ITAT Mumbai decision: Disallowance under section 14A for interest payment deleted, provision for doubtful debts upheld.

The ITAT Mumbai partially allowed the appeal by deleting the disallowance under section 14A for interest paid on borrowing for acquiring controlling interest. The addition of provision for doubtful debts/advances to book profit u/s 115JB was upheld. Additionally, the disallowance under section 14A while computing book profit u/s 115JB was also deleted.

---

---

Issues:
1. Disallowance under section 14A r.w. Rule 8D for interest paid on borrowing for acquiring controlling interest.
2. Addition of provision for doubtful debts/advances to book profit u/s 115JB.
3. Disallowance under section 14A r.w. Rule 8D while computing book profit u/s 115JB.

Issue 1: Disallowance under section 14A r.w. Rule 8D for interest paid on borrowing for acquiring controlling interest:
The assessee disputed the disallowance of Rs. 3,90,13,648 made by the AO under section 14A r.w. Rule 8D. The AO disallowed the amount as the assessee disallowed expenditure incurred for earning exempt income. The assessee argued that interest paid on borrowing for acquiring controlling interest should not be disallowed under section 14A r.w. Rule 8D. The Ld. CIT(A) upheld the AO's decision, but the ITAT Mumbai, referring to judicial decisions, held that disallowance under section 14A cannot be made if no exempt income was earned during the relevant assessment year. Relying on legal precedents, the ITAT deleted the disallowance, allowing the 1st ground of appeal.

Issue 2: Addition of provision for doubtful debts/advances to book profit u/s 115JB:
The AO added the provision for doubtful debts/advances to the book profit u/s 115JB, which the assessee had initially included but later excluded in the revised return. The AO based the addition on a retrospective amendment, while the Ld. CIT(A) confirmed this decision. The ITAT, following judgments from different High Courts, upheld the addition, dismissing the 2nd ground of appeal.

Issue 3: Disallowance under section 14A r.w. Rule 8D while computing book profit u/s 115JB:
The ITAT referred to a recent decision by the ITAT Delhi Bench 'H' (Special Bench) in ACIT vs. Vireet Investment (P.) Ltd., which stated that the computation under section 115JB should be done without resorting to computation under section 14A r.w. Rule 8D. Consequently, the ITAT deleted the disallowance made by the AO under section 14A r.w. Rule 8D while computing book profit u/s 115JB, allowing this part of the 2nd ground of appeal.

In conclusion, the ITAT Mumbai partially allowed the appeal, deleting the disallowance under section 14A, upholding the addition of provision for doubtful debts/advances to book profit u/s 115JB, and deleting the disallowance under section 14A while computing book profit u/s 115JB.

---