2015 (8) TMI 113 - AT - Income Tax

Disallowance u/s 14A of the Act r.w.r. 8D - recalculation of the profit for purpose of computing the MAT u/s 115JB of the Act - Held that - We are inclined to hold that the issue disallowance u/s 14A of the Act r.w.r. 8D of the Rules in both the appeals is squarely covered in favour of the assessee by the decision of Hon ble jurisdiction High Court of Delhi in the case of Holcim India Pvt. Ltd. (2014 (9) TMI 434 - DELHI HIGH COURT) and hence, we reached to a logical conclusion the disallowance calculated and made by the AO and upheld by the CIT(A) in both assessment years are not sustainable and we direct the AO to delete the same. Accordingly, Ground Nos. 1 & 2 of the assessee in both the appeals are allowed. We respectfully follow the decision of Minda Sai Limited, C/o. RN. Saraf & Co. Versus Income Tax Officer 2015 (1) TMI 555 - ITAT DELHI wherein it has been held that in the absence of any exempt income, section 14A disallowance cannot be added to book profit u/s 115JB of the Act. Accordingly, we are inclined to hold that the direction of the CIT(A) in this regard are not sustainable in view of our conclusion in the earlier part of this order where we have hold that no disallowance u/s 14A of the Act r.w.r. 8D of the Rules is sustainable.- Decided in favour of assessee.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act, 1961 for expenditure incurred in relation to exempt income.
2. Enhancement of assessed income by recalculating disallowance under section 14A for computing income under normal provisions and Minimum Alternate Tax (MAT) under section 115JB.

Analysis:
1. The appeals were filed against the CIT (Appeals) order upholding the addition made under section 14A of the Income Tax Act for expenditure related to exempt income. The assessee argued that no exempt income was earned during the relevant period, supported by financial documents. The Tribunal noted that no exempt income was shown in the accounts, in line with the decision in Holcim India Pvt. Ltd. case. Consequently, the disallowance made by the AO and upheld by the CIT (Appeals) was deemed unsustainable, and the Tribunal directed the AO to delete the disallowance in both assessment years.

2. Regarding the enhancement of assessed income for recalculating disallowance under section 14A for MAT computation, the Tribunal referred to a previous decision where it was held that in the absence of exempt income, no disallowance under section 14A could be added to book profit for MAT calculation. As the disallowance under section 14A was found to be unsustainable, the direction of the CIT (Appeals) to enhance the assessed income for MAT computation was also deemed not sustainable. Therefore, the Tribunal allowed ground no.3 of the assessee for AY 2010-11, resulting in the allowance of both appeals.

In conclusion, the Tribunal ruled in favor of the assessee, directing the deletion of disallowance under section 14A and disallowing the enhancement of assessed income for MAT computation due to the absence of exempt income.