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2024 (7) TMI 344

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....,33,44,790/- and book profit of Rs. 9,41,64,555/- u/s. 115JB of the Act. Revised return of income was filed by it on 19.02.2019, declaring total income again of Rs. 6,33,44,790/- but book profit of Rs. 9,17,03,453/- in order to rectify an arithmetical error in the computation of book profit, whereby an amount of Rs. 12,30,551/- ,being re-measurement loss on defined benefit plan was wrongly added by the assessee in the original return, instead of reducing the same in the net profit for computing the book profit. 2.2. The original return of income was processed u/s. 143(1) of the Act. The return of income was selected for scrutiny. Statutory notices u/s. 143(2) and 142(1) of the Act were issued and served upon the assessee. Assessee submitted the required details in response to the aforesaid notices. During the assessment proceedings, assessing officer noticed that the assessee company earned dividend income from shares held in domestic company amounting to Rs. 5,26,095/- and claimed the same as exempt from tax u/s. 10(34) of the Act. Further, the assessee also claimed profits from partnership firms namely (i) N.S & Co. and (ii) N.S.E.K Partners, amounting to Rs. 25,62,55,721/- as ....

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....xpenditure u/s. 14A of the Act read with rule 8D of the IT Rules, 1962, covered under clause (f) of explanation 1 to section 115JB(2) of Income Tax Act, 1961?" 4. In response to the notice issued by the tribunal, learned assessee's representative appeared and participated in the proceedings. 5. We have perused the material on record and heard learned representatives for both the parties. 6. The following points are to be determined under appeal: 1) Whether the disallowance of Rs. 1,93,99,965/- as expenditure attributable to the exempt income in respect of profits earned by the assessee from investments made in the partnership firms is tenable under law? 2) Whether the disallowance of Rs. 1,93,99,965/- is required to be added in the book profit of the assessee u/s. 115JB of the Act for the purpose of Minimum Alternate Tax (MAT) liability? 7. Learned representative for the appellant revenue has submitted that learned CIT(A) has erred in deleting the disallowance made by the Assessing Officer in respect of the expenditure incurred in earning profits from the partnership firms. Further submitted that Assessing Officer has rightly computed tax on the basis of Minimum Alternate T....

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....his Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act:] Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001.] Explanation. For the removal of doubts, it is hereby clarified that notwith-standing anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where the income, not forming part of the total income under this Act, has not accrued or arisen or has no not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such income not forming part of the total income.] 11. The essential components of above referred Section 14A are that....

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.... provisions of sub section 2 of Section 14A will be attracted in the present case as the assessee has denied to have any expenses in relation to the exempt income received from the partnership firm. The Assessing Officer, having regard to the accounts of the assessee, has prudently recorded his dissatisfaction against the assessee's claim that no expenses incurred in respect of the earning of exempt income from partnership firm. 13. It is an undisputed fact that the appellant assessee has earned Rs. 25,62,55,721/- as profit from the two partnership firms which is exempt from tax u/s. 10(2A) of the Act, which reads as under: "[10(2A)in the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm. Explanation. For the purposes of this clause, the share of a partner in the total income of a firm separately assessed as such shall, notwithstanding anything contained in any other law, be an amount which bears to the total income of the firm the same proportion as the amount of his share in the profits of the firm in accordance with the partnership deed bears to such profits ;]" 14. A Three member special bench of ITAT ....

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....h does not form part of total income; and (ii) an amount equal to one per cent of the annual average of the monthly averages of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income: Provided that the amount referred to in clause (1) and clause (ii) shall not exceed the total expenditure claimed by the assessee.] (3)[*]] Royalties or copyright fees, etc., for literary or artistic work. 9. (1) Where a claim for an allocation is or has been made under section 12AA" 16. In Maxopp Investment Ltd. Vs. CIT-[2018] 91 taxmann.com 154 (SC), Hon'ble Supreme Court has held that the objective of holding the investment are immaterial and disallowance has to be applied in all cases irrespective of the fact whether the same was held as stock-in-trade or as an investment. 17. The figures taken by the AO from the accounts of the assessee company, in making computation as provided under aforesaid rule 8D(2) are in consonance with the details submitted by assessee in his paper book as stated above. This computation mechanism has been brought into the Act by IT (14th amendment) Rules 2016. with effect from 02.06.2016 ....

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....provisions contained in clause (38) thereof) or [*] section 11 or section 12 apply; or] ................................................................................................." 21. A three member special bench of ITAT Delhi in ITA no. 502(Delhi) of 2012, Assistant Commissioner of Income-tax, Circle 17(1), New Delhi V. Vireet Investment (P) Ltd, vide order dated 16.06.2017, reported in (2017) 82 taxmann. Com 415(Delhi Trib.)(Special bench), has elaborately dealt with the matter in respect of the applicability of section 115JB (2) r.w.s. 14A of the Act r/w rule 8D of the Rules. The Hon'ble special bench framed the following question for determination:- "Whether the expenditure incurred to earn exempt income computed u/s. 14A could not be added while computing book profit u/s. 115JB of the Act." Hon'ble special Bench, after discussing at length, answered the above referred question in favour of assessee by holding that "the computation under clause (f) of explanation 1 to section 115JB (2) is to be made without resorting to the computation as contemplated u/s. 14A r/w rule D of the Income Tax Rule 1962." Similarly, coordinate bench of ITAT Mumbai in ITA no. 1028/MUM/2017,....