2018 (6) TMI 1720 - AT - Income Tax

Disallowance of expenses relating to exempt income made u/s 14A - disallowance made for computing book profit u/s 115JB - HELD THAT - Special Bench in the case of Vireet Investment P. Ltd. 2017 (6) TMI 1124 - ITAT DELHI the direction of the CIT(A) to adopt the disallowance made under Section 14A for the purpose of computing book profit u/s 115JB is liable to be set aside. The assessee also took us to the working made by it for ascertaining the expenses relating to exempt income for the purpose of computation of book profit u/s 115JB. We noticed that the assessee has allocated expenses in the ratio of taxable income and exempt income and the said method was determined by the Department in A.Y. 2000-01. It is stated that the same method is being followed for A.Y. 2000-01 onwards by the assessee. Since a consistent method is being followed by the assessee for more than 10 years and since the allocation of expenses is on the basis of exempt income and taxable income we are of the view that the computation made by the assessee for determining expenses relating to exempt income for the requirement of provisions of Section 115JB does not require disturbance. Accordingly we set aside the order of the learned CIT(A) on this issue and direct the AO to accept the computation made by the assessee for the purpose of sec. 115JB - Appeal filed by the assessee is treated as allowed for statistical purposes.

Summary

Issues:
Disallowance of expenses relating to exempt income under Section 14A of the Income Tax Act and disallowance for computing book profit under Section 115JB of the Act.

Analysis:
The appeal pertains to the disallowance of expenses related to exempt income and the computation of book profit for the assessment year 2012-13. The assessee, an investor company, earned exempt income through dividends, interest on tax-free bonds, and long-term capital gains. The disallowance under Section 14A of the Act was computed at ?745.46 lakhs for normal income tax provisions and at ?552.93 lakhs for book profit under Section 115JB. The Assessing Officer (AO) accepted the disallowance made by the assessee under Section 14A and for book profit computation.

In the appellate proceedings, the CIT(A) directed the AO to adopt the disallowance amount computed under Section 14A for the purpose of computing book profit under Section 115JB. The CIT(A) relied on a decision by the Mumbai Bench of the Tribunal in a similar case. The issue at hand was whether the CIT(A) was justified in directing the AO to adopt the disallowance under Section 14A for book profit computation under Section 115JB.

The assessee argued, citing a Special Bench decision, that the disallowance under Section 115JB should be computed without resorting to Section 14A and Rule 8D. The Tribunal had previously held in a similar case for A.Y. 2011-12 that the disallowance under Section 14A should not be adopted for Section 115JB purposes. Considering this, the Tribunal set aside the CIT(A)'s direction to adopt the disallowance made under Section 14A for book profit computation under Section 115JB.

The assessee's method of allocating expenses based on taxable and exempt income, consistently followed for over 10 years, was deemed appropriate for determining expenses related to exempt income for Section 115JB purposes. Consequently, the Tribunal directed the AO to accept the assessee's computation for Section 115JB. The appeal was treated as allowed for statistical purposes.