Aishwarya Rai Bachchan wins tax dispute as ITAT Mumbai rules against Rs 4 crore disallowance
Aishwarya Rai Bachchan secures a favourable ruling in a high-profile income tax case, as ITAT Mumbai overturns a Rs 4 crore tax disallowance relating to exempt income claims and clarifies procedural requirements for tax assessments.
- Nov 6, 2025,
- Updated Nov 6, 2025 6:55 PM IST
Aishwarya Rai Bachchan has secured a significant legal victory in her tax dispute, after the Income Tax Appellate Tribunal (ITAT) Mumbai ruled in her favour regarding a Rs 4 crore disallowance. The issue arose when the income tax department challenged her calculation of expenses related to tax-free income for Assessment Year 2022-23.
The tribunal's decision to dismiss the revenue's appeal and delete the disallowance reinforces the need for tax authorities to follow statutory procedures in such cases.
The dispute centred on Section 14A of the Income-tax Act, which precludes the deduction of expenses incurred to earn exempt income, the Economic Times reported. Rai Bachchan declared a total income of Rs 39.33 crore for the year, including investments generating Rs 2.14 crore in exempt income. She made a voluntary disallowance (suo-motu) of Rs 49.08 lakh in her tax return, contending that no direct expenses were incurred to obtain the exempt income. However, the assessing officer (AO) rejected this and applied Rule 8D, determining a disallowance of Rs 4.60 crore, increasing the assessed income to Rs 43.44 crore.
The tax department argued that the AO correctly invoked Section 14A read with Rule 8D and had documented his satisfaction. By contrast, the taxpayer's representative maintained that the AO did not record proper satisfaction and dismissed her detailed reply without due consideration. The representative also highlighted that her total expenses were only Rs 2.48 crore, while the AO's disallowance was Rs 4.60 crore, which was disproportionate.
On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] allowed relief to Rai Bachchan. The department escalated the matter to ITAT. The tribunal found that the AO simply rejected the assessee's computation and calculated the disallowance without segregating investments that actually generated exempt income. It also noted that the total expenses debited to the P&L account were only Rs 2.48 crore, making the disallowance of Rs 4.60 crore unreasonable.
The ITAT judgement stated: "Accordingly, we are of the considered view, that the disallowance made by the ld. AO over and above the suo-moto disallowance made by the assessee is without any basis and deserves to be deleted. In the result, the appeal of the revenue is dismissed." The tribunal emphasised that the AO had not properly considered the facts or provided adequate reasoning for rejecting the taxpayer's computation.
Relying on precedent, ITAT Mumbai noted that, as per the Supreme Court's decision in Maxopp Investments Ltd. Vs. CIT (2018), the AO must record satisfaction as to why the taxpayer's disallowance is not acceptable before invoking Rule 8D. In this case, the AO failed to do so. The tribunal also observed that the taxpayer had submitted workings considering only those investments from which exempt income was earned, consistent with the special bench decision in Vireet Investments Pvt. Ltd.
Section 14A(1) provides that no deduction shall be allowed for expenditure incurred in relation to income not forming part of the total income. If the AO, after examining the accounts, is not satisfied with the taxpayer's claim, he must record such dissatisfaction in writing before determining the disallowance under Rule 8D. Rule 8D prescribes a formula-based approach, which includes:
- Expenditure directly relating to exempt income- 1% of the average value of investments that actually generated exempt income during the year
Aishwarya Rai Bachchan has secured a significant legal victory in her tax dispute, after the Income Tax Appellate Tribunal (ITAT) Mumbai ruled in her favour regarding a Rs 4 crore disallowance. The issue arose when the income tax department challenged her calculation of expenses related to tax-free income for Assessment Year 2022-23.
The tribunal's decision to dismiss the revenue's appeal and delete the disallowance reinforces the need for tax authorities to follow statutory procedures in such cases.
The dispute centred on Section 14A of the Income-tax Act, which precludes the deduction of expenses incurred to earn exempt income, the Economic Times reported. Rai Bachchan declared a total income of Rs 39.33 crore for the year, including investments generating Rs 2.14 crore in exempt income. She made a voluntary disallowance (suo-motu) of Rs 49.08 lakh in her tax return, contending that no direct expenses were incurred to obtain the exempt income. However, the assessing officer (AO) rejected this and applied Rule 8D, determining a disallowance of Rs 4.60 crore, increasing the assessed income to Rs 43.44 crore.
The tax department argued that the AO correctly invoked Section 14A read with Rule 8D and had documented his satisfaction. By contrast, the taxpayer's representative maintained that the AO did not record proper satisfaction and dismissed her detailed reply without due consideration. The representative also highlighted that her total expenses were only Rs 2.48 crore, while the AO's disallowance was Rs 4.60 crore, which was disproportionate.
On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] allowed relief to Rai Bachchan. The department escalated the matter to ITAT. The tribunal found that the AO simply rejected the assessee's computation and calculated the disallowance without segregating investments that actually generated exempt income. It also noted that the total expenses debited to the P&L account were only Rs 2.48 crore, making the disallowance of Rs 4.60 crore unreasonable.
The ITAT judgement stated: "Accordingly, we are of the considered view, that the disallowance made by the ld. AO over and above the suo-moto disallowance made by the assessee is without any basis and deserves to be deleted. In the result, the appeal of the revenue is dismissed." The tribunal emphasised that the AO had not properly considered the facts or provided adequate reasoning for rejecting the taxpayer's computation.
Relying on precedent, ITAT Mumbai noted that, as per the Supreme Court's decision in Maxopp Investments Ltd. Vs. CIT (2018), the AO must record satisfaction as to why the taxpayer's disallowance is not acceptable before invoking Rule 8D. In this case, the AO failed to do so. The tribunal also observed that the taxpayer had submitted workings considering only those investments from which exempt income was earned, consistent with the special bench decision in Vireet Investments Pvt. Ltd.
Section 14A(1) provides that no deduction shall be allowed for expenditure incurred in relation to income not forming part of the total income. If the AO, after examining the accounts, is not satisfied with the taxpayer's claim, he must record such dissatisfaction in writing before determining the disallowance under Rule 8D. Rule 8D prescribes a formula-based approach, which includes:
- Expenditure directly relating to exempt income- 1% of the average value of investments that actually generated exempt income during the year