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2017 (1) TMI 1287 - AT - Income TaxDisallowance u/s. 14A r.w.s 8D computation under the normal provision of the Act and under the provision of MAT u/s 115JB - Held that:- Assessing Officer is directed to restrict the disallowance under section 14A of the Act to 1% of the exempt income for normal computation of income as well under section 115JB of the Act. The disallowance under section 14A would be added in the book profit under section 115JB of the Act in terms of the clause (f) to explanation 1 of section 115JB of the Act as decided by the Hon’ble Mumbai ITAT Benches in the case of DCIT Vs. Viraj Profiles Limited [2015 (11) TMI 277 - ITAT MUMBAI ]. Thus we direct the AO to make the addition of the amount of disallowance under section 14A of the Act read with rule 8D of Income Tax Rules 1962 to the total income of the assessee under the normal provisions and under the provisions of the MAT as specified under section 115JB of the Act Disallowance of advance written off in the year under consideration - Held that:- The assessee also incurred cost on the joint venture project which was not materialized and accordingly the same was dropped. Admittedly the impugned Joint venture project was identical to the activities of the assessee and therefore it can be inferred that the project was for the expansion of the existing business of the assessee. In view of above the loss incurred by the assessee was in connection and in the course of the business and hence allowable for deduction. The ground raised by the assessee is allowed. Addition by increasing the value of closing stock - AO disallowed the valuation of closing stock on the ground that closing stock shall be valued either at the cost or market price whichever is less as on the balance sheet date i.e. 31st March 2005 - Held that:- We find that the closing stock needs to be determined as per the method regularly employed by the assessee. The market price prevailing as on the date of balance sheet date should be taken into account while determining the closing stock. The future price of the closing stock cannot form the basis for the valuation of closing stock as on the balance sheet date. Accordingly we hold that the closing stock valued by the revenue is the correct valuation of the closing stock. However it is pertinent to note that the closing stock determined for the year under consideration will become the opening stock for the subsequent financial year. Accordingly the AO is directed to take appropriate measure as per law for the subsequent financial year. This ground of appeal of the assessee is dismissed in terms of above. Charging the interest under section 234B under the normal provisions and MAT provisions - Held that:- At the outset we find that interest under section 234B is consequential in nature and will be levied under both normal & MAT computation of Income. However if the liability to pay the advance tax arises due to the amendment in the Act retrospectively, then there would be no interest u/s 234B & 234C of the Act. Profit arising out sale-purchase of shares treated as capital gain - Held that:- The order of the Hon’ble ITAT in the own case of the assessee cannot form the basis for holding the capital gain loss as business loss. We also find that basis adopted by the AO for treating the capital gain income as business income is not appropriate. We also find that the assessee claimed the capital gain income in the revised return of income which is within the provisions of the law. As such the AO has not brought any defect in the books of accounts and in the revised return. The assessee has been showing investments in the audited financial statements. The ld. DR has also not brought anything on record to controvert the findings of ld. CIT(A) and the arguments advanced by the ld. AR. Hence this ground of appeal of the Revenue is dismissed. Provision for doubtful debts and advances should not be added back in the computation of book profit - Held that:- AR for the assessee fairly conceded that the issue is squarely covered in favor of Revenue and against the assessee by virtue of the amended provision of Sec. 115JB of the Act. Ld. DR for the Revenue agreed to the submission of the assessee. In the light of the amended provisions of section 115JB of the Act we reverse the order of ld. CIT(A) and this ground of appeal of Revenue is allowed. Treating the bank interest and interest on tax refund as business income - Held that:- In the present case the assessee has also earned income from the interest on the margin money deposited with the bank in order to avail the bank guarantee in order to participate in tenders. There is a direct nexus between interest income and the income of the business of the undertaking. Indeed the interest income does not par take the character of a profit and gains from the activity of assessee, but it is the income which is derived in the course of the business. Hence the ground raised by the Revenue is allowed partly. Provisions for leave encashment - disallowance under the provisions of MAT u/s 115JB - Held that:- The provisions for the leave encashment is ascertained liability and therefore the same cannot be disallowed under the provisions of MAT u/s 115JB of the Act. However from the order of AO we find that necessary details were not furnished at the time of assessment therefore the same was added back. We also find that the remand report was not called by the learned CIT(A) during the hearing of appellate stage. In view of above we’re inclined to restore the issue to the file of AO for fresh adjudication as per law with the direction to verify whether the provision for leave encashment has been crystallized. Hence the ground of appeal of the Revenue is allowed for the statistical purposes. Addition made by AO on account of provision for Wealth Tax Act, 1952 in the book profit - Held that:- From the plain reading of the section, we find that the provision does not require the addition of wealth tax. Thus we are of the view to uphold the order of ld. CIT(A). Hence the ground raised by the Revenue is dismissed.
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