2019 (5) TMI 1050 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D(2)(iii) - HELD THAT - Disallowance u/s 14A read with rule 8D can not exceed the amount of exempt income as has been held in the case of Pr. CIT vs. Ballarpur Industries in 2016 (10) TMI 1039 - BOMBAY HIGH COURT wherein it has been held that the disallowance can not exceed the amount of exempt income. Accordingly, we direct the AO to restrict the disallowance under section 14A read with rule 8D(iii) . MAT computation - Disallowance made u/s 14A read with rule 8D to the book profit the same has been decided by the Special Bench in the case of ACIT vs. Vireet Investments Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI wherein it has been held that while computing the book profit under clause (f) of Explanation 1 to section 115JB no addition can be made in respect of disallowance under section 14A read with rule 8D. Accordingly, we direct the AO to delete the disallowance while computing the book profit. The appeal of the assessee is allowed. Disallowance under rule 8D2(ii) - assessee s own interest free funds were more than the investment made - HELD THAT - CIT(A) has deleted the disallowance by following the decision in the case of CIT vs. HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT on the ground that assessee s surplus funds were more than the investments in the shares. Therefore, we do not find any infirmity in the order of Ld. CIT(A) and accordingly the same is upheld by dismissing the appeal of the Revenue.

Summary

Issues:
1. Disallowance under section 14A read with rule 8D.
2. Addition of disallowance to book profits under section 115JB.

Issue 1: Disallowance under section 14A read with rule 8D:
The appeals were filed against the Commissioner of Income Tax (Appeals) order relevant to the assessment year 2014-15. The primary issue raised by the assessee was the application of provisions of section 14A read with rule 8D(2)(iii) and the subsequent addition of disallowance to book profits under section 115JB of the Act. The AO observed exempt income earned by the assessee and investments in shares, leading to the application of section 14A. The AO calculated disallowance under rule 8D at a significant amount. In the appellate proceedings, the Ld. CIT(A) deleted part of the disallowance under rule 8D(2)(ii) based on relevant case laws. The disallowance under rule 8D(2)(iii) was directed to be calculated differently. The Tribunal held that the disallowance under section 14A read with rule 8D cannot exceed the exempt income amount, directing the AO to restrict the disallowance accordingly.

Issue 2: Addition of disallowance to book profits under section 115JB:
Regarding the addition of disallowance to book profits, the Tribunal referred to a Special Bench decision which held that no addition can be made in respect of disallowance under section 14A read with rule 8D while computing book profits under clause (f) of Explanation 1 to section 115JB. Consequently, the Tribunal directed the AO to delete the disallowance while computing the book profit. The assessee's appeal was allowed based on these findings.

Revenue's Appeal:
The Revenue's appeal primarily focused on the disallowance made under rule 8D(2)(ii) of the IT Rules, which was deleted by the Ld. CIT(A) based on the surplus funds being more than the investments in shares. The Tribunal upheld the Ld. CIT(A)'s decision, citing precedent cases, and dismissed the Revenue's appeal. In conclusion, the appeal of the assessee was allowed, and the appeal of the Revenue was dismissed as per the detailed analysis and decisions provided by the Tribunal.