2013 (10) TMI 459 - AT - Income Tax

Disallowance of various expenditure - expenses have been mainly disallowed on the ground that these were not commensurate with the income earned - Held that - This approach is however not legally tenable. Expenses incurred for the purpose of business have to be allowed even if there is no income earned or there is loss in the business. - Decided in favor of assessee. Claim of interest expenses related to earlier years - Held that - The amount written off of ₹ 5,06,789/- was on account of interest payable to IL FS, the interest had been paid by the assessee in the earlier years but was not claimed as deduction due to dispute with IL FS. CIT(A) has given a clear finding that the dispute has been settled in assessment year 2008-09 and, therefore, the claim was allowable in this year. - Decided in favor of assessee. Book adjustments u/s 115JB - MAT - Whether the statutory disallowance made as per Rule 8D of section 14A in relation to exempt income can be added while computing the book profit - Adjustment to be made to the book profit in terms of Explanation 1(f) of section 115JB Held that - Relying upon the judgment in the case of Goetze (India) Ltd. v. Commissioner of Income-tax 2009 (5) TMI 615 - ITAT DELHI , it has been held that provisions of section 14A could not be imported into clause (f) to Explanation 1 to the section 115JB while computing book profit. It was also held that only the expenditure incurred in relation to exempt income and debited to P L account can be added while computing the book profit Decided against the Revenue.

Issues Involved:
1. Disallowance of interest expenses.
2. Disallowance of other expenses.
3. Adjustment made under Section 115JB of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Disallowance of Interest Expenses:

The primary dispute in the revenue's appeal was the disallowance of interest expenses. The Assessing Officer (AO) noted that the assessee claimed financial charges of Rs. 4,93,27,754/-. The assessee explained that the borrowings were for business purposes, initially taken at high-interest rates and later replaced by bonds worth Rs. 55 crore in the assessment year 2007-08. The AO disallowed the interest expenditure of Rs. 4,92,87,061/- and computed disallowance of interest under Section 14A of Rs. 1,48,32,122/-. The CIT(A) observed that the interest on earlier borrowings had been allowed in previous years, and the same borrowings were replaced by bonds in the assessment year 2007-08. Since the borrowings were for business purposes, the interest had to be allowed. The Tribunal upheld the CIT(A)'s decision, confirming that the borrowings continued to be for business purposes, and thus, the interest deduction was justified. However, the disallowance of interest under Section 14A was upheld.

2. Disallowance of Other Expenses:

The AO disallowed several expenses claimed by the assessee, including salary to employees, rent, and other miscellaneous expenses, totaling Rs. 30,33,044/-. The AO also disallowed audit expenses of Rs. 3,25,000/-, S.T.T. expenses of Rs. 6,02,322/-, and margin funding interest of Rs. 5,06,789/-. The CIT(A) found that these expenses were incurred for business purposes and could not be disallowed merely because they were not commensurate with the income earned. The Tribunal upheld the CIT(A)'s decision, confirming that expenses incurred for business purposes must be allowed even if there is no income or a loss in the business. The Tribunal also upheld the allowance of stamp duty on bonds, professional expenses, and the write-off of interest payable to IL&FS, as these were incurred for business purposes.

3. Adjustment Made Under Section 115JB:

The assessee disputed the adjustment of Rs. 1,48,32,122/- made under Section 115JB on account of disallowance under Section 14A. The AO computed the disallowance as per Rule 8D and added this amount to the book profit under Section 115JB. The CIT(A) confirmed the AO's decision. The Tribunal, however, referred to the Delhi Tribunal's decision in Goetze (India) Ltd. v. Commissioner of Income-tax, which held that provisions of Section 14A could not be imported into clause (f) of Explanation 1 to Section 115JB while computing book profit. Only the expenditure actually incurred and debited to the P&L account could be added. Following this precedent, the Tribunal set aside the CIT(A)'s order and deleted the addition made under Section 115JB.

Conclusion:

In conclusion, the Tribunal partly allowed the revenue's appeal by upholding the disallowance under Section 14A but confirmed the CIT(A)'s decision on other expenses. The assessee's appeal was allowed by deleting the addition made under Section 115JB.

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