2024 (6) TMI 796 - AT - Income Tax

Disallowance made u/s 14A while computing total income under normal provisions of the Act - HELD THAT - We agree with the contentions of the assessee that no disallowance is called for u/s 14A of the Act during the year under consideration, since the assessee has not earned exempt income during this year. Accordingly, we set aside the order passed by the CIT(A) on this issue and direct the AO to delete the disallowance made u/s 14A of the Act. Addition of the amount of disallowance u/s 14A while computing book profit u/s 115JB of the Act - In the case of Vireet Investments P Ltd 2017 (6) TMI 1124 - ITAT DELHI has held that the disallowance made u/s 14A of the Act cannot be imported in sec.115JB of the Act. Hence the addition of Rs.15,38,295/- to the net profit for the purpose of computing book profit u/s 115JB of the Act should be deleted. Then the question that arises is whether any addition is called for under clause (f) of Explanation to sec.115JB of the Act, when the assessee has not earned any exempt income. A perusal of the Explanation 1 to sec.115JB would show that the addition under clause (f) is required to be made only if any expenditure relatable to exempt income is debited to the Profit and Loss account. When the assessee has not earned any exempt income, then the question of incurring any expenditure does not arise. Accordingly, there is merit in the contentions of A.R that addition under clause (f) of Explanation 1 to section 115JB does not arise in the facts of the present case. Accordingly, we direct the AO to delete the addition made to the net profit under section 115JB of the Act. Appeal filed by the assessee is allowed.

Summary

Issues involved: Disallowance u/s 14A of the Act under normal provisions and addition of disallowance u/s 14A while computing book profit u/s 115JB.

For the disallowance u/s 14A, the assessee challenged an order by the CIT(A) regarding disallowance of Rs. 15,38,295 under section 14A of the Act, even though no exempt income was earned during the year. The Assessing Officer added this amount to the total income and net profit for book profit computation. The assessee argued that no disallowance is warranted without exempt income, citing a decision by the Madras High Court. The High Court held that disallowance u/s 14A is not required when no exempt income is earned, emphasizing that Section 14A is triggered only when expenditure is claimed against income not forming part of total income.

Regarding the addition of disallowance u/s 14A for book profit computation u/s 115JB, a Special Bench in Delhi held that such disallowance cannot be imported into section 115JB. As the assessee had not earned any exempt income, the addition under clause (f) of Explanation 1 to section 115JB was deemed unnecessary. The Tribunal directed the Assessing Officer to delete the disallowance made under section 14A and the addition to the net profit under section 115JB.

In conclusion, the appeal by the assessee was allowed, with the Tribunal ordering the deletion of the disallowance under section 14A and the addition to the net profit under section 115JB.