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2016 (11) TMI 595 - AT - Income TaxAddition being disallowance made u/s 14A while computing book profit u/s 115JB - Held that - Perusal of the assessment order reveals that the AO has blindly added disallowance made u/s 14A r.w.r. 8D while computing book profits u/s 115JB without testing it independently under the provisions of clause (f) to explanation 1 of section 115JB (2). The approach of the AO and resultant addition made by him are not valid as per law. Thus, in view of the aforesaid discussion and circumstances, accepting the request of the assessee, we send this issue back to the AO with the following directions - (1) The AO shall first recompute disallowance u/s 14A so as to bring it in line with the judgement of Hon ble jurisdictional High Court in the case of HDFC Bank Ltd (2016 (3) TMI 755 - BOMBAY HIGH COURT ). (2) The assessee shall furnish requisite details and working of the amount of expenditure relatable to any income exempt u/s 10 excluding income exempt u/s 10(38) , as envisaged in clause (f) of Explanation 1 to section 115JB (2). The AO shall examine the same and determine the amount to be added under clause (f) keeping in view the provisions of law and facts of the case; (3) In case, the assessee does not furnish requisite information to enable the AO to compute amount disallowable under clause (f) as directed above in point no (2), then the AO shall be free to treat the amount determined as disallowable u/s 14A in terms of our first direction above, as the amount to be added under clause (f) of explanation 1 to section 115JB. (4) In any case, amount to be added under clause (f) of explanation 1 to section 115JB (2) cannot exceed amount of disallowance that can be made u/s 14A, the latter being wider in its scope.
Issues:
Challenge to the addition made under section 14A while computing book profit under section 115JB. Analysis: The appeal was filed against the Commissioner of Income-tax (Appeals) order regarding the addition of ?35,13,921 under section 14A while computing book profit under section 115JB for A.Y. 2009-10. The main contention of the appellant was that no disallowance was liable to be made under clauses 8D(2)(ii) & (iii) of Rule 8D of Income Tax Rule, 1952, and thus, no addition should be made to the book profit under section 115JB. The appellant argued that provisions of section 115JB must be construed strictly as deeming provisions. The appellant highlighted that the own funds of the assessee exceeded the investment made in tax-free securities, indicating no disallowance on indirect interest should have been made. Additionally, investments without dividend income should not be considered for disallowance under section 14A. The Departmental Representative argued that if disallowance is made under section 14A, an adjustment must be made as per clause (f) to Explanation 1 to section 115JB(2). The representative cited various judgments in support of this argument and requested upholding the lower authorities' orders. The Tribunal observed that there is no estoppel against law, allowing the assessee to challenge the legality of disallowance made under section 14A. The Tribunal analyzed the provisions of section 115JB and emphasized that disallowance under section 14A is not automatically liable to be added while computing book profits. The Tribunal compared clause (f) of Explanation 1 to section 115JB(2) with section 14A, highlighting the distinction in scope between the two provisions. The Tribunal concluded that the AO's blind addition of disallowance made under section 14A while computing book profits under section 115JB was not valid. The Tribunal directed the AO to recompute the disallowance under section 14A in line with relevant judgments and determine the amount to be added under clause (f) of Explanation 1 to section 115JB(2). The assessee was given the opportunity to provide necessary details for this computation. The Tribunal clarified that this exercise was solely for computing taxable book profits under section 115JB and did not affect the original disallowance made under section 14A. The grounds raised by the assessee were sent back to the AO for further assessment.
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