2019 (3) TMI 564 - AT - Income Tax

Disallowance u/s 14A read with rule 8D - HELD THAT - In the case of Vireet Investment Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI has held that only those investments are to be considered for computing the average value of investment which yielded exempt income during the year. This is in the context of disallowance u/s 14A r.w. Rule 8D. We set aside the order of the CIT(A) and direct the AO to consider those investments for computing the average value of investments u/s 14A r.w. Rule 8D which yielded exempt income during the year. We direct the assessee to file the relevant documents/evidence before the AO. Thus the ground No. 1(e) is allowed for statistical purposes. MAT - adjustment to the book profit computation under section 115JB of the Act in respect of disallowance made under section 14A - HELD THAT - In the case of Vireet Investment Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI it is held that the disallowance u/s 14A r.w. Rule 8D could not be added while computing the book profits in terms of section 115JB as the Explanation to that section did not specifically mention section 14A of the Act. Hence, the computation under clause (f) of Explanation 1 to section 115JB(2) was to be made without resorting to the computation as contemplated u/s 14A r.w. Rule 8D of the Rules. Levy of interest under section 234D - HELD THAT - AO is directed to compute the interest on excess refund, after examining the records. Depreciation at revalued cost of the machinery and not WDV - assessee continued to claim depreciation on the inflated cost of used assets - HELD THAT - As mentioned by the Ld. CIT(A), the above issue has been decided in favour of the assessee by the Tribunal in AY 2007-08 and 2008-09. Also we find that similar view has been taken by the Tribunal in assessee s own case in AY 2009-10 and AY 2011-12.

Summary

Issues involved:
1. Disallowance under section 14A of the Income Tax Act read with Rule 8D.
2. Adjustment to book profit computation under section 115JB of the Act in respect of disallowance made under section 14A.
3. Levy of interest under section 234D.
4. Allowing depreciation at revalued cost of machinery instead of Written Down Value (WDV).

Issue 1: Disallowance under section 14A of the Income Tax Act read with Rule 8D:
The dispute revolved around the disallowance under section 14A of the Income Tax Act read with Rule 8D. The Appellate Tribunal considered the arguments presented by the assessee regarding the disallowance of expenses related to earning exempt income. The Tribunal directed the Assessing Officer (AO) to consider only those investments yielding exempt income for computing the average value of investments under section 14A read with Rule 8D. The Tribunal allowed the appeal for statistical purposes based on the decision in the case of Vireet Investment Pvt. Ltd.

Issue 2: Adjustment to book profit computation under section 115JB of the Act:
The second issue involved the adjustment to book profit computation under section 115JB of the Act in relation to the disallowance made under section 14A. The Tribunal referred to the decision in the case of Vireet Investment Pvt. Ltd., where it was held that disallowance under section 14A read with Rule 8D cannot be added while computing book profits under section 115JB. The Tribunal allowed the second ground of appeal based on the Special Bench's decision.

Issue 3: Levy of interest under section 234D:
Regarding the levy of interest under section 234D, the Tribunal noted that interest is attracted in cases where a refund is granted under section 143(1) but no refund is due on regular assessment, or where the refund granted exceeds the amount refundable on regular assessment. The AO was directed to recompute the interest on excess refund after examining the records, as per the provisions of section 234D.

Issue 4: Allowing depreciation at revalued cost of machinery:
The final issue pertained to allowing depreciation at revalued cost of machinery instead of Written Down Value (WDV). The AO disallowed excess depreciation claimed by the assessee on the inflated cost of used assets acquired from a holding company. However, the CIT(A) directed the AO to allow the depreciation based on previous Tribunal decisions in favor of the assessee for earlier years. The Tribunal upheld the CIT(A)'s order, dismissing the appeal filed by the revenue.

In conclusion, the Appellate Tribunal addressed various issues related to disallowances, adjustments to book profit computation, levy of interest, and depreciation calculations, providing detailed analysis and rulings on each matter based on legal interpretations and precedents.