2019 (2) TMI 621 - AT - Income Tax

Disallowance of expenditure in terms of Section 14A in relation to income which does not form part of the total income under the Income Tax Act - Held that - No disallowance is warranted under s.14A of the Act towards proportionate disallowance in view of the long line of judicial precedents including Sintex Industries Ltd. (2017 (5) TMI 1160 - GUJARAT HIGH COURT). Adverting to the second limb of disallowance of administrative expenses, the learned AR initially submitted that in the absence of any specific satisfaction recorded for application of Section 14A, no such disallowance is permissible. However, later in the course of hearing, the learned AR for the assessee did not press the aforesaid aspect for adjudication and consented for disallowance of administrative expenses subject to deduction of ₹ 25,000/- already disallowed suo moto by the assessee. Having regard to the concluded facts towards own capital in excess of corresponding investment, we are inclined to accept the plea of the assessee for deletion of proportionate disallowance of interest expenditure to the tune of ₹ 6,64,777/-. The assessee accordingly gets relief to this extent. As regards the disallowance under Section 8D(2)(iii) towards administrative expenditure, we find merit in the plea of the assessee for deduction of suo moto disallowance therefrom. Accordingly, disallowance of administrative expenditure under s.14A r.w.s. 8D(2)(iii) is sustained to the extent of ₹ 50,695/- - Decided partly in favour of assessee. MAT computation - book profit under s.115JB - whether for the purposes of the computation of book profit u/s 115JB, the AO is entitled to increase book profit by the equivalent amount of disallowances as found attributable to exempt income under normal provisions or not? - Held that - With the assistance of the learned AR for the assessee, we find that the issue is squarely covered in favour of the assessee by the decision of Alembic Ltd. 2017 (1) TMI 513 - GUJARAT HIGH COURT as well as the decision of the special Bench in Vireet Investments 2017 (6) TMI 1124 - ITAT DELHI . AO is directed to delete the adjustments made on account of disallowance under s.14A of the Act for the purposes of computation of book profit under s.115JB of the Act. Consequently, Ground No.2 of the assessee s appeal is allowed.

Summary

Issues:
1. Disallowance under Section 14A of the Income Tax Act.
2. Computation of book profit under Section 115JB of the Act.

Issue 1: Disallowance under Section 14A of the Income Tax Act:
The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) concerning the assessment year 2012-13. The grounds of appeal raised by the assessee primarily challenged the disallowance made under Section 14A read with Rule 8D of the Income Tax Act. The assessee contended that Section 14A was not applicable as investments yielding tax-free income were made from own funds, and no expenses were incurred in relation to the exempt income. The appellate tribunal, after considering the arguments, allowed the plea of the assessee for deletion of proportionate disallowance of interest expenditure. However, it sustained the disallowance of administrative expenditure under Section 14A read with Rule 8D(2)(iii) to the extent of ?50,695. Thus, Ground No.1 of the assessee's appeal was allowed in part.

Issue 2: Computation of book profit under Section 115JB of the Act:
The controversy revolved around whether the Assessing Officer (AO) was entitled to increase the 'book profit' under Section 115JB by the amount of disallowances attributable to exempt income under normal provisions. The tribunal referred to judicial precedents, including decisions of the Gujarat High Court and a special bench, which supported the assessee's position. The tribunal directed the AO to delete the adjustments made on account of disallowance under Section 14A of the Act for the computation of book profit under Section 115JB. Consequently, Ground No.2 of the assessee's appeal was allowed. Ground No.3 was dismissed as not pressed, and Ground No.4 was dismissed as unnecessary since the necessary direction for verification had already been given by the CIT(A) to the AO. Overall, the appeal of the assessee was partly allowed.

This judgment provides a detailed analysis of the issues raised by the assessee, the arguments presented, and the tribunal's findings based on legal provisions and precedents. The tribunal's decision reflects a thorough consideration of the facts and applicable laws, resulting in a partial allowance of the assessee's appeal.