2018 (7) TMI 1849 - AT - Income Tax

Tribunal directs reassessment on Section 14A, permits adjustment in Section 115JB book profits

The Tribunal directed the matter back to the Assessing Officer for re-adjudication based on statutory provisions and Supreme Court's ruling, emphasizing ... Disallowance u/s.14A - additions of average investments - Held that:- The perusal of Balance Sheet, prima-facie, reveal that the assessee’s year end current investments and non-current investments aggregate to ₹ 787.43 Crores which is approx. 76% of total assets i.e. ₹ 1037.69 Crores as reflected in the Balance Sheet. The same reveal that the assessee is pre-dominantly an investment company. At this juncture, we find that we stood benefitted by the recent judgment in Maxopp Investment Ltd. Vs. CIT [2018 (3) TMI 805 - SUPREME COURT OF INDIA] wherein it has categorically been held that the objective of holding the investments was immaterial and the disallowance was to be applied in all cases irrespective of the fact whether the same are held as stock-in-trade or as an investments. Therefore, keeping in view the recent judgment of Hon’ble Apex Court as cited above, we deem it fit to restore the matter back to the file of Ld. AO for re-adjudication in the light of statutory provisions as well as in the light of ratio of cited judgment of Hon’ble Supreme Court. The assessee, in turn, is directed to substantiate his claim with supporting evidences in this regard failing which Ld. AO shall be at liberty to decide the issue on the basis of material available on record. MAT - adjustment of disallowance u/s 14A in computation of book profit u/s 115JB is concerned, we find that the matter stood squarely in assessee’s favour rendered in ACIT Vs. Vireet Investment (P.) Ltd. [2017 (6) TMI 1124 - ITAT DELHI] hold that adjustment of disallowance u/s 14A was not required to be made in Book Profits for the purpose of Section 115JB. The ground of assessee’s appeal stands allowed to that extent. Issues:1. Disallowance under section 14A r.w.r. 8D2. Disallowance under section 14A to book profit under section 115JBAnalysis:Issue 1: Disallowance under section 14A r.w.r. 8DThe appeal by the revenue contested the order of the Ld. Commissioner of Income-Tax (Appeals) regarding the disallowance of Rs. 1,47,00,000 under section 14A r.w.r. 8D for Assessment Year 2013-14. The assessee, a resident corporate entity engaged in trading, investment, and financing, earned exempt income of Rs. 37.55 crores during the impugned assessment year. The Assessing Officer (AO) disallowed expenses of Rs. 159.44 Lacs using Rule 8D, which was higher than the assessee's suo-moto disallowance of Rs. 12.44 Lacs. The Ld. CIT(A) deleted the addition of Rs. 147 Lacs, relying on previous decisions. The revenue appealed, arguing that computations should strictly follow Rule 8D. The Tribunal, after considering previous years' decisions and the recent Supreme Court judgment in Maxopp Investment Ltd. Vs. CIT, directed the matter back to the AO for re-adjudication based on statutory provisions and the Supreme Court's ruling, emphasizing that the objective of holding investments was immaterial for disallowance under section 14A.Issue 2: Disallowance under section 14A to book profit under section 115JBRegarding the adjustment of disallowance under section 14A in the computation of book profit under section 115JB, the Tribunal referred to the judgment of the Delhi Tribunal (Special Bench) in ACIT Vs. Vireet Investment (P.) Ltd. The Tribunal held that adjustment of disallowance under section 14A was not necessary for computing book profits under section 115JB, citing various judgments in favor of the assessee. The Tribunal allowed the ground of the assessee's appeal in this regard. The order was pronounced on 27th July 2018, partially allowing the appeal for statistical purposes.