Disallowance for exempt dividend income should not increase book profits for MAT calculation, so the disallowance was deleted.

Addition under the disallowance provision for exempt dividend income and Rule 8D was examined for its effect on computation of book profits for MAT; the tribunal applied the principle that such disallowance should not be carried into MAT computation absent an express MAT adjustment in the assessment order, and found assessment record contained no MAT-specific adjustment or revision. Outcome: the impugned disallowance and any consequential increase to book profits for MAT purposes were deleted and the assessee's appeal was allowed.

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Issues: (i) Whether the addition of Rs. 13,97,502/- made by the Assessing Officer under Section 14A read with Rule 8D and the consequential adjustment to book profits for computation under Section 115JB is sustainable.

Analysis: The Tribunal examined the factual matrix including the assessee's declaration of income heads, the nature and amount of administrative and interest expenses, the existence of substantial interest-free funds and investments in mutual funds yielding tax-exempt dividends, and the assessment record showing no separate addition under Section 115JB in the assessment order. The Tribunal considered the application of disallowance under Section 14A read with Rule 8D to exempt dividend income and whether such disallowance could be imposed for computing book profits under the Minimum Alternate Tax regime under Section 115JB. The Tribunal noted settled law that disallowance under Section 14A is not to be applied to MAT computation and that there was no formal revision under Section 154 altering the MAT computation in the assessment order.

Conclusion: The addition of Rs. 13,97,502/- under Section 14A and any consequential increase in book profits for the purposes of Section 115JB is deleted; the assessee's grounds are allowed and the appeal is allowed in favour of the assessee.

Final Conclusion: The Tribunal's decision results in the deletion of the impugned disallowance and no adjustment to book profits for MAT computation, thereby allowing the assessee's appeal.

Ratio Decidendi: Disallowance under Section 14A read with Rule 8D in respect of exempt dividend income shall not be applied for computing book profits under Section 115JB (MAT) in the absence of a specific MAT adjustment made in the assessment order.

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