2020 (2) TMI 1645 - AT - Income Tax

Disallowance u/s. 14A r.w.r. Rule 8D - similar addition while computing book profit u/s. 115JB - CIT-A deleted the addition - HELD THAT - It is undisputed fact that assessee has neither earned any exempt income nor claimed any exempt income during the year under consideration. On perusal of the decision of ld. CIT(A), it is noticed that the impugned addition has been deleted holding that assessee has not earned any exempt income which based on similar facts discussed in appellate order in the case of the assessee itself for assessment year 2014-15. While deleting the aforesaid addition, the ld. CIT(A) has also placed reliance on the decision of Hon ble Gujarat High Court in the case of Corrteck Energy Pvt. Ltd 2014 (3) TMI 856 - GUJARAT HIGH COURT on identical disallowance u/s. 14A wherein it has been held that where the assessee has not made claim for exemption of any income from payment of tax no disallowance could be made u/s. 14A of the act. Also noticed that ld. CIT(A) has also held that disallowance u/s. 14A does not call for addition to book profit u/s. 115JB of the act after following the decision of ACIT vs. Vineet Investment Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI as held that expenditure incurred to exempt income not to be added for computing book profit u/s. 115JB of the act. Considering the above facts and judicial findings, we do not find any reason to interfere in the decision of ld. CIT(A) - Decided against revenue.

Summary

Issues:
1. Disallowance under section 14A r.w.r. Rule 8D of the Income Tax Act.
2. Addition to book profit u/s. 115JB of the Income Tax Act.

Analysis:
1. The appeal pertains to the assessment year 2015-16, where the assessing officer made an addition of Rs. 13,55,80,000/- on account of disallowance under section 14A r.w.r. Rule 8D of the Income Tax Act. The assessing officer observed that the assessee had investments in shares generating exempt income but had not disallowed any expenses related to such income. The ld. CIT(A) deleted this addition, noting that the assessee had not earned any exempt income during the relevant year. The decision was based on the absence of any claim for exemption of income from tax. The ld. CIT(A) also referred to a judgment by the Hon’ble Gujarat High Court, stating that if no claim for exemption was made, disallowance under section 14A could not be justified. Additionally, it was held that such disallowance should not be added to the book profit u/s. 115JB of the act, following the decision of a Special Bench of ITAT Delhi.

2. The assessing officer also added the disallowed amount under section 14A to the book profit computed u/s. 115JB of the act. The ld. CIT(A) held that this addition was unwarranted, citing the decision of the Special Bench of ITAT Delhi, which stated that expenditure related to exempt income should not be considered for computing book profit u/s. 115JB. The ld. CIT(A) relied on this precedent and the absence of any exempt income earned by the assessee during the year to delete the addition to the book profit. The Tribunal upheld the decision of the ld. CIT(A) and dismissed the appeal filed by the revenue.

In conclusion, both the disallowance under section 14A and the addition to the book profit u/s. 115JB were deleted by the ld. CIT(A) and upheld by the Tribunal based on the absence of exempt income earned by the assessee during the relevant year and the legal precedents cited in support of this decision.