Case Law Details
ACIT Vs Bajaj Resources Pvt. Ltd. (ITAT Agra)
In this case before the Income Tax Appellate Tribunal, the Revenue challenged the order of the Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre dated 30.12.2025 for Assessment Year 2017-18. The dispute related to deletion of disallowance made under Section 14A of the Income Tax Act read with Rule 8D(2) of the Income Tax Rules.
The assessee had filed its return of income on 27.11.2017 declaring income under normal provisions as well as under Section 115JB. During assessment proceedings, the Assessing Officer noticed that the assessee had earned dividend income of Rs. 76,32,40,625 and claimed exemption under Section 10(34) of the Act. No disallowance under Section 14A had been made by the assessee in its return of income.
The Assessing Officer applied the computation mechanism prescribed under Rule 8D(2) and made a disallowance of Rs. 4,72,29,284. The CIT(A) deleted the disallowance on the ground that the Assessing Officer had mechanically applied Rule 8D without recording objective dissatisfaction as required under Section 14A(2) of the Act. The CIT(A) also noted that no expenditure relatable to earning exempt dividend income had been specifically identified. Reliance was placed on the Tribunal’s decision in the assessee’s own case for Assessment Year 2014-15.
The Tribunal observed that, in the earlier assessment year, reliance had also been placed on the Supreme Court judgment in South Indian Bank Ltd. However, the Tribunal agreed with the Revenue that the said decision was not applicable to the present facts because the disallowance related only to indirect expenses and not interest expenditure. Therefore, availability of own funds was not a relevant factor in the present case.
FULL TEXT OF THE ORDER OF ITAT AGRA
1. This appeal is filed by the Revenue against the order of Id. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [“Ld. CIT(A)”, for short] dated 30.12.2025 for the AY 2017-18.
2. None appeared on behalf of the assessee despite issuance of notice. Hence, we proceed to dispose of this appeal on hearing the Learned DR and based on materials available on record.
3. The only issue raised by the revenue is challenging the deletion of disallowance made under Section 14A of the Act read with Rule 8D(2) of the Income Tax Rules.
4. We have heard the learned D.R. and perused the materials available on record. The assessee had filed return of income on 27-11-2017 declaring total income of Rs 5,54,13,490 under normal provisions of the Act and Rs 5,59,12,900 under section 115JB of the Act. In the course of assessment proceedings, it was noticed that assessee had shown dividend income of Rs 76,32,40,625 and exemption under section 10(34) of the Act was claimed for the same. The assessee had not made any disallowance under section 14A of the Act in the return of income. The Learned AO worked out the disallowance by applying the computation mechanism provided in Rule 8D(2) of the Income Tax Rules and disallowed Rs4,72,29,284 in the assessment. The Learned CITA held that the Learned AO had mechanically applied Rule 8D of the Rules without recording objective dissatisfaction as required under Section 14A(2) of the Act and without identifying any expenditure relatable to earning the exempt dividend income. The Learned CITA by placing reliance on the decision of this Tribunal in assessee’s own case for assessment year 2014-15 deleted the disallowance. We find that the Tribunal had also placed reliance on the decision of Hon’ble Supreme Court in the case of South Indian Bank in assessment year 2014-15. We agree with the ground raised by the revenue that the decision of South Indian Bank Ltd would not be applicable to the facts of the instant case as the disallowance is only made for indirect expenses and not for interest. Hence availability of own funds is not a relevant consideration at all as no disallowance of interest has been made. However, it is a fact that the Learned AO had not recorded his objective satisfaction as to why the claim made by the assessee that no expenses were incurred for earning exempt income is incorrect. This is the mandate provided in section 14A(2) of the Act. We find that the Hon’ble Supreme Court in the case of Maxopp Investments reported in 402 ITR 640(SC) had categorically held that the recording of dissatisfaction with cogent reasons is mandatory on the part of the Learned AO before resorting to computation mechanism provided in Rule 8D(2) of the Rules. Hence we hold that the relief granted by the Learned CITA is in order. Accordingly, the ground no, 2 raised by the revenue is dismissed and ground no. 1 raised by the revenue is allowed.
5. In the result, the appeal of the revenue is partly allowed.
Order pronounced in the open court on this day 29th of April, 2026.
Author Bio
