2018 (12) TMI 2021 - AT - Income Tax

Section 14A Disallowance Limited to Rs. 5,10,242; Not Applicable for Section 115JB Book Profit Calculation

The ITAT Kolkata upheld the CIT(A)'s order restricting disallowance under section 14A read with rule 8D to Rs. 5,10,242/-, deleting the excess addition ... Disallowance u/s 14A r.w.r. 8D - AO noted that the assessee has not considered in its account expenditure relatable to the earning of the exempt income, therefore, expenditure relatable to the earning of exempt income should disallowed - HELD THAT:- We note that the calculation u/r 8D(2)(iii) r.w.s. 14A, for the investments made by the assessee come to Rs.5,10,242/- which has been verified by the Id CIT(A), who has co-terminus power as that of assessing officer. Accordingly, addition on this ground is restricted to Rs.5,10,242/- and the balance addition is directed to be deleted. We do not find any infirmity in the order of Id CIT(A), his order on this issue is hereby upheld and ground raised by the Revenue is dismissed. Disallowance made u/s 14A to the book profit of the assessee determined u/s 115JB - We find that the issue involved in the present appeal is no longer res integra. The important and relevant thing to note here is that for the purpose of applicability of section 14A r.w.r. 8D the computation of total income has to be under some heads in chapter-IV of the Act. Section 14A clearly says “for the purpose of computing total income under the chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form the part of the total income under this Act”. The computation of total income u/s 115JB falls under chapter- XIIB of the Act. Therefore, it is very clear that any disallowance/computation for section 14A r.w.r. 8D will not be applicable for the purpose of calculation of income u/s 115JB of the Act. ISSUES: Whether disallowance under section 14A of the Income Tax Act, 1961 read with Rule 8D should be restricted only to that part of investment which yields exempt income during the financial year.Whether the amount of disallowance made under section 14A should be added to the Book Profit for the purpose of computation under section 115JB of the Income Tax Act, 1961.Whether the Revenue can add or alter grounds of appeal at the time of hearing. RULINGS / HOLDINGS: Disallowance under section 14A read with Rule 8D is to be made only in respect of that part of investment which gives rise to exempt income during the year, as clarified by the Tribunal in REI Agro Ltd. and affirmed by the High Court; thus, the disallowance is restricted to Rs.5,10,242/- and the balance disallowance is deleted.For the purpose of computation under section 115JB, disallowance under section 14A read with Rule 8D is not applicable because section 14A applies to computation of total income under chapter IV, whereas computation under section 115JB falls under chapter XIIB; hence, the disallowance amount should not be added to Book Profit.The Revenue's prayer to add or alter grounds of appeal at the time of hearing is not entertained. RATIONALE: The Court applied the statutory provisions of section 14A of the Income Tax Act, 1961 and Rule 8D of the Income Tax Rules, 1962, relying on the precedent set by the Coordinate Bench in REI Agro Ltd. and its affirmation by the Calcutta High Court, which held that disallowance under section 14A is restricted to investments yielding exempt income during the relevant financial year.It was noted that section 14A's disallowance pertains to computation of total income under chapter IV, and since section 115JB computation falls under chapter XIIB, the disallowance under section 14A is not applicable for computing Book Profit under section 115JB, following the plain language of the statute.No doctrinal shift or dissenting opinion was recorded; the decision follows established judicial interpretation and statutory scheme.