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TMI Blog2019 (12) TMI 139X X X X Extracts X X X X X X X X Extracts X X X X ..... Learned Assessing Officer in making disallowance u/s 14A of the Income Tax Act,1961 as per rule 8D, without appreciating the facts and circumstances of the case. 3) On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of the Learned Assessing Officer in making an addition of the disallowance made u/s 14A as per Rule 8D, to the book profits u/s 115JB of the Income Tax Act, without appreciating the facts St circumstances of the case. 4) The appellant craves leave to add, amend, alter or delete the said ground of appeal." 3. The brief facts of the case are that the assessee is engaged in the business of Information technology solutions and information technology infrastructure management services, providing wide spectrum of technology solutions and services to a diverse customer base, filed its return of income for assessment year 2012-13 on 26.09.2012 declaring total loss of Rs. 4,51,73,600/- under normal provisions of the Act, 1961 and book profit of Rs. 13,82,07,587/- under section 115JB of the Income Tax Act, 1961. The case was selected for scrutiny and during the course of assessment proceedings, it was noticed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A). Before the Ld. CIT(A), the assessee contended that as per provisions of section 115JB, only such items which are specifically mentioned in the explanation (1) to section 115JB can be added back to the book profits and no other additions can be made by the AO, once book of accounts are audited and approved by the shareholders in the annual general meeting. In this regard, the assessee relied upon the decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. vs. CIT 255 ITR 273. As regards, disallowance of expenditure incurred in relation to exempt income it was submitted that its own funds in form of share capital as well as reserves are in excess of investments made in shares, which yield exempt income and accordingly, no disallowance can be made in respect of interest disallowances. In this regard, the assessee has relied upon the decision of Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd. (2009) 313 ITR 340 (Bom). The assessee has also challenged additions made by the AO to book profit computed under section 115JB in respect of amount disallowed under section 14A of the Income Tax Act, 1961. 5. The Ld. CIT(A) after considering th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15JB by adding the amount of disallowance made under section 14A read with rule 8D, the Ld. CIT(A) has directed the AO to ascertain quantum disallowances under section 14A and also make recomputation of book profit by adding revised amount of disallowances under section 14A read with rule 8D in accordance with clause (f) of explanation (1) to section 115JB of the Income Tax Act, 1961. 6. Aggrieved by the Ld. CIT(A)'s order, the assessee is in appeal before us. 7. The first issue that came up for reconsideration from ground No.1 of assessee's appeal is additions made towards disallowance of depreciation on fixed assets to the book profits computed under section 115JB of the Income Tax Act, 1961. The Ld. A.R. submitted that the Ld. CIT(A) confirmed additions made by the AO, without appreciating the fact that once books of accounts are audited and approved by the shareholders in the AGM, the AO does not have power to alter or recompute book profit as per profit & loss account, unless otherwise additions/deletions as provided under explanation (1) of section 115JB of the Income Tax Act, 1961. The Ld. A.R. further submitted that it is a fact that the assessee has filed revised statem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r part II & III of schedule VI to the Companies Act, 1956. Unless otherwise, the AO makes out a case of inconsistency in financial statement prepared by the assessee in light of part II & III of schedule VI to the Companies Act, 1956, he cannot make any additions to the book profit computed under section 115JB of the Income Tax Act, 1961, other than as provided under explanation (1) to section 115JB of the Income Tax Act, 1961. This legal proposition is supported by the decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. vs. CIT (supra) wherein it was categorically held that the AO has only the power of examining whether the books of accounts are certified by the authorities under the Companies Act, as having been properly maintained in accordance with the Companies Act. Once books of accounts have been maintained in accordance with Companies Act, 1956, then the power of the AO is limited to the extent of making additions/deletions as provided in explanation (1) to section 115JB of the Income Tax Act, 1961. Since, the books of accounts of the assessee have been audited and also have been approved in AGM, the AO cannot alter book profit for any items other than as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excess of investments in shares and securities which yield exempt income and hence no disallowance can be made towards interest expenditure under rule 8D(ii) of IT Rules, 1962. Similarly, the assessee had also challenged the action of the AO in disallowance of other expenses under rule 8D2(iii) on the ground that investments made in subsidiary companies for strategic control and investments made in foreign subsidiaries has to be excluded to determine average value of investments. The Ld. CIT(A) after considering relevant submissions of the assessee rejected the claim of the assessee regarding investment in subsidiary for strategic control in light of the decision of Hon'ble Delhi High Court in the case of Maxopp Investment vs. CIT 347 ITR 372. However, he had accepted the claim of the assessee in so far as investments made in foreign subsidiaries, because dividend income from foreign companies is taxable under the Income Tax Act, 1961. Accordingly, set aside the issue to the file of the AO and directed him to consider working of disallowances furnished by the assessee and recompute the disallowances under section 14A of the Income Tax Act, 1961. 11. We have heard the rival submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r rule 8D(2)(ii) of IT Rules, 1962. This point needs verification from the AO, because the assessee has taken this plea for first time before the Tribunal. In so far as investments in subsidiaries for strategic control, we find that the Hon'ble Supreme Court in the case of Maxopp Investment vs. CIT 347 ITR 372 had rejected the arguments of the assessee for investments in subsidiaries/group companies for strategic purpose and held that the moment exempt income is received provisions of section 14A are applicable. Therefore, even if investments are made in subsidiary companies for strategic control, the provisions of section 14A are applicable and consequent disallowances of expenses shall be determined in accordance with rule 8D of IT Rules, 1962. Therefore, we reject the arguments of the assessee. In so far as investments in foreign subsidiaries, we find that the Ld. CIT(A) has recorded categorical finding that investments in foreign subsidiaries needs to be excluded, because dividend from foreign companies is taxable under Income Tax Act, 1961. Similarly, the Ld. CIT(A) has directed the AO to exclude investments in mutual funds, because dividend from mutual funds and long term cap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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