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TMI Blog2020 (6) TMI 608X X X X Extracts X X X X X X X X Extracts X X X X ..... ) to the Act, add the sum determined as disallowance u/s. 14A of the Act while computing total income under the normal provisions of the Act and he has to adopt a basis as laid down by VIREET INVESTMENT (P.) LTD. [ 2017 (6) TMI 1124 - ITAT DELHI] viz., direct expenditure associated with earning of income. The grievance of the revenue in this appeal as projected in ground No.2 is that the CIT(A) ought to have followed the decision in the case of DCIT Vs. Sobha Developers [ 2015 (2) TMI 940 - ITAT BANGALORE] rendered by ITAT Bangalore Bench wherein it was held that the disallowance u/s.14A of the Act made while computing total income under the normal provisions of the Act can also be adopted while determining book profits u/s.115JB in te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 of the Act dated 19.9.2017. 2. The facts are that the assessee is a company engaged in the business of rendering consulting engineering services and software services. For the AY 2013-14, the AO determined the total income of the assessee by his order dated 28.3.2016 passed u/s. 143(3) of the Act at a loss of ₹ 10,06,35,057 as per the normal provisions of the Act and at ₹ 12,82,11,059 as per the provisions of section 115JB of the Act (tax on book profits). While computing income under the normal provisions of the Act, the AO had made disallowance of expenses u/s. 14A of the Act read with Rule 8D of the I.T. Rules [the Rules] of a sum of ₹ 31,80,204. However, while computing book profits u/s. 115JB of the Act as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wherein it is held as under:- (iii) That the disallowance under section 14A read with rule 8D could not be added while computing the book profits in terms of section 115JB as the Explanation to that section did not specifically mention section 14A of the Act. Hence the computation under clause (f) of Explanation 1 to section 115JB(2) was to be made without resorting to the computation as contemplated under section 14A read with rule 8D of the Rules. 4. The assessee prayed that the addition to book profits of disallowance u/s 14A is a debatable issue as for making a disallowance the AO should consider whether any interest bearing funds are involved in exempt income, any separate books of accounts were maintained or not, the basis on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue whether disallowance u/s 14A can be added back to book profit u/s 115JB has been held in the favour of assessee, the assessee grounds are allowed. 7 In the result, the appeal is allowed. 6. Aggrieved by the aforesaid order of the CIT(A), the revenue filed an application u/s.154 of the Act against the order dated 2.4.2019 before the CIT(A). The revenue contended in the said application that ITAT Bangalore in the case of DCIT v. Shobha Developers [58 taxmann.com 107] vide order dated 09.01.2015 has held that where expenditure was disallowed by the AO by invoking section 14A while computing total income under normal provisions, same disallowance would be adopted while arriving at the book profits. Since the CIT(A) in the order da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ITAT Bangalore on the same issue in the case of DCIT CC-2(2) Bangalore Vs Shobha Developers, 58 taxmann.com 107 which clearly held that the amount disallowed by AO u/s.14A while computing total income under normal provision should also be disallowed while arriving at book profit. 3. The Ld. CIT(A) is ought to have appreciated that the provision of explanation 1(f) below second proviso of section 115JB(2) clearly provides for increase of book profit by an amount of expenditure relatable to any income which is exempt u/s.10, 11 or 12, makes the issue mistake apparent from records. 9. The AR for the Assessee sought adjournment but since the issue is covered by a decision of Special Bench in the case of Vireet investments (supra) , th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts are to be considered for computing the average value of investment which yielded exempt income during the year. 12. Thus, it is clear that the amount to be added while computing book profits u/s. 115JB of the Act, the AO cannot in terms of Explanation 1(f) to Sec.115JB(2) to the Act, add the sum determined as disallowance u/s. 14A of the Act while computing total income under the normal provisions of the Act and he has to adopt a basis as laid down by the Special Bench in the aforesaid decision viz., direct expenditure associated with earning of income. The grievance of the revenue in this appeal as projected in ground No.2 is that the CIT(A) ought to have followed the decision in the case of DCIT Vs. Sobha Developers (supra) rende ..... X X X X Extracts X X X X X X X X Extracts X X X X
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