2017 (9) TMI 653 - AT - Income Tax

Disallowance u/s 14A - Dividend Income exempt u/s 10(34) - assessee already disallowed interest on loan on a/c of exempt income - Further disallowance by AO under Rule 8D r.w.s.14A - mix of own funds and interest borrowed capital - investments earning the exempt income out of mix fund - Held That - There should not be any further disallowance u/s 14A under Rule 8D of the I.T. Rules, since the disallowance cannot exceed exempt income. This view of our is fortified by the decision of the Madras High Court in the case of Redington India limited v. ACIT 2017 (1) TMI 318 - MADRAS HIGH COURT . Hence the same is deleted. - Decided in favor of assessee. Disallowance u/s 14A while computing the book profits u/s 115JB - Held That - Computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A r.w Rule 8D of the Act. Therefore we direct the AO to compute the book profits u/s 115 JB in accordance with the directions of the Hon ble Special Bench in the case of ACIT v. Vireet Investments Private Limited (2017 (6) TMI 1124 - ITAT DELHI) - Appeal is allowed for statistical purposes.

Summary

Issues:
1. Condonation of delay in filing appeal by the assessee.
2. Disallowance under Rule 8D r.w.s.14A of the Act.
3. Disallowance u/s 14A while computing book profits u/s 115JB of the Act.

Condonation of Delay:
The appeal was filed by the revenue and assessee against the order of the Ld. Commissioner of Income-tax(Appeal). The delay of 23 days in filing the appeal by the assessee was condoned after considering the reasons for the delay provided in the petition and affidavit. The appeal was admitted for disposal on merits.

Disallowance under Rule 8D r.w.s.14A:
The Assessing Officer disallowed a specific amount under Rule 8D r.w.s.14A of the Act related to the exempt income earned by the assessee. The Ld.CIT(A) restricted the disallowance to a lower amount based on estimated expenses attributable to earning exempt income. The tribunal held that the estimation made by the Ld.CIT(A) was not justified as the employee cost in a specific division was not directly linked to investment decisions. The tribunal also noted that the disallowance cannot exceed the exempt income earned, and hence, the estimation made by the Ld.CIT(A) was deleted.

Disallowance u/s 14A while computing book profits u/s 115JB:
The issue was covered by a Special Bench decision where it was held that the computation under clause (f) of Explanation 1 to section 115JB(2) should be made without resorting to the computation as contemplated under section 14A r.w Rule 8D of the Act. The tribunal directed the Assessing Officer to compute the book profits u/s 115JB in accordance with the Special Bench decision.

Revenue's Appeal:
The revenue's appeal was based on the deletion of disallowance made u/s 14A under regular computation as well as book profits u/s 115JB of the Act. The tribunal upheld the decision to delete the disallowance under normal provisions of the Act and dismissed the revenue's appeal. The appeal of the assessee was partly allowed, and the revenue's appeal was dismissed.

This comprehensive analysis of the judgment highlights the key issues involved, the arguments presented, and the tribunal's decision on each issue, ensuring a detailed understanding of the legal aspects and implications of the case.