2021 (2) TMI 486 - HC - Income Tax

Treatment to Professional Fees as income - provisional fees not being treated as income during the year by ignoring the Section 199 of the Act read with Rule 37BA of the Rules - Double addition - HELD THAT - Tribunal has taken the view that the assessee had offered tax in the subsequent year and if any addition is made in the year under consideration the same may amount to double addition which would be contrary to the provisions of law. In such circumstances we are of the view that no error could be said to have been committed by the Tribunal in taking such view. Disallowance u/s 14A of the Act in respect of the interest expenditure - HELD THAT - In case of the assessee that netting of interest income and outgo is required to be done while invoking Rule 8D (2)(ii) of the IT Rules in the light of the decision of the Hon ble Gujarat High Court in the case of Pr.CIT Vs. Nirma Credit Capital (P.) Ltd. 2019 (7) TMI 33 - GUJARAT HIGH COURT in view of the decision holding that interest earned by the assessee is required to be factored for the purpose of ascertaining the amount of expenditure incurred by the assessee by way of interest we find merit in the plea of the assessee that Rule 8D(2)(ii) shall have no application in the given facts where the interest income earned outweigh the interest expenditure. In consonance with the decision of the Hon ble Gujarat High Court we decline to interfere with the conclusion drawn by the CIT(A) on the issue in favour of the assessee. Addition to book profit under Section 115JB being a mere 1 % of the exempt income - Admit this Tax Appeal on Question No.2 C - Whether the Appellate Tribunal has erred in law and on facts in restricting the addition made to book profit under section 115JB being a mere 1 % of exempt income?

Summary

Issues:
1. Treatment of professional fees as income during the year and application of Section 199 of the Income Tax Act.
2. Deletion of disallowance made under Section 14A of the Act in respect of interest expenditure.
3. Restriction of addition made to book profit under Section 115JB of the Act.

Issue 1: Treatment of Professional Fees as Income
The first issue revolves around the treatment of professional fees as income during the year and the application of Section 199 of the Income Tax Act. The Tribunal held that taxing the same income twice would go against the provisions of the law. It was noted that the assessee had offered the impugned income for tax in the subsequent year, making any addition in the current year potentially result in double taxation. The Tribunal emphasized the importance of levying income tax in the right assessment year and on the right assessee. Additionally, it was highlighted that the assessee was paying tax under the Minimum Alternate Tax (MAT) provision, making the exercise tax-neutral. Consequently, the Tribunal directed the Assessing Officer to delete the addition made, ruling in favor of the assessee.

Issue 2: Deletion of Disallowance under Section 14A
The second issue concerns the deletion of the disallowance made under Section 14A of the Act in respect of interest expenditure. The Tribunal noted that the assessee had earned dividend income from various sources but had not made any disallowance of expenses against it. The Assessing Officer disallowed a significant amount of expenses in line with Section 14A read with Rule 8D of the Act. However, the Commissioner (Appeals) partially deleted the addition related to interest expenses. The Tribunal further observed that the interest income exceeded the interest expenditure claimed in the profit and loss account, with no actual interest expenditure claimed by the assessee. Citing a previous order in the assessee's own case, the Tribunal declined to interfere with the Commissioner (Appeals)'s decision, ultimately ruling in favor of the assessee.

Issue 3: Restriction of Addition to Book Profit under Section 115JB
The third issue pertains to the restriction of the addition made to book profit under Section 115JB of the Act, specifically limiting it to 1% of exempt income. The debate between the parties centered around whether this restriction was appropriate. The Revenue argued that the issue deserved consideration, pointing to a related Tax Appeal pending before the Court. On the other hand, the respondent contended that the issue was settled by a previous order of the Court. Ultimately, the Court dismissed the Tax Appeal concerning certain questions but admitted it on the specific issue of restricting the addition to book profit under Section 115JB, allowing further consideration on this matter.