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2021 (1) TMI 47 - AT - Income TaxDisallowance u/s.14A read with Rule 8D - HELD THAT - It is a well settled principles of law that disallowance computed u/s.14A read with Rule 8D shall not swallow entire income earned for the year. This principle is supported by the decision of Hon ble Delhi High Court in the case of Cheminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT where it was clearly held that disallowance of expenditure u/s 14A shall not exceed exempt income earned for the year. Thus we direct the Assessing Officer to restrict the disallowance computed u/s.14A read with Rule 8D of I.T.Rules, 1962 to the extent of exempt income earned for the year. Computation of book profit u/s.115JB of the Act towards disallowance of expenditure in relation to exempt income u/s.14A read with Rule 8D - This issue is also covered in the case of Vireet Investments Private Limited 2017 (6) TMI 1124 - ITAT DELHI wherein held computation under clause (f) of Explanation 1 to section 115JB(ii) of the Act is to be made without resorting to computation as contemplated u/s.14A read with Rule 8D of I.T. Rules, 1962. Therefore, we are of the considered view that Assessing Officer cannot make additions towards computation of disallowance u/s.14A read with Rule 8D of I.T. Rules, 1962, to the book profit computed u/s.115JB. Appeal filed by the assessee is allowed.
Issues:
1. Disallowance of expenditure under section 14A of the IT Act read with rule 8D of the IT rules. 2. Computation of book profit under section 115JB of the IT Act. Issue 1: Disallowance of Expenditure under Section 14A of the IT Act: The assessee appealed against the order of the Commissioner of Income Tax (Appeals) regarding disallowance of expenditure under section 14A of the IT Act. The Assessing Officer had disallowed Rs. 1,29,66,368/- towards expenditure related to exempt income under section 14A, which the Commissioner upheld. However, the ITAT Chennai directed the Assessing Officer to restrict the disallowance to the extent of exempt income earned for the year, citing the principle that disallowance under section 14A should not exceed the exempt income earned. This decision was supported by the judgment of the Hon'ble Delhi High Court in Cheminvest Ltd. vs. CIT and the Chennai Tribunal's decision in M/s. Voltech Engineers Pvt. Ltd vs. DCIT. Issue 2: Computation of Book Profit under Section 115JB of the IT Act: The Assessing Officer added the disallowance under section 14A of the IT Act to the book profit computed under section 115JB of the IT Act. The Commissioner upheld this addition, relying on a decision of ITAT Mumbai. However, the ITAT Chennai referred to the ITAT Delhi Special Bench's decision in ACIT vs. Vireet Investments, which held that the computation under clause (f) of Explanation 1 to section 115JB of the Act should not be made by resorting to the computation under section 14A read with Rule 8D of the IT Rules. Therefore, the ITAT Chennai directed the Assessing Officer to delete the additions made towards 14A disallowance in the book profit computed under section 115JB of the Act. In conclusion, the ITAT Chennai allowed the appeal filed by the assessee, pronouncing the order on 10th November 2020.
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