TaxTMI 
TaxTMI 
TaxTMI 
2018 (6) TMI 960
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....ome also besides earning exempt income. 2. For that under the facts and circumstances of the case, the ld. CIT(A) erred both is law and on facts in confirming the computation of Book Profit U/s 115JB of the Act by the AO at Rs. 6,23,61,520/- in place of Rs. 4,83,61,590/- computed by the appellant company by wrongfully adding back to the Net Profit, the entire disallowance of expenses u/s. 14A of Rs. 1,46,78,485/- without segregating the expenses relatable to earning of Long Term Capital Gain which were not to be so added in terms of clause (i) below second proviso to sub sec.(2) of sec.115JB of the Act. 3. Your appellant craves leave to add, alter, modify and substantiate the grounds of appeal at the time of hearing of appeal." Shri S. M. Surana, Ld. Advocate appeared on behalf of assessee and Shri S. Dasgupta, Ld. Departmental Representative appeared on behalf of Revenue. 2. It was noticed that the AO has made the disallowances under section 14A read with rule 8D of Income Tax Rule as detailed under:- Sr No. Rule Particulars Amounts (in Rs) 1 8D(2)(i) Direct expenses 1,83,544/- 2 8D(2)(ii) Interest expenses 1,36,70,746/- 3 8D(2)(iii) Disallowance 13,68....
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.... not permissible as per the provision of law. The assessee has also offered the taxable Income from derivative for Rs. 1,72,41,220.00 therefore the entire expenses cannot be disallowed as part of the expenses are certainly related to taxable income. The AO has made the disallowance taking into consideration all the investment whereas as per the precedents only those investments should have been considered which have yielded dividend income during the year. However, the ld. CIT(A) disregarded the contention of the assessee and accordingly partly confirmed the order of Assessing Officer by observing as under: "As regards the issue of disallowance of administrative expenditure under Rule 8D(2)(iii), the A.O is found to have made the disallowance of Rs. 13,68,095/-. Hence, there is no infirmity in the AO's computation of disallowance by invoking provision under Sec. 14A r.w Rule 8D is confirmed. However, it is found that there is some substance in the claim that the depreciation expenses of Rs. 84,333/- cannot be held as relating to earring exempt income. The A.O. is directed to verify the appellant's claim in this regard ad exclude the depreciation in case the appellant's cla....
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....us, it is undoubtedly clear that actual expenses claimed by the assessee are much less then the expenses disallowed under Rule 8d(2)(iii) of the I.T rules by the AO. In the backdrop of the present case we are of the view that the expenses to be disallowed under Rule 8D(20(iii) cannot exceed the actual expenses incurred by the assessee. However, the AO has made the disallowance of the expenses under rule 8D(iii) exceeding the actual expenses. 9. The act of making the disallowance by the AO under rule 8D(iii) shows that no reference has been made to the books of accounts of the assessee. In such a situation we are of the view that the disallowance u/s. 14A v-z-a-viz Rule 8D of the I.T. Rules has been made without complying the provisions of law. Thus the addition cannot be sustained in the instant case. Thus, we direct the Assessing Officer to delete the impugned addition. Thus, first issue in grounds of appeal filed by the assessee is partly allowed. 10. The second issue raised by assessee is that learned CIT-A erred in sustaining the addition of Rs. 1,46,78,485.00 made under section 14A of the Act while computing the income under the head 115JB of the Act. The assessee while com....
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..../s. 115JB, which is altogether a different scheme for computation and the items to be reduced for book profit are specifically described u/s. 115JB. The appellant's AR has also stated that specific exclusion of section 10(38) no explanation u/s. 115eJB signifies its long term capital gain is the only exempt income than no adjustment in computing book profit means neither any taken is allowable long term capital gain nor any expenses relatable to such long term capital would be add back for computing book profit and that the A.O may be directed to exclude a such part of expenses relating to Long Term Capital Gain for computing u/s. 115JB. IT is observed that the method for deduction of book profit u/s. 115JB is a self-contend Code. Further, under the scheme of section 115JB the profit and loss account of the assessee is to be treated in accordance with provisions of Part II & III of Schedule, Rule-6 to the company's act and the net profit shown therein as book profit is to be treated after making certain adjustment specifically provided in the explanation thereof. Such permissible adjustment in the form of addition and deductions are provided the explanation to section 115JB. No ded....
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....d for the purpose of determining the capital gain income therefore the expenses which have been disallowed under section 14A of the Act cannot be attributed to such on germ capital gain income. However, we note that in similar facts and circumstances the Hon'ble Supreme Court in the case of M/s Maxopp Investment Limited (supra) has decided the issue in favaour of assessee. The relevant extract of the order is reproduced below: "34. Having clarified the aforesaid position, the first and foremost issue that falls for consideration is as to whether the dominant purpose test which is pressed into service by the assessees would apply while interpreting Section 14A of the Act or we have to go by the theory of apportionment. We are of the opinion that the dominant purpose for which the investment into shares is made by an assessee may not be relevant. No doubt, the assessee like Maxopp Investment Limited may have made the investment in order to gain control of the investee company. However, that does not appear to be a relevant factor in determining the issue at hand. Fact remains that such dividend income is nontaxable. In this scenario, if expenditure is incurred on earning the d....