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2020 (8) TMI 16 - AT - Income TaxDisallowance u/s. 14A on account of administrative expenses - HELD THAT - As relying on M/S. MAZDA LIMITED 2020 (4) TMI 251 - ITAT AHMEDABAD we find it justified in restricting the disallowance of administrative expenses on ad-hoc basis at 1% of the exempt income as per Clause (f) to Explanation-1 of Sec. 115JB of the Act. The order, is, passed accordingly. This ground of appeal is, thus, partly allowed. Addition to the book profit under Section 115JB on account of disallowance of the same amount u/s 14A - HELD THAT - As relying on JAYSHREE TEA INDUSTRIES LTD. 2014 (11) TMI 1169 - CALCUTTA HIGH COURT AND VIREET INVESTMENT (P.) LTD. 2017 (6) TMI 1124 - ITAT DELHI ad-hoc disallowance at 1% of the exempt income under Clause (f) to Explanation 1 of Section 115JB of the Act would be justiciable. Hence, we limit the disallowance of ad-hoc basis at 1% of the exempt income as per Clause (f) to Explanation 1 of Section 115JB of the Act. This ground of appeal, thus, is partly allowed.
Issues Involved:
1. Disallowance of ?8,00,154/- under Section 14A on account of administrative expenses. 2. Addition of ?47,29,403/- to the book profit under Section 115JB due to disallowance under Section 14A. 3. Levy of interest under Sections 234B, 234C, and 234D. Issue-Wise Detailed Analysis: Ground No. 1: Disallowance of ?8,00,154/- under Section 14A on account of administrative expenses The assessee company, maintaining the mercantile method of accounting, filed its return of income declaring a total loss and book profit. Upon scrutiny, it was found that the assessee had made investments in shares/mutual funds and earned exempt income from dividends. The Assessing Officer (AO) issued a notice to the assessee asking for an explanation regarding the disallowance under Section 14A read with Rule 8D, as no expenses were claimed for earning this income. The AO made a disallowance under Section 14A applying Rule 8D for administrative expenses. The disallowance of interest expenditure was deleted by the CIT(A), but the disallowance of ?8,00,154/- towards administrative expenses was confirmed, which the assessee challenged. During the hearing, the assessee's advocate suggested that administrative expenditure may be disallowed at 1% of the exempt income under Clause (f) to Explanation 1 of Section 115JB of the Act, relying on a previous tribunal judgment. The tribunal found it justified to restrict the disallowance of administrative expenses on an ad-hoc basis at 1% of the exempt income, thus partly allowing this ground of appeal. Ground No. 2: Addition of ?47,29,403/- to the book profit under Section 115JB due to disallowance under Section 14A The assessee challenged the addition of ?47,29,403/- to the book profit under Section 115JB, arguing that the CIT(A) had deleted the disallowance of interest expenditure. It was established that disallowance under Section 14A read with Rule 8D cannot be applied while determining expenses under Clause (f) to Explanation 1 of Section 115JB. The tribunal noted that there is no mechanism under Clause (f) to determine disallowance, and various judgments support this view. The tribunal referred to the Co-ordinate Bench's judgment in the case of M/s. Mazda Limited vs. DCIT and other relevant judgments, concluding that disallowance under Section 14A read with Rule 8D cannot be applied to Section 115JB. The tribunal directed an ad-hoc disallowance at 1% of the exempt income under Clause (f) to Explanation 1 of Section 115JB, thus partly allowing this ground of appeal. Ground No. 3: Levy of interest under Sections 234B, 234C, and 234D The issue raised by the assessee regarding the levy of interest under Sections 234B, 234C, and 234D was deemed consequential. Therefore, no specific order was passed on this ground. Conclusion: The Cross Objection was partly allowed, with the tribunal directing an ad-hoc disallowance at 1% of the exempt income for both administrative expenses and book profit adjustments under Section 115JB. The issue of interest levy was deemed consequential and not specifically addressed.
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