Court sets aside disallowance, remits for re-examination, reduces excessive disallowance, and directs recomputation.

The court set aside the direction to add back the disallowance under section 14A while computing book profits under section 115JB for Assessment Year 2004-05 due to the absence of exempt dividend income. The matter of disallowance under section 14A and vehicle expenses disallowance were remitted for re-examination. For Assessment Year 2005-06, the excessive disallowance under section 14A was reduced, and the Assessing Officer was directed to recompute book profits accordingly. The appeals for both years were allowed for statistical purposes.

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Issues involved:
The judgment involves issues related to computation of book profits u/s.115JB of the Act, disallowance u/s.14A of the Act, and disallowance out of vehicle expenses.

Computation of book profits u/s.115JB of the Act (Assessment Year 2004-05):
The assessee contested the computation of book profits u/s.115JB, specifically regarding the disallowance u/s.14A of the Act. The CIT(A) erred in adding disallowance u/s.14A of the Act while computing book profits. However, since there was no dividend income exempt u/s.10(34) during the year, the disallowance u/s.14A was deemed unnecessary. The direction of the CIT(A) to add back the amount computed u/s.14A was set aside, and the grounds raised by the assessee were allowed. The Assessing Officer was directed to delete the addition made.

Disallowance u/s.14A of the Act (Assessment Year 2004-05):
The issue revolved around disallowance u/s.36(1)(iii) made by the Assessing Officer but enhanced by the CIT(A) u/s.14A read with Rule 8D. The matter was remitted back to the Assessing Officer for examination based on previous decisions and the facts presented. The Assessing Officer was directed to decide the disallowance u/s.36(1)(iii)/14A in accordance with relevant court decisions. The ground of appeal was allowed for statistical purposes.

Disallowance out of Vehicle expenses Rs. 1,00,000/- (Assessment Year 2004-05):
The issue involved an ad-hoc disallowance of vehicle expenses. The Assessing Officer disallowed a sum of Rs. 1,00,000 on the basis that part of the business expenses was incurred for non-business purposes. However, it was found that the disallowance was not warranted as the assessee was engaged in business activities. The Assessing Officer was directed to delete the disallowance, and the ground was allowed.

Computation of book profits u/s.115JB of the Act (Assessment Year 2005-06):
Similar to the previous year, the assessee challenged the computation of book profits u/s.115JB, particularly regarding the deduction of dividend income after deducting disallowance u/s.14A of the Act. The CIT(A) had enhanced the disallowance u/s.14A, which was deemed excessive. The Assessing Officer was directed to recompute the book profits after considering the disallowances accordingly.

Disallowance u/s.14A of the Act (Assessment Year 2005-06):
The issue was interlinked with the computation of book profits, as there was dividend income during the year. The CIT(A) had invoked Rule 8D for enhancing the disallowance, which was not upheld due to lack of approval by the Jurisdictional High Court. The Assessing Officer was directed to determine a reasonable amount for disallowance u/s.14A based on facts and law, and to reduce the disallowance while computing book profits u/s.115JB. The grounds were considered allowed for statistical purposes.

The appeals for both Assessment Years 2004-05 and 2005-06 were considered allowed for statistical purposes.

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