ITAT Chennai limits disallowance under section 14A to exempt income, excludes from book profit. The ITAT Chennai allowed the appeal filed by the assessee on 10th November 2020. The disallowance of expenditure under section 14A of the IT Act was ...
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ITAT Chennai limits disallowance under section 14A to exempt income, excludes from book profit.
The ITAT Chennai allowed the appeal filed by the assessee on 10th November 2020. The disallowance of expenditure under section 14A of the IT Act was restricted to the extent of exempt income earned for the year, in line with the principle that disallowance should not exceed the exempt income earned. Additionally, the disallowance under section 14A was directed to be deleted from the book profit computed under section 115JB of the IT Act, following the decision in ACIT vs. Vireet Investments by the ITAT Delhi Special Bench.
Issues: 1. Disallowance of expenditure under section 14A of the IT Act read with rule 8D of the IT rules. 2. Computation of book profit under section 115JB of the IT Act.
Issue 1: Disallowance of Expenditure under Section 14A of the IT Act: The assessee appealed against the order of the Commissioner of Income Tax (Appeals) regarding disallowance of expenditure under section 14A of the IT Act. The Assessing Officer had disallowed Rs. 1,29,66,368/- towards expenditure related to exempt income under section 14A, which the Commissioner upheld. However, the ITAT Chennai directed the Assessing Officer to restrict the disallowance to the extent of exempt income earned for the year, citing the principle that disallowance under section 14A should not exceed the exempt income earned. This decision was supported by the judgment of the Hon'ble Delhi High Court in Cheminvest Ltd. vs. CIT and the Chennai Tribunal's decision in M/s. Voltech Engineers Pvt. Ltd vs. DCIT.
Issue 2: Computation of Book Profit under Section 115JB of the IT Act: The Assessing Officer added the disallowance under section 14A of the IT Act to the book profit computed under section 115JB of the IT Act. The Commissioner upheld this addition, relying on a decision of ITAT Mumbai. However, the ITAT Chennai referred to the ITAT Delhi Special Bench's decision in ACIT vs. Vireet Investments, which held that the computation under clause (f) of Explanation 1 to section 115JB of the Act should not be made by resorting to the computation under section 14A read with Rule 8D of the IT Rules. Therefore, the ITAT Chennai directed the Assessing Officer to delete the additions made towards 14A disallowance in the book profit computed under section 115JB of the Act.
In conclusion, the ITAT Chennai allowed the appeal filed by the assessee, pronouncing the order on 10th November 2020.
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