S. 14A : Disallowance of expenditure relating to exempt income-For the purpose of Rule 8D, only investments which have actually yielded exempt income during the year can be considered-No disallowance of interest where own funds exceed investments-Presumption that investments are made out of interest-free funds. [R. 8D(2)(ii), 8D(2)(iii)]
The assessee-company earned exempt dividend income and had made a suo motu disallowance under section 14A. The Assessing Officer recomputed the disallowance under Rule 8D by considering all investments and also made an interest disallowance. The Tribunal held that for the purpose of Rule 8D(2)(iii), only those investments which actually yielded exempt income during the relevant year could be considered, following the Special Bench decision in ACIT v. Vireet Investment (P.) Ltd. (2017) 165 ITD 27 (Delhi-Trib.) (SB), Further, since the assessee’s own funds in the form of share capital and reserves substantially exceeded the value of investments, a presumption arose that investments were made out of interest-free funds. Following CIT v. HDFC Bank Ltd. (2014) 366 ITR 505 (Bom.)(HC), the Tribunal directed the deletion of the entire interest disallowance under Rule 8D(2)(ii). (AY. 2016-17 & 2017-18) (ITA Nos. 7160 & 7161/Mum/2025, dt. 04-06-2026)
Manugraph India Ltd. v. ACIT (Mum.)(Trib.) www.itatonline.org .
[Coram : Hon’ble Shri Pawan Singh, JM & Hon’ble Shri Makarand Vasant Mahadeokar, AM]