JUDGMENT : BHARGAV D. KARIA, J. 1. Heard learned advocate Mr.Hardik V. Vora for the petitioner through video conference and learned Senior Standing Counsel Mr.Karan G. Sanghani for the respondents. 2. Rule, returnable forthwith. Learned Senior Standing Counsel Mr.Karan Sanghani waives service of notice of rule for and on behalf of the respondents. 3. By this petition under Article 226 of the Constitution of India, the petitioner has challenged the notice dated 30 th July, 2022 [notice dated 06.04.2021 issued under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act (for short ‘the TOLA’)] issued under Section 148 of the INCOME TAX ACT , 1961 (for short ‘the Act’) for re-opening of the Assessment Year 2013-14. 4. The brief facts of the case are as under : 4.1. The petitioner is a Private Limited Company engaged in providing security personnel and other security services and filed its return of income declaring total income at Rs.12,98,81,890/- on 30 th September, 2013 for Assessment Year 2013-14. 4.2. The case of the petitioner was selected for scrutiny and order under Section 143(3) of the Act was passed on 23 rd March, 2016 determining total income of Rs.35,70,83,784/-. Being aggrieved, the petitioner had also preferred an Appeal before the CIT (Appeals). 4.3. The respondent-Assessing Officer thereafter issued a notice dated 06.04.2021 under Section 148 of the Act to re-open the assessment for Assessment Year 2013-14 under the provisions of the TOLA. 4.4. Thereafter, in view of the decision of the Hon’ble Supreme Court in case of Union of India Versus Ashish Agarwal & Others decided on 04.05.2022 and the directions issued under Article 142 of the Constitution of India, the respondent-Assessing Officer issued the notice under Section 148A(b) of the Act on 23 rd May, 2022. 4.5. The petitioner thereafter, filed a reply to the said notice on 08.07.2022. The respondent-Assessing Officer passed an order under Section 148 A(d) of the Act on 31.07.2022 along with the impugned notice dated 30 th July, 2022 issued under Section 148 of the Act. 4.5. The petitioner thereafter, filed a reply to the said notice on 08.07.2022. The respondent-Assessing Officer passed an order under Section 148 A(d) of the Act on 31.07.2022 along with the impugned notice dated 30 th July, 2022 issued under Section 148 of the Act. Being aggrieved, the petitioner has preferred this petition considering the decision of the Hon’ble Supreme Court in case of Union of India versus Rajeev Bansal reported in [2024] 167 taxmann.com 70 SC as the notice dated 06.04.2021 would be valid notice considering the directions issued by the Hon’ble Supreme Court in the aforesaid decision in case of Rajeev Bansal (Supra) 5.1. Learned advocate Mr.Hardik Vora for the petitioner submitted that the basis of re-opening for alleged escapement of income under Section 14A of the Act is without any basis as the Assessing Officer has ignored the decision of the Hon’ble Supreme Court in case of South India Bank Limited versus Commissioner of Income Tax reported in [2021] 438 ITR Page 1 (SC) where the assessee has mixed fund (made up partly of interest free funds and partly of interest-bearing funds) and payment is made out of the mixed funds, the investment must be considered to have been made out of the interest income. 5.2. It is submitted that the respondent- Assessing Officer has assumed the jurisdiction without considering the decision of the Hon’ble Apex Court and has come to the conclusion that it is a fit case to re-open the assessment as the petitioner-Company has borrowed funds which is interest-bearing and though certain funds might have been taken for specific purpose by the assessee-Company, but as the funds come to common pool or the account, the same is used for the business and investment purpose. It was therefore submitted that the entire basis of the re-opening is contrary to the settled legal position and no dis-allowance can be made under Section 14A of the Act by the respondent-Assessing Officer. It was therefore submitted that the impugned notice being without jurisdiction is liable to be quashed and set aside. 6.1. It was therefore submitted that the entire basis of the re-opening is contrary to the settled legal position and no dis-allowance can be made under Section 14A of the Act by the respondent-Assessing Officer. It was therefore submitted that the impugned notice being without jurisdiction is liable to be quashed and set aside. 6.1. On the other hand, learned Senior Standing Counsel Mr.Karan G. Sanghani for the respondents submitted that the Assessing Officer while recording the reasons for re- opening at the time of issuance of notice dated 06.04.2021 has computed the dis- allowance considering the Clause 3 of the Rule 8D(2) of the INCOME TAX RULES , 1962 (for short ‘the Rules’) and thereby, an amount of Rs.7,92,023/- is computed being one half percent of the total investment pertaining to the expenses other than the interest expenses and therefore, at least there is an escapement to that extent. 6.2. It was submitted that the Assessing Officer has also come to the conclusion that the dis-allowance under Section 14A of the Act is required to be made as the mixed up funds are being used for the business and investment activity. However, learned Senior Standing Counsel Mr.Karan Sanghani fairly submitted that the respondent-Assessing Officer has not taken into consideration the settled legal position as held by the Hon’ble Apex Court in case of the South Indian Bank Limited (Supra). 7. Having heard the learned advocates for the respective parties and considering the facts of the case, it would be germane to refer to the reasons recorded by the respondent-Assessing Officer as under : “Annexure-A Scrutiny of Balance Sheet, P/L 3CD report and computation of income revealed that assessee has not computed any disallowance u/s 14A of the Act. It was however noticed from profit and loss account that assessee has received dividend of Rs.12,120 on its investment. It was noticed from the balance sheet that assessee has investment as on 31.03.2013 of Rs. 17,62,55,560 (Rs.14,05,53,750 as on 31.03.2012) [in shares of bank of Baroda: Rs.25,610 (Rs.25,610, as on 31.03.2012), in shares of Haritasa Checkmate Electronics Pvt Ltd: Rs.12,43,33,050 (9,25,20,010 as on 31.03.2012), in partnership Firm Checkmate Security Services: Rs.1,81,58,620 (Rs.1,79,77,620 as on 31.03.2012) & in partnership Firm Checkmate Apparels: Rs.3,37,38,280 (Rs.3,00,30,510 as on 31.03.2012)]. It was further noticed that assessee has paid interest of 8,73,52,360 during the year. It was further noticed that assessee has paid interest of 8,73,52,360 during the year. As per balance sheet, assessee has total assets of Rs.211,83,05,630 as on 31.03.2013 (Rs.170,65,68,240 as on 31.03.2012). As assessee has made investment in equity shares and in partnership firm income from which is exempted it was liable for disallowance u/s 14A read with rule 8D of the Act. Failure to do so resulted in underassessment of income of Rs. 80,27,304 as detailed below: Total interest expenditure: Rs.8,73,52,360 Average of investment: Rs.15,84,04,655(1/2 of (Rs. 17,62,55,560+Rs.14,05,53,750)} Average of total assets: Rs.191,24,36,935 (1/2 of (Rs.211,83,05,630+Rs.Rs.170,65,68,240)} Computation of disallowance:Item (i): 0 Item (ii): 8,73,52,360 x 15,84,04,655 / 191,24,36,935 = 72,35,281 Item (iii):0.5 percent of 15,84,04,655 = 7,92,023" On perusal of Balance Sheet, Profit and Loss Account, 3CD report and Computation of Income for relevant assessment year, it transpires that the assessee had made investments in equity shares and in partnership firm, income from which is exempted. Furthermore, the assessee made such investments from mixed funds and thus, liable for disallowance u/s 14A read with rule 8D of the Act. Enquiries made by the A.O, as sequel to information collected/received: On verification of records for relevant assessment year, the following facts are transpired: The assessee company has received dividend of Rs.12,120 on its investment. assessee has investment as on 31.03.2013 of Rs.17,62,55,560. The details of the same is elucidated as below: Rs.25,610/-in shares of bank of Baroda. Rs.12,43,33,050/- in shares of Haritasa Checkmate Electronics Pvt Ltd. Rs.1,81,58,620/- in partnership Firm Checkmate Security Services. Rs.3,37,38,280/-in partnership Firm Checkmate Apparels. The assessee has paid interest of Rs.8,73,52,360/- during the year under consideration. • As per balance sheet, assessee has total assets of Rs. 211,83,05,630 as on 31.03.2013. The foregoing para makes it clear that the company has borrowed funds, which is interest bearing. Though certain funds might been have taken for specific purposes by the assessee company but as the funds come to common pool or account, the same is used for the business and the investment purpose. In the case of the assessee, the mixed up funds are being used for the business and the investment activities. Therefore, in case any interest bearing fund is utilized for the investment purpose, the proportionate interest needs to be disallowed. Accordingly disallowance u/s 14A r.w.r., 8D of the Act of Rs.80,27,304/- (as per supra) escaped taxation.” 8. In the case of the assessee, the mixed up funds are being used for the business and the investment activities. Therefore, in case any interest bearing fund is utilized for the investment purpose, the proportionate interest needs to be disallowed. Accordingly disallowance u/s 14A r.w.r., 8D of the Act of Rs.80,27,304/- (as per supra) escaped taxation.” 8. After considering the reply of the assessee, the Assessing Officer has also observed as under while passing the order under Section 148A(d) of the Act : “3.1. The submission of the assessee, as reproduced above, has duly been considered. However, the same is not found to be tenable. The assessee company has filed its return of income for the Assessment Year 2013-14 on 28.09.2013 declaring total income of Rs.12,98,81,890/- and Book Profit u/s. 115JB of the Act at Rs. 15,26,68,848/- The assessment order u/s. 143(3) was passed on 23.03.2016 determining assessed income at Rs.35,70,83,780/-. On perusal of the profit and loss account, it was found that the assessee has received dividend of Rs.12,120/- on its investment. It was noticed from the balance sheet that the assessee had investment as on 31.03.2013 of Rs.17,62,55,560/-. It was further noticed that the assessee has paid interest of Rs.8,73,52,360/- during the year. As per balance sheet, assessee has total asset of Rs.211,83,05,630/- as on 31.03.2013. As the assessee company had made investment in equity shares and in partnership firm, income from which is exempted, it was liable for disallowance u/s.14A read with Rule 8D of the Act Furthermore, the assessee company made such investment from mixed funds and thus, liable for disallowance u/s. 14A read with Rule 8D of the Act. 3.2. From the above, it is clear that the assessee company has borrowed funds, which is interest bearing. Though certain funds might have taken for specific purposes by the assessee company but as the funds come to common pool or account, the same is used for the business and the investment purpose. In the case of the assessee, the mixed up funds are being used for the business and the investment activities. Therefore, in case any interest bearing fund is utilized for the investment purpose, the proportionate interest needs to be disallowed. Accordingly, disallowance u/s. 14A read with rule 8D of the Act of Rs.80,27,304/- is required to be made. In the case of the assessee, the mixed up funds are being used for the business and the investment activities. Therefore, in case any interest bearing fund is utilized for the investment purpose, the proportionate interest needs to be disallowed. Accordingly, disallowance u/s. 14A read with rule 8D of the Act of Rs.80,27,304/- is required to be made. Non disallowance u/s 14A read with rule 8D resulted in to escapement of taxable income to the tune of Rs.80,27,304/- in the case of assessee for AY 2013-14.” 9. On perusal of the reasons recorded as well as the findings arrived at by the respondent- Assessing Officer to come to the conclusion that it is a fit case to re-open the assessment, it appears that the respondent- Assessing Officer has failed to consider the decision of the Hon’ble Apex Court in case of the South Indian Bank Limited (Supra) in which it is held as under : “17. In a situation where the assessee has mixed fund (made up partly of interest free funds and partly of interest-bearing funds) and payment is made out of that mixed fund, the investment must be considered to have been made out of the interest free fund. To put it another way, in respect of payment made out of mixed fund, it is the assessee who has such right of appropriation and also the right to assert from what part of the fund a particular investment is made and it may not be permissible for the Revenue to make an estimation of a proportionate figure. For accepting such a proposition, it would be helpful to refer to the decision of the Bombay High Court in Pr. CIT v. Bombay Dyeing & Mfg. Co. Ltd. [IT Appeal No. 1225 of 2015, dated 28-11- 2017], where the answer was in favour of the assessee on the question, whether the tribunal was justified in deleting the disallowance under section 80M of the Act on the presumption that when the funds available to the assessee were both interest free and loans, the investments made would be out of the interest free funds available with the assessee, provided the interest free funds were sufficient to meet the investments. The resultant SLP of the Revenue challenging the Bombay High Court judgment was dismissed both on merit and on delay by this Court. The resultant SLP of the Revenue challenging the Bombay High Court judgment was dismissed both on merit and on delay by this Court. The merit of the above proposition of law of the Bombay High Court would now be appreciated in the following discussion. 18. In the above context, it would be apposite to refer to a similar decision in CIT v. Reliance Industries Ltd. [2019] 102 taxmann.com 52/261 Taxman 165/410 ITR 466 (SC), where a Division Bench of this Court expressly held that where there is finding of fact that interest free funds available to assessee were sufficient to meet its investment it will be presumed that investments were made from such interest free funds.” 10. We are therefore of the opinion that in view of the settled legal position as held by the Hon’ble Apex Court in case of South Indian Bank Limited (Supra) , the respondent-Assessing Officer could not have assumed the jurisdiction to re-open the assessment qua dis-allowance under Section 14A of the Act on perusal of the balance-sheet and profit and loss account which were scrutinised by the Assessing Officer during the regular course of assessment. 11. With regard to the contention raised by learned Senior Standing Counsel Mr.Karan Sangani for the respondents, it would be germane to refer to the Rule 8D of the Rules as under : “8D.(1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with— (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2).” 12. On perusal of the above Rules, it is clear that the Rule 8D would apply only when Section 14A of the Act which provides for dis- allowance of the expenditure, relatable to the exempt income of the assessee. On perusal of the above Rules, it is clear that the Rule 8D would apply only when Section 14A of the Act which provides for dis- allowance of the expenditure, relatable to the exempt income of the assessee. In the facts of the case, as per the settled legal position, when the assessee has utilised the mixed up funds which is undisputed, as assessee has utilised the mixed funds for the purpose of investment as well as for the purpose of business, and in absence of any further information available in the record with the Assessing Officer, the Assessing Officer could not have assumed the jurisdiction to re-open the assessment to make dis-allowance on the ground that the income has escaped assessment due to no dis-allowance was made under Section 14A of the Act. When Section 14A of the Act is not applicable in the facts of the case, there is no question of dis-allowance by applying Rule 8D of the Rules as Rule 8D would come into play only when the dis-allowance is required to be made under Section 14A of the Act. 13. In view of the foregoing reasons, the petition succeeds and is accordingly allowed. The impugned notice dated 30 th July, 2022 issued under Section 148 of the Act as well as the order dated 31 st July, 2022 passed under Section 148 A(d) of the Act are hereby quashed and set aside. Rule is made absolute to the aforesaid extent with no orders as to cost.