2017 (12) TMI 1799

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....essee in this appeal is against the order of the Ld. CIT(A) upholding the disallowance of Rs. 3,90,13,648/- made by the AO u/s 14A r.w. Rule 8D. 2.1 Briefly stated, the facts of the case are that the assessee-company in its computation of total income filed along with the original return of income computed the disallowance u/s 14A r.w. Rule 8D at Rs. 3,90,13,648/-. Subsequently, it revised the same to Rs. 3,89,09,022/-. The main reason for revising computation was that, the assessee disallowed expenditure incurred for earning exempt income on account of investment in BW Highway Star Pvt. Ltd. of Rs. 3,50,77,397/-. The assessee-company contended that interest paid on borrowing for acquiring controlling interest in BW Highway Star Pvt. Ltd....

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....ecord. The reasons for our decisions are given below. In the CBDT Circular relied on by the Ld. DR, it has been stated that 'legislative intent is to allow only that expenditure which is relatable to earning of income and it therefore follows that the expenses which are relatable to earning of exempt income have to be considered for disallowance, irrespective of the fact whether any such income has been earned during the financial year or not'. 2.5.1 We are of the considered view that the legislative intent is more discernible in the judicial decisions. In Chettinad Logistics (P) Ltd. (supra), the Hon'ble Madras High Court has held that section 14A cannot be invoked where no exempt income was earned by the assessee in the relevant ass....

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....s to be added to the net profit as shown in the profit and loss account for the purpose of computation of book profit. Therefore, the AO increased the net profit as per the profit and loss account by the amount of provision of doubtful debts/advances of Rs. 43,67,928. 3.2 Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) relying on the decision in the case of CIT vs. Ilpea Paramount Pvt. Ltd. (2011) 336 ITR 54 (Del) and DCM Shriram Consolidated Ltd. vs. CIT (2010) 39 SOT 203 (Del), confirmed the action of the AO increasing the net profit as per profit and loss account by the amount of provision for doubtful debts/advances of Rs. 43,67,928/-. 3.3 Before us, the Ld. counsel of the asses....