VARDHMAN SPECIAL STEELS LTD.,LUDHIANA V. DCIT, CIRCLE-1, LUDHIANA

ITA 79/CHANDI/2024

AI Insights

Vardhman Special Steels Ltd. appealed against the order of the CIT(A)/NFAC Delhi, which upheld various disallowances made by the Assessing Officer under the Income Tax Act, 1961 for the Assessment Year 2018-19. The main issues revolved around the disallowance under Section 14A read with Rule 8D concerning expenses related to earning exempt income, and the disallowance of interest expenditure under Section 36(1)(iii). The Tribunal examined the application of Rule 8D and the satisfaction required under Section 14A(2) for making such disallowances. The Tribunal also considered the availability of sufficient interest-free funds with the assessee for making investments, which led to the deletion of the disallowance under Section 36(1)(iii).

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 361006 (ITAT-CHANDIGARH)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Assessment Year: 2018-2019
• Other Referred Cases: Vardhman Special Steels Limited vs. ACIT, Ludhiana, Vardhman Holdings Limited vs. ACIT, Devakar Investment & Trading Company P. Ltd vs. CIT, Pradeep Mercantile Co. P. Ltd vs. CIT, Deepak Mittal vs. CIT, Abhishek Industries Ltd vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RANJIT KAUR
• Assessee Lawyers: TEJMOHAN SINGH
• Keywords: Proportionate interest; Revised return; Earning of tax free income; Notional interest; Rule 8D
• Section: 142(1); 14A; 115JB

Judgement Text

"आयकर अपीलीय अिधकरण,चǷीगढ़ Ɋायपीठ “B” , चǷीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “बी”, CHANDIGARH HEARING THROUGH: PHYSICAL MODE ŵी लिलत क ुमार, Ɋाियक सद˟ एवं ŵी क ृणवȶ सहाय, लेखा सद˟ BEFORE: SHRI. LALIET KUMAR, JM & SHRI. KRINWANT SAHAY, AM आयकर अपील सं./ ITA No. 79 /Chd/ 2024 िनधाŊरण वषŊ / Assessment Year : 2018-19 Vardhman Special Steels Ltd. Vardhman Premises, Chandigarh Road, Ludhiana, Punjab-141010 बनाम The DCIT Cirlce-1, Ludhiana ˕ायी लेखा सं./PAN NO: AADCV4812B अपीलाथŎ/Appellant ŮȑथŎ/Respondent िनधाŊįरती की ओर से/Assessee by : Shri Tejmohan Singh, Advocate राजˢ की ओर से/ Revenue by : Dr. Ranjit Kaur, Addl. CIT, Sr. DR सुनवाई की तारीख/Date of Hearing : 06/03/2025 उदघोषणा की तारीख/Date of Pronouncement : 20/05/2025 आदेश/Order PER KRINWANT SAHAY, A.M: This is an appeal filed by the Assessee against the order of the Ld. CIT(A)/NFAC Delhi dt. 29/11/2023 pertaining to Assessment Year 2018- 19. 2. In the present appeal Assessee has raised the following grounds: 1. That the Order passed by the National Faceless Appeal Centre / Ld. CIT(A) is contrary to law and also have been passed without appreciation of facts of the case. 2. That the National Faceless Appeal Centre / Ld. CIT(A) erred in law and on facts in upholding the disallowance of Rs. 1,78,870/- (though restricted to Rs. 1,78,314/- after allowing credit of suo-moto disallowance of Rs. 556/-) under section 14A of The Income Tax Act, 1961 read with Rule 8D ignoring the contention of the assessee. 3. That the National Faceless Appeal Centre/Ld. CIT(A) erred in law and on facts in importing the disallowance made u/s 14A into the scheme of calculation of book profits as per section 115JB of the Act. 2 4. That the National Faceless Appeal Centre /Ld. CIT(A) has erred in law and on facts while upholding the disallowance of interest expenditure on notional basis amounting to Rs. 8,16,010/- on investments under the provisions of section 36(1) (iii) of The Act. 5. Without pre-judice to ground no.4, the National Faceless Appeal Centre /Ld. CIT(A) has erred in not allowing the above mentioned interest expenditure under section 57 of The Act and setting off the same against income from other sources. 6. That the appellant craves leave to add/alter/amend any ground of appeal on or before the due date of hearing of appeal. 3. Briefly the facts of the case are that Vardhman Special Steels Limited, a public limited company engaged in manufacturing and exporting steel billets, rolled bars, and rods, filed its original income tax return for the A.Y. 2018-19 on 09/10/2018, declaring a total income of \"Nil,\" a long-term capital loss of Rs. 29,69,207/-, and exempt income of Rs. 1,41,656/-. A revised return was filed on 30/03/ 2019, maintaining the total income as \"Nil,\" with a reduced long-term capital loss of Rs. 26,69,207/- and exempt income of Rs. 1,42,194. Taxes of Rs. 5,78,97,933/- were paid on book profits of Rs. 27,12,91,436/- under the MAT provisions in both returns. The case was selected for complete scrutiny under the E-assessment Scheme, 2019, focusing on issues such as claims under Schedule BP, investments/advances/loans, ICDS compliance, and investment in immovable property. Notices under Section 143(2) were issued by the National e-Assessment Centre (NeAC) on 22/09/ 2019, and the case was later transferred to the Regional e-Assessment Centre (ReAC) on 15/10/2020, for faceless assessment. Further notices under Section 142(1) were issued on 27/01/2020, 24/12/ 2020, and 22/02/2021, to which the assessee responded with the required details. 3.1 Regarding disallowance under Section 14A read with Rule 8D, the AO noted that the assessee had investments of Rs. 8,14,98,234, potentially yielding exempt income. The assessee disallowed Rs. 556 3 under Section 14A, attributing it to expenses paid to PMS proportionate to the dividend income of Rs. 1,42,194. However, the AO did not accept the assessee’s explanation. He referred to Rule 8D changed from 02.06.2016 and a CBDT circular from 2014, which say that expenses must be disallowed if investments could give tax-free income, even if no such income was actually received. The AO calculated the disallowed amount as 1% of the average value of these investments amounting to Rs. 1,78,86,781.75, which came to Rs. 1,78,870/-. Since the assessee had already disallowed Rs. 556/-, the remaining Rs. 1,78,314/- was added back to the taxable income. The AO also started penalty proceedings under Section 270A for under-reporting income. 3.2 The AO disallowed interest under Section 36(1)(iii), stating that the assessee’s investment of Rs. 8,14,98,234/- in shares and mutual funds was not for business purposes, as the company’s main business was steel manufacturing. Although the assessee claimed it used its own funds and cited various decisions to support this, the AO argued that it was unclear whether borrowed or own funds were used. The AO referred to a Supreme Court decision and said that interest can only be claimed as a deduction if the borrowed money is used for business. Since that wasn't clearly shown, the AO disallowed Rs. 8,16,010/- calculated at 12% for one month and also started penalty proceedings under Section 270A.The AO added this disallowance, along with Rs. 1,78,314/-under Section 14A, to the revised returned income of Rs.14,69,49,564/-, resulting in a total income of Rs.14,79,43,888/-. However, after setting off earlier year losses of Rs. 87,88,41,731/-, taxable income became nil. For MAT purposes, book profit was revised to Rs. 27,14,69,750/-. The assessment was completed under Section 143(3), and a demand notice was issued. 4 4. Against the order of the AO the assessee went in appeal before the Ld. CIT(A) who has since dismissed the appeal of the Assessee. 5. Against the order of the Ld. CIT(A) the assessee preferred an appeal before the Tribunal. 6. During the course of hearing the Ld. Counsel for the Assessee submitted brief submissions which read as under: Ground No. 1 – General in nature Ground No. 2 – That the National Faceless Appeal Centre/Ld. CIT(A) erred in law and on facts in upholding the disallowance of Rs. 1,78,870/- (though restricted to Rs .1,78,314/- after allowing credit of suo-moto disallowance of Rs. 556/-) under Section 14A of The Income Tax Act, 1961 read with Rule 8D ignoring the contention of the assesse. AO’s Action That Ld. AO disallowed a net amount of Rs. 1,78,314/- u/s 14A of the Act after deducting suo-moto disallowance of Rs. 556/- made by the assesse. Breakup of Disallowance made by the AO Disallowance u/s 14A r.w Rule 8D(2)(ii) Rs. 1,78,870/- Less – Suo-moto Disallowance by the assesse Rs. 556/- Balance Disallowance Rs. 1,78,314/- CIT(A)’s Action - That Ld. CIT(A) / National Faceless Appeal Centre upheld the disallowance made u/s 14A of the Act by simply relying on AO’s order. Assesse’s Submission: Brief Facts: 1. The assessee during the year under consideration earned dividend income of Rs. 1,42,194/- by making investments through PMS (Portfolio Management Service) / AIF(Alternative Investment Fund) only. 2. Since, the assessee, earned both exempt income and taxable income during the year under consideration through PMS/AIF, accordingly, the assessee had disallowed Rs. 556/- u/s 14A by allocating the expense paid to PMS/AIF in the ratio of income received from it. Calculation of disallowance made by assessee is enclosed vide separate Paperbook at page 30. Thus, Out of total PMS/AIF expenses of Rs. 1,20,116/-, the assessee allocated Rs. 556/- in proportionate manner. Submissions: 1. No satisfaction recorded based on cogent reasons before invoking Rule 8D. 5 - That the Ld. AO before invoking the provisions of Rule 8D simply quoted that the only method prescribed is as per Rule 8D. There is no attempt on the part of the Ld. AO to give cogent reasons against the methodology adopted by the assesse in making suo-moto disallowance. The AO ignored the fact that the provisions of the Act/Rule provide that before invoking Rule 8D, there must exist reasons for not accepting the assessee’s claim. The law nowhere provides that Rule 8D is mandatorily to be applied. He simply proceeds to invoke Rule 8D simply by stating as reproduced hereunder: “3.2 The submissions of the assesse have been considered and found to be unacceptable. The assesse itself has disallowed Rs. 556/- in its return of income, therefore provisions of section 14A read with Rule 8D are squarely applicable in the instant case. The provision of Rule 8D as amended and made effective from 02.06.2016 are clear and unambiguous in nature. The said provision lays down a mechanism as to how disallowance is to be made against the income should be calculated. There is no other method prescribed under the tax laws.” - The Ld. AO in compliance of section 14A(2) of the Act was required to evaluate the assessee’s claim and only thereafter based on facts of the case & details reasons could have disallowed the said claim. The relevant extract of section 14A(2) is reproduced as under for your reference; “(2) The assessing officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if assessing officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act.” - The assesse’s aforesaid method of allocation of expenses was also based on and upheld in various judicial pronouncements either in assessee’s own case and in case of assesse’s associate companies, as quoted hereunder: (a) Judgment of Hon’ble Jurisdictional ITAT in ITA No. 1510/2017 AY 2013-14 in assessee’s own case i.e in the case of Vardhman Special Steels Limited vs. ACIT, Ludhiana dated 20.12.2018, wherein, the Hon’ble Tribunal held that – “(13)..….During assessment proceedings, the assesse had explained the basis for making the impugned disallowance submitting a calculation of the same also. The assesse had explained that it had made certain investments directly while others had been made through Portfolio Mangement Services. In relation to those investments which had been made directly, it had disallowed expenses of Rs. 50,000/- while in relation to those investments made through PMS, it had worked out the proportionate amount of expenses incurred on PMS in the ratio of taxable income to non-taxable income generated by 6 the PMS and disallowed the same. Therefore, the assesse had explained the rationale of making the suo-moto disallowance to the AO…....Therefore, clearly there is no satisfaction of the AO regarding the incorrectness of the claim of expenditure by the assessee incurred in relation to earning exempt income. In view of the same, the disallowance computed by the AO is bad in law and is, therefore, directed to be deleted.” Copy enclosed herewith (b) Judgment of Hon’ble Jurisdictional ITAT in ITA No. 1135/2016 for AY 2013-14 in the case of Vardhman Holdings Limited (i.e assesse’s associate company) – “(10)…...Moreover, in the present case also, we find that the Assessing Officer had not dislodged the correctness of the claim of the assesse of computing the expenses incurred on the tax free income on proportionate basis. The Assessing Officer has not pointed out as to how the same was incorrect, but has merely stated that since no separate books are maintained, the expenses incurred are not correct…...We, therefore, hold that the Ld. CIT(Appeals) has rightly applied the decision of the I.T.A.T in the case of the assesse for assessment year 2008-09 to the present case.” Copy enclosed herewith (c) Judgment of Hon’ble Jurisdictional ITAT in ITA No. 550/2015 for AY 2008-09 in the case of Vardhman Holdings Limited (i.e assessee’s associate company), wherein the Hon’ble Tribunal held that – “(7)……It was demonstrated before us that this amount suo moto disallowed by the assesse has some scientific basis i.e these have been computed in proportion to the tax-free income to the taxable income. Further, the Assessing Officer has nowhere recorded his satisfaction on the issue that how the disallowance computed by the assesse is wrong. It is true that Rule 8D has been prescribed by the Income Tax Rules for making computation of disallowance under Section 14A of the Act w.e.f assessment year 2008-09 but it can never be envisaged that in compliance to these, provisions can be stretched to such an extent as has been done by the Assessing Officer in the present case…...” Copy enclosed herewith (d) Judgment of Hon’ble Jurisdictional ITAT in ITA No. 691/2016 for AY 2012-13 in the case of Devakar Investment & Trading Company P. Ltd (i.e. assessee’s another associate company) – “(8) In the light of the above facts wherein the assesse has disallowed 49% of expenses under Section 14A, we are not in agreement with the observation of the Assessing Officer that invoking of Rule 8D is a mandate and has an automatic application as the Assessing Officer’s dissatisfaction with the correctness of claim of the assesse in respect of expenditure in relation to the income which does not form part of the total income under the At is conspicuously absent. In any case when 49% of expenses have disallowed on scientific basis by the assesse, disallowance of Rs. 61,90,287/- against the total expenditure of Rs. 56,91,320/- do not instill any confidence in enforcement of the Act. This is not a case where the 7 assesse claims that no expenditure has been incurred by them with relation to the income which does not form part of the total income. Keeping in view the facts and circumstances of the case, and the case laws referred by the revenue are not applicable to the issue in the instant case, we decline to interfere in the order of the Ld. CIT(A) who has rightly ordered to delete the disallowance.” Copy enclosed herewith (e) Judgment of Hon’ble Jurisdictional ITAT in ITA No. 1513/2017 for AY 2012-13 in the case of Pradeep Mercantile Co. P. Ltd ( Now amalgamated into M/s. Devakar Investment & Trading Company P. Ltd (i.e. assessee’s another associate company) wherein the Hon’ble Tribunal held that - “(5.1) As far as the issue of application of Rule 8D vis- à-vis the provisions existing that particular time i.e assessment year 2012- 13 is concerned, it is seen that the assesse has already made suo-moto disallowance in terms of the provisions of section 14A which is undisputedly in proportion to the dividend income earned…….We are of the considered opinion that the action of the AO of recording the so called satisfaction was, thus, lacking any logic or sound reasoning and therefore, he had no basis to make any further disallowance in the present case. The Ld. CIT(A) has also upheld the disallowance without appreciating this aspect of the case.” Copy enclosed herewith - Further, the assessee also places its reliance on the below judgments; (f) CIT vs. Deepak Mittal, (2014) 361 ITR 131 (P&H) (Reported) - The Ld. AO did not bring on record that any expenditure has been incurred to earn the exempt income and straight away made the disallowance u/s 14A over Rule 8D. Held, since nothing was brought on record of having incurred any expenditure – No disallowance u/s 14A Rule 8D. (g) CIT vs. Abhishek Industries Ltd, (2016) 380 ITR 652 (P&H) dated 27.1.15 (Reported) “Section 14A of the Act, being in the nature of an exception, has to be construed strictly and only where the Assessing Officer records satisfaction, on the basis of clear and cogent material, shall an order be passed under Section 14A of the Act, disallowing such a claim” 2. Disallowance made under section 14A cannot exceed the exempt income a) Pr. CIT vs. Empire Package Pvt. Ltd., (2016) 286 CTR 457 (Punjab & Haryana High Court) dated 12.01.2016 - Disallowance made under section 14A read with rule 8D cannot exceed the exempt income Copy enclosed herewith 8 b) Joint Investments P. Ltd vs. CIT, (2015) 59 taxmann.com 295 (Delhi High Court) wherein the Court held that, “By no stretch of imagination can s. 14A or r. 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in s. 14A, and is only to the extent of disallowing expenditure \"incurred by the assessee in relation to the tax exempt income\". This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case”. Copy enclosed herewith Ground No. 3 – That the National Faceless Appeal Centre/Ld. CIT(A) erred in law and on facts in importing the disallowance made u/s 14A into the scheme of calculation of book profits as per Section 115JB of the Act. AO’s Action – That Ld. AO imported the disallowance made u/s 14A into the scheme of calculation of book profits as per Section 115JB of the Act. CIT(A)’s Action -- That Ld. CIT(A) / National Faceless Appeal Centre upheld the disallowance / adjustment made by the AO. Assesse’s Submission: Section 115JB is a self-contained code and disallowance u/s 14A cannot be embedded into the book profits. Assessee relies on following judgments; a) ACIT vs. Vireet Investment P. Ltd, (2017) 82 taxmann.com 415 (Delhi Trib) (SB) The Hon’ble Special Bench of the Tribunal held that as section 115JB is a self-contained code therefore the disallowance made u/s 14A cannot be imported into book profits. b) Judgment of Hon’ble ITAT Chandigarh in the case of assessee’s associate company i.e in the case of Vardhman Textiles Limited vs CIT-I, ITA No. 1592/2017 dated 08.03.2021, wherein, the Hon’ble Tribunal in the case of assessee’s associate company allowed the identical ground in favour of the assesse. Ground No. 4 – That the National Faceless Appeal Centre/Ld. CIT(A) has erred in law and on facts while upholding the disallowance of interest expenditure on notional basis amounting to Rs. 8,16,010/- on investments under the provisions of Section 36(1)(iii) of The Act. And Ground No. 5 - Without prejudice to ground no. 4, the National Faceless Apeeal Centre/Ld. CIT(A) has erred in not allowing the above 9 mentioned interest expenditure under Section 57 of the Act and setting off the same against income from other sources. AO’s Action - Disallowed notional interest of Rs. 8,16,010/- u/s 36(1)(iii) of the Act on the premise that assessee had mixed pool of funds and that the investments were for non-business purposes. CIT(A)’s Action (Page 8 to 9) Upheld the order of Ld. AO Assessee’s Submission – Adequate Reserves and Surplus - The assessee submits that it had adequate reserves/surpluses/own funds to make investments. - Total Investments as on 31.03.2018 Rs. 816.01 lacs - Total of own funds i.e. share capital and reserves stood at Rs. 33,931.61 Lacs. Please refer copy of balance sheet & profit and Loss Account enclosed vide separate paperbook at pages 3 to 28 (relevant page 3). - Recently, similar presumption theory was also accepted by the Hon’ble Supreme Court in the judgment of South Indian Bank Ltd. vs. Commissioner of Income-tax vide its order dated 09.09.2021, wherein, the Hon’ble court has held that, where the assessee has mixed funds (i.e. made up partly of interest free funds and partly of interest- bearing funds) and for making investments, payment is made out of that mixed funds then the investments must be considered to have been made out of the interest free fund only i.e. the presumption in case the assesse had mixed pool of funds, should be that, the assesse had used its own funds for making the investments rather than interest-bearing or borrowed funds. Case Law enclosed at Pages 108 to 115(Relevant page 112, Para 17). Further, assessee also places its reliance on following judgments including judgments in assessee’s own cases and in case of assessee associate company:- 1. Vardhman Special Steels Limited vs. ACIT, Ludhiana dated 20.12.2018 ITA No. 1510/2017 for AY 2013-14 (Assessee’s own case) - No disallowance u/s 36(1)(iii) where sufficient interest free funds available. 2. DCIT vs. Vardhman Special Steels Limited, Ludhiana (Assessee’s own case) dated 11.12.2017 ITA 574/17 for AY 2012-13 – No disallowance u/s 36(1)(iii) where sufficient interest free funds available. 3. Vardhman Textiles Limited vs. ACIT, Ludhiana (Assessee’s associate company) dated 14.03.2019 ITA 787/2015 for AY 2011-12 & ITA 483/2016 10 AY 2012-13 (consolidated order)- Disallowance stands deleted as the assesse had sufficient own funds to meet the investments made. Case Law enclosed at Pages 119 to 143 (Relevant page 126 Para 11 & Page 141 Para 45 to 46). 4. ACIT vs. M/s Janak Global Resources Pvt. Ltd. dated 16.10.2018 ITA No. 470/2018 (ITAT) - No disallowance where sufficient own funds available. 5. Bright Enterprises P. ltd vs. CIT, (2016) 381 ITR 107 (Punjab & Haryana High Court) – (No disallowance if adequate reserves/surpluses). 6. CIT vs. Kapsons Associates Investment P. Ltd, (2016) 381 ITR 204 (Punjab & Haryana High Court) (Reported) – No disallowance where adequate reserves/capital was available. Further, it is also humbly submitted that the Ld. CIT(A) in following cases either in assessee’s own case or in case of assessee’s associate company had itself deleted the identical addition made u/s 36(1)(iii) of the Act, on the same presumption theory of availability of own funds and against which, the revenue / department did not file any appeal before Hon’ble ITAT: 7. Vardhman Special Steels Limited vs. DCIT, Circle-1, Ludhiana (Assessee’s own case) dated 09.04.2019 in appeal no. 82/CIT(A)/2018-19 for AY 2016-17. 8. Vardhman Textiles Limited vs. DCIT, Circle-1, Ludhiana (Assessee’s associate company) dated 01.02.2019 in appeal no. 32/IT/CIT(A)/2016- 17 for AY 2013-14. 9. Vardhman Textiles Limited vs. DCIT, Circle -1, Ludhiana (Assessee’s associate company) dated 17.12.2018 ITA 388/IT/CIT(A)/2017-18 for AY 2014-15. Furthermore, without prejudice to above submissions, the assessee would also like to mention that if the Hon’ble Bench is still of the view that disallowance u/s 36(1)(iii) needs to be upheld, then the said notional interest (disallowance) may be allowed as deduction u/s 57 of the Act against Income from other sources. 7. Per contra the Ld. DR relied on the order of the lower authorities. 8. We have heard the rival contention and perused the material available on the record. 8.1 Ground No. 1 of the Appeal is general in nature therefore no adjudication is required. Hence this ground of appeal is dismissed. 11 8.2 Regarding Ground No. 2 & 3, the Ld. Counsel for the Assessee brought to our notice that this issue is squarely covered by the Coordinate Bench in favour of the Assesee vide appeal in ITA No. 1510/Chd/2017 for A.Y. 2013-14 dt. 20/12/2018. The relevant portion of the findings of the Coordinate Bench on this issue is as under: 12. We have heard the contentions of both the parties and perused the orders of the authorities below. Undoubtedly as per the provision of Section 14A, the AO can determine the amount of expenditure incurred in accordance with the prescribed method only once he is satisfied with the incorrectness of the claim of the assessee in this regard. The jurisdictional High Court has time and again laid down this proposition in a series of decisions as pointed out by the Id. counsel for the assessee in the case of Deepak Mittal (supra) and Abhishek Industries (supra). The Hon'ble High Court has stated that the provisions of Section 14A require the satisfaction of the AO regarding the incorrectness of the claim of the assessee before invoking machinery provisions of Rule 8D for the purpose of computing disallowance u/s 8D. The High Court has further clarified that the satisfaction should be an objective satisfaction. The relevant findings of the Hon'ble High Court in the case of Deepak Mittal (supra) in this regard are as under : 7. For better evaluation, provision of Section 14-A of the Act is reproduced as below: \"14A. (1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to in come which does not form part of the total income under this Act. (2)The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3)The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act. Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under sectionl47 or pass an order enhancing the assessment or reducing are fund already made or 12 otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001.\" 8. Perusal of the aforesaid Section leaves no manner of doubt that plea of the revenue that onus was upon the assessee to prove quantum of expenditure incurred on earning of tax free income of dividend, is correct. 9. When consistent case of the assessee, despite notice given by the Assessing Officer to give details of the expenditure made on earning of exempted income in the nature of dividend, version of the assessee was that he had not made any expenditure on earning such income, the Assessing Officer in terms of sub-section 2 of Section 14-A of the Act was to proceed further to collect such material or evidence to determine expenditure, if any, incurred by the assessee but the Assessing Officer instead relying on Rule 8-D of the Rules applied as a formula, applicable to an assessee who has incurred expenditure by way of interest which is not directly attributable to any particular income or receipt which is not the case of the present assessee, which was clearly a wrong application introduced as a substitute for sub-section 2 of Section 14-A of the Act and thus was not permissible in law. 13. In the facts of the present case, we find that the assessee had suo-motu made a disallowance of expenses incurred in relation to earning of exempt income amounting to Rs. 1,84,871/-. During assessment proceedings, the assessee had explained the basis for making the impugned disallowance submitting a calculation of the same also. The assessee had explained that it had made certain investments directly while others had been made through Portfolio Management Services. In relation to those investments which had been made directly, it had disallowed expenses of Rs. 50,000/- while in relation to those investments made through PMS, it had worked out the proportionate amount of expenses incurred on PMS in the ratio of taxable income to non-taxable income generated by the PMS and disallowed the same. Therefore, the assessee had explained the rationale of making the suo-motu disallowance to the AO. As rightly pointed out by the Id. counsel for the assessee the AO in his entire order has not given any finding as to why this basis of calculating the disallowance of expenses was incorrect. The AO has only stated that as per the provisions of Section 14A, the onus was on the assessee to prove that it had not incurred any expenditure to earn the exempt income and assessee has not been able to discharge its onus. This finding of the AO is, we find, factually incorrect because it is not the claim of the assessee that it has not incurred any expenditure. The assessee had himself suo-motu made disallowance of this expenditure. Therefore, this finding of the AO is totally irrelevant. Further, the AO has stated that in the absence of any direct evidence of expenses incurred to earn exempt income, disallowance u/s 14A is to be computed as per Rule 8D and has further stated that since the assessee had mixed funds, Rule 8D was applicable. This finding of the AO also, we find, does not dislodge the explanation of the assessee regarding the disallowance computed 13 by it. Therefore, clearly there is no satisfaction of the AO regarding the incorrectness of the claim of expenditure by the assessee incurred in relation to earning exempt income. In view of the same, tp/£ disallowance computed by the AO is bad in law and is, therefore, directed to be deleted. 14. Since we have deleted the disallowance made u/s 14A for the aforesaid reasons, we do not consider it necessary to deal with the other contentions raised by the Id. counsel for the assessee. In view of the above, the ground of appeal No. 2 raised by the assessee is allowed. In a fact, appeal of the assessee is allowed. 8.3 We have also seen the order passed by the Coordinate Bench in assessee’s own case on this issue and after going through the facts and legal position we do not find any reason to deviate from the findings given by the Coordinate Bench on this issue in assessee’s own case. Accordingly, the assessee’s appeal on this ground is allowed. 8.4 Regarding Ground No. 4 and 5, the Ld. Counsel for the assessee once again referred to the findings given by the Coordinate Bench in favor of the assessee in its own case (in ITA No. 1510/Chd/2017 for A.Y. 2013-14, dated 20/12/2018). The relevant portion of the order is as follows: 18. Ground no.3 relates to the disallowance of interest expenses u/s 36(1)(iii) of the Act. The brief facts relating to the issue are that the AO has disallowed interest expenses u/s 36(1)(iii) of the Act on account of investments made by the assessee to the tune of Rs. 99.25 Cr holding the same to be for non business purposes. The AO disallowed the proportionate interest. The Id. CIT(A) deleted the disallowance on finding that the assessee had sufficient own interest free funds for the purpose of making the impugned investments and relied upon the decision of the jurisdictional High Court in the case of Bright Enterprises Pvt. Ltd. Vs CIT, Jalandhar. 19. Before us, Id. DR relied on the order of the AO while the Id. counsel for the assessee relied on the order of the CIT(A). 20. We have heard the rival contentions. We see no reason to interfere with the order of the CIT(A). The finding of fact recorded by the CIT(A) that the assessee had sufficient own interest free funds for making the investments in relation to which interest expenditure had been disallowed by the AO has not been disputed by the Revenue. Further, the jurisdictional High Court in the case of Bright Enterprises Pvt. Ltd. has held that where sufficient own interest free funds are available, the presumption is that the same have been used for the purpose of making investments and calling for no disallowance of interest u/s 36(l)(iii) of the Act . The Id. DR has failed to point out any contrary decision of the jurisdictional High Court or of the Apex Court. In view of the same, we hold that the Ld. CIT(A) has rightly deleted the disallowance of interest u/s 36(l)(iii) of the Act on finding that sufficient own interest free funds were available with the assessee for making the impugned investments and following the decision of the jurisdictional High Court in the case of Bright Enterprises (supra). In view of the same, the ground of appeal raised by the Revenue is dismissed. 14 8.5 Respectfully following the above findings of the Coordinate Bench on the same issue in assessee’s own case for A.Y. 2013-14, we find no reason to interfere in the findings given. Accordingly, the assessee's appeal on this issue is allowed. 9. In the result, appeal of the Assessee is partly allowed. Order pronounced in the open Court on 20/05/2025. Sd/- Sd/- लिलत क ुमार क ृणवȶ सहाय (LALIET KUMAR) (KRINWANT SAHAY) Ɋाियक सद˟ /JUDICIAL MEMBER लेखा सद˟/ ACCOUNTANT MEMBER AG आदेश की Ůितिलिप अŤेिषत/ Copy of the order forwarded to : 1. अपीलाथŎ/ The Appellant 2. ŮȑथŎ/ The Respondent 3. आयकर आयुƅ/ CIT 4. आयकर आयुƅ (अपील)/ The CIT(A) 5. िवभागीय Ůितिनिध, आयकर अपीलीय आिधकरण, चǷीगढ़/ DR, ITAT, CHANDIGARH 6. गाडŊ फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar "