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2024 (2) TMI 1228 - AT - Income TaxDisallowance u/s 14A - Expenditure incurred on earning exempt income - exempt income earned or not? - HELD THAT -There was no exempt income was earned during the year, THUS in the absence of exempt income, no disallowance u/s 14A can be made, we find merit on the Ground No. 1. MAT computation - adjustment of rent/lease equalization reserve u/s 115JB of the Act - HELD THAT - As in the case of CIT Vs. ICIC Venture Funds Management Company Ltd. 2015 (1) TMI 1504 - KARNATAKA HIGH COURT held that lease equalization charges are not covered under any of the Clauses Explanation to Section 115JA (2). Also see M/S. MGF INDIA LTD. 2018 (2) TMI 1535 - DELHI HIGH COURT Lease equalization charges are not to be treated as adjustments needing to be added back while computing book profits, u/s 115JA on account of explanation 1, we allow the Ground No. 2.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act, 1961. 2. Adjustment of rent/lease equalization reserve under Section 115JB of the Income Tax Act, 1961. Summary: Issue 1: Disallowance under Section 14A of the Income Tax Act, 1961 The assessee challenged the disallowance of Rs. 51,48,128/- made under Section 14A of the Income Tax Act, 1961. The main contention was that no exempt income was earned during the year, and hence, no disallowance under Section 14A should be made. The Tribunal noted that the assessee had suo-moto disallowed Rs. 51,48,128/- under Section 14A, but there was no exempt income earned during the year, as evidenced in the assessment order. The Tribunal also referred to its own decision in the assessee's case for the Assessment Year 2016-17, where the disallowance under Section 14A was deleted. Considering the settled legal position that in the absence of exempt income, no disallowance under Section 14A can be made, the Tribunal found merit in the assessee's ground and deleted the disallowance. Issue 2: Adjustment of Rent/Lease Equalization Reserve under Section 115JB of the Income Tax Act, 1961 The assessee also contested the adjustment of rent/lease equalization reserve of Rs. 36,06,899/- under Section 115JB of the Income Tax Act, 1961. The assessee argued that the rent/lease equalization reserve was neither a reserve covered by Explanation 1(b) to Section 115JB nor a provision for unascertained liability within the meaning of Explanation 1(c) to Section 115JB. The Tribunal referred to various judgments, including those from the Hon'ble High Court and the Supreme Court, which held that lease equalization charges are not to be treated as adjustments needing to be added back while computing book profits under Section 115JA. The Tribunal concluded that the lease equalization charges should not be added back while computing book profits under Section 115JB, thereby allowing the assessee's ground and deleting the addition made by the AO, which was sustained by the CIT(A). Conclusion: The appeal filed by the assessee was allowed, with the Tribunal deleting both the disallowance under Section 14A and the adjustment of rent/lease equalization reserve under Section 115JB. Order: Order pronounced in open Court on 23rd February, 2024.
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