2023 (7) TMI 339 - AT - Income Tax

Tribunal upholds deletion of disallowance under Section 14A & addition under Section 115JB

The Tribunal dismissed the Revenue's appeal, upholding the deletion of the disallowance under Section 14A and the related addition in computing Book ... Disallowance u/s 14A - expenses incurred on earning exempt income - sufficiency of funds - Suo-moto disallowance made by assessee - HELD THAT:- No reason to deviate from the stand taken in assessee’s own case[2022 (12) TMI 447 - ITAT AHMEDABAD] in holding that since the assessee is having interest free funds much larger as compared to the investment, disallowance of assessee’s claim for interest expenditure by applying Section 14A of the Act was incorrect. As the assessee has already disallowed suo-moto in his return of income by making disallowance under Section 14A r.w. Rule 8D, the Ld. CIT(A) rightly deleted the amount on account of administrative expenditure made by the Ld. AO. The Ground of appeal filed by the Revenue is found to be devoid of merit and, thus, dismissed. Disallowance u/s 14A while computing income u/s 115 JB - HELD THAT:- As in assessee’s own case [2022 (12) TMI 447 - ITAT AHMEDABAD] relying upon the judgment passed by the Hon’ble Supreme Court in the case of Atria Power Corporation Ltd [2022 (8) TMI 1322 - SC ORDER] whereby held disallowance made under Section 14A of the Act could not be added in assessee company’s income for the purpose of computation of income u/s 115JB. Revenue appeal dismissed. Issues Involved:1. Deletion of addition made on account of disallowance under Section 14A of the Income Tax Act.2. Deletion of addition in computing the Book Profit under Section 115JB of the Income Tax Act.Summary:Issue 1: Deletion of Addition on Account of Disallowance under Section 14AThe Revenue's appeal challenges the deletion of an addition of Rs. 11,09,333/- made under Section 14A of the Income Tax Act. The assessee had filed its return of income declaring a total income of Rs. Nil, which was initially accepted. The case was reopened, and the assessment was finalized, leading to the Ld. PCIT directing the Ld. AO to reassess under Section 263. The Ld. AO found a short disallowance under Rule 8D, resulting in an additional disallowance of Rs. 11,09,333/-. The Ld. CIT(A) deleted this disallowance, justifying that the appellant had not used any interest-bearing funds for investments generating exempt income. The assessee demonstrated sufficient own funds and no utilization of interest-bearing funds for such investments. The Ld. CIT(A) concluded that further disallowance was unwarranted, and this view was supported by the Co-ordinate Bench's order for A.Y. 2013-14, which found no justification for disallowance when interest-free funds exceeded investments.Issue 2: Deletion of Addition in Computing Book Profit under Section 115JBThe Revenue also contested the deletion of an addition of Rs. 11,09,333/- in computing the Book Profit under Section 115JB, arguing that the addition under Section 14A should be included. The Tribunal noted that this issue was settled in the assessee's favor in previous years, supported by the Hon'ble Supreme Court's judgment in Atria Power Corporation Ltd., which held that disallowance under Section 14A could not be added for computing income under Section 115JB. Consequently, the deletion made by the Ld. CIT(A) was upheld as just and proper.Conclusion:The Tribunal dismissed the Revenue's appeal, affirming the deletion of the disallowance under Section 14A and the related addition in computing Book Profit under Section 115JB. The decision was pronounced on 05/07/2023.