TaxTMI 
TaxTMI 
2016 (11) TMI 595
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....rred in sustaining the addition of Rs. 35,13,921/- being disallowance made u/s 14A, while computing book profit u/s 115JB of I.T. Act, 1961. 2. The Learned C.I.T. (Appeal) failed to appreciate that only actual expenses incurred for earning exempt income can be added to the book profit u/s 115JB and not the deeming expenses calculated under clause (ii) & (iii) of Rule 8D of Income Tax Rule, 1952. 3. The Learned C.I.T. (Appeal) failed to follow the judgment of Mumbai Tribunal in the case of Essar Teleholding in which the detailed discussion has been made on the subject and erred in relying upon the judgment in the case of Esquire Pvt Ltd where only passing remarks were given without much detailed discussion on the subject." 2. The so....
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....allowance u/s 14A as no exempt income has been earned with respect to these investments and thus, it cannot be said that any expenditure has been incurred for earning exempt income. It was also submitted that since there is no estoppel against law, therefore merely because disallowance made u/s 14A was not contested by the assessee due to absence of any tax effect, then it would not clothe the AO with powers to make an automatic enhancement to the book profit with the amount of illegal disallowance made u/s 14A. 3. Per contra, Ld. DR submitted that in case disallowance is made u/s 14A, then automatically an adjustment has to be made in view of clause (f) to Explanation 1 to section 115JB (2). In his support, he placed reliance upon the f....
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.... added: "(f) the amount or amounts of expenditure relatable to any income to which section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply." Thus, perusal of the aforesaid provisions reveals that for the purpose of making addition there should be added expenditure actually incurred which are relatable to any income to which provisions of section 10, excluding the provisions contained in clause (38) thereof, applies. It has been contended that in this case, only disallowance, that would have been possible as per law and facts of this case was under rule 8D(2)(i) and no disallowance was liable to be made in clauses (ii) & (iii) in view of the latest judgement of Hon'ble Bombay High Court....
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....e (f) of explanation 1 of section 115JB clearly suggests that amount of expenditure relatable to any income to which section 10 [other than the provisions contained in clause (38)] only shall be added to compute the taxable amount of book profits. No method has been prescribed u/s 115JB to compute such expenditure, nor has the legislature linked aforesaid clause (f) to the provisions of section 14A or rule 8D. Thus, the plain reading of the provisions of section 115JB suggests that such expenditure has to be computed on actual basis as per the common understanding applying normal provisions of the Act. Under these circumstances, the AO is not permitted to add to the book profits u/s 115JB, the amount of disallowance made u/s 14A, in a routi....