2017 (1) TMI 564 - AT - Income Tax

Disallowance determined under section 14A r.w.Rule 8D while computing book profit under section 115JB - Held that - We find merit contention on behalf of the assessee and direct the AO to delete the adjustment made on account of estimated disallowance determined under section 14A r.w.Rule 8 D of the I.T.Rules, 1962 while computing book profit under section 115JB of the Act. See Alembic Ltd 2017 (1) TMI 513 - GUJARAT HIGH COURT Denial of relief claimed under 115JB towards provisions to write off on account of diminution in the value of investment and bad debts written back during the year - Held that - It is the case of the assessee that after the filing of the return of income the provisions of section 115JB was amended to include a new clause(i) in Explanation-1 after sub-section(2) of sub-section with retrospective effect from AY 2001-02 onwards. In view of the amendment, the assessee requested the AO to reduce the book profit by the amount of write backs of ₹ 4,50,000/- being provision for diminution in the value of investment and ₹ 9,53,624/- being provision for diminution in the value of investment and ₹ 9,53,624/- being provision for doubtful debts. It is the case of the assessee that in view of the retrospective amendment book profit declared is required to be reworked. The assessee has relied upon the decision in the case of Kochi Refineries Ltd. vs. Dy.CIT reported in (2010 (1) TMI 980 - ITAT MUMBAI). We note that the AO appears to have not examined the issue and factual aspects arising therein. Accordingly, the issue requires to be decided afresh at the end of the AO

Summary

Issues:
1. Disallowance of administrative expenses under section 14A of the Income Tax Act, 1961 while computing the book profit under section 115JB.
2. Failure to deduct write back of diminution in the value of assets and bad debts while computing the book profit under section 115JB.

Issue 1: Disallowance of Administrative Expenses:
In the case, the assessee challenged the disallowance of administrative expenses under section 14A of the Income Tax Act, 1961, while computing the book profit under section 115JB. The AO disallowed &8377; 5,68,828/- as administrative expenses related to exempt income, inflating the book profit. The CIT(A) upheld the AO's decision. The assessee argued that the computation of book profit under section 115JB operates differently from the normal provisions of the Act. Citing the decision of the Hon'ble Gujarat High Court in CIT vs. Alembic Ltd., the assessee contended that the adjustment made was not justified. The Tribunal, considering the High Court's decision, ruled in favor of the assessee, directing the AO to delete the adjustment made under section 14A while computing the book profit under section 115JB.

Issue 2: Failure to Deduct Write Back of Diminution in Value and Bad Debts:
The second issue revolved around the denial of relief claimed under section 115JB towards provisions for write off on account of diminution in the value of assets and bad debts. The assessee argued that subsequent to the return filing, the Finance Act, 2009, amended section 115JB to include a new clause(i) in Explanation-1, requiring the deduction of write backs for diminution in asset value and bad debts. The AO and CIT(A) did not consider the assessee's request for deduction. The assessee relied on a Tribunal decision in the case of Kochi Refineries Ltd. The Tribunal noted that the AO did not examine the issue and factual aspects, remitting the issue back to the AO for a fresh decision in accordance with law. Consequently, the Tribunal allowed the assessee's appeal on this ground.

In conclusion, the Appellate Tribunal ITAT Ahmedabad ruled in favor of the assessee on both issues. The disallowance of administrative expenses under section 14A while computing the book profit under section 115JB was deemed unjustified, and the failure to deduct write backs of diminution in value and bad debts was remitted back to the AO for a fresh decision.