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2017 (6) TMI 391 - AT - Income TaxDisallowance u/s 14A - Held that - So far as interest disallowance under rule 8D(2)(ii) is concerned, it must stand deleted. Coming to the disallowance under 8D(2)(iii), we find that admittedly total expenditure incurred by the assessee is ₹ 30,22,749 but then we are to go by the forumulae under rule 8D(2)(iii), the disallowance comes to ₹ 62,94,250. That will be an absurdity to be permitted, and, in any case, disallowance of administrative expenses for earning tax exempt income cannot be more than actual administrative expenses. What the assessee has offered for suo motu disallowance on the facts of this case is ₹ 10,00,000 which is almost one third of total administrative expenses. When it was pointed out to the learned Departmental Representative and she was asked as to whether given the peculiar facts of this case, how the suo motu disallowance offered by the assessee cannot be considered reasonable, she did not have much to say. We agree with the learned counsel that the disallowance so offered cannot be considered to be unreasonable by any standard nor has that been alleged before us either. Thus we disapprove the additional disallowance by invoking rule 8D, particularly 8D(2)(iii) as well, and delete the impugned additional disallowance so restored to by the Assessing Officer. - Decided in favour of assessee. Disallowance u/s 14A while computing book profit under section 115JB - Held that - The above issue is now covered, in favour of the assessee, by Hon ble jurisdictional High Court s judgment in the case of CIT Vs Alembic Ltd 2017 (1) TMI 513 - GUJARAT HIGH COURT Set off of speculation loss - CIT-A allowed claim - Held that - CIT(A) has not erred allowing the set off of speculation loss on the basis of a decision of this Tribunal in the case of Virendra Kumar Jain Vs ACIT 2010 (5) TMI 870 - ITAT MUMBAI wherein held in sub-section (4) of section 73 or in any other provision, there is no express language or any implication to the effect that the right of the assessee to carry forward the speculation loss for a period of eight subsequent assessment years has been taken away. The amendment made by the Finance Act, 2005 with effect from 01.04.2006 is merely to substitute the words four assessment years for the words eight assessment years . In our opinion, the assessee s contention that any speculation loss computed for the assessment year 2006-07 and later assessment years alone would be hit by the amendment and such loss can be carried forward only for four subsequent assessment years is correct. The vested right of the assessee has not been taken away. - Decided in favour of assessee.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act. 2. Computation of book profit under Section 115JB. 3. Set off of speculation loss. Detailed Analysis: 1. Disallowance under Section 14A of the Income Tax Act: The assessee challenged the disallowance of ?88,21,450 made by the Assessing Officer (AO) under Section 14A of the Income Tax Act. The AO had rejected the assessee's suo motu disallowance of ?10 lakhs and made a disallowance based on Rule 8D. The AO disallowed ?25,27,200 under Rule 8D(2)(ii) and ?62,94,250 under Rule 8D(2)(iii), totaling ?88,21,450. The Tribunal noted that the assessee had sufficient interest-free funds, and thus, no part of the interest payment could be attributed to tax-exempt investments. It was established that disallowance under Section 14A should be based on net interest, and since there was a net interest credit, no disallowance could be made. The Tribunal referred to various precedents, including the cases of Morgan Stanley Securities India Pvt Ltd Vs ACIT and ACIT Vs Champion Commercial Co Ltd, to support its decision. Regarding the computation under Rule 8D(2)(ii), the Tribunal found that the CIT(A)'s computation, although seemingly incorrect based on the formula, was in line with the correct legal position. The Tribunal highlighted the incongruity in the definition of variable 'A' in Rule 8D(2)(ii) and concluded that interest expenses directly attributable to taxable income should also be excluded from the computation. For Rule 8D(2)(iii), the Tribunal found that the total administrative expenses incurred by the assessee were ?30,22,749, but the disallowance computed under the formula was ?62,94,250, which was unreasonable. The Tribunal accepted the assessee's suo motu disallowance of ?10,00,000 as reasonable and deleted the additional disallowance made by the AO. 2. Computation of Book Profit under Section 115JB: The assessee contested the addition of ?88,21,450 as disallowance under Section 14A while computing book profit under Section 115JB. The Tribunal noted that this issue was covered in favor of the assessee by the jurisdictional High Court's judgment in the case of CIT Vs Alembic Ltd. Accordingly, the Tribunal upheld the assessee's plea and directed the AO to grant the resultant relief. 3. Set off of Speculation Loss: The AO appealed against the CIT(A)'s decision to partly allow the set off of speculation loss. The AO had disallowed the set off of speculation profits against brought forward speculation losses from the assessment year 2001-02, citing the four-year carry-forward limit under Section 73(4). The Tribunal referred to a coordinate bench decision in the case of Virendra Kumar Jain Vs ACIT, which allowed the set off based on the law as it stood when the loss was incurred, permitting an eight-year carry forward. The Tribunal found that the AO's reliance on the Supreme Court's decision in Reliance Jute Industries Ltd Vs CIT was misplaced, as the correct precedent was the Supreme Court's decision in CIT Vs Shah Sadiq & Sons, which upheld the vested right to carry forward losses. The Tribunal concluded that the CIT(A) had correctly allowed the set off of the speculation loss and dismissed the AO's appeal. Assessment Year 2006-07: For the assessment year 2006-07, the AO's appeal concerning the set off of speculation profits against speculation losses incurred before four years was similarly dismissed. The Tribunal applied its findings from the assessment year 2008-09 to this case as well, upholding the CIT(A)'s order. Conclusion: The Tribunal allowed the assessee's appeal and dismissed the AO's appeals for both assessment years. The pronouncement was made in the open court on May 31, 2017.
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