2014 (8) TMI 59 - AT - Income Tax

Disallowance u/s 14A r.w. Rule 8D - Inclusion of amount in adjusted book profit u/s 115JB Held that - As decided in assessee s own case for the earlier assessment year, it has been held that relying upon Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT 2010 (8) TMI 77 - BOMBAY HIGH COURT and the provisions of rule 8D, has remanded the issue to the file of the AO for re-examination - it is necessary for the assessee to point out how each item of expense debited to its profit and loss account is wholly incurred for the purpose of earning income which is taxable thus, the matter is remitted back to the AO for re-examination. The direction is made that the addition of disallowance made u/s 14A cannot be made while computing book profit u/s 115JB of the Act - the AO has to record a categorical finding as to how he was not satisfied with the claim of the assessee regarding the expenditure incurred for earning the exempt income - The disallowance made u/s 14A cannot be included in the book profit for the purpose of section 115JB Decided in favour of Assessee.

Summary

Issues:
1. Disallowance under Section 14 of IT Act, 1961, r.w. Rule 8D of IT Rules, 1962.
2. Inclusion of disallowance amount in adjusted book profit for Section 115JB.

Analysis:
1. The assessee appealed against the CIT (A)'s order for the assessment year 2009-10, focusing on two key issues. The Assessing Officer disallowed an amount of Rs. 35,67,544 under Section 14 of the IT Act, 1961, along with Rule 8D of the IT Rules, 1962. The disallowance was related to the investment in shares and dividend income claimed as exempt under Section 10(34). The Assessing Officer calculated the disallowance based on the nexus between interest expenses and the investment made by the assessee, resulting in a disallowance of Rs. 36,96,051. This disallowance was also added to the book profit computed for Section 115JB.

2. The appeal to the CIT (A) did not favor the assessee. However, during the ITAT proceedings, the assessee highlighted a similar issue in the assessment year 2010-11, where the ITAT had set aside the orders of the Revenue authorities. The learned DR supported the Assessing Officer's decision, emphasizing the correctness of applying Rule 8D for disallowance. The ITAT, after careful consideration, referred to a similar issue in the assessment year 2010-11 and noted that the disallowance under Section 14A cannot be included in the book profit for Section 115JB. The Tribunal directed the Assessing Officer to re-examine the issue in line with previous judgments and the observations of the Tribunal for the assessment year 2010-11.

3. The Tribunal's decision was based on the principle that the disallowance under Section 14A should not be part of the book profit calculation for Section 115JB. The ITAT emphasized the need for a clear finding by the Assessing Officer regarding the expenditure incurred for earning exempt income. The Tribunal also directed the Assessing Officer to consider relevant judgments, ensuring consistency with previous decisions and legal provisions. Ultimately, the appeal filed by the assessee was allowed for statistical purposes, aligning with the Tribunal's decision in a similar case for the assessment year 2010-11.