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2022 (1) TMI 414 - AT - Income TaxRevision u/s 263 by CIT - Wrong claim of business expenditure under the head 'Income from Other sources' - expenditure claimed on account of interest payments is not an allowable deduction u/s.57(iii) from out of the Income from other sources, even though, the same can be allowed under the head 'Income from business' - HELD THAT - Since the assessee failed to prove the nexus between the interest income and expenditure incurred, the CIT set aside the order of AO, who allowed the same under the head income from other sources . Even before us, the ld. AR of the assessee failed ot prove the nexus between the interest income and expenditure incurred and, therefore, we uphold the order of CIT on this issue and dismiss the grounds raised by the assessee on this issue. Disallowance u/s 14A should also be added to the profits compute du/s 115JB - As relying on VIREET INVESTMENT (P.) LTD. 2017 (6) TMI 1124 - ITAT DELHI we hold that the disallowance made u/s 14A should not be added to the book profits computed under section 115JB. Therefore, we set aside the order of CIT on this issue and allow the ground raised by the assessee.
Issues Involved:
1. Validity of the revision of the assessment order under Section 263. 2. Appropriateness of interest deduction under Section 57(iii) versus business income. 3. Inclusion of disallowance under Section 14A in the computation of book profits under Section 115JB. Detailed Analysis: 1. Validity of the Revision of the Assessment Order under Section 263: The assessee challenged the Principal Commissioner of Income Tax (CIT)'s decision to revise the assessment order passed by the Assistant Commissioner of Income Tax (AO) under Section 263 of the Income Tax Act, 1961. The CIT had initiated proceedings under Section 263 on the grounds that the AO's order was erroneous and prejudicial to the interest of the revenue. The CIT noted that the AO had failed to add disallowance under Section 14A to the book profits computed under Section 115JB and had incorrectly allowed interest expenses as deductions under the head "Income from Other Sources." 2. Appropriateness of Interest Deduction under Section 57(iii) versus Business Income: The CIT observed that the interest expenditure of ?3,62,71,333 claimed by the assessee under Section 57(iii) was not allowable as it was not expended wholly and exclusively for the purpose of earning such income. The CIT argued that this expenditure should be allowed under "Income from Business" rather than "Income from Other Sources." The assessee contended that the interest expenditure was directly related to earning interest income and thus allowable under Section 57(iii). However, the CIT held that the assessee failed to establish a nexus between the interest income and the expenditure incurred, making the AO's order erroneous and prejudicial to the revenue's interest. The ITAT upheld the CIT's view, dismissing the assessee's grounds on this issue. 3. Inclusion of Disallowance under Section 14A in the Computation of Book Profits under Section 115JB: The CIT argued that the disallowance under Section 14A amounting to ?2,67,05,035 should have been added to the book profits computed under Section 115JB, which the AO had failed to do. The assessee contended that the tax liability under Section 115JB should be based on adjusted book profits and not on income computed under normal provisions. The ITAT referred to multiple precedents, including the Delhi Special Bench's decision in the case of ACIT v. Vireet Investments Pvt. Ltd., which held that the computation under clause (f) of Explanation 1 to Section 115JB(2) should be made without resorting to the computation under Section 14A read with Rule 8D. The ITAT concluded that the disallowance under Section 14A should not be added to the book profits computed under Section 115JB, thereby setting aside the CIT's order on this issue and allowing the assessee's ground. Conclusion: The ITAT partly allowed the assessee's appeal. The revision of the assessment order under Section 263 was upheld concerning the interest deduction under Section 57(iii), but the CIT's order was set aside regarding the inclusion of disallowance under Section 14A in the computation of book profits under Section 115JB. The decision was pronounced in the open court on January 4, 2022.
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