ITAT Mumbai Gives Clean Chit to Aishwarya Rai in Rs. 4.11 Crore Tax Dispute

The present appeal has been filed by ACIT 16(1) (Appellant) in the Income-Tax Appellate Tribunal (ITAT) “A” Bench, Mumbai, before Shri Pawan Singh, Judicial Member and Smt Renu Jauhri, Accountant Member, against Aishwarya Rai Bachchan (Respondent). The hearing on the case took place on October 29, 2025, and was decided on October 31, 2025. The matter is related to the assessment year 2022-23.

The appeal has been filed challenging an order dated 16.06.2025 issued by the Learnt Commissioner of Income-tax (Appeals), Mumbai/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] under Section 250 of the Income-tax Act, 1961.

The main issue was whether the tax officer was right in increasing the amount of disallowed expenses related to tax-free income under Section 14A of the Income Tax Act.

Background of Case:

On October 22, 2022, Aishwarya Rai Bachchan filed her income tax return (ITR) for the assessment year 2022-23, disclosing a total income of Rs. 39,33,02,240. The matter was chosen for detailed scrutiny of multiple issues in the ITR.

The tax authorities questioned expenses claimed by her, especially in relation to income that is exempt from tax (like dividend income). These expenses are governed under Section 14A and Rule 8D.

She claimed that, even though she claimed that she did not spend anything to earn tax-free income, she suo moto added a disallowance (expense not allowed for deduction) of Rs. 49,08,657.

Tax Officer’s Decision

The tax officer disagreed with the calculations made by Aishwarya Rai Bachchan and made a disallowance under Section 14A and Rule 8D, and made the following calculations:

Applied 1% of this (as per new Rule 8D) = Rs. 4.60 crore. After subtracting what she had already disallowed, he added Rs. 4.11 crore more to her taxable income. This raised her taxable income to Rs. 43.44 crore.

CIT(A)’s Decision:

Assessee dissatisfied with the decision of the tax officer, then approached the Commissioner of Income Tax (Appeals), who endorsed the arguments made by her and said that the AO did not properly explain why her voluntary disallowance was not enough.

Her total expenses in the year were only Rs. 2.48 crore, yet the AO disallowed more than Rs. 4.60 crore, which made no sense. The AO did not consider that only those investments that actually earned tax-free income in the year should be counted while making a disallowance.

In conclusion, the CIT(A) deleted the extra disallowance made by the AO.

ITAT Mumbai’s View

Thereafter, the tax officer, dissatisfied with the decision of the CIT(A), then approached the Income-Tax Appellate Tribunal (ITAT), Mumbai, stating that Section 14A applies even if the assessee has interest-free funds.

Additionally, the Supreme Court has also ruled on a similar matter earlier in the case of Maxopp Investment Ltd; however, CIT(A) ignored the SC’s ruling.

ITAT’s Final Decision

The Tribunal agreed with the assessee and CIT(A)’s ruling and made the following conclusions:

• The AO did not truly record why he disagreed with the taxpayer’s calculation.
• The total expenses for the year were much lower than the disallowance made by AO.
• The disallowance calculation should have excluded investments that did not earn any tax-free income.
• The extra disallowance by the AO had no reasonable basis. Therefore, the disallowance made under Section 14A and Rule 8D has been deleted.