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2016 (11) TMI 595 - ITAT MUMBAI

2016 (11) TMI 595 - ITAT MUMBAI - TMI - Addition being disallowance made u/s 14A while computing book profit u/s 115JB - Held that:- Perusal of the assessment order reveals that the AO has blindly added disallowance made u/s 14A r.w.r. 8D while computing book profits u/s 115JB without testing it independently under the provisions of clause (f) to explanation 1 of section 115JB (2). The approach of the AO and resultant addition made by him are not valid as per law. - Thus, in view of the afo .....

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income exempt u/s 10(38)], as envisaged in clause (f) of Explanation 1 to section 115JB (2). The AO shall examine the same and determine the amount to be added under clause (f) keeping in view the provisions of law and facts of the case; - (3) In case, the assessee does not furnish requisite information to enable the AO to compute amount disallowable under clause (f) as directed above in point no (2), then the AO shall be free to treat the amount determined as disallowable u/s 14A in terms o .....

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Shri Tushal Dhawal Singh ORDER Per ASHWANI TANEJA, AM: This appeal has been filed by the assessee against the order of the Commissioner of Income-tax (Appeals) [hereinafter called CIT(A)] dt 15-04- 2013 passed against the assessment order of the AO u/s 143(3) dt 230-12- 2011 for A.Y. 2009-10 on the following grounds: 1. The Learned C.I.T. (Appeal) erred in sustaining the addition of ₹ 35,13,921/- being disallowance made u/s 14A, while computing book profit u/s 115JB of I.T. Act, 1961. 2. T .....

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td where only passing remarks were given without much detailed discussion on the subject. 2. The solitary issue raised in this appeal by the assessee is with regard to action of the lower authorities in making an addition of ₹ 35,13,921/- being the amount disallowed u/s 14A, while computing the book profit u/s 115JB of the Act. It was contended by the Ld. Counsel during the course of hearing that though disallowance was made u/s 14A, but, in view of the legal developments that have taken p .....

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must be construed strictly. If no disallowance was liable to be made under these clauses, then amount wrongly disallowed under clause (ii) and (iii), shall not be added back to the book profits. Our attention was drawn upon the balance-sheet showing that own funds of the assessee were more than the amount of investment made in tax-free securities and submitted that no disallowance on account of indirect interest could have been made. It was further submitted that there were various investments o .....

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the AO with powers to make an automatic enhancement to the book profit with the amount of illegal disallowance made u/s 14A. 3. Per contra, Ld. DR submitted that in case disallowance is made u/s 14A, then automatically an adjustment has to be made in view of clause (f) to Explanation 1 to section 115JB (2). In his support, he placed reliance upon the following judgments: 1. Dy. CIT vs Sobha Devlopers ITA No.1410/Bang/2013 |(Bang) 2. Dabur India Ltd vs ACIT 37 Taxmann.com 289(Mum) 3. ITO vs RBK S .....

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the computation of income under other provisions of the Act. One cannot ignore this aspect that provisions of section 14A as well as section 115JB are deeming provisions and therefore their scope and effect cannot be extended beyond what the statute has provided therein. Thus, assessee has all the rights under the law to challenge the validity of disallowance made u/s 14A if AO seeks to make an addition to the book profits based upon disallowance u/s 14A. 4.1. We have further analysed the provi .....

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ion 11 or section 12 apply. Thus, perusal of the aforesaid provisions reveals that for the purpose of making addition there should be added expenditure actually incurred which are relatable to any income to which provisions of section 10, excluding the provisions contained in clause (38) thereof, applies. It has been contended that in this case, only disallowance, that would have been possible as per law and facts of this case was under rule 8D(2)(i) and no disallowance was liable to be made in .....

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ally there is a clear distinction in the scope of these two sets of provisions. The former i.e. clause (f) is narrower in scope than the latter, i.e. section 14A. Under clause (f) only those expenses can be disallowed which relate to any income to which section 10 applies and that too excluding those incomes which are exempt u/s 10(38); whereas provisions of section 14A shall apply to expenses incurred in relation to the income which does not form part of total income under any provisions of the .....

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cting anything from the plain language of the statute. The plain language of clause (f) of explanation 1 of section 115JB clearly suggests that amount of expenditure relatable to any income to which section 10 [other than the provisions contained in clause (38)] only shall be added to compute the taxable amount of book profits. No method has been prescribed u/s 115JB to compute such expenditure, nor has the legislature linked aforesaid clause (f) to the provisions of section 14A or rule 8D. Thus .....

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that even the disallowance u/s 14A is beyond the provisions of law in view of judgement of the Hon ble jurisdictional High Court. 4.3. It is noted by us that perusal of the assessment order reveals that the AO has blindly added disallowance made u/s 14A r.w.r. 8D of ₹ 35,13,921/- while computing book profits u/s 115JB without testing it independently under the provisions of clause (f) to explanation 1 of section 115JB (2). The approach of the AO and resultant addition made by him are not .....

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