Case summary, Income Tax

ITAT Mumbai Decides: Can Value of Strategic Investments be considered while computing the amount of disallowance under Section 14A?

Case: Aryadoot Transport(P) Ltd. v. DCIT


  1. Whether CIT(A) erred in confirming the disallowance of INR 7.15 Lakhs by the AO?
  2. Whether the value of strategic investments should be taken into account while computing disallowance amount under Section 14A?


  • The assessee carried out the business of providing truck trailers.
  • He was assessed for the year, 2015-16, wherein INR 7.15 Lakhs were disallowed by the AO and added back to his income.

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Forum: Mumbai ITAT


Applicable Section: Section 14A

Cases relied on:

  • The disallowance was based on the ground that the assessee earned exempt dividend income of INR 43.21 Lakhs and another exempt income of INR 4.80 Lakhs. The assessee had also offered suo-moto disallowance of INR 0.10 Lakhs in his income on the basis of the exempt income earned.
  • Post-adjustment, the AO arrived at the figure of INR 7.15 Lakhs for purposes of disallowance and added the same back to the assessee’s income.
  • Assesse appealed before the CIT(A) which confirmed the AO’s order.
  • Hence, this appeal before the Mumbai ITAT was filed.

Revenue’s Arguments

  • The assessee earned exempt dividend income from profit-sharing in a partnership firm and same need to be disallowed under Section 14A, read with Rule 8D.
  • An aggregate disallowance of INR 7.25 Lakhs was computed which comprised of INR 7.21 Lakhs for expense disallowance and INR 0.04 Lakhs for interest disallowance. After adjusting the suo-moto disallowance made by the assessee, a sum of INR 7.15 Lakhs was arrived at, as the net disallowance.

Assessee’s Arguments

  • The assessee drew the tribunal’s attention to financial statements and argued that those investments which did not yield any exempt dividend income should be excluded from the purview of Section 14A. The assessee relied upon the decision of Delhi ITAT, in ACIT v. Vireet Investment (P) Ltd.
  • The assessee further argued that investment made in the partnership firm should be excluded based on the decision rendered by Mumbai ITAT in Hitesh D. Gajaria v. ACIT. The Mumbai ITAT in the cited decision had held that the share of income from the firm was not exempt in the absolute sense. It was only to avoid double taxation, once in the hands of the firm and thereafter in the hands of the partners and hence Section 14A will not be applicable.  

Tribunal’s Judgement

  • As the Revenue was not able to successfully rebut the decisions cited by the assessee, the Tribunal held in the favour of the assessee.
  • The Tribunal directed the AO to re-compute the disallowance u/s 14A after excluding those investments which did not yield any exempt income during the year and also after excluding the investments which the assessee had made in the partnership firm.

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