2024 (3) TMI 667 - HC - Income Tax

Addition u/s 14A r.w.r. 8D - Addition under special provision u/s 115JB - whether the disallowance u/s 14A of the Act can be imported to Section 115JB of the Act, particularly in light of Clause (f) of Explanation 1 to Section 115JB of the Act, for computation of MAT? - HELD THAT - Sub-Section (1) prescribes the mode and manner for computing the total income of the assessee under Section 115JB of the Act. However, Clause (f) of Explanation 1 only alludes to the amounts of expenditure relatable to any income to which Section 10 (excluding provisions contained in Clause 38 thereof) or Section 11 or Section 12 apply. Thus, the said explanation nowhere mentions or denotes any mandate to import the disallowance as per Section 14A of the Act for computing MAT under Section 115JB The scheme of Section 115JB, particularly in relation to Clause (f) of Explanation 1 therein, does not envisage any addition of disallowance computed u/s 14A of the Act to calculate MAT as per Section 115JB of the Act. Rather, both the provisions stand separately as no correlation exists between them for the purpose of determining the taxable income. The addition of the concerned disallowance made by the AO while computing MAT is dehors the provisions of the Act and hence, cannot be sustained. Decided against the Revenue.

Summary

Issues Involved:
1. Deletion of disallowance under Section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962.
2. Inclusion of disallowance under Section 14A for the computation of Minimum Alternate Tax (MAT) under Section 115JB of the Income Tax Act, 1961.

Summary:

Issue A: Deletion of Disallowance under Section 14A

The Revenue questioned whether the ITAT was correct in law in deleting the disallowance of Rs. 12,65,71,862/- made by the Assessing Officer (AO) under Section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules. The respondent-assessee had filed its Income Tax Return declaring nil income, which was selected for scrutiny assessment. The AO enhanced the disallowance to Rs. 12,65,71,862/-. The CIT(A) partially allowed the appeal, reducing the disallowance to Rs. 2,08,72,836/-. The ITAT ruled in favor of the respondent-assessee, holding that the disallowance made by the AO under Section 14A without recording any satisfaction was unsustainable. This Court upheld the ITAT's decision, relying on the precedent set in CIT v. Taikisha Engineering India Ltd., which mandates that the AO must record satisfaction before making such disallowances.

Issue B: Inclusion of Disallowance for MAT Computation under Section 115JB

The Revenue also questioned whether the ITAT erred in deleting the increase in book profits by adding the disallowance under Section 14A for the purpose of computing MAT under Section 115JB. The ITAT held that disallowances under Section 14A cannot be considered for MAT computation as per the scheme of Section 115JB. The Court examined Section 115JB, particularly Clause (f) of Explanation 1, and concluded that it does not mandate the inclusion of disallowance under Section 14A for MAT computation. The Court referred to various judicial pronouncements, including Indo Rama Synthetics (I) Ltd. and Apollo Tyres Ltd., which clarified that Section 115JB is a self-contained code and does not permit adjustments beyond what is explicitly provided in the Explanation to the section. The Court found that the arguments raised by the Revenue lacked merit and dismissed the appeal, affirming the ITAT's decision that the addition of disallowance under Section 14A for MAT computation is not supported by the provisions of the Act.

Conclusion:

The Court dismissed the Revenue's appeal, upholding the ITAT's decisions on both issues. The disallowance under Section 14A was deemed unsustainable in the absence of recorded satisfaction by the AO, and such disallowance cannot be imported into the computation of MAT under Section 115JB.