2018 (2) TMI 2018 - AT - Income Tax

Disallowance of expenditure under section 14A while computing the book profit of the assessee company under section 115JB - HELD THAT - Similar issue relating to addition on account of expenditure disallowed under section 14A while computing book profit under section 115JB of the Act has been decided by the Special Bench of this Tribunal at Delhi in the case of ACIT vs Vireet Investment Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI wherein it was held that the expenditure incurred to earn exempt income computed under section 14A of the Act could not be added while computing book profit under section 115JB. In the case of CIT vs Jayshree Tea Industries Ltd. 2014 (11) TMI 1169 - CALCUTTA HIGH COURT has also expressed a similar view by holding that the provision of section 115JB in the matter of computation is a complete code in itself and resort need not and cannot be made to section 14A - Computation of the amount of expenditure relatable to exempt income of the assessee must be made independently by applying clause (f) of Explanation (1) under section 115JB of the Act where the assessee has not claimed such expenditure to be nil. Respectfully following the said decision we set aside the impugned orders of the Ld. CIT(A) on this issue and restore the matter to the file of the A.O. for computing the amount of expenditure relatable to the exempted income of the assessee independently for all the four years under consideration by applying clause (f) of Explanation (1) under section 115JB of the Act without resorting to section 14A or Rule 8D.

Summary

Issues:
- Deletion of addition made under section 14A while computing book profit under section 115JB for AY 2010-11, 2011-12, 2012-13, and 2013-14.

Analysis:
1. The appeals by the revenue concerned the deletion of additions under section 14A while calculating the book profit of the assessee company under section 115JB for four assessment years. The Ld. CIT(A) had deleted the said additions made by the A.O. for all four years. The assessee, a non-banking financial company, had voluntarily offered disallowance under section 14A in its returns for the years under consideration but did not add it back while computing book profit under section 115JB. The A.O. added back the disallowance amount during assessments completed under section 143(3)/153A.

2. The Ld. CIT(A) relied on the decision of the Mumbai Bench of the Tribunal in ACIT vs Spray Engineering Devices Ltd. to delete the additions. The revenue challenged this decision before the Tribunal. After hearing both sides, the Tribunal noted a similar issue decided by the Special Bench at Delhi in ACIT vs Vireet Investment Pvt. Ltd. and a decision by the Kolkata High Court in CIT vs Jayshree Tea Industries Ltd. The Tribunal held that expenditure disallowed under section 14A for exempt income cannot be added while computing book profit under section 115JB. The Tribunal emphasized that section 115JB is a complete code itself and independent computation of expenditure related to exempt income is required under clause (f) of Explanation (1) without resorting to section 14A or Rule 8D.

3. Consequently, the Tribunal partly allowed the revenue's appeals, setting aside the Ld. CIT(A)'s orders and remanding the matter to the A.O. for independent computation of expenditure related to exempted income for all four years under consideration as per clause (f) of Explanation (1) under section 115JB. The Tribunal's decision was based on the principle established by the Kolkata High Court in Jayshree Tea Industries Ltd.

4. The judgment was pronounced on 16th February 2018, where the Tribunal provided a detailed analysis and reasoning for its decision, emphasizing the need for a separate computation of expenditure related to exempt income under section 115JB without relying on section 14A or Rule 8D.