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TMI Blog2013 (10) TMI 459X X X X Extracts X X X X X X X X Extracts X X X X ..... to be made to the book profit in terms of Explanation 1(f) of section 115JB Held that:- Relying upon the judgment in the case of Goetze (India) Ltd. v. Commissioner of Income-tax [2009 (5) TMI 615 - ITAT DELHI], it has been held that provisions of section 14A could not be imported into clause (f) to Explanation 1 to the section 115JB while computing book profit. It was also held that only the expenditure incurred in relation to exempt income and debited to P L account can be added while computing the book profit Decided against the Revenue. - ITA No. 3230/Mum/2012, ITA No. 2439/Mum/2012 - - - Dated:- 30-8-2013 - Shri H. L. Karwa And Shri Rajendra Singh,JJ. For the Appellant : Shri D. V. Lakhani For the Respondent : Shri Deepak Sutariya ORDER Per Rajendra Singh These cross appeals are directed against the order dated 23.2.2012 of CIT(A) for the assessment years 2008-09. The dispute raised in these appeals relate to disallowance of interest and other expenses and adjustment made by AO while computing the book profit u/s 115JB of the Income Tax Act. 2. We first take up the appeal of the revenue in ITA no. 3230/Mum/2012. In this appeal the revenue has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f control which was indicated by interlacing, interdependence and interconnection between the businesses. The interest expenditure incurred on borrowings in earlier years including the assessment year 2007-08in which the bonds were issued had been allowed by the AO. The assessment in assessment year 2007-08 was completed u/s 143(3). The interest claimed in assessment year 2008-09 was in respect of the same bond on which the interest had been allowed by AO in assessment year 2007-08. There was no further borrowings, made in the assessment year 2008-09. The AO himself has taxed the income of the assessee under the head business and, therefore, the expenses incurred including interest have to be allowed. It was also submitted that there was no requirement u/s 36(1(iii) that the interest payment should be relating on the same business have fallen allowing the interest expenditure. The only requirement was that the funds should have been borrowed for the purpose of business. Even if the assessee had discontinued part of the business, the loss incurred in respect of said business has to be allowed against the income from the remaining business. The assessee placed reliance on the judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim of deduction has to be allowed. In fact in assessment year 2007-08 the AO has himself have allowed interest on account of bonds issued and, therefore, the facts remaining the same this year, the disallowance cannot be justified. However the assessee has made substantial investments in shares income from which is exempt. Therefore the disallowance of interest u/s 14A is upheld. Subject to above the order of CIT(A) on this issue is confirmed. 3. The facts regarding the disallowance of other expenses are that the AO during the assessment proceedings noted that the assessee had claimed expenditure of ₹ 18,62,253/- towards salary to employees deputed from IL FS, ₹ 9,50,407/- on account of rent to IL FS, and other expenses aggregating to ₹ 30,33,044/-. The AO observed that the cost of employees taken on deputation, the rental charges and other expenses claimed by the assessee were not commensurate with the business of the assessee as there was only one transaction during the year. He, therefore, restricted the salary expenses to ₹ 12,00,000/- and other expenses were totally disallowed as per details given below;- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee had already paid internal audit fees and such expenditure had no nexus with earning of income. The total disallowance made by AO was thus at ₹ 62,64,810/-. 3.2 The assessee disputed the decision of AO and submitted before CIT(A) that the employees taken on deputation had worked full time in the company and complete details along with names and salary paid had been submitted before the AO. The rent had been paid for use of office premises and the tax had been deducted at source. The other expenses such as ROC expenses and internet expenses etc. were for the purpose of business. It was also pointed out that audit expenses had been incurred for internal audit, statutory audit and tax audit which was allowable as deduction. The assessee was incurring losses and, therefore, there was no advantage in inflating the expenses. The S.T.T. expenses were allowable as expenditure in assessment year 2008-09. The sum of ₹ 5,06,789/- related to the interest paid to IL FS. The interest had been paid but not claimed in earlier years pending reconciliation which was done in this year and, therefore, the claim was made. It was also pointed out that the stamp duty paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd professional expenses of ₹ 5,81,055/-. The assessee had paid salary to employees taken on deputation from IL FS complete details of which had been given before the AO. The rent had been paid for office premises. These expenses have been mainly disallowed on the ground that these were not commensurate with the income earned. This approach is however not legally tenable. Expenses incurred for the purpose of business have to be allowed even if there is no income earned or there is loss in the business. The disallowance is, therefore, not justified. The stamp duty of ₹ 24,16,600/-, paid in relation to bonds issued in assessment year 2007-08 and the process of creating charge in favour of the bond holders was completed in the assessment year 2008-09. The expenditure had been incurred in connection the borrowings which allowable as deduction in view of the judgment of Hon'ble Supreme Court in case of India Cements Ltd (Supra). The audit expenses had been incurred on internal audit, statutory audit and tax audit which are required to be allowed for the purpose of business. The amount written off of ₹ 5,06,789/- was on account of interest payable to IL FS, the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The learned DR on the other hand strongly supported the orders of authorities below and placed reliance on the finding given in the respective orders. 4.2 We have perused the records and considered the rival contentions carefully. The dispute is regarding adjustment to be made to the book profit in terms of Explanation 1(f) of section 115JB. As per the said clause expenditure relatable to income exempt u/s 10 is required to be added to the book profit. The issue is whether the statutory disallowance made as per Rule 8D of section 14A in relation to exempt income can be added while computing the book profit. This issue had been considered by the Delhi bench of Tribunal in case of Goetze (India) Ltd. v. Commissioner of Income-tax (Supra) in which it has been held that provisions of section 14A could not be imported into clause (f) to Explanation 1 to the section 115JB while computing book profit. It was also held that only the expenditure incurred in relation to exempt income and debited to P L account can be added while computing the book profit. The said decision of Tribunal was followed by another bench of Delhi Tribunal in case of Quippo Telecom Infrastructure Ltd. v/s ACIT ..... 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