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2022 (1) TMI 823 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D(2) both under the normal provisions as well as u/s 115JB of the Act - HELD THAT:- On careful reading of first appellate authority’s order clearly reveals that he never directed the assessing officer to exclude strategic investments from the total investments for computing disallowance under rule 8D(2)(iii). He has only directed the assessing officer to exclude those investments, which have not given rise to tax free income as well as the investments on which the assessee had not earned any exempt income during the year. Thus, in our considered opinion, ground 1 does not arise out of the order of learned Commissioner (Appeals), hence,does not merit consideration. Accordingly, dismissed. Disallowance under section 14A r.w.r. 8D(2) while computing book profit under section 115JB - We fully subscribe to the view expressed by the learned Commissioner (Appeals), as, it is in consonance with the ratio laid down in case of ACIT vs Vireet Investments Pvt Ltd [2017 (6) TMI 1124 - ITAT DELHI]. In any case of the matter, learned Commissioner (Appeals) has held that expenses directly relatable to earning of exempt income can be disallowed under Explanation 1(f) to section 115JB(2) of the Act. In view of the aforesaid, we uphold the decision of the learned Commissioner (Appeals) by dismissing the ground raised. Disallowance of legal and professional fees - HELD THAT:- The nature of new business is not a decisive test for determining whether or not there is an expansion of an existing business. What is important is that the control of all business, the existing one as well as the new venture, must be in the hands of one establishment or management or administration. The funds utilized for such business activities must have come from the common source as reflected in the balance-sheet of the company. Therefore, if separate business activities are under common management and funds utilized have come from the common management, the pre-operative expenditure is allowable. In case of CIT vs Euro India Ltd [2013 (10) TMI 429 - DELHI HIGH COURT] has observed, where the feasibility report is procured for expansion of existing business and where there is unity of control and common funds, then such expenditure would be treated as business expenditure. Thus, in our view, assessee’s claim of deduction of legal and professional fee paid has to be considered by applying the parameters/guidelines laid down in the decisions referred to above. Accordingly, we restore the issue to the assessing officer for fresh adjudication after due opportunity of being heard to the assessee. This ground is allowed for statistical purpose. Write off of value of investment - assessee submitted that it has made investment in the subsidiary, which is treated as capital investment in the books and represented long term investment - book profit under section 115JB assessee has not added back the amount. - HELD THAT:- the language of the provision is very clear and it speaks of an amount set aside as provision for diminution in the value of asset. Whereas, it is the specific contention of the assessee that the amount written off has not been set aside as a provision in the books. The entries in assessee’s books and as reflected in the profit and loss account, of course, show the amount as having been written off. However, it is a fairly well settled principle that accounting entries are not conclusive. At this stage, we may observe that in case of PCIT vs Torrent Private Ltd [2019 (6) TMI 709 - GUJARAT HIGH COURT] as held that if provision for diminution in value of investment is actually written off, it cannot be added to book profit under section 115JB. Admittedly, the aforesaid decision of the Hon’ble Gujarat High Court was not available either before the assessing officer or before the first appellate authority. The assessee has stated that the equity investment written off related to offset business undertaken by the subsidiary, which ran into heavy loss and was subsequently discontinued. Whereas, the shares still held by the assessee aggregating to ₹ 4,12,95,000/- represents equity investment in e-retail business conducted by the subsidiary in the name and style of Tata Unistores Limited. This factual aspect needs to be verified. Further, the corresponding entries in the books of the subsidiary as regards write off of the investment has to be examined by the departmental authorities. We are inclined to restore the issue to the assessing officer for fresh adjudication after examining various aspects as discussed hereinbefore. The assessing officer must also examine the applicability of ratio laid down by the Hon’ble Gujarat High Court in case of PCIT vs Torrent Private Ltd (supra). assessee’s appeal is allowed, for statistical purpose.
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