2021 (9) TMI 1076 - AT - Income Tax

Addition u/s 14A r.w.r. 8D - whether the assessee was having sufficient own funds on the date of investments? - HELD THAT - As assessee has submitted that the assessee has sufficient own funds for making investments and no part of the borrowed funds were used by the assessee for making investments and prayed for deleting the disallowance of expenditure for the assessment year 2013-14. Either in the assessment order or in the appellate order the authorities below have not mentioned anything as to whether the assessee has sufficient own funds for making investments or borrowed funds were used by the assessee for making investments - we set aside the order of the ld. CIT(A) and remit the matter back to the file of the AO to verify as to whether the assessee was having sufficient own funds on the date of investments and decide the issue afresh relating to the disallowance under Rule 8D(2)(ii) - AO is directed to consider only those investments for computing average value of investment which yielded exempt income during the year under consideration as per Rule 8D(2)(iii) in view of case of ACIT v. Vireet Investment (P) Ltd.. 2017 (6) TMI 1124 - ITAT DELHI and to pass detailed order on both counts. Thus the ground raised by the assessee is allowed for statistical purposes for the assessment year 2013-14. Disallowance u/s 14A of the Act vis- -vis computation of book profits u/s 115JB - As decided in Vireet Investment (P) Ltd.. 2017 (6) TMI 1124 - ITAT DELHI computation under clause (f) of Explanation 1 to Section 115JB(2) is to be made without resorting to the computation as contemplated under section 14A read with Rule 8D of the 1962 Rules. It further held that the disallowance of actual expenditure incurred for earning exempt income is required to be made under clause (f) of section 115JB(2) of the Act. Accordingly the matter is remitted back to the file of the Assessing Officer to compute the books profits under section 115JB of the Act on the direct expenditure incurred for earning exempt income under clause (f) of Explanation to section 115JB(2). Disallowance u/s 14A r.w. Rule 8D for the assessment year 2014-15 - HELD THAT - AO cannot make disallowance under section 14A r.w. Rule 8D in any count. Accordingly we direct the Assessing Officer to delete the addition made towards the disallowance under section 14A. Addition being the corporate sponsorship/fee paid to Tennis Academy - HELD THAT - CIT(A) has observed that various judicial forums have held that as long as an expense is incurred wholly and exclusively for the purpose of the business earned out by the assessee it ought to be ordinarily allowed under section 37 of the Act. As the assessee has not demonstrated so the ld. CIT(A) confirmed the addition. Before us also the assessee could not able to demonstrate as to how the above expenditure incurred by the assessee was wholly and exclusively for the purpose of its business of real estate earned out. Thus we find no infirmity in the order passed by the ld. CIT(A). Accordingly the ground raised by the assessee stands dismissed.

Summary

Issues:
1. Disallowance of expenditure under section 14A r.w. Rule 8D for assessment years 2013-14 and 2014-15.
2. Computation of book profits under section 115JB in relation to disallowance under section 14A.
3. Addition of corporate sponsorship/fee paid to Tennis Academy.

Analysis:

Issue 1: Disallowance of Expenditure under Section 14A r.w. Rule 8D
- The assessee had invested in equity shares and mutual funds, earning dividend income claimed as exempt under section 10(34) of the Act.
- Assessing Officer disallowed expenditure under section 14A r.w. Rule 8D for both assessment years.
- Tribunal remitted the matter back to the Assessing Officer to verify if the assessee had sufficient own funds for investments and directed to consider only investments yielding exempt income.
- Tribunal allowed the assessee's ground for statistical purposes for the assessment year 2013-14.

Issue 2: Computation of Book Profits under Section 115JB
- Special Bench of Delhi Tribunal clarified that computation under clause (f) of Explanation 1 to Section 115JB(2) should not resort to Rule 8D for disallowance under section 14A.
- Directed the Assessing Officer to compute book profits under section 115JB based on direct expenditure for earning exempt income under clause (f) of Explanation to section 115JB(2).

Issue 3: Addition of Corporate Sponsorship/Fee
- Assessing Officer disallowed a sum paid towards membership and subscription fee for Managing Director's son's Tennis academy under section 37 of the Act.
- Tribunal upheld the disallowance as the expense was personal in nature and not connected to the business of the assessee.

In conclusion, the Tribunal partly allowed the assessee's appeal for statistical purposes and dismissed the ground related to the addition of corporate sponsorship/fee paid to Tennis Academy. The Tribunal provided detailed reasoning and directives for each issue, ensuring a comprehensive analysis of the judgment.