ITAT gives relief to Aishwarya Rai Bachchan by accepting suo-moto disallowance u/s 14A

ITAT gives relief to Aishwarya Rai Bachchan by upholding deletion of disallowance u/s 14A over and above the suo-moto disallowance.

In a recent judgment ITAT Mumbai gave relief to Aishwarya Rai Bachchan by upholding deletion of disallowance made by the Assessing Officer (AO) u/s 14A over and above the suo-moto disallowance made by the assessee without recording his satisfaction.

ABCAUS Case Law Citation:
4829 (2025) (11) abcaus.in ITAT

In the instant case, the assessee was aggrieved by the order passed by the CIT(A), National Faceless Appeal Centre in not applying the principle laid down by the Hon’ble Supreme Court that Section 14A is attracted only where the expenditure is incurred in relation to exempt income, and the availability of interest-free funds is not a standalone defense unless proven to be directly used for investments.

The assessee filed her return for the relevant Assessment Year declaring total income of approx. Rs. 40 crores. The case was selected for complete scrutiny for verification of several issues. After considering the assessee response, the Assessing Officer (AO) proposed to make disallowance of expenses relating to exempt income u/s 14A  r/w Rule 8D of the Act.

The assessee submitted that suo-moto disallowance had already been made despite no expenditure being incurred for earning the exempt income.

However, AO did not accept the assessee contention and made disallowance of Rs. approx. Rs. 4 crores u/s 14A r.w.s 8D @ 1 per cent on average value of investment in tax free bonds and completed the assessment vide order u/s 143(3) of the Act.

After detailed examination of the issue, the CIT(A) allowed the assessee’s appeal. Aggrieved with the order above of CIT(A), the revenue was in appeal before the Tribunal.

Before the Tribunal the assessee contended that in response to the show-cause notice, she had submitted a detailed reply but it had been rejected without due consideration and without giving any findings on the merits of the assessee’s submissions and no satisfaction had been recorded as to why the AO disagreed with the explanation of the assessee.

It was further pointed out that the total expenditure incurred by the assessee was only Rs. 2.48 cr as against which the disallowance of Rs. 4.60 cr had been computed by the AO which is preposterous.

The Tribunal observed that the assessee had suo-moto made a disallowance of approx. Rs. 49 lakhs u/s 14A in respect of total exempt income of approx. Rs. 2.15 crores at the time of filing her return of income. This amount included direct expenses, transaction tax, STT and indirect expenses being 5% of the total expenses.

The ITAT further noted that as per the settled legal position, in view decision of Hon’ble Apex Court the AO had to record his satisfaction as to why the suo-moto disallowance made by the assessee was not acceptable which has not been done and, therefore, CIT(A) had righty allowed relief to the assessee

The Tribunal further opined that the total expenses debited to the P&L account were only Rs. 2.50 lakhs and therefore the computation of disallowance of Rs. 4.60 crores was devoid of any logic and clearly unreasonable. Therefore, it was clear that the AO had not considered the entire factual matrix of the case nor gone through the relevant accounts and the disallowance had been made without proper appreciation of facts in the light of the settled legal position.

Accordingly, the Tribunal held that the disallowance made by the AO over and above the suo-moto disallowance made by the assessee was without any basis and deserved to be deleted. 

In the result, the appeal of the revenue was dismissed.

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