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2019 (12) TMI 139

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..... judicata is not strictly applicable. AO as well as CIT(A) were erred in making additions towards depreciation on alleged fixed assets to book profit computed u/s 115JB. We direct the AO to delete additions made to book profit under section 115JB towards depreciation claim on fixed assets. Disallowance of expenditure incurred in relation to exempt income u/s 14A read with rule 8D of Income Tax Rules, 1962 and consequent additions made to book profit computed under section 115JB - HELD THAT:- CIT(A) has directed the AO to exclude investments in mutual funds, because dividend from mutual funds and long term capital gains on redemption of units in respect of debt oriented funds is chargeable to tax. CIT(A) has set aside the issue to the file of the AO and directed him to consider working furnished by the assessee determining the disallowances under section 14A. Therefore, we are of the considered view that the issue needs to go back to the file of the AO to decide afresh in light of our discussions given hereinabove. We set aside the issue to the file of the AO and direct him to recompute disallowances contemplated under section 14A in accordance with law in terms of our observations g .....

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..... case are that the assessee is engaged in the business of Information technology solutions and information technology infrastructure management services, providing wide spectrum of technology solutions and services to a diverse customer base, filed its return of income for assessment year 2012-13 on 26.09.2012 declaring total loss of ₹ 4,51,73,600/- under normal provisions of the Act, 1961 and book profit of ₹ 13,82,07,587/- under section 115JB of the Income Tax Act, 1961. The case was selected for scrutiny and during the course of assessment proceedings, it was noticed by the AO that a survey action under section 133A of the Income Tax Act, 1961 was conducted on 24.02.2012 on the basis of information received from Sales Tax Department that the assessee is one of the beneficiary of accommodation entries of bogus purchase bills aggregating to ₹ 96,93,87,572/- from 10 parties listed in para 5(i) of impugned assessment order. It was further noticed that during the course of survey, it was found that purchases totaling to ₹ 9,39,60,854/- from other three concerns listed in para 5(ii) of impugned assessment order did not have supporting documents. Thus, total purc .....

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..... income it was submitted that its own funds in form of share capital as well as reserves are in excess of investments made in shares, which yield exempt income and accordingly, no disallowance can be made in respect of interest disallowances. In this regard, the assessee has relied upon the decision of Hon ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd. (2009) 313 ITR 340 (Bom). The assessee has also challenged additions made by the AO to book profit computed under section 115JB in respect of amount disallowed under section 14A of the Income Tax Act, 1961. 5. The Ld. CIT(A) after considering the relevant submissions of the assessee and also by relying upon certain judicial proceedings including the decision of ITAT Special Bench, in the case of Rain Commodities Ltd. Vs. DCIT 40 SOT 265 held that it is a settled position of law that the AO has the power to alter or rewrite the net profit as per profit & loss account, in case it is found that profit & loss account is not prepared in accordance with parts II & III of schedule VI to the Companies Act, 1956 and if accounting policies and accounting standards are not adopted for preparing such ac .....

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..... peal is additions made towards disallowance of depreciation on fixed assets to the book profits computed under section 115JB of the Income Tax Act, 1961. The Ld. A.R. submitted that the Ld. CIT(A) confirmed additions made by the AO, without appreciating the fact that once books of accounts are audited and approved by the shareholders in the AGM, the AO does not have power to alter or recompute book profit as per profit & loss account, unless otherwise additions/deletions as provided under explanation (1) of section 115JB of the Income Tax Act, 1961. The Ld. A.R. further submitted that it is a fact that the assessee has filed revised statement of total income withdrawing its claim of depreciation on fixed assets during the course of survey, however, not revised its profit & loss account withdrawing said claim, because the books of accounts of the assessee have been audited and approved by the shareholders in the AGM without any adverse comments on preparation of financial statements, therefore, unless it is expressly provided under explanation (1) of section 115JB, no other additions can be made by the AO under section 115JB of the Income Tax Act, 1961. In this regard, re re .....

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..... case of Apollo Tyres Ltd. vs. CIT (supra) wherein it was categorically held that the AO has only the power of examining whether the books of accounts are certified by the authorities under the Companies Act, as having been properly maintained in accordance with the Companies Act. Once books of accounts have been maintained in accordance with Companies Act, 1956, then the power of the AO is limited to the extent of making additions/deletions as provided in explanation (1) to section 115JB of the Income Tax Act, 1961. Since, the books of accounts of the assessee have been audited and also have been approved in AGM, the AO cannot alter book profit for any items other than as provided as in explanation (1) to section 115JB of the Income Tax Act, 1961. Further, the AO has accepted the claim of the assessee in preceding financial years when the assessee has claimed depreciation on alleged bogus fixed assets without any adjustment to book profit. Once the claim of the assessee has been accepted in earlier financial years, then there is no reason for the AO to disturb the settled position unless otherwise there is a complete change in facts for the year under consideration. Although, resa .....

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..... nsidering relevant submissions of the assessee rejected the claim of the assessee regarding investment in subsidiary for strategic control in light of the decision of Hon ble Delhi High Court in the case of Maxopp Investment vs. CIT 347 ITR 372. However, he had accepted the claim of the assessee in so far as investments made in foreign subsidiaries, because dividend income from foreign companies is taxable under the Income Tax Act, 1961. Accordingly, set aside the issue to the file of the AO and directed him to consider working of disallowances furnished by the assessee and recompute the disallowances under section 14A of the Income Tax Act, 1961. 11. We have heard the rival submissions of both the parties and perused the material available on record and gone through the order of authorities below. It is an admitted fact that the assessee has earned dividend income and claimed exempt under section 10(38) of the Income Tax Act, 1961. It is also an admitted fact that the assessee has not made suo-moto disallowance of expenditure incurred in relation to exempt income. The AO has determined disallowance of expenditure by invoking rule 8D(2) of IT Rules, 1962 on the ground that disallow .....

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..... e applicable. Therefore, even if investments are made in subsidiary companies for strategic control, the provisions of section 14A are applicable and consequent disallowances of expenses shall be determined in accordance with rule 8D of IT Rules, 1962. Therefore, we reject the arguments of the assessee. In so far as investments in foreign subsidiaries, we find that the Ld. CIT(A) has recorded categorical finding that investments in foreign subsidiaries needs to be excluded, because dividend from foreign companies is taxable under Income Tax Act, 1961. Similarly, the Ld. CIT(A) has directed the AO to exclude investments in mutual funds, because dividend from mutual funds and long term capital gains on redemption of units in respect of debt oriented funds is chargeable to tax. Further, the CIT(A) has set aside the issue to the file of the AO and directed him to consider working furnished by the assessee determining the disallowances under section 14A of the Income Tax Act, 1961. Therefore, we are of the considered view that the issue needs to go back to the file of the AO to decide afresh in light of our discussions given hereinabove. Hence, we set aside the issue to the file of the .....

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