2016 (12) TMI 122 - HC - Income Tax

High Court Remands Tax Disallowance Case for Proper Computation

The High Court found that the CIT (Appeals) and the Tribunal did not properly address the disallowance under Section 14A and the computation of book ... Disallowance u/s 14A - mat computation - Held that:- Admittedly, for the purpose of Section 115JB, the book profits assessed by the assessee were accepted and the assessee was brought to tax accordingly. The CIT (Appeals), therefore, wrongly observed that the issue which required consideration is whether the provisions of Section 14A are applicable for determining the book profits under Section 115JB. In view of what we have just said this issue does not arise. The last but one sentence in paragraph 3.3 quoted above would cause difficulties in future. The CIT (Appeals) observed that the disallowance under Section 14A read with Rule 8D for computing book profit under Section 115JB was deleted. While it is possible to restrict this observation for the purpose of Section 115JB alone, it is also possible that in future the same confusion may arise on account of the assessee contending that the disallowance under Section 14A was set aside. The Tribunal has gone a step further in observing that the issue of disallowance under Section 14A was academic. It is not. As we mentioned earlier, it is necessary that the disallowance under Section 14A is also computed for it may have an effect in the future years on account of the benefit accorded to an assessee under Section 115JAA. In these circumstances, the impugned order and judgement is set aside. The matter is remanded to the Tribunal for determining all the issues raised by the assessee especially the issue of disallowance under Section 14A. Needless to clarify that all the contentions of the parties including as to the applicability of Rule 8D are kept open. Issues involved:1. Disallowance under Section 14A of the Income Tax Act for the assessment year 2007-2008.2. Applicability of Section 115JB in computing book profits.3. Correct approach of the CIT (Appeals) and the Tribunal in determining disallowance under Section 14A and Section 115JB.Detailed Analysis:Issue 1: The appeal raised substantial questions of law regarding the correctness of upholding the order of the CIT (Appeals) in deleting disallowance under Section 14A of the Income Tax Act. The Assessing Officer computed the disallowance at about Rs. 1.03 crores based on the assessee's income from dividends and investments in shares and mutual funds. The CIT (Appeals) deleted the disallowance under Section 14A for computing book profit under Section 115JB, citing precedents from the ITAT decisions in similar cases.Issue 2: The main issue revolved around the correct application of Section 115JB in determining book profits. The CIT (Appeals) and the Tribunal did not consider the implications of Section 115JAA in computing the disallowance under Section 14A for future assessment years. The Tribunal erroneously considered the issue of disallowance under Section 14A as academic, neglecting its potential impact on the assessee's tax liabilities in subsequent years.Issue 3: Both the CIT (Appeals) and the Tribunal failed to adopt the correct approach in addressing the matter at hand. The High Court observed that the CIT (Appeals) and the Tribunal did not focus on the main issue that arose, leading to an incorrect assessment of the disallowance under Section 14A and the application of Section 115JB. The High Court set aside the impugned order and remanded the matter to the Tribunal for a comprehensive determination of all issues, emphasizing the importance of computing the disallowance under Section 14A for future assessment years.In conclusion, the High Court found that the CIT (Appeals) and the Tribunal had not correctly addressed the issues related to disallowance under Section 14A and the computation of book profits under Section 115JB. The High Court set aside the judgment and remanded the matter to the Tribunal for a thorough reconsideration of all raised issues, ensuring the correct application of relevant provisions and the computation of disallowance under Section 14A for future assessment years.