9911796707
TMI Blog2019 (12) TMI 139X X X X Extracts X X X X X X X X Extracts X X X X ..... gh resadjudicata is not strictly applicable. AO as well as CIT(A) were erred in making additions towards depreciation on alleged fixed assets to book profit computed u/s 115JB. We direct the AO to delete additions made to book profit under section 115JB towards depreciation claim on fixed assets. Disallowance of expenditure incurred in relation to exempt income u/s 14A read with rule 8D of Income Tax Rules, 1962 and consequent additions made to book profit computed under section 115JB - HELD THAT:- CIT(A) has directed the AO to exclude investments in mutual funds, because dividend from mutual funds and long term capital gains on redemption of units in respect of debt oriented funds is chargeable to tax. CIT(A) has set aside the issue to the file of the AO and directed him to consider working furnished by the assessee determining the disallowances under section 14A. Therefore, we are of the considered view that the issue needs to go back to the file of the AO to decide afresh in light of our discussions given hereinabove. We set aside the issue to the file of the AO and direct him to recompute disallowances contemplated under section 14A in accordance with law in terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 4,51,73,600/- under normal provisions of the Act, 1961 and book profit of ₹ 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 by the AO that a survey action under section 133A of the Income Tax Act, 1961 was conducted on 24.02.2012 on the basis of information received from Sales Tax Department that the assessee is one of the beneficiary of accommodation entries of bogus purchase bills aggregating to ₹ 96,93,87,572/- from 10 parties listed in para 5(i) of impugned assessment order. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 the relevant submissions of the assessee and also by relying upon certain judicial proceedings including the decision of ITAT Special Bench, in the case of Rain Commodities Ltd. Vs. DCIT 40 SOT 265 held that it is a settled position of law that the AO has the power to alter or rewrite the net pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 statement of total income withdrawing its claim of depreciation on fixed assets during the course of survey, however, not revised its profit loss account withdrawing said claim, because the books of accounts of the assessee have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 provided as in explanation (1) to section 115JB of the Income Tax Act, 1961. Further, the AO has accepted the claim of the assessee in preceding financial years when t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 submissions of both the parties and perused the material available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oint 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 capital gains on redemption of units in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
