March 24, 2026 : The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has deleted a disallowance of ₹48,97,483 made against Zee Entertainment Enterprises Limited under Section 14A of the Income Tax Act for Assessment Year 2019–20, holding that the Assessing Officer (AO) cannot invoke Rule 8D without first recording dissatisfaction with the assessee’s computation.

Key Findings

The Bench comprising Judicial Member Anikesh Banerjee and Accountant Member Arun Khodpia observed that recording satisfaction regarding the incorrectness of the assessee’s computation is a mandatory precondition for invoking Rule 8D. In the absence of such satisfaction, the disallowance was held to be unsustainable.

The Tribunal noted that the assessee had already made a suo motu disallowance of ₹15,000, computed as 1% of average monthly investments of ₹15 lakh, and disclosed the same in its return of income.

Background

During AY 2019–20, the assessee earned total dividend income of ₹56.81 lakh, of which ₹49.12 lakh was claimed as exempt. The AO issued a show cause notice proposing disallowance under Section 14A read with Rule 8D.

Despite the assessee furnishing detailed workings and explanations, the AO recomputed the disallowance by applying 1% to an enhanced average investment base of ₹1,32,33,27,240, resulting in a disallowance of ₹1.32 crore. After adjusting the assessee’s disallowance, an addition of ₹1.32 crore (approx.) was made.

On appeal, the Commissioner of Income Tax (Appeals) restricted the disallowance to the extent of exempt income and sustained an addition of ₹48.97 lakh.

Tribunal’s Analysis

The Tribunal found that:

• The AO failed to record any dissatisfaction with the correctness of the assessee’s computation.
• Despite this, the AO proceeded to recompute disallowance under Rule 8D.
• Such action violates the statutory requirement under Section 14A.

Relying on the Bombay High Court ruling in PCIT v. Tata Capital Ltd., the Tribunal reiterated that Rule 8D cannot be invoked mechanically.

It further held that even the CIT(A) erred in sustaining the addition once the foundational requirement under Section 14A was not met.

Decision

The ITAT set aside the appellate order and deleted the entire addition of ₹48,97,483, allowing the assessee’s appeal.

Additional Observations (AY 2015–16)

In the connected appeal, the Tribunal also quashed reassessment proceedings for AY 2015–16, holding that the notice issued under Section 148 on 29.07.2022 was barred by limitation, following the Supreme Court ruling in Union of India v. Rajeev Bansal.

Case Details

Case Title: Zee Entertainment Enterprises Limited v. DCIT
Case No.: ITA No. 6872/Mum/2025 & ITA No. 6873/Mum/2025
Coram: Anikesh Banerjee (JM) & Arun Khodpia (AM)