ACIT Vs Triton Trading Company Private Limited (ITAT Mumbai)
Summary: The Mumbai ITAT dismissed the Revenue’s appeals for AYs 2017-18 and 2018-19 concerning disallowance under section 14A read with Rule 8D(2)(ii) and adjustment of such disallowance while computing book profit under section 115JB. Taking AY 2017-18 as the lead case, the Tribunal noted that the assessee had earned exempt dividend income of Rs.1,19,963/-. The Assessing Officer applied Rule 8D(2)(ii), computed disallowance of Rs.2,71,56,617/- and also added the amount while computing book profit under section 115JB. The CIT(A), however, restricted the section 14A disallowance to the exempt dividend income of Rs.1,19,963/- and deleted the adjustment made to book profit under section 115JB.
Before the CIT(A), the assessee relied upon the Special Bench decision in ACIT vs. Vireet Investment (P) Ltd. The CIT(A), after considering the facts and judicial precedents, held that the disallowance under section 14A could not exceed the exempt income earned during the relevant year. Accordingly, against the Assessing Officer’s disallowance of Rs.2,71,56,617/-, the disallowance was restricted to Rs.1,19,963/-, being the dividend income earned by the assessee. On the separate issue of computation of book profit under section 115JB, the CIT(A), following Vireet Investment (P) Ltd. and the Karnataka High Court decision in Sobha Developers Ltd. vs. DCIT, held that no adjustment to book profit could be made on account of the section 14A disallowance and consequently deleted the addition.
The ITAT found that both issues were no longer res integra in view of the judicial precedents, particularly the Special Bench ruling in Vireet Investment (P) Ltd. Respectfully following those precedents, it found no reason to interfere with the CIT(A)’s findings either on restricting the section 14A disallowance or on deletion of the corresponding section 115JB book-profit adjustment. The Revenue’s grounds for AY 2017-18 were therefore dismissed, and the Tribunal directed that its observations and findings would apply mutatis mutandis to AY 2018-19. Consequently, both appeals filed by the Revenue were dismissed.
Cases Discussed
- ACIT vs. Vireet Investment (P) Ltd. (2017) 165 ITD 27 / 188 TTJ 1 (Delhi) (SB) – followed for the issues concerning section 14A and computation of book profit under section 115JB.
- Sobha Developers Ltd. vs. DCIT, 125 taxmann.com 72 (Karnataka High Court) – relied upon for holding that no adjustment to book profit could be made on account of the disallowance under section 14A.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These two appeals are filed by the Department against the orders of ld. CIT vide DIN: ITBA/NFAC/S/250/2025-26/1081471870(1) dated 06.10.2025 for the Assessment Year 2017-18 and ITBA/NFAC/S/250/2025-26/1082297330(1) dated 04.11.2025 for the Assessment Year 2018-19.
2. Department has raised the following grounds of appeal:
ITA No. 9394/MUM/2025
1) Whether the Ld. CIT (A) erred in law in restricting the disallowance u/s. 14A of the Income-tax Act, 1961 to the amount of exempt income, despite clear findings during the assessment that the assessees claim of non-incurrence of expenditure was not found to be convincing
2) Whether the Ld. CIT (A) was justified in disregarding the Rule 8D(2)(ii) of the Income-tax Rules, 1962 computation recorded in assessment proceedings, particularly when the Assessing Officer had computed disallowance strictly as per the prescribed method
3) Whether the Ld. CIT (A) was correct in holding that disallowance computed u/s. 14A of the Act cannot be added to book profit u/s. 115JB, despite the explicit language of clause (f) of Explanation 1 to section 115JB of the Act requiring addition of expenditure relatable to exempt income.
ITA No. 484/MUM/2026
1) Whether, on the facts and in the circumstances of the case and in law, the learned CIT(A) was justified in restricting the disallowance u/s. 14A of the Income-tax Act, 1961 to the amount of exempt income earned during the year, ignoring the mandatory computation mechanism prescribed under the amended Rule 8D applicable from Assessment Year 2017-18 onwards?
2) Whether the learned CIT(A) erred in law in holding that the disallowance u/s. 14A read with Rule 8D is subject to a cap of exempt income, when no such limitation is provided under the amended Rule 8D
3) The AO may please be allowed to add additional ground and amend , alter, delete OR withdraw the existing ground from time to time during the proceedings of this appeal in the future.
4) The order of the CIT(A) is contrary to facts and law and deserves to be set aside.
3. The issues involved in the present set of appeals are common relating to disallowance made u/s. 14A r.w.r. 8D2(ii) as well as addition of the same while computing book profit u/s. 115JB. Since the issues are common, both the appeals are taken up together by passing this consolidated order. We take up appeal for Assessment Year 2017-18 as the lead case to draw our facts. Our observations and findings in this appeal shall apply mutatis mutandis to appeal for Assessment Year 2018-19.
4. Brief facts as culled out from the records are that assessee filed its return of income on 01.11.2017, reporting total income at Nil under the normal provisions of the Act and book profit of Rs.91,95,215/- u/s. 115JB. Return was revised with total loss at Rs.1,74,33,962/- under the normal provisions of the Act, book profit remaining the same.
4.1. Ld. Assessing Officer noted that assessee has earned exempt dividend income of Rs.1,19,963/- during the year. In this regard, he observed that assessee has not disallowed any expenditure u/s.14A r.w.r. 8D2(ii) for earning this exempt income. He applied the provisions of rule 8D2(ii) to work out the disallowance of Rs.2,71,56,617/- and added it to the total loss reported by the assessee in its revised return. He also made the addition to book profit u/s. 115JB.
4.2. In the first appeal before the ld. CIT(A), the moot point contested by the assessee was that the disallowance made by ld. Assessing Officer ought to have been restricted to the extent of dividend income received by the assessee in the year under consideration. Also, in respect of addition made to the book profit for the disallowance made u/s. 14A r.w.r. 8D2(ii), it was contended that such an addition is bad in law. For both the above contentions, reliance was placed on the decision of Hon’ble Special Bench of ITAT, Delhi in the case of ACIT vs. Vireet Investment (P) Ltd. 188 TTJ 1 (Del) (SB). On this, ld. CIT(A) observed that assessee had suo moto made a disallowance of Rs.60,000/- while computing its total income. Ld. CIT(A) after making a detailed deliberations both, on facts and judicial precedents, concluded that disallowance made is to be restricted to the amount of exempt income earned by the assessee during the year. Since assessee has earned dividend income of Rs.1,19,963/-, the disallowance u/s. 14A was restricted to this amount as against what was disallowed by ld. Assessing Officer of Rs.2,71,56,617/-. In respect of addition made to the book profit u/s. 115JB for the disallowance made u/s. 14A r.w.r. 8D2(ii), ld. CIT(A) by following the judicial precedents in the case of Vireet Investment (P) Ltd. (supra) as well as by placing reliance on the decision of Hon’ble High Court of Karnataka in the case of Sobha Developers Ltd. vs. DCIT 125 taxmann.com 72 (Kar) held that no adjustment can be made to book profit on account of disallowance u/s.14A. Thus, the additions so made, while computing book profit u/s.115JB was deleted.
5. In the conspectus of the above factual position and the judicial precedents, especially following the decision of Hon’ble Special Bench in the case of Vireet Investment (P) Ltd. (supra), the issue raised by the Revenue before us both, on making addition towards disallowance u/s.14A r.w.r. 8D2(ii) under the normal provisions of the Act as well as while computing book profit u/s. 115JB are no longer res integra. Respectfully following the aforesaid judicial precedents, we do not find any reason to interfere with the findings arrived at by ld. CIT(A). Accordingly, grounds raised by the Revenue are dismissed.
5.1. Our observations and findings apply mutatis mutandis to the appeal for Assessment Year 2018-19.
6. In the result, both the appeals of the Revenue are dismissed.
Order is pronounced in the open court on 17 June, 2026
