2020 (1) TMI 50 - AT - Income Tax

Disallowance u/s 14A - assessee in this case has made a suo moto disallowance of expenditure - HELD THAT - Assessing Officer has recorded that he is not satisfied with the explanation given by the assessee on the suo moto disallowance. The assessee has also not given any working to justify the suo moto disallowance. He made certain claims without supporting the same with figures. Under these circumstances, we are of the considered opinion that the Assessing Officer has recorded satisfaction, that he is unable to accept the suo moto disallowance made by the assessee u/s 14A of the Act, prior to invoking Rule 8D of the Rules. Hence this argument of the assessee is hereby dismissed. Coming to the finding of the ld. CIT(A), relying on the decision of the Hon ble Jurisdictional High Court in the case of CIT vs. Rajiv Lochan Kanoria 1994 (2) TMI 42 - CALCUTTA HIGH COURT , we hold that this is no more good law, in view of the judgment of the Hon ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT 1994 (2) TMI 42 - CALCUTTA HIGH COURT . Hence, this part of the order of the ld. CIT(A), is hereby reversed and the ground of the revenue is allowed. Disallowance under Rule 8D(2)(iii) - This issue is no more res integra in view of the decision of this Bench of the Tribunal in the case of Kolkata Bench of the ITAT in the case of REI Agro Ltd. v. Dy. CIT 2013 (9) TMI 156 - ITAT KOLKATA and ACIT vs. Vireet Investments (P.) Ltd. 2017 (6) TMI 1124 - ITAT DELHI - Consistent with the view taken therein we dismiss this ground of the revenue. MAT Computation u/s 115JB - HELD THAT - We find that the assessee has recorded to its profit and loss account, diminution in the value of investments. It was submitted that that net costs of investments was reflected in the profit and loss account and under those circumstances, this figure cannot be adjusted once again while computing book profits assessed u/s 115JB - See PHILIPS CARBON BLACK LTD. VERSUS ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-10, KOLKATA, 2014 (1) TMI 1765 - ITAT KOLKATA held that once assessee has reduced amount shown by it as a provision for diminution of investment from its total value of investment, it no longer remained a provision. Effectively it was a write off. This view is supported by the decision of the Hon'ble Apex Court in the case of Vijaya Bank -vs.- CIT 2010 (4) TMI 46 - SUPREME COURT . Therefore, the claim of assessee with regard to diminution in value of investment has to succeed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act.
2. Computation of book profits under Section 115JB of the Act.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A of the Income Tax Act:

The primary issue revolves around the disallowance of ?6,68,64,159/- under Section 14A of the Income Tax Act by the Assessing Officer (AO). The ld. CIT(A) deleted this addition, referencing the Hon’ble Calcutta High Court's judgment in CIT vs. Rajeev Lochan Kanoria, stating that interest expenditure cannot be disallowed as the borrowed funds were used for acquiring controlling interest in shares. However, the Tribunal held that this view is no longer valid due to the Supreme Court's judgment in Maxopp Investment Ltd. v. CIT, reversing the ld. CIT(A)’s decision and allowing the revenue’s ground.

Regarding disallowance under Rule 8D(2)(iii), the Tribunal referred to the ITAT Kolkata Bench's decision in REI Agro Ltd. v. Dy. CIT and the Delhi Special Bench's decision in ACIT vs. Vireet Investments (P.) Ltd., concluding that the AO must only consider those shares that yielded dividend income for disallowance computation. Consequently, this ground of the revenue was dismissed.

2. Computation of Book Profits under Section 115JB of the Act:

The assessee challenged the AO's addition of ?13,97,75,000/- to the net profit disclosed in the audited Profit & Loss Account, arguing that the provision for diminution in the value of investments was already netted off against the cost of investments. The Tribunal, referencing its earlier decision in Philips Carbon Black Ltd. vs. ACIT, held that if the provision for diminution in the value of investments is netted off against the cost, it effectively becomes a write-off and should not be added back while computing book profits under Section 115JB. Thus, the additional grounds raised by the assessee were allowed.

Conclusion:

The Tribunal allowed the revenue's appeal in part by reversing the deletion of disallowance under Section 14A but upheld the deletion under Rule 8D(2)(iii). The assessee's cross-objection was partly allowed, particularly concerning the computation of book profits under Section 115JB, consistent with the Tribunal's earlier decisions.