2021 (1) TMI 378 - HC - Income Tax

MAT Computation on Disallowance u/s 14A read with rule 8D(iii) - addition to the net profit in computation of book profit for MAT purposes under Section 115JB and thereby importing the provision of Section 14A read with rule 8D into the MAT provisions on the facts and circumstances of the case - HELD THAT - Amounts mentioned in clauses (a) to (i) of explanation to Section 115JB(2) are debited to the statement of profit and loss account, then only the provisions of Section 115JB would apply. The disallowance under Section 14A is a notional disallowance and therefore, by taking recourse to Section 14A of the Act, the amount cannot be added back to book profit under clause (f) of Section 115JB. In Rolta India Ltd. 2011 (1) TMI 5 - SUPREME COURT was dealing with the issue of chargeability of interest under Section 234B and 234C of the ct on failure to pay advance tax in respect of tax payable under Section 115JA/ 115JB of the Act and therefore, the aforesaid decision has no impact on the issue involved in this appeal. Similarly, in MAXOPP Investment Ltd. 2018 (3) TMI 805 - SUPREME COURT has dealt with Section 14A of the Act and has not dealt with Section 115JB of the Act. Therefore, the aforesaid decision also does not apply to the fact situation of the case. Substantial questions of law framed by a bench of this court are answered in favour of the assessee and against the revenue.

Summary

Issues:
1. Interpretation of Section 115JB of the Income Tax Act, 1961 regarding disallowance of indirect expenditure under Section 14A for MAT purposes.
2. Applicability of Section 14A read with Rule 8D in computing book profit under Section 115JB of the Act.
3. Treatment of exempt income under Section 10(2A) and Section 10(35) in relation to disallowance of expenditure under Section 14A.

Analysis:
1. The appeal involved the interpretation of Section 115JB of the Income Tax Act, 1961, specifically regarding the disallowance of indirect expenditure under Section 14A for Minimum Alternate Tax (MAT) purposes. The court considered whether the disallowed expenditure under Section 14A should be added to the net profit for MAT computation. The court examined the statutory provisions and previous judgments to determine the correct application of the law in this context.

2. The court analyzed the applicability of Section 14A read with Rule 8D in computing the book profit under Section 115JB of the Act. The case revolved around whether the disallowance under Section 14A should be included in the computation of book profit for MAT purposes. The court reviewed the facts of the case, the arguments presented by both parties, and relevant legal provisions to reach a conclusion on this issue.

3. Another significant issue addressed in the judgment was the treatment of exempt income under Section 10(2A) and Section 10(35) concerning the disallowance of expenditure under Section 14A. The court examined the provisions of the Act related to exempt income and the applicability of Section 14A in disallowing expenses incurred to earn such income. The court considered previous judgments and legal principles to determine the correct treatment of exempt income and associated expenditure under Section 14A.

In conclusion, the court ruled in favor of the assessee, quashing the findings recorded against them by the tribunal. The court provided a detailed analysis of the statutory provisions, legal precedents, and arguments presented by both parties to arrive at its decision. The judgment clarified the interpretation of Section 115JB, the applicability of Section 14A in computing book profit for MAT purposes, and the treatment of exempt income under the Income Tax Act, 1961.