2024 (12) TMI 811 - AT - Income Tax

Addition u/s 14A r.w. Rule 8D while computing book profit as per Section 115JB - HELD THAT - Admittedly, in the present case, there was an addition u/s 14A r.w. Rule 8D by the Ld. AO for which adjustment are not permissible while computing the book profit as prescribed u/s 115JB, in terms of principals laid down in the case of ACIT vs Vireet Investment Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI However, adjustment qua the expenditure directly incurred towards the generating the exempt income can be made for computing the books profit u/s 115JB as per clause (f) of explanation 1 to section 115JB(2) which requires increase in the book profit by the amount or amounts of expenditure relatable to any income to which Section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply , without resorting to the amount calculated u/s 14A r.w. Rule 8D, therefore, for verification of such facts that whether there is any expenditure incurred by the assessee in terms of exempt income earned as specified u/s 10 of the Act, the matter requires to be restored back to the files of Ld. AO, for fresh adjudication. Assessment u/s 153A - incriminating material in assessments or not? - Restore this matter back to the files of the Ld. AO to consider if the year under consideration is an unabated assessment year and no incriminating material was surfaced for the year concerned, then no addition can be made. However, the completed/unabated assessments can be reopened by the AO in exercise of powers under sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved. For this purpose, the principal of law laid down in the case of Abhisar Buildwell 2023 (4) TMI 1056 - SUPREME COURT is binding on the revenue authorities.

Issues Involved:

1. Violation of principles of Natural Justice.
2. Addition under Section 14A read with Rule 8D and its impact on book profit under Section 115JB.
3. Charging of interest under Sections 234A, 234B, 234C, and 234D.
4. Initiation of penalty proceedings under Section 271.
5. Relevance of incriminating material in assessments under Section 153A.

Detailed Analysis:

1. Violation of Principles of Natural Justice:
The assessee contended that the assessment orders for the years 2012-13 and 2013-14 were passed without providing a proper and meaningful opportunity of being heard, which is a gross violation of the principles of Natural Justice. The tribunal observed that the assessee was given ample opportunity during the assessment proceedings to submit its reply, and thus, the contention of the assessee was not found to be correct. Consequently, the grounds of appeal concerning the violation of Natural Justice were dismissed.

2. Addition under Section 14A read with Rule 8D and its Impact on Book Profit under Section 115JB:
The assessee challenged the addition made under Section 14A read with Rule 8D, arguing that such disallowance could not be added while computing book profit as per Section 115JB. The tribunal referred to the Delhi High Court's decision in ACIT vs. Vireet Investment Pvt. Ltd., which held that disallowance under Section 14A cannot be added for computing book profits under Section 115JB, as the explanation to this section does not specifically mention Section 14A. The tribunal directed the Assessing Officer (AO) to verify if any expenditure was incurred for earning exempt income under Section 10 and to adjust the book profit computation accordingly.

3. Charging of Interest under Sections 234A, 234B, 234C, and 234D:
The assessee contested the interest charged under Sections 234A, 234B, 234C, and 234D. However, the tribunal's decision on these grounds was not explicitly detailed in the judgment. The tribunal's primary focus was on the addition under Section 14A and the principles of Natural Justice, leaving the interest-related grounds unresolved in the current appeal.

4. Initiation of Penalty Proceedings under Section 271:
The initiation of penalty proceedings under Section 271 was challenged by the assessee as arbitrary. The tribunal did not provide a specific ruling on this issue, as the primary focus was on the main grounds of appeal related to the addition under Section 14A and the procedural aspects of the assessment.

5. Relevance of Incriminating Material in Assessments under Section 153A:
The tribunal addressed whether the addition under Section 14A was permissible in the absence of incriminating material found during the search. The tribunal referred to the Supreme Court's judgment in the case of Abhisar Buildwell Pvt. Ltd., which stated that in the absence of incriminating material, no addition can be made for completed/unabated assessments under Section 153A. The tribunal directed the AO to verify if the year under consideration was an unabated year and if any incriminating material was available. If not, the addition should not be made.

Conclusion:

The tribunal partly allowed the appeals for statistical purposes, directing the AO to re-examine the issues concerning the addition under Section 14A and the applicability of Section 115JB, as well as the presence of incriminating material for the relevant assessment years. Other grounds were rendered infructuous or academic, and thus dismissed.

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