Disallowance under section 14A & addition to book profit deleted for absence of exempt income

The disallowance under section 14A and the addition to the book profit u/s. 115JB were both deleted by the ld. CIT(A) and upheld by the Tribunal. This decision was based on the absence of exempt income earned by the assessee during the relevant year and legal precedents supporting the conclusion that disallowance under section 14A should not be made if no claim for exemption is filed, and such disallowance should not be added to the book profit under section 115JB.

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Issues:
1. Disallowance under section 14A r.w.r. Rule 8D of the Income Tax Act.
2. Addition to book profit u/s. 115JB of the Income Tax Act.

Analysis:
1. The appeal pertains to the assessment year 2015-16, where the assessing officer made an addition of Rs. 13,55,80,000/- on account of disallowance under section 14A r.w.r. Rule 8D of the Income Tax Act. The assessing officer observed that the assessee had investments in shares generating exempt income but had not disallowed any expenses related to such income. The ld. CIT(A) deleted this addition, noting that the assessee had not earned any exempt income during the relevant year. The decision was based on the absence of any claim for exemption of income from tax. The ld. CIT(A) also referred to a judgment by the Hon’ble Gujarat High Court, stating that if no claim for exemption was made, disallowance under section 14A could not be justified. Additionally, it was held that such disallowance should not be added to the book profit u/s. 115JB of the act, following the decision of a Special Bench of ITAT Delhi.

2. The assessing officer also added the disallowed amount under section 14A to the book profit computed u/s. 115JB of the act. The ld. CIT(A) held that this addition was unwarranted, citing the decision of the Special Bench of ITAT Delhi, which stated that expenditure related to exempt income should not be considered for computing book profit u/s. 115JB. The ld. CIT(A) relied on this precedent and the absence of any exempt income earned by the assessee during the year to delete the addition to the book profit. The Tribunal upheld the decision of the ld. CIT(A) and dismissed the appeal filed by the revenue.

In conclusion, both the disallowance under section 14A and the addition to the book profit u/s. 115JB were deleted by the ld. CIT(A) and upheld by the Tribunal based on the absence of exempt income earned by the assessee during the relevant year and the legal precedents cited in support of this decision.

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