2011 (7) TMI 1238 - AT - Income Tax

Summary

Issues involved: The confirmation of book profit u/s. 115JB of the Income-tax Act, 1961 and the disallowance of proportionate administrative expenses as dividend income under section 14A of the Act.

Confirmation of Book Profit u/s. 115JB:
The Appellate Tribunal considered the definition of "book profit" u/s. 115JB, which includes amounts set aside for provisions made for meeting any liability. The Tribunal analyzed the provision toward diminution in the value of investment and deferred tax credit claimed by the assessee for A.Y. 2003-04. The Tribunal accepted the assessee's claim regarding the provision for diminution in the value of the investment, emphasizing adherence to the definition of "book profit." The Tribunal directed verification of the quantum of the claim by the Assessing Officer. Additionally, the Tribunal allowed the assessee's claim for deferred tax credit, in line with the provisions of the Act. The Tribunal upheld the assessee's contentions and directed the AO to pass an appeal-effect giving order accordingly.

Disallowance of Proportionate Administrative Expenses:
For A.Y. 2004-05 and 2005-06, the only issue in the assessee's appeal was the disallowance of proportionate administrative expenses as dividend income under section 14A of the Act. The Tribunal noted that the disallowance was based on Rule 8D, which was not applicable for the relevant years. Citing relevant case law, the Tribunal ruled in favor of the assessee, stating that no disallowance could be made for administrative costs attributable to earning tax-free income until Rule 8D came into force. The Tribunal decided to delete the disallowance under section 14A for the respective years, as it was not supported by the applicable rules at that time.

Separate Judgment (Revenue's Appeal - A.Y. 2005-06):
In the Revenue's appeal for A.Y. 2005-06, the issue was the disallowance of the provision written back in accounts. The Tribunal considered the write back of the provision toward diminution in the value of investments and the quantum of the claim. The Tribunal allowed the assessee's claim, emphasizing that the write back of such provision would not lead to any adjustment to the taxable income. The Tribunal directed verification of the quantum and confirmed the impugned order in favor of the assessee.

In conclusion, the Appellate Tribunal ITAT Cochin addressed the issues of confirmation of book profit u/s. 115JB and the disallowance of proportionate administrative expenses under section 14A. The Tribunal ruled in favor of the assessee on both issues, directing necessary actions by the Assessing Officer and confirming the impugned order in the Revenue's appeal for A.Y. 2005-06.