addition of disallowance u/s 14A in the book profit for computing income under MAT

[Lalit Kishore]

While completing the assessment for A/Y 2008-09, the assessing officer made addition to the income u/s 14A, however the income under MAT was higher than the regular income hence the tax was calculated as per the provisions of section 115JB. However, whiile computing the tax on book profit, the book profit was increased by the disallowance u/s 14A. Is the action on part of AO correct as this was a disallowance after assessment and not as per books.

[CA Rachit Agarwal]

With reference to disallowance u/s14A, the amount of MAT credit will get reduced due to the increase of income tax payable under the Income Tax Act, 1961.

MAT is payable on the book profit as disclosed while considering the preparation of Accounts based on the Schedule VI of the Companies Act, 1956.

Reference can be give for Appolo Tyres Limited

[Vineet Agrawal]

The provisions of section 14A are limited for the purposes of computation of income under chapter IV of the Act and the same cannnot be extended to MAT provisions u/s 115JB which is a self conmtained code. Section 115JB provides for increase of Book Profit by expenses relatable to exempt income, but there is no scope for importing disallowance made under section 14A rw rule 8D. It has to be seperate exercise considering the sources of income providing stream of exempt income. It is pointed out that Long Term Capital Gain from transfer of shares (STT paid) which is otherwise exempt is chargeable to MAT. Hence any expense related to such investment cannot be added back for MAT.

AI Summary

Disallowance for exempt income expenses should not be imported into MAT computation; MAT requires separate book-profit adjustments.
The MAT regime is a self-contained code requiring book-profit adjustments for expenses attributable to exempt-income streams; assessment-stage disallowances under the normal-income disallowance provisions should not be mechanically imported into MAT computation, and expenses relating to exempt long-term capital gains must be considered separately when adjusting book profit.