2018 (1) TMI 1461 - AT - Income Tax

Addition u/s 14A r.w.r. 8D - HELD THAT - As decided in case of Vireet Investment (P) Ltd. 2017 (6) TMI 1124 - ITAT DELHI as held that for computing average value of investment, for the purpose of disallowance u/s. 14A r. w. Rule 8D only those investments could be considered which would yield exempt income. - Decided in favour of assessee. MAT - Disallowance of expenditure relatable to exempt income for working out book profit u/s. 115JB - HELD THAT - We find that in the case of Vireet Investment (P) Ltd. (supra), identical issue has been decided against the revenue and in favour of the assessee in assessee s own case for AY. 2010-11 2017 (9) TMI 655 - ITAT MUMBAI . Considering the above, we decide last Ground of appeal against the revenue

Summary

Issues:
1. Disallowance of expenses under section 14A r.w.r. 8D of Income tax Rules.
2. Disallowance under section 115JB concerning disallowance u/s. 14A.
3. Direction to adopt disallowance of expenditure for book profit u/s. 115JB.

Analysis:

Issue 1: Disallowance of expenses under section 14A r.w.r. 8D of Income tax Rules
The Assessing Officer (AO) made additions under section 14A of the Act r.w.r. 8D(2)(ii) and 8D(2)(iii). The First Appellate Authority (FAA) directed that disallowance should only be made on investments yielding exempt income. The Tribunal upheld this direction, citing the Special Bench decision that only investments generating exempt income should be considered for calculating the average value of investments. The Tribunal found the FAA's decision in line with the Special Bench ruling, thus dismissing the AO's appeal.

Issue 2: Disallowance under section 115JB concerning disallowance u/s. 14A
The AO applied Rule 8D u/s. 14A to compute disallowance, leading to further disallowance under section 115JB. The FAA directed a lower estimation of expenses directly linked to exempt income for computing book profit u/s. 115JB. The Tribunal referenced the Special Bench decision, stating that disallowance under Rule 8D u/s. 14A should not apply to computing profit u/s. 115JB. As the disallowance made by the assessee was deemed sufficient, the Tribunal dismissed the Revenue's appeal against the FAA's decision.

Issue 3: Direction to adopt disallowance of expenditure for book profit u/s. 115JB
The FAA directed a specific amount for disallowance of expenditure related to exempt income for book profit u/s. 115JB. The Tribunal, following the decision in a similar case, ruled against the Revenue and in favor of the assessee, deciding the last ground of appeal against the AO. Consequently, the appeal filed by the AO was dismissed by the Tribunal.

In conclusion, the Tribunal's decision upheld the FAA's directions regarding disallowances under section 14A and section 115JB, aligning with the Special Bench decisions and dismissing the AO's appeal. The Tribunal's detailed analysis and application of legal principles ensured a fair and consistent outcome in the matter.