ITAT Chandigarh: Disallowance under Section 14A not to be added back to book profits

The ITAT Chandigarh ruled in favor of the assessee in a case concerning the computation of book profits under section 115JB of the Income Tax Act, 1961, and the disallowance under section 14A. The ITAT held that the disallowance under section 14A should not be added back to the book profits under section 115JB, emphasizing that notional disallowances should not impact the determination of book profits. The ITAT referred to previous decisions and upheld the deletion of additions made by the Assessing Officer, dismissing the Revenue's appeal and directing the adoption of book profits without adding back the disallowance under section 14A.

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Issues:
Computation of book profits under section 115JB - Disallowance under section 14A of the Income Tax Act, 1961.

Analysis:
The appeal before the ITAT Chandigarh concerned the computation of book profits under section 115JB of the Income Tax Act, 1961, specifically regarding the disallowance under section 14A. The Revenue challenged the order of the Commissioner of Income Tax (Appeals)-II, Ludhiana, dated 28.06.2013, which had deleted the addition made by the Assessing Officer to the net profits of the business. The dispute revolved around the disallowance of Rs. 42,37,722 under regular provisions and Rs. 32,86,397 under section 115JB provision by the assessee. The Revenue contended that the disallowance should be added back to the book profits, while the assessee argued against it.

In a detailed analysis, the ITAT referred to a similar issue in the assessee's own case for assessment year 2008-09, where the Tribunal had ruled in favor of the assessee. The Tribunal relied on its earlier decision in DCIT Vs. Ind Swift Ltd. and held that the disallowance under section 14A should not be added back to the book profits under section 115JB. The ITAT emphasized that the notional disallowance under section 14A, as computed under normal provisions, should not impact the determination of book profits under section 115JB. The ITAT reiterated the principle laid down by the Supreme Court in Apollo Tyres Ltd., emphasizing that book profits should not be disturbed except as provided under the Act.

Furthermore, the ITAT highlighted a similar issue in the assessment year 2009-10 in the assessee's case, where the Tribunal, following the previous decision and parity of reasoning, upheld the deletion of the addition made by the Assessing Officer. The ITAT dismissed the grounds of appeal raised by the Revenue, affirming the order of the CIT (Appeals) in both instances. Consequently, the ITAT dismissed the appeal filed by the Revenue, directing the Assessing Officer to adopt the book profits as per the Profit & Loss Account without making any addition on account of disallowance under section 14A.

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