2017 (1) TMI 1153 - AT - Income Tax

Disallowance u/s. 14A r.w.r 8D - Held that - As the Ld. AR for the assessee has pointed out that net interest is to be taken into account for disallowance purpose, as the assessee company under consideration is a NBFC company which received interest and paid interest during the assessment year under consideration. Therefore, the differential amount of ₹ 39,42,331/- should be considered for the purpose of computation of disallowance u/s. 14A read with Rule 8D(2)(ii) of the Rules. In addition to this, the Ld. AR for the assessee also argued that the disallowance u/s. 14A of the Act should not exceed the exempt income. Therefore, considering the factual position and the precedence cited by the Ld. AR for the Assessee, we direct the AO to consider the net interest amount for the purpose of disallowance u/s. 14A read with Rule 8D(2)(ii) of the I.T. Rules and also should not disallow the amount beyond the exempt income. Disallowance u/s. 14A for the purpose of computation of book profit u/s. 115JB - Held that - The disallowance made u/s. 14A of the Act cannot be added to the net profit for computing book profit u/s. 115JB of the Act.

Issues:
1. Disallowance under section 14A read with Rule 8D of the Income-tax Act, 1961.
2. Computation of disallowance under Rule 8D(2)(ii) based on gross interest incurred by the appellant.
3. Disallowance under Rule 8D cannot exceed exempt income.
4. Addition of disallowance under section 14A while computing book profit under section 115JB.

Analysis:

1. Disallowance under section 14A read with Rule 8D:
The dispute revolved around the computation of disallowance under section 14A read with Rule 8D(2)(ii) by the Assessing Officer based on gross interest incurred by the appellant. The appellant argued that only net interest should be considered. The Tribunal referred to previous judgments and held that disallowance under Rule 8D(2)(ii) should be based on net interest. The appellant's claim of net interest was &8377; 39,42,331 after deducting interest receivable of &8377; 29,15,450 from gross interest of &8377; 68,57,787. However, the Tribunal noted that no evidence was provided to establish that interest receipts were credited to the profit and loss account. Consequently, the disallowance of &8377; 53,08,614 under section 14A was confirmed.

2. Computation of disallowance based on gross interest:
The Tribunal emphasized that net interest should be considered for disallowance purposes under Rule 8D(2)(ii). The appellant's argument that the disallowance should not exceed exempt income was considered, but the Tribunal upheld the disallowance based on the material on record. The Tribunal also clarified that the judgment did not restrict disallowance under Rule 8D from exceeding exempt income.

3. Addition of disallowance under section 14A for book profit computation:
Regarding the addition of disallowance under section 14A while computing book profit under section 115JB, the Tribunal analyzed the appellant's contentions. The appellant argued that the disallowance made under section 14A should not be added to the net profit for computing book profit. The Tribunal referred to relevant judgments and concluded that the disallowance under section 14A should not be added to the net profit for computing book profit under section 115JB. Therefore, the addition made by the Assessing Officer was deleted.

In conclusion, the Tribunal ruled in favor of the appellant on the grounds related to disallowance under section 14A read with Rule 8D(2)(ii) and the addition of disallowance while computing book profit under section 115JB. The judgments cited, along with a thorough analysis of the facts and legal provisions, guided the Tribunal's decision in each issue.

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