2015 (5) TMI 823 - HC - Income Tax

Section 14A Disallowance Remanded for Fresh Review; Book Profit Add-Back Limited to Actual Expenses; No Interest Under Section 234B Without Default

The HC set aside the Tribunal's order and remanded the disallowance under section 14A to the AO for fresh adjudication, directing a detailed examination ... Disallowance u/s 14A - Tribunal setting aside and restoring back the issue to the file of the AO for denovo adjudication by relying on the judgment of M/s. Godrej & Boyce Mfg. Co. Ltd [2010 (8) TMI 77 - BOMBAY HIGH COURT] - Held that:- The tribunal directed that the matter is required to be reconsidered by the assessing officer. He shall examine the relevant accounts, the nature of term loans and availability of interest free funds with the assessee. After examining all these details and account, and only if some reasonable disallowance can be adopted that should be worked out and in relation to earning of the dividend. The asssesee was also directed to furnish necessary details and working before the assessing officer. Addition u/s.14A r.w. Explanation 1 of section 115JB deleted by ITAT FOR the purpose of computing book profit u/s.115JB - Held that:- Once the accounts are prepared in accordance with Indian Companies Act, 1956, they have been approved by the Registrar of Companies, then, the assessing officer must take those accounts into consideration. If the assessee has not debited any actual expenditure relating to the earning of the exempt income, therefore, the provisions of section 14A cannot be imported into the computation of book profit under section 115JB of the Income Tax Act, 1961. Therefore, even clause (f) of Explanation to section 115JB which refers to those amounts which are debited to the Profit and Loss account, alone can be added to the book profit, cannot apply . Having held that the matter is sent back to the assessing officer for reconsideration and while working out the deduction in terms of section 14A read with Rule-8D, the asssessing officer must take note of clause (f) of Explanation to section 115JB of the I.T. Act, then we do not think that questions 1 and 3 could be entertained. The same clarification as is given in the case of M/s. Essar Teleholdings Ltd. [2015 (5) TMI 810 - BOMBAY HIGH COURT]would govern the present case. The facts and circumstances being identical, we do not think that the appeal should be entertained on question nos.1 and 3 above - Decided against revenue. Interest under section 234B - Held that:- The liability to pay interest would only arise on default and is really in the nature of a quasi punishment. The liability to tax although credited retrospectively could not entail the punishment of payment of interest with retrospective effect.We do not think that the assessee before us can be called upon to pay interest in terms of section 234B, once the explanation was introduced or brought in with retrospective effect but by Finance Act, 2008. Then, there was no liability to pay interest in terms of this provision. That was because the assessee cannot be termed as defaulter in payment of advance tax. The advance tax computation on the basis of the unamended provision therefore could not have been entertained.- Decided against revenue. Issues Involved:1. Legality of the Tribunal's decision to set aside and restore the issue to the AO for denovo adjudication.2. Applicability of interest under Section 234B due to retrospective amendments.3. Deletion of addition made under Section 14A read with Explanation 1 of Section 115JB for computing book profit.Issue-wise Detailed Analysis:1. Legality of the Tribunal's Decision to Set Aside and Restore the Issue to the AO for Denovo Adjudication:The Tribunal set aside the Commissioner's order based on the judgment in the case of Godrej and Boyce Manufacturing Co. Ltd. and directed the Assessing Officer (AO) to reconsider the matter. The Tribunal instructed the AO to examine relevant accounts, the nature of term loans, and the availability of interest-free funds with the assessee. This directive was aimed at ensuring a reasonable disallowance related to the earning of dividend income. The Tribunal also required the assessee to furnish necessary details and working before the AO. The High Court found that the Tribunal's decision to remand the matter for reconsideration was appropriate and did not raise substantial questions of law. This approach was consistent with the decision in the case of M/s. Essar Teleholdings Ltd., where the Tribunal's similar decision was upheld by the High Court.2. Applicability of Interest under Section 234B Due to Retrospective Amendments:The Tribunal held that no interest under Section 234B could be levied due to the inclusion of various items while computing book profit as per the Explanation to Section 115JB, which was brought by the Finance Act, 2008 with retrospective effect from April 1, 2001. The High Court noted that Section 234B pertains to the recovery of interest for default in payment of advance tax. The Court agreed with the Tribunal's reliance on the Calcutta High Court's judgment in Emami Ltd. v. Commissioner of Income Tax, which stated that the liability to pay advance tax must be established based on the law prevailing at the relevant time. Since the amendments were made retrospectively, the assessee could not have been aware of the need to pay additional advance tax, and therefore, could not be held liable for interest under Section 234B. The High Court also referenced the Supreme Court's decision in Star India Pvt. Ltd. v. Commissioner of Income Tax, which held that the liability to pay interest, being quasi-punitive, should not be applied retrospectively.3. Deletion of Addition Made under Section 14A Read with Explanation 1 of Section 115JB for Computing Book Profit:The Tribunal deleted the addition of Rs. 8,94,26,631 made by the AO under Section 14A read with Explanation 1 of Section 115JB for computing book profit. The Tribunal reasoned that if the accounts are prepared in accordance with the Indian Companies Act, 1956, and approved by the Registrar of Companies, the AO must consider those accounts. The Tribunal held that if the assessee had not debited any actual expenditure related to earning exempt income, the provisions of Section 14A could not be imported into the computation of book profit under Section 115JB. The High Court upheld this view, noting that similar reasoning was applied in the case of M/s. Essar Teleholdings Ltd., where the appeal was dismissed on these grounds. The Court emphasized that the AO must take note of clause (f) of Explanation 1 to Section 115JB while reconsidering the issue.Conclusion:The High Court dismissed the appeal, concluding that none of the questions proposed were substantial questions of law. The Tribunal's decision to remand the matter for reconsideration by the AO was upheld, and the applicability of interest under Section 234B due to retrospective amendments was found to be erroneous. The deletion of the addition made under Section 14A read with Explanation 1 of Section 115JB was also upheld, consistent with previous judgments.