2017 (6) TMI 1124 - AT - Income Tax

Exempt income computed u/s 14A addition while computing book profit u/s 115JB - Held that:- We answer the question referred to us in favour of assessee by holding that the computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A read with Rule SD of the Income-tax Rules, 1962.

Applicability of section 14A - Held that:- We hold that only those investments are to be considered for computing average value of investment which yielded exempt income during the year.

As far as argument relating to meaning to be ascribed to the phrase 'shall not' used in Rule 8D(2)(iii) is concerned, the Revenue's contention is that it refers to those investments which did not yield any exempt income during the year but if income would have been yielded it would have remain exempt. There is no dispute that if an investment has yielded exempt income in a particular year then it will enter the computation of average value of investments for the purposes of Rule 8D(2)(iii). The assessee's contention that if there is no certainty that an income, which is exempt in current year, will continue to be so in future years and, therefore, that investment should also be excluded, is hypothetical and cannot be accepted.

The matter is restored back to the file of AO for recomputing the disallowance u/s 14A in terms of above observations. Thus, revenue's appeal is dismissed and assessee's cross-objection, on the issue in question, stand allowed for statistical purposes, in terms indicated above.

Addition u/s 94(7)- Held that:- No reason to interfere with the order of ld. CIT(A) because ld. CIT(A) has only referred the matter to AO for verifying the revised computation u/s 94(7) with reference to record date and not with respect to date of receipt of dividend. We do not find any infirmity in the order of CIT(A) on this issue.

Addition made as assessee did not charge any interest from loanees - Held that:- No reason to interfere in the order of ld. CIT(A), because the issue that only real income and not notional income is taxable, is no more res-intgra particularly when no interest was paid by assessee on its borrowings. We, therefore, confirm the order of ld. CIT(A). This ground is dismissed.