Tribunal Flags Error in Applying Section 14A to Non-Yielding Investments

Hincon Holdings Ltd. Vs ITO (ITAT Mumbai)

Stock-in-Trade Isn’t Investment: ITAT Mumbai Remands 14A Disallowance for Fresh Verification

Mumbai ITAT (SMC Bench) held that while computing disallowance u/s 14A r.w.r. 8D, shares and mutual funds held as stock-in-trade must be excluded, and only those investments which actually yielded exempt income can be considered.

The assessee, an NBFC, earned dividend income of ₹11.93 lakh from mutual funds held as stock-in-trade, whereas the AO mechanically computed disallowance by including non-current investments which had not yielded any exempt income, resulting in a disallowance of ₹17.23 lakh. Relying on Maxopp Investment (SC), South Indian Bank (SC) and Vireet Investment (SB), the Tribunal held that stock-in-trade stands on a different footing and that Rule 8D cannot be applied blindly.

Since the plea regarding stock-in-trade and yield-based exclusion was raised for the first time before the Tribunal, the matter was restored to the AO for factual verification, with a clear direction to exclude stock-in-trade and consider only dividend-yielding investments while recomputing disallowance u/s 14A. The appeal was allowed for statistical purposes

FULL TEXT OF THE ORDER OF ITAT MUMBAI

The present appeal has been filed by the assessee challenging the impugned order 25.09.2024 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre, Delhi (NFAC) for the assessment year 2017-18.