Mahindra Lifespace Developers Ltd. Vs DCIT (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT), Mumbai, partly allowed the assessee’s appeal for Assessment Year 2005-06 against the order of the Commissioner of Income Tax (Appeals) [NFAC] concerning disallowance under Section 14A of the Income-tax Act.
In the original assessment, the Assessing Officer had made a disallowance of ₹255.29 lakh under Section 14A. The CIT(A) granted partial relief, and the Tribunal subsequently remanded the issue to the Assessing Officer for fresh consideration. Following reconsideration, the CIT(A) sustained a disallowance of ₹20.50 lakh, computed at 0.5% of the average value of investments.
Before the Tribunal, it was undisputed that the assessee had earned exempt dividend income of only ₹8 lakh. The Tribunal observed that a disallowance of ₹20.50 lakh was wholly unjustified. It further noted that the computation mechanism under Rule 8D was not applicable for the relevant assessment year. Accordingly, the Tribunal directed the Assessing Officer to restrict the disallowance to 10% of the exempt income, amounting to ₹0.80 lakh, and deleted the balance disallowance. The Tribunal also held that, being an estimated disallowance, the amount should not be added to the book profits, following the Special Bench decision in Vireet Investments Pvt. Ltd. The appeal was partly allowed.
