2013 (5) TMI 117 - AT - Income Tax

Tribunal Rules on Disallowance & Book Profit Calculation

The Tribunal allowed the assessee's appeal for statistical purposes, setting aside the computation of disallowance under section 14A read with Rule 8D and ... Addition of disallowance u/s 14A read with Rule 8D to the book profit computed u/s 115JB - MAT - Minimum alternate tax - Held that:- As decided in case of M/s.Essar Teleholdings Ltd. v. DCIT [2013 (5) TMI 116 - ITAT MUMBAI] relying on Goetze (India) Ltd. v. CIT [2009 (5) TMI 615 - ITAT DELHI] the amount disallowed u/s 14A cannot be added to the amount of book profit u/s 115JB. Unless a particular expenditure is debited to the profit and loss account relating to the earning of exempt income, the same cannot be imported into the computation of book profit as clause (f) of Explanation 1 to section 115JB which only refers to the amount debited to the profit and loss account. Prior period expenses - the same have been debited to the profit and loss account - Held that:- Starting point for computing book profit u/s 115JB is the amount of net profit as disclosed by Profit and loss account. Only the items enumerated in Explanation 1 to section 115JB are required to be increased for determining the book profit. There is no reference to increasing the amount of net profit by the prior period expenses in Explanation 1 to section 115JB. CIT(A) was justified in deleting the addition. Issues:1. Computation of disallowance u/s 14A read with Rule 8D.2. Addition of disallowance u/s 14A to book profit u/s 115JB.3. Treatment of prior period expenses in computing book profit u/s 115JB.Analysis:Issue 1: Computation of disallowance u/s 14A read with Rule 8DThe appeal raised by the assessee pertains to the computation of disallowance u/s 14A read with Rule 8D. The Tribunal noted the judgment of the Hon'ble Bombay High Court in Godrej & Boyce Ltd. Mfg. Co. case, emphasizing that the disallowance under section 14A should be determined on a reasonable basis, not necessarily following Rule 8D. Consequently, the Tribunal set aside the order and remanded the matter to the Assessing Officer for recalculating the disallowance in accordance with the mentioned judgment.Issue 2: Addition of disallowance u/s 14A to book profit u/s 115JBThe Revenue's appeal contested the deletion of the disallowance u/s 14A from the book profit computed u/s 115JB. The Tribunal referred to precedents from the Mumbai and Delhi Benches, asserting that unless an expense is debited to the profit and loss account related to earning exempt income, it cannot be included in the computation of book profit under section 115JB. Relying on these decisions, the Tribunal upheld the CIT(A)'s directive that the disallowance u/s 14A should not impact the book profit u/s 115JB.Issue 3: Treatment of prior period expenses in computing book profit u/s 115JBRegarding the prior period expenses of Rs.10.06 lakh, the Tribunal found that these were debited to the profit and loss account. It was emphasized that under section 115JB, the starting point for computing book profit is the net profit as per the profit and loss account, with specific items listed in Explanation 1 subject to adjustment. Since prior period expenses are not mentioned in Explanation 1, the Tribunal agreed with the CIT(A) that such expenses should not be added to the book profit u/s 115JB.In conclusion, the Tribunal allowed the assessee's appeal for statistical purposes and dismissed the Revenue's appeal, providing a detailed analysis and legal interpretation on each issue raised in the appeals.