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2019 (12) TMI 659 - AT - Income TaxDisallowance u/s.14A r.w.Rule 8D - HELD THAT - ITAT in the own case of the assessee bearing 2018 (9) TMI 1743 - ITAT AHMEDABAD has deleted the addition made by the AO on account of interest expenses by observing that the interest income exceeds interest expenses. Respectfully following the same we delete the addition confirm by the Ld.CIT (A) on account of interest expenses. Regarding the administrative expenses, we note that the assessee claimed that it has not incurred any expenses. However, the learned AR for the assessee before us has not demonstrated based on the documentary evidence that the assessee has not incurred any expenses in connection with the exempted income. Accordingly, we do not find any reason to interfere in the finding of the authorities below. Hence, the ground of appeal of the Revenue is dismissed and ground of appeal of the assessee is partly allowed. Addition made by the AO in part u/s 14A r.w. Rule 8D while determining the book profit u/s.115JB - HELD THAT - Disallowances made under the provisions of Sec. 14A r.w.r. 8D of the IT Rules, cannot be applied to the provision of Sec. 115JB of the Act as per the direction of the Hon'ble Calcutta High Court in the case of CIT Vs. Jayshree Tea Industries Ltd. 2014 (11) TMI 1169 - CALCUTTA HIGH COURT Disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently - HELD THAT - We feel that ad-hoc disallowance will service the justice to the Revenue and assessee to avoid the multiplicity of the proceedings and unnecessary litigation. Thus we direct the AO to make the disallowance of 1% of the exempted income as discussed above under clause (f) to Explanation-1 of Sec. 115JB of the Act. We also feel to bring this fact on record that we have restored other cases involving identical issues to the file of AO for making the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. But now we note that there is no mechanism provided under the clause (f) to Explanation-1 of Sec. 115JB of the Act to make the disallowance independently. Therefore our action for restoring back the issue to the file of AO would unnecessarily cause further litigation. Thus we limit the disallowance on an ad-hoc basis @ 1 % of the exempted income as per the clause (f) to Explanation-1 of Sec. 115JB of the Act. Thus the ground of appeal of the Revenue and the assessee are partly allowed. Addition on account of Professional Fees - HELD THAT - The income tax has to be levied in the hands of the right assessee and the right assessment year, but the fact of the present case are different so far as the assessee is liable to pay tax under the provision of MAT. Thus we agree with the contention of the ''Ld.AR, that even if the impugned income is added to the total income of the assessee then also it will be tax neutral exercise. It is because there will not be any change on the tax amount as the assessee is paying tax under the provision of MAT. There is no dispute that the impugned income is taxable under the Act, and therefore the same has been offered to tax in the subsequent assessment year. Thus there cannot be any benefit to the Revenue by adding the impugned income to the total income of the assessee in the year under consideration. Hence we are not inclined to uphold the findings of the authorities below. Accordingly we set aside the order of the ''Ld.CIT (A)'' and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. Addition of the total development expenses - whether the amount of profit declared by the assessee can be enhanced by the amount of expenditure incurred by it which were not claimed as deduction being part of closing inventory ? - HELD THAT - AO should reduce the impugned expenses from the amount of closing inventory and disallow the corresponding expenses debited in the profit and loss account, leaving the profit as declared by the assessee intact. Whether the impugned expenses needs to be added as a part of the closing inventory ? - There is no ambiguity that the expenditures incurred by the assessee in connection with the inventories needs to be added in its value. But such expenditure must be based on the documentary evidence. In the case on hand, the learned CIT (A) has given very clear finding that the assessee has not produced the documentary evidence in support of such expenses except a ledger which is not sufficient enough to justify the genuineness of the expenses. The learned AR for the assessee has also not produced any supporting document in connection with such expenses. Therefore, in the absence of documentary evidence, we concur with the finding of the learned CIT (A). There cannot be any addition to the total income of the assessee on account of such expenses for the reasons as discussed in the preceding paragraph. Accordingly, we direct the AO to reduce the value of the inventory for the work in progress as well as disallow the corresponding expenses debited by the assessee in the profit and loss account. Hence, the ground of appeal of the assessee is allowed in terms of the above.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act. 2. Disallowance under Section 14A while computing Book Profit under Section 115JB. 3. Addition of Professional Fees. 4. Addition of Development Expenses. Detailed Analysis: 1. Disallowance under Section 14A of the Income Tax Act: The Revenue challenged the partial deletion of disallowance under Section 14A read with Rule 8D, amounting to ?3,84,43,112/-. The assessee, a private limited company engaged in real estate and financial activities, earned dividend income of ?30,03,63,727/- and did not disallow any expenses under Section 14A. The AO invoked Section 14A read with Rule 8D, disallowing ?4,51,72,278/- including interest and administrative expenses. The CIT(A) partially upheld this, reducing the disallowance to ?16,86,977/- for interest expenses and confirming ?50,42,189/- for administrative expenses. The Tribunal, referencing its own precedent and the Gujarat High Court's decision in Pr.CIT vs. Nirma Credit & Capital (P.) Ltd., deleted the interest expense disallowance but upheld the administrative expenses disallowance due to lack of documentary evidence from the assessee. 2. Disallowance under Section 14A while computing Book Profit under Section 115JB: The AO added the disallowed amount under Section 14A to the book profit under Section 115JB. The CIT(A) partially confirmed this, consistent with the normal computation of income. The Tribunal, referencing its own precedent and the Special Bench decision in ACIT vs. Vireet Investment Pvt. Ltd., held that disallowance under Section 14A cannot be imported into Section 115JB. However, it recognized the need for disallowance of expenses related to exempt income under clause (f) to Explanation-1 of Section 115JB and directed an ad-hoc disallowance of 1% of the exempted income. 3. Addition of Professional Fees: The AO added ?25,04,970/- received as professional fees from Gujarat Adani Institute of Medical Services, which was not shown as income by the assessee but for which TDS credit was claimed. The CIT(A) upheld this addition, rejecting the assessee's reconciliation and subsequent year adjustment claims. The Tribunal, acknowledging the tax-neutral nature of the addition under MAT provisions, directed the AO to delete the addition to avoid double taxation. 4. Addition of Development Expenses: The AO disallowed ?12,89,838/- classified as work-in-progress, arguing the assessee was not engaged in development activity. The CIT(A) partially confirmed this, disallowing ?2,35,338/- due to lack of documentary evidence. The Tribunal agreed with the CIT(A) on the absence of documentary evidence but clarified that such expenses should not enhance the profit declared by the assessee. Instead, the AO should reduce the closing inventory value and disallow corresponding expenses in the profit and loss account. Conclusion: Both the Revenue and the assessee's appeals were partly allowed. The Tribunal provided detailed directions on handling disallowances under Sections 14A and 115JB, the addition of professional fees, and development expenses, ensuring compliance with legal precedents and avoiding double taxation.
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