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2022 (10) TMI 830 - AT - Income TaxRectification u/s 154 - disallowance u/s 14A r.w.Rule 8D in computing book profit u/s 115JB in a proceeding u/s 154 - HELD THAT - In the case of PCIT v. J.J.Glastronics (P.) Ltd. 2022 (4) TMI 1187 - KARNATAKA HIGH COURT had held that in a proceeding u/s 154 of the I.T.Act, no disallowance u/s 14A can be made while computing book profit u/s 115JB of the I.T.Act. We hold that the A.O. is not justified in making disallowance u/s 14A r.w.Rule 8D in computing book profit u/s 115JB of the I.T.Act in a proceeding u/s 154. Inclusion of surplus in PSF(SC) does not qualify in any of the clauses (a) to (k) to Explanation 1 to section 115JB - In terms of the order dated 09.05.2006, of Airport Authority of India (AAI), collection and payment of Passenger Service Fees (Security Component) is to be managed by the assessee in trustee capacity for and on behalf of Airport Authority of India. In case any surplus amount remains, the same has to be transferred to Airport Authority of India as per clause (vi) of the aforesaid order dated 09.05.2006. Since the PSF(SC) is held by the assessee in a fiduciary capacity on behalf of Government of India, the assessee had maintained separate books of account. Admittedly, the accounts of the assessee are prepared in accordance with the provisions of Schedule III to Companies Act, 2013 (18 of 2013). There is no qualification from the Statutory Auditor, Director or the Registrar of Companies in regard to the non-inclusion of the amount of surplus in PSF(SC). Hence, the inclusion of surplus in PSF(SC) does not fall in any of the clauses (a) to (k) of Explanation to section 115JB of the I.T.Act. Hence, the adjustment so made by the A.O. in section 154 proceedings is contrary to the provisions and the settled legal position. In this context, we rely on the judicial pronouncements cited by the assessee in support of his case.
Issues Involved:
1. Disallowance under Section 14A in computing Book Profit under Section 115JB. 2. Inclusion of surplus Passenger Service Fees (Security Component) in the computation of Book Profit under Section 115JB. Issue-Wise Detailed Analysis: Ground II: Disallowance under Section 14A in computing Book Profit under Section 115JB 5. The assessee earned dividend income of Rs.11,31,50,006 on investments in joint venture companies and claimed exemption under Section 10(34) of the I.T. Act. The Assessing Officer (A.O.) made a disallowance under Section 14A of Rs.3,37,88,198, based on Rule 8D of the I.T. Rules, 1962, as against the assessee's self-disallowance of Rs.22,47,020. Subsequently, in a rectification order under Section 154, the A.O. made a disallowance of Rs.3,15,41,178 in computing the book profit under Section 115JB. The CIT(A) confirmed this view. 6. The assessee's counsel argued that no disallowance under Section 14A read with Rule 8D can be made under Section 154 while computing book profits under Section 115JB, citing the jurisdictional High Court's judgment in PCIT v. J.J.Glastronics (P.) Ltd. (2022) 139 taxmann.com 375. 7. The Departmental Representative supported the orders of the A.O. and CIT(A). 8. The Tribunal noted that the jurisdictional High Court in PCIT v. J.J.Glastronics (P.) Ltd. had held that no disallowance under Section 14A can be made while computing book profit under Section 115JB in a proceeding under Section 154. The High Court followed its earlier judgments in Sobha Developers Ltd. v. DCIT (2021) 125 taxmann.com 72 and CIT v. Gokaldas Images (P.) Ltd. (2020) 122 taxmann.com 166. These judgments clarified that disallowances under Section 14A pertain to normal income computation and cannot be read into Section 115JB for book profit computation. 9. Based on these precedents, the Tribunal concluded that the A.O. was not justified in making the disallowance under Section 14A read with Rule 8D in computing book profit under Section 115JB in a proceeding under Section 154. 10. Ground II was allowed in favor of the assessee. Ground III: Inclusion of surplus Passenger Service Fees (Security Component) in the computation of Book Profit under Section 115JB 11. The assessee collected Passenger Service Fees (Security Component) [PSF(SC)] in a fiduciary capacity for the Government of India and maintained separate books of account for PSF(SC). The assessee argued that the surplus in PSF(SC) does not qualify under any clauses (a) to (k) of Explanation 1 to Section 115JB, and thus should not be included in book profit computation under Section 115JB. The assessee cited various judicial pronouncements to support this argument. 12. The Departmental Representative supported the orders of the A.O. and CIT(A). 13. The Tribunal noted that the PSF(SC) was held in a fiduciary capacity and separate accounts were maintained. The accounts were prepared according to Schedule III of the Companies Act, 2013, without any qualifications from auditors or regulatory authorities regarding the non-inclusion of PSF(SC) surplus. Therefore, the inclusion of PSF(SC) surplus does not fall under any clauses of Explanation 1 to Section 115JB. The Tribunal relied on the judicial pronouncements cited by the assessee, concluding that the A.O.'s adjustment in Section 154 proceedings was contrary to the provisions and settled legal position. 14. Ground III was allowed in favor of the assessee. 15. The appeal filed by the assessee was partly allowed. Order pronounced on this 18th day of October, 2022.
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