2014 (12) TMI 966 - AT - Income Tax

Disallowance u/s 14A - Carry forward of business loss Held that - The carry forward business loss was set off to the extent of available business income and thereby the total income was computed at Nil the AO made certain disallowances u/s 14A and accordingly computed the total income of the assessee as against the Nil return of income - since the AO computed the total income by making the addition to the extent of ₹ 38,20,860/-, therefore, the carry forward business losses to the extent of ₹ 6,39,538/- should have been set off instead of ₹ 6,21,615 - the carry forward losses ought to have been set off to the extent of the available business income - when the AO has made the addition of more than 38 lakhs then to that extent the carry forward business losses of the assessee should have been set off - setting off carry forward business losses now depends on the finality of the addition made by Assessing Officer u/s 14A - the allowability of setting off the carry forward business losses depends upon the total income as per the outcome of the appeal. Whether section 14A is attracted in respect of the investment made in shares albeit no exempt income is earned by the assessee on such investment - Held that - The assessee has not received/earned any exempt income during the year - there is no claim of exempt income by the assessee during the year relying upon Commissioner of Income Tax-IV Versus Holcim India P. Ltd. 2014 (9) TMI 434 - DELHI HIGH COURT - the entire or whole expenditure has been disallowed as if there was no expenditure incurred by the assessee for conducting business - CIT(A) has positively held that the business was set up and had commenced - Expenditure had to be also incurred to protect the investment made - genuineness of the expenses and the fact that it was incurred for business activities was not doubted by the AO and has also not been doubted by the CIT(A) - Decided in favour of assessee.

Summary

Issues:
1. Restricting the allowance of carry forward losses.
2. Disallowance under Section 14A.
3. Adjustment of book profit under Section 115JB.

Issue 1: Restricting the allowance of carry forward losses:
The appeal was against the order of the CIT(A) for the A.Y. 2009-10, where the assessee challenged the decision restricting the allowance for carry forward losses. The Assessing Officer computed the total income, including disallowances under Section 14A, resulting in a higher amount than the available business income. The Tribunal agreed that carry forward losses should have been set off to the extent of the additions made by the Assessing Officer. However, the final decision on setting off the losses depended on the outcome of the appeal against the other additions challenged by the assessee.

Issue 2: Disallowance under Section 14A:
The Assessing Officer disallowed expenses under Section 14A as the assessee's investment income was considered exempt. The assessee argued that since no exempt income was claimed, Section 14A should not apply. Various judgments were cited, including the Hon'ble Delhi High Court's decision, stating that when no exempt income is earned, no disallowance should be made under Section 14A. The Tribunal, following the cited decisions, ruled in favor of the assessee, deleting the disallowance made under Section 14A.

Issue 3: Adjustment of book profit under Section 115JB:
This issue was consequential to the disallowance under Section 14A. Since the disallowance under Section 14A was deleted, the adjustment of book profit under Section 115JB was also allowed. The Tribunal partly allowed the appeal of the assessee based on the findings related to the disallowance under Section 14A.

In conclusion, the Tribunal addressed the issues of restricting carry forward losses, disallowance under Section 14A, and adjustment of book profit under Section 115JB. The decision favored the assessee by allowing the appeal partly, deleting the disallowance made under Section 14A and consequentially allowing the adjustment of book profit under Section 115JB. The final outcome of setting off carry forward losses depended on the total income determined after considering the appeal against other additions.