2018 (12) TMI 396 - AT - Income Tax

Disallowance made u/s 14A r/w rule 8D - MAT computation - book profit computation u/s 115JB - addition made to the book profit on account of disallowance under section 14A r/w rule 8D - Held that - It is the contention of the AR before us that the assessee has made a working of direct expenditure attributable to earning of exempt income. Undisputedly the aforesaid working was neither before the Assessing Officer nor before the learned Commissioner (Appeals). Therefore in all fairness the claim of the assessee requires to be examined by the Assessing Officer. In view of the aforesaid we are inclined to restore the issue to the Assessing Officer for fresh adjudication keeping in view the relevant case laws to be cited by the assessee as well as the provision of section 115JB of the Act. Needless to say the Assessing Officer must afford a reasonable opportunity of being heard to the assessee before deciding the issue. Grounds raised in this regard are allowed for statistical purposes. Deduction under section 80IB(9) - Held that - Considering the assessee has raised the issue by way of additional grounds which were never raised before the first appellate authority and further the issue relating to assessee s claim of deduction under section 14A is restored to the Assessing Officer we are inclined to restore the issue relating to assessee s claim of deduction under section 80IB(9) of the Act to the Assessing Officer for deciding afresh by applying the ratio to be laid down in MAXOPP INVESTMENT LTD. VERSUS COMMISSIONER OF INCOME TAX NEW DELHI AND PRINCIPAL COMMISSIONER OF INCOME TAX-I VS. D.B. CORP LTD. 2018 (3) TMI 805 - SUPREME COURT OF INDIA in the appeal pending before them on identical issue as referred to above. Needless to mention the Assessing Officer before deciding the issue must afford reasonable opportunity of being heard to the assessee. Additional grounds are allowed for statistical purposes. Disallowance of direct expenditure under rule 8D(i) read with section 14A - Held that - Assessing Officer has ultimately proceeded to determine the total income and compute tax liability of the assessee under section 115JB of the Act. While deciding the grounds raised by the assessee on applicability of section 14A r/w rule 8D to the provisions of section 115JB of the Act we have restored the issue to the Assessing Officer for fresh adjudication keeping in view the Special Bench decision of the Tribunal Delhi Bench in Vireet Investment Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI . Therefore the issue raised in the present appeal by the Revenue becomes redundant.

Summary

Issues Involved:
1. Disallowance under section 14A r/w rule 8D.
2. Disallowance of deduction claimed under section 80IB(9).
3. Computation of book profit under section 115JB.
4. Rectification proceedings under section 154.

Issue-wise Detailed Analysis:

1. Disallowance under section 14A r/w rule 8D:
- Assessee’s Appeal (A.Y. 2008-09): The assessee, engaged in mineral oil and natural gas exploration, filed a return declaring an income of ?3,18,50,000 and claimed a deduction under section 80IB(9). The Assessing Officer (AO) disallowed ?91,01,755 under section 14A r/w rule 8D. The Commissioner (Appeals) (CIT(A)) upheld the disallowance under rule 8D(2)(iii) but deleted it under rule 8D(2)(i). The Tribunal restored the issue to the AO for fresh adjudication in light of the Special Bench decision in Vireet Investment Pvt. Ltd., which clarified that disallowance under section 14A r/w rule 8D cannot be added to book profit under section 115JB.
- Revenue’s Appeal (A.Y. 2008-09): The Revenue contested the deletion of ?12,45,576 under rule 8D(i). The Tribunal dismissed the appeal as the issue was already restored to the AO and the tax effect was below the threshold for appeal.
- Assessee’s Appeal (A.Y. 2009-10): The AO disallowed ?93,11,108 under section 14A r/w rule 8D. The CIT(A) directed the exclusion of investments yielding taxable income. The Tribunal restored the issue to the AO for fresh adjudication, emphasizing that strategic investments and those not yielding exempt income should be excluded from the disallowance calculation.

2. Disallowance of deduction claimed under section 80IB(9):
- Assessee’s Appeal (A.Y. 2008-09): The assessee claimed a deduction of ?16,95,29,150 under section 80IB(9). The AO disallowed it, citing previous years' disallowances, which the CIT(A) upheld. The Tribunal restored the issue to the AO for fresh adjudication, considering the Gujarat High Court's decision in Niko Resources Ltd., which struck down the Explanation to section 80IB(9) as ultra vires.
- Assessee’s Appeal (A.Y. 2009-10): The Tribunal restored the issue to the AO for fresh adjudication, considering the Supreme Court's pending decision on the issue. The AO had disallowed the claim based on previous years' disallowances, which the CIT(A) had upheld.
- Revenue’s Appeal (A.Y. 2009-10): The AO disallowed the deduction based on previous years' disallowances. The Tribunal dismissed the appeal, citing the Jurisdictional High Court's decision favoring the assessee in earlier years.

3. Computation of book profit under section 115JB:
- Assessee’s Appeal (A.Y. 2008-09): The AO added the disallowance under section 14A r/w rule 8D to the book profit under section 115JB. The Tribunal held that such an addition is unsustainable as per the Special Bench decision in Vireet Investment Pvt. Ltd. and restored the issue to the AO for fresh adjudication.
- Assessee’s Appeal (A.Y. 2009-10): The Tribunal directed the AO to verify and exclude investments not yielding exempt income from the disallowance calculation and clarified that disallowance under section 14A r/w rule 8D cannot be added to the book profit under section 115JB.

4. Rectification proceedings under section 154:
- Revenue’s Appeal (A.Y. 2008-09): The Revenue appealed against the CIT(A)'s order under section 154 concerning disallowance under section 14A r/w rule 8D. The Tribunal dismissed the appeal, deeming the issue redundant as it was already restored to the AO for fresh adjudication.

Conclusion:
- The Tribunal restored the issues related to disallowance under section 14A r/w rule 8D and deduction under section 80IB(9) to the AO for fresh adjudication.
- The Tribunal dismissed the Revenue’s appeals due to the low tax effect and redundancy of the issues.
- The Tribunal emphasized the need for the AO to follow the Special Bench decision in Vireet Investment Pvt. Ltd. and the pending Supreme Court decision on section 80IB(9).