PODAR EDUCATION NETWORK PRIVATE LIMITED,MUMBAI V. DCIT, CENTRAL CIRCLE - 1(4), MUMBAI, MUMBAI

ITA 3849/MUM/2025

AI Insights

The case involves Podar Education Network Private Limited appealing against an order by the Commissioner of Income Tax (Appeals) which upheld a disallowance made by the Assessing Officer under section 14A read with Rule 8D of the Income-tax Rules, 1962. The disallowance was in addition to a suomoto disallowance already made by the assessee. The primary contention was whether the Assessing Officer was justified in making an additional disallowance without recording any dissatisfaction with the assessee's computation of the disallowance, which was methodically worked out based on monthly averages of investment in equity shares. The Tribunal criticized the mechanical application of Rule 8D by the Assessing Officer and the reliance on an inapplicable CBDT Circular, leading to the decision to allow the appeal and delete the additional disallowance.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 712736 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2020-2021
• Other Referred Cases: PCIT vs. State Bank of Patiala
• Laws Referred To: Income-tax Act, 1961, Income-tax Rules, 1962
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIRABHADRA S MAHAJAN
• Assessee Lawyers: RAVI GANATRA
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, ‘C’ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER & SMT RENU JAUHRI, ACCOUNTANT MEMBER ITA No. 3849/Mum/2025 (Assessment Year :2020-2021) Podar Education Network Private Limited 85, Podar Centre Dr. Ambedkar Road Chamarbaug S.O., Mumbai-400012 Vs. DCIT, Central Circle- 1(4), Mumbai PAN/GIR No.AACCP2130K (Appellant) .. (Respondent) Assessee by Shri Ravi Ganatra Revenue by Shri Virabhadra S Mahajan Date of Hearing 24/07/2025 Date of Pronouncement 29/07/2025 आदेश / O R D E R PER AMIT SHUKLA (J.M): This appeal has been preferred by the assessee against the order dated 25/03/2025 passed by the learned Commissioner of Income Tax (Appeals)–47, Mumbai [“ld. CIT(A)”], under section 250 of the Income-tax Act, 1961, in relation to the assessment order passed under section 143(3) for the assessment year 2020–21. Printed from counselvise.com ITA No.3849/Mum/2025 Podar Education Network Private Limited 2 2. The solitary issue for adjudication pertains to the disallowance of Rs.1,55,056 made under section 14A read with Rule 8D of the Income-tax Rules, 1962, in addition to the suomoto disallowance of Rs.1,96,644 already offered by the assessee. 3. The brief facts of the case are that the assessee had declared exempt income of Rs.3,51,700 from dividend income in its return of income and had, on its own volition, made a disallowance of Rs.1,96,644 under section 14A, computed in accordance with Rule 8D. The Assessing Officer, without recording any cogent satisfaction under section 14A(2) as to the incorrectness of the assessee’s computation having regard to its accounts, proceeded to invoke Rule 8D afresh, computing a disallowance equivalent to the entire exempt income of Rs.3,51,700. This was done with a mechanical reference to CBDT Circular No. 5/2014 dated 11/02/2014, which is inapplicable in the present case since the assessee has not only earned exempt income but also offered a justifiable suomoto disallowance. 4. On a close scrutiny of the record, including the computation submitted by the assessee vide letter dated 24/03/2022, it is evident that the assessee’s disallowance was based on a methodical working of monthly averages of investment in equity shares, conforming to the mechanism prescribed in Rule 8D. The working, as placed at page 78 of the paper book, is reproduced below for clarity and completeness: Printed from counselvise.com ITA No.3849/Mum/2025 Podar Education Network Private Limited 3 Monthly Average of Investment Opening Balance April 2019-Rs.148277680.49 Month Opening Closing Average Apr- 19 148277600.49 121860825.94 135069253.22 May- 19 121860825.94 121860825.94 121860825.94 Jul- 19 121860825.94 132373107.69 127116966.82 Aug- 19 132373107.69 132373107.69 132373107.69 Sep- 19 132373107.69 132373107.69 132373107.69 Oct- 19 119617796.44 128595501.59 124106649.02 Nov- 19 128595501.59 128595501.59 128595501.59 Dec- 19 128595501.59 128595501.59 128595501.59 Jan- 19 128595501.59 128595501.59 128595501.59 Feb- 19 128595501.59 128595501.59 128595501.59 Mar- 19 28595501.59 136930139.64 132762820.62 1,53,55,27,907.66 Printed from counselvise.com ITA No.3849/Mum/2025 Podar Education Network Private Limited 4 Annual Average of the above monthly averages 1535527907.655/12 Loan Borrowed NIL Amount of exempt income earned during the year is Rs.3,51,700/- 1279606.59* Total disallowance under section 14A read with Rule 8D (already disallowance in computation) 1,96,644/- Further disallowance required under section 14A 1,55,056/- 5. A perusal of the assessment order reveals that the Assessing Officer has not expressed any dissatisfaction with the assessee’s working or computation. In fact, the Assessing Officer has adopted the same figure of average investment and merely taken the exempt income as the ceiling for disallowance without justification. The invocation of Rule 8D is thus devoid of jurisdiction in the absence of the mandatory recording of satisfaction as required under section 14A(2). Furthermore, the reliance placed by the Assessing Officer on the decision of the Hon’ble Supreme Court in PCIT vs. State Bank of Patiala is entirely misplaced, as that ruling does not endorse a blanket substitution of the assessee’s Rule 8D computation with the amount of exempt income. The ld. CIT(A), in upholding this approach, has regrettably relied upon precedents that bear no relevance to the issue at hand. Printed from counselvise.com ITA No.3849/Mum/2025 Podar Education Network Private Limited 5 6. In light of the foregoing discussion, and having regard to the settled legal position that disallowance under section 14A cannot be enhanced arbitrarily without recording cogent satisfaction and without rejecting the assessee’s computation, we find no merit in the impugned disallowance of Rs.1,55,056. The same is accordingly directed to be deleted. 7. In the result, appeal of the assessee is allowed. Order pronounced on 29th July,2025. Sd/- (RENU JAUHRI) Sd/- (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 29/07/2025 KARUNA, sr.ps Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// Printed from counselvise.com "