Tribunal Decision: Revenue's Appeal Dismissed, Assessee's Appeal Allowed. Section 14A Disallowance Restricted.
Addl. CIT, Mumbai Versus M/s Reliance Ports And Terminals Ltd. (Engineering & Construction Division Erstwhile Reliance Engg. Associates And Vice-Versa
Addl. CIT, Mumbai Versus M/s Reliance Ports And Terminals Ltd. (Engineering & Construction Division Erstwhile Reliance Engg. Associates And Vice-Versa - ...
Issues Involved:1. Disallowance of expenditure under Section 14A.
2. Addition on account of provision for wealth tax in book profit computed under Section 115JB.
Issue-wise Detailed Analysis:1. Disallowance of Expenditure under Section 14A:The Assessing Officer (AO) made additions by disallowing expenditure under Section 14A read with Rule 8D. The disallowance made under Rule 8D(2)(ii) was reduced by the Commissioner of Income Tax (Appeals) [CIT(A)] from Rs. 16.05 crores to Rs. 26.64 lakhs. The CIT(A) observed that the AO did not provide detailed reasons for the disallowance and noted that the interest expenditure of Rs. 45.09 crores was directly related to term loans used for business purposes, not for investments generating exempt income. The CIT(A) directed the AO to modify the computation under Rule 8D(2)(ii) based on these observations, restricting the disallowance to Rs. 26.64 lakhs.
For Rule 8D(2)(iii), the CIT(A) noted that investments not capable of generating exempt income, such as investments in Reliance Engineering (Middle East) DMCC and certain mutual funds, should be excluded. The AO was directed to recompute the disallowance out of administrative expenses at 0.5% of the average value of investments, excluding those not capable of generating exempt income.
Upon appeal, the Tribunal confirmed the CIT(A)'s restriction of disallowance under Rule 8D(2)(ii) to Rs. 26.64 lakhs. The Tribunal also agreed that strategic investments and investments not yielding dividend income should be excluded from the total investment for Rule 8D(2)(iii) disallowance. After excluding such investments, the Tribunal found no basis for disallowance under Rule 8D(2)(iii) but restricted the disallowance to Rs. 14,79,411 based on the assessee's working.
2. Addition on Account of Provision for Wealth Tax:The AO added the provision for wealth tax to the book profit computed under Section 115JB. The CIT(A) deleted this addition, citing consistency with decisions in the assessee's own case for earlier years and a jurisdictional High Court decision in CIT vs. Echjay Forgings Pvt. Ltd. (251 ITR 0015). The Tribunal upheld the CIT(A)'s deletion of the addition, finding no infirmity in the order and following the jurisdictional High Court's precedent.
Conclusion:The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal. The disallowance under Section 14A was restricted to Rs. 26.64 lakhs for interest expenditure and Rs. 14,79,411 for administrative expenses. The addition on account of the provision for wealth tax was deleted, following the jurisdictional High Court's decision. The order was pronounced in the open court on 23/11/2016.