2023 (4) TMI 144 - AT - Income Tax

Disallowance u/s 14A for the purpose of Section 115JB - HELD THAT - Argument of the Ld.AR with regard to interpretation, that u/s 115JB of the Act only in case of reporting profit variation to arrive at Book profits can be made, the Bench is not impressesd. As a matter of law, income or profits and gains should be understood as including loss also so that 'profits and gains' represents positive income, whereas 'loss' represents negative income. As decided in in P.R. Basavappa Sons v. CIT 1999 (9) TMI 41 - KARNATAKA HIGH COURT pointed out that it has always been understood that income includes loss, as held in CIT v. Harprasad Co. (P) Ltd. 1975 (2) TMI 2 - SUPREME COURT . So that reduction in loss by way of positive adjustments, i.e amount to be added back if debited to Profit and Loss Account, like in case in hand, disallowance u/s14A of the Act is made, then word net profit as shown in the profit loss account for the relevant previous year would include the loss shown in the return. Thus, there is no substance in this argument or grounds raised in that regard and ground no 3 to 6 are decided against the assessee. Nature of investments to arrive at exempt income - Disallowance u/s 14A c annot exceed the exempt income earned during the relevant assessment year irrespective whether larger amount was disallowed by the assessee u/s 14A of the Act while filing the return of income which has been followed by GMR Enterprises Pvt. Ltd. 2021 (11) TMI 565 - ITAT BANGALORE .So there is no substance in the grounds raised by revenue in it s appeal.

Summary

Issues involved:
The judgment involves two appeals filed by the Revenue and Assessee against the order passed by the Commissioner of Income Tax (Appeals) for the assessment year 2015-16, regarding the applicability of Section 14A of the Income Tax Act and the computation of disallowance under the Act.

Revenue's Appeal:
The Revenue raised several grounds challenging the Ld. CIT(A)'s decision to restrict the disallowance under Section 14A from Rs. 4,75,45,434 to Rs. 1,59,826. The Revenue argued that the disallowance should not be conditional upon the earning of income, citing legal principles from previous judgments. The Revenue also questioned the CIT(A)'s disregard of Rule 8D and a CBDT circular in making the disallowance. Additionally, the Revenue contested the reduction of disallowance for the purpose of calculating book profit under Section 115JB of the Act.

Assessee's Appeal:
The Assessee raised grounds related to the amalgamation of the company, the validity of the assessment order, and the recomputation of book loss under Section 115JB. The Assessee argued that the CIT(A) erred in upholding the AO's actions regarding the book loss and disallowances under Section 14A, both for normal provisions and book profit calculations.

Judgment Details:
The Ld. CIT(A) restricted the disallowance under Section 14A to Rs. 1,59,826 based on the nature of investments and the exempt income earned. The Tribunal dismissed both appeals, stating that the interpretation of 'income' includes 'loss,' and thus, adjustments like disallowance under Section 14A should be considered in arriving at book profit. The Tribunal upheld the CIT(A)'s decision on the disallowance amount and referenced relevant case laws to support the decision. The judgment emphasized that the disallowance under Section 14A cannot exceed the exempt income earned during the assessment year, irrespective of the amount initially disallowed by the assessee. Consequently, both appeals were dismissed on 27th March 2023.