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2023 (6) TMI 216 - AT - Income TaxAddition u/s 14A r.w.r. 8D - HELD THAT - No hesitation in confirming the order passed by the Ld. CIT(A) who deleted the addition of interest expenditure u/s 8D(2)(ii). Administrative expenses under Rule 8D (2)(iii) - Disallowance made under Rule 8D(2)(iii) at 0.5% of the average value of investments made by the assessee, which earned only exempt income is liable to be disallowed u/s. 14A after excluding the investments which earned taxable income. Thus the disallowance to be made under Rule 8D(2)(iii) works out to Rs. 7,53,382/- only, however the assessee already disallowed a sum of Rs. 28,78,876/-, therefore no further disallowance is to be made on this account. Disallowance u/s. 14A read with Rule 8D while computing book profit under section 115JB - HELD THAT - Recently, the Supreme Court of India in the case of Atria Power Corporation Ltd. 2022 (8) TMI 1322 - SC ORDER dismissed the SLP filed by the Department against High Court s ruling that disallowance made under section 14A could not be added in assessee-company's income for purpose of computation of income under section 115JB of the Act. Karnataka High Court in the case of J.J. Glastronics (P.) Ltd. 2022 (4) TMI 1187 - KARNATAKA HIGH COURT held that amounts disallowed under section 14A could not be added to net profit while computing book profit under section 115JB of the Act. The ITAT Ahmedabad in the case of Vishal Export Overseas Ltd 2022 (8) TMI 88 - ITAT AHMEDABAD held that disallowances made under section 14A read with rule 8D could not be applied to provision of section 115JB. Decided against revnue.
Issues Involved:
1. Disallowance of interest expenditure under Section 14A read with Rule 8D(2)(ii). 2. Disallowance of administrative expenses under Section 14A read with Rule 8D(2)(iii). 3. Adjustment under Section 14A read with Rule 8D while computing book profit under Section 115JB. Summary: 1. Disallowance of Interest Expenditure under Section 14A read with Rule 8D(2)(ii): The Revenue appealed against the deletion of Rs. 31,11,06,199/- disallowed by the Assessing Officer (AO) under Section 14A read with Rule 8D(2)(ii). The assessee argued that there were sufficient interest-free funds to cover the investments, and the interest on general borrowings was offset by interest income. The Tribunal upheld the CIT(A)'s decision, confirming that no disallowance was justified since the assessee had sufficient interest-free funds and net interest income. 2. Disallowance of Administrative Expenses under Section 14A read with Rule 8D(2)(iii): The Revenue challenged the CIT(A)'s restriction of disallowance to Rs. 92,49,972/-, while the AO had disallowed Rs. 4,71,32,000/-. The Tribunal agreed with the assessee that only investments yielding exempt income should be considered for disallowance under Rule 8D(2)(iii). Since the assessee had already disallowed Rs. 28,78,876/-, which was more than the calculated disallowance, no further disallowance was warranted. The Tribunal dismissed the Revenue's ground. 3. Adjustment under Section 14A read with Rule 8D while Computing Book Profit under Section 115JB: The Revenue appealed against the deletion of Rs. 35,53,59,323/- added by the AO while computing book profit under Section 115JB. The Tribunal upheld the CIT(A)'s decision, citing that disallowances under Section 14A cannot be added to book profits under Section 115JB. This position was supported by various judicial precedents, including decisions from the Supreme Court and High Courts. The Tribunal dismissed the Revenue's appeal on this ground. Cross Objection by the Assessee: The assessee contested the restriction of disallowance to Rs. 92,49,972/- instead of a complete deletion. The Tribunal allowed the assessee's cross-objection, aligning with its findings on the Revenue's appeal. Conclusion: The Tribunal dismissed the Revenue's appeal and allowed the assessee's cross-objection, confirming that the disallowances under Section 14A were appropriately restricted and should not affect the computation of book profits under Section 115JB.
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