Case Law Details
Apar Industries Ltd. Vs DCIT (ITAT Mumbai)
The Income Tax Appellate Tribunal, Mumbai, decided cross appeals filed by the assessee and the Revenue against the order of the Commissioner of Income Tax (Appeals)-54, Mumbai dated 08.12.2025 for Assessment Year 2016-17. The assessee challenged the rejection of its fresh claim for deduction under Section 32AC, while the Revenue challenged the restriction of disallowance under Section 14A read with Rule 8D.
With respect to the assessee’s appeal, the authorised representative submitted that the issue was covered by the Tribunal’s decision in the assessee’s own case for Assessment Year 2015-16, where identical grounds had been restored to the file of the Commissioner (Appeals). The Tribunal considered the earlier decision, which noted that the assessee had raised an additional claim for deduction under Section 32AC during appellate proceedings. The Assessing Officer, in the remand proceedings, had stated that such a fresh claim should have been made through the return of income or a revised return, relying on Goetze India Ltd. v. CIT. However, the remand report also recorded that the documentary evidence, including bills, details of plant and machinery, delivery challans, installation records and banking transactions, had been verified and found to be in consonance with the documents produced.
The earlier Tribunal order observed that the Commissioner (Appeals) had admitted the additional ground but rejected the claim on the basis of delay and the assessee’s conduct. It held that once the additional ground was admitted, the appellate authority was required to adjudicate the claim on merits. The Tribunal further observed that reliance on Goetze India Ltd. was misplaced in the context of appellate powers and referred to Jute Corporation of India Ltd. and National Thermal Power Co. Ltd. for the proposition that an appellate authority could entertain a fresh statutory claim where the relevant facts were already on record. It also found that the remand report lacked specific findings on whether the assets satisfied the definition of “new assets” under Section 32AC(4) and whether all statutory conditions had been fulfilled. Since the material indicated that the claim was capable of verification but the remand report was insufficient for a final determination, the Tribunal had restored the issue to the Assessing Officer for fresh examination. The Assessing Officer was directed to verify whether the assets qualified as “new assets,” whether the prescribed conditions regarding acquisition and installation were fulfilled, whether the assessee was otherwise eligible for deduction, and any other relevant aspects before deciding the issue afresh after providing an opportunity of hearing. Following its decision for Assessment Year 2015-16, the Tribunal restored the assessee’s grounds to the file of the Commissioner (Appeals) and allowed the assessee’s appeal for statistical purposes.
In the Revenue’s appeal, the Tribunal considered the disallowance under Section 14A read with Rule 8D. During assessment, the Assessing Officer noted exempt income of ₹56,98,855 and, after rejecting the assessee’s explanation, computed a disallowance of ₹3,44,14,324 under Section 14A. The assessee had contended that it had not received dividend income during the year and had only received exempt income by way of distribution from the AIL Benefit Trust. It also submitted that investments were made from its own funds, without borrowings, and that investments in growth funds would yield taxable capital gains on sale rather than dividend income. Before the Commissioner (Appeals), the assessee relied on PCIT v. Sintex Industries Ltd. and other judicial precedents to contend that Section 14A disallowance could not exceed exempt income.
The Tribunal noted that the Commissioner (Appeals), relying on PCIT v. State Bank of India, had restricted the disallowance under Section 14A to the exempt income earned during the year. It observed that this conclusion was based on decisions including PCIT v. Ballarpur Industries, PCIT v. State Bank of India, and Cheminvest Limited v. ACIT. Finding no reason to interfere with the order of the Commissioner (Appeals), the Tribunal affirmed the restriction of the disallowance and dismissed the Revenue’s appeal. Accordingly, the assessee’s appeal was allowed for statistical purposes and the Revenue’s appeal was dismissed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. These cross appeals by both the parties are directed against the order of Id. CIT(A) — 54, Mumbai dated 08.12.2025 for Assessment Year (A.Y.) 2016-17. The assessee in its appeal has raised following grounds of appeal:
‘1. Disallowance of deduction u/s 32AC claimed for the first time during the appellate proceedings:
1.1. On the facts and circumstances of the case and in law, the learned CIT(A) erred in not appreciating that the investment made during Financials year 2015-2016 in the new plant and machinery amounting to Rs 33,75,71,713/- are eligible for deduction u/s 32AC in AY 2015-16.
1.2. Without prejudice to the above and without admitting, on the facts and circumstances of the case and in law, the learned CIT(A) erred in not allowing statutorily eligible fresh claim made by the appellant for the first time during the appellate proceedings u/s 32AC of Rs 5,06,35,757/- being 15% of the aggregate amount of actual cost of the new plant and machinery eligible u/s 32AC(1A).
2. The appellant craves leave to add, to amend, alter/delete and/or modify the above grounds of appeal on or before the final hearing.”
2. The Revenue in its appeal has raised following grounds of appeal:
“1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the disallowance under Section 14A read with Rule BD to the quantum of exempt income earned, failing to appreciate that the statutory mandate requires disallowance of all expenditure in relation to income not forming part of total income, irrespective of the actual receipt of such income.
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in following the decision of the Hon’ble Punjab & Haryana High Court in PCIT us. State Bank of Patiala, while ignoring the binding ratio of the Hon’ble Supreme Court in Maxopp Investment Ltd us. CIT (2018), which rejected the ‘dominant purpose’ test and upheld the theory of apportionment for expenses related to exempt income.
3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in ignoring the binding CBDT Circular No. 5/2014, which clarifies that Section 14A disallowance is attracted even if no exempt income is earned during the relevant financial year, provided the investment has the potential to generate such income.
4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate the AO’s finding that it is commercially impossible to maintain and manage an investment portfolio of approximately Rs. 109 Crores without incurring administrative and managerial overheads, which are legally disallowable under Rule 8D(2)(iii).
5. The Appellant/Revenue craves leave to add, amend, alter, or withdraw any ground(s) of appeal before or at the time of hearing.”
3. Rival submissions of both the parties have been heard and record perused. The learned Authorised Representative (Id. AR) of the assessee submits that grounds of appeal raised by assessee in its appeal is covered by the decision of Tribunal in assessee’s own case for A.Y. 2015-16 in ITA No. 8757/M/2025 dated 07.04.2026 wherein on identical ground of appeal on similar set of fact, the similar ground of appeal have been restored to the file of Id. CIT(A). He has no objection if both the grounds of appeal raised by the assessee are also restored to the file of Id. CIT(A) with similar direction.
4. In Revenue’s appeal, the Id. AR of the assessee submits that though the AO has raised multiple grounds of appeal, however, substantial ground of appeal relates to disallowance under section 14A r.w.r. 8D. These grounds of appeal are also covered by the decision of various High Courts including of Bombay High Court in PCIT Vs Ballarpur Industries ITA No. 51 of 2016 and Punjab & Haryana High Court in PCIT vs State Bank of India 99 com 286 wherein it was held that disallowance under section 14A cannot exceed the exempt income earned during the year.
5. On the other hand, the learned Senior Departmental Representative (Id. Sr. DR) for the Revenue supported the order of AO in both the appeals.
6. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities. We have also deliberated on the decision of Tribunal in assessee’s own case for A.Y. 2015-16. First, we are adjudicating assessee’s appeal. We find that on similar set of fact in appeal for A.Y. 2015-16, the similar ground of appeal has been restored to the Id. CIT(A) for adjudicating issue afresh. Therefore, we deem it appropriate to restore both the grounds of appeal raised by assessee to the file of Id. CIT(A) to pass the order after passing the order in A.Y. 2015-16. The operative part of order of Tribunal is extracted below:
5. We have heard rival submissions of the parties and perused the relevant materials on record. It is undisputed that assessee filed this additional claim before the Ld. CIT(A) on 02.12.2019. The Ld. CIT(A) called for the remand report in respect of additional claim from the Assessing Officer. For ready reference said remand report is reproduced as under:
“2. The assessee company e-filed its return of income on 30.11.2015 declaring total income of Rs.44,66,55,710/- and book profit u/s.115JB Rs.67,29,57,901/-. The return was revised on 30.03.2017 declaring total income of Rs.44,21,95,730/- and book profit u/s.115JB Rs.67,29,57,901/-. The case was selected for scrutiny. The assessment order was passed u/s.143(3) on 16.06.2017 assessing total income at Rs.44,42,31,368/- and Book Profit u/s.115JB at Rs.67,49,93,546/- by way of making addition u/s.14A Rs.20,35,64,644/-. Aggrieved by the assessment order, the assessee filed appeal before the CIT(A). During the course of appellate proceedings, the assessee has made various submissions as well as filed new evidences. Accordingly, the CIT(A) has called for the remand report on the additional grounds and evidences filed reproduced hereunder.
‘On the facts and circumstances of the case and in law, the appellant prays to allow statutory claim of Rs.19,11,38,877/- being 15% of the aggregate amount of the actual cost of the new plant and machinery eligible u/s.32AC(1)) since the investment made after 31.03.2013 and before 01.04.2015 in the new plant and machinery exceeds Rs.100 crore.’
3. In this regard, it is to state that the new claim is not acceptable at this juncture. Whatever the assessee has to claim, it has to claim before the Assessing officer by way of filing return of income or revised return and not otherwise. Reliance is placed on the decision of Hon’ble Supreme Court in the case of GOETZ India Ltd. v. CIT (2006) 204 CTR (SC) 182. In which the hon’ble Supreme Court has categorically held that whatever the assessee has to claim,
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5. Also, the assessee has uploaded the copies of 157 bills in 909 pages on the ITBA System along with details of plant and machinery, date of bill, items purchased, delivery challan, installation and commissioning of machineries, etc. The assessee also stated that all payments for plant and machinery are made through banking channel and the same is reflected in the books of accounts. The said details and documents have been verified and the factual findings is in congruence with the documents provided. However, the issue arising by way of additional ground, therefore, as mentioned above in para 4 pursuant to the decision of Goetze, may be decided on merits since this is additional ground and recent claim without any revised return.
Submitted for your kind perusal please.”
5.1 The Ld. CIT(A) after considering the remand report of the Assessing Officer admitted the additional claim of the assessee for adjudication. But after admitting the additional ground, the Ld. CIT(A) rejected the claim for the reason of delay on the part of the assessee and further reason that the assessee designed to file such claim before the Id CIT(A) and not in the return of income or before the Id AO so as to prevent the Assessing Officer from examining the claim.
5.2 At the outset, it is an undisputed position that the learned CIT(A) admitted the additional ground raised by the assessee. In law, once such admission is made, the appellate authority is duty bound to adjudicate the claim on its merits. Considerations such as delay or the conduct of the assessee, which may be relevant at the stage of admission, cannot thereafter be invoked to non-suit the claim without a proper examination on merits.
5.3 The Revenue’s reliance on Goetze (India) Ltd.(supra) is misplaced in the context of appellate powers. The Hon’ble Supreme Court categorically held that while the Assessing Officer’s power to entertain a fresh claim is restricted to the return of income, this does not impinge upon the appellate powers of the CIT(A) or the Tribunal. Following the landmark rulings in Jute Corporation of India Ltd.(supra) and National Thermal Power Co. Ltd. (supra), it is well-settled that an appellate authority has the jurisdiction to entertain a fresh point of law or a statutory claim if the relevant facts are on record.Anyway, the Revenue is not in appeal against the order of Id CIT(A), therefore, the Revenue can’t object this finding of Id CIT(A) of admitting the additional claim.
5.4 The rejection of the claim by the learned CIT(A) is principally founded on the premise that, owing to the passage of time, verification of the conditions prescribed under section 32AC is no longer feasible. In our considered view, such an approach cannot be sustained in law. Where a claim is supported by documentary evidences and is otherwise capable of verification, it cannot be rejected solely on the ground of lapse of time.
5.5 Further, the reasoning adopted by the learned CIT(A) suffers from a manifest inconsistency. If, in his view, the delay in raising the claim or the alleged conduct of the assessee rendered the matter unfit for adjudication, the proper course would have been to decline admission of the additional ground. Having exercised discretion to admit the claim, it was incumbent upon the learned CIT(A) to examine the same on merits in accordance with law and could not be subsequently rejected solely on the basis of “delay” or “design. Admission of the ground necessarily implies condonation of delay and the claim cannot thereafter be rejected on the very grounds which stood implicitly waived. Once the door to adjudication is opened, the claim must be tested against the statutory requirements of Section 32AC and can’t be dismissed on the very procedural grounds that were waived during admission. 5.6 We also note that, although the Assessing Officer in the remand proceedings has referred to verification of voluminous documentary evidence, including invoices, delivery challans and details of installation, there is no clear or categorical finding as to whether the assets satisfy the definition of “new assets” within the meaning of section 32AC(4), or whether all statutory conditions stand fulfilled. The remand report appears to be confined largely to a general verification of bills and payments, for arithmetical reconciliation, without undertaking a structured examination of eligibility criteria prescribed under the statute. The Remand Report lacks a specific, granular finding on whether each asset meets the “new asset” criteria defined under Section 32AC(4). The definition of” new asset” specifically excludes certain items like office appliances, vehicles, and second-hand machinery. The Remand Report currently before us does not demonstrate a rigorous mapping of the 11.27.42 crores investment against these specific statutory exclusions. We note that there is no clear and conclusive finding by the Assessing Officer in the remand proceedings regarding satisfaction of all statutory conditions prescribed under section 32AC, particularly with regard to the nature of assets as “new assets” and their installation for business purposes, but the material on record suggests that the claim is not inherently unverifiable.
5.7 In such circumstances, a balance must be struck between procedural discipline and substantive justice. Justice must not only be done but must be seen to be done. While the omission on the part of the assessee to claim the deduction in the return may have occasioned administrative inconvenience, such lapse cannot, by itself, result in denial of a lawful claim, if otherwise admissible. Equally, the Revenue must be afforded a fair and effective opportunity to verify the claim of technical eligibility of the assets in accordance with law. We find that the existing Remand Report is insufficient for a final determination on the merits
5.8 In these circumstances, and in the interest of justice, we are of the considered view that the matter requires fresh examination at the level of the Assessing Officer. Accordingly, we set aside the impugned order of the learned CIT(A) on this issue and restore the matter to the file of the Assessing Officer for verification. The Assessing Officer shall verify: (i) whether the assets qualify as “new assets” within the meaning of section 32AC; (ii) whether the conditions regarding acquisition and installation within the prescribed period are satisfied; (iii) whether the assessee is otherwise eligible for deduction as claimed; and (iv) any other verification deemed fit in facts and circumstances of the case. The Assessing Officer shall decide the issue afresh in accordance with law, after affording adequate opportunity of being heard to the assessee. 5.9 The grounds of appeal of the assessee are accordingly allowed for statistical purposes.”
7. Considering the decision of co-ordinate bench of identical grounds of appeal which we have referred above, the ground of appeal is allowed for statistical purpose.
8. In the result, the appeal of assessee is allowed for statistical purpose.
ITA No. 1474/M/2026 (Revenue’s Appeal) (A.Y. 2016-17)
9. We find that Assessing Officer (AO) during the assessment in para-4 of assessment order noted that assessee has earned dividend income of Rs. 56,98,855/-. The assessee was asked by issuing show cause notice as to why disallowance under section 14A r.w.r. 8D be not made. The contents of show cause notice are recoded by AO in para 4 of his order itself. In response to show cause notice, the assessee filed its reply. The contents of reply are also extracted in para 4 of assessment order. The assessee in its reply submitted that during the year under consideration, the assessee has not received any dividend. The assessee has received only exempt income in the form of distribution of income of Rs. 56,98,855/- from one Trust ‘AIL Benefit Trust’ wherein assessee’s one of the beneficiary. The assessee also furnished the details of investment as per their balance sheet. The assessee contended that they have made investment out of their own fund generated from regular course of business and no borrowing is used for making any such investments. The assessee made investment in growth fund from which no dividend will be earned during the life time of the fund. These funds have returned in the form of NAV of fund. On sale of such fund, the assessee will earned taxable capital gain. The reply of assessee was not accepted by AO. The AO invoked the provision of Rule 8D and computed the disallowance under section 14A of Rs. 3,44,14,324/-. On appeal before Id. CIT(A), the assessee apart from other submission, submitted that Honble Apex Court in PCIT vs Sintex Industries Ltd. (2018) 93 taxmann.com 24 (SC) while dismissing the appeal against the decision of Gujarat High Court confirmed the decision wherein it was held that in case of mutual fund — growth scheme, the provision of section 14A r.w.s. 8D cannot be applied. The assessee also relied on various case laws wherein it was held that disallowance under section 14A cannot exceed the exempt income. We find that Id. CIT(A) by following the decision in PCIT vs State Bank of India (supra) held that disallowance of expenditure under section 14A cannot exceed the exempt income earned during the year. We find that decision of Id. CIT(A) is based on decision of various High Bombay High Court in PCIT Vs Ballarpur Industries (supra) and Punjab & Haryana High Court in PCIT vs State Bank of India (supra) and Delhi High Court in Cheminvest Limited vs ACIT (2015) 61 taxmann.com 118 (Delhi). Thus, we do not find any reason to interfere with the decision of Id. CIT(A) which we affirmed. In the result, grounds of appeal raised by Revenue are dismissed.
10. In the result, appeal of Revenue is dismissed.
11.In the final result, the appeal of the assessee is allowed for statistical purpose and appeal of Revenue is dismissed.
Order was pronounced in the open Court on 03/06/2026.
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