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2019 (10) TMI 1193 - AT - Income TaxAddition u/s 14A read with rule 8D under normal computation of income - MAT computation of income under section 115JB - HELD THAT - We hold that the disallowance of the expenses u/s 14A read with rule 8D cannot be made in absence of exempt income. Hence we do not find any reason to interfere in the order of the learned CIT (A). Disallowances made under the provisions of Sec. 14A r.w.r. 8D of the IT Rules, cannot be applied to the provision of Sec. 115JB of the Act as per the direction of the Hon'ble Calcutta High Court in the case of CIT Vs. Jayshree Tea Industries Ltd. 2014 (11) TMI 1169 - CALCUTTA HIGH COURT Disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently - There is no mechanism/ manner given under the clause (f) to Explanation-1 of Sec. 115JB of the Act to workout/ determine the expenses with respect to the exempted income. However, we find that there are judgments on the issue which mandates that the disallowance of the expenses cannot exceed the exempt income i.e. CIT Vs. Vision Finstock Ltd. 2017 (7) TMI 1277 - GUJARAT HIGH COURT or only those investments should only be considered for the purpose of the disallowance which have resulted the dividend income. We are also conscious to the fact that the above judgments were rendered in connection with the income determined under normal computation of income but to our mind the same principles can also be applied to the case on hand. It is because, the provisions of section 115JB of the Act require to make the disallowance of the expenditure related to any income to which section 10 applies other than section 10(38) - we hold that the expenses incurred in connection with the exempted income cannot exceed the amount of such exempted income under the provisions of section 115JB of the Act. Accordingly, we limit the disallowance of the expenses to the extent of exempt income which is NIL in the case on hand. Thus no disallowance of the expense is warranted under section 115BJB of the Act. Hence the ground of appeal of the Revenue is dismissed. Suppression of production/sales after rejecting the books of accounts under section 145(3) - AO has compared the production of the tiles shown by the assessee with the companies available in the public domain accordingly held that there was suppression in the production shown by the assessee which was further sold outside the books of accounts - HELD THAT - AO has rejected the book results of the assessee based on the finding that there was less production of tiles in comparison to the companies available in the public domain and non-maintenance of production registers properly. In the light of the above facts, the AO invoked the provisions of section 145(3) of the Act and thereby he has made certain upward additions on account of suppressed production which was sold outside the books. In our humble understanding, the consumption ratio of raw material having bearing on the production shown by the other concern engaged in a similar activity cannot be a criterion to reject the books. It is because the consumption/production of a concern depends upon various factors such as quality of raw materials, production process/ methods, machinery used, labour employed, factory infrastructure, quality of output and the scrap generated etc. But the AO has not brought all these facts on record whether the assessee and the comparable entities were working under similar conditions. Therefore we disagree with the finding of the AO. Admittedly, the assessee revised the details of the consumption of raw materials used in the production of tiles and marbles. But we note that final revised details furnished by the assessee were supported by purchase bills, goods receipt, lorry receipts, reconciliation statement, gate pass etc as placed on pages 95 to 254 of the PB. AO did not point out any defect in the revised details of the consumption of raw materials furnished by the assessee. Therefore in our considered view, the books of accounts of the assessee cannot be rejected until and unless the AO points out the specific mistakes. We also note that the books of accounts cannot be rejected if the assessee does not maintain the stock registers until and unless it is coupled with other defects such as sales/ purchase outside the books of accounts. But in the instant case, we note that there was no such conclusive finding by the AO. AO cannot reject the books of accounts for the reasons as discussed above in a situation where the assessee does not maintain the stock register. Accordingly, we note that the reasons which were based by the AO for rejecting the books of accounts are not sufficient enough and cogent to reject the books of accounts. Accordingly, we conclude that once the books of accounts of the assessee are not liable to be rejected then its book profit should be accepted in the given facts and circumstances. Depreciation on car - HELD THAT - From the preceding discussion we note that the payment for the purchase of the car was made by the assessee though the same was registered in the name of the director. This fact can be verified from the assessment order as well as CIT (A) order. Thus it is clear that, the assessee was the beneficial owner of the car and accordingly it was eligible for claiming the deduction for the depreciation on such car. We hold that the assessee is eligible for depreciation on the car purchased by it but registered in the name of the director as the assessee is the beneficial owner of such car. Hence the ground of appeal of the Revenue is dismissed.
Issues Involved:
1. Disallowance under section 14A read with rule 8D and its adjustment to Book Profit under section 115JB of the Income Tax Act. 2. Addition on account of suppression of production/sale of tiles by rejecting books of account. 3. Disallowance of depreciation on car. Detailed Analysis: Issue 1: Disallowance under section 14A read with rule 8D and its adjustment to Book Profit under section 115JB of the Act. Facts: - The assessee, a limited company engaged in manufacturing and trading of tiles, made significant investments in shares, leading to exempted income under section 10(34) of the Act. - The AO disallowed ?6,15,723/- under section 14A read with rule 8D, despite the assessee claiming no exempt income was earned during the year. - The AO also added this disallowance to the Book Profit under section 115JB. CIT(A)'s Decision: - Deleted the disallowance under normal computation and MAT computation, citing no exempt income earned by the assessee. Tribunal's Analysis: - Referred to section 14A, which implies disallowance cannot exceed the amount of exempted income. - Cited various judgments, including the Hon'ble Delhi High Court in Joint Investments Pvt. Ltd vs. CIT, which supported that disallowance should not exceed exempt income. - Held that disallowance under section 14A read with rule 8D cannot be made in the absence of exempt income. - For MAT computation under section 115JB, referred to Special Bench decision in ACIT vs. Vireet Investment Pvt. Ltd., which held that disallowances under section 14A read with rule 8D cannot be applied while determining net profit under section 115JB. - Concluded that no disallowance is warranted under section 115JB as the exempt income was NIL. Decision: - The appeal of the Revenue was dismissed on this ground. Issue 2: Addition on account of suppression of production/sale of tiles by rejecting books of account. Facts: - The AO alleged suppression of production based on a comparison with other companies and an arithmetical formula, leading to an addition of ?14,06,42,330/-. - The AO rejected the books of accounts under section 145(3) due to perceived inconsistencies and lack of proper stock registers. CIT(A)'s Decision: - Deleted the addition, stating there was no concrete evidence of suppressed production/sales. - Highlighted that the AO relied on public domain information about packing details, not production data. - Noted the absence of any adverse findings from the excise department. Tribunal's Analysis: - Emphasized that additions based on surmise, conjecture, and comparison without concrete evidence are not sustainable. - Cited various judgments, including RA Casting Pvt Ltd vs. CCE Meerut, which stressed the need for tangible evidence for allegations of suppression. - Highlighted the importance of maintaining principles of natural justice, noting the assessee was not provided with the information used against it. - Concluded that the rejection of books of accounts was not justified as the AO did not point out specific defects. Decision: - The appeal of the Revenue was dismissed on this ground. Issue 3: Disallowance of depreciation on car. Facts: - The AO disallowed ?3,85,979/- of depreciation on a car registered in the name of the director but purchased by the assessee. CIT(A)'s Decision: - Deleted the disallowance, recognizing the assessee as the beneficial owner of the car. Tribunal's Analysis: - Referred to the judgment of the Hon'ble Supreme Court in PCIT vs. Cadila Health Care Ltd., which supported depreciation claims for assets beneficially owned by the assessee. - Held that the assessee is eligible for depreciation on the car as it was the beneficial owner. Decision: - The appeal of the Revenue was dismissed on this ground. Conclusion: In the combined results, both the appeals of the Revenue were dismissed, upholding the decisions of the CIT(A) on all three issues.
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