ITAT Curtails Massive Section 14A Disallowance in NBFC’s Case

Background

The Mumbai “B” Bench of the Income Tax Appellate Tribunal partly allowed the appeal filed by Better Value Leasing & Finance Ltd., an RBI-registered NBFC, against a disallowance of ₹2.58 crore made under Section 14A read with Rule 8D for Assessment Year 2017–18. The Assessing Officer had treated consultancy fees of ₹2.55 crore paid to a financial advisor as directly attributable to earning exempt dividend and capital gains income, along with a further Rule 8D computation. The CIT(A) had upheld the full addition.

Disallowance Restricted to ₹17.46 Lakh Based on Proportionate Formula

The Tribunal noted that exempt income for the year stood at ₹79.43 lakh and reiterated that Section 14A disallowance cannot exceed exempt income nor be arbitrary. Accepting the assessee’s revised working, the ITAT restricted the disallowance to ₹17.46 lakh, comprising proportionate expenditure under Rule 8D(2)(ii) and 1% investment value under Rule 8D(2)(iii). Accordingly, the remaining disallowance of over ₹2.41 crore was deleted, granting substantial relief to the NBFC. The appeal was partly allowed.