IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SMT. BEENA PILLAI (JUDICIAL MEMBER)

AND SHRI OMKARESHWAR CHIDARA (ACCOUNTANT MEMBER)

I.T.A. No. 4943/Mum/2024 Assessment Year: 2017-18 &

CO No. 245/Mum/2024 Assessment Year: 2017-18 DCIT-14(1)(1), Mumbai Vs. M/s. Khorakiwala Room No. 432, 4^th Floor, Holdings and Aayakar Bhavan, M.K. Investments Pvt.

Road, Ltd.

Mumbai-400020 Wockhardt Towers, Bandra Kurla Complex, Bandra (E), Mumbai-400051 PAN: AAACK1955D (Appellant) (Respondent)

Appellant by Shri. Pranay Gandhi a/w Shri Anish Thacker Respondent by Shri. Ashish Kumar, SR. A.R.

Date of Hearing 04.02.2025 Date of Pronouncement 25.02.2025 ORDER Per: Smt. Beena Pillai, J.M.:

Investments Pvt. Ltd.

The Present cross appeal appeals filed by assessee as well as revenue arises out of order dated 24/07/2024 passed by NFAC, Delhi, for assessment year 2017-18 on following grounds of appeal:

Grounds in assessee appeal:

“1. Disallowance under section 14A of the Income-tax Act, 1961 ('the Act') of INR 2,73,37,449 in absence of proper satisfaction recorded

2. Disallowance under section 14A of the Act read with Rule 8D of the Income-tax Rules, 1962 ('the Rules') be restricted upto exempt income of INR 12,89,293

3. Disallowance under section 14A of the Act read with Rule 8D of the Rules on all investments”

Grounds in revenue appeal:

“1. Whether on the facts and circumstances of the case and in law, the Ld. CITIA) erred in holding that thedisallowance u/s 14A has to be made considering only those investments which yielded exempt income?

2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate the CBDT has issued circular No. 5 of 2014 dated 11.02.2014 clarifying that Rule BD read with section 14A of the Income Tax Act, 1961 provides for disallowance of the expenditure even where tax payer in a particular year has not earned exempt income?

3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the Finance Act, 2022 has inserted an Explanation to section 14A of the Act to clarify that notwithstanding anything to the contrary contained in the Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where exempt income has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such exempt income.

4. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.

Investments Pvt. Ltd.

5. The appellant craves leave to amend, or alter any grounds or add a new ground, which may be necessary.”

Brief facts of the case are as under:

2. The assessee is a nonbanking financial company engaged in the business of lending short-term loans and trading of shares. Assessee declared interest and dividend income earned during the year and was offered to tax under the head profit and gains from business and profession.

2.1 For the year under consideration assessee filed its return of income on 30/10/2017, declaring loss of Rs.16,15,280/- under normal provisions of the act. The case was selected for scrutiny and notices under section 143(2) along with notice under section 142(1) was issued to the assessee calling upon various details in respect of the exempt income earned by the assessee. In response to statutory notices, the assessee furnished various details.

2.2 The Ld.AO, observed that, the assessee earned dividend Rs.

income of 12,89,293/- and claimed exempt under section 10(34) of the Act. The Ld.AO noted that, the assessee suo moto made disallowance under section 14A amounting to Rs.

34,96,299/- under Rule 8D(2) of Income Tax Rules, 1962. The Ld.AO after considering various submissions of the assessee, applied the amended Rule 8D for year under consideration and disallowed interest expenditure under Rule 8D(2)(ii) and 1% of the average investment