JCIT Vs Rajesh Estates and Nirman Pvt. Ltd. (ITAT Mumbai)
Section 14A Can’t Go Beyond Exempt Stream: Mumbai ITAT Caps Disallowance to Partnership Loss & Deletes Section 115JB Adjustment
The Mumbai Bench of the ITAT dismissed Revenue’s appeal and upheld the CIT(A)’s order restricting disallowance u/s 14A to the extent of ₹71.04 lakh, being the assessee’s share of loss from a partnership firm, and deleting the corresponding MAT adjustment u/s 115JB.
For AY 2017-18, the AO invoked section 14A r.w. Rule 8D and computed a hefty disallowance of ₹2.97 crore on investments in a partnership firm and a company, despite the assessee not earning any positive exempt income. The same amount was added back while computing book profit u/s 115JB. The CIT(A) held that while section 14A is attracted because the share of profit/loss from a partnership firm is excluded from total income u/s 10(2A), the quantum of disallowance cannot exceed the amount excluded. Accordingly, the disallowance was restricted to the partnership loss of ₹71.04 lakh, and the MAT add-back was deleted following PCIT v. Vireet Investment (SB).
Affirming this approach, the Tribunal held that:
- Section 14A applies to investments in partnership firms (following Maxopp Investment and Pr. CIT v. D.B. Realty), irrespective of the strategic nature of investment.
- However, disallowance u/s 14A cannot exceed the income (or loss) excluded from total income; disproportionate Rule 8D outcomes are impermissible.
- The Rule 8D disallowance cannot be imported into section 115JB computations (following Vireet Investment (SB)).
Finding no infirmity, the ITAT dismissed the Revenue’s appeal and sustained the capped disallowance and deletion of the MAT adjustment
FULL TEXT OF THE ORDER OF ITAT MUMBAI
