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2018 (2) TMI 868 - AT - Income TaxAddition on account of the assessee s share of loss in the partnership firm while computing the book profit u/s 115JB - MAT - assessee is a non-banking finance company which is engaged in the business of trading of investment in shares and securities as well as rendering financial consultancy services - Held that - The decision in the case of Metro Exporters Ltd. (2006 (7) TMI 353 - ITAT MUMBAI) was rendered on a similar issue wherein it was held that the case of the assessee not being the case of share of profit from a partnership firm in the hands of the assessee credited to the profit and loss account, no addition for the purpose of computation of total income of the assessee under section 115JA could be made with regard to the share of loss from the partnership firm. - Decided in favour of assessee. Addition on account of expenditure disallowed u/s 14A r.w.r. 8D while computing the book profit u/s 115JB - Held that - The computation of the amount of expenditure relatable to exempt income of the assessee must be made independently by applying clause (f) of Explanation (1) under section 115JB of the Act where the assessee has not claimed such expenditure to be nil. Respectfully following the said decision in the case of Jayshree Tea Industries Ltd. (2014 (11) TMI 1169 - CALCUTTA HIGH COURT) we set aside the impugned order of the Ld. CIT(A) on this issue and restore the matter to the file of the A.O. for computing the amount of expenditure relatable to the exempted income of the assessee independently by applying clause (f) of Explanation (1) under section 115JB of the Act without resorting to section 14A or Rule 8D - Decided partly in favour of assessee
Issues Involved:
1. Addition of ?18,91,12,786/- on account of the assessee’s share of loss in the partnership firm while computing book profit under section 115JB of the Income Tax Act, 1961. 2. Addition of ?75,75,430/- on account of expenditure disallowed under section 14A read with Rule 8D while computing book profit under section 115JB of the Act. Issue-wise Detailed Analysis: 1. Addition of ?18,91,12,786/- on Account of Assessee’s Share of Loss in Partnership Firm: The primary issue in this appeal was the addition of ?18,91,12,786/- made by the Assessing Officer (A.O.) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] on account of the assessee's share of loss in the partnership firm while computing the book profit under section 115JB of the Income Tax Act, 1961. The assessee, a non-banking finance company, during the year was a partner in a partnership firm with a 97.50% share. The firm incurred a loss of ?19,39,61,832/-, and the assessee's share of this loss, amounting to ?18,91,12,786/-, was debited to its profit and loss account. While computing the book profit under section 115JB, the assessee did not add back this loss, relying on the ITAT Mumbai decision in the case of DCIT vs Metro Exporters Ltd. (10 SOT 647), which held that no addition could be made for the share of loss from a partnership firm. The A.O., however, disagreed, citing the Kolkata High Court decision in Eastern Aviation & Industries Ltd. vs CIT (208 ITR 1023), which held that 'income includes loss'. Consequently, the A.O. added the loss back while computing the book profit under section 115JB, invoking clause (ii) of Explanation (1) to section 115JB(2). On appeal, the CIT(A) upheld the A.O.'s addition, reasoning that the term 'income' in clause (ii) includes 'negative income' or 'loss'. The CIT(A) referenced the Supreme Court decision in CIT vs J.H. Gotla (156 ITR 323) and the Kolkata High Court decision in Eastern Aviation & Industries Ltd. (208 ITR 103), which both held that 'income' includes 'loss'. The ITAT, however, found merit in the assessee's argument that the decisions cited by the A.O. and CIT(A) were rendered in a different context and not specifically in the context of clause (ii) of Explanation (1) to section 115JB. The ITAT agreed with the assessee's reliance on the ITAT Mumbai decision in Metro Exporters Ltd., which dealt with a similar issue under section 115JA, and held that no addition could be made for the share of loss from a partnership firm while computing book profit under section 115JA. The ITAT concluded that the ratio of the Metro Exporters Ltd. decision could be applied to section 115JB, as the provisions of section 115JB are analogous to section 115JA. Consequently, the ITAT deleted the addition of ?18,91,12,786/- made by the A.O. and confirmed by the CIT(A), allowing grounds 1 to 8 of the assessee's appeal. 2. Addition of ?75,75,430/- on Account of Expenditure Disallowed under Section 14A: The second issue was the addition of ?75,75,430/- made by the A.O. and confirmed by the CIT(A) on account of expenditure disallowed under section 14A read with Rule 8D while computing the book profit under section 115JB of the Act. During the year, the assessee earned a dividend income of ?9,01,03,832/-, which was claimed to be exempt under section 10(34). The A.O. disallowed ?75,75,430/- as expenditure incurred in relation to the exempt income under section 14A and added it back while computing book profit under section 115JB, relying on the ITAT Mumbai decision in Esquire Pvt. Ltd. vs DCIT (ITA No. 5688/Mum/2011). The CIT(A) upheld this addition, citing the Delhi High Court decision in CIT vs Goetze (India) Ltd. (361 ITR 505). The ITAT noted that a similar issue had been decided by the Special Bench of the ITAT Delhi in ACIT vs Vireet Investment Pvt. Ltd. (ITA No. 502/Del/2012), which held that the expenditure disallowed under section 14A could not be added while computing book profit under section 115JB. The ITAT also referenced the Kolkata High Court decision in CIT vs Jayshree Tea Industries Ltd. (ITAT No. 47 of 2014), which held that section 115JB is a complete code in itself and does not require resort to section 14A. Respectfully following the Kolkata High Court decision, the ITAT set aside the CIT(A)'s order on this issue and restored the matter to the A.O. to compute the expenditure relatable to exempt income independently under clause (f) of Explanation (1) to section 115JB, without resorting to section 14A or Rule 8D. Ground No. 9 of the assessee's appeal was thus partly allowed. Conclusion: The appeal of the assessee was partly allowed, with the ITAT deleting the addition of ?18,91,12,786/- on account of the share of loss in the partnership firm and remanding the issue of ?75,75,430/- expenditure disallowed under section 14A back to the A.O. for fresh computation. The order was pronounced in the open court on 9th February 2018.
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