AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2014 (1) TMI 297
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....erest income of Rs.91,88,354/- as income not derived from the business and accordingly not eligible for deduction u/s 80IB of the Income Tax Act, 1961 without considering the facts & circumstances of the case. 3. The appellant craves leave to add, amend, alter or delete the said ground of appeal." Apart from that the assessee vide letter dated 19.11.2013 has taken the following additional ground of appeal. "1. On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Assessing Officer in not allowing the interest income to be set off against the interest expenses, which has direct nexus with each other, without considering the facts and circumstances of the case." Ground No 1: 3. The AO noticed that depreciation u/s.32 was not claimed by the assessee on units Daman-II and Baddi-I which were eligible for 80IB deduction. The depreciation was not claimed with intention to maximize the deduction u/s.80IB in earlier years and to claim depreciation in later years. The AO as per detailed working given in his assessment order, compulsorily allowed the depreciation on Daman-II and Baddi-I unit for assessment years 2002-03 to ....
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....st on electricity deposit or on bank deposit was not considered eligible for deduction u/s.80HH on the ground that the income was not derived from industrial unit. Further incentive u/s.80IB is given to encourage industrial activity, hence deduction is given on income from industrial activity not on interest income from mere depositing the amount with bank or any other institution. 7.4 In view of the above discussion the action of the AO in disallowing claim u/s.80IB on interest income is confirmed." 6. In view of the legal position as discussed above in his order by the CIT(A), we do not find any infirmity in his order holding that interest income from fixed deposits being not the income from industrial activity is not eligible for deduction under section 80IB of the Act. However the assessee, vide additional ground, has claimed set off of the interest expenditure against the interest income pleading that the said expenditure has direct nexus with the interest income. The said contention of the assessee has not been adjudicated by the authorities below. Under such circumstances the issue taken vide additional ground regarding the set off of interest expenditure against the inter....
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.... section 14A and not to section 115JB of the Income Tax Act and there were no dividend income earned by the appellant during the year under consideration." Ground No.1 9. The ground No.1 taken in this appeal is identical to ground No.1 taken in ITA No.8126/M/2010 for assessment year 2007-08. In view of our observation made above, the ground No.1 of the present appeal is also accordingly decided against the assessee. Ground No.2, Ground No. 3 & Additional Ground No. 1 These grounds are inter linked, hence are taken together for adjudication. Vide Ground No. 2 the assessee has contested the partly confirmation of the disallowance made under section 14A of the Income Tax Act. While confirming the said disallowance, the ld. CIT(A) directed the AO to remove the interest amount of Rs.5,65,83,913/-, being interest on term loans, while working disallowance under section 14 A read with rule 8D of the I.T. Rules. However, the plea of the assessee that disallowance under section 14A could not be made was rejected. A perusal of the assessment order reveals that due opportunity was granted by the AO to the assessee to submit its case as to why the disallowance under section 14 A read with ....
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....lower authorities in making the addition on account of disallowances made u/s.14A of Rs.2,07,01,191/- determined as per rule 8D, while computing the Book Profit u/s.115JB of the Income Tax Act. The contention of the ld. AR has been that rule 8D applies only to section 14A and not to section 115JB of the Income Tax Act and that there was no dividend income earned by the appellant during the year under consideration. 14. We have already upheld the action of the lower authorities applying rule 8D while making disallowance under section 14 A of the Act subject to set off of the interest expenditure against interest income if both the components have direct nexus with each other as directed in the preceding paras of the order. 15. It may be further observed that co-ordinate bench of the Tribunal, incidentally consisting of both of us (Members), in the case of "M/s. Godrej Consumer Products Limited" ITA No.4963/M/11 (A.Y. 2007-08), decided on 20.11.13 while dealing with the identical issue, has held that the amount of expenditure disallowable under section 14A is to be added back while computing book profit under clause (f) of the explanation (1) to section 115 JB observing as under: ....
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....in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. Since we are dealing with the issue of expenditure relating to dividend income, a matter falling under Chapter III, it becomes clear on perusal of these two provisions that they are similar in nature. Clause (f) uses the words "expenditure relatable to any income", while section 14A uses the words "expenditure incurred by the assessee in relation to income". These words have the same meaning. We may also add here that section 14A contains two more sub-section, sub-section (2) and sub-section (3), which do not find a place in the clause (f). Therefore, insofar as computation of adjusted book profit is concerned, provisions of sub-section (2) and sub-section (3) of section 14A cannot be imported into clause (f)." 28. From the perusal of the above reproduced observations of the Delhi bench of the ITAT, it can be gathered that the Delhi bench of the Tribunal has categorically held that the provisions of sub-section (1) of section 14A and clause (f) of the explanation to section 115JA are similar in nature and have the same meaning. However, it has been ....
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....provision is there under section 115JB. When we read the provisions of section 14A along with section 115JB, it becomes clear that the expenditure relatable to exempt income as provided under sub section (1) of section 14A is required to be added back while computing book profit under section 115JB. We do not find any confliction in the above said two provisions of the Act. The Mumbai bench of the Tribunal while dealing with the similar issue in RBK Share Broking (P) Ltd. has observed as under: "6. Be that as it may, we will proceed to decide this ground on merits as well because it involves a pure legal issue as to whether the amount disallowed u/s 14A can be added while computing the book profit u/s 115JB of the Act. The learned AR relied on certain decisions to bring home the point that the amount disallowed u/s 14A cannot be added to net profit for computing `book profit' u/s 115JB. On the other hand, the learned Departmental Representative took us through the language of clause (f) of Explanation (1) to section 115JB, as per which the amount of expenditure relatable to any exempt income is to be added back to the net profit shown in the profit and loss account. At this junctu....
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....f the expenses disallowed cannot be traced to the profit and loss account and hence it cannot be covered within the mischief of clause (f) of the Explanation. We fail to find any logic in this submission because of the clear language of the Explanation 1, which provides in unequivocal terms that the amount of expenditure `relatable to' the exempt income shall be added back. Neither the language of clause (f) expressly refers to the amount specifically debited to the profit and loss account nor there can be an implication in this regard. What has been contemplated by the provision is the amount of the expenditure `relatable to' the exempt income. Further, the amount disallowable u/s 14A is always part of the expenses specifically debited to the profit and loss account. It is axiomatic that unless any expenditure is incurred and claimed as deduction, there can be no question of any hypothetical disallowance u/s 14A. It, therefore, follows that the amount disallowable u/s 14A is covered under clause(f) of Explanation (1) to section 115JB(2). Our view is fortified by another order dated 29 August, 2012 passed by the Mumbai Bench of the tribunal in the case of Esquire P. Ltd, Mumbai (IT....