Tribunal Overrules Disallowance for Book Profit Computation, Accepts Long-Used Expense Allocation Method.

The Tribunal set aside the CIT(A)'s direction to adopt the disallowance made under Section 14A for computing book profit under Section 115JB, aligning with the assessee's argument and prior Tribunal decisions. The assessee's method of allocating expenses, consistently used for over a decade, was accepted for Section 115JB purposes. The appeal was allowed for statistical purposes, directing the AO to accept the assessee's computation.

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Issues:
Disallowance of expenses relating to exempt income under Section 14A of the Income Tax Act and disallowance for computing book profit under Section 115JB of the Act.

Analysis:
The appeal pertains to the disallowance of expenses related to exempt income and the computation of book profit for the assessment year 2012-13. The assessee, an investor company, earned exempt income through dividends, interest on tax-free bonds, and long-term capital gains. The disallowance under Section 14A of the Act was computed at Rs. 745.46 lakhs for normal income tax provisions and at Rs. 552.93 lakhs for book profit under Section 115JB. The Assessing Officer (AO) accepted the disallowance made by the assessee under Section 14A and for book profit computation.

In the appellate proceedings, the CIT(A) directed the AO to adopt the disallowance amount computed under Section 14A for the purpose of computing book profit under Section 115JB. The CIT(A) relied on a decision by the Mumbai Bench of the Tribunal in a similar case. The issue at hand was whether the CIT(A) was justified in directing the AO to adopt the disallowance under Section 14A for book profit computation under Section 115JB.

The assessee argued, citing a Special Bench decision, that the disallowance under Section 115JB should be computed without resorting to Section 14A and Rule 8D. The Tribunal had previously held in a similar case for A.Y. 2011-12 that the disallowance under Section 14A should not be adopted for Section 115JB purposes. Considering this, the Tribunal set aside the CIT(A)'s direction to adopt the disallowance made under Section 14A for book profit computation under Section 115JB.

The assessee's method of allocating expenses based on taxable and exempt income, consistently followed for over 10 years, was deemed appropriate for determining expenses related to exempt income for Section 115JB purposes. Consequently, the Tribunal directed the AO to accept the assessee's computation for Section 115JB. The appeal was treated as allowed for statistical purposes.

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