T.V. SUNDRAM IYENGAR & SONS PVT LIMITED,MADURAI vs. ACIT CORPORATE CIRCLE 2, MADURAI, MADURAI

आयकर अपीलीय अिधकरण, ’सी’ �ायपीठ, चे�ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH: CHENNAI �ी एबी टी. वक�, �ाियक सद� एवं �ी गगन गोयल, लेखा सद�य के सम� BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI GAGAN GOYAL, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.3079/Chny/2025 �नधा�रणवष�/Assessment Year: 2018-19 & ITA No.3136/Chny/2025 �नधा�रणवष� /Assessment Year: 2018-19 T.V. Sundram Iyengar & Sons VS Assistant Commissioner of Pvt Ltd. Income Tax, (Amalgamated Company and Corporate Circle 2, Madurai Successor in interest of M/s Sundram Industries Pvt Ltd Pursuant to the Amalgamation order of the Hon’ble NCLT in CP(CAA) 24-37/Che/2021 In CA(CAA)/14(CHE)/2021 dated 06 the December, 2021 7B, TVS Building, West Veli Street, Madurai- 625001 [PAN: AABCS 5320 H] Deputy Commissioner of Sundaram Industries Private Income Tax Limited Madurai 7B, West Veli Street, Madurai- 625001

[PAN: AABCS 5320 H] (अपीलाथ�/ Appellant) (��थ� Respondent) : करदाता की ओर से/ Assessee by Ms. NV Lakshmi, Advocate : िवभाग की ओर से /Revenue by Mr. Guru Bashyam, CIT : सुनवाईक�तार�ख/Date of Hearing 17.06.2026 : घोषणाक�तार�ख /Date of 06.08.2026 Pronouncement

ITA No.3079 & 3136/Chny/2025 (AY 2018-19) T.V. Sundram Iyengar & Sons Pvt Limited, Sundaram Industries Pvt Ltd :: 2 :: आदेश / O R D E R PER ABY T. VARKEY, JM: These are cross appeals preferred by the assessee and Revenue against the order of the Learned Commissioner of Income Tax (Appeal)/NFAC, Delhi, (hereinafter referred to as ‘Ld.CIT(A)’), dated 26.08.2025 for the Assessment Year (hereinafter referred to as ‘AY’) 2018-19 passed u/s.250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).

ITA No.3079 & 3136/Chny/2025 (AY 2018-19) T.V. Sundram Iyengar & Sons Pvt Limited, Sundaram Industries Pvt Ltd :: 3 :: income during the relevant year. Since assessee has raised inter alia legal issue challenging the jurisdiction of the AO to invoke Rule 8D without recording valid satisfaction as required under sub-section (2) and (3) of Section 14A of the Act, we will deal with it first.

[(1)] Notwithstanding anything to the contrary contained in this Act, 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 income 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 section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001.]” 4. The Hon’ble Supreme Court in the case of Maxopp Investment [reported in 402 ITR 640 (SC)], while confirming the order of the Hon’ble Delhi High Court [reported in 347 ITR 272 (Del)] upheld the observation that “the Assessing Officer is required to determine the amount of such expenditure only 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 the said Act. In other words, the

ITA No.3079 & 3136/Chny/2025 (AY 2018-19) T.V. Sundram Iyengar & Sons Pvt Limited, Sundaram Industries Pvt Ltd :: 4 :: requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Sub-section (3) is nothing but an offshoot of sub-section (2) of section 14A. Sub-section (3) applies to cases where the assessee claims that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act. In other words, sub-section (2) deals with cases where the assessee specifies a positive amount of expenditure in relation to income which does not form part of the total income under the said Act and sub- section (3) applies to cases where the assessee asserts that no expenditure had been incurred in relation to exempt income. In both cases, the Assessing Officer, if satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure, as the case may be, cannot embark upon a determination of the amount of expenditure in accordance with any prescribed method, as mentioned in sub-section (2) of section 14A of the said Act. It is only if the Assessing Officer is not satisfied with the correctness of the claim of the assessee, in both cases, that the Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the said Act in accordance with the prescribed method under Rule 8D”. The Hon’ble Court observed “while rejecting the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate cogent reasons for the same”. It

ITA No.3079 & 3136/Chny/2025 (AY 2018-19) T.V. Sundram Iyengar & Sons Pvt Limited, Sundaram Industries Pvt Ltd :: 5 :: would be gainful to refer to the relevant observation of the Hon’ble Court as under: -

Scope of sub-sections (2) and (3) of section 14A Sub-section (2) of section 14A of the said Act provides the manner in which the Assessing Officer is to determine the amount of expenditure incurred in relation to income which does not form part of the total income. However, if we examine the provision carefully, we would find that the Assessing Officer is required to determine the amount of such expenditure only 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 the said Act. In other words, the requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Sub-section (3) is nothing but an offshoot of sub-section (2) of section 14A. Sub-section (3) applies to cases where the assessee claims that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act. In other words, sub-section (2) deals with cases where the assessee specifies a positive amount of expenditure in relation to income which does not form part of the total income under the said Act and sub-section (3) applies to cases where the assessee asserts that no expenditure had been incurred in relation to exempt income. In both cases, the Assessing Officer, if satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure, as the case may be, cannot embark upon a determination of the amount of expenditure in accordance with any prescribed method, as mentioned in sub-section (2) of section 14A of the said Act. It is only if the Assessing Officer is not satisfied with the correctness of the claim of the assessee, in both cases, that the Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the said Act in accordance with the prescribed method. The prescribed method being the method stipulated in rule 8D of the said Rules. While rejecting the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate cogent reasons for the same. 5. Keeping the aforesaid position of law, it is clear that, before the AO reject the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the

ITA No.3079 & 3136/Chny/2025 (AY 2018-19) T.V. Sundram Iyengar & Sons Pvt Limited, Sundaram Industries Pvt Ltd :: 6 :: Assessing Officer would have to indicate cogent reasons for the same. In other words, before the AO embark upon determination of the amount of expenditure in accordance with Rule 8D of the Rules, having regard to the accounts of the assessee, he has to record his dissatisfaction with the correctness of the claim made by the assessee that there was no expenditure incurred in relation to income which doesn’t form part of the total income under the Act. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure to earn exempt income. It is only if the Assessing Officer is not satisfied with the correctness of the claim of the assessee, in respect of such expenditure or no expenditure to earn exempt income, (in both cases), that the Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the said Act in accordance with the prescribed method under Rule 8D of the Rules. Applying the aforesaid legal requirement of law in the present case, we have to examine whether the AO has carried out the exercise as required by sub-section (2) & (3) of section 14A of the Act. In the present case, we note that the Assessing Officer (AO) has rejected the claim of the assessee that no expenditure was incurred for earning of the exempt income by observing as under (relevant portion only):-

“In the instant case, the investment made by the assessee company is neither minor nor from own surplus fund. On perusal of balance-sheet, it is noted that investment in the equity share is at Rs. 66229.55 Lakh as shown in the non-current investment in the Balance-sheet. The assessee has shown total current liability of Rs. 13199.82 lakh, out of which the amount of borrowing is Rs. 2913.6.lakh ……………………

ITA No.3079 & 3136/Chny/2025 (AY 2018-19) T.V. Sundram Iyengar & Sons Pvt Limited, Sundaram Industries Pvt Ltd :: 7 :: The 14A of the Act read as:- Sub section (2) of section 14A provides the manner in which the amount of expenditure incurred in relation to exempt income is to be determined by the Assessing Officer. It is pertinent to mention here that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Thus, for the purpose of putting on record, it is hereby noted that the satisfaction is being recorded with regard to the disallowance under section 14A.’’ 6. The satisfaction recorded by the AO (supra) before embarking upon application of Rule 8D of the Rules, according to us doesn’t satisfy the requirement of law as laid down by the Hon’ble Supreme Court in the case of Maxopp Investment (supra) and hence, the assumption of jurisdiction to invoke Rule 8D of the Rules is bad in law. In this regard, it is noted that the AO has recorded his dissatisfaction on incorrect assumption of fact that assessee didn’t use own funds for making the investment, but used borrowed funds for the purpose of making the investment which yielded exempt income. In this regard, it is noted that the AO has compared the investment figure (Ind-AS Value) with the borrowing figure to come to the conclusion that the assessee has used borrowed funds, which is incorrect. The AO failed to appreciate that the non-current investment in the balance sheet is Rs.66,229.55 lakhs, whereas the reserves available with the assessee is Rs.68,922.59 lakhs (refer Page 9 PB). Hence, it can be safely presumed that investments made by the assessee in equity shares were made out of their own funds and no borrowed funds had been deployed for such purpose. In light of the aforesaid fact, we find merit in the assessee’s claim that although it was in possession of mix funds, which included both own & borrowed funds, but since its own funds were much higher than the investment made by it, presumption is that investments made by the assessee in equity shares were made out of their own funds and no borrowed funds had been deployed for such purpose. F o r s u c h a p r o p o s i t i o n , w e r e l y o n t he r a t i o o f t h e d e c i s i o n o f Hon'ble Bombay High Court in the case of HDFC Bank Ltd. v. DCIT (2014) 366 ITR 505 , CIT v.

ITA No.3079 & 3136/Chny/2025 (AY 2018-19) T.V. Sundram Iyengar & Sons Pvt Limited, Sundaram Industries Pvt Ltd :: 8 :: Reliance Utilities and Power Ltd. (2009) 313 ITR 340 w h e r e i n i t w as h e l d that, when there are both interest free funds and inter est-be ar ing funds, t he presumption is that interest-free funds were utilized for interest-free-investment and advances. Such a proposition of law has been upheld by the Hon’ble Supreme Court in the case of CIT v. Reliance Industries Ltd., reported in [2019] 410 ITR 466 (SC); and the Hon’ble Supreme Court in the case of South Indian Bank Ltd. v. CIT reported in [(2021) 130 taxmann.com 178 (SC)]. The H o n ’ b l e Supreme Court is noted to have reiterated the a f o r e s a i d position of law and also clarified that it is the assessee who has the right to assert from which part of the mixed funds the investment was made, and the Revenue can’t arbitrarily estimate a proportionate figure for disallowance u/s.14A of the Act. Thus, we note from the factual matrix discussed supra, that the assessee had total own funds more than Rs.68,922.59 lakhs and the total investment made only to the tune of Rs.66,229.55 lakhs., including the fresh investments made during the year. Therefore, the presumption laid down in the case of South Indian Bank Ltd. (supra) and other cases referred supra are clearly applicable. Hence, t h e A O e r r e d i n i n c o r r e c t l y a s s u m i n g t h a t a s s e s s e e h a s n o t u s e d o w n f u n d s f o r i n v e s t m e n t s , b u t h a s u s e d b o r r o w e d f u n d s f o r m a k i n g t h e i n v e s t m e n t . Therefore, we find that the satisfaction recorded by the AO to apply Rule 8D of the Rules doesn’t meet the requirement of law as stipulated in section 14A(2) and (3) of the Act. Hence, the AO erred in embarking upon the determination of expenditure incurred for earning exempt income by resorting to the method prescribed under Rule 8D of the Rules. Hence, the assessee succeeds on the legal issue that the AO didn’t have the requisite jurisdiction to invoke Rule 8D of the Rules and therefore, the estimate made by invoking Rule 8D has to fall and therefore, directed to be deleted.

ITA No.3079 & 3136/Chny/2025 (AY 2018-19) T.V. Sundram Iyengar & Sons Pvt Limited, Sundaram Industries Pvt Ltd :: 9 :: 7. Since, we have allowed the legal issue, the grounds on merits raised by both assessee and Revenue doesn’t survive being academic. 8. In the result, the appeal of the assessee is allowed and the appeal of the Revenue is dismissed.

Order pronounced on the 05th day of August, 2026, in Chennai. Sd/- Sd/- (गगन गोयल) (एबी टी. वक�) (ABY T. VARKEY) (GAGAN GOYAL) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER चे�नई/Chennai, �दनांक/Dated: 05th August, 2026. YS आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF

YASHVIR Digitally signed by YASHVIR SINGH SINGH Date: 2026.08.12 16:48:07 +05'30'