Appeal partly allowed on administrative expenses disallowance under section 14A; ruling on book profit computation.

The Tribunal partly allowed the appeal, directing to restrict disallowance for administrative expenses under section 14A. It confirmed that disallowance under section 14A cannot be considered for computing book profit under section 115JB. The judgment was pronounced on April 5, 2013.

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Issues:
- Disallowance of estimated expenses under section 14A of the Income Tax Act for earning exempt income.
- Adjustment of disallowance for computation of book profit under section 115JB.

Analysis:

Issue 1: Disallowance of estimated expenses under section 14A:
The assessee challenged the disallowance made by the Assessing Officer under section 14A for administrative expenses related to earning exempt income. The CIT(A) modified the disallowance by applying Rule 8D of the IT Rules, reducing the amounts for both assessment years. The assessee contended that no specific expenditure was incurred for earning the exempt income, citing a decision of the jurisdictional High Court. The Assessing Officer and the CIT(A) relied on the principle of apportionment under section 14A. The Tribunal considered the implicit principle of apportionment in cases of composite activities involving taxable and non-taxable income. Referring to a decision of the High Court, the Tribunal upheld a reasonable disallowance for administrative expenses related to exempt income.

Issue 2: Adjustment of disallowance for computation of book profit under section 115JB:
Regarding the adjustment of disallowance for book profit computation under section 115JB, the Tribunal noted that the provisions of section 14A cannot be imported into the computation of adjusted book profit. Citing decisions of other Tribunals, it was established that the disallowance under section 14A cannot be added to the book profit under section 115JB. The Tribunal followed the precedent set by previous decisions and ruled in favor of the assessee against the revenue.

In conclusion, the Tribunal partly allowed the appeal filed by the assessee, directing the Assessing Officer to restrict the disallowance for administrative expenses under section 14A and confirming that the disallowance under section 14A cannot be considered for computing book profit under section 115JB. The judgment was pronounced in open court on April 5, 2013.

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