ORDER / आदेश

Per Rajesh Kumar, AM:

This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-NFAC, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 08.01.2026 for the AY 2017-18.

2. Issue raised in ground no. 1 is general in nature and does not require any specific adjudication.

3. Issue raised in ground no. 2 is against the confirmation of disallowance of Rs. 11,40,065/- by the Ld. CIT(A) as made by the AO u/s 14A Rule 8D.

4. Facts in brief are that the AO during the course of assessment proceedings disallowed Rs. 12,42,107/- u/s 14A Rule 8D as interest expenditure relating to earning of exempt income. The assessee has suo-motto disallowance of Rs. 1,02,042/- u/s 14A Rule 8D. The AO computed the total disallowance of Rs. 13,44,14,928/- and after allowing the deduction of suo motto disallowance made a net disallowance of Rs. 12,42,107/-. Thereafter the AO passed a rectification order on 13.02.2020 wherein the some correction was made and net disallowance of Rs. 11,40,065/- was retained as disallowance realting to earning of exempt income.

5. The Ld. CIT(A) in the appellate proceedings confirmed the same.

6. After hearing the rival contention and perusing the material on record, we find that the case of the assessee was selected for limited scrutiny for verification of expenditure relating to earning of exempt income. We note that during the year the assessee has suo motu made disallowance interest u/s 14A to the tune of Rs. 1,02,042/- and also interest disallowance amounting to Rs. 1,19,31,562/- was made on the ground of that no income was earned. We note from the profit and loss account as on 31.03.2017 that the assessee has earned Rs. 1,04,57,460/- out of which the dividend earn was only Rs. 1,04,13,400/- .We also note that the assessee disallowed the interest amounting to Rs. 1,19,31,562/- since no income was earned. Therefore, no disallowance was called for as the assessee has already disallowed more than dividend income earned during the year. In view of the said facts and circumstances, we are inclined to set aside the order of Ld. CIT(A) and direct the AO to delete Rs. 11,40,065/-. Accordingly, ground no. 2 is allowed.

7. Issued raised in ground no. 3 is against the confirmation of Rs. 1,71,98,066/- sustained by the Ld. CIT(A) which was added by the AO on account of interest expenses u/s 36(1)(iii) which were disallowed.

8. Facts in brief are that the AO during the course of assessment proceedings noted that the assessee has claimed total interest on loan to the tune of Rs. 3,02,80,478/-. The AO noted that since a sum of Rs. 11,50,850/- was disallowed out of said interest expenditure as related to earning of exempt income u/s 14A Rule 8D and therefore the remaining part of interest amounting to Rs. 2,91,29,628/- required to be disallowed as not incurred for the purpose of business in accordance with the provision of Section 36(1)(iii) of the Act. The AO thus added the same to the income of the assessee.

9. In the appellate proceedings, the Ld. CIT(A) confirmed the same.

10. At the outset the assessee pointed out that the case of the assessee was selected for limited scrutiny by filing a copy of the notice issued u/s 143(2) dated 24.08.2018 which is clearly mentioned that the case is selected for limited scrutiny for verification of expenses incurred for earning and exempt income. The AR therefore submitted that scrutiny was not converted into completed scrutiny therefore the addition made by the AO u/s 36(1)(iii) of the Act is without jurisdiction. In defense of his arguments the Ld. A.R. relied on the decision of the Co-ordinate Bench of Chandigarh in the case of Shri Vijay Kumar vs. ITO in ITA No. 434/Chad/2019 for AY 2014-15 dated 12.09.2019 and the decision of Co-ordinate Bench of Delhi in the case of Dev Milk Foods Pvt. Ltd. vs. Addl. CIT in ITA No. 6767/Del/2019 for AY 2015-16 dated 12.06.2020. The Ld. A.R submitted that in view of the decisions as refer