S.14A Disallowance under Income Tax Valid Only on Investments Earning Exempt Income: ITAT in Jindal Pipes' Matter [Read Order]
The ITAT upheld this approach, referring to Delhi High Court rulings that mandate considering only those investments yielding exempt income under Rule 8D read with Section 14A.
![S.14A Disallowance under Income Tax Valid Only on Investments Earning Exempt Income: ITAT in Jindal Pipes Matter [Read Order]](https://www.taxscan.in/wp-content/uploads/2025/06/Disallowance-Income-Tax-taxscan.jpg "S.14A Disallowance under Income Tax Valid Only on Investments Earning Exempt Income: ITAT in Jindal Pipes Matter [Read Order]")
The Delhi Bench of Income Tax Appellate Tribunal(ITAT) ruled that disallowance under Section 14A of Income Tax Act,1961 is valid only on investments that actually earn exempt income, rejecting the Assessing Officer(AO)’s broader disallowance on total investments without considering exempt income in the matter of Jindal Pipes Ltd. The Revenue-appellant, appealed against the order passed...
The Delhi Bench of Income Tax Appellate Tribunal(ITAT) ruled that disallowance under Section 14A of Income Tax Act,1961 is valid only on investments that actually earn exempt income, rejecting the Assessing Officer(AO)’s broader disallowance on total investments without considering exempt income in the matter of Jindal Pipes Ltd.
The Revenue-appellant, appealed against the order passed by the Commissioner of Income Tax(Appeals)[CIT(A)]. In this case,Jindal Pipes Ltd.,respondent-assessee,manufactured ERW, black, and galvanized steel pipes and tubes. Their tax returns for the relevant years were scrutinized, leading to some disallowances. These disallowances were deleted by the CIT(A).
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The issue concerned the disallowance under section 14A of the Act for AY 2018-19. The AO had disallowed Rs. 1,35,01,735 by applying 1% on the total average investment, without considering whether any exempt income arose from those investments during the year. The CIT(A) limited the disallowance to 1% of the average investment only for those investments that actually earned exempt income in the year.
The counsel highlighted that the assessee received rent of Rs. 7 lakhs from agricultural land and had disallowed Rs. 4,245 as expenses incurred related to this exempt income. The net exempt income declared was Rs. 69,57,550. The total investment in agricultural land was Rs. 29,42,500. Based on this, the CIT(A) calculated 1% of the agricultural land investment and disallowed Rs. 2,94,250.
The tribunal stated that the law was already settled. The Delhi High Court, in cases dated 07.10.2022, held that only investments earning exempt income, as specified in Rule 8D and section 14A, should be considered for calculating the disallowance. The CIT(A) had asked the AO to follow this ruling and consider only such investments.
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The two member bench comprising Anubhav Sharma( Judicial Member) and S.Rifaur Rahman
(Accountant Member)found no reason to disagree and ruled against the Revenue.
In short,the appeal of the Revenue was dismissed.
To Read the full text of the Order CLICK HERE
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