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2018 (2) TMI 2003 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - Addition while arriving at book profit u/s 115JB - HELD THAT - In Vireet Investment (P.) Ltd. 2017 (6) TMI 1124 - ITAT DELHI the Special Bench of the ITAT, Delhi has held that computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to computation as contemplated u/s 14A r.w. Rule 8D and only those investments are to be considered for computing average value of investments which yielded exempt income during the year. Facts being identical, we follow the above decision and direct the AO to delete the addition made by him u/s 14A while calculating book profit u/s 115JB. Disallowance u/s 14A in the normal computation of income - On a perusal of the balance sheet of the appellant as at 31st March 2011, we find that it had its own funds of ₹ 1,63,968.62 lacs which exceed total investment of ₹ 1,29,088.44 lacs. Relying on HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT the Hon'ble Bombay High Court referring to the decision in CIT vs. HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT 366 ITR 505 (Bom) and CIT v. Reliance Utilities Power Ltd 2009 (1) TMI 4 - BOMBAY HIGH COURT we direct the AO to delete the disallowance made by him under Rule 8D(2)(ii). Disallowance u/s 8D(2)(iii) in the normal computation of income - In Godrej Boyce Manufacturing Company Ltd. v. DCIT 2017 (5) TMI 403 - SUPREME COURT , it is held that the literal meaning of Section 14A, far from giving rise to any absurdity, appears to be wholly consistent with the scheme of the Act and the object/purpose of levy of tax on income. We confirm the disallowance of ₹ 490.91 lacs made by the AO under Rule 8D(2)(iii) in normal computation of income. To sum up Disallowance made by the AO while arriving at book profit u/s 115JB is deleted, disallowance made by the AO in normal computation u/s 8D(2)(ii) is deleted and disallowance made by the AO in normal computation under Rule 8D(2)(iii) is confirmed. Assessee appeal is partly allowed.
Issues Involved:
1. Disallowance under Rule 8D for MAT computation under section 115JB. 2. Exclusion of investments without dividend income while computing disallowance under section 14A read with Rule 8D. 3. Allocation of own funds versus borrowed funds for investments. Detailed Analysis: 1. Disallowance under Rule 8D for MAT computation under section 115JB: The appellant challenged the disallowance made under Rule 8D in the MAT computation under section 115JB. The appellant argued that the disallowance under Rule 8D should not apply for MAT computation. The Tribunal referred to the Special Bench decision in ACIT v. Vireet Investment (P.) Ltd., which held that computation under clause (f) of Explanation 1 to section 115JB(2) should be made without resorting to the computation under section 14A read with Rule 8D. Only those investments yielding exempt income during the year should be considered. Following this precedent, the Tribunal directed the AO to delete the addition of ?2,49,38,699 made under section 14A while calculating book profit under section 115JB. 2. Exclusion of investments without dividend income while computing disallowance under section 14A read with Rule 8D: The appellant contended that investments which did not yield any dividend income should be excluded while computing disallowance under section 14A read with Rule 8D. The Tribunal noted that the appellant had received exempt income during the year and thus, the disallowance under Rule 8D(2)(iii) was applicable. However, the Tribunal directed the AO to exclude the investments that did not yield any exempt income during the year while computing the disallowance under section 14A read with Rule 8D. 3. Allocation of own funds versus borrowed funds for investments: The appellant argued that its own funds exceeded the total investments, implying that investments were made from its own funds rather than borrowed funds. The Tribunal referred to the Bombay High Court decision in CIT v. HDFC Bank Ltd., which established the presumption that if own funds exceed investments, it should be presumed that investments are made from own funds. Applying this principle, the Tribunal directed the AO to delete the disallowance of ?50,45,000 made under Rule 8D(2)(ii) in the normal computation of income. Conclusion: The Tribunal provided a mixed verdict: - Deleted the disallowance of ?2,49,38,699 made under section 14A for MAT computation under section 115JB. - Directed the AO to exclude investments without exempt income while computing disallowance under section 14A read with Rule 8D. - Deleted the disallowance of ?50,45,000 under Rule 8D(2)(ii) in the normal computation, confirming the disallowance of ?490.91 lacs under Rule 8D(2)(iii). Final Order: The appeal was partly allowed. The Tribunal ordered the deletion of certain disallowances while confirming others, based on the principles established in relevant case laws. The decision was pronounced in open court on 09/02/2018.
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