TV SUNDRAM IYENGAR & SONS PVT LIMITED,MADURAI vs. ACIT CORPORATE CIRLCE 2, MADURAI, MADURAI

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ITA 3077/CHNY/2025Status: DisposedITAT Chennai05 August 2026AY 2016-179 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that disallowance under Rule 8D(2)(ii) was not warranted as the assessee's own funds exceeded its investments, following established legal precedents. The disallowance under Rule 8D(2)(iii) was confirmed as per a Special Bench decision.

What were the facts?

The assessee company made investments yielding tax-free income. The Assessing Officer disallowed expenditure under Section 14A read with Rule 8D. The assessee argued that investments were made from own funds, which were in excess of investments.

What were the issues?

Whether disallowance of expenditure under Section 14A read with Rule 8D is justified when investments yielding tax-free income are made from own funds exceeding the investment amount. Whether cash deposits during demonetization are to be added under Section 68.

Which sections of the Income-tax Act were involved?

Section 14A,Section 115JB,Section 68

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI

Before: SHRI ABY T. VARKEY & SHRI GAGAN GOYAL

Hearing: 17.06.2026

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

ITA. 3077 & 3078/Chny/2025 �नधा�रणवष�/Assessment Year: 2016-17 & 2017-18 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] (अपीलाथ�/Appellant) (��यथ�/Respondent) : अपीलाथ� की ओर से/ Appellant by Ms. NV Lakshmi, Advocate : ��थ� की ओर से /Respondent by Mr. Chilaka marthi Vijay Raju, Addl. CIT : सुनवाईक�तार�ख/Date of Hearing 17.06.2026 : घोषणाक�तार�ख /Date of 05.08.2026 Pronouncement आदेश / O R D E R PER ABY T. VARKEY, JM: These are appeals preferred by the assessee-Company against the order of the Learned Commissioner of Income Tax (Appeal)/NFAC, Delhi,

ITA No.3077 & 3078/Chny/2025 (AY 2016-17 & 2017-18) T.V. Sundram Iyengar & Sons Pvt Limited :: 2 :: (hereinafter referred to as ‘Ld.CIT(A)’), dated 26.08.2025 for the Assessment Years (hereinafter referred to as ‘AYs’) 2016-17 & 2017-18 respectively passed u/s.250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).

2.

The only grievance of the assessee-Company is related to disallowances made by the Assessing Officer (AO) u/s.14A of the Act in terms of Rule 8D of the Income Tax Rules, 1962 (hereinafter referred to as ‘the Rules’).

3.

Brief facts related to the issue for AY 2016-17 is that the AO observed from the balance-sheet that the assessee held substantial investments which were capable of yielding tax-free income and therefore, according to him, the expenditure incurred in relation to earning such income needs to be disallowed. In this regard, the AO observed that, the assessee derived exempt/dividend income from investments to the tune of Rs.52.33 crores, but has suo-motto disallowed only Rs.46,65,444/- for earning such exempt income. The AO accordingly show caused the assessee to explain as to why expenditure incurred for earning such exempt income should not be disallowed, in accordance with Rule 8D of the Rules. In response, the assessee explained that, it has suo moto disallowed the expenditure for earning of exempt income, and pointed out that the investments which yielded exempt income were

ITA No.3077 & 3078/Chny/2025 (AY 2016-17 & 2017-18) T.V. Sundram Iyengar & Sons Pvt Limited :: 3 :: made out of own funds, and therefore pleaded that no disallowance should be made u/s.14A of the Act. However the AO didn’t agree to the objections raised by assessee and for the reasons set out in the assessment order, computed disallowance u/s 14A read with Rule 8D of the Rules at Rs.1,25,48,380/- [under Rule 8D(2)(ii)] and in respect of fixed expenditure, the AO disallowed Rs.78,82,737/- under Rule 8D(2)(iii) 0.5% of investments to the tune of Rs.46,65,647/- i.e. total Rs.1,25,48,380/- [after reducing the suo-motto disallowance made by assessee of Rs.46,65,444/-] then made total disallowance u/s.14A to the tune of Rs.78,82,737/-, which was added back both while computing income under normal provisions as well as book profit u/s.115JB of the Act. On appeal, the Ld. CIT(A) partly allowed the same by holding that while computing the disallowance under Rule 8D(2)(iii) the AO was required to compute with reference to yielding exempt income of Rs.52.33 crores during the relevant year. Still not satisfied, the assessee is before us contesting the disallowance confirming by the Ld. CIT(A) in respect of rule 8D(2)(ii) and 8D(2)(iii) of the Rules.

4.

First, we will consider the ground raised by the assessee against the disallowance’s u/s 14A/Rule 8D of the Act/Rules and notes that assessee has raised several grounds, but has argued only the grounds which we are adjudicating. Hence, we will consider the ground raised by the assessee against the disallowances of interest expenditure under Rule

ITA No.3077 & 3078/Chny/2025 (AY 2016-17 & 2017-18) T.V. Sundram Iyengar & Sons Pvt Limited :: 4 :: 8D(2)(ii) and note that assessee had objected to any disallowance on the score that it had sufficient own funds to invest which yielded exempt income, hence no disallowance was warranted. But the AO didn’t agree and disallowed Rs.1,25,48,380/- under Rule 8D(2)(ii) of the Rules. On appeal, the Ld CIT(A) confirmed the action of AO. Before us, the Ld AR rightly pointed out that assessee’s own funds comprising of capital, reserve and surplus was to the tune of Rs.20,233.05 lakhs which was far in excess of the investment made in equity to the tune of Rs.9808.01 lakhs. In light of the aforesaid fact, the assessee claimed 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, the question of making disallowance out of interest paid on borrowed funds in terms of Rule 8D(2)(ii) did not arise. The Ld. AR brought to our notice the decision of the Hon'ble Bombay High Court in the case of HDFC Bank Ltd. v. DCIT (2014) 366 ITR 505 wherein it was held that "where assessee's own funds and other non-interest bearing funds were more than investment in tax free securities, impugned order passed by the Assessing Officer disallowing a part of interest payments under section 14A of the Act (read with rule 8D(2)(ii) of I.T Rules, 1962) needs to be set aside". We also note that the Hon'ble Bombay High Court in the case of CIT v. Reliance Utilities and Power Ltd. (2009) 313 ITR 340 has laid the proposition of law that, when

ITA No.3077 & 3078/Chny/2025 (AY 2016-17 & 2017-18) T.V. Sundram Iyengar & Sons Pvt Limited :: 5 :: there a re both interest free funds and inter est-be ar ing funds, the 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 in the case of South Indian Bank Ltd. v. CIT reported in [(2021) 130 taxmann.com 178 (SC)], reiterated the 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 o f more than Rs.20,233.05 lakhs and the total investment made only to the tune of Rs.9,808.63 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. The Ld. DR could not demonstrate that this presumption is factually incorrect, therefore, according to us, the disallowance made under Section 14A read with Rule 8D(2)(ii) of the Rules, was not warranted and is directed to be deleted.

5.

Coming to the ground raised against the action of the Ld. CIT(A) directing the AO to re-compute disallowance under Rule 8D(2)(iii) by e x c l u d i n g investments that didn’t yield any exempt income during the

ITA No.3077 & 3078/Chny/2025 (AY 2016-17 & 2017-18) T.V. Sundram Iyengar & Sons Pvt Limited :: 6 :: relevant year, which decision is n o t e d t o b e in accordance with Special Bench decision of the Tribunal in the case of M/s. Vireet Investments Private Limited (2017)82 taxmann.com 415 (Del Trib) and therefore, we uphold the impugned action of the Ld.CIT(A). In the light of the aforesaid discussion, the impugned action of the Ld. CIT(A), is confirmed qua Rule 8D(2)(iii)) and dismiss the relevant grounds of appeal of assessee.

6.

Coming to appeal for AY 2017-18, the assessee filed its return of income declaring total income of Rs.8,96,72,650/- under the normal provisions and book profit of Rs.15,23,86,646/- under section 115JB of the Act. During the assessment proceedings, the Assessing Officer noticed that the Assessee had earned exempt dividend income of approximately Rs.33.91 crores and had claimed that no expenditure was attributable to earning of such income. The AO accordingly show caused the assessee to explain as to why the expenditure incurred for earning such exempt income should not be disallowed, pursuant to which assessee asserted that no expenditure was incurred for earning of such exempt income and pointed out that there was no interest expenditure since the investment which yielded exempt income were made out of own funds and therefore pleaded that no disallowance should be made u/s.14A of the Act. The Assessing Officer rejected the explanation on the ground that separate books or records had not been maintained in relation to investment

ITA No.3077 & 3078/Chny/2025 (AY 2016-17 & 2017-18) T.V. Sundram Iyengar & Sons Pvt Limited :: 7 :: activity, hence the claim of ‘nil’ expenditure could not be verified. Further, according to AO, substantial interest expenditure had been incurred during the year, and that managerial, administrative and financial resources of the company would necessarily have been utilized in monitoring and maintaining the investment portfolio. Therefore, the Assessing Officer invoked Rule 8D(2)(ii) and made a disallowance of Rs.1,02,32,916/- under section 14A. The same amount was added while computing book profit under section 115JB, resulting in assessed book profit of Rs.16,26,19,562/-.

7.

Aggrieved the assessee preferred an appeal before the Ld. CIT(A) who accepted the alternate plea and directed the AO to recompute the disallowance under Rule 8D(2)(ii) by excluding the investment that didn’t yield any exempt income during the relevant year on the principles laid down by the Special Bench decision in the case of M/s. Vireet Investments Pvt Ltd. (supra). Still not satisfied, the assessee is before us.

8.

We have heard both the parties and perused the records and note that the assessee had earned dividend income of Rs.33.91 cores and claimed that no expenditure was attributable to earning of such exempt income. Not satisfied with the reply of the assessee, the assessing officer was of the view that assessee has incurred expenditure for managerial, administrative purposes as well as interest expenditure, and hence

ITA No.3077 & 3078/Chny/2025 (AY 2016-17 & 2017-18) T.V. Sundram Iyengar & Sons Pvt Limited :: 8 :: presumed that assessee could have necessarily utilized its financial resources in monitoring and maintaining the investment portfolio and invoked Rule 8D(2)(ii) of the Rules and has disallowed an amount equal to 1% of the annual average of the monthly averages of the opening and closing balances of the value of investment to the tune of Rs.1,02,32,916/-. On appeal, the Ld. CIT(A) is noted to have rightly directed the AO to re-compute disallowance under Rule 8D(2)(ii) by excluding investments that didn’t yield any exempt income during the relevant year, which decision is in line with Special Bench decision of the Tribunal in the case of M/s. Vireet Investments Private Limited (2017)82 taxmann.com 415 (Del Trib) and therefore, we uphold the impugned action of the Ld.CIT(A). In the light of the aforesaid discussion, the impugned action of the Ld. CIT(A), is confirmed qua Rule 8D(2)(ii)) and dismiss the relevant grounds of appeal of assessee.

9.

The next is in respect of addition of Rs.1,49,000/- u/s.68 of the Act in respect of cash deposit during the demonetization period. In this respect, we note that the AO noted that assessee had deposited ‘Specified Bank Notes’ (SBNs) to the tune of Rs.1,49,000/- in his bank account and taking note of the Government of India’s Notification dated 8/9/.11.2016 declared that SBNs shall cease to be legal tender. Hence, the AO disallowed the same and added it u/s.68 of the Act.

ITA No.3077 & 3078/Chny/2025 (AY 2016-17 & 2017-18) T.V. Sundram Iyengar & Sons Pvt Limited :: 9 :: 10. Considering the smallness of the amount without going into the merits of the contention raised by the assessee, we confirm the action of the Ld. CIT(A).

11.

In the result, appeal of the assessee for AY 2016-17 is partly allowed and appeal for AY 2017-18 is dismissed.

Order pronounced on the 05th day of August, 2026, in Chennai.

Sd/- Sd/-

(गगन गोयल) (एबी टी. वक�) (GAGAN GOYAL) (ABY T. VARKEY) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL 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 16:51:27 +05'30'

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