New Great Eastern Spinning And Weaving Company Limited Vs DCIT (ITAT Mumbai)
14A Isn’t a Guessing Game — Mechanical Rule 8D Invocation Axed Despite Large Investment Portfolio
Mumbai ITAT allowed the appeal of The New Great Eastern Spinning & Weaving Co. Ltd. for AY 2018-19 and deleted a massive disallowance of ₹1.18 crore made u/s 14A r/w Rule 8D over and above the assessee’s suo motu disallowance of ₹17.79 lakh.
The Tribunal held that section 14A is governed by the principle of proximate cause, not presumptions. Where the assessee had identified & disallowed direct investment-related expenses (PMS fees, demat/DP charges, bank charges) and had also offered a reasoned attribution of limited employee/advisory time-costs, the AO could not mechanically invoke Rule 8D without first recording a clear dissatisfaction “having regard to the accounts”.
ITAT rejected the AO’s and NFAC’s approach of assuming that a large investment portfolio automatically entails significant administrative expenditure. Such theoretical assumptions, unbacked by identification of specific expenditure from the P&L, were held to reverse the statutory burden under section 14A. The Tribunal emphasised that Rule 8D is a machinery provision, not a default switch, and cannot be triggered merely because investments exist or exempt income is earned.
Since the Revenue failed to demonstrate any actual expenditure with a live nexus to exempt income beyond what was already disallowed by the assessee, the additional disallowance was held unsustainable and deleted in full. Assessee’s appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal has been preferred by the assessee against the order dated 22/07/2025 passed by the National Faceless Appeal Centre, Delhi, pertaining to the assessment framed u/s 143(3) for A.Y. 2018-19.
