Manugraph India Private Limited Vs ACIT (ITAT Mumbai)
The appeals for Assessment Years 2016-17 and 2017-18 arose from separate orders of the CIT(A) dated 10.09.2025. Since common issues were involved, both appeals were heard together and decided through a common order, with AY 2016-17 treated as the lead case. The assessee, engaged in the business of manufacturing and exporting precision and sophisticated printing machines, challenged disallowances relating to Section 14A, rental expenses, and scientific research expenditure.
For AY 2016-17, the Assessing Officer disallowed Rs. 27,75,315 under Section 14A, Rs. 13,20,000 towards rent expenses, and Rs. 44,01,296 relating to scientific research deduction under Section 35(2AB). The CIT(A) granted partial relief on the Section 14A issue but upheld the other disallowances.
Regarding Section 14A, the assessee contended that only investments yielding exempt income should be considered while computing disallowance and that investments in growth mutual funds did not generate exempt dividend income. It further argued that investments were made out of its own funds and not borrowed funds. The Tribunal accepted the contention that only investments which yielded exempt income should be considered for disallowance under Rule 8D(2)(iii). On the issue of interest disallowance, the Tribunal found that the assessee possessed interest-free funds substantially exceeding its investments. Relying on the Bombay High Court decision in CIT v. HDFC Bank, the Tribunal directed deletion of the entire interest disallowance under Rule 8D(2)(ii) and ordered recomputation of the disallowance accordingly. The ground was partly allowed.
