KEI INDUSTRIES LTD,DELHI V. ACIT , CIRCLE-14(2), DELHI

ITA 1668/DEL/2025

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The case involves KEI Industries Ltd appealing against the order of the National Faceless Appeal Centre (NFAC), which upheld the disallowance of expenses under section 14A of the Income Tax Act as computed by the Assessing Officer. The primary contention was the application of Rule 8D(2) in computing disallowances related to expenses incurred in earning exempt income, which the Assessee had initially computed as Rs 25,61,188. The Tribunal's decision referenced the Special Bench's ruling in Vireet Investments, which clarified that such computation should not be applied to the book profit calculations under section 115JB. The Tribunal directed that the disallowance should not exceed the exempt income, leading to a reduction in the disallowance amount to Rs 3,90,326 for both normal provisions and book profit calculations under section 115JB.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 772707 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Assessment Year: 2014-2015
• Other Referred Cases: Vireet Investments vs. ITO, Joint Investments vs. CIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANISH GUPTA
• Assessee Lawyers: GARGI SETHI
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 10; 14A; 115JB

Judgement Text

"Page | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “G”: NEW DELHI BEFORE SHRI C. N. PRASAD, JUDICIAL MEMBER AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA No. 1668/Del/2025 (Assessment Year: 2014-15) KEI Industries Ltd, D-90, Okhla Industrial Area, Phase-1, New Delhi Vs. Asst. CIT, Circle-14(2), Delhi (Appellant) (Respondent) PAN: AAACK0251C Assessee by : Ms. Gargi Sethi, Adv Shri A. T. Panda, Adv Revenue by: Shri Manish Gupta, Sr. DR Date of Hearing 26/08/2025 Date of pronouncement 29/08/2025 O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in ITA No.1668/Del/2025 for AY 2014-15, arises out of the order of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. NFAC’, in short] in Appeal No. ITBA/NFAC/S/250/2024- 25/1072430406(1) dated 22.01.2025 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 22.12.2016 by the Assessing Officer, ITO, Circle-14(2), Delhi (hereinafter referred to as ‘ld. AO’). 2. The only issue to be decided in this appeal is challenging the disallowance of expenses made under section 14A of the Act. 3. We have heard the rival submissions and perused the materials available on record. It is not in dispute that Assessee earned dividend income of Rs 3,90,326/- and claimed the same as exempt under section 10 of the Act in the Printed from counselvise.com ITA No. 1668/Del/2025 KEI Industries Ltd Page | 2 return of income. Further, it is not in dispute that Assessee had made suo moto disallowance of expenses of Rs 25,61,188/- as expenditure incurred for the purpose of earning exempt income by applying the computation mechanism provided in Rule 8D(2) of the Income Tax Rules. This was accepted by the Learned AO while computing income under normal provisions of the Act. However, no disallowance was made by the Assessee in the computation of book profits under section 115JB of the Act vide clause (f) of Explanation 1 thereon. Accordingly, the learned AO proceeded to adopt the same disallowance figure of Rs 25,61,188/- being suo moto disallowed by the Assessee under normal provisions of the Act to be the amount that is to be added back in terms of clause (f) of Explanation 1 to section 115JB(2) of the Act while computing the book profits. This action of the learned AO was upheld by the learned CIT(A). 4. We find that the Special Bench of Delhi tribunal in the case of Vireet Investments reported in 165 ITD 27 (Del) (SB) had already held that the computation mechanism provided in Rule 8D(2) of the Income Tax Rules cannot be imputed in clause (f) of Explanation 1 to section 115JB(2) of the Act while computing book profits. Hence, no disallowance of expense incurred for earning exempt income could be made by adopting the computation mechanism under Rule 8D(2) of the Rules. However, it is not in dispute that the Assessee in the present case had computed the suo moto disallowance of Rs 25,61,188/- by applying the computation mechanism provided in Rule 8D(2) of the Rules. But, in any case, the disallowance made under section 14A of the Act cannot exceed exempt income. In this regard, reliance has been rightly placed by the learned AR on the decision of Hon’ble Jurisdictional High Court in the case of Joint Investments reported in 372 ITR 694 (Del) wherein it was categorically held that disallowance of expense cannot exceed the exempt income. Accordingly, we direct the learned AO to restrict the disallowance of expenses under section 14A of the Act only to the extent of dividend income of Rs 3,90,326/- and delete the remaining amounts while computing income under normal provisions of the Act. Printed from counselvise.com ITA No. 1668/Del/2025 KEI Industries Ltd Page | 3 5. With regard to computation of book profits under section 115JB of the Act, the disallowance of expense should be restricted only to the extent of exempt income and accordingly we direct the learned AO to adopt the disallowance figure of Rs 3,90,326/- in terms of clause f of Explanation 1 to section 115JB(2) of the Act while computing book profits. Accordingly, the grounds raised by the Assessee are partly allowed. 6. In the result, the appeal of the Assessee is partly allowed. Order pronounced in the open court on 29/08/2025. -Sd/- -Sd/- (C. N. PRASAD) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 29/08/2025 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi Printed from counselvise.com "