2018 (12) TMI 319 - AT - Income Tax

Tribunal allows appeal, directs A.O to recompute disallowance under Section 14A & Rule 8D(2)(iii)

M/s Wadhawan Holdings Pvt. Ltd. Versus Asst. Commissioner of Income Tax, Central Circle-37, Mumbai

The Tribunal allowed the appeal, condoning the delay in filing and directing the A.O to re-compute the disallowance under Section 14A read with Rule ... Disallowance u/s 14A r.w. Rule 8D(2)(iii) - working out the ‘book profit’ under Sec. 115JB - MAT computation - Held that:- Only those investments are to be considered for computing average value of investments which yielded exempt income during the year under consideration. See VIREET INVESTMENT (P.) LTD. [2017 (6) TMI 1124 - ITAT DELHI] As persuaded to subscribe to the claim of the A.R that the disallowance worked out under Sec. 14A r.w. Rule 8D can only be used for computation of income under the normal provisions of the Act, and the same cannot be transposed for working out the ‘book profit’ under Sec. 115JB of the Act. We direct the A.O to re-work the disallowance under Sec.14A r.w Rule 8D by taking the average value of such investments which had actually yielded tax free income to the assessee during the year under consideration. In terms of our aforesaid observations the order of the CIT(A) therein concluding that the A.O was justified in working out the average value of investment for the purpose of computing the disallowance under Rule 8D(2)(iii) by considering the investments in shares, irrespective of whether such investment had yielded any exempt income during the relevant period, is set aside. The matter is restored to the file of the A.O with a direction to re-work the disallowance under Sec. 14A r.w Rule 8D(2)(iii) in terms of our aforesaid observations. Issues Involved:1. Delay in filing the appeal by the assessee.2. Disallowance under Section 14A read with Rule 8D of the Income Tax Act, 1961.3. Inclusion of disallowance under Section 14A for computing 'book profit' under Section 115JB.Detailed Analysis:1. Delay in Filing the Appeal:The assessee filed an appeal with a delay of 48 days. The delay occurred because the assessee's auditors, M/s Thar & Company, Chartered Accountants, who were tasked with filing the appeal, failed to do so within the stipulated time due to being occupied with time-barring assessments. The Tribunal, considering the affidavit provided by the Director of the assessee company and the principles laid down by the Hon’ble Supreme Court in Collector Land Acquisition Vs. Mst. Katiji & Others (1987) 167 ITR 471 (SC), condoned the delay. The Tribunal emphasized that the delay was not due to any malafide conduct or lapse on the part of the assessee but was an inadvertent lapse by the auditors.2. Disallowance under Section 14A read with Rule 8D:The assessee challenged the disallowance of Rs. 1,39,89,537/- made by the Assessing Officer (A.O) under Section 14A read with Rule 8D(2)(iii). The A.O had included all investments for computing disallowance, irrespective of whether they yielded exempt income. The assessee argued that only those investments that yielded exempt income should be considered, citing the Tribunal's decision in the assessee's own case for A.Y 2009-10 and the judgment of the Hon’ble High Court of Delhi in Cheminvest Ltd. Vs. CIT-IV (2015) 61 taxmann.com 118 (Delhi). The Tribunal agreed with the assessee, stating that the disallowance under Rule 8D(2)(iii) should be computed by considering only the investments that yielded exempt income during the year. The Tribunal referred to several decisions, including those of ITAT Kolkata and ITAT Delhi, which supported this view. Consequently, the Tribunal directed the A.O to re-work the disallowance under Section 14A read with Rule 8D(2)(iii) by considering only those investments that yielded exempt income during the relevant year.3. Inclusion of Disallowance under Section 14A for Computing 'Book Profit' under Section 115JB:The assessee contended that the disallowance under Section 14A should not be considered for computing 'book profit' under Section 115JB. The Tribunal referred to the decision of the ITAT Mumbai in DCIT-7(2), Mumbai Vs. Reliance Natural Resources Ltd. (2017) 166 ITD 385 (Mum), which held that the disallowance computed under Section 14A cannot be imported into clause (f) of Explanation 1 to Section 115JB for computing 'book profit'. The Tribunal also cited the ITAT Kolkata Bench's decision in Integrated Coal Mining Ltd. Vs. DCIT, Circle 6, Kolkata (2016) 66 taxman.com 260 (Kolkata), which supported this view. The Tribunal concluded that the disallowance under Section 14A read with Rule 8D should only be used for computing income under the normal provisions of the Act and not for computing 'book profit' under Section 115JB.Conclusion:The Tribunal allowed the appeal, condoning the delay in filing and directing the A.O to re-compute the disallowance under Section 14A read with Rule 8D(2)(iii) by considering only those investments that yielded exempt income during the year. Additionally, it was held that the disallowance under Section 14A should not be considered for computing 'book profit' under Section 115JB. The matter was remanded to the A.O for re-computation in accordance with these observations.