Tribunal upholds CIT(A)'s decision on disallowance issues under Income Tax Act

Income-tax Officer, Ward 6 (4), New Delhi Versus Milk Food Ltd.

Income-tax Officer, Ward 6 (4), New Delhi Versus Milk Food Ltd. - TMI Issues Involved:
1. Disallowance under section 14A of the Income Tax Act, 1961.
2. Disallowance of interest expenses under section 36(1)(iii) of the Income Tax Act, 1961.
3. Interpretation of judgments related to disallowance of expenses.
4. Applicability of Section 115JB in computing book profit.

Analysis:

Issue 1: Disallowance under section 14A
The appellant, a public limited company, challenged the disallowance made by the Assessing Officer (AO) under section 14A of the Income Tax Act. The AO computed the disallowance at Rs. 15,90,440/-, which was partly allowed by the CIT(A). The CIT(A) deleted the addition based on the decision of the Hon'ble Bombay High Court in the case of Godrej and Boyce Manufacturing Ltd. Vs. DCIT, stating that Rule 8D was not applicable. The appellant contended that since no exempt income was earned during the year, no disallowance could be made under section 14A. The Tribunal upheld the CIT(A)'s decision, citing consistent views in various judgments that support the position that where no exempt income is earned, disallowance under section 14A is not warranted. Therefore, the ground taken by the Revenue was dismissed.

Issue 2: Disallowance of interest expenses under section 36(1)(iii)
The AO disallowed a sum of Rs. 80,406/- out of interest claimed under section 36(1)(iii), which was restored by the CIT(A) to the file of the AO. The CIT(A) directed the AO to follow previous orders and disallow interest on interest-bearing funds forwarded to subsidiary concerns. The Tribunal found no infirmity in the CIT(A)'s findings and confirmed the action taken. The interest disallowance on funds given to sister concerns was also directed to be recalculated. The Tribunal upheld the CIT(A)'s decision on this issue.

Issue 3: Interpretation of judgments related to disallowance of expenses
The Tribunal considered various judgments cited by the appellant's counsel to support the contention that no disallowance could be made under section 14A if no exempt income was earned during the year. The Tribunal relied on these decisions to dismiss the Revenue's appeal on the disallowance issue.

Issue 4: Applicability of Section 115JB in computing book profit
Since the Tribunal held that the provisions of Section 14A were not applicable in the assessment year, the ground related to the calculation of tax under Section 115JB was deemed academic and dismissed accordingly.

In conclusion, the Tribunal dismissed the department's appeal, upholding the decisions of the CIT(A) on the disallowance issues under section 14A and section 36(1)(iii). The Tribunal found no merit in the grounds raised by the Revenue and confirmed the CIT(A)'s actions. The rest of the grounds taken by the department were considered general in nature and required no adjudication.