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TMI Blog2024 (7) TMI 344X X X X Extracts X X X X X X X X Extracts X X X X ..... under aforesaid rule 8D(2) are in consonance with the details submitted by assessee in his paper book as stated above. This computation mechanism has been brought into the Act by IT (14th amendment) Rules 2016. with effect from 02.06.2016 and is attracted in the instant case which relates to the A.Y. 2017-18. AO has thus rightly worked out disallowance as expenses incurred on profit from the partnership firm, claimed by the assessee as exempt from tax u/s. 10(2A) of the Act after the aforesaid adjustment of suo moto disallowances made by the assessee. CIT(A) has partly erred in passing impugned order to the extent of deleting aforesaid disallowance made by AO. Revenue s referred ground is answered accordingly. The first point is thus determined in favour of the revenue and against the assessee. MAT adjustment u/s 115JB with regard to addition u/s 14A - HELD THAT:- In view of the decisions rendered by special bench in Vireet [ 2017 (6) TMI 1124 - ITAT DELHI] and Radha Madhav [ 2018 (7) TMI 1849 - ITAT MUMBAI] we hold that learned CIT(A) was partly right in holding that the adjustment of disallowance u/s. 14A of the Act r/w rule 8D of the rules was not required to be made in the boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23,382/ as suo moto disallowance u/s. 14A of the Act. The assessee company was found to have computed the disallowance u/s. 14A of the Act @ 1% of the annual average of monthly averages of investment in equity shares. 2.3. Assessing Officer further noticed that the assessee has considered only the investments from which it has earned dividend income and the investments made in the partnership firms have not been considered for disallowance despite claiming the profit from such partnership firm as exempt from tax. 2.4. After taking into consideration the submissions made by the assessee company, the assessing officer worked out the expenses attributable to exempt income as per section 14A of the Act r/w rule 8D of the Income Tax Rules 1962 [hereinafter referred to as rules ] by taking the annual average of the monthly averages of the opening and closing balances of the value of investments as per assessee s accounts at Rs. 2,02,39,996/ [(Rs. 1085711084 + Rs. 2962288257)/2]. 2.5. After adjustment of assessee s suo moto disallowances of Rs. 8,40,331/ (Rs. 8,16,949+Rs. 23,382), the disallowance was restricted to Rs. 1,93,99,665/ (Rs. 2,02,39,996 Rs. 8,40,331). 2.6. Assessing Officer f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver the principle of MAT liability cannot be applied by resorting to sec. 115JB of the Act. 9. We shall first take up aforesaid point no. 1, covering first ground of appeal. According to the appellant revenue, the assessee company, while determining his income for the relevant A.Y. 2017 18, has not taken into consideration, the disallowance in respect of the investments made in the partnership firm despite claiming the profit from such partnership firm, which is exempt from tax u/s. 10(2A) of the Act. As regards the applicability of section 14A of the Act, assessee has suo-moto offered an amount of Rs. 8,16,949/- as expenditure disallowable u/s. 14A of the Act and also disallowed depository charges of Rs. 23,382/- as direct expenditure but, according to assessee, incurred for trading business and for maintaining corporate legal structure and have no relation with the partnership firm and hence according to assessee, no disallowance is required to be made u/s. 14A on account of any expense on the profit from partnership firms. Assessee submitted that there is no relation of any expenses debited in the profit and loss account with investment in partnership firms and no expenses are i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly related to the exempt income i.e the income from the partnership firm. In this view of the fact, the AO can determine the expenses incurred in earning exempt income in accordance with rule 8D(2) of the rules. The condition precedent is that before resorting to the computation under the aforesaid provision, the AO, having regard to the accounts of the assessee, is required to record his dissatisfaction with regard to the correctness of the claim of the assessee in respect of such expenditure related to exempt income. Assessing Officer, has, in the assessment order, recorded that assessee company was partner in the two firms namely N S Co. and in N S E K, holding shares @60% and @90% respectively. AO has also noted the factum, that the place of operating of both the firms was from the premises of the assessee company itself. The AO has further noted that the assessee company earned profit of Rs. 25,62,55,721/- on the basis of assessee s accounts as exempt from tax u/s. 10(2A) of the Act. This fact is substantiated at page 74 of assessee s paper book. AO also made note of the fact that in the tax audit report at clause 21(h) and in the computation of income, assessee has disallowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far as share income is concerned, the field is occupied by the tax law, as it is enacted that the share income shall not form part of total income of the partners. Therefore, in view of this specific provision and the fact that the firm and partners are separately assessable entities, it will be difficult to hold that the share income is not excluded from the total income of the partner because the firm has already been taxed thereon. When section 10(2A) speaks of its exclusion from the total income, it means, the total income of the person whose case is under consideration. The instant case is that of the partner and therefore what is to be examined is whether the share income is excluded from his total income. The answer is obviously in the affirmative. In such a situation, provision contained in section 14A will come into operation and any expenditure incurred in earning the share income will have to be disallowed . 15. The legal position is settled thus that the profit from the partnership firm is taxable in the hands of the firm and it is excluded from the total income of partners u/s. 10(2A) of the Act. The learned Assessing Officer has rightly invoked section 14A of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exempt from tax u/s. 10(2A) of the Act after the aforesaid adjustment of suo moto disallowances made by the assessee. 18. We find that learned CIT(A) has partly erred in passing impugned order to the extent of deleting aforesaid disallowance made by AO. Revenue s referred ground is answered accordingly. The first point is thus determined in favour of the revenue and against the assessee. 19. The second point of determination covers second ground of revenue s appeal with regard to the adjustments of disallowance of Rs. 1,93,99,665/ worked out u/s. 14A of the Act r/w rule 8D of the rules for the purpose of section 115JB of the Act. 20. Section 115 JB of the Act reads as under: 115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the Ist day of April, 48[2012], is less than 49 [eighteen and one-half per cent] of its book profit, 50[such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idering two contrary decision of Hon'ble Delhi High Court titled as CIT Vs. Goetze (India) Ltd. [2014 361 ITR 505] PCIT Vs. Bhushan Steel Ltd. [ITA 593/2015 dated 29/09/2015], took the view favorable to the assessee in terms of ratio of decision of Hon'ble Supreme Court rendered in CIT Vs. Vegetable Products Limited [1973 88 ITR 192]. The decision in PCIT Vs. Bhushan Steel Ltd., in turn, placed reliance on the decision of Hon'ble Supreme Court rendered in Apollo Tyres Ltd. Vs. CIT [255 ITR 273] which held that the Assessing Officer did not have the jurisdiction to go behind the net profit shown in the Profit Loss Account except to the extent provided in Explanation to Section 115J. Similar view has been expressed by our jurisdictional Bombay High Court rendered in CIT Vs. JSW Energy Limited [2015 60 Taxmann.com 303], CIT v. Essar Teleholdings Ltd. [ITA No. 438 of 2012, dated 07/08/2014] CIT Vs. Bengal Finance Investments Pvt. Limited [ITA No. 337 of 2013 dated 10/02/2015). Therefore, respectfully following the catena of judgment in assessee's favour, we hold that adjustment of disallowance u/s 14A was not required to be made in Book Profits for the purpose of Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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