2017 (11) TMI 1784 - AT - Income Tax

Disallowance u/s 14A - total investments for Rule 8D - disallowance u/s. 14A has to be computed only with reference to the investment on which exempt income has been earned during the year - HELD THAT - This issue is covered in favour of the assessee VIREET INVESTMENT (P.) LTD. 2017 (6) TMI 1124 - ITAT DELHI . The Special Bench has expounded that only investments has to be considered for computing the average value of investment on which exempt income is earned during the year. Since the CIT(A) s directions on this issue is to consider only those investment on which exempt income is received. Hence we do not find any infirmity in the same and accordingly we uphold the same. Disallowance u/s. 115JB - Applicability of Rule 8D u/s. 14A in MAT u/s. 115JB - HELD THAT - In the preset case we find that the assessee has already made an addition of 15, 61, 02, 809/- towards disallowance of expenditure relating to exempt income. The Assessing Officer proceeded to apply the provisions of Rule 8D u/s. 14A and accordingly based upon these calculation made further disallowance. Since this proposition is not in accordance with the Special Bench decision in the case of VIREET INVESTMENT (P.) LTD. 2017 (6) TMI 1124 - ITAT DELHI and the total disallowance in this regard is sufficient we are of the considered opinion that there is no merit in this ground raised by the Revenue. CIT(A) increased the disallowance under MAT in this regard by 40 lacs. The Revenue has not made any submission as to how this disallowance does not suffice. - Decided against revenue.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act.
2. Computation of book profit under section 115JB.

Issue 1: Disallowance under section 14A of the Income Tax Act:
The appellant disputed the disallowance under section 14A, arguing that the disallowance should be computed based only on investments yielding exempt income during the year. The Assessing Officer had made disallowances based on Rule 8D, resulting in a total disallowance of a certain amount. The Commissioner of Income Tax (Appeals) directed the Assessing Officer to calculate the disallowance considering only investments generating exempt income during the year. The Tribunal upheld this decision, citing a Special Bench ruling that supported the exclusion of investments not yielding exempt income in the computation of average investments for disallowance under Rule 8D(2)(iii).

Issue 2: Computation of book profit under section 115JB:
Regarding the computation of book profit under section 115JB, the Assessing Officer had applied Rule 8D for disallowance under section 14A, resulting in a certain disallowance amount. The Commissioner of Income Tax (Appeals) increased this disallowance to a fixed amount. The appellant contended that no disallowance under Rule 8D should be made while computing book profit under section 115JB. The Tribunal agreed with the appellant, citing the same Special Bench decision that disallowed the application of Rule 8D for computing profit under section 115JB. The Tribunal found the disallowance already made by the appellant to be sufficient and dismissed the Revenue's appeal, upholding the decision of the Commissioner of Income Tax (Appeals).

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the Commissioner of Income Tax (Appeals) orders on both issues related to disallowance under section 14A and computation of book profit under section 115JB. The judgments were based on the application of relevant legal provisions and supported by precedents, including a Special Bench decision.