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Facts
The assessee, a Non-Banking Financial Company, filed its return for AY 2013-14. The AO made a disallowance under Section 14A. The CIT(A) deleted this disallowance. The revenue is in appeal before the tribunal.
Held
The Tribunal held that disallowance calculated under Section 14A cannot be added while computing book profit under Section 115JB, following the Special Bench ruling in ACIT vs. Vireet Investment Pvt. Ltd. The CIT(A)'s order was upheld.
Key Issues
Whether disallowance under Section 14A can be added for the computation of book profit under Section 115JB of the Income Tax Act, 1961.
Sections Cited
14A, 8D, 143(3), 115JB, 263
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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SMT. BEENA PILLAI & SHRI OMKARESHWAR CHIDARA
Per: Smt. Beena Pillai, J.M.: The Present appeal filed by the revenue arises out of order dated 19/05/2025 passed by NFAC for assessment year 2013-14 on following grounds of appeal:
2 ITA 4851/Mum/2025; A.Y. 2013-14 Trapti Trading & Investments Private Limited “1. "On the facts and circumstances of the case, the Ld. CIT(A) erred in deleting disallowance of Rs.3,91,73,235/- made u/s. 14A & Rule 8D(2)(i), Rule 8D(2)(ii) & Rule 8(2)(iii) of the income tax act, 1961 without properly appreciating the facts of the case, that such addition was on the basis of the calculation as provided in Rule 8D(2)(i), Rule 8D(2)(ii) & Rule 8(2)(iii) itself." 2. "On the facts and circumstances of the case, the Ld. CIT(A) erred in the deleting disallowance of Rs.3,91,73,235/- made u/s. 14A & Rule 8D(2)(i), Rule 8D(2)(ii) & Rule 8(2)(iii) of the income tax act, 1961 by relying on the decision of the Hon'ble Apex Court in the case of PCIT v. Atria Power Corporation Ltd. without appreciating the facts of the such case which are not applicable in the present assessee case, as Atria Power Corporation Ltd is comes under the Electricity Act/State Commission regulation not the Companies Act to prepare its financial statements which is not subject to Section 115JB” 3. "Weather on the facts and circumstances and circumstances of the case and in law, the Ld.CIT(A), erred in relying the decision of CIT vs. Bengal Finance & Investments Pvt. Ltd. without appreciating that facts of the said case are distinguishable from present case?" 4. "On the facts and circumstances of the case, the Ld.CIT(A) erred in the deleting disallowance of Rs. 3,91,73,235/-, even when assessee has Suo-moto disallowed the expenses u/s 14A while computing the taxable income?" 5. "The appellant revenue craves leave to amend or alter any ground or to submit additional new ground which may be necessary." 6. "The appellant, therefore, prays that on the ground stated above, the order of the Ld.CIT(A)-51, Mumbai, may be set aside and that of the Assessing Officer restored." A copy of the CIT (A)-52, Mumbai's order was received by me on 19.05.2025. The last date of filing second appeal is 31.07.2025. Therefore, the appeal should be filed on or before 31.07.2025.” Brief facts of the case are as under:
The assessee is a Non-Banking Financial Company engaged in the business of providing financial services and investment activities. It is engaged in giving/taking loans from/to body 3 ITA 4851/Mum/2025; A.Y. 2013-14 Trapti Trading & Investments Private Limited corporate and making long term investment in shares and securities. The assessee filed its return of income for AY 2013-14 on 20.09.2013 declaring total income of Rs.19,61,740/-. Assessment u/s. 143(3) of the Act, was passed by the Ld.AO on 29.03.2016 by assessing the book profit u/s 115JB at Rs.2,98,32,71,490/-.
Subsequently, Ld.PCIT invoked provisions of section 263 of the Act by issuing notice u/s 263 on 16/02/2018. Order u/s 263 of the Act was passed on 26/03/2018 directing Ld.AO to examine disallowance u/s 14A of the Act r.w.r. 8D of the Rules and to pass fresh order as per law. 3.1 The Ld.AO passed order u/s 143(3) r.w.s 263 of the Act, computing book profit u/s 115JB at Rs.3,02,24,44,723/. 3.2 Aggrieved by the order of the Ld.AO the assessee filed appeal before the Ld.CIT(A).
Before the Ld.CIT(A), it was submitted that the assessee made suo-moto disallowance in respect of actual expenditure incurred in earning the exempt income and such actual expenditure includes net finance cost of Rs 75,09,93,466/-, Demat and other charges of Rs. 32,31,870/- and other admin expense of Rs 30,38,880/-. It was submitted that in the order u/s. 143(3) r.w.s 263, Ld.AO applied Rule 8D and disallowed Rs 79,64,37,451/- and added back the same amount while calculating the Book profit. 4.1 It was also submitted that the Ld.AO erred in applying Rule 8D(iii) while computing disallowance u/s.14A for the purposes of computing book profits u/s.115JB.
4 ITA 4851/Mum/2025; A.Y. 2013-14 Trapti Trading & Investments Private Limited 4.2 The Ld.CIT(A), while considering the issue, deleted the addition by observing as under: 7.3. The Appellant has submitted that the it had so-moto disallowed actual expenditure incurred in earning the exempt income and such actual expenditure includes net finance cost of Rs 75,09,93,466/-, Demat and other charges of Rs. 32,31,870/- and other admin expense of Rs 30,38,880/-. In the order u/s. 143(3) r.w.s 263, AO applied rule 8D and disallowed an amount of Rs 79,64,37,451/- and added back the amount in calculation of Book profit. An additional disallowance in book profit as compared to suo moto disallowance is Rs. 3,91,73,235/- (79,64,37,451 – 75,72,64,216). 7.4. Such addition is on account of gross interest calculated as per Rule 8D(ii) of Rs 74,46,32,889/- and 0.5% of average investment as per Rule 8D(iii) of Rs 5,18,04,562/-. While the provision u/s.115JB requires disallowance of an amount of expenditure relatable to any income exempt u/s.10, considering the stating point i.e. net profit, it clearly indicates, actual expenditure if any. Thus, the Appellant submits that the AO erred in applying Rule 8D and thereby adding back notional amounts. The Appellant has already suo moto disallowed the expenses which were actually debited to profit and loss account as stated above. Thus, the AO erred in applying Rule 8D(iii) while computing disallowance u/s.14A while computing book profits u/s.115JB. The Appellant has submitted that while calculating net profit for MAT calculation, the Appellant has out of the total allowable expense of Rs. 76,61,44,217/-, disallowed net interest of Rs 75,09,93,466/- and other expenses of Rs 62,70,750/-. Thus, effectively claiming an expense of Rs 16,75,990/- only. The Appellant submitted that such nominal amount is required to be allowed for running the business and certain fixed entity cost. The Appellant has placed reliance on the decision of Hon’ble Jurisdictional High Court in the case of CIT v. M/s. Bengal Finance & Investments Pvt. Ltd. (ITA No. 337 of 2013) (Bom. HC) (Refer Pg Nos. 1 to 2 of the LPB), Special Bench of the Hon’ble Delhi Tribunal in the case of ACIT v. Vireet Investments (P.) Ltd. [2017] 165 ITD 27 [Refer Page No. 3 to 33 of LPB] held that disallowance u/s 14A of the Act computed in accordance with Rule 8D cannot be added for the purpose of computation of book profit u/s. 115JB of the Act and The Hon’ble Apex Court in PCIT v. Atria Power Corporation Ltd. [2022] 142 taxmann.com 413 (SC) [Refer Page No. 34 to 35 of LPB] dismissed the revenue’s SLP against the order of Hon’ble Karnataka High Court (Refer Page No. 36 to 38 of LPB] wherein the HC upheld the order of Tribunal which held that S. 14A disallowance cannot be added to assessee's income for the purpose of computation of income u/s 115JB of the Act, relying upon the decision of Special Bench in Vireet Investment (supra). 4.3 The Ld.CIT(A), thus deleted the disallowance in the hands of the assessee.
5 ITA 4851/Mum/2025; A.Y. 2013-14 Trapti Trading & Investments Private Limited 4.4 Aggrieved by the order of the Ld.CIT(A) the revenue is in appeal before this Tribunal.
We have considered the submissions advanced by both sides in the light of records placed before us.
The only issue raised by revenue in this appeal is against addition deleted by the Ld.CIT(A) in respect of the disallowance made under section 14A while computing book profits under section 115 JB of the act.
The Special Bench ruling in the case of ACIT vs. Vireet Investment Pvt. Ltd. (supra) of Hon’ble Delhi Tribunal clarified the issue related to the disallowance of expenses incurred to earn exempt income. This decision primarily impacted the computation of Minimum Alternate Tax (MAT) under Section 115JB of the Act. It is a well settled law that, disallowance calculated under section 14A cannot be added while computing book profit under section 115JB.
Respectfully following the ration by Hon’ble Delhi Special Bench in case of ACIT vs. Vireet Investment Pvt. Ltd. (supra), we do not find any infirmity in the view taken by the Ld.CIT(A) and the same is upheld.
Accordingly, the grounds raised by the revenue stands dismissed. In the result, the appeal filed by the revenue stands dismissed.
6 ITA 4851/Mum/2025; A.Y. 2013-14 Trapti Trading & Investments Private Limited Order pronounced in the open court on 30/09/2025