The Income Tax Appellate Tribunal (ITAT), Delhi Bench 'E', has clarified a critical aspect of tax computation by holding that disallowances under Section 14A read with Rule 8D of the Income-tax Rules, 1962 cannot affect the computation of book profit for Minimum Alternate Tax (MAT) purposes under Section 115JB of the Income-tax Act, 1961. The Tribunal modified its earlier order to explicitly exclude such disallowances from MAT computations, reinforcing settled jurisprudence on the matter.
Background & Facts
The Genesis
The assessee, NHPC Limited, filed Miscellaneous Applications (MA Nos.216 & 217/DEL/2026) under Section 254(2) of the Income-tax Act, 1961 for Assessment Years (AYs) 2017-18 and 2018-19. The applications sought rectification of mistakes apparent on record in the ITAT's order dated 29.10.2025, which disposed of Revenue appeals in ITA Nos.2651/DEL/2023 and 2652/DEL/2023.
Key Facts
The assessee is engaged in the generation and distribution of hydroelectric power, with its Permanent Account Number (PAN) being AAACN0149C.
The Revenue had raised Ground No.2 in both assessment years, challenging the disallowance under Section 14A read with Rule 8D for expenditure relatable to exempt income.
The ITAT, in its impugned order, directed the Assessing Officer (AO) to recompute the disallowance under Section 14A read with Rule 8D(2), noting that the amended rule post-03.06.2016 restricts disallowance to direct expenditure and 1% of the annual average of monthly average of investment yielding exempt income.
The ITAT allowed the Revenue's appeal for statistical purposes but failed to address the assessee's contention regarding the impact of Section 14A disallowance on the computation of book profit for MAT under Section 115JB.
Procedural History
29.10.2025: ITAT passed the impugned order in ITA Nos.2651/DEL/2023 and 2652/DEL/2023, allowing the Revenue's appeal for statistical purposes and directing recomputation of Section 14A disallowance.
03.07.2026: Assessee filed Miscellaneous Applications (MA Nos.216 & 217/DEL/2026) under Section 254(2) seeking rectification of the impugned order.
16.07.2026: ITAT allowed the miscellaneous applications and modified its earlier order to exclude Section 14A disallowance from MAT book profit computations.
Relief Sought
The assessee sought rectification of the ITAT's order dated 29.10.2025 to include a direction that Section 14A disallowance cannot affect the computation of book profit for MAT under Section 115JB. The assessee relied on the Special Bench decision in ACIT vs. Vireet Investment (P) Ltd. [2017] 165 ITD 27.
The Legal Issue
The central question was whether disallowances under Section 14A read with Rule 8D can be factored into the computation of book profit for MAT under Section 115JB of the Income-tax Act, 1961.
Arguments Presented
For the Assessee
The assessee, represented by Shri Ved Jain, Advocate, argued that the ITAT's impugned order failed to address the assessee's contention regarding the impact of Section 14A disallowance on MAT book profit computations. The assessee relied on the Special Bench decision in ACIT vs. Vireet Investment (P) Ltd. [2017] 165 ITD 27, which held that Section 14A disallowance cannot affect MAT computations. The assessee also highlighted that the ITAT's order directed recomputation of Section 14A disallowance without excluding its impact on MAT computations.
For the Revenue
The Revenue, represented by Shri Sudip Melumder, Sr. DR, did not object to the assessee's submissions. The Revenue's stance was aligned with the assessee's contention that Section 14A disallowance cannot affect MAT computations.
The Court's Analysis
The ITAT examined the assessee's submissions and the material on record. It noted that while the impugned order directed the AO to recompute the disallowance under Section 14A read with Rule 8D(2), it failed to address the assessee's contention regarding the impact of such disallowance on the computation of book profit for MAT under Section 115JB.
The ITAT observed that it is a settled position of law that disallowances under Section 14A do not affect the computation of book profit for MAT purposes. The ITAT relied on the Special Bench decision in ACIT vs. Vireet Investment (P) Ltd. [2017] 165 ITD 27, which held that Section 14A disallowance cannot be factored into MAT computations.
"It is settled position of law that the disallowance u/s 14A has no bearing in the computation of book profit u/s 115JB of the Act."
The ITAT further noted that the Revenue had raised the issue of Section 14A disallowance while computing book profit for MAT purposes in Ground No.2 itself. However, the ITAT's impugned order did not address this aspect, leading to a mistake apparent from the record.
The Verdict
The ITAT allowed the assessee's Miscellaneous Applications (MA Nos.216 & 217/DEL/2026) for Assessment Years 2017-18 and 2018-19. The ITAT modified its earlier order dated 29.10.2025 to include the following direction:
"After considering the detailed submissions of the assessee, we noticed that Revenue has raised in Ground no.2 itself that the provisions of section 14A read with Rule 8D of the Income-tax Rules, 1962 being expenditure relatable to the income not included in the total income while computing the income under normal provisions as well as computing book profit u/s 115JB of the Act. Accordingly, we are inclined to modify the directions given to the AO to determine the actual exempt income and also determine 1% of the annual average of the investment which actually yielded the exempt income. We direct the AO not to disturb the computation of book profit u/s 115JB of the Act and as held in the case of ACIT vs. Vireet Investment (2017) 165 ITD 27 that there cannot be any disallowance u/s 14A while computing book profit for MAT purposes u/s 115JB of the Act. Therefore, we direct the AO to follow the directions given at para no.18 with the above modified directions."
The ITAT directed the AO to recompute the disallowance under Section 14A read with Rule 8D(2) without affecting the computation of book profit for MAT under Section 115JB.
What This Means For Similar Cases
Section 14A Disallowance Is Inapplicable to MAT Computations
Practitioners must now explicitly argue that Section 14A disallowances cannot affect the computation of book profit for MAT under Section 115JB. The ITAT's order reinforces the settled position that Section 14A disallowances are irrelevant for MAT computations.
Actionable Takeaway: When drafting appeals or objections, specifically plead that Section 14A disallowances do not impact MAT computations under Section 115JB.
Procedural Compliance Is Critical
The ITAT's order highlights the importance of addressing all aspects of a ground raised by the Revenue. Failure to do so may result in a mistake apparent from the record, necessitating rectification under Section 254(2).
Actionable Takeaway: Ensure that all aspects of a ground raised by the Revenue are addressed in the order to avoid procedural lapses.
Reliance on Special Bench Decisions
The ITAT's reliance on the Special Bench decision in ACIT vs. Vireet Investment (P) Ltd. [2017] 165 ITD 27 underscores the importance of citing binding precedents to support arguments.
Actionable Takeaway: Cite the Vireet Investment decision when arguing that Section 14A disallowances cannot affect MAT computations.
