Tribunal decision: Revenue's appeal partially allowed, assessee's cross-objection partly upheld.

The Tribunal partially allowed the revenue's appeal by reversing the deletion of disallowance under Section 14A but upheld the deletion under Rule 8D(2)(iii). The assessee's cross-objection was partly allowed, specifically regarding the computation of book profits under Section 115JB, in line with the Tribunal's prior rulings.

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Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act.
2. Computation of book profits under Section 115JB of the Act.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A of the Income Tax Act:

The primary issue revolves around the disallowance of Rs. 6,68,64,159/- under Section 14A of the Income Tax Act by the Assessing Officer (AO). The ld. CIT(A) deleted this addition, referencing the Hon’ble Calcutta High Court's judgment in CIT vs. Rajeev Lochan Kanoria, stating that interest expenditure cannot be disallowed as the borrowed funds were used for acquiring controlling interest in shares. However, the Tribunal held that this view is no longer valid due to the Supreme Court's judgment in Maxopp Investment Ltd. v. CIT, reversing the ld. CIT(A)’s decision and allowing the revenue’s ground.

Regarding disallowance under Rule 8D(2)(iii), the Tribunal referred to the ITAT Kolkata Bench's decision in REI Agro Ltd. v. Dy. CIT and the Delhi Special Bench's decision in ACIT vs. Vireet Investments (P.) Ltd., concluding that the AO must only consider those shares that yielded dividend income for disallowance computation. Consequently, this ground of the revenue was dismissed.

2. Computation of Book Profits under Section 115JB of the Act:

The assessee challenged the AO's addition of Rs. 13,97,75,000/- to the net profit disclosed in the audited Profit & Loss Account, arguing that the provision for diminution in the value of investments was already netted off against the cost of investments. The Tribunal, referencing its earlier decision in Philips Carbon Black Ltd. vs. ACIT, held that if the provision for diminution in the value of investments is netted off against the cost, it effectively becomes a write-off and should not be added back while computing book profits under Section 115JB. Thus, the additional grounds raised by the assessee were allowed.

Conclusion:

The Tribunal allowed the revenue's appeal in part by reversing the deletion of disallowance under Section 14A but upheld the deletion under Rule 8D(2)(iii). The assessee's cross-objection was partly allowed, particularly concerning the computation of book profits under Section 115JB, consistent with the Tribunal's earlier decisions.

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