2021 (12) TMI 1244 - AT - Income Tax

Rectification of mistake u/s 154 - Addition u/s 14A determining the book profit under the provisions of section 115JB - HELD THAT - We hold that the disallowances made under the provisions of Sec. 14A r.w.r. 8D of the I.T. Rules, cannot be applied to the provisions 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 From the above it is revealed that there is no ambiguity to the fact that no disallowance can be made while computing the book profit under the provisions of section 115JB of the Act in the manner as provided under section 14A read with rule 8D of income tax rules. Thus, the issue on hand cannot be rectified in the proceedings initiated under section 154 of the Act being a debatable issue. Hence, we set aside the finding of the learned CIT(A) and direct the AO to delete the addition made by him. Thus the ground of appeal of the assessee is allowed.

Summary

Issues:
1. Addition of disallowance under section 115JB of the Income Tax Act.

Analysis:
The appeal was filed by the Assessee against the order of the Commissioner of Income Tax (Appeals) confirming the addition of ?6,27,24,263 while determining the book profit under section 115JB of the Income Tax Act for the Assessment Year 2011-12. The Assessee, a limited company, had initially made a Suo-Moto disallowance of ?6,27,24,263 under section 14-A read with rule 8D of Income Tax Rule. However, the Assessing Officer (AO) made a higher disallowance of ?10,25,89,555 under the normal computation of income, resulting in a difference of ?3,98,65,292. The AO enhanced the disallowance by this amount while determining the income under normal computation and book profit under section 115JB of the Act. Subsequently, the AO rectified the assessment under section 154 of the Act and added ?6,27,24,263 to the book profit under section 115JB.

The Commissioner of Income Tax (Appeals) upheld the AO's order, noting that the Assessee had not added the disallowance amount to the book profit as required by section 115JB(2). The Commissioner referred to precedent cases supporting the addition of disallowances to book profit, dismissing the Assessee's contention that disallowances made under section 14A should not be added while computing book profit. The Assessee then appealed to the Appellate Tribunal.

During the appeal before the Tribunal, the Assessee argued that the addition under section 115JB based on the disallowance under section 14A was a debatable issue and could not be rectified under section 154 of the Act. The Tribunal considered the scope of section 154, which allows rectification of mistakes apparent from the record. It cited various judgments, including those of the Delhi Tribunal and High Courts, emphasizing that disallowances under section 14A should not be applied to the provisions of section 115JB. The Tribunal concluded that the issue was debatable and could not be rectified under section 154, directing the AO to delete the addition made. Consequently, the Tribunal allowed the Assessee's appeal, setting aside the Commissioner's order.

In summary, the Tribunal's decision focused on the interpretation of provisions related to disallowances under section 14A and their applicability to the computation of book profit under section 115JB. The Tribunal held that such disallowances should not be added while calculating book profit, as per established legal precedents, and that the issue was debatable and could not be rectified under section 154 of the Income Tax Act.