ACIT, CIRCLE- 26(1), NEW DELHI vs. VEDANTA LTD (EARLIER KNOWN AS MADRAS ALUMINIUM CO. LTD.), NEW DELHI

आदेश / ORDER PER INTURI RAMA RAO, ACCOUNTANT MEMBER : This cross appeal filed by the Assessee as well as by Revenue directed against the common order passed by learned Commissioner of Income Tax(Appeal)-9, New Delhi dated 28.12.2018 passed u/s.250 of the Income Tax Act, 1961 for the Assessment Year 2009-10.

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2.2 That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not considering the suo-moto disallowance of Rs 7,98,661 made by the Appellant while calculating disallowance under section 14A of the Income-tax Act, 1961 ('Act') on account of exempt dividend income earned. 3.0 Set-off of brought forward long term capital loss with business income claimed as deduction under section 801A 3.1 That on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in directing the Ld AO to verify the appellant's claim of Rs. 456,434,113 being in the nature of long term capital loss and thereby re-compute the deduction under section 80-IA of the Act without setting off long term capital loss against business income, despite the fact that the powers of the Ld CIT(A) are co-terminus with the Ld. AO and the said relief can be granted at the appellate stage itself. 4.0 Allowance of provision for diminution in value of equity share and preference share investment 4.1 That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not adjudicating on the ground for allowing reversal of the provision created for diminution in value of equity shares and preference shares while computing book profits under section 115JB of the Act, despite the fact that the same was added back for computing book profit under section 115JB of the Act in the year of creation of provisions. The appellant craves leave to add to and / or to alter, amend, rescind, modify, the grounds herein above or produce further documents before or at the time of hearing of the appeal.” 4. Briefly, the facts of the case are that the assessee formerly know as Madras Aluminum Co. Ltd. The appellant is a company duly incorporated under the provisions of Companies Act, 1956. It is engaged in the business of manufacturing and sale of

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Alluminium and generation of sale of power. The Return of Income for the Assessment Year 2009-10 was filed on 26.09.2009 disclosing total income of Rs.1,31,28,810/- under the normal provisions and book profit amount of Rs.37,01,29,676/- under the proviso of section 115BBE of the Act. Against the said Return of Income, the assessment was completed by Additional Commissioner of Income Tax, Range-I, Salem dated 30.11.2011 passed u/s.143(3) of the Income Tax Act, 1961 at a total income of Rs.45,74,155/-. While doing so, the Assessing Officer made addition of Rs.65,79,616/- u/s.14A of the Act and also restricted deduction claim u/s.80IA of the Act of Rs.45,40,96,614/- as against claim of Rs.91,05,30,754/- by denying set-off of brought forward business loss of Rs.45,64,34,131/-.

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Rs.7,98,661/- u/s.14A read with Rule 8D of the Income Tax Rules. It is submitted that the Assessing Officer, while working out the quantum disallowance had again made disallowance offered by assessee himself of Rs.7,98,661/-. Thus, the appellant had earned exempt income of Rs.10,25,53,939/- received from associated to companies namely M/s.Sterlite Industries India Ltd and M/s.Sterlite Technology Ltd. It is claimed that the appellant had not incurred any expenditure to earn the exempt income. And it was contended that the Assessing Officer offered mechanically the provisions of section 14A read with Rule 8D without recording a satisfaction as to how the disallowance of Rs.7,98,661/- offered by the appellant is incorrect. However, the Learned CIT(A) restricted the disallowance to the extent of 0.5% of average value of investment which worked out to Rs.18,26,600/- as against the disallowance of Rs.65,79,616/-. As regards the set-off brought forward business loss while computing the eligible income for 80IA deduction. The Learned CIT(A) set-aside the issue to the

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file of Assessing Officer to verify the nature of loss claim of set- off. The Additional Ground of appeal raised by the appellant during the course of proceedings was dismissed.

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made a disallowance u/s.14A under Limb-II or Rule 8D of Income Tax Rules at 0.5% average value of investments.

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mechanical approach of the Assessing Officer was deprecated by Hon’ble Delhi High Court in assessee’s own case of PCIT vs. Vedanta Ltd. [2019] 102 taxmann.com 95 (Delhi) by holding as under : “8. It is apparent that the Assessing Officer without examining, commenting and rejecting the disallowance made by the respondent- assessee had applied Rule 8D as compulsory and universally applicable rule where the assessee has earned exempt income. However, Rule 8D cannot be invoked and applied unless the Assessing Officer records his dissatisfaction regarding correctness of the claim made by the assessee in relation to expenditure incurred to earn exempt income. This is the mandate and pre-condition imposed by sub-section (2) to Section 14A of the Act. Rule 8D is in the nature of best judgment determination i.e. determination in default and on rejection of the explanation of the assessee in relation to expenditure incurred to earn exempt income. Rule 8D is not applicable by default but only if and when the Assessing Officer records his satisfaction and rejects the explanation of the assessee regarding the disallowance of expenditure. In the present case the assessment order proceeds on a wrong assumption that Rule 8D would applies to all cases and is mandatory. Finding of the Tribunal affirming the order of the Commissioner of Income Tax (Appeals) is in accordance with the law.

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(2017] 394 ITR 449/247 Taxman 361/81 taxmann.com 111 in which it has been held as under-

"37. We do not see how in the aforesaid fact situation a different view could have been taken for Assessment Year 2002-2003. Sub-sections (2) and (3) of Section 14-A of the Act read with Rule 8-D of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the assessing officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8-D or in the best judgment of the assessing officer, what the law postulates is the requirement of a satisfaction in the assessing officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Sections 14-A(2) and (3) read with Rule 8-D of the Rules or a best judgment determination, as earlier prevailing, would become applicable."

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view of the Hon’ble Delhi High Court. The relevant observations of the Hon’ble Supreme Court are as under : “41. Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the AO.”

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ITA No.2249/DEL/2019 : 12. The Revenue had raised the appeal challenging the direction of the Learned CIT(A) to restrict the addition to Rs.18,26,600/-. Since in the assessee’s appeal in ITA No.2404/DEL/2019 above, we directed the Assessing Officer to not to make any disallowance u/s.14A of the Act, therefore, the appeal filed by the Revenue stands dismissed.

Sd/- Sd/- (SS VISWANETHRA RAVI) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER Chennai; िदनांक / Dated : 10th Sep, 2026 SGR, Sr.PS आदेश क� �ितिलिप अ�ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT Chennai/Madurai/Coimbatore/Salem. 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “डी” ब�च, चे�नई / DR, ITAT Chennai. गाड� फ़ाइल / Guard File. 5. GANGADHARA Digitally signed by GANGADHARA RAO SALEELA RAO SALEELA Date: 2026.09.21 09:24:04 +05'30'