2017 (12) TMI 1841 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - assessee did not make any disallowance of the expenses incurred in relation to such exempted income - HELD THAT - AO can make the disallowances of the expenses incurred in relation to exempt income in pursuance to the provisions as specified u/s 14A - On perusal of the facts of the present case we note that the assessee has claimed indirect/administrative expenses during the year to the tune of Rs.51, 669/- only. Thus it is undoubtedly clear that actual expenses claimed by the assessee are much less then the expenses disallowed under Rule 8D(2)(iii) of the I.T. Rules by the AO - we are of the view that the expenses to be disallowed under Rule 8D(2)(iii) cannot exceed the actual expenses incurred by the assessee. However the AO has made the disallowance of the expenses under rule 8D(iii) exceeding the actual expenses. The act of making the disallowance by the AO under rule 8D(iii) shows that no reference has been made to the books of accounts of the assessee. In such a situation we are of the view that the disallowance u/s 14A viz a viz Rule 8D of the I.T Rules has been made without complying the provisions of law. Thus the addition cannot be sustained in the instant case. Thus we direct the Assessing Officer to delete the impugned addition. Thus first issue in grounds of appeal filed by the assessee is allowed. Addition u/s 115JB for disallowance u/s 14A r.w.r 8D - HELD THAT - As in recent judgment of Special Bench of Hon ble Delhi Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI that the disallowances made u/s 14A r.w.r. 8D cannot be the subject matter of disallowances while determining the net profit u/s 115JB - Thus it can be concluded that the disallowance made under section 14A r.w.r. 8D cannot be resorted while determining the expenses as mentioned under clause (f) to explanation 1 of section 115JB - However it is also clear that the disallowance needs to be made in terms of the provisions of clause (f) to section 115JB of the Act while determining the book profit. In holding so we draw our support from the judgment of Hon ble Calcutta High Court in the case of CIT Vs. Jayshree Tea Industries Ltd 2014 (11) TMI 1169 - CALCUTTA HIGH COURT We hold that the disallowances made under the provisions of Sec. 14A r.w.s 8D of the IT Rules cannot be applied to the provision of Sec. 115JB - AO shall work out the disallowances in terms of the clause (f) to Explanation-1 of Sec. 115JB of the Act independently after considering the expenses debited in the profit loss account as mandated under the provisions of law.

Summary

Issues involved:
1. Disallowance under section 14A r.w.r 8D(2)(iii) of the Income Tax Act.
2. Addition to book profit under section 115JB of the Income Tax Act.

Detailed Analysis:
1. Disallowance under section 14A r.w.r 8D(2)(iii) of the Income Tax Act:
The appellant contested the disallowance of Rs.19,23,063 under section 14A r.w.r 8D(2)(iii) by the Assessing Officer, as the actual expenses claimed were Rs.51,669 only. The Assessing Officer invoked Rule 8D and disallowed various expenses. The appellant argued that expenses under Rule 8D(2)(iii) cannot exceed the actual expenses claimed. However, the CIT(A) upheld the disallowance, considering additional interest-bearing unsecured loans and investments. The Appellate Tribunal held that the disallowance exceeded actual expenses without referencing the appellant's books, concluding that the disallowance was made without complying with the law. The Tribunal directed the Assessing Officer to delete the disallowed amount, allowing the appeal on this issue.

2. Addition to book profit under section 115JB of the Income Tax Act:
The Assessing Officer disallowed Rs.19,52,849 under section 14A r.w.r 8D in the normal income computation and also while computing income under section 115JB. The appellant argued that disallowances under normal computation should not apply to section 115JB or should not exceed actual expenses claimed. The CIT(A) upheld the disallowance citing relevant case laws. However, the Appellate Tribunal referred to a Special Bench judgment stating that disallowances under section 14A r.w.r 8D cannot be applied to section 115JB. The Tribunal relied on a High Court judgment, directing the AO to compute disallowances independently under section 115JB. The issue was remanded to the AO for fresh adjudication. The appeal was allowed for statistical purposes.

In conclusion, the Appellate Tribunal ruled in favor of the appellant on both issues, directing the Assessing Officer to delete the disallowed amount under section 14A and remanding the computation under section 115JB for fresh adjudication in accordance with the law.