Huhtamaki India Limited Vs DCIT: ITAT Mumbai Delivers Multi-Issue Relief for Assessment Year 2014-15
Overview of the Dispute
The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) recently adjudicated a significant appeal filed by Huhtamaki India Limited against the order of the CIT(A)/National Faceless Appeal Centre for Assessment Year 2014-15. The Tribunal rendered its decision on 08.05.2026, addressing a cluster of tax disputes spanning disallowance under Section 14A, computation of book profits under Section 115JB, taxability of a capital investment subsidy, and the applicability of the India-Netherlands Double Taxation Avoidance Agreement to Dividend Distribution Tax levied under Section 115-O.
The assessee, a public limited company engaged in the manufacture and sale of packaging materials of various types and sizes — including metalized films, poly films, labeling material, cartons, and packaging machinery — had filed its return of income on 26.11.2014, declaring total income of Rs. 64,63,73,231/- and book profit under Section 115JB of Rs. 75,37,67,322/-. A revised return was subsequently filed on 31.03.2016, with total income revised to Rs. 63,47,95,820/-, while the book profit figure remained unchanged.
The assessment was completed by the Deputy Commissioner of Income Tax 14(2)(1), Mumbai under Section 143(3) of the Income-tax Act, 1961 on 30.12.2016, resulting in the total income being assessed at Rs. 65,13,58,470 — higher than what was reported by the assessee.
Issue 1: Disallowance Under Section 14A Read with Rule 8D — Subsidiary Investment Yielding No Exempt Income
Background and Facts
During the relevant year, the assessee had earned dividend income of Rs. 3,26,46,424/- from mutual fund investments, which was claimed as exempt under Section 10(35) of the Income-tax Act, 1961. In computing the disallowance attributable to earning such exempt income, the assessee made a suo motu disallowance of Rs. 30,17,484/- by applying the formula prescribed under Rule 8D of the Income-tax Rules, 1962. Critically, while performing this calculation, the assessee restricted the average value of investments only to those holdings that had actually generated exempt income during the year under review.
The Assessing Officer, however, took a different view. He directed that the non-current investment of Rs. 38,79,13,031/- made by the assessee in its subsidiary company, Webtech Labels Private Limited, ought to have been factored into the calculation under Rule 8D(2)(ii) and Rule 8D(2)(iii). This resulted in an incremental disallowance of Rs. 19,85,241/- being added over and above the amount already disallowed by the assessee.
The assessee's position was straightforward: no dividend or any form of exempt income had been earned from the investment in the subsidiary during the year in question. Accordingly, including such investment in the base for computing the disallowance was unsupported by law.
ITAT's Ruling on Section 14A Disallowance
The Tribunal examined the factual matrix and noted that the Revenue had not placed anything on record to dispute the core fact — that the assessee had earned no exempt income from its subsidiary investment during Assessment Year 2014-15. The Revenue's attempt to broaden the computation base was, therefore, directly at odds with the binding Special Bench ruling of the ITAT Delhi in ACIT v. Vireet Investment (P) Ltd. [2017] 82 taxmann.com 415 (Del.) (SB).
The Special Bench in Vireet Investment had categorically held that for the purpose of computing the average value of investments under
Rule 8D, only those investments which have actually yielded exempt income during the relevant year are to be included. Investments that have not generated any exempt income cannot be drawn into the computation.
Relying entirely on this settled proposition of law, the ITAT deleted the incremental disallowance of Rs. 19,85,241/- made by the Assessing Officer. Ground Nos. 3 and 4 raised by the assessee were accordingly allowed.