Godrej Properties Ltd. Vs Assessing Officer NFAC (ITAT Mumbai)
Can a Taxpayer Be Held to an Excess Section 14A Disallowance Made in Its Own Return?
Godrej Properties Ltd. earned exempt dividend income of just ₹36,227 during AY 2018–19. Yet, while filing its return, it had itself disallowed ₹12,77,553 under section 14A. When the company sought to restrict the disallowance to the dividend actually earned, the Commissioner (Appeals) declined relief: the company had made the higher disallowance voluntarily and had not filed a revised return.
The Mumbai Tribunal held that neither circumstance prevented appellate relief. Following its order in Godrej Properties’ own case for an earlier year, it directed the Assessing Officer to restrict the section 14A disallowance to ₹36,227.
The Mistake Was in the Return Itself
The dispute had an unusual feature. The Assessing Officer had not computed a fresh section 14A addition over and above the return. The larger figure of ₹12,77,553 was the company’s own disallowance, which the Assessing Officer accepted during assessment.
Godrej Properties contended that its exempt dividend income for the year was only ₹36,227 and that the disallowance could not exceed that amount. It relied on a coordinate bench decision in its own case for AY 2012–13, where the Tribunal had restricted the section 14A disallowance to the dividend income earned.
The order records that, according to the assessee, it had raised this point during assessment proceedings through a letter dated 28 February 2021. The Assessing Officer nevertheless retained the amount disclosed in the return. The company then pursued the issue before the Commissioner (Appeals).
Why the Commissioner (Appeals) Refused Relief
The Commissioner (Appeals) treated the return as an obstacle to the company’s claim. Since Godrej Properties had made the ₹12,77,553 disallowance on its own and had not filed a revised return reducing it, the Commissioner (Appeals) declined to substitute the lower amount.
A second reason was that the Assessing Officer had neither discussed this issue in the assessment order nor made a separate addition on it. In effect, the Commissioner (Appeals) regarded the appeal as an attempt to reduce a figure voluntarily offered by the assessee, rather than to challenge an adjustment made by the department.
That reasoning raised a practical question: does an excessive disallowance become final merely because the taxpayer entered it in the original return? The Tribunal answered that question in the negative on the facts before it.
Tribunal: Exempt Income Sets the Limit
The Tribunal identified the central issue as whether the section 14A disallowance should be restricted to the ₹36,227 of exempt dividend income earned during the year. It noted the earlier coordinate bench order in the assessee’s own case for AY 2012–13, which had applied that limit.
The Tribunal held that a disallowance under section 14A cannot exceed the exempt income earned in the relevant year. On that basis, the ₹12,77,553 figure accepted in the assessment could not be sustained when the exempt dividend was only ₹36,227.
This was not a direction to remove the disallowance altogether. The Tribunal retained it to the extent of the exempt dividend income and directed the Assessing Officer to give effect to that figure. The difference between the amount originally disallowed and the amount sustained is ₹12,41,326.
No Revised Return: Was That Fatal?
The Tribunal also rejected the procedural objection that Godrej Properties had failed to file a revised return. It stated that the powers of appellate authorities are not curtailed merely because a claim was not made through a revised return.
That finding was decisive because the Assessing Officer had simply accepted the company’s own higher computation. The absence of an additional disallowance in the assessment order did not prevent the Tribunal from examining whether the assessed income reflected the legally permissible section 14A amount. The Commissioner (Appeals)’ order on this issue was set aside, and the assessee’s appeal was allowed.
The decision therefore addresses both parts of the dispute: the substantive ceiling based on exempt income and the ability to seek correction in appeal despite the figure appearing in the taxpayer’s return.
What About Book Profit Under Section 115JB?
One of the company’s grounds also stated that the Commissioner (Appeals) had not adjudicated its contention concerning the application of section 14A and Rule 8D while computing book profit under section 115JB.
Although the Tribunal reproduced that ground and grouped the grounds together, its reasoning and operative direction deal with restricting the section 14A disallowance to ₹36,227. The order contains no separate analysis or express direction on the section 115JB computation. It should therefore not be cited as an independent ruling on whether a Rule 8D amount can be added while computing book profit.
Author’s Comments
The useful point in this order is that an assessee’s own return is not, by itself, a bar to correcting an excessive disallowance in appeal. Here, the exempt dividend income and the amount disallowed were both clear, and the assessee also relied on an earlier decision in its own case. The Tribunal could therefore decide the narrow section 14A issue and direct a specific correction.
For practitioners, the distinction between the grounds raised and the findings actually recorded matters. This order supports the reduction of the section 14A disallowance from ₹12,77,553 to ₹36,227 for AY 2018–19. It does not separately decide the book-profit ground, despite that issue appearing in the appeal.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal is filed by the Assessee against the order of Ld. CIT (A) /NFAC, DELHI vide DIN: ITBA/NFAC/S/250/2023-24/1061204714(1) dated 20-Feb-2024 for the Assessment Year 2018-19. The Assessee has raised the following grounds of appeal:
1. The learned Commissioner of Income-tax (Appeals) erred in dismissing the contention raised by the Appellant that the disallowance under Section 14A of the Act is to be restricted to the amount of exempt dividend income of Rs.36,227/- actually earned during the year under consideration in accordance with the Order of the Hon’ble Income Tax Appellate Tribunal in the Appellant’s own case for the Assessment Years 2012-13, 2014-15 and 2015-16.
2. The learned Commissioner of Income-tax (Appeals) erred in not restricting the disallowance under Section 14A of the Act to the exempt dividend income earned during the year under consideration on the ground that this issue was not discussed by the Assessing Officer in the Assessment Order.
3. The learned Commissioner of Income-tax (Appeals) erred in confirming the disallowance of Rs.12,77,553/- under Section 14A of the Act computed by the Assessing Officer on the ground that the disallowance was suo moto made by the Appellant itself and that the Appellant did not file a Revised Return of Income to reduce the said disallowance.
4. The learned Commissioner of Income-tax (Appeals) erred in not adjudicating the contention raised by the Appellant that the provisions of Section 14A and Rule 8D cannot be applied for computing the book profits under section 115JB of the Act.
2. Ground Nos. 1 to 4 raised by the assessee are interrelated and interconnected and relate to challenging the order of the learned CIT(A) in rejecting the contention of the assessee for restricting the disallowance under section 14A of the Income-tax Act, 1961 (“the Act”) to the amount of exempt dividend income of Rs. 36,227/- earned during the year under consideration. Therefore, we have decided to adjudicate these grounds together.
3. We have heard the learned counsels for both the parties, perused the material placed on record, the judgments cited before us, and the order passed by the Revenue Authorities. From the records, we notice that the only contention raised by the assessee relates to challenging the order of the learned CIT(A) in rejecting the contention of the assessee for restricting the disallowance under section 14A of the Act to the amount of exempt dividend income of Rs. 36,227/-.
4. In this regard, it was submitted that the Coordinate Bench of the Tribunal, in the assessee’s own case, had restricted the disallowance to the extent of dividend income earned during the year vide order passed for Assessment Year 2012-13. Thus, in these circumstances, the principles laid down by the Coordinate Bench of the Tribunal should have been followed by the learned CIT(A) while adjudicating the appeal of the assessee.
5. On the contrary, we notice that the learned CIT(A) rejected the contention of the assessee by holding that the assessee had itself suo motu made a disallowance of Rs. 12,77,553/- and had not filed a revised return of income to restrict the suo motu disallowance to the extent of exempt income. The learned CIT(A) further observed that this issue was neither discussed before the Assessing Officer nor had the Assessing Officer made any addition on the issue now disputed by the assessee.
6. After having heard the learned counsels for both the parties at length and upon perusing the material placed on record, we find that during the assessment proceedings, the assessee, as per its averments, vide letter dated 28.02.2021, had raised the contention that since the exempt dividend income actually earned during the year under consideration aggregated to Rs. 36,227/-, the disallowance under section 14A of the Act was required to be restricted to Rs. 36,227/- in accordance with the order of the Coordinate Bench of the Tribunal in the assessee’s own case for Assessment Year 2012-13.
7. However, the AO disregarded the said contention raised by the assessee and accepted the suo motu disallowance made by the assessee under section 14A of the Act while filing the return of income for the year under consideration.
8. It is well settled that the disallowance under section 14A of the Act cannot exceed the exempt income earned by the assessee during the year under consideration. The Coordinate Bench of the Tribunal in the assessee’s own case for Assessment Year 2012-13 has already restricted such disallowance to the extent of the exempt dividend income. Further, the powers of the appellate authorities are not curtailed merely because the claim was not made by way of a revised return of income.
9. Thus, respectfully following the precedent of the Coordinate Bench in the assessee’s own case and the settled legal position, we direct the Assessing Officer to restrict the disallowance under section 14A of the Act to the exempt dividend income of Rs. 36,227/- earned during the year. Consequently, the impugned order of the learned CIT(A) on this issue is set aside.
10. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 24.09.2026.
