2017 (10) TMI 1652 - AT - Income Tax

Addition u/s. 14A r.w.r. 8D - Mandation of recording satisfaction - HELD THAT - We find that the issue involved in these appeals is squarely covered by the order of coordinate Bench in the case of assessee itself 2017 (6) TMI 495 - ITAT DELHI held as AO did not record satisfaction after verification of the books of account about the correctness of the claim of disallowance made by the assessee before invoking provisions of Rule 8D as provided u/s 14A(2) of the Act. Therefore, respectfully following the decision of the Hon'ble Delhi High Court in CIT Vs. Taikisha Engineering Pvt. Ltd 2014 (12) TMI 482 - DELHI HIGH COURT we reverse the finding of the ld CIT(A), and direct the AO to delete the disallowance. Thus following the above decision of coordinate Bench, the issue is decided in favour of the assessee and against the Revenue. The decisions relied by the ld. DR, being distinguishable on facts, render no help to the Revenue in the instant case. MAT - Addition of the disallowance to the book profit of assessee for the purpose of computation of MAT liability - As we find no justification to discard the findings reached by the ld. CIT(A) reached on the basis of interpretation of section 115JB. We also support the deletion of this addition laying our hands on the decision of Vireet Investment (P) Ltd 2017 (6) TMI 1124 - ITAT DELHI Assessee appeal allowed.

Summary

Issues Involved:
1. Legality of the disallowance under Section 14A read with Rule 8D.
2. Computation of Minimum Alternate Tax (MAT) under Section 115JB.

Detailed Analysis:

1. Legality of the Disallowance under Section 14A read with Rule 8D:

Background:
The assessee filed its return declaring nil income and earned exempt income of Rs. 58,09,619/-. The Assessing Officer (AO) applied Section 14A read with Rule 8D, computing the expenses related to exempt income at Rs. 13,23,81,481/-, and made an addition of Rs. 12,65,71,862/- after adjusting the assessee's own disallowance of Rs. 58,09,619/-. This addition was also included in the book profit for MAT computation.

CIT(A) Decision:
On appeal, the CIT(A) restricted the addition to Rs. 1,50,63,219/- and deleted the addition made for MAT computation. The CIT(A) held that "Minimum Alternate Tax (MAT) is leviable u/s 115JB on 'book profit' as computed in terms of the Companies Act, 1956 and as increased/decreased by the amounts specified in Explanation 1 to Section 115JB. There is no provision to travel beyond Section 115JB."

ITAT Decision:
The ITAT found that the primary issue was the partial sustenance and deletion of the addition made under Section 14A read with Rule 8D. The ITAT noted that the AO did not record his satisfaction regarding the incorrectness of the assessee's disallowance before applying Rule 8D, which is a prerequisite as per Section 14A(2). The ITAT cited the Delhi High Court's decision in CIT vs. Taikisha Engineering India Ltd., which emphasized that the AO must record dissatisfaction with the correctness of the assessee's claim before determining the amount of expenditure under Rule 8D.

The ITAT also referenced the Bombay High Court's decision in Godrej and Boyce Mfg. Co. Ltd. v. Deputy CIT, which reiterated the need for the AO to be objectively satisfied with the assessee's claim before applying the prescribed method under Rule 8D.

Conclusion:
The ITAT concluded that, in the absence of recorded satisfaction by the AO, the disallowance under Section 14A applying Rule 8D is not sustainable. The ITAT reversed the CIT(A)'s partial sustenance of the addition and directed the AO to delete the disallowance.

2. Computation of Minimum Alternate Tax (MAT) under Section 115JB:

Background:
The AO added the disallowance under Section 14A to the book profit for MAT computation. The CIT(A) deleted this addition, stating that "disallowances made under various provisions of the Act in the regular assessment cannot be imported into section 115JB."

ITAT Decision:
The ITAT supported the CIT(A)'s deletion of the addition to the book profit for MAT computation. The ITAT referenced the Special Bench decision in ACIT vs. Vireet Investment (P) Ltd., which held that no addition to the book profit can be made based on disallowances made under regular provisions.

Conclusion:
The ITAT found no justification to discard the CIT(A)'s findings and upheld the deletion of the addition to the book profit for MAT computation.

Final Judgment:
- The appeal of the assessee is allowed.
- The appeal of the Revenue is dismissed.

Order pronounced in the open court on 31.10.2017.