2014 (2) TMI 745 - AT - Income Tax

Appellate Tribunal Upholds Disallowance of Expenditure under Income Tax Act

The Appellate Tribunal upheld the disallowance of expenditure under section 14A for earning exempt income while calculating book profit u/s. 115JB of the ... Application u/s 254(2) of the Act – Disallowance u/s 14A of the Act – Computation of book profits u/s 115JB of the Act – Held that:- The matter is principally and primarily factual - the legal mandate for the adjustment, which could though only extend to the expenditure actually incurred and booked in accounts, being provided by Explanation 1(f) to section 115JB of the Act - The tribunal was of the view that the adjustment was against the dividend income – thus, there is no basis for cancellation or for even a case for restoration of the matter to the assessing authority as having been made out – thus, there was no merit in the assessee's application – Decided against Assessee. Issues:1. Disallowance of expenditure under section 14A for earning exempt income while calculating book profit u/s. 115JB of the Income Tax Act, 1961.2. Tribunal's decision on the additional ground raised by the assessee.3. Applicability of legal precedents in deciding the issue.Issue 1: Disallowance of Expenditure under Section 14A:The Appellate Tribunal, in a Miscellaneous Application by the Assessee u/s. 254(2) of the Income Tax Act, addressed the disallowance of a sum of Rs. 8,59,101 as expenditure incurred to earn exempt income, applying section 14A while calculating book profit u/s. 115JB. The tribunal explained that the provision under Explanation 1(f) to section 115JB mandates reducing the net profit by any income to which certain provisions apply, including exempt income. Therefore, any expenditure related to exempt income must be added back. The tribunal noted that the disallowance under section 14A was based on the amount actually incurred and claimed by the assessee, which was not disputed. The tribunal directed the matter to be restored to the assessing authority for the assessee to demonstrate if the estimated expenditure disallowed under section 14A was nil or a lesser amount as per its books. The tribunal confirmed the adjustment, dismissing the assessee's additional ground.Issue 2: Tribunal's Decision on Additional Ground:The assessee contended that the tribunal did not follow the decision of the coordinate bench in the assessee's own case for the earlier year, A.Y. 2006-07, and cited various legal precedents. The tribunal, while agreeing in principle with the decision for A.Y. 2006-07, emphasized the factual nature of the matter and the legal basis provided by Explanation 1(f) to section 115JB for the adjustment. The tribunal found no basis to cancel or restore the matter to the assessing authority and dismissed the assessee's additional ground. The tribunal also highlighted that the facts presented during the rectification proceedings differed from those argued during the appeal, and the impugned action of the Assessing Officer was legally sound, referencing relevant legal decisions.Issue 3: Applicability of Legal Precedents:The tribunal addressed the assessee's reliance on legal precedents and the argument that a contrary view should not have been taken without referring the matter to a larger bench. The tribunal clarified that the decision was based on factual and legal considerations, and the tribunal's view was supported by different benches of the Mumbai tribunal in separate cases. The tribunal found no merit in the assessee's application and dismissed it accordingly.In conclusion, the Appellate Tribunal's judgment delved into the disallowance of expenditure under section 14A, the tribunal's decision on the additional ground raised by the assessee, and the applicability of legal precedents in deciding the issue. The tribunal upheld the disallowance, emphasized the factual nature of the matter, and dismissed the assessee's application based on legal and factual considerations.