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Income Tax Appellate Tribunal, DELHI BENCH: ‘C’ NEW DELHI
Before: SHRI SAKTIJIT DEY & SHRI PRADIP KUMAR KEDIA
This is an appeal by the Revenue against order dated 30.05.2019 of learned Commissioner of Income Tax (Appeals)-5, New Delhi pertaining to assessment year 2012-13.
The dispute in the present appeal is concerning deletion of disallowance of Rs.20,63,500/- made under section 14A of the Income-tax Act, 1961 (for short ‘the Act’) read with Rule 8D of the Income-tax Rules, 1962 while computing book profit under section 115JB of the Act.
Briefly the facts are, the assessee is a resident company. In course of assessment proceeding for the impugned assessment year, the Assessing Officer noticed that the assessee had made huge investment in shares, which is likely to yield exempt income.
Thus, he called upon the assessee to explain, why expenditure attributable to exempt income, which is likely to be earned in future, should not be disallowed in terms with section 14A read with Rule 8D. In reply, it was submitted by the assessee that since no exempt income was earned during the year, no disallowance under section 14A can be made. The Assessing Officer, however, did not accept the submissions of the assessee and disallowed an amount of Rs.20,63,500/- while computing income under the normal provisions. However, since the assessee’s tax liability was computed under section 115JB of the Act, the Assessing Officer did not make any disallowance under section 14A read with Rule 8D. Post completion of assessment, the Revenue Audit raised an objection regarding non-disallowance of expenditure under section 14A read with Rule 8D while computing book profit under section 115JB of the Act. 2 | P a g e Subsequently, the Assessing Officer initiated proceedings under section 154 of the Act for rectification of the mistake arising due to non-disallowance of expenditure under section 14A read with Rule 8D while computing book profit under section 115JB of the Act and ultimately passed an order disallowing expenditure of Rs.20,63,500/- under section 14A read with Rule 8D while computing book profit under section 115JB of the Act.
Against the order passed under section 154 of the Act, assessee preferred an appeal before learned Commissioner (Appeals). Being convinced with the submissions of the assessee, learned Commissioner (Appeals) deleted the disallowance.
Before us, learned Departmental Representative, at the outset, submitted, the appeal cannot be decided as a low tax effect case, since, the addition is made based on Revenue Audit objection. Hence, protected under the exception provided to CBDT Circular No. 17 of 2019, dated 08.08.2019. As regards the merits of the issue, learned Departmental Representative strongly relied upon the observations of the Assessing Officer.
Strongly relying upon the observations of the learned Commissioner (Appeals), the learned counsel for the assessee submitted, during the year under consideration, the assessee did 3 | P a g e not earn any exempt income. Therefore, no disallowance under section 14A read with Rule 8D can be made. Further, he submitted, the disallowance of expenditure under section 14A read with Rule 8D while computing book profit under section 115JB being highly debatable issue cannot be covered under the provisions of section 154 of the Act.
We have considered rival submissions and perused the materials on record. It is relevant to observe, while completing the assessment under section 143(3) of the Act, the Assessing Officer has computed disallowance under section 14A read with Rule 8D for an amount of Rs.20,63,500/- while computing the income under the normal provisions of the Act. However, he did not disallow any disallowance under section 14A read with Rule 8D while computing the books profit of the assessee under section 115JB of the Act. The observations of the Assessing Officer in this regard are as under:
“As is evident from the above, the total disallowance u/s 14A works out to Rs.20,63,500/-, whereas as against this disallowance under routine working of income, the assessee has calculated its tax liability u/s 115JB on an income of Rs.5,19,71,979/-. Hence the disallowance u/s 14A is not taken in to consideration while working out the tax liability of the company.”
From the aforesaid observation of the Assessing Officer, it is very much clear that being of the view that no disallowance under section 14A read with Rule 8D can be made while computing book profit under section 115JB of the Act, the Assessing Officer took a conscious decision not to do so.
It is apparent, subsequently, based on Revenue audit objection, the Assessing Officer initiated proceeding under section 154 of the Act to make the disputed disallowance while computing the book profit and ultimately did so. Therefore, it is evident, the 154 proceeding was at the behest of the Revenue audit. Applicability of section 14A read with Rule 8D to the provisions of section 115JB certainly is a highly debatable issue.
Hence, it will not fall within the category of mistake apparent on the face of record as envisaged under section 154 of the Act.
In any case of the matter, in case of ACIT Vs. Vireet Investment Pvt. Ltd. [2017] 82 taxmann.com 415 (Delhi-Trib.)
(SB) the Special Bench of the Tribunal has held that while computing book profit under section 115JB of the Act, no disallowance can be made with reference to section 14A read with Rule 8D.
In view of the aforesaid, we do not find any infirmity in the decision of learned Commissioner (Appeals). Grounds raised are dismissed.
In the result, the appeal is dismissed.
Order pronounced in the open court on 31st May, 2022