2013 (3) TMI 813 - AT - Income Tax

Partial Win for Appellant: Section 14A Disallowance Not Applicable in 115JB Book Profit Calculation

The Tribunal partly allowed the appellant's appeal, stating that no disallowance under Section 14A can be made when computing book profit under Section ... Adjustment to book profit under section 115JB - disallowance under section 14A - clause (f) of Explanation 1 to section 115JB - book profit as net profit shown in profit and loss account - Rule 8D methodology for computing expenditure relatable to exempt income - assessing officer's power to alter company accounts filed with RegistrarAdjustment to book profit under section 115JB - disallowance under section 14A - clause (f) of Explanation 1 to section 115JB - book profit as net profit shown in profit and loss account - Whether disallowance computed under section 14A (by applying Rule 8D) can be added back while computing book profit under section 115JB where no corresponding expenditure has been debited to the profit and loss account. - HELD THAT: - The Tribunal held that for the purpose of section 115JB, 'book profit' is the net profit shown in the profit and loss account as adjusted by amounts which have been debited or shown in that account and computed in accordance with Parts II and III of Schedule VI of the Companies Act, 1956. Clause (f) of Explanation 1 to section 115JB refers only to amounts debited to the profit and loss account. Where the assessee has not debited any expenditure relating to earning exempt income in the profit and loss account, the Assessing Officer has no power to import disallowance under section 14A (or to otherwise alter the accounts approved by the board and filed with the Registrar) into the computation of book profit. Reliance on Rule 8D to compute and thereafter add back such an amount to book profit is not permissible in these circumstances. The Tribunal followed the reasoning in precedents of the ITAT (including Quippo Telecom Infrastructure Ltd.) and accordingly held that no addition under section 14A can be made for computing book profit when no such expense is debited in the profit and loss account. [Paras 7]Disallowance under section 14A (computed under Rule 8D) cannot be imported into the computation of book profit under section 115JB where no corresponding expenditure is debited to the profit and loss account; ground accordingly allowed.Treatment of unpressed grounds as academic - Ground challenging importation of sections 14A(2) and 14A(3) into clause (f) of Explanation to section 115JB was not pressed and became purely academic. - HELD THAT: - The assessee's counsel did not press the first ground contending that clause (f) cannot be read by importing provisions of section 14A(2) and 14A(3); furthermore, as the assessment was ultimately completed under section 115JB, the counsel accepted that the ground had become academic. The Tribunal therefore treated that ground as not pursued and dismissed it as academic. [Paras 5, 7]Ground treated as dismissed as purely academic.Final Conclusion: Appeal partly allowed: the Tribunal set aside the addition of the section 14A disallowance in computing book profit under section 115JB (no such expense was debited to P&L), and treated the challenge to importing specific sub provisions of section 14A into clause (f) as academic and dismissed. Issues involved:The issues involved in this judgment are adjustment to book profit u/s 115-JB and computation of disallowance u/s 14A.Adjustment to book profit u/s 115-JB:The appellant challenged the adjustment to 'book profit' u/s 115-JB, contending that no adjustment can be made by importing section 14A(2) and 14A(3) into the said clause. The appellant argued that the computation of 'expense relatable to exempt income' under clause (f) of the Explanation to section 115-JB by adopting methodology laid down in Rule 8D is bad-in-law and needs to be cancelled.Computation of disallowance u/s 14A:The appellant also disputed the disallowance of &8377; 12,12,655/- under Section 14A, contending that the expenses debited to the profit and loss account and claimed as business expense are incurred for the purpose of the business income. The appellant argued that such disallowance is bad-in-law and needs to be deleted.The Assessing Officer made disallowance under Section 14A of &8377; 12,12,655/-, and further made adjustment on account of disallowance of expenses under Section 14A while computing the book profit under Section 115JB. The CIT(A) confirmed the disallowance based on the application of Rule 8D for the assessment year 2008-09.The appellant argued that adjustment on account of disallowance under Section 14A cannot be made while computing the book profit under Section 115JB, as no such expenditure was debited in the profit and loss account. The Departmental Representative contended that such an adjustment can be made under Clause (f) of Explanation-1 to Section 115JB.The Tribunal held that no disallowance under Section 14A can be imported while computing the book profit under Section 115JB if the assessee has not debited any expenses for earning exempt income in the profit and loss account. The Tribunal emphasized that the Assessing Officer cannot tinker with accounts approved by the Board of Directors and filed before the Registrar of Companies. Consequently, the appeal was treated as partly allowed, with ground no. 2 being allowed and ground no. 1 dismissed as it had become purely academic.In conclusion, the Tribunal partly allowed the assessee's appeal, emphasizing that no disallowance under Section 14A can be made while computing the book profit under Section 115JB if no such expenses were debited in the profit and loss account.