Section 14A Disallowance Quashed Due to non Recording of Satisfaction: ITAT Mumbai

Piem Hotels Ltd. Vs DCIT (ITAT Mumbai)

Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has delivered a significant ruling in the case of Piem Hotels Limited, setting aside disallowances made under Section 14A of the Income-tax Act, 1961, for assessment years 2014-15 and 2016-17. The Tribunal’s decision, pronounced on May 8, 2024, hinged on the Assessing Officer’s (AO) failure to record proper satisfaction before invoking Rule 8D of the Income Tax Rules, a mandatory procedural requirement.

Piem Hotels Limited, engaged in the business of running hotels, had filed appeals against the appellate orders passed by the National Faceless Appeal Centre (NFAC), Delhi, dated October 16, 2023. The core grievance in both assessment years was the confirmation of disallowances under Section 14A, which pertains to expenditure incurred in relation to income that does not form part of the total income (such as dividend income).

Background of the Disallowance

For the assessment year 2014-15, Piem Hotels filed its return of income on November 29, 2014, declaring an income of ₹55,31,90,420/-. The company had made substantial investments amounting to ₹169 crores and earned exempt dividend income of ₹365.92 lacs. In its return, the assessee suo moto disallowed ₹24,23,717/- under Section 14A, categorizing it as administrative costs and other charges.