IN THE INCOME TAX APPELLATE TRIBUNAL, ‘D’ BENCH MUMBAI BEFORE: SHRI PAWAN SINGH, JUDICIAL MEMBER &

SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER ITA No. 1588/MUM/2025(AY: 2017–18)

(Physical hearing)

Dai-ichi Karkaria Limited DCIT Circle 1(1)(1), 3^rd Floor, Liberty Building, Vs. Room No. 533, 5^th Floor, Sir VT Marg, Marine Lines, Aayakar Bhawan, Mumbai-400020. M.K. Road, Mumbai-400020.

PAN: AAACD0548F (Appellant) .. (Respondent Assessee by Ms. Priyanka Jain CA /AR Revenue by Shri. Annavaram Kosuri, Sr. DR Date of Hearing 25/06/2025 Date of Pronouncement 30/06/2025 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER:

1. This appeal by the assessee is directed against the order of ADDL/JCIT(A), Agra dated 17.01.2025 for A.Y. 2017-18. The assessee has raised the following grounds of appeal:

“ 1. On the facts and the circumstances of the case and in law, the Ld. JCIT(A) has erred in upholding the additional disallowance of Rs. 5,29,448 made by the Ld. AO under section 14A read with Rule 8D.

2. Without prejudice, on the facts and circumstances of the case and in law, the Ld. JCIT(A) erred in upholding the view taken by the Ld. AO that the Mutual Funds (Growth Option) are also covered under section 14A of the Act, without considering the fact that they did not yield any dividend income. Accordingly, the JCIT(A) should have restricted the disallowance under section 14A to Rs.

10,26,245 (as against Rs. 25,86,319 computed by the Ld. AO).

3. Without prejudice, on the facts and the circumstances of the case and in law, the JCIT(A) erred in not holding that the disallowance under Rule 8D(2)(ii) is to be computed only on investments which has earned dividends.

4. In the facts and circumstances of the case and in law, the Ld. JCIT(A) has erred in upholding the disallowance of Rs. 10,06,858 towards employee costs payable to workmen, by treating it as contingent liability.

5. On the circumstances of the case and in law, the Ld. JCIT(A) has erred in considering the 'book profits' computed at Rs. 17,41,07,134 in the computation sheet of the Assessment order, as against Rs. 17,30,91,244 computed by the Ld. AO in the Assessment order.

6. On the circumstances of the case and in law, the Ld. JCIT(A) has erred in upholding the initiation of penalty proceedings under section 270A for alleged under-reporting of income.”

2. The brief facts of the case are that assessee is a company engaged in manufacturing of fertilizers and chemicals, filed its return of income for A.Y. 2017-18 on 13.10.2017 declaring income of Rs. 17.31 Crore (Cr.). The case was selected for scrutiny. During the assessment the Assessing Officer (AO) noted that assessee has shown exempt income of Rs. 6.85 Cr. The assessee made suo- moto disallowance under section (u/s) 14A of Rs. 20,56,871/-. The AO noted that assessee has not made disallowance as per provision of Rule 8D. The AO issued show-case notice as to why disallowance u/s. 14A should not be made as per Rule 8D. The assessee filed its reply and stated that they have already disallowed Rs. 20,56,871/- being 3.00% of exempt income of Rs. 6.85 Cr such method is being followed by assessee in earlier years and has been accepted in all earlier years. The reply of assessee was not accepted by AO. The AO recorded that the assessee has made investment in shares and mutual funds. Making investment is a decision making process which require process involving study and research. It require manpower and funds to make investment which require expenditure or cost, the cost is in the form of direct or indirect under various rate like personal cost, administration cost, interest cost etc. Contention of assessee that no direct or indirect cost was incurred in relation to earning tax free dividend income cannot be excepted. The AO by referring the decision of Hon’ble Apex Court in Maxopp Investments (2018) 15 SCC 523/ AIRONLINE 2018 SC 1470 has noted whether dividend income has earned or not is immaterial. The AO disallowed 1.00 % of aver