ 1237 H Appellant Respondent Assessee by : Mr. K Shivram a/w Sanjay Parikh Revenue by : Ms. Kavita Kaushik, Sr. DR Date of Hearing : 11/11/2025 Date of pronouncement : 17/11/2025 ORDER PER OM PRAKASH KANT, AM This appeal by the assessee is directed against order dated 11.07.2025 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2015-16, raising following grounds: A) Additional Disallowance u/s. 14A read with Rule 8D, Rs.1,46,29,110/-. Printed from counselvise.com Recording of satisfaction 1) The learned CIT(A) had made the disallowance u/s. 14A on a scientific basis considering direct and indirect expenses and the AO had not recorded proper satisfaction having regard to the accounts of the appellant. Hence, additional dis u/s. 14A applying Rule 8D was contrary to law hence may be directed to be deleted. 2) Without prejudice to above during the year only three dividend warrants were received and the balance amount was directly credited to the bank which was affirmed by the CIT(A) may be directed to be deleted. 3) Without prejudice to above the Learned CIT(A) erred in confirming the disallowance made by the AO without following the ratio of the Apex court and Jurisdictiona are referred in the submission made before the CIT(A) Disallowance of interest under Rule 8D(2)(ii) 4) The learned CIT(A) erred on facts and in law in confirming the disallowance on account of interest of Rs. 64,42,764/ while computing 5) The learned CIT(A) failed to appreciate that the appellant had sufficient own funds out of which investments were made and borrowed funds were utilized for funding activities and hence no disallowance of interest wa 8D(2)(ii) 6) The learned CIT(A) further failed to appreciate that the appellant had received net interest (i.e. reducing interest paid from interest received) and hence no disallowance was called for on account of interest under Rule prejudice, not reducing the value of shares on which no dividend received 7) Without prejudice to the above, the learned CIT(A) erred on facts and in law in not dealing with the contention of the appellant and directing the AO to reduce on which no dividend was received, while computing disallowance J.M. Financial and Investment Consultancy Recording of satisfaction 1) The learned CIT(A) failed to appreciate that the appellant had made the disallowance u/s. 14A on a scientific basis considering direct and indirect expenses and the AO had not recorded proper satisfaction having regard to the accounts of the appellant. Hence, additional disallowance made by the AO u/s. 14A applying Rule 8D was contrary to law hence may be directed to be deleted. 2) Without prejudice to above during the year only three dividend warrants were received and the balance amount was directly credited to the bank account hence, disallowance which was affirmed by the CIT(A) may be directed to be 3) Without prejudice to above the Learned CIT(A) erred in confirming the disallowance made by the AO without following the ratio of the Apex court and Jurisdictional High Court which are referred in the submission made before the CIT(A) Disallowance of interest under Rule 8D(2)(ii) 4) The learned CIT(A) erred on facts and in law in confirming the disallowance on account of interest of Rs. 64,42,764/ while computing the additional disallowance u/s. 14A. 5) The learned CIT(A) failed to appreciate that the appellant had sufficient own funds out of which investments were made and borrowed funds were utilized for funding activities and hence no disallowance of interest was required under Rule 6) The learned CIT(A) further failed to appreciate that the appellant had received net interest (i.e. reducing interest paid from interest received) and hence no disallowance was called for on account of interest under Rule 8D(2)(ii). Without prejudice, not reducing the value of shares on which no dividend received 7) Without prejudice to the above, the learned CIT(A) erred on facts and in law in not dealing with the contention of the appellant and directing the AO to reduce the value of shares on which no dividend was received, while computing as per Rule 8D. J.M. Financial and Investment Consultancy Services Pvt. Ltd. 2 ITA No. 5768/MUM/2025 failed to appreciate that the appellant had made the disallowance u/s. 14A on a scientific basis considering direct and indirect expenses and the AO had not recorded proper satisfaction having regard to the accounts of allowance made by the AO u/s. 14A applying Rule 8D was contrary to law hence may be 2) Without prejudice to above during the year only three dividend warrants were received and the balance amount was account hence, disallowance which was affirmed by the CIT(A) may be directed to be 3) Without prejudice to above the Learned CIT(A) erred in confirming the disallowance made by the AO without following l High Court which 4) The learned CIT(A) erred on facts and in law in confirming the disallowance on account of interest of Rs. 64,42,764/- the additional disallowance u/s. 14A. 5) The learned CIT(A) failed to appreciate that the appellant had sufficient own funds out of which investments were made and borrowed funds were utilized for funding activities and s required under Rule 6) The learned CIT(A) further failed to appreciate that the appellant had received net interest (i.e. reducing interest paid from interest received) and hence no disallowance was called 8D(2)(ii). Without prejudice, not reducing the value of shares on which no 7) Without prejudice to the above, the learned CIT(A) erred on facts and in law in not dealing with the contention of the the value of shares on which no dividend was received, while computing Printed from counselvise.com 2. Briefly stated, the facts of the case are that Non-Banking Financial Company engaged in the business of investments, investment services and investment holding. For the year under consideration, the assessee filed its return of income on 28.09.2015 declaring a total income of so filed was selected for scrutiny and, accordingly, statutory notices under the Income-tax Act, 1961 (hereinafter referred to as “the Act”) were issued and duly complied with. 2.1 During the course of assessment proceedings, the Assess Officer observed that the assessee had earned dividend income of ₹25,90,98,299/-, claimed as exempt under section 10(34) of the Act, and long-term capital gains of under section 10(38) of the Act. In the computation assessee had suo-motu at ₹19,79,144/-, along with Securities Transaction Tax (STT) of ₹2,36,056/- and demat charges of 2.2 However, the return of income did not contain any details or working supporting the disallowance of explained by the assessee that one employee was entrusted with investment-related activities and had devoted 68 out of 240 working days during the year to such activities. On that basis, a sum of ₹3,90,000/- from the employee’s total compensation was allocated as expenditure incurred for earning exempt income. Further, an J.M. Financial and Investment Consultancy Briefly stated, the facts of the case are that the assessee is a Banking Financial Company engaged in the business of investments, investment services and investment holding. For the year under consideration, the assessee filed its return of income on 28.09.2015 declaring a total income of ₹1,66,27,330/ so filed was selected for scrutiny and, accordingly, statutory notices tax Act, 1961 (hereinafter referred to as “the Act”) were issued and duly complied with. During the course of assessment proceedings, the Assess Officer observed that the assessee had earned dividend income of , claimed as exempt under section 10(34) of the term capital gains of ₹5,74,602/-, claimed as exempt under section 10(38) of the Act. In the computation motu worked out disallowance under section 14A , along with Securities Transaction Tax (STT) of and demat charges of ₹40,698/-. However, the return of income did not contain any details or upporting the disallowance of ₹19,79,144/ explained by the assessee that one employee was entrusted with related activities and had devoted 68 out of 240 working days during the year to such activities. On that basis, a sum of from the employee’s total compensation was allocated as expenditure incurred for earning exempt income. Further, an J.M. Financial and Investment Consultancy Services Pvt. Ltd. 3 ITA No. 5768/MUM/2025 the assessee is a Banking Financial Company engaged in the business of investments, investment services and investment holding. For the year under consideration, the assessee filed its return of income on 7,330/-. The return so filed was selected for scrutiny and, accordingly, statutory notices tax Act, 1961 (hereinafter referred to as “the Act”) During the course of assessment proceedings, the Assessing Officer observed that the assessee had earned dividend income of , claimed as exempt under section 10(34) of the , claimed as exempt under section 10(38) of the Act. In the computation of income, the worked out disallowance under section 14A , along with Securities Transaction Tax (STT) of However, the return of income did not contain any details or 19,79,144/-. It was explained by the assessee that one employee was entrusted with related activities and had devoted 68 out of 240 working days during the year to such activities. On that basis, a sum of from the employee’s total compensation was allocated as expenditure incurred for earning exempt income. Further, an Printed from counselvise.com amount of ₹3,00,000/ Investment Committee was also attributed towards earning exempt income. The assessee thereafter apportioned general administrative expenses in the ratio of such expenses to salary cost, arriving at a figure of ₹12,89,144/ 2.3 Thus, it was submitted that the total disallowance under section 14A amounting to of ₹3,90,000/-, (ii) Investment Committee expenses of (iii) other proportionate expenses of charges of ₹40,698/- 2.4 The Assessing Officer, however, was not satisfied with the explanation furnished. In particular, vide notice issued under section 142(1), the assessee was required to justify the basis on which only 25% of the commission paid to Investment Committee members had been considered for disallowance. As no satisfactory justification was forthcoming, the Assessing Officer proceeded to apply Rule 8D of the Income disallowance at ₹1,66,08,254/ Sr. No. Particulars (i) The amount of expenditure directly relating to income which does not form part of the total income (ii) (A) Amount of expenditure by way of interest excluding Bank charges/ commission Interest paid (B) Average value of investment J.M. Financial and Investment Consultancy 3,00,000/- paid as commission to members of the Investment Committee was also attributed towards earning exempt sessee thereafter apportioned general administrative expenses in the ratio of such expenses to salary cost, arriving at a 12,89,144/-. Thus, it was submitted that the total disallowance under section 14A amounting to ₹22,55,878/- comprised ( , (ii) Investment Committee expenses of (iii) other proportionate expenses of ₹14,89,144/ -, and (v) STT of ₹2,36,038/-. The Assessing Officer, however, was not satisfied with the explanation furnished. In particular, vide notice issued under section 142(1), the assessee was required to justify the basis on which only 25% of the commission paid to Investment Committee s had been considered for disallowance. As no satisfactory justification was forthcoming, the Assessing Officer proceeded to apply Rule 8D of the Income-tax Rules, 1962 and computed the 1,66,08,254/-, as under: Amount The amount of expenditure directly relating to income which does not form part of the total income 22,55,878 Amount of expenditure by way of interest excluding Bank charges/ commission Interest paid 89,93,753/- (A) Average value of investment J.M. Financial and Investment Consultancy Services Pvt. Ltd. 4 ITA No. 5768/MUM/2025 paid as commission to members of the Investment Committee was also attributed towards earning exempt sessee thereafter apportioned general administrative expenses in the ratio of such expenses to salary cost, arriving at a Thus, it was submitted that the total disallowance under comprised (i) employee cost , (ii) Investment Committee expenses of ₹3,00,000/-, 14,89,144/-, (iv) demat The Assessing Officer, however, was not satisfied with the explanation furnished. In particular, vide notice issued under section 142(1), the assessee was required to justify the basis on which only 25% of the commission paid to Investment Committee s had been considered for disallowance. As no satisfactory justification was forthcoming, the Assessing Officer proceeded to tax Rules, 1962 and computed the Amount (Rs.) 22,55,878 Printed from counselvise.com a. Net investment at the end of the year (current + non b. Net investment at the beginning of the year Average Investment = (a+b)/2 (C) Total assets + Current assets) a. Total assets at the end of the year b. Total assets at the beginning of the year Average Total Assets (a+b)/2 AX B/C (iii) 0.5% of the investment, the income from which does not form part of total income Total disallowance is aggregate of (i) + (ii) + (iii) 3. On further appeal, the Ld. CIT(A) rejected the contention of the assessee and upheld the disallowance however allowed part respect of disallowance u/s 14A while computing book profit u/s 115JB of the Act. 4. Aggrieved by the aforesaid assessment, the assessee has preferred the present appeal and has raised grounds of challenge as reproduced hereinabove. The assessee has also placed on record a Paper Book running from pages 1 to 110. The learned counsel for the assessee drew our attention to the order of the Co Bench of the Tribunal in the assessee’s own case in ITA No. 5454/Mum/2018 for the assessment year 2012 that, in the year under appeal, the Assessing Officer had invoked Rule 8D without first recording the requisite dissatisfaction regarding the correctness of the assessee’s claim of expenditure relatable to exempt income. According to the learned counsel, the absence of such recorded dissatisfaction renders the application of J.M. Financial and Investment Consultancy Net investment at the end of the year (current + non-current investment) 1674950606/- Net investment at the beginning of the 1488894216/- Average Investment = (a+b)/2 1581922411/ (B) Total assets (Fixed assets + Investment + Current assets) Total assets at the end of the year 2315955906/- Total assets at the beginning of the 2100601225/- Average Total Assets (a+b)/2 2208278565/- (C) 64,42,764/ 0.5% of the average value of investment, the income from which does not form part of total income 79,09,612/ llowance is aggregate of (i) + 1,66,08,254/ On further appeal, the Ld. CIT(A) rejected the contention of the assessee and upheld the disallowance however allowed part respect of disallowance u/s 14A while computing book profit u/s Aggrieved by the aforesaid assessment, the assessee has preferred the present appeal and has raised grounds of challenge as reproduced hereinabove. The assessee has also placed on record a Paper Book running from pages 1 to 110. The learned counsel for assessee drew our attention to the order of the Co Bench of the Tribunal in the assessee’s own case in ITA No. 5454/Mum/2018 for the assessment year 2012-13, and submitted that, in the year under appeal, the Assessing Officer had invoked without first recording the requisite dissatisfaction regarding the correctness of the assessee’s claim of expenditure relatable to exempt income. According to the learned counsel, the absence of such recorded dissatisfaction renders the application of J.M. Financial and Investment Consultancy Services Pvt. Ltd. 5 ITA No. 5768/MUM/2025 64,42,764/- 79,09,612/- 1,66,08,254/- On further appeal, the Ld. CIT(A) rejected the contention of the assessee and upheld the disallowance however allowed part relief in respect of disallowance u/s 14A while computing book profit u/s Aggrieved by the aforesaid assessment, the assessee has preferred the present appeal and has raised grounds of challenge as reproduced hereinabove. The assessee has also placed on record a Paper Book running from pages 1 to 110. The learned counsel for assessee drew our attention to the order of the Co-ordinate Bench of the Tribunal in the assessee’s own case in ITA No. 13, and submitted that, in the year under appeal, the Assessing Officer had invoked without first recording the requisite dissatisfaction regarding the correctness of the assessee’s claim of expenditure relatable to exempt income. According to the learned counsel, the absence of such recorded dissatisfaction renders the application of Printed from counselvise.com Rule 8D unsustainable in law. The learned counsel further invited our attention to the com disallowance furnished by the assessee, placed at page 45 of the Paper Book, and also relied upon the detailed submissions made before the Assessing Officer explaining the basi the said suo-motu disallowance. 5. On the contrary, the Ld. Departmental Representative (DR) relied on the order of the lower authorities. Ground No. 1: Non Section 14A 6. We have given our thoughtful consideration to Ground No. 1, wherein the assessee assails the action of the Assessing Officer in invoking Rule 8D without recording the requisite satisfaction as contemplated under section 14A(2) of the Act has dealt with this objection in considerable detail and has returned findings in the following terms: “Ground no B. the first and foremost objection is that the AO has not recorded satisfaction and therefore as per principles laid down by various judicial decisions, the addition is liable to be deleted. However, it noted from the assessment order that the Assessing officer has duly recorded the reasons: \"4.9 The fact of the above case are applicable in the case of the assessee. The has to be worked out regarding exempt income in their case as per section 14A. The same is evident from disallowance of Rs. 19,79, 144/ offered by them in the computation of income. The J.M. Financial and Investment Consultancy e 8D unsustainable in law. The learned counsel further invited our attention to the computation and working of the disallowance furnished by the assessee, placed at page 45 of the Paper Book, and also relied upon the detailed submissions made re the Assessing Officer explaining the basis and rationale of disallowance. On the contrary, the Ld. Departmental Representative (DR) relied on the order of the lower authorities. Ground No. 1: Non-recording of Proper Satisfaction un We have given our thoughtful consideration to Ground No. 1, wherein the assessee assails the action of the Assessing Officer in invoking Rule 8D without recording the requisite satisfaction as contemplated under section 14A(2) of the Act. The learned CIT(A) has dealt with this objection in considerable detail and has returned findings in the following terms: Ground no B. the first and foremost objection is that the AO has not recorded satisfaction and therefore as per principles laid down by various judicial decisions, the addition is liable to be deleted. However, it noted from the assessment order that the Assessing officer has duly recorded the reasons: \"4.9 The fact of the above case are applicable in the case of the assessee. The assessee has also admitted that the disallowance has to be worked out regarding exempt income in their case as per section 14A. The same is evident from disallowance of Rs. 19,79, 144/ offered by them in the computation of income. The J.M. Financial and Investment Consultancy Services Pvt. Ltd. 6 ITA No. 5768/MUM/2025 e 8D unsustainable in law. The learned counsel further invited putation and working of the suo-motu disallowance furnished by the assessee, placed at page 45 of the Paper Book, and also relied upon the detailed submissions made s and rationale of On the contrary, the Ld. Departmental Representative (DR) recording of Proper Satisfaction under We have given our thoughtful consideration to Ground No. 1, wherein the assessee assails the action of the Assessing Officer in invoking Rule 8D without recording the requisite satisfaction as . The learned CIT(A) has dealt with this objection in considerable detail and has Ground no B. the first and foremost objection is that the AO has not recorded satisfaction and therefore as per principles laid down by various judicial decisions, the addition is liable to be deleted. However, it noted from the assessment order that the \"4.9 The fact of the above case are applicable in the case of the assessee has also admitted that the disallowance has to be worked out regarding exempt income in their case as per section 14A. The same is evident from disallowance of Rs. 19,79, 144/ offered by them in the computation of income. The Printed from counselvise.com said disallowance is employce's benefit expenses and general administrative expenses. Further, it is seen from the submission filed by assessee vide letter dated 19.12.2017 that during the assessment, assessee has himself produced a working of Rs.22,55,878/ Rs.2,36,036/ expenses which directly attributable to the exempt income. This proves that the assessee is himself not sure of the disallowance which is to b quantum of disallowance in ITR and during assessment proceedings. This clearly goes on to show that assessee has not worked out the disallowance as per Rule8D. Constitutional validity of which has been upheld b Court in the case of Godrej & Boyce Mfg. Co. Ltd. (Supra), and in such a scenario, the claim of assessee of making disallowance as per scientific method, sound rather hollow. 4.10 The assessee in his reply has also submitted that assessee's own case for A.Y. 2008 the A.O. to re investment. However, the department has already filed the appeal before the Hon'ble High Court, Mumbai against judgement of the Hon'ble ITAT especially in the light of judgement of Hon'ble Karnataka High Court in the case of United Breweries Ltd v/s. DCIT(72 taxmann.com 102 dated 31.05.2016), wherein it is held that section 14A is applicable even where the motive of the assessee in enquiring the shares is to obtain controlling interest in a company and not to earn dividends. In the said case, while deciding the appeal of the assessee against applicability of section 14A, Hon'ble High court mentioned that ITAT has correctly followed t Daga Capital Management Pvt. Ltd. (2009) 310 ITR (AR) 1 and held that section 14A is applicable even where the motive in acquiring the shares was to obtain controlling interest in the companies. 4.11 Further, on the attributable to the exempt income, the assessee has not given any submission despite the fact that assessee was given specific show cause notice on the issue of disallowance u/s 14A. Further, it is seen that the tune of Rs.89,93,753/ 2013-14 & Α.Υ. 2012 borrowings have increased from Rs. 'NIL' to Rs. 11,00,00,000/ J.M. Financial and Investment Consultancy said disallowance is worked out by only estimating the employce's benefit expenses and general administrative expenses. Further, it is seen from the submission filed by assessee vide letter dated 19.12.2017 that during the assessment, assessee has himself produced a working of Rs.22,55,878/- after including security transaction tax of Rs.2,36,036/- and demat charges of Rs.40,698/ expenses which directly attributable to the exempt income. This proves that the assessee is himself not sure of the disallowance which is to be made u/s 14A and hence, furnished different quantum of disallowance in ITR and during assessment proceedings. This clearly goes on to show that assessee has not worked out the disallowance as per Rule8D. Constitutional validity of which has been upheld by the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. (Supra), and in such a scenario, the claim of assessee of making disallowance as per scientific method, sound rather hollow. 4.10 The assessee in his reply has also submitted that assessee's own case for A.Y. 2008-09, Hon'ble ITAT has directed the A.O. to re-compute the disallowance excluding strategic investment. However, the department has already filed the appeal before the Hon'ble High Court, Mumbai against judgement on'ble ITAT especially in the light of judgement of Hon'ble Karnataka High Court in the case of United Breweries Ltd v/s. DCIT(72 taxmann.com 102 dated 31.05.2016), wherein it is held that section 14A is applicable even where the motive of the enquiring the shares is to obtain controlling interest in a company and not to earn dividends. In the said case, while deciding the appeal of the assessee against applicability of section 14A, Hon'ble High court mentioned that ITAT has correctly followed the judgement of Special Bench in ITO v/s Daga Capital Management Pvt. Ltd. (2009) 310 ITR (AR) 1 and held that section 14A is applicable even where the motive in acquiring the shares was to obtain controlling interest in the 4.11 Further, on the issue of disallowance of interest expenses attributable to the exempt income, the assessee has not given any submission despite the fact that assessee was given specific show cause notice on the issue of disallowance u/s 14A. Further, it is seen that the assessee has debited interest expense to the tune of Rs.89,93,753/-in P&L which was at Rs. 'NIL' in A.Y. 14 & Α.Υ. 2012-13. Also, during the year short term borrowings have increased from Rs. 'NIL' to Rs. 11,00,00,000/ J.M. Financial and Investment Consultancy Services Pvt. Ltd. 7 ITA No. 5768/MUM/2025 worked out by only estimating the employce's benefit expenses and general administrative expenses. Further, it is seen from the submission filed by assessee vide letter dated 19.12.2017 that during the assessment, assessee has himself produced a working of after including security transaction tax of and demat charges of Rs.40,698/- as the expenses which directly attributable to the exempt income. This proves that the assessee is himself not sure of the disallowance e made u/s 14A and hence, furnished different quantum of disallowance in ITR and during assessment proceedings. This clearly goes on to show that assessee has not worked out the disallowance as per Rule8D. Constitutional y the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. (Supra), and in such a scenario, the claim of assessee of making disallowance as 4.10 The assessee in his reply has also submitted that in 09, Hon'ble ITAT has directed compute the disallowance excluding strategic investment. However, the department has already filed the appeal before the Hon'ble High Court, Mumbai against judgement on'ble ITAT especially in the light of judgement of Hon'ble Karnataka High Court in the case of United Breweries Ltd v/s. DCIT(72 taxmann.com 102 dated 31.05.2016), wherein it is held that section 14A is applicable even where the motive of the enquiring the shares is to obtain controlling interest in a company and not to earn dividends. In the said case, while deciding the appeal of the assessee against applicability of section 14A, Hon'ble High court mentioned that ITAT has he judgement of Special Bench in ITO v/s Daga Capital Management Pvt. Ltd. (2009) 310 ITR (AR) 1 and held that section 14A is applicable even where the motive in acquiring the shares was to obtain controlling interest in the issue of disallowance of interest expenses attributable to the exempt income, the assessee has not given any submission despite the fact that assessee was given specific show cause notice on the issue of disallowance u/s 14A. Further, assessee has debited interest expense to the in P&L which was at Rs. 'NIL' in A.Y. 13. Also, during the year short term borrowings have increased from Rs. 'NIL' to Rs. 11,00,00,000/- Printed from counselvise.com Also, the investments during th 1,48,88,94,216/ Statement filed by assessee as part of the financial statements, the net cash flow from operating activities as well as net cash flow from investment activities is flow in from Financial Activities, wherein the proceeds from short term borrowing are the main source of funding. Also, the assessee during the assessment proceeding has not brought any material on record to prove that the funds were not used for the purpose of making investments. Therefore, by not making a disallowance on the interest part, the assessee has failed to follow the provision of disallowance u/s 14A r.w.r. 8D. It is also to be noted tha 14A related to interest part in case of A.Y. 2012 14 could not be done only because of the fact that there was no interest expenses claimed by the assessee for those assessment years. 4.12 In view of the above, I am no of the assessee for working out of disallowance u/s. 14A. Though the assessee has agreed that the disallowance has to be worked out for exempt income but they have not followed the disallowance as per section 14A r.w.r. 8D( 1961. In view of the above the disallowance made by the assessee is not acceptable and disallowance as per rule 8D is worked as under.\" After citing all the reasons, the AO has clearly specified in Para 4.12 that he is not satisfied. by the appellant that the satisfaction has not been recorded is not correct. Therefore, the application of rule 8D in computing the disallowance is correct. This ground of the appellant is, therefore, rejected. 6.1 Upon a careful perusal of the above reasoning, we find that the Assessing Officer has, in unmistakable terms, recorded his dissatisfaction with the correctness of the assessee’s claim. T Assessing Officer has, furnished differing figures of disallowance income and thereafter during the assessment proceedings that the assessee failed to demonstrate that its working was in J.M. Financial and Investment Consultancy Also, the investments during the year have increased from Rs. 1,48,88,94,216/- to Rs.1,67,49,50,606/. As per the Cash Flow Statement filed by assessee as part of the financial statements, the net cash flow from operating activities as well as net cash flow from investment activities is negative. The only Positive cash flow in from Financial Activities, wherein the proceeds from short term borrowing are the main source of funding. Also, the assessee during the assessment proceeding has not brought any material on record to prove that the borrowed/interest bearing funds were not used for the purpose of making investments. Therefore, by not making a disallowance on the interest part, the assessee has failed to follow the provision of disallowance u/s 14A r.w.r. 8D. It is also to be noted that the disallowance u/s 14A related to interest part in case of A.Y. 2012-13 & A.Y. 2013 14 could not be done only because of the fact that there was no interest expenses claimed by the assessee for those assessment 4.12 In view of the above, I am not satisfied with the computation of the assessee for working out of disallowance u/s. 14A. Though the assessee has agreed that the disallowance has to be worked out for exempt income but they have not followed the disallowance as per section 14A r.w.r. 8D(2) of Income Tax Act, 1961. In view of the above the disallowance made by the assessee is not acceptable and disallowance as per rule 8D is worked as under.\" After citing all the reasons, the AO has clearly specified in Para 4.12 that he is not satisfied. Therefore, the discussion at length by the appellant that the satisfaction has not been recorded is not correct. Therefore, the application of rule 8D in computing the disallowance is correct. This ground of the appellant is, rejected.” a careful perusal of the above reasoning, we find that the Assessing Officer has, in unmistakable terms, recorded his dissatisfaction with the correctness of the assessee’s claim. T Assessing Officer has, inter-alia, noted that the assessee itself shed differing figures of disallowance—first in the return of income and thereafter during the assessment proceedings that the assessee failed to demonstrate that its working was in J.M. Financial and Investment Consultancy Services Pvt. Ltd. 8 ITA No. 5768/MUM/2025 e year have increased from Rs. to Rs.1,67,49,50,606/. As per the Cash Flow Statement filed by assessee as part of the financial statements, the net cash flow from operating activities as well as net cash negative. The only Positive cash flow in from Financial Activities, wherein the proceeds from short term borrowing are the main source of funding. Also, the assessee during the assessment proceeding has not brought any borrowed/interest bearing funds were not used for the purpose of making investments. Therefore, by not making a disallowance on the interest part, the assessee has failed to follow the provision of disallowance u/s t the disallowance u/s 13 & A.Y. 2013- 14 could not be done only because of the fact that there was no interest expenses claimed by the assessee for those assessment t satisfied with the computation of the assessee for working out of disallowance u/s. 14A. Though the assessee has agreed that the disallowance has to be worked out for exempt income but they have not followed the 2) of Income Tax Act, 1961. In view of the above the disallowance made by the assessee is not acceptable and disallowance as per rule 8D is After citing all the reasons, the AO has clearly specified in Para Therefore, the discussion at length by the appellant that the satisfaction has not been recorded is not correct. Therefore, the application of rule 8D in computing the disallowance is correct. This ground of the appellant is, a careful perusal of the above reasoning, we find that the Assessing Officer has, in unmistakable terms, recorded his dissatisfaction with the correctness of the assessee’s claim. The , noted that the assessee itself first in the return of income and thereafter during the assessment proceedings—and that the assessee failed to demonstrate that its working was in Printed from counselvise.com conformity with Rule 8D. The Assessing Officer further recorded that the assessee neither substantiated the basis of allocation of employee cost and administrative expenditure nor gave any explanation regarding the non despite a substantial increase in interest investments during the relevant year. These findings, duly extracted in paragraph 4.12 of the assessment order, constitute a clear and reasoned satisfaction as required under the statute. 6.12 We have examined the assessment order as well as the material placed on record. It is evident that the Assessing Officer specifically called upon the assessee to justify the basis on which only 25% of the commission paid to members of the Investment Committee had been included in the assessee, however, was unable to furnish any cogent explanation. Even before us, when attention was drawn to page 45 of the Paper Book containing the details of the learned counsel could not place any evidence to support the assertion that the concerned employee had devoted 60 days to investment-related activity. The allocation, therefore, was purely ad hoc and devoid of evidentiary foundation. was furnished for restricting the disallowance of commission to 25% or for apportioning general administrative expenditure merely on the basis of salary ratios. In these circumstances, the Assessing J.M. Financial and Investment Consultancy conformity with Rule 8D. The Assessing Officer further recorded he assessee neither substantiated the basis of allocation of employee cost and administrative expenditure nor gave any explanation regarding the non-disallowance of interest expenditure despite a substantial increase in interest-bearing borrowings and stments during the relevant year. These findings, duly extracted in paragraph 4.12 of the assessment order, constitute a clear and reasoned satisfaction as required under the statute. We have examined the assessment order as well as the d on record. It is evident that the Assessing Officer specifically called upon the assessee to justify the basis on which only 25% of the commission paid to members of the Investment ee had been included in the suo-motu disallowance. The owever, was unable to furnish any cogent explanation. Even before us, when attention was drawn to page 45 of the Paper ntaining the details of the suo-motu disallowance, the learned counsel could not place any evidence to support the the concerned employee had devoted 60 days to related activity. The allocation, therefore, was purely ad hoc and devoid of evidentiary foundation. Similarly, no rationale was furnished for restricting the disallowance of commission to 25% or for apportioning general administrative expenditure merely on the basis of salary ratios. In these circumstances, the Assessing J.M. Financial and Investment Consultancy Services Pvt. Ltd. 9 ITA No. 5768/MUM/2025 conformity with Rule 8D. The Assessing Officer further recorded he assessee neither substantiated the basis of allocation of employee cost and administrative expenditure nor gave any disallowance of interest expenditure bearing borrowings and stments during the relevant year. These findings, duly extracted in paragraph 4.12 of the assessment order, constitute a clear and We have examined the assessment order as well as the d on record. It is evident that the Assessing Officer specifically called upon the assessee to justify the basis on which only 25% of the commission paid to members of the Investment disallowance. The owever, was unable to furnish any cogent explanation. Even before us, when attention was drawn to page 45 of the Paper disallowance, the learned counsel could not place any evidence to support the the concerned employee had devoted 60 days to related activity. The allocation, therefore, was purely ad Similarly, no rationale was furnished for restricting the disallowance of commission to 25% or for apportioning general administrative expenditure merely on the basis of salary ratios. In these circumstances, the Assessing Printed from counselvise.com Officer was justified in treating unsatisfactory and in consequently invoking Rule 8D. 6.13 The learned counsel has placed reliance on the judgment of the Hon’ble Bombay High Court in 559), to contend that in the absence of proper sat cannot be applied. We respectfully affirm the legal principle enunciated therein. Nonetheless, the application of that principle necessarily depends upon the facts of each case. Here, satisfaction has in fact been recorded, and recorded w clarified by the Hon’ble Delhi High Court in Pvt. Ltd. v. Dy. CIT Officer undertakes a detailed analysis and follows the statutory procedure in computing the disallowan express recital of dissatisfaction cannot vitiate the disallowance, if such dissatisfaction is otherwise evident from the assessment order itself. 6.14 Having regard to the totality of the circumstances, we find no error in the order of the learned CIT(A) in holding that the Assessing Officer had duly recorded his dissatisfaction for the purposes of section 14A and was justified in invoking Rule 8D. Ground No. 1 raised by the assessee stands dismissed. 7. In Ground No. 2 dividend warrants were received by way of physical cheques and the J.M. Financial and Investment Consultancy Officer was justified in treating the assessee’s working as unsatisfactory and in consequently invoking Rule 8D. The learned counsel has placed reliance on the judgment of the Hon’ble Bombay High Court in Tata Chemicals Ltd. to contend that in the absence of proper satisfaction Rule 8D cannot be applied. We respectfully affirm the legal principle enunciated therein. Nonetheless, the application of that principle necessarily depends upon the facts of each case. Here, satisfaction has in fact been recorded, and recorded with reasons. Moreover, as clarified by the Hon’ble Delhi High Court in Indiabulls Investment T [2017] 395 ITR 242, where the Assessing Officer undertakes a detailed analysis and follows the statutory procedure in computing the disallowance, the mere absence of an express recital of dissatisfaction cannot vitiate the disallowance, if such dissatisfaction is otherwise evident from the assessment order Having regard to the totality of the circumstances, we find no rder of the learned CIT(A) in holding that the Assessing Officer had duly recorded his dissatisfaction for the purposes of section 14A and was justified in invoking Rule 8D. Ground No. 1 raised by the assessee stands dismissed. . 2, the assessee contends that, since only three dividend warrants were received by way of physical cheques and the J.M. Financial and Investment Consultancy Services Pvt. Ltd. 10 ITA No. 5768/MUM/2025 the assessee’s working as unsatisfactory and in consequently invoking Rule 8D. The learned counsel has placed reliance on the judgment of Tata Chemicals Ltd. (475 ITR isfaction Rule 8D cannot be applied. We respectfully affirm the legal principle enunciated therein. Nonetheless, the application of that principle necessarily depends upon the facts of each case. Here, satisfaction ith reasons. Moreover, as Indiabulls Investment where the Assessing Officer undertakes a detailed analysis and follows the statutory ce, the mere absence of an express recital of dissatisfaction cannot vitiate the disallowance, if such dissatisfaction is otherwise evident from the assessment order Having regard to the totality of the circumstances, we find no rder of the learned CIT(A) in holding that the Assessing Officer had duly recorded his dissatisfaction for the purposes of section 14A and was justified in invoking Rule 8D. Accordingly, Ground No. 1 raised by the assessee stands dismissed. , the assessee contends that, since only three dividend warrants were received by way of physical cheques and the Printed from counselvise.com balance dividend income stood directly credited to the bank account, no further disallowance was warranted. 7.1 Having regard to our findin 1, and in view of the fact that the Assessing Officer has already invoked Rule 8D for the purpose of computing the disallowance under section 14A, we are of the considered view that the assessee’s present contention does no Rule 8D has been validly applied, the quantum of disallowance is to be determined strictly in accordance with the statutory mechanism, and the nature or mode of receipt of dividend or by direct credit—does not, in law, obviate the applicability of Rule 8D. Accordingly, this ground raised by the assessee is devoid of merit and is dismissed. 8. In Ground No. 3 merely urged that the decisions of the Hon’ble Su the Jurisdictional High Court be duly considered. We note that the legal principles emanating from the said authorities have already been taken into account and applied by us while adjudicating Ground No. 1 of the appeal. survives for adjudication under this ground. No. 3 stands dismissed. J.M. Financial and Investment Consultancy balance dividend income stood directly credited to the bank account, no further disallowance was warranted. Having regard to our findings while adjudicating Ground No. 1, and in view of the fact that the Assessing Officer has already invoked Rule 8D for the purpose of computing the disallowance under section 14A, we are of the considered view that the assessee’s present contention does not survive for separate adjudication. Once Rule 8D has been validly applied, the quantum of disallowance is to be determined strictly in accordance with the statutory mechanism, and the nature or mode of receipt of dividend—whether by cheque does not, in law, obviate the applicability of Rule Accordingly, this ground raised by the assessee is devoid of merit and is dismissed. Ground No. 3, the learned counsel for the assessee has merely urged that the decisions of the Hon’ble Supreme Court and the Jurisdictional High Court be duly considered. We note that the legal principles emanating from the said authorities have already been taken into account and applied by us while adjudicating Ground No. 1 of the appeal. In view thereof, no separate issue survives for adjudication under this ground. Accordingly, Ground No. 3 stands dismissed. J.M. Financial and Investment Consultancy Services Pvt. Ltd. 11 ITA No. 5768/MUM/2025 balance dividend income stood directly credited to the bank gs while adjudicating Ground No. 1, and in view of the fact that the Assessing Officer has already invoked Rule 8D for the purpose of computing the disallowance under section 14A, we are of the considered view that the assessee’s t survive for separate adjudication. Once Rule 8D has been validly applied, the quantum of disallowance is to be determined strictly in accordance with the statutory mechanism, whether by cheque does not, in law, obviate the applicability of Rule Accordingly, this ground raised by the assessee is devoid of , the learned counsel for the assessee has preme Court and the Jurisdictional High Court be duly considered. We note that the legal principles emanating from the said authorities have already been taken into account and applied by us while adjudicating In view thereof, no separate issue Accordingly, Ground Printed from counselvise.com 9. In Ground Nos. 4 and 5 disallowance of interest amounting to under Rule 8D(2)(ii) of the Income 9.1 Before the learned CIT(A), the assessee contended that it possessed sufficient own funds for making investments and, therefore, no part of the interest expenditure could be said to be attributable to earning exempt inco reserves and surplus reflected in the balance sheet. The learned CIT(A), however, undertook a detailed examination of the cash flow statement for the relevant year and found that the assessee’s contention was inconsistent wit therein. It was noted that the net cash flow from both operating and investing activities was negative, and that the only significant positive cash flow arose from short ₹11 crores—borrowings investment portfolio during the year. CIT(A) is reproduced as under: “Ground D relates to the interest disallowance amount at Rs.64,42,764/ The appellant states that he had not utilized the monies borrowed during the previous year for earning exempt income. Hence, no interest could be attributed towards the earning of exempt dividend income. The ground raised by the appellant is seen vis a vis the fact already noted in the assessment order. The borrowing over and above the capital and free reserves has been used for earning exempt income becomes apparent from the peculiar facts of this case. This year is the first year in which the appella 11 crores and incurred interest expenditure on these J.M. Financial and Investment Consultancy Ground Nos. 4 and 5, the assessee has challenged the disallowance of interest amounting to ₹64,42,764/ (2)(ii) of the Income-tax Rules. Before the learned CIT(A), the assessee contended that it possessed sufficient own funds for making investments and, therefore, no part of the interest expenditure could be said to be attributable to earning exempt income. Reliance was placed on the reserves and surplus reflected in the balance sheet. The learned CIT(A), however, undertook a detailed examination of the cash flow statement for the relevant year and found that the assessee’s contention was inconsistent with the financial realities disclosed therein. It was noted that the net cash flow from both operating and investing activities was negative, and that the only significant positive cash flow arose from short-term borrowings amounting to borrowings which coincided with an increase in the investment portfolio during the year. The relevant finding of the Ld. CIT(A) is reproduced as under: Ground D relates to the interest disallowance amount at Rs.64,42,764/- u/s, 14A read with Rule 8D of Income- The appellant states that he had not utilized the monies borrowed during the previous year for earning exempt income. Hence, no interest could be attributed towards the earning of exempt dividend income. The ground raised by the appellant is a vis the fact already noted in the assessment order. The borrowing over and above the capital and free reserves has been used for earning exempt income becomes apparent from the peculiar facts of this case. This year is the first year in which the appellant has raised short term borrowing of Rs 11 crores and incurred interest expenditure on these J.M. Financial and Investment Consultancy Services Pvt. Ltd. 12 ITA No. 5768/MUM/2025 , the assessee has challenged the 64,42,764/– computed Before the learned CIT(A), the assessee contended that it possessed sufficient own funds for making investments and, therefore, no part of the interest expenditure could be said to be me. Reliance was placed on the reserves and surplus reflected in the balance sheet. The learned CIT(A), however, undertook a detailed examination of the cash flow statement for the relevant year and found that the assessee’s h the financial realities disclosed therein. It was noted that the net cash flow from both operating and investing activities was negative, and that the only significant term borrowings amounting to which coincided with an increase in the The relevant finding of the Ld. Ground D relates to the interest disallowance amount at -tax, Act. The appellant states that he had not utilized the monies borrowed during the previous year for earning exempt income. Hence, no interest could be attributed towards the earning of exempt dividend income. The ground raised by the appellant is a vis the fact already noted in the assessment order. The borrowing over and above the capital and free reserves has been used for earning exempt income becomes apparent from the peculiar facts of this case. This year is the first year nt has raised short term borrowing of Rs 11 crores and incurred interest expenditure on these Printed from counselvise.com borrowing. The investments during the year have increased from Rs.1,48,88,94,216/ Cash Flow Statement filed by assessee as part statements, the net cash flow from operating activities as well as net cash flow from investment activities is negative. The only Positive cash flow in from Financial activities, wherein the proceeds from short funding. Also, the assessee during the assessment proceeding or appellate proceedings has not brought any material on record to prove that these borrowed/interest bearing funds were not used for the purpose of making investments. The appellant has relied on case been considered for the purpose of disallowance. The facts of each case is different and the ratio cannot be universally applied. The appellant has also relied on PCIT vs Nirma credit and capital (p)ltd .The f needs to be seen: Appellant Nirma Credit and capital (p) Ltd. The above income analysis clearly reveals that major portion of interest expense in case of PCIT vs Nirma credit and capital (p)ltd was for earning interest income from ICD and other investments which emphasizes even more on the fact that given the appellant's case rule 8D resorted by the AO is correct. Therefore, it is clear t expenditure, but failed to establish that the funds used for exempt investments were entirely interest no further disallowance was warranted is not acceptable. This ground of appeal is, therefore, rej 9.2 The relevant observations of the learned CIT(A), extracted above, make it abundantly clear that the assessee failed to substantiate its assertion that borrowed funds were not deployed towards investments yielding exempt income. The CIT(A) also rightly J.M. Financial and Investment Consultancy borrowing. The investments during the year have increased from Rs.1,48,88,94,216/- to Rs.1,67,49,50,606/. As per the Cash Flow Statement filed by assessee as part of the financial statements, the net cash flow from operating activities as well as net cash flow from investment activities is negative. The only Positive cash flow in from Financial activities, wherein the proceeds from short -term borrowing are the main source of funding. Also, the assessee during the assessment proceeding or appellate proceedings has not brought any material on record to prove that these borrowed/interest bearing funds were not used for the purpose of making investments. The has relied on case laws where net interest has been considered for the purpose of disallowance. The facts of each case is different and the ratio cannot be universally applied. The appellant has also relied on PCIT vs Nirma credit and capital (p)ltd .The fact of this case vis a vis appellant needs to be seen: Dividend income Interest income 25.90 crores 81.19 lacs Nirma Credit and capital 25.26 6.83 crores The above income analysis clearly reveals that major portion expense in case of PCIT vs Nirma credit and capital (p)ltd was for earning interest income from ICD and other investments which emphasizes even more on the fact that given the appellant's case rule 8D resorted by the AO is Therefore, it is clear that the assessee incurred interest expenditure, but failed to establish that the funds used for exempt investments were entirely interest-free. The claim that no further disallowance was warranted is not acceptable. This ground of appeal is, therefore, rejected.” The relevant observations of the learned CIT(A), extracted above, make it abundantly clear that the assessee failed to substantiate its assertion that borrowed funds were not deployed towards investments yielding exempt income. The CIT(A) also rightly J.M. Financial and Investment Consultancy Services Pvt. Ltd. 13 ITA No. 5768/MUM/2025 borrowing. The investments during the year have increased to Rs.1,67,49,50,606/. As per the of the financial statements, the net cash flow from operating activities as well as net cash flow from investment activities is negative. The only Positive cash flow in from Financial activities, wherein the n source of funding. Also, the assessee during the assessment proceeding or appellate proceedings has not brought any material on record to prove that these borrowed/interest bearing funds were not used for the purpose of making investments. The interest has been considered for the purpose of disallowance. The facts of each case is different and the ratio cannot be universally applied. The appellant has also relied on PCIT vs Nirma credit act of this case vis a vis appellant Interest 81.19 lacs 6.83 crores The above income analysis clearly reveals that major portion expense in case of PCIT vs Nirma credit and capital (p)ltd was for earning interest income from ICD and other investments which emphasizes even more on the fact that given the appellant's case rule 8D resorted by the AO is hat the assessee incurred interest expenditure, but failed to establish that the funds used for free. The claim that no further disallowance was warranted is not acceptable. This The relevant observations of the learned CIT(A), extracted above, make it abundantly clear that the assessee failed to substantiate its assertion that borrowed funds were not deployed towards investments yielding exempt income. The CIT(A) also rightly Printed from counselvise.com distinguished the case law relied upon by the assessee, including PCIT v. Nirma Credit and Capital (P) Ltd. factual matrix of that case was materially different, particularly in the context of interest concluded that the assessee had incurred interest expenditure and had not demonstrated that exempt investments were financed solely out of interest-free funds. The claim for exclusion of such interest was, therefore, rejected. 9.3 We have independently examined the matter. During the course of hearing, attention of the learned counsel was invited to page 32 of the Paper Book, being the cash flow statement for the year. As rightly observed by the CIT(A), the statement reflects an absence of operational or investment conclusively shows that the only source of fresh funds was the short-term borrowing of the sources of funds utilised for the increase in investments dur the year, the learned counsel was unable to offer any cogent explanation or to place any material on record to contradict the findings of the CIT(A). the clear factual findings recorded by the CIT(A), we fin infirmity in the conclusion that the interest component was liable to be considered under Rule 8D(2)(ii). The statutory presumption applicable in such cases remains unrebutted, and the assessee has not discharged the onus cast upon it to establish tha J.M. Financial and Investment Consultancy inguished the case law relied upon by the assessee, including PCIT v. Nirma Credit and Capital (P) Ltd., pointing out that the factual matrix of that case was materially different, particularly in the context of interest-earning activities. The learned CIT concluded that the assessee had incurred interest expenditure and had not demonstrated that exempt investments were financed solely free funds. The claim for exclusion of such interest was, therefore, rejected. We have independently examined the matter. During the course of hearing, attention of the learned counsel was invited to page 32 of the Paper Book, being the cash flow statement for the year. As rightly observed by the CIT(A), the statement reflects an ence of operational or investment-related cash inflows, and conclusively shows that the only source of fresh funds was the term borrowing of ₹11 crores. When specifically queried about the sources of funds utilised for the increase in investments dur the year, the learned counsel was unable to offer any cogent explanation or to place any material on record to contradict the findings of the CIT(A). In these circumstances, and having regard to the clear factual findings recorded by the CIT(A), we fin infirmity in the conclusion that the interest component was liable to be considered under Rule 8D(2)(ii). The statutory presumption applicable in such cases remains unrebutted, and the assessee has not discharged the onus cast upon it to establish tha J.M. Financial and Investment Consultancy Services Pvt. Ltd. 14 ITA No. 5768/MUM/2025 inguished the case law relied upon by the assessee, including , pointing out that the factual matrix of that case was materially different, particularly in earning activities. The learned CIT(A) thus concluded that the assessee had incurred interest expenditure and had not demonstrated that exempt investments were financed solely free funds. The claim for exclusion of such interest We have independently examined the matter. During the course of hearing, attention of the learned counsel was invited to page 32 of the Paper Book, being the cash flow statement for the year. As rightly observed by the CIT(A), the statement reflects an related cash inflows, and conclusively shows that the only source of fresh funds was the 11 crores. When specifically queried about the sources of funds utilised for the increase in investments during the year, the learned counsel was unable to offer any cogent explanation or to place any material on record to contradict the In these circumstances, and having regard to the clear factual findings recorded by the CIT(A), we find no infirmity in the conclusion that the interest component was liable to be considered under Rule 8D(2)(ii). The statutory presumption applicable in such cases remains unrebutted, and the assessee has not discharged the onus cast upon it to establish that interest- Printed from counselvise.com bearing funds were not utilised for making exempt investments. Accordingly, Ground Nos. 4 and 5 raised by the assessee are devoid of merit and are hereby dismissed. 10. Ground No. 6 disallowance of interest ought to be made, as the interest income earned during the year exceeded the interest expenditure incurred. The plea, in essence, is that only the net interest should be considered for the purposes of section 14A of the Act. 10.1 We are unable to a under section 14A read with Rule 8D is attracted by reason of the use of interest-bearing funds for making investments exempt income. The statutory scheme does not permit the netting of interest income against interest expenditure for determining the quantum of disallowance. Interest income constitutes a separate and distinct taxable receipt; conversely, interest expenditure incurred for purposes of earning exempt income falls within the mischief of section 14A. The two are not interdependent so as to warrant an adjustment or set assessee. 10.2 In these circumstances, the argument advanced by the assessee is contrary to the settled legal position and must necessarily fail. Accordingly, Ground No. 6 of the appeal is dismissed. J.M. Financial and Investment Consultancy bearing funds were not utilised for making exempt investments. Accordingly, Ground Nos. 4 and 5 raised by the assessee are devoid of merit and are hereby dismissed. pertains to the assessee’s contention that no nterest ought to be made, as the interest income earned during the year exceeded the interest expenditure incurred. The plea, in essence, is that only the net interest should be considered for the purposes of section 14A of the Act. We are unable to accept this contention. The disallowance under section 14A read with Rule 8D is attracted by reason of the bearing funds for making investments exempt income. The statutory scheme does not permit the netting of ainst interest expenditure for determining the quantum of disallowance. Interest income constitutes a separate and distinct taxable receipt; conversely, interest expenditure incurred for purposes of earning exempt income falls within the n 14A. The two are not interdependent so as to warrant an adjustment or set-off in the manner canvassed by the In these circumstances, the argument advanced by the assessee is contrary to the settled legal position and must Accordingly, Ground No. 6 of the appeal is J.M. Financial and Investment Consultancy Services Pvt. Ltd. 15 ITA No. 5768/MUM/2025 bearing funds were not utilised for making exempt investments. Accordingly, Ground Nos. 4 and 5 raised by the assessee are pertains to the assessee’s contention that no nterest ought to be made, as the interest income earned during the year exceeded the interest expenditure incurred. The plea, in essence, is that only the net interest should be considered for the purposes of section 14A of the Act. ccept this contention. The disallowance under section 14A read with Rule 8D is attracted by reason of the bearing funds for making investments which yield exempt income. The statutory scheme does not permit the netting of ainst interest expenditure for determining the quantum of disallowance. Interest income constitutes a separate and distinct taxable receipt; conversely, interest expenditure incurred for purposes of earning exempt income falls within the n 14A. The two are not interdependent so as to off in the manner canvassed by the In these circumstances, the argument advanced by the assessee is contrary to the settled legal position and must Accordingly, Ground No. 6 of the appeal is Printed from counselvise.com 11. pertains to the submission of the learned counsel for the assessee that, while computing the disallowance under Rule 8D, only the average value of those investments which have actually yielded dividend income ought to be considered. Reliance has been placed on the decision of the Special Bench of the Tribunal in Vireet Investment Pvt. Ltd. 11.1 We have carefully considered the rival submissions. It is evident that the Assessin take into account the binding ratio laid down by the Co Special Bench in Vireet Investment Pvt. Ltd. governs the method of computing the disallowance under Rule 8D(2)(ii) and 8D(2)(iii). 11.2 In the interests of justice, and to ensure a computation in accordance with law as expounded by the Special Bench, we deem it appropriate to restore this issue to the file of the learned Assessing Officer. The Assessing Officer shall recompute the disallowance under Rule 8D(2)(ii) and Rule 8D(2)(iii) afresh, strictly in conformity with the principles laid down in Ltd. (supra), after affording due opportunity to the assessee. ground is allowed for statistical purposes. J.M. Financial and Investment Consultancy pertains to the submission of the learned counsel for the assessee that, while computing the disallowance under Rule 8D, only the average value of those investments which have actually dend income ought to be considered. Reliance has been placed on the decision of the Special Bench of the Tribunal in Vireet Investment Pvt. Ltd., ITA No. 502/Del/2012. We have carefully considered the rival submissions. It is evident that the Assessing Officer, while applying Rule 8D, did not take into account the binding ratio laid down by the Co Vireet Investment Pvt. Ltd. (supra), which squarely governs the method of computing the disallowance under Rule 8D(2)(ii) and 8D(2)(iii). In the interests of justice, and to ensure a computation in accordance with law as expounded by the Special Bench, we deem restore this issue to the file of the learned Assessing Officer. The Assessing Officer shall recompute the disallowance under Rule 8D(2)(ii) and Rule 8D(2)(iii) afresh, strictly in conformity with the principles laid down in Vireet Investment Pvt. upra), after affording due opportunity to the assessee. ground is allowed for statistical purposes. J.M. Financial and Investment Consultancy Services Pvt. Ltd. 16 ITA No. 5768/MUM/2025 pertains to the submission of the learned counsel for the assessee that, while computing the disallowance under Rule 8D, only the average value of those investments which have actually dend income ought to be considered. Reliance has been placed on the decision of the Special Bench of the Tribunal in ITA No. 502/Del/2012. We have carefully considered the rival submissions. It is g Officer, while applying Rule 8D, did not take into account the binding ratio laid down by the Co-ordinate (supra), which squarely governs the method of computing the disallowance under Rule In the interests of justice, and to ensure a computation in accordance with law as expounded by the Special Bench, we deem restore this issue to the file of the learned Assessing Officer. The Assessing Officer shall recompute the disallowance under Rule 8D(2)(ii) and Rule 8D(2)(iii) afresh, strictly Vireet Investment Pvt. upra), after affording due opportunity to the assessee. The Printed from counselvise.com 12. In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open Court o Sd/- (SANDEEP GOSAIN JUDICIAL MEMBER Mumbai; Dated: 17/11/2025 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// J.M. Financial and Investment Consultancy In the result, the appeal of the assessee is partly allowed for ounced in the open Court on 17/11/2025. EEP GOSAIN) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai J.M. Financial and Investment Consultancy Services Pvt. Ltd. 17 ITA No. 5768/MUM/2025 In the result, the appeal of the assessee is partly allowed for /11/2025. Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER BY ORDER, (Assistant Registrar) ITAT, Mumbai Printed from counselvise.com "