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2019 (4) TMI 616 - AT - Income TaxDisallowance u/s 14A in the book profit determined u/s 115JB - MAT - HELD THAT - Special Bench in VIREET INVESTMENT (P.) LTD. 2017 (6) TMI 1124 - ITAT DELHI answered this question in favour of the assessee and held that computation for the purpose of clause (f) of Explanation 1 to Section 115JB(2) is to be made without resorting to the computation as contemplated under section 14A r.w. rule 8D. Respectfully following the above decision of the Special Bench , we allow this ground of appeal and direct the AO not to make adjustments in book profit for the purpose of MAT liability on the basis of calculations made with Rule 8D of the Income Tax Rules. Disallowance u/s 14A - interest expenditure - HELD THAT - Assessee has more interest free funds than the investment made by it which has resulted tax free income. Apart from above, we further find that the assessee has net interest income. Therefore, in view of the judgment in the case of Nirma Credit & Capital P.Ltd. 2017 (9) TMI 485 - GUJARAT HIGH COURT no disallowance on account of interest expenditure is to be made in the present case. We allow this ground partly and confirm the disallowance to the extent of ₹ 6,790/- representing administrative expenses and ₹ 954/- which is relatable to direct expenditure. Interest expenditure of ₹ 1,43,261/- disallowed by the AO is deleted.- Appeal of the assessee is partly allowed.
Issues:
1. Inclusion of disallowance under section 14A in book profit for MAT liability. 2. Charging of interest under section 234A/B/C of the Act. 3. Disallowance made under section 14A regarding interest expenditure. Issue 1: Inclusion of disallowance under section 14A in book profit for MAT liability The appellant contested the inclusion of disallowance under section 14A in the book profit determined under section 115JB of the Income Tax Act. Referring to the decision of the Special Bench in ACIT Vs. Vireet Investments P.Ltd., it was argued that no adjustments should be made in the book profit for MAT liability based on disallowances under section 14A. The Special Bench had ruled that such adjustments should not be made, and the computation for MAT liability should not involve calculations under Rule 8D of the Income Tax Rules. Consequently, the appellant's ground of appeal was allowed, directing the Assessing Officer not to make adjustments in book profit for MAT liability based on Rule 8D calculations. Issue 2: Charging of interest under section 234A/B/C of the Act The appellant raised a grievance regarding the charging of interest under section 234A/B/C of the Act. However, the appellant's representative did not present arguments on this issue, acknowledging its consequential nature. As a result, this ground was rejected by the Tribunal. Issue 3: Disallowance made under section 14A regarding interest expenditure The appellant challenged the disallowance of ?1,51,005 made by the Assessing Officer under section 14A of the Income Tax Act. The Assessing Officer had disallowed expenses related to earning exempt income, including direct expenditure, administrative expenditure, and interest expenditure. The appellant argued that the interest expenditure should not have been disallowed as it had net interest income, citing a judgment of the Hon'ble Gujarat High Court. The Tribunal found that the appellant had more interest-free funds than investments, resulting in tax-free income and net interest income. Following the Gujarat High Court's judgment, the Tribunal partially allowed the ground of appeal, confirming the disallowance of administrative and direct expenditure but deleting the disallowance of interest expenditure. Thus, the disallowance of ?1,43,261 related to interest expenditure was removed. In conclusion, the Tribunal partly allowed the appellant's appeal, addressing the issues related to the inclusion of disallowance under section 14A in book profit for MAT liability and the disallowance made under section 14A regarding interest expenditure. The Tribunal upheld the disallowance of administrative and direct expenditure but deleted the disallowance of interest expenditure based on the appellant's net interest income.
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