2021 (10) TMI 260 - AT - Income Tax

ITAT Decision: Interest on Exempt Income not added to Book Profit

The ITAT allowed the appeal of the assessee regarding the addition of interest attributable to exempt income under section 115JB of the Income Tax Act, ... Addition u/s. 14A while computing the book profit u/s. 115JB - HELD THAT:- During the course of assessment, the Assessing Officer has added the disallowance made u/s. 14A to the book profit computed u/s. 115JB of the act. The ld. CIT(A) has restricted the addition to the extent of ₹ 35,440/- as disallowance computed by the assessee company. With the assistance of ld. representatives, we have gone through the decision of VIREET INVESTMENT (P.) LTD. [2017 (6) TMI 1124 - ITAT DELHI] wherein it is held that expenditure incurred to earn exempt income not to be added for computing book profit u/s. 115JB of the Act. Therefore, following the decision of the Co-ordinate Bench as above we consider that decision of ld. CIT(A) in sustaining the part of the addition is not justified, therefore the impugned addition is deleted and appeal of the assessee is allowed on this issue. Disallowance u/s. 14A - Expenses incurred on earning exempt income - HELD THAT:- As in Adani Agro (P) Ltd. [2018 (2) TMI 1215 - GUJARAT HIGH COURT] wherein it is held that there was no question of disallowing administrative expenses u/s. 14A r.w.r. 8D in excess of the total administrative expenditure incurred by the assessee. In the light of the above, we restrict the disallowance u/s. 14A to the extent of ₹ 35,440/- as the amount computed by the assessee pertaining to the interest attributable to the exempt income and the disallowance out of administrative expenditure up to such expenditure i.e. ₹ 39,386/-. Accordingly, we restrict the total disallowance. Appeal of the assessee is partly allowed. Issues:1. Addition of interest attributable to exempt income while computing book profit under section 115JB of the Income Tax Act.2. Disallowance of expenses made under section 14A of the Income Tax Act.Analysis:Issue 1: Addition of interest attributable to exempt income while computing book profit under section 115JB of the Income Tax Act:The Assessing Officer added a disallowance for expenditure incurred in earning exempt income under section 14A of the Act, including an amount of Rs. 4,53,348. The Assessing Officer also added this disallowance to the book profit computed under section 115JB of the Act. The CIT(A) sustained the addition to the extent of Rs. 35,440, which was the interest amount incurred for earning exempt income as computed by the assessee. The assessee contended that this addition was not justified based on a decision of the Special Bench of the ITAT Delhi. After considering the arguments and the decision cited, the ITAT held that expenditure incurred to earn exempt income should not be added when computing book profit under section 115JB. Therefore, the ITAT deleted the impugned addition and allowed the appeal of the assessee on this issue.Issue 2: Disallowance of expenses made under section 14A of the Income Tax Act:The Assessing Officer disallowed Rs. 4,53,348 under section 14A of the Act, as the assessee had received dividend income and was asked about the disallowance made for earning exempt income. The assessee explained that the investments were made from interest-free loans and calculated the disallowance of interest expenses to be Rs. 3,54,408. The Assessing Officer, however, computed the disallowance to be Rs. 4,53,348. The CIT(A) dismissed the appeal of the assessee. During the appellate proceedings, the assessee reiterated that no expenditure on interest was incurred for the investments made in shares and securities. The ITAT observed that the assessee provided detailed evidence to support its claim that the investments were made from interest-free funds. The ITAT also noted that the Assessing Officer did not disprove the supporting evidence submitted by the assessee. Referring to relevant case law, the ITAT restricted the disallowance under section 14A to Rs. 35,440, being the interest attributable to the exempt income, and further limited the disallowance out of administrative expenditure to Rs. 39,386. Therefore, the total disallowance was restricted to Rs. 74,826. Consequently, the ITAT partly allowed the appeal of the assessee on this issue.In conclusion, the ITAT partly allowed the appeal of the assessee concerning both the addition of interest attributable to exempt income and the disallowance of expenses made under sections 115JB and 14A of the Income Tax Act, respectively.