2017 (6) TMI 486 - AT - Income Tax

Tribunal Upholds CIT(A)'s Decision on Disallowance & Addition in Book Profit

ACIT, Central Circle-13 New Delhi Versus Bhushan Energy Ltd. And Vice-Versa

The Tribunal upheld the CIT(A)'s decision in the case involving disallowance under section 14A of the Income Tax Act, 1961, and addition in book profit ... Disallowance under section 14-A - genuineness of the expenditure - Held that:- Considering Cheminvest Limited Versus Commissioner of Income Tax-VI [2015 (9) TMI 238 - DELHI HIGH COURT] assessee earned only exempted income in a sum of ₹ 1,75,063/- which is already added to the income of the assessee. Therefore, no further disallowance should be made on the matter in issue. We accordingly set aside the orders of the authorities below and delete the entire addition. In the result appeal of assessee is allowed and departmental appeal is dismissed. We may note that the assessee is at liberty to raise other contentions in other years as per law if so advised in accordance with law. These appeals have decided only on sole contention raised by Ld. Counsel for assessee as recorded in this order. With these observations, we allow the appeal of assessee and dismiss the departmental appeal. Issues involved:1. Disallowance under section 14A of the Income Tax Act, 1961.2. Addition made in book profit under the MAT provisions u/s 115JB.3. Disallowance u/s 14A read with rule 8D.Analysis:1. Disallowance under section 14A of the Income Tax Act, 1961:- The assessee had declared total income of &8377; 81.98 crore and earned exempt income during the year. The Assessing Officer (AO) disallowed &8377; 9,28,74,227 under section 14A read with Rule 8D of the IT Rules, citing that the disallowance can be made even if no exempt income is generated. The CIT(A) restricted the disallowance to &8377; 76,46,670 after considering the explanations provided by the assessee. The Delhi High Court's decision in Maxopp Investment Ltd. vs. CIT was relied upon to support the assessee's case, emphasizing that interest expenditure attributable to specific activities should not be disallowed under section 14A. The Tribunal upheld the CIT(A)'s decision, stating that no further disallowance should be made as the assessee had already added the exempt income to its total income.2. Addition made in book profit under the MAT provisions u/s 115JB:- The revenue challenged the deletion of an addition of &8377; 8,52,27,557 made by the AO under section 14A and an addition of &8377; 9,28,74,227 made in book profit under the Minimum Alternate Tax (MAT) provisions u/s 115JB. The CIT(A) had deleted these additions based on the explanations provided by the assessee, which demonstrated that the expenses were related to specific business activities and not passive investments. The Tribunal upheld the CIT(A)'s decision, emphasizing that no disallowance should be made when no exempted income was earned, as per the decision of the Delhi High Court in Cheminvest Ltd. vs. CIT.3. Disallowance u/s 14A read with rule 8D:- The AO relied on Rule 8D to disallow expenses under section 14A, despite the assessee earning only a minimal exempt income. The Tribunal, following the decisions of the Delhi High Court, held that no disallowance should be made when no exempted income is earned, as the genuineness of the expenses incurred was not in doubt. Therefore, the Tribunal set aside the orders of the authorities below and deleted the entire addition, allowing the appeal of the assessee and dismissing the departmental appeal.In conclusion, the Tribunal's decision focused on the correct interpretation and application of section 14A, ensuring that disallowances were made only when justified by the actual earning of exempt income and the related expenses incurred. The judgments of the Delhi High Court were crucial in guiding the Tribunal's decision-making process.