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2014 (11) TMI 724 - AT - Income TaxRestriction in amount of disallowance u/s 14A – Computation of book profit u/s 115JB – Held that:- AO was of the view that the provisions of Rule 8D of the Income tax Rules are applicable to the year - as decided in GODREJ AND BOYCE MFG. CO. LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER [2010 (8) TMI 77 - BOMBAY HIGH COURT] - Rule 8D of the Rules cannot be applied for the instant year - the disallowance of reasonable amount is required to be made under the provisions of section 14A of the Act - for earning a dividend income certain amount of human resources is deployed and so it would be fair to attribute 2% of the expenditure in salary, wages and bonus to be that which can be attributed for managing the investments and the corresponding dividend income - though the dividend is credited to the Bank directly, but certain portion of bank charges can be attributed for rendering this service - the total disallowance comes to ₹ 3,46,741/-. Since the assesse has already offered ₹ 13,554/-, hence the net disallowance which can be considered to be on scientific and reasonable basis would be ₹ 3,33,187. Since the disallowance of ₹ 83.14 lakhs made by the AO u/s 14A of the Act was reduced to ₹ 3,46,741 - FAA held that the amount to be added to the net profit towards the disallowance made u/s 14A of the Act for computing the book profit u/s 115JB of the Act should also be restricted to the amount determined by him – the FAA is justified in directing the AO to adopt the same figure for computing the book profit u/s 115JB of the Act – the order of the CIT(A) is upheld – Decided against revenue. Carry forward off of the loss of the unit eligible for deduction u/s 10B of not – Held that:- The AO has recorded in the computation portion of the assessment order that the loss pertaining to 10B unit is not allowed to be carried forward as the same pertains to exempted income - the provisions relating to set off of loss and also carry forward of loss are provided in the Act in sections 70 to 75 of the Act – AO has not drawn support of any of the provisions of the Act or any other authority in support of his decision - the approach adopted by CIT(A) is not correct - the provisions of the Act should be construed strictly - it is the duty of the AO to record the basis of his decision - Since the AO has not cited relevant provision or any authority to support his decision – the matter is required to be remitted back to the AO for fresh adjudication – Decided in favour of revenue. Claim of deduction u/s 10B – Computation of book profit u/s 115JB – Held that:- The Form No.56G submitted by the Assessee shows that the Assessee is not eligible for deduction u/s 10B of the Act - the computation of book profit u/s 115JB is altogether a separate exercise - Section 115JB is a separate code by itself and the book profit has to be computed as per the methodology provided in that section - the profit and loss account is required to be prepared as per part II and Part III of Schedule VI of the Companies Act –while computing the profit u/s 115JB, the reference is to be made only to profit and loss account prepared in accordance with Companies Act, 1956 - while computing Book Profit under section 115JB of the Act, the amount to be reduced is income, which is eligible for exemption u/s 10B, as computed on the basis of Book Profit as per Parts II and III of Schedule VI of the Companies Act and not on the basis of provisions of the Act - the amount of income which can be reduced by AO for computing the book profit under Clause (ii) of Explanation to section 115JB(2) of the Act will be amount which is credited to Profit and Loss Account and not amount of income which is claimed by Assessee or determined by AO while assessing the income under regular provisions of Act - there appears to be no dispute on the fact that the amount of ₹ 5.82 crores claimed by the assessee was related to the 10B unit – the order of the CIT(A) is upheld – Decided against revenue. Set off of brought forward loss – Held that:- The AO was of the view that the Assessee did not have any brought forward loss eligible to be set off against the current years’ income and accordingly disallowed the claim - CIT(A) directed the AO to allow the loss finally computed for AY 2006-07 while computing the total income for the current year - CIT(A) has given a direction to allow set off of losses finally computed for AY 2006-07 - the AO has determined the total income of the assessee at ₹ 1.33 crores, yet it may change depending upon the orders, if any, passed by CIT(A) or any other higher appellate authorities - if there is no loss to be carried forwarded in AY 2006-07, then the question of allowing set off of brought forward loss will not arise for the current year – the order of the CIT(A) is upheld – Decided against revenue.
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