Addl. CIT, Special Range-7 v. PNB Gilts Ltd: Sufficient interest-free funds preclude interest disallowance under section 14A, and mark-to-market losses on stock-in-trade are allowable as legitimate valuation losses.

55. [2026] 138 ITR(T) 221 (Delhi - Trib.)

Addl. CIT, Special Range-7 v. PNB Gilts Ltd

A.Y.: 2012-13 & 2013-14                                                

DATE: 25.03.2026

Sec. 14A read with Rule 8D(2)(ii) and 8D(2)(iii), and Sec. 36(1)(iii) read with Sec. 145A, of the Income-tax Act, 1961 – Expenditure incurred in relation to income not includible in total income and Interest on borrowed capital – Assessee NBFC held shares and bonds as stock-in-trade and earned exempt income – Assessee had sufficient interest-free funds (share capital and reserves of `577.64 crores) exceeding value of stock-in-trade yielding exempt income (`65.80 crores) – No disallowance under section 14A read with Rule 8D(2)(ii) could be made – Disallowance under section 36(1)(iii) solely due to earning tax-free income unjustified – Provision for diminution/mark-to-market loss on securities held as stock-in-trade allowable as legitimate valuation loss.

FACTS

The assessee, a Non-Banking Financial Company (NBFC) was en