2018 (10) TMI 1965 - AT - Income Tax

Tribunal sets aside disallowance under Section 14-A, stresses nexus for expenses, clarifies interest computation

Tata Steel Ltd. (Successor-in-Interest to the Erstwhile Kalimati Investment Company Ltd.) Versus DCIT-2 (3) (1), Mumbai

The Tribunal allowed the appeal, setting aside the disallowance under Section 14-A due to the lack of nexus between expenses and exempt income. The ... Disallowance u/s 14A r.w.r. 8D - Necessity of recording satisfaction - As argued AO has not recorded any satisfaction with regard to the correctness of claim of assessee - HELD THAT:- AO has neither recorded dissatisfaction about the correctness of claim of assessee nor proved nexus of expenditure between other expenses and exempt income. Therefore, considering the decision of Hon’ble Apex Court in Godrej & Boyce Mfg. Co. Ltd. [2017 (5) TMI 403 - SUPREME COURT] and Maxopp Investment Ltd. [2018 (3) TMI 805 - SUPREME COURT], we do not find any justification in making disallowance of expenses which has no nexus with the exempt income. Hence, Ground of the appeal is allowed. MAT computation of book profit u/s 115JB for disallowance of section 14A - HELD THAT:- We have noted that the Assessing Officer while passing the assessment order increased the book profit under section 115JB of the Act by the disallowance of section 14A. CIT(A) confirmed the action of Assessing Officer despite referring the decision of Special Bench in ACIT vs. Vireet Investment Pvt. Ltd [2017 (6) TMI 1124 - ITAT DELHI]. Considering the fact that we have already deleted the disallowance under section 14A. Hence, the raising of profit under section 115JB would automatically become infructuous. Charging interest u/s 234C - Assessee submits that charging of interest under section 234C on the returned total income and not on assessed total income - HELD THAT:- The perusal of section 234C shows that levy of interest under section 234C is on the return income and not on the total assessed income, therefore, we direct the Assessing Officer to levy and compute interest on return income under section 234C of the Act. We direct accordingly. Thus, Ground of appeal is allowed. Issues:1. Disallowance under Section 14-A2. Increasing of Book Profit u/s. 115JB of the Act3. Interest under Section 234-B of the Act4. Interest under Section 234-C of the ActIssue 1: Disallowance under Section 14-AThe appeal was against the order of ld. CIT(A)-6, Mumbai dated 04.11.2017, arising from the assessment order under section 143(3) for Assessment Year 2013-14. The Assessing Officer disallowed Rs. 10,24,687 under section 14A, including Demat Charges of Rs. 3,172. The ld. AR of the assessee argued that there was no nexus established between expenses and exempt income, hence section 14A was not applicable. The Assessing Officer applied Rule 8D mechanically without recording satisfaction. The Tribunal noted that the Assessing Officer did not prove the nexus of expenditure with exempt income or record dissatisfaction, as required by precedent cases. Consequently, the disallowance was held unjustified, and Ground No.1.2 of the appeal was allowed.Issue 2: Increasing of Book Profit u/s. 115JB of the ActThe Assessing Officer increased the book profit under section 115JB by the disallowed amount under section 14A. The ld. CIT(A) upheld this despite reference to relevant case law. However, since the disallowance under section 14A was deleted due to lack of nexus, the increase in book profit was deemed irrelevant and infructuous. Hence, Ground No.2 was considered in favor of the assessee.Issue 3: Interest under Section 234-B of the ActThis ground was deemed consequential and required no adjudication, as per the Tribunal's decision.Issue 4: Interest under Section 234-C of the ActThe ld. AR contended that interest under section 234C should be charged on returned total income, not assessed total income. The Tribunal, after considering relevant case law, directed the Assessing Officer to levy and compute interest under section 234C on the return income, in accordance with the law. Consequently, this ground of appeal was allowed.In conclusion, the Tribunal allowed the appeal of the assessee, setting aside the disallowance under section 14A and directing the correct computation of interest under section 234C. The judgment highlighted the importance of establishing a nexus between expenses and exempt income for disallowance under section 14A and clarified the correct method of charging interest under section 234C.