No exempt income means no section 14A disallowance, and the adjustment cannot be added to book profit under section 115JB.

Share application money could not be re-characterised as a loan for charging interest where the facts were identical to the assessee's earlier year, so the transfer-pricing adjustment was deleted. Employees' contribution to PF and ESIC turned on verification of the claimed grace period, and the matter was sent back for factual examination with relief available if payment was timely. No disallowance under section 14A was called for in the absence of exempt income, and such an adjustment could not be added to book profit under section 115JB, so that addition was deleted. Short TDS credit and interest under sections 234B and 234C were also remitted for fresh verification.

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Issues: (i) Whether interest charged on share application money pending allotment was sustainable by re-characterising the investment as a loan; (ii) Whether disallowance of employees' contribution to PF and ESIC was liable to be deleted or restored for verification of the grace-period claim; (iii) Whether any disallowance under section 14A could be made in the absence of exempt income and whether such disallowance could be added while computing book profit under section 115JB; (iv) Whether short credit of TDS and levy of interest under sections 234B and 234C required verification and fresh consideration.

Issue (i): Whether interest charged on share application money pending allotment was sustainable by re-characterising the investment as a loan.

Analysis: The issue was identical to an issue decided in the assessee's own case for another assessment year. The facts, parties in which the investment was made, and the nature of the transfer pricing adjustment were the same, and no distinguishing feature was shown. On parity of reasoning, the re-characterisation of share application money as loan for charging interest was not accepted.

Conclusion: The adjustment was deleted and the issue was decided in favour of the assessee.

Issue (ii): Whether disallowance of employees' contribution to PF and ESIC was liable to be deleted or restored for verification of the grace-period claim.

Analysis: The dispute turned on whether the five-day grace period referred to in the accounting procedure and the EPFO communication applied only to employer's contribution or also to employees' contribution. The text relied upon referred generally to "dues" and did not confine the concession to one category. However, the exact dates of deposit still required verification against the stipulated time, including the claimed grace period.

Conclusion: The matter was restored to the Assessing Officer for verification, with direction to allow the claim if payment was within the permissible period; the issue was allowed for statistical purposes.

Issue (iii): Whether any disallowance under section 14A could be made in the absence of exempt income and whether such disallowance could be added while computing book profit under section 115JB.

Analysis: It was undisputed that no exempt income had been earned during the relevant year. In such a situation, no disallowance under section 14A was warranted. The voluntary disallowance made by the assessee also required consideration in the light of settled law permitting a claim to be reduced if it was not exigible in law. Further, disallowance under section 14A could not be imported into the computation of book profit under section 115JB.

Conclusion: The additional and connected grounds were allowed, including deletion of the section 14A adjustment and exclusion of such disallowance from book profit computation, in favour of the assessee.

Issue (iv): Whether short credit of TDS and levy of interest under sections 234B and 234C required verification and fresh consideration.

Analysis: The TDS credit claim and the consequential interest computation depended on factual verification from the records. Since the claim required examination by the Assessing Officer, the Tribunal directed fresh verification and consideration in accordance with law.

Conclusion: These matters were restored to the Assessing Officer for verification and were allowed for statistical purposes.

Final Conclusion: The appeal succeeded on the substantive transfer-pricing and section 14A issues, while the PF/ESIC, TDS credit, and interest issues were sent back for verification, resulting in partial relief to the assessee.

Ratio Decidendi: Where no exempt income is earned, no disallowance under section 14A is warranted, and such disallowance cannot be added to book profit under section 115JB; a claim wrongly made in the return may also be corrected if it is not exigible in law.

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