2017 (9) TMI 655 - AT - Income Tax

Addition u/s 14A - suo moto disallowance by assessee - Held that - On a perusal of the Assessment Order we find that Assessing Officer has clearly stated as to why the working of the assessee is not acceptable for him. Assessing Officer has given reasons for not accepting the working of the assessee. Therefore, it cannot be said that there is no satisfaction recorded by the Assessing Officer. The alternative submission of the assessee that only those investments which have yielded dividend income during the year should be considered has been accepted by the Ld.CIT(A). In the circumstances we do not see any valid reason to interfere with the decision of the Ld. CIT(A). Ground No.1 of the grounds of appeal of the assessee for the Assessment Years 2009-10 and 2010-11 are rejected. MAT computation - Disallowance u./s 14A while computing the book profits u/s 115JB - Held that - On hearing both the parties we are of the view that the issue of disallowance u/s 14A r.w. Rule 8D while computing the book profits is now settled by the Special Bench Delhi in the case of ACIT v. Vireet Investments Private Limited (2017 (6) TMI 1124 - ITAT DELHI ) wherein it has been held that computation under Clause (f) of explanation 1 to Section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A r.w. Rule 8D of I.T. Rules. Therefore, respectfully following the said decision we hold that there should not be any disallowance u/s 14A read with Rule 8D while computing the book profits u/s 115JB of the Act. Thus, we direct the Assessing Officer to compute the book profits u/s 115JB keeping in view the decision of the Hon ble Special Bench (supra). This ground of appeal is allowed for statistical purpose. Addition u/s 14A - Assessment Years 2009-10 and 2010-11 - Held that - Disallowance computed u/s 14A r.w. Rule 8D by the Assessing Officer is not correct. Thus we restore this issue to the file of the Assessing Officer with a direction to re-compute the disallowance under Rule 8D(2)(iii) in view the decision of the Delhi Bench in the case of ACIT v. Vireet Investments Private Limited 2017 (6) TMI 1124 - ITAT DELHI by considering only those investments which yielded dividend income during the Assessment Years 2009-10 and 2010-11

Summary

Issues Involved:
1. Disallowance under Section 14A read with Rule 8D.
2. Disallowance under Section 14A while computing book profits under Section 115JB.

Detailed Analysis:

1. Disallowance under Section 14A read with Rule 8D:
The first common ground in the appeals of Reliance Power Limited for Assessment Years 2009-10 and 2010-11 concerns the confirmation of disallowance under Section 14A amounting to ?12,78,65,570 and ?8,64,29,883 respectively, against suo moto disallowance of ?42,48,568 made by the assessee. The Assessing Officer (AO) observed that the assessee received substantial dividend income, claimed as exempt under Section 10(34)/(35), and made suo moto disallowance of ?42,48,568 and ?42,48,093 for the respective years. The AO, not satisfied with the assessee's computation, invoked Section 14A read with Rule 8D and computed disallowance at ?24,68,41,371 and ?15,34,38,693 for the respective years. The CIT(A) agreed with the AO but accepted the assessee's alternative submission that only investments yielding dividend income should be considered, resulting in disallowance of ?12,78,65,570 and ?8,64,29,883. The Tribunal upheld the CIT(A)'s decision, rejecting the assessee's appeal.

In the case of Reliance Capital Limited, the AO computed disallowance at ?21,54,43,581 and ?33,46,51,469 for the respective years, rejecting the assessee's suo moto disallowance. The CIT(A) upheld the AO's decision based on the Special Bench decision in Cheminvest Limited, which was later reversed by the Delhi High Court. The Tribunal directed the AO to recompute disallowance considering only investments yielding dividend income, following the Special Bench decision in Vireet Investments Private Limited.

2. Disallowance under Section 14A while computing book profits under Section 115JB:
The second ground in the assessee's appeals relates to disallowance under Section 14A while computing book profits under Section 115JB. The AO made disallowance under Section 14A while computing book profits, which the CIT(A) restricted to ?1.12 Crores and ?90 Lakhs for the respective years. The Tribunal, following the Special Bench decision in Vireet Investments Private Limited, held that no disallowance under Section 14A should be made while computing book profits under Section 115JB and directed the AO accordingly.

Revenue's Appeals:
The Revenue's appeals for the respective years contested the CIT(A)'s restriction of disallowance under Section 14A read with Rule 8D while computing income under normal provisions and book profits under Section 115JB. The Tribunal disposed of the Revenue's appeals in line with its findings on the assessee's appeals, directing the AO to recompute book profits under Section 115JB without resorting to Section 14A disallowance, following the Special Bench decision in Vireet Investments Private Limited.

Conclusion:
The Tribunal partly allowed the appeals of both the assessees and the Revenue, directing the AO to recompute disallowance under Section 14A read with Rule 8D and book profits under Section 115JB in accordance with the Special Bench decision in Vireet Investments Private Limited. The order was pronounced in the open court on 31st August 2017.