M/S CHOWGULE REAL ESTATE & CONSTRUCTION COMPANY PRIVATE LIMITED,PANAJI vs. THE ACIT, CIRCLE - 2, MARGAO

This is an appeal filed by the assessee directed against the order of ld. Commissioner of Income Tax (Appeals)-1, Panaji. (‘CIT(A)’ for short) dated 09.10.2017 for the assessment year 2011-12.

Briefly, the facts of the case are that the appellant is a private limited company incorporated under the provisions of Companies Act, 1956. It is engaged in the business of property developers etc. The return of income for the assessment year 2011-12 was filed on 29.09.2011 declaring total income of Rs.36,51,117/- and also offered to book profits to tax u/s 115JB of the Income Tax Act, 1961 (‘the Act’) of Rs.2,23,62,741/-. Against the said return of income, the assessment was completed by the Assistant Commissioner of Income Tax, Circle-2, Margao, Goa (‘the Assessing Officer’) vide order dated 2 28.03.2014 at a total income of Rs.1,28,95,293/- under the normal provisions of the I.T. Act after making disallowance of expenditure u/s 14A of Rs.2,06,718/- and also making additions on account of (i) disallowance of cessation of liability of Rs.16,23,782/- u/s 41(1) and (ii) disallowance made u/s 14A to the book profits for the purpose of computing tax liability u/s 115JB of the Act. 3. Being aggrieved by the above disallowances, an appeal was preferred before the ld. CIT(A), who vide impugned order confirmed the action of the Assessing Officer making addition u/s 14A to the book profits for the purpose of computing the tax liability u/s 115JB of the Act and also confirmed the amount of addition u/s 14A under the normal provisions of the I.T. Act. 4. Being aggrieved by the above decision of the ld. CIT(A), the appellant is in appeal before us in the present appeal. 5. It is contended that the Assessing Officer ought not to have made any disallowance u/s 14A, inasmuch as, no exemption was incurred to earn the exempt income. It is also contended that the methodology adopted by the Assessing Officer for computing the average value of investment for the purpose of computing the amount of disallowance under clause (iii) of Rule 8D(2) of the Income Tax Rules, 1962 (‘the Rules) is wrong, inasmuch as, Assessing Officer had considered all the investments including the investments which yielded the taxable income. It is further contended that the amount of disallowance u/s 14A cannot be added back to the book profits for the purpose of computing the tax liability u/s 115JB placing reliance on the decisions of the Hon’ble Bombay High Court in the case of (i) M/s. Essar Teleholdings [2015 (5) TMI 1263] and (ii) M/s. Bengal Finance & Investments Pvt. Ltd [2015 (2)

On the other hand, ld. Sr. DR placing reliance on the orders of the lower authorities prayed that the orders of the lower authorities should be sustained.

We heard the rival submissions and perused the material on record. The first issue raised by the assessee in the grounds of appeal relates to the computation of amount of disallowance u/s 14A of the Act. From perusal of the order of the Assessing Officer, it is clear that the Assessing Officer made disallowance under sub-clause (iii) of Rule 8D(2) of the Rules. There is no challenge as to the applicability of sub-clause (iii) of Rule 8D(2) of Rules. The dispute is only with regard to the method of computation of amount of disallowance under sub-clause (iii) of Rule 8D(2) of the Rules for the purpose of computing the amount. The average value of those investments which yielded the exempt income alone has to be taken into consideration as held by the Special Bench of the Delhi Tribunal in the case of Vireet Investments (P.) Ltd. (supra) and the Hon’ble Delhi High Court in the case of Joint Investment Private Limited vs. CIT 372 ITR 694. From perusal of the assessment order, it is apparent that the Assessing Officer had considered the entire value of investments which yielded the taxable income as well as the exempt income. Therefore, the matter is remanded back to the file of the Assessing Officer with direction to compute the amount of disallowance under sub-clause (iii) of Rule 8D(2) of the Rules by considering only average value of the investment which yielded the exempt income alone. We also make it clear that the amount of disallowance cannot exceed the exempt income in view of the settled position of law as laid down by the Hon’ble Bombay High Court in the case of Nirved