2016 (4) TMI 915 - AT - Income Tax

Disallowance u/s 14A r.w.s 8D - CIT(A) confirmed the order of the Assessing Officer - Held that - Sec. 14A of the Act provides for disallowance of expenditure for earning the exempted income when the Assessing Officer is not satisfied that the expenditure was not claimed by the assessee. In the case before us, the assessee claims that surplus funds were used for making investments. The assessee also claims that no borrowed funds were used for making the investments. It is not the case of the assessee that no funds were borrowed for business purposes. When the assessee pays interest which is not attributable to any part of the income or receipt of the assessee, this Tribunal is of the considered opinion that second limb of Rule 8D would come into operation. Even in case no expenditure was incurred, third limb of Rule 8D provides for computation of expenditure. In the case before us, the Assessing Officer has applied the provisions of Rule 8D and computed the disallowance at ₹ 24,61,662/-. There is no dispute about the computation of expenditure as made by the Assessing Officer. Therefore, this Tribunal do not find any reason to interfere with the order of the CIT(A). Accordingly, the same is confirmed. - Decided against assessee Reopening of assessment - no adjustment of bad and doubtful debts to the book profit u/s 115 JB - Held that - The Assessing Officer found that a sum of ₹ 3.5 crores was not added to the book profit u/s 115 JB of the Act. In those circumstances, this Tribunal is of the considered opinion that the Assessing Officer has rightly reopened the assessment by issuing notice u/s 148 of the Act. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority. Accordingly, the same is confirmed. Explanation 1 to sec. 115JB of the Act was introduced by Finance Act 2008 with retrospective effect from 1.4.2001. Therefore, the book profit computed shall be increased by the provision made for meeting the liabilities. In this case, admittedly, the assessee has made a provision to the extent of ₹ 3,50,72,000/-. Though the assessee added the same in the normal computation, no adjustment was made as provided in Explanation 1 to sec. 115JB(2) of the Act. The only contention of the assessee before this Tribunal is that Explanation 1 to sec. 115JB(2) is not applicable during the year under consideration. No doubt, Explanation 1 to sec. 115JB(2) of the Act was introduced b Finance Act 2008 with retrospective effect from 1.4.2001. Therefore, it is very much applicable for the year under consideration. There may be a reasonable cause on the part of the assessee for not making adjustment on the date of filing the return of income. It does not mean that the provision made for bad and doubtful debt cannot be added back to the book profit as provided in Explanation 1 to sec. 115JB(2) of the Act. This Tribunal is of the considered opinion that since Explanation 1 to sec. 115JB(2) of the Act is applicable retrospectively with effect from 1.4.2001, the provision for bad and doubtful debt has to be increased as provided therein. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority. - Decided against assessee Rectification proceedings u/s 154 - excess loss was set off against the book profit - Held that - It is not in dispute that the total book loss available to the assessee-company for carry forward and set off for assessment year 2004-05 is only ₹ 3,57,07,000/- and not ₹ 4,31,68,928/-. The Assessing Officer has rectified only this apparent mistake on record. Therefore, this Tribunal do not find any reason to interfere with the order of the CIT(A). Accordingly, the same is confirmed.- Decided against assessee

Summary

Issues:
1. Disallowance of expenditure for earning exempted income under Rule 8D.
2. Reopening of assessment under section 147 of the Income Tax Act.
3. Adjustment of brought forward losses in the proceedings under section 154 of the Act.

Issue 1: The Tribunal considered the disallowance of expenditure for earning exempted income under Rule 8D. The assessee claimed no expenditure was incurred for earning dividend income, as investments were made from surplus funds without borrowing. However, the Assessing Officer disallowed a sum under Rule 8D. The Tribunal held that Rule 8D applies even if no borrowed funds were used, as per Section 14A of the Act. The disallowance made by the Assessing Officer was upheld as per Rule 8D, confirming the CIT(A)'s order.

Issue 2: Regarding the reopening of assessment for the assessment year 2004-05 under section 147, the Tribunal noted that no assessment order was passed under section 143(3) of the Act. The Assessing Officer reopened the assessment due to the non-inclusion of a provision for bad debts in the book profit under section 115JB. The Tribunal found the reopening justified as no assessment order under section 143(3) existed, and the non-inclusion of the provision warranted reassessment.

Issue 3: The Tribunal reviewed the adjustment of brought forward losses in the proceedings under section 154 of the Act. The assessee contested the rectification, claiming it involved a debatable issue not suitable for section 154 proceedings. However, the Assessing Officer rectified the error in setting off brought forward losses against book profit. The Tribunal upheld the rectification, noting the arithmetical mistake in adjusting losses against book profit, confirming the CIT(A)'s decision.

In conclusion, all three appeals of the assessee were dismissed, with the Tribunal confirming the orders of the lower authorities. The judgment addressed various aspects of disallowance of expenditure, reopening of assessment, and rectification of errors in setting off losses against book profit, providing detailed analysis and legal interpretation for each issue.