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Why did the Income Tax Department nonstop Aishwarya Rai Bachchan a taxation notice, what was the assessing officer’s rationale?
Well known histrion Aishwarya Rai Bachchan has precocious won a lawsuit against the Income Tax Department - a Rs 4 crore lawsuit relating to disallowance of income. On October 22, 2022, Aishwarya Rai Bachchan, declared a full income of Rs 39 crore (39,33,02,240) for the Assessment Year 2022-23.
Her investments successful tax-free income generating assets stood astatine Rs 449 crore, according to an ET report.Following her ITR processing, she received a taxation announcement arsenic her lawsuit was selected for broad scrutiny by the Income Tax Department for elaborate verification. In effect to the taxation notice, Aishwarya provided the requisite clarifications. However, the taxation assessing serviceman (AO) rejected definite expenses related to exempt income nether Section 14A work with Rule 8D.
She argued that she had voluntarily made a disallowance of Rs 49 lakh (suo-moto), contempt not incurring immoderate expenses for earning the exempt income.
Why did the Income Tax Department nonstop Aishwarya Rai Bachchan a taxation notice, what was the assessing officer’s rationale, and wherefore did the Income Tax Appellate Tribunal (ITAT) Mumbai regularisation successful her favour? We instrumentality a look:
Aishwarya Rai Bachchan taxation case: What was the substance about?
Section 14A of the Income-tax Act, 1961 was established to forestall taxpayers from claiming deductions connected expenses related to tax-exempt income.
This proviso ensures that expenses linked to tax-free income cannot beryllium claimed against taxable income, frankincense maintaining taxation basal integrity and equality betwixt exempt and taxable income streams.
- The AO dismissed her mentation and proceeded with disbursal disallowance nether Section 14A work with Section 8D based connected these figures:
- Her concern worth decreased from Rs 472 crore connected March 31, 2020 to Rs 449 crore connected March 31, averaging Rs 460 crore during the fiscal year. The 1% disallowance calculated to Rs 4.60 crore.
- She had already calculated a suo-moto disallowance of Rs 49 lakh (49,08,657), and the Income Tax Department disallowed the remaining Rs 4 crore (4,11,54,731) nether Section 14A.
- The last appraisal was completed connected March 16, 2024, nether Section 143(3), determining the income astatine Rs 43 crore (43,44,56,971).
| Particulars | Investment arsenic connected March 31, 2021 (Rs) | Investment arsenic connected March 31, 2020 (Rs) | Total |
| Investment successful taxation escaped income earning assets | 4,49,43,98,145 | 4,71,82,79,581 | 9,21,26,77,726 |
| Avg. worth of investment | 4,60,63,38,863 |
The Disallowance, calculated astatine 1% of above, made by the taxation officer= Rs 4,60,63,388. Source: ETMrs. Bachchan contested the taxation department's bid by filing an entreaty with the CIT(A), who subsequently ruled successful her favour aft a thorough investigation.The Income Tax Department, not accepting the CIT(A)'s decision, subsequently approached ITAT Mumbai. Finally, ITAT Mumbai ruled successful Aishwarya Rai Bachchan’s favour connected October 31, 2025.
What is Section 14A relating to disallowance of income?
Section 14A(1) intelligibly states that expenditure related to income not forming portion of full income nether the IT Act cannot beryllium claimed arsenic deductions. When the Assessing Officer reviews accounts and finds the taxpayer's assertion unsatisfactory, including claims of zero expenditure, they indispensable papers their concerns earlier determining disallowance arsenic per Rule 8D of the Income-tax Rules, 1962.
This process applies universally, adjacent erstwhile taxpayers asseverate nary expenditure against exempt income.Upon documenting valid concerns astir a taxpayer's calculations, the AO employs a formula-based methodology nether Rule 8D for quantifying disallowance, the ET study says. This includes:
- Expenditure straight relating to exempt income,; and
- 1% of the mean worth of investments (an yearly mean of monthly averages of the opening and closing worth of the investment) that person really generated exempt income during the year.
"The aggregate disallowance, however, cannot transcend the full expenditure debited to the nett and nonaccomplishment relationship for the applicable year.
It is pertinent to enactment that Rule 8D is not intended to use automatically. The AO indispensable archetypal analyse the taxpayer's accounts and computation of disallowance, signifier an nonsubjective sentiment supported by reasons that specified computation is incorrect oregon inadequate, and grounds this restitution successful the appraisal order.
Only past whitethorn the AO proceed to use the Rule 8D formula. Absence of specified recorded restitution renders the disallowance invalid,” Chartered Accountant (Dr.)
Suresh Surana told ET.
Why did ITAT Mumbai regularisation successful Aishwarya Rai Bachchan’s favour?
Surana explains that successful the referenced taxation entreaty (ITA No.5403/MUM/2025) involving ACIT and Aishwarya Rai Bachchan, the appellant submitted her income-tax instrumentality for Assessment Year 2022-23. She declared a full income of Rs. 39.33 crore, which comprised investments generating exempt income of Rs. 2.14 crore, chiefly from dividends and tax-free involvement sources.The appellant voluntarily implemented a disallowance of Rs.
49.08 lakh nether Section 14A successful conjunction with Rule 8D, whilst maintaining her presumption that she had not incurred immoderate nonstop expenses for generating the exempt income.However, the AO deemed the assessee's submission inadequate. The AO implemented Section 14A r/w Rule 8D(2)(iii) without identifying circumstantial discrepancies successful her calculations and determined a disallowance of Rs 4.60 crore (1% of mean investment), resulting successful a full income of Rs 43.44 crore. The CIT(A) aboriginal reversed the AO's further disallowance beyond the voluntary amount, noting the AO's nonaccomplishment to papers due restitution arsenic mandated nether Section 14A(2). The Tax Tribunal evaluated the Assessing Officer's ruling and made respective cardinal observations:
- The Tribunal noted that the assessee had proactively calculated a disallowance of Rs 49.08 lakh, including some nonstop and indirect costs including securities transaction taxation and portfolio absorption charges.
- In its judgement (ITA No.5403/MUM/2025) dated October 31, 2025, ITAT Mumbai noted that the payer voluntarily made a disallowance of Rs 49,08,657 nether Section14A against full exempt income of Rs 2,14,26,224 whilst filing their income taxation return.
- The magnitude comprised nonstop expenses of Rs 37,59,718, transaction taxation of Rs 1,65,189, STT of Rs 4,95,328 and indirect expenses astatine 5% of full expenses, amounting to Rs 4,88,422.
- The Income Tax Department’s appraisal lacked due justification for rejecting the assessee's calculations, which is required by Section 14A(2) anterior to implementing Rule 8D procedures.
- ITAT Mumbai referenced the Supreme Court's determination successful Maxopp Investments Ltd. Vs. CIT(2018) 402 ITR 640, stating the Assessing Officer needed to papers wherefore the voluntary disallowance was unacceptable, which wasn't done. Hence, the CIT(A) rightfully granted relief.
- Additionally, whilst the full expenditure shown successful nett and nonaccomplishment was Rs 2.48 crore, the AO inexplicably arrived astatine a disallowance of implicit Rs 4.60 crore, presenting a logical inconsistency.
- Furthermore, the appraisal failed to bounds disallowance calculations to investments generating tax-exempt income, contradicting the precedent established successful Vireet Investment Pvt. Ltd. v. ACIT (165 ITD 27).
Surana says: "The ITAT Mumbai concluded that the CIT(A) rightly deleted the further disallowance and Aishwarya Rai Bachchan's suo-motu disallowance was recovered tenable successful the circumstances."
