IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI BEFORE SMT. BEENA PILLAI (JUDICIAL MEMBER)

&

SHRI GIRISH AGRAWAL (ACCOUNTANT MEMBER)

Assessment Year: 2018-19 DCIT Vs. Sahyadri Agencies Limited Kandanasserry Guruvayur Thrissur Kerala – 2018-19 [PAN: AAICS5338J]

(Appellant) (Respondent)

Assessee by Ms. Priyanka Jain, Shri Pankaj Soni & Avanish Patil, ARs Revenue by Shri Arun Kanti Datta, CIT DR Date of Hearing 17.12.2025 Date of Pronouncement 21.01.2026

ORDER

Per Smt. Beena Pillai, JM:

Present appeal filed by the revenue arises out of the order dated

17/04/2025 passes by Ld.CIT(A)-48 for assessment year 2018-19 on following grounds of appeal:-

“1. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) has justified in deleting the additional disallowance of Rs.54,28,892/- made by the Assessing Officer under Section 14A read with Rule &D of the Income Tax Rules, over and above the suo motu disallowance of Rs.9,00,00,000/-offered by the assessee, without appreciating that the disallowance under Section 14A is not restricted to the amount of exempt income, particularly in view of CBDT Circular No. 5/2014 and the amendment to Section 14A by the Finance Act, 2022, which is clarificatory and retrospective in nature.?

2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has justified in deleting the disallowance of interest expenditure made under section 36(1)(iii) of the Income Tax Act, 1961, without appreciating that the borrowed funds were not utilized wholly and exclusively for the purposes of business and the assessee having no main business activity during the year and the borrowed funds were invested in shares held as investments and in other non-business advances, which do not qualify as business purposes under section 36(1)(iii)?

3. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) has justified in concluding that the interest expense qualifies for deduction merely on the basis of a broad interpretation of the term "for the purpose of business," without establishing a proximate nexus between the borrowed funds and income-generating business activity?”

2. Brief facts of the case are as under:

The assessee is a public limited company engaged into the business of wholesale trading along with acting as distributors and commission agents for all kinds and varieties of goods, mercantile, chattels, produce, care products, Fabric Care, Whiteners, Air Care, Hair care, household insecticides, surface cleaning, Cosmetics and Beauty products.

2.1. For the relevant assessment year, the assessee filed its return of income on 30/10/2018, declaring loss of Rs.17,66,63,335/-. The assesse incurred interest expenses amounting to Rs.27,58,48,630/- that was claimed as deduction under section 36(1)(iii) of the Act. Further, the assessee earned exempt income amounting to Rs.9,00,00,000/- comprising of dividend income received from Indian companies. and the assesse suo moto disallowed Rs.9,00,00,000/- under section 14A of the Act.

2.2. The case of the assesse was selected for scrutiny by issuing notice u/s 143(2) and 142(1). In response to the statutory notices, the representatives of the assesse appeared before the Ld.AO and filed replies dated 15/01/2021 and 15/02/2021.

Subsequently, a show-cause notice dated 06.04.2021 was issued calling upon the assessee to show cause as to why the assessment should not be completed as per the draft assessment order. The assessee furnished its response vide reply dated 11.04.2021 raising its objections against the additions proposed to be made therein. The Ld.AO after considering the submissions passes the assessment order dated 01.09.2021 by disallowing the deduction claimed by the assessee under section 36(1)(iii) of the Act in respect of interest of Rs.18,05,18,055/- on borrowed funds. Also, a further disallowance of Rs.54,28,892/- was made u/s.14A of the Act over and above the suo-moto disallowance made by the assessee.

Aggrieved by the order