DETERMINATION OF BOOK PROFIT

[S.C. WADHWA]

An Assesse engaged in making investments in shares & other securities.  The assesse deals in shares whereas amount invested in other securities are held as investments. The assesse received dividend income on it.

While computing income from business & profession, it added back

1. Expenditure incurred in relation to exempt income

2. Amount determined under Section 14A read Rule 8D ( at the rate of .5 percent of average of investments)

Expenditure incurred in relation to exempt income (as aforesaid in point no. 1) was also added back in determining book profit but amount determined u/s 14A  (point no. 2) was not added back.

In course of assessment proceedings, the assessing officer required the assesse to add back also the amount determined under Section 14A (point no. 2) as aforesaid.

Please advise whether the amount determined u/s 14A (point no. 2) should be added back because the provisions governing determination of book profit requires the amount to be added back which has been debited to profit & loss account.

Please give your expert opinion.

AI Summary

Clarification Sought on Adding Section 14A Expenditure to Book Profit for Tax Calculation An individual engaged in investing in shares and securities inquired about the treatment of certain expenditures when calculating book profit for income tax purposes. Specifically, they sought clarification on whether the amount determined under Section 14A, related to exempt income, should be added back when determining book profit. The assessing officer insisted on adding back this amount, as it was debited to the profit and loss account. The individual sought expert advice on compliance with the provisions governing the determination of book profit. A respondent asked if the issue had been clarified but did not provide further guidance.