IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD “SMC-B” BENCH: HYDERABAD BEFORE SHRI VIJAY PAL RAO, VICE PRESIDENT AND SHRI MANJUNATHA G, ACCOUNTANT MEMBER Assessment Year 2017-2018 Prasad Film Laboratories The ACIT, Circle-6(1), Private Limited, Hyderabad. vs.

Hyderabad – 500 004.

PIN – 500 034. Telangana.

Telangana.

PAN AABCP2280P (Appellant) (Respondent)

For Assessee : Sri V. Siva Kumar, Advocate For Revenue : Sri Vinodh Kannan, Sr. AR Date of Hearing : 07.08.2025 Date of Pronouncement : 13.08.2025 ORDER PER MANJUNATHA G. :

The above appeal has been filed by the assessee against the order dated 23.12.2024 of the learned Addl./Joint Commissioner of Income Tax-(Appeals)-5, Mumbai, relating to the assessment year 2017-2018.

2. The assessee has raised the following grounds in the instant appeal :

1. “The Order of the Commissioner of Income Tax, Appeal, ADDL/JCIT(A)-5, Mumbai dated 23-12-2024 is erroneous, contrary to law and facts of the case.

2. i) Commissioner of Income Tax (Appeals) is not justified in sustaining the disallowance of Rs. 10,67,172/- made by the Assessing Officer u/s.14A read with Rule 8D(2)(ii).

ii) Commissioner of Income Tax (Appeals) ought to have seen that Appellant did not incur any expenses during the year for making investment, as investments were made in earlier years and also did not incur any expenditure for earning exempt income as dividends were declared by mutual funds on a daily basis and the same was utilised for allotting additional units every day without any effort by the Appellant.

iii) Commissioner of Income Tax (Appeals) further ought to have seen that the Appellant had already disallowed Rs.5,000/- u/s. 14A in its computation of income towards the accounting work for recording the transactions but had not incurred any other expenditure. Hence, Commissioner of Income Tax (Appeals) is not justified in confirming the disallowance of Rs.10,67,172/-

u/s.14A made by the Assessing Officer.

3. For all of the above and such other grounds as may be urged at the time of hearing it is prayed that the appeal be allowed and suitable directions be issued to the Assessing Officer to delete disallowance of Rs.10,67,172/- made u/s.14A in the Asst. Order in the interest of justice.”

3. The assessee has filed a petition for admission of additional ground by filing additional ground of appeal. The additional ground raised by the assessee before the Tribunal is as under :

"On the facts and in the circumstances of the case and in law, the disallowance made by the Assessing Officer under Section 14A read with rule 8D is bad in law, as the Learned Assessing Officer failed to record his dissatisfaction with regard to the correctness of the appellant's claim, as required under Section 14A(2) of the Income-tax Act, 1961."

4. After hearing both the sides, we admit the additional grounds since it goes to the root of the matter by following the Judgment of Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd., vs., CIT [1998] 229 ITR 383 (SC).

5. Brief facts of the case are that, the assessee company filed return declaring Rs.NIL income under the normal provisions of the Income Tax Act, 1961 and book profit of Rs.1,90,54,810/- u/sec.115JB of the Income Tax Act, 1961. The case was selected for scrutiny and during the course of assessment proceedings, the Assessing Officer noticed that, the assessee was in receipt of dividend income of Rs.57,58,671/- which was claimed to be exempt u/sec.10(34) of the Income Tax Act, 1961 [in short “the Act”]. The Assessing Officer further noted that, assessee has made suo motu disallowance of expenditure of Rs.5,000/- u/sec.14A of the Income Tax Act, 1961. The Assessing Officer, called-upon the assessee to explain as to why disallowance contemplated u/sec.14A of the Act shall not be disallowed by invoking Rule 8D of I.T. Rules, 1962. In response, the assessee submitted that, it has made investment in mutual fund out of it’s own funds on the advice of M/s. RLP Securities Pvt Limited, who are