2019 (11) TMI 1837 - AT - Income Tax

Disallowance u/s 14A - investments which yielded exempt income during the year under consideration - By following the decision in the case of Vireet Investment (P) Ltd. 2017 (6) TMI 1124 - ITAT DELHI CIT(A) directed the AO to recompute the disallowance only on the investments which yielded exempt income during the year under consideration are to be included for the purpose of average value of investments. HELD THAT - We have perused the said case law, wherein, the Special Bench of the Delhi Tribunal has observed that only those investments are to be considered for computing average value of investment which yielded exempt income during the year. If an investment has yielded exempt income in a particular year then, it will enter the computation of average value of investments for the purposes of Rule 8D(2)(iii). Accordingly, by following the above decision, the ld. CIT(A) directed the Assessing Officer to recomputed the disallowance in line with the directions of the Special Bench of the Tribunal. Thus, we find no infirmity in the order passed by the ld. CIT(A) and therefore, the ground raised by the Revenue stands dismissed. Disallowance u/s 14A while computing book profit under section 115JB - In the case of ACIT v. Vireet Investment (P) Ltd. 2017 (6) TMI 1124 - ITAT DELHI Delhi Special Bench of the Tribunal has also given a categorical findings that the computation under clause (f) of Explanation 1 to section 115JB(2) of the Act is to be made without resorting to computation as contemplated under section 14A read with rule 8D. Thus, this issue needs to be remitted back to the file of the Assessing Officer for fresh adjudication and the Assessing Officer is directed to compute disallowance of expenses relatable to earning of exempt income for computation of book profit under clause (f) of Explanation 1 to section 115JB(2). Appeal filed by the Revenue is partly allowed for statistical purposes.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act.
2. Recomputation of disallowance on investments yielding exempt income.
3. Inclusion of disallowance under section 14A in book profit under section 115JB.

Detailed Analysis:

1. The appeal pertains to the disallowance under section 14A of the Income Tax Act. The Assessing Officer disallowed Rs. 8,29,14,403/- under section 14A r.w. Rule 8D due to investments yielding exempt income. The ld. CIT(A) directed the Assessing Officer to recompute the disallowance only on investments yielding exempt income during the relevant year. The Revenue contended that Rule 8D should be applied even if no exempt income was earned in a year. The Tribunal, following the decision in ACIT v. Vireet Investment (P) Ltd., upheld the ld. CIT(A)'s order, stating that only investments yielding exempt income should be considered for disallowance under section 14A.

2. The next issue was the inclusion of disallowance under section 14A in the book profit under section 115JB of the Act. The Assessing Officer added the disallowance while computing the book profit. The ld. CIT(A) deleted the disallowance, relying on Explanation-1(f) of Section 115JB(2). However, the Tribunal found that Section 14A is a provision for deemed expenditure on exempt income, while Section 115JB deals with deemed income. The Tribunal referred to the decision in ACIT v. Vireet Investment (P) Ltd., stating that disallowance under section 14A should not impact the computation of book profit under section 115JB. The issue was remitted back to the Assessing Officer for fresh adjudication in line with the Tribunal's decision.

3. The Tribunal concluded that the disallowance under section 14A should only be based on investments yielding exempt income and not added to the book profit under section 115JB. The appeal filed by the Revenue was partly allowed for statistical purposes, and the Assessing Officer was directed to compute the disallowance of expenses related to earning exempt income for book profit in accordance with the Tribunal's decision in ACIT v. Vireet Investment (P) Ltd.

In summary, the Tribunal upheld the ld. CIT(A)'s order regarding the disallowance under section 14A and directed the Assessing Officer to recompute the disallowance based on investments yielding exempt income. Additionally, the Tribunal clarified that disallowance under section 14A should not impact the computation of book profit under section 115JB, as per the decision in ACIT v. Vireet Investment (P) Ltd.