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2019 (10) TMI 249

..... 115JB of the Act. Therefore, we find that there is no precedent available to resolve the controversy on hand. However, we are also conscious to the fact that the above judgment was rendered in connection with the income determined under normal computation of income but to our mind the same principles can also be applied to the case on hand. It is because, the provisions of section 115JB of the Act require to make the disallowance of the expenditure related to any income to which section 10 applies other than section 10(38) of the Act. Accordingly, we hold that the expenses incurred in connection with the exempted income cannot exceed the amount of such exempted income under the provisions of section 115JB of the Act. Accordingly, we limit the disallowance to the extent of rupees 43,150.00 under the clause (f) to section 115 JB of the Act. Hence the ground of appeal of the assessee is partly allowed. - ITA No. 1928/AHD/2015 - 3-10-2019 - Shri Kul Bharat, Judicial Member And Shri Waseem Ahmed, Accountant Member For the Assessee : Shri Vartik Chokshi, A.R For the Revenue : Smt. Aparma Agarwal, CIT. D.R ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at t .....

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..... cannot exceed exempt income of ₹ 43,150/- 3.In law and in the facts and circumstances of the appellant's case the Ld. CIT(A) has erred in charging excessive interest u/s 234B and 234C of the Act when no such excessive interest is chargeable. The appellant craves leave to add to, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal. The interconnected issue raised by the assessee is that the ld. CIT-A erred in confirming the order of the AO by sustaining the addition of ₹ 17,19,25,856/- under clause (f) to explanation 1 of section 115JB of the Act. 2. The facts in brief are that the assessee in the present case is a private limited company and engaged in the business of trading in shares, clothes and garments. The assessee has also earned rental income during the year. The assessee in the year under consideration has debited interest expenditure in its profit and loss account amounting to ₹ 17,31,87,000/- only. But the assessee under the normal computation of income has added back an amount of ₹ 17,19,25,856/- out of total interest expenses on the ground that such interest expenses are i .....

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..... he Act while determining the book profit as well as under section 14A read with rule 8D of Income Tax Rule under normal computation of income. 2.4 In view of the above, the AO concluded that such amount of interest expenses cannot be added to the total income of the assessee under normal computation of income, based on the reasoning that these are capital expenditure. As such, the impugned interest expenditure is purely in connection with the investment in shares which will give rise to the exempted income. Therefore, the right course of action is to make the disallowance of impugned expenses under section 14A read with rule 8D of Income Tax Rule under normal computation of income and similarly under clause (f) to the explanation 1 of section 115JB of the Act while determining the books profit. 2.5 Based on the above reasoning, the AO increased the book profit by the amount of impugned interest expenses as per clause (f) of explanation to section 115JB of the Act. Aggrieved assessee preferred an appeal to the learned CIT (A). 3. The assessee before the learned CIT (A) submitted that the tax auditor in his tax audit report in the form 3CD under the clause 17(a) has submitted that th .....

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..... finding of the AO i.e. treating the interest expenses as revenue expenditure. 4.1 However, the learned CIT (A) observed that there is an exempted income of ₹ 43,150.00 earned by the assessee in the year under consideration as well as investment has been made out of the borrowed fund which will give rise to the exempted income. Therefore, he was of the view that the disallowances of the expenditure incurred to earn such income requires to be disallowed under normal computation of income and MAT computation of income by virtue of the provisions of section 14A read with rule 8D and 115JB of the Act respectively. Accordingly the learned CIT (A) confirmed the order of the AO. Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us. 5. The learned AR before us filed a paper book running from pages 1 to 82 and submitted that the disallowance under section 14A r.w.r. 8D cannot be imported while determining the book profit under MAT. The ld. AR also submitted that disallowance if any needs to be made, then it should not exceed the amount of dividend income. 6. On the other hand, the learned DR vehemently supported the order of the authorities below. 7. .....

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..... ch investment can earn certain kinds of income as detailed under: i. short-term capital gain ii. long-term capital gain iii. dividend income 7.5 We do not foresee any other income out of such investment other than the income as specified above. 7.6 Now, if the assessee earns income under the head capital gain (long term) from such investments, then such income might be exempted under section 10(38) of the Act under normal computation of income but such immunity is not available to the assessee while computing the income under the provisions of MAT. Thus, it is transpired that any expenditure incurred by the assessee from such investment which is resulting income under the head capital gain, then such expenditure will not be added back under clause (f) of explanation 1 to section 115JB of the Act while determining the book profit. 7.7 However, we note that the assessee has not treated such interest expenses as revenue expenditure which has also been admitted by the authorities below and this fact has reached to the finality. 7.8 Thus from the treatment of such interest expenditure as revenue in nature, it is transpired that such interest expenditure incurred against the dividend inc .....

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