2022 (5) TMI 1696 - AT - Income Tax

Revenue cannot use section 154 to apply section 14A read with Rule 8D to MAT under 115JB

ITAT Delhi (AT) dismissed the Revenue's appeal against the deletion of disallowance made u/s 14A r/w Rule 8D while computing book profit u/s 115JB in the ... Disallowance u/s 14A r/w Rule 8D while computing book profit u/s 115JB - assessee is a resident company - AO initiated proceeding u/s 154 HELD THAT:- As based on Revenue audit objection, the AO initiated proceeding u/s 154 of the Act to make the disputed disallowance while computing the book profit and ultimately did so. Therefore, it is evident, the 154 proceeding was at the behest of the Revenue audit. Applicability of section 14A r/w Rule 8D to the provisions of section 115JB certainly is a highly debatable issue. Hence, it will not fall within the category of mistake apparent on the face of record as envisaged under section 154 of the Act. In case of ACIT Vs. Vireet Investment Pvt. Ltd. [2017 (6) TMI 1124 - ITAT DELHI] the Special Bench of the Tribunal has held that while computing book profit under section 115JB of the Act, no disallowance can be made with reference to section 14A read with Rule 8D. Revenue appeal is dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the Assessing Officer was justified in invoking section 154 of the Income-tax Act, 1961 to make a disallowance under section 14A read with Rule 8D while computing book profit under section 115JB, when no such disallowance had been made in the original assessment and the matter is debatable. 1.2 Whether disallowance computed under section 14A read with Rule 8D can at all be added while determining book profit under section 115JB of the Act. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Scope of section 154 for making disallowance under section 14A read with Rule 8D in computation of book profit under section 115JB Legal framework (as discussed): Section 154 permits rectification of 'mistake apparent from the record'. Section 14A read with Rule 8D deals with disallowance of expenditure relating to exempt income. Section 115JB provides for computation of book profit for Minimum Alternate Tax purposes. Interpretation and reasoning: The Court noted that in the original assessment under section 143(3), the Assessing Officer had computed a disallowance of Rs. 20,63,500/- under section 14A read with Rule 8D for the purposes of income under the normal provisions, but consciously did not make any corresponding adjustment while computing book profit under section 115JB. The assessment order itself recorded that the disallowance under section 14A was 'not taken into consideration while working out the tax liability of the company' under section 115JB, indicating a conscious and considered decision. Subsequently, on a Revenue Audit objection, the Assessing Officer initiated proceedings under section 154 solely to bring the same disallowance into the computation of book profit under section 115JB. The Court held that the question whether section 14A read with Rule 8D applies to computation of book profit under section 115JB is a 'highly debatable issue' and therefore cannot constitute a 'mistake apparent from the record' capable of rectification under section 154. A debatable legal issue, particularly one on which a conscious view has already been taken in assessment, falls outside the ambit of section 154. Conclusions: The initiation of proceedings under section 154 and the consequent enhancement of book profit by applying section 14A read with Rule 8D constituted an impermissible rectification of a debatable issue. The order under section 154 was unsustainable and the deletion of the disallowance by the appellate authority was justified. Issue 2 - Applicability of section 14A read with Rule 8D in computation of book profit under section 115JB Legal framework (as discussed): Section 115JB provides a self-contained code for computation of book profit based on the profit as per the profit and loss account, subject to specific upward and downward adjustments enumerated in the Explanation to that section. The decision of the Special Bench in ACIT v. Vireet Investment Pvt. Ltd. was referred to. Interpretation and reasoning: The Court placed reliance on the Special Bench decision in ACIT v. Vireet Investment Pvt. Ltd., wherein it was held that no disallowance with reference to section 14A read with Rule 8D can be made while computing book profit under section 115JB. It followed that there is no statutory mandate to import the mechanism of section 14A/Rule 8D into the computation of book profit, and such an adjustment does not fall within the specific adjustments prescribed under section 115JB. Conclusions: No disallowance can be made with reference to section 14A read with Rule 8D while computing book profit under section 115JB. On merits also, the disallowance made by the Assessing Officer in the rectification order was unsustainable, and the appellate authority's deletion of the disallowance called for no interference.