TMI Blog2018 (6) TMI 960X X X X Extracts X X X X X X X X Extracts X X X X ..... ating to dividend income which would be eligible for addition while computing the book profit under section 115JB - Held that:- The apportionment of the expenses between the dividend income and the long term capital gain becomes relevant while determining the profit under section 115JB of the Act. Therefore we are inclined to reverse the order of Authorities Below. Case of M/s Maxopp Investment Limited (2018 (3) TMI 805 - SUPREME COURT OF INDIA) followed - Decided in favour of assessee - ITA No.603/Kol/2016 - - - Dated:- 14-6-2018 - Shri Waseem Ahmed, Accountant Member and Shri S.S.Viswanethra Ravi, Judicial Member For The Appellant : Shri S.M. Surana, Advocate For The Respondent : Shri S. Dasgupta, Addl. CIT-DR ORDER PER Waseem Ahmed, Accountant Member:- This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-1, Kolkata dated 05.02.2016. Assessment was framed by ITO Ward-1(4), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide his order dated 10.03.2014 for assessment year 2011-12. The grounds raised by the assessee per its appeal are as under:- 1. For that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised by the assessee in this appeal is that the Learned. CIT(A) erred in confirming the order of Assessing Officer by sustaining disallowance of ₹ 1,46,78,485/- u/s 14A r.w.r. 8D of I.T Rules 1962. 4. The briefly stated facts are that the assessee is a Non-Finance Company registered with Reserve Bank of India and engaged in the activity of investment. The assessee during the year has earned dividend income of ₹ 74,10,551/- and Long Term Capital Gain of ₹ 4,51,20,300.00 which was claimed as exempted income u/s. 10(34) 10(38) of the Act respectively. The assessee made the disallowance of the expenses incurred in relation to such exempted income under section 14A of the Act for ₹ 66,99,516.00 only. However the AO was not satisfied with the disallowance made by the assessee under section 14A of the Act. Therefore the AO invoked the provisions of rule 8D r.w.s. 14A of the Act and made the following disallowances:- Sl No. Rule Particulars Amounts (in Rs.) 1 8D(2)(i) Direct expenses 1,83,544/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld. CIT(A), the assessee filed second appeal before us. 6. The ld.AR before us field financial statements, computation of income and other details which are running from Pages 1 to 11 and reiterated the submissions that were made before the ld. CIT(A). The ld.AR also submitted that the expenses under Rule 8D(2)(iii) of I.T Rules cannot exceed the expenses actually claimed by it in the P L A/c. The actual administrative expenses claimed by the assessee in its profit loss account are for ₹ 1,72,372.00 only. The details of the expenses stand as under : SCHEDULE: 12 ADMINISTRATIVE OTHER EXPENSES: Rent 1,324 Rates Taxes - Riling Fees 3,560 Professional tax - General Expenses 675 Printing Stationery 464 Postage Telegram - Books Periodicals - Legal 7 Professional Charges 151,349 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus the addition cannot be sustained in the instant case. Thus, we direct the Assessing Officer to delete the impugned addition. Thus, first issue in grounds of appeal filed by the assessee is partly allowed. 10. The second issue raised by assessee is that learned CIT-A erred in sustaining the addition of ₹ 1,46,78,485.00 made under section 14A of the Act while computing the income under the head 115JB of the Act. The assessee while computing the book profit under section 115 JB of the Act has made the addition of ₹ 9,45,104,00 only for the expenses relating to dividend income. The contention of the assessee was that out of total addition of expenses made under section 14A of the Act for ₹ 66,99,516 represents a sum of ₹ 9,45,104.00 incurred towards the dividend income and the balanced amount of expenditure for ₹ 57,54,412.00 relate to long term capital gain. Therefore only the sum of ₹ 9,45,104.00 is as inadmissible under section 14A of the Act relating to dividend income which would be eligible for addition while computing the book profit under section 115JB of the Act. As per the AO the amount of addition made under section 14A of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng term capital would be add back for computing book profit and that the A.O may be directed to exclude a such part of expenses relating to Long Term Capital Gain for computing u/s. 115JB. IT is observed that the method for deduction of book profit u/s. 115JB is a self-contend Code. Further, under the scheme of section 115JB the profit and loss account of the assessee is to be treated in accordance with provisions of Part II III of Schedule, Rule-6 to the company s act and the net profit shown therein as book profit is to be treated after making certain adjustment specifically provided in the explanation thereof. Such permissible adjustment in the form of addition and deductions are provided the explanation to section 115JB. No deductions, rebates or allowances apart from what are stipulated in the explanation are available for computation of book profit. From finding of facts, admittedly the long term capital gain earned by the appellant was included in the net profit determined as per profit and loss account prepared as per Part II III of Schedule-VI of Company s Act. Therefore, since long term capital gain is part of profits included in the profit and loss account expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Having clarified the aforesaid position, the first and foremost issue that falls for consideration is as to whether the dominant purpose test which is pressed into service by the assessees would apply while interpreting Section 14A of the Act or we have to go by the theory of apportionment. We are of the opinion that the dominant purpose for which the investment into shares is made by an assessee may not be relevant. No doubt, the assessee like Maxopp Investment Limited may have made the investment in order to gain control of the investee company. However, that does not appear to be a relevant factor in determining the issue at hand. Fact remains that such dividend income is nontaxable. In this scenario, if expenditure is incurred on earning the divine income that much of the expenditure which is attributable to the dividend income has to be disallowed and cannot be treated as business expenditure. Keeping this objective behind Section 14A of the Act in mind the said provision has to be interpreted, particularly, the word in relation to the income that does not form part of total income. Considered in this hue, the principle of apportionment of expenses comes into play as that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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