Omitted Section 92BA(i) Cannot Sustain Domestic TP Adjustments: ITAT Mumbai

ECL Finance Ltd Vs DCIT (ITAT Mumbai)

Summary : The Mumbai Bench of the Income Tax Appellate Tribunal disposed of connected appeals and cross-objections concerning ECL Finance Ltd. for AYs 2014-15 to 2016-17. The assessee, an RBI-registered non-banking financial company engaged in financing, corporate lending against securities and trading in securities, commodities and derivatives, challenged the surviving Section 14A disallowance and the jurisdiction to make specified domestic transfer pricing adjustments. The Revenue contested relief granted by CIT(A)-56, Mumbai, through the common order dated 2 September 2025. The Tribunal took ITA Nos.7610/Mum/2025 and 7978/Mum/2025 and CO No.27/Mum/2026 for AY 2014-15 as the lead matters and applied its decision to the connected years.

For AY 2014-15, the original return declared income of ₹245,33,62,380, subsequently revised to ₹244,51,06,470. The TPO proposed an aggregate adjustment of ₹10.25 crore, comprising rating support fees of ₹5.65 crore and episodic support fees of ₹4.60 crore paid to the associated enterprise. The assessment dated 9 February 2018 determined income at ₹267,37,38,615 and also included Section 14A and mark-to-market loss disallowances. In its appeal, the Revenue questioned the evidence of services, functions and risk assumption underlying the support fees, the benefit of improved credit ratings, the fee calculated at 0.30% of estimated borrowings and reliance on a GST circular concerning corporate guarantees.

The assessee’s cross-objection raised the effect of omission of clause (i) of Section 92BA by the Finance Act, 2017 without a saving clause. The Revenue argued that the omission could not apply to transactions of the earlier assessment year. Following Edelweiss Rural & Corporate Services Ltd., Texport Overseas and HDFC Bank Ltd., and noting the identical approach in Mahindra Two Wheelers Ltd., the Tribunal accepted the jurisdictional challenge to the adjustment under the omitted provision. The Revenue had shown neither a distinguishing factual feature nor contrary binding authority. Ground No.2 was allowed; the objection concerning determination of arm’s length price without a Most Appropriate Method became academic and was kept open. The limitation and revised-return notice grounds were dismissed as not pressed. The Section 40A(2)(a) examination mentioned in the order related to the cited Edelweiss precedent; the present order did not separately direct such a remand.

On the Revenue’s challenge to deletion of a ₹3,75,042 mark-to-market loss on equity and currency futures, the Tribunal followed the assessee’s own AY 2007-08 decision dated 30 January 2013. That precedent treated derivatives as stock-in-trade and applied valuation at cost or market price, whichever was lower, referring to Chainrup Sampatram. The reproduced passage also explained that CBDT instructions do not bind appellate authorities. CIT(A) had recorded similar relief in other earlier years, and no material factual distinction or change in the applicable legal position was demonstrated. Ground No.11 was therefore dismissed.

The Tribunal also upheld deletion of the ₹10,23,60,742 interest disallowance under Rule 8D(2)(ii), because the audited financial statements established own funds exceeding investments. For Rule 8D(2)(iii), CIT(A) restricted the computation to investments relevant to exempt income. The resulting computation was ₹43,35,114; after reducing the assessee’s suo motu disallowance of ₹6,64,886, the further disallowance sustained was ₹36,70,228. The Revenue produced no specific material undermining either the own-funds finding or the computation. Grounds Nos.12 to 16 were dismissed. The assessee’s alternative Section 14A grievance consequently did not survive for separate adjudication, and its appeal was dismissed.

The concluding result table records the three cross-objections for AYs 2014-15, 2015-16 and 2016-17 as allowed and the corresponding Revenue and assessee appeals as dismissed. The Most Appropriate Method issue remains open under the reasoning in paragraph 12. The common order was pronounced on 21 September 2026.

Cases Discussed

• HDFC Bank Ltd. Vs Addl. CIT/ACIT/Dy. CIT — ITA Nos.4351 & 4316/Mum/2007 and connected appeals, order dated 28 January 2025 (ITAT Mumbai). Followed on the effect of omission of Section 92BA(i).
• Softel Overseas Pvt. Ltd. Vs ACIT — ITA No.1942/Kol/2019 (ITAT Kolkata). Listed in the reproduced HDFC Bank decision among supporting coordinate Bench authorities.
• Edelweiss Rural & Corporate Services Ltd. Vs Dy. CIT — ITA No.7475/Mum/2017, order dated 24 June 2022, AY 2013-14 (ITAT Mumbai). Followed on invalidity of the domestic TP reference; the separate Section 40A(2)(a) examination belonged to that precedent.
• Mahindra Two Wheelers Ltd. Vs Dy. CIT — ITA No.519/Mum/2018, order dated 28 April 2022 (ITAT Mumbai). Noted as taking an identical view on the omitted provision.
• Ammann India (P.) Ltd. Vs ACIT — [2022] 134 taxmann.com 10 (ITAT Ahmedabad). Included among authorities in the reproduced HDFC Bank passage.
• Shree Sai Smelters (1) Ltd. Vs ACIT — [2020] 118 taxmann.com 350 (Gauhati). Cited in the reproduced passage supporting the omission principle; identification is reproduced as supplied.
• Raipur Steel Casting India (P.) Ltd. Vs PCIT — [2020] 117 taxmann.com 944, order dated 10 June 2020 (ITAT Kolkata). Listed in the reproduced HDFC Bank decision on the effect of omission.
• PCIT Vs Texport Overseas (P.) Ltd. — [2020] 114 taxmann.com 568 (Karnataka High Court). High Court authority followed through the coordinate Bench decisions on omission of Section 92BA(i).
• Maxopp Investment Ltd. Vs CIT — (2018) 402 ITR 640 (Supreme Court). Invoked in the Revenue’s grounds on the scope of Section 14A; those grounds are distinct from the Tribunal’s findings.
• Dy. CIT Vs ECL Finance Ltd. — ITA No.7656/Mum/2011, order dated 30 January 2013, AY 2007-08 (ITAT Mumbai). The distinct earlier-year order was followed for deletion of the mark-to-market loss disallowance.
• Chainrup Sampatram Vs CIT — [1953] 24 ITR 481 (Supreme Court). Referred to through the earlier-year precedent on recognition of anticipated stock valuation losses.

FULL TEXT OF THE ITAT MUMBAI ORDER

A bunch of appeal and cross objection pertaining to the same assessee filed against the order of the Ld. Commissioner of Income Tax – 56, Mumbai [for brevity “Ld. CIT(A)”], order passed under Section 250 of the Income Tax Act, 1961 (for brevity ‘the Act’), for Assessment Year 2014-15 to 2016-17, date of order 02.09.2025. The impugned order emanated from the order of the Ld. ACIT Circle 3(1)(2), Mumbai (for brevity ‘Ld. AO’), order passed under Section 143(3) r.w.s. 144C(3)of the Act, date of order 09.02.2018, 28.01.2019 and 06.02.2020 for Assessment Year 2014-15 to 2016-17.

2. All the appeals pertain to the same assessee and arising out from a common issue. All the appeals are taken together and heard together and disposed of by a common order. ITA 7610/MUM/2025, ITA 7978/MUM/2025 and C.O. 27/MUM/2026 are taken as lead case and the decision rendered therein shall be applied mutatis mutandis to the other appeals.

3. ITA 7610/MUM/2025: Assessee’s Appeal, AY 2014-15:

The assessee has taken the following grounds:

“1. The Commissioner of Income Tax (Appeals) – 56, Mumbai (hereinafter referred as CIT(A)] erred in confirming the action of the Deputy Commissioner of Income Tax-3(1)(2), Mumbai [hereinafter referred as AO) in making disallowance u/s 14A of Income Tax Act, 1961 (Act) r.w. Rule 8D of the Income Tax Rules, 1962 (Rules) without recording his dis-satisfaction having regard to its books of accounts.

The Appellant submits that it has made suo moto disallowance of Rs. 6,64,886/- u/s 14A r.w.r 8D of the Rules, hence, the disallowance in excess of Rs. 6,64,886/- made by the AO shall be deleted.

The Appellant craves leave to add, amend, modify, substitute the above grounds of appeal.”

4. ITA 7978/MUM/2025: Revenue’s Appeal, AY 2014-15:

The revenue has taken the following grounds:

“1 . “Whether on the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in deleting the Transfer Pricing adjustment of Rs. 5,65,00,000 made by the Assessing Officer pursuant to the order of the Transfer Pricing Officer (TPO) under section 92CA(3) of the Income tax Act, 1961, in respect of payment of Rating Support Fees by the assessee to its Associated Enterprise (AE), M/s. Edelweiss Finance Services Limited (EFSL)?”

2. “Whether on the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in law and on facts in holding that the assessee derived tangible benefit on account of higher credit ratings due to inclusion of EFSLs consolidated financials, without appreciating that no functions were performed, assets employed, or risks assumed by the AE to justify such payment?”

3. “Whether on the facts and in the circumstances of the case and in law, the Learned CIT(A) failed to appreciate that the assessee did not furnish any cost or activity based evidence to demonstrate services actually rendered or benefit derived from EFSL in relation to the Rating Support arrangement, as required under Rule 10B(1)(a) of the Income tax Rules, 1962?”

4. “Whether on the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in disregarding the detailed functional analysis carried out by the TPO, wherein the TPO had allowed payment of Rating Support Fees in respect of borrowings where explicit corporate guarantees were provided by EFSL and determined the arm’s length price of the residual payment as Nil, on the ground of absence of services?”

5. “Whether on the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in relying upon the CBIC Circular No. 225/19/2024-GST dated 11.07.2024 (issued under the GST law) which is inapplicable to the present case, as the circular deals with a defined taxable service of “corporate guarantee” involving an identifiable provision of service and risk assumption, whereas in the assessee’s case, the TPO has categorically observed that no such activity or service was performed by EFSL?”

6. “Whether on the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in holding that the payment of Rating Support Fees calculated at 0.30% of the estimated total borrowings, was allowable, without appreciating that the fees was computed merely on estimated future loans and had no nexus with actual services rendered during the year?”

7. “Whether on the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in deleting the Transfer Pricing adjustment of Rs. 4,60,00,000/- made by the Assessing Officer pursuant to the order of the Transfer Pricing Officer (TPO) under section 92CA(3) of the Income-tax Act, 1961, in respect of payment of Episodic Support Fees paid to its AE, EFSL, without verifying the actual rendition of any guarantee or meaningful service by the AE to warrant such payment?”

8. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate the finding of the TPO that no explicit guarantee or comfort was provided by the AE for the issuance of commercial papers for which the Episodic Support Fees was paid, nor any risk was assumed or asset utilised in relation to this transaction?”

9. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in relying on the improvement in the credit rating and eligibility for issuance of commercial paper by the assessee without establishing that the said improvement was on account of any specific service rendered or guarantee provided by the AE?”

10. “Whether on the facts and in the circumstances of the case and in law, the order of the Ld. CIT(A) allowing the deduction of Episodic Support Fees without verifying the actual performance of functions or assumption of risk by the AE is contrary to the provisions of transfer pricing and liable to be reversed?”

11. “Whether on the facts and circumstances of the case and in the law, the Ld. CIT(A) was justified in deleting the disallowance of Rs. 3,75,042/ made on account of Mark to Market loss claimed on account of trading in equity and currency futures, without appreciating that the loss claimed on the basis of value of equity and currency futures as on 31st March is merely notional loss and the actual loss or the profit in respect of such equity and currency futures would get crystallized only at the time of settlement of such transaction?”

12. “Whether, on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the disallowance of Rs. 10,23,60,742/ made under Rule 8D(2)(ii) by holding that the assessee’s own funds were sufficient to cover the investments, without the assessee furnishing any fund-flow statements or documentary evidence establishing direct nexus between own funds and investments?”

13. “Whether, on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the disallowance under Rule 8D(2)(i) by relying on judicial precedents which are distinguishable on facts, ignoring that mixed funds comprising both interest bearing and non-interest-bearing components were evident from the records?”

14. “Whether, on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in restricting the disallowance under Rule 8D(2)(ii) to investments that yielded exempt income during the year, contrary to the ratio laid down by the Hon’ble Supreme Court in Maxopp Investment Ltd. v. CIT (402 ITR 640), which held that Section 14A applies to all investments capable of generating exempt income?”

15. “Whether, on the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the Assessing Officer had duly recorded satisfaction under Section 14A(2) regarding the incorrectness of the assessee’s claim, thereby fully justifying the invocation of Rule 8D for computation of disallowance?”

16. “Whether, on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the disallowance of Rs. 12,57,57,103/- under Section 14A read with Rule 8D(2)(i) and restricting the addition to Rs. 36,70,228/-, resulting in substantial revenue loss, even though the assessee had not furnished credible reconciliation or evidence regarding the source of investments?”

5. CO 27/MUM/2026: Assessee’s Appeal, AY 2014-15:

The assessee has taken the following grounds:

“1.1 The Hon’ble Commissioner of Income Tax-56, Mumbai (hereinafter referred as CIT(A)] erred in holding that the assessment order dated 09/02/2018 passed u/s 144C r.w.s. 143(3) of the Income Tax Act, 1961 (Act) was passed within the limitation provided u/s 153 of the Act.

The Appellant submits that the assessment order passed u/s 144C r.w.s. 143(3) of the Act is barred by limitation as per section 153(3) of the Act; hence, the assessment order shall be quashed.

1.2 The CIT(A) erred in holding that issuing fresh notice u/s 143(2) of the Act on the basis of validly filed revised return was not required; hence, assessment was completed properly without issuing notice u/s 143(2) of the Act on the basis of revised return.

The Appellant submits that action of the AO in completing the assessment without issuing the notice u/s 143(2) of the Act on the basis of revised return is against the provision of the Act; hence, the assessment passed in present case shall be quashed.

2. The CIT(A) erred in confirming the action of the AO in making the transfer pricing adjustments by invoking section 92BA(i) of the Act without appreciating the fact that clause (i) of section 92BA of the Act has been omitted vide Finance Act, 2017.

3. The CIT(A) erred in confirming the action of the AO in making transfer pricing adjustments without applying any Most Appropriate Method (MAM) as required u/s 92 r.w.s. 92C of the Act.

The Appellant crave leaves to amend, alter, delete, modify above grounds of cross objections.”

6. The assessee is an RBI-registered Non-Banking Financial Company engaged, inter alia, in financing and corporate lending against securities and also in trading in securities, commodities and derivatives. For A.Y. 2014-15, the assessee filed its original return of income on 30.11.2014 declaring total income of Rs.2,45,33,62,380/- and thereafter filed a revised return on 31.03.2016 declaring total income of Rs.2,44,51,06,470/-. The case was selected for scrutiny and a reference was made to the Ld. TPO. The Ld. TPO, vide order dated 30.10.2017 passed u/s 92CA(3) of the Act, proposed an aggregate transfer-pricing adjustment of Rs.10,25,00,000/-. The assessment was ultimately completed u/s 143(3) r.w.s. 144C(3) of the Act on 09.02.2018 at total income of Rs.267,37,38,615/-, which, inter alia, included TP adjustment of Rs.10,25,00,000/-, disallowance u/s 14A and disallowance of mark-to-market loss of Rs.3,75,042/-. The Ld. CIT(A), by the impugned order dated 02.09.2025, granted relief to the assessee on various issues. The Revenue is in appeal against the relief so granted, whereas the assessee has filed CO No.27/Mum/2026 raising, inter alia, the legal issue regarding validity of the TP adjustment made by invoking clause (i) of section 92BA of the Act, which stood omitted by the Finance Act, 2017.

Assessee’s , CO No.27/Mum/2026 – A.Y. 2014-15

7. The Ld. AR submitted that Ground Nos.1.1 and 1.2 of the Cross Objection are not pressed and confined his argument to the legal challenge concerning the assumption of jurisdiction for determining the arm’s length price of the specified domestic transactions under clause (i) of section 92BA of the Act. It was submitted that the adjustment included Rs.5,65,00,000/- towards rating support fees paid by the assessee to its parent company, Edelweiss Financial Services Limited (“EFSL”). The Ld. AR contended that clause (i) of section 92BA was omitted by the Finance Act, 2017 without any saving clause and, therefore, the reference to the Ld. TPO and the consequential adjustment made in respect of the specified domestic transactions could not survive.

8. The Ld. AR placed reliance on the decision of the Coordinate Bench in Edelweiss Rural & Corporate Services Ltd. v. Dy. CIT [IT Appeal No. 7475 (Mum.) of 2017, dated 24-6-2022], concerning A.Y. 2013-14. The Coordinate Bench thereafter took note of the judgment of the Hon’ble Karnataka High Court in Pr. CIT v. Texport Overseas (P.) Ltd (Karnataka) and held that the reference to the TPO in respect of specified domestic transactions covered by clause (i) of section 92BA was not valid after omission of the said provision. The Bench consequently directed deletion of the TP adjustment, while separately restoring the examination under section 40A(2)(a) in that case.

9. The Ld. AR further relied upon the decision of the Coordinate Bench in HDFC Bank Ltd. v. Addl. CIT/ACIT/Dy. CIT [2025] 171 (Mumbai – Trib.)/ ITA Nos.4351 & 4316/Mum/2007 and others, order dated 28.01.2025, wherein the Coordinate Bench observed that clause (i) of section 92BA, having been omitted by the Finance Act, 2017, was to be treated as if it had not existed on the statute, following Texport Overseas (P.) Ltd. (supra) and other judicial precedents. The relevant observation of the order of the HDFC Bank Ltd. (supra) is reproduced as below:-

“25.2. We note that there is no dispute in respect of impugned transactions falling within the definition of SDT under clause (i) of section 92BA, prior to its omission. Since the said provision has been omitted by the Finance Act, 2017, it has to be treated as if it never existed on the statute. This position stands accepted by the Hon’ble Court of Karnataka in the case of Texport Overseas Pvt. Ltd. [2020] 114 (Kar). Similar view has been taken by various Co-ordinate Benches, some of which are listed below:

i. Shree Sai Smelters (1) Ltd. vs. ACIT [2020] 118 taxmann.com 350 (Gau)

ii. Raipur Steel Casting India (P) Ltd. vs. PCIT [2020] 117 taxmann.com 944 (Kol)

iii. Ammann India (P.) Ltd. vs. ACIT [2022] 134 taxmann.com 10 (Ahd)

iv. Softel Overseas Pvt. Ltd. vs. ACIT (ITA No. 1942/Kol/2019)

25.3. Considering the facts on record and the judicial precedents listed above, we find no infirmity in the findings arrived at by the ld. CIT(A) on this issue. Accordingly, grounds taken by the Revenue are dismissed.”

10. Per contra, the Ld. DR strongly relied upon the orders of the Revenue authorities. The Ld. DR submitted that the issue relating to the omission of clause (i) of section 92BA has been raised by the assessee in the Cross Objection before the Tribunal. According to the Ld. DR, the omission brought about by the Finance Act, 2017 could not be applied to the transaction pertaining to the assessment year under consideration. Accordingly, the Ld. DR supported the action of the Ld. AO/Ld. TPO and the finding of the Ld. CIT(A) on this issue.

11. We have heard the rival submissions and perused the material available on record. The limited controversy before us is whether the transfer-pricing adjustment made in respect of specified domestic transactions falling within the erstwhile clause (i) of section 92BA can survive after omission of the said clause by the Finance Act, 2017. We find that the issue is squarely covered by the decision of the Coordinate Bench in Edelweiss Rural & Corporate Services Ltd. (supra), wherein, following the judgment of the Hon’ble Karnataka High Court in Texport Overseas Pvt. Ltd., the Coordinate Bench held that the reference to the TPO in respect of specified domestic transactions mentioned in clause (i) of section 92BA was not valid after omission of the said provision. The Coordinate Bench further noticed that the Mumbai Bench had taken an identical view in Mahindra Two Wheelers Ltd. v. Dy. CIT (Mumbai – Trib.)/(ITA No. 519/Mum/ 2018 Date of order 28/04/2022).

12. We further find that the subsequent Coordinate Bench decision in HDFC Bank Ltd. (supra), relied upon by the Ld. AR, has followed the same legal position and treated the omitted clause (i) of section 92BA as no longer capable of sustaining the specified domestic transaction adjustment. The Ld. DR has not brought before us any distinguishing feature in the facts or any contrary binding judicial precedent so as to persuade us to take a different view. Maintaining judicial consistency and respectfully following the aforesaid decisions, the challenge of the assessee to the transfer-pricing adjustment made by invoking the erstwhile clause (i) of section 92BA is accepted. Accordingly, Ground No.2 is allowed. In view of our finding on this jurisdictional issue, Ground No.3 concerning determination of ALP without application of a Most Appropriate Method becomes academic and is kept open. Ground Nos.1.1 and 1.2 stand dismissed as not pressed.

Accordingly, CO No.27/Mum/2026 is allowed in the terms indicated above.

ITA No.7978/Mum/2025 – Revenue’s Appeal, A.Y. 2014-15
Ground No.11 – Mark-to-Market Loss

13. Ground No.11 of the Revenue challenges the action of the Ld. CIT(A) in deleting the disallowance of Rs.3,75,042/- made on account of mark-to-market loss arising from trading in equity and currency futures. The Revenue’s case is that the loss computed with reference to the value of open futures as on 31st March is merely notional and crystallises only upon settlement of the relevant contracts.

14. The Ld. DR relied upon the assessment order and submitted that no actual loss had crystallised during the year in respect of the open derivative contracts. The Ld. DR, therefore, supported the disallowance made by the Ld. AO and prayed for reversal of the relief granted by the Ld. CIT(A).

15. The Ld. AR supported the impugned appellate order and submitted that the issue is covered in favour of the assessee by the decision of the Coordinate Bench in the assessee’s own case, Dy. CIT v. ECL Finance Ltd. [IT Appeal No. 7656 (Mum.) of 2011] for A.Y. 2007-08, order dated 30.01.2013. In that case also, the Revenue has challenged deletion of mark-to-market loss on derivative transactions on the ground that the loss was uncrystallised. The Coordinate Bench noted that derivatives were held as stock-in-trade and that the principle of valuation at cost or market price, whichever is lower, was applicable. Referring to Chainrup Sampatram v. CIT [1953] 24 ITR 481 (SC), it observed that an anticipated loss arising from fall in value below cost may be recognised even though it has not actually been realised. The ld. AR invited our attention on the relevant paragraph of the order of the Coordinate bench in ECL Finance Ltd. (supra) which is reproduced as below:-

“9. The only objection raised by Ld. DR is that in the Instruction No.3/2010 dated 23/3/2010 CBDT has instructed Income Tax authorities to add back such amount while computing taxable income of an assessee. Such contention of Ld. DR cannot be accepted firstly on the ground that Instructions issued by CBDT though may be binding upon Income Tax authorities but are not binding on appellate authorities. The date of assessment order in the present case is 31/12/2009 when such instructions were not even existed. Further, when Tribunal had decided the issue in the case of Edelweiss Capital Ltd. (supra) the instructions were existing but not pleaded by the department. The Tribunal has considered each and every aspect in details which is clear from the observations reproduced in the earlier part of this order. Taking the consistent view as taken by the Co-ordinate Bench, we see no infirmity in the granted by Ld. CIT(A). We decline to interfere in the relief granted by him and departmental appeal is dismissed.”

16. We have considered the rival submissions. The issue arising in the present year is identical to the issue considered by the Coordinate Bench in the assessee’s own case for A.Y. 2007-08. The Ld. CIT(A) has also recorded that similar relief was granted in the assessee’s own cases for A.Ys. 2007-08, 201011, 2011-12, 2012-13 and 2013-14. No material distinction in facts or change in the applicable legal position has been demonstrated before us. We, therefore, respectfully follow the Coordinate Bench decision in the assessee’s own case and find no infirmity in the order of the Ld. CIT(A) deleting the disallowance of Rs.3,75,042/- towards mark-to-market loss.

Accordingly, Ground No.11 raised by the Revenue is dismissed.

Ground Nos.12 to 16 – Disallowance u/s 14A r.w. Rule 8D

17. The Ld. DR relied upon the assessment order and supported the disallowance computed by the Ld. AO under section 14A r.w. Rule 8D. The Ld. DR contended that the Ld. CIT(A) was not justified in deleting the interest disallowance of Rs.10,23,60,742/- and in restricting the balance disallowance by considering only the relevant investments yielding exempt income. The Ld. DR accordingly prayed for restoration of the computation made by the Ld. AO. The precise challenges raised by the Revenue in Ground Nos.12 to 16 are recorded in the memorandum of appeal.

18. The Ld. AR supported the order of the Ld. CIT(A). It was submitted that the audited financial statements established that the assessee’s own funds were substantially in excess of the investments. The Ld. CIT(A), after examining the financial statements, accepted this contention and deleted the disallowance of Rs.10,23,60,742/- under Rule 8D(2)(ii).

19. The Ld. AR further submitted that the Ld. CIT(A), while considering Rule 8D(2)(iii), followed the judicial precedents and restricted the computation to investments relevant for earning exempt income. After considering the assessee’s suo motu disallowance of Rs.6,64,886/-, the Ld. CIT(A) ultimately restricted the further disallowance to Rs.36,70,228/-.

20. We have heard the rival submissions and perused the material available on record. The Ld. CIT(A) has examined the audited financial statements and recorded that the assessee possessed sufficient own funds in excess of the investments. The finding is supported by the financial data placed before the appellate authority. The Ld. CIT(A), following the principle relating to availability of sufficient interest-free funds, deleted the disallowance of Rs.10,23,60,742/- under Rule 8D(2)(ii). As regards Rule 8D(2)(iii), the Ld. CIT(A) considered the relevant judicial precedents and restricted the computation to the investments relevant to exempt income, resulting in a total computation of Rs.43,35,114/- and, after reducing the assessee’s suo motu disallowance of Rs.6,64,886/-, sustained the balance amount of Rs.36,70,228/-. The Ld. DR has relied upon the assessment order but has not brought before us any specific material to controvert the factual finding recorded by the Ld. CIT(A) regarding availability of sufficient own funds or to demonstrate any factual infirmity in the computation sustained by the first appellate authority. In these circumstances, we find no reason to interfere with the findings of the Ld. CIT(A) on these issues.

Accordingly, Ground Nos.12 to 16 raised by the Revenue are dismissed.

ITA No. 7610/Mum/2025 – Assessee’s Appeal

21. The assessee’s appeal in ITA No.7610/Mum/2025 concerns the disallowance u/s 14A of the Act. The Ld. AR submitted that the grievance raised therein was in the alternative to the issues arising from Ground Nos.12 to 16 of the Revenue’s appeal in ITA No.7978/Mum/2025. Since Ground Nos.12 to 16 of the Revenue’s appeal have been dismissed and the order of the Ld. CIT(A) on the corresponding issue has been upheld, the alternate grievance pressed by the assessee in ITA No.7610/Mum/2025 does not survive for separate adjudication.

Accordingly, ITA No.7610/Mum/2025 filed by the assessee is dismissed.
Result for A.Y. 2014-15

22. In the result, CO No.27/Mum/2026 is allowed in the terms indicated above; Ground Nos.11 to 16 of the Revenue’s appeal in ITA No.7978/Mum/2025 are dismissed; and ITA No.7610/Mum/2025 filed by the assessee is dismissed.

23. In the net result:-

Order pronounced in the open court on 21st day of September 2026.