2014 (5) TMI 1082 - AT - Income Tax

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

A.C.I.T., Circle VII, Ludhiana Versus Nahar Capital & Financial Services Ltd.

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, ... MAT - Computation of book profits under section 115JB - addition on account of disallowance worked out under section 14A - plea of the assessee in this regard was that the assessee itself had disallowed sum on account of disallowance under section 14A under regular provisions and under section 115JB provision in its return of income on proportionate basis - Held that:- Similar issue of computation of book profits under section 115JB of the Act in view of readjustment on account of disallowance under section 14A of the Act arose before the Tribunal in assessee’s own case relating to assessment year 2008-09 wherein as directed Assessing Officer to adopt the book profits as per the Profit & Loss Account and do not make addition on account of disallowance worked out under section 14A of the Act, as such disallowance is computed under the normal provision of the Act, which are not applicable for determining book profits under section 115JB of the Act. - Decided in favour of assessee 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.