2015 (1) TMI 1444 - AT - Income Tax

Disallowance u/s 14A - Non recoding of satisfaction - HELD THAT - It is an undisputed fact that the assessee itself has offered 0.5% of dividend income on account of other expenses. It is also an undisputed fact that the AO has not pointed out any defect in the calculation made by the assessee nor AO has recorded any dissatisfaction with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income. Considering all these facts in the light of the provisions of Sec. 14A of the Act we set aside the findings of the Ld. CIT(A) and direct the AO to delete the addition. Ground No. 1 is accordingly allowed. Addition being securities transaction tax to the book profit computed u/s. 115JB - HELD THAT - The said provision shows that it refers the amount of expenditure relatable to any income to which Sec. 10 other than the provisions contained in clause-38 thereof or section 11 or section 12 apply. In the case in hand the assessee has claimed exemption u/s. 10(38) of the Act therefore the assessee is covered by the exclusion provided in clause (f) to explanation-1 to Sec. 115JB of the Act. Therefore we direct the AO to exclude addition being securities transaction tax from the book profit. Ground No. 3 is accordingly allowed. Addition wrongly accounted in the books of account of the assessee being charged to book profit u/s. 115JB - HELD THAT - It is not in dispute that the assessee has made book entries of speculation gain which it has not actually earned during the year. Since the speculation gains were credited to the profit and loss account it can be said that the profit and loss account are not prepared in accordance with part-II of Schedule- VI and for the purpose of Sec. 115JB. Every company has to prepare its accounts in the manner provided in part-II and Part-III of Schedule-VI to the Companies Act 1956. Since the assessee s profit and loss account is not prepared in accordance with the relevant provisions of the Companies Act the notional profit shown by the assessee has to be reduced while computing the book profit u/s. 115JB - See BOMBAY DIAMOND CO. LTD. MUMBAI 2009 (11) TMI 903 - ITAT MUMBAI - we direct the AO to re-work the Book Profit by amount wrongly accounted in the books of account of the assessee - Decided in favour of assessee.

Summary

Issues Involved:
- Disallowance of expenses claimed as exempt under sections 10(34) and 10(38).
- Addition of securities transaction tax to book profit under section 115JB.
- Treatment of wrongly accounted speculation gain in book profit under section 115JB.
- Disallowance under section 14A of the Act.

Issue 1 - Disallowance of Expenses Claimed as Exempt:
In the case, the Assessing Officer disallowed certain expenses claimed as exempt under sections 10(34) and 10(38) of the Income Tax Act. The AO computed the disallowance under Rule 8D, leading to a disagreement with the assessee. The assessee argued that the disallowance made by the AO was not in accordance with the law as the AO did not identify any specific defect in the assessee's computation. The ITAT observed that the AO did not point out any error in the assessee's calculation and did not express dissatisfaction with the claim made by the assessee. Considering these facts and the provisions of Sec. 14A of the Act, the ITAT directed the AO to delete the disallowance amount. Consequently, the ground related to this issue was allowed.

Issue 2 - Addition of Securities Transaction Tax to Book Profit:
The next issue concerned the addition of securities transaction tax to the book profit under section 115JB. The ITAT noted that the assessee claimed exemption under section 10(38) of the Act, which falls under the exclusion provided in clause (f) of explanation-1 to Sec. 115JB. Therefore, the ITAT directed the AO to exclude the securities transaction tax amount from the book profit, resulting in the allowance of this ground.

Issue 3 - Treatment of Wrongly Accounted Speculation Gain in Book Profit:
Another issue addressed was the treatment of wrongly accounted speculation gain in the book profit under section 115JB. The assessee had credited speculation gain in the P&L account, which was later found to be a mistake. The ITAT held that since the profit and loss account was not prepared in accordance with the relevant provisions of the Companies Act, the notional profit had to be reduced while computing the book profit under section 115JB. Citing a similar case precedent, the ITAT directed the AO to re-work the book profit by excluding the wrongly accounted speculation gain amount, resulting in the allowance of this ground.

Issue 4 - Disallowance under Section 14A of the Act:
The final issue involved the disallowance under section 14A of the Act. The ITAT found the facts and issues to be identical to a previous appeal and directed the AO to delete the addition made, in line with their findings in the earlier appeal. Consequently, this ground was allowed, and both appeals filed by the assessee were allowed.

This detailed analysis of the judgment highlights the key legal issues addressed by the ITAT Mumbai in the case, providing a comprehensive overview of the decision and its implications on each issue raised.