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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
O R D E R
PER PAVAN KUMAR GADALE JM:
The assessee has filed the appeal against the order of the CIT(A)- National Faceless Appeal Centre (NFAC), Delhi, passed u/s 154 and 250 of the Income Tax Act, 1961. The assessee has raised the following grounds of appeal:
A. DISMISSAL OF APPEAL UNDER THE DIRECT TAX VIVAD SE VISHWAS ACT, 2020:
Creative Ashtech Power Projects, Mumbai. - 2 -
1. On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as CIT(A)] erred in dismissing the appeal as withdrawn under the Direct Tax Vivad se Vishwas Act, 2020 (VSV) on the basis of Certificate in Form 5 bearing reference number 2216451200200121dated 20.01.2021 issued by the Pr. Commissioner of Income Tax, Mumbai - 6 in respect of appeal no. CIT(A), Pune 1/10303/2015-16 filed against the Assessment Order passed u/s. 143(3) of the Act dated 17.03.2015 by the Dy. Commissioner of Income Tax - 1(1), Pune for AY 2012 13.
Your Appellant submits that the appeal no. CIT(A), Pune- 1/10339/2015-16 which was fixed for hearing before CIT(A) has been filed against the Order passed u/s. 154 of the Act dated 27.05.2015 by the Dy. Commissioner of Income Tax - 1(1), Pune for AY 2012-13. The Appellant submits that no dispute resolution under VSV was sought in respect of appeal no. 10339/2015-16 and submissions on merit were uploaded on efiling portal on 25.01.2021.
2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in dismissing appeal no. CIT(A), Pune-1/10339/2015-16 instead of appeal no. CIT(A), Pune-1/10303/2015-16.
Your Appellant submits that the appeal no. CIT(A), Pune- 1/10339/2015-16 filed against the Order u/s. 154 of the Act dated 27.05.2015 be decided on the facts and merits of the case as filed vide submissions dated 25.01.2021. Without prejudice to the above, our grounds on merit are as under:
COMPUTATION OF BOOK PROFIT U/S. 115JB OF THE ACT
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B. ADDITION OF DISALLOWANCE UNDER SECTION 14A OF THE ACT WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT:
On the facts and in the circumstances of the case and in law, the learned Dy. Commissioner of Income Tax - 1(1), Pune [hereinafter referred to as "The Assessing Officer"] has wrongly added Rs. 10,74,41,946 on account of expenses incurred in relation to exempt income based on the computation as provided in section 14A and Rule 8D while computing book profit u/s. 115JB of the Act. Your Appellant submits that the provisions of section 14A and Rule 8D are applicable only in respect of computation under chapter IV and accordingly could not have been applied in computation of book profits u/s. 115JB of the Act.
Without prejudice to the above, the Appellant submits that the disallowance u/s. 14A r.w. Rule 8D for computing income under normal provisions of the Act and consequently
clause (f) of Explanation 1 to section 115JB ought to be worked considering as under: i) The disallowance under Rule 8D(2)(ii) and (iii) of the Rule 8D and clause (f) of Explanation 1 to section 115JB ought to be worked out with reference to investments which have yielded exempt income during the year and excluding those investmentson which exempt income was not received during the year. ii) The disallowance u/s. 14A of the Act and clause (f) of Explanation 1 to section 115JB ought to be restricted to the extent of exempt income of Rs. 36,28,299 earned by the Creative Ashtech Power Projects, Mumbai. - 4 -
Appellant during the year relying on the Supreme Court decision in case of Principal Commissioner of Income-tax-2 v. Caraf Builders & Constructions (P.) Ltd. [2019] 112 taxmann.com 322 (SC).
Your Appellant submits that if the disallowance is required to be made for computing book profits u/s. 115JB, the disallowance ought to be made with reference to only those investments on which dividend income has been earned during the year or in the alternative restricted to the dividend income earned by the Appellant.
Without prejudice to the above, the Appellant submits that addition under clause (f) of Explanation 1 of section 115JB made while computing book profit is excessive and the same ought to be reduced substantially.
6. The appellant craves leave to add to amend, vary or alter, including by substitution, any of the above grounds of appeal.
The brief facts of the case are that, the assessee company is engaged in the business of Turnkey Power projects contractor / undertaker and reseller.The assessee has filed the return of income electronically on 30.09.2012 for the A.Y 2012-13 disclosing a total loss of Rs.9,51,62,286/- under the normal provisions
Creative Ashtech Power Projects, Mumbai. - 5 - of income tax Act and the return of income was processed u/s 143(1) of the Act. Subsequently, the case was selected for scrutiny and notice u/s 143(2) and 142(1) of the Act along with the questionnaire was issued. In compliance to the notice, the Ld.AR of the assessee appeared from time to time and submitted details and the case was discussed. The Assessing Officer (A.O) on perusal of the financial statements found that the assessee has received dividend income of Rs. 36,28,299/- same was claimed u/s 10(34) of the Act and the assessee has not incurred any expenditure attributed to earning such exempted income and the A.O. has called for the information. The assessee has filed the explanations that the investments are made out of the own funds and the disallowance u/s 14A of the Act is not warranted. The A.O. was not satisfied with the explanations and relied on the judicial decisions and concluded that the assessee has utilized the borrowed funds for investment purpose and computed the disallowance u/s 14A r.w.r 8D(2)(ii)&(iii) of the I T rules which worked out to Rs.10,70,81,980/-. On the other issue, the A.O. has made the addition of interest on fixed deposits of Rs.13,13,433/- with ICICI
Creative Ashtech Power Projects, Mumbai. - 6 - Bank as there is a difference in reconciliation with Form no 26AS and assessed the total income of Rs.1,32,33,097//- and passed the order u/s 143(3) of the Act dated 17.03.2015.
3. Subsequently the assessee company vide letter dated 24.04.2015 had pointed out in the order u/s 143(3) of the Act dated 17.03.2015 that the revised computation of income submitted during the assessment was not considered. The A.O. found that there are certain errors crept in the original return of income and computed the revised the total income of Rs.Nil after setoff of unabsorbed depreciation and computed book profits u/s 115JB of the Act with the disallowance u/s 14Ar.w.r.8D2(ii)&(iii) of the I T rules of Rs.10,74,41,496/- which worked out to Rs.84,13,425/- and passed order u/sec154 of the Act dated 27-05-2015.
4. Aggrieved by the order u/s 154 of the Act, the assessee has filed an appeal with the CIT(A). Whereas in the appellate proceedings the CIT(A) has observed that the assessee has opted for Direct Tax VSVS –
Creative Ashtech Power Projects, Mumbai. - 7 - 2020, and is of the opinion that the appeal is deemed to have been withdrawn based on the facts and dismissed the assessee appeal. Aggrieved by the order of the CIT(A, the assessee has filed an appeal with the Hon’ble Tribunal.
5. At the time of hearing, the Ld. AR submitted that the CIT(A) has erred in dismissing the appeal u/s 154 of the Act. Whereas, the assessee has opted for VSVS- 2020 Scheme and received Form No. 5 for the assessment order u/s 143(3) of the Act dated 17.03.2015 and in respect of the appeal before the CIT(A) is concerned, the assessee is contesting the disallowance u/s u/s 14Ar.w.r.8D2(ii)&(iii) of the I T rules in computation of book profits u/s 115JB of the Act and prayed for allowing the assessee appeal. Contra, the Ld.DR supported the order of the CIT(A).
We heard the rival submissions and perused the material on record. The sole crux of the disputed issue is with respect to CIT(A) dismissing the assessee appeal filed against the order u/s 154 of the Act dated 27.05.2015 considering the fact that the assessee has Creative Ashtech Power Projects, Mumbai. - 8 - opted for VSVS-2020 Scheme and has treated as withdrawn. Whereas the Ld. AR has substantiated with evidences and the facts that the assessee has opted for VSVS-2020 Scheme against the order passed u/s 143(3) of the Act dated 17.03.2015 and not in order u/s 154 of the Act dated 27.05.2015. The Ld. AR mentioned that the action of the CIT(A) in dismissing the appeal as withdrawn is not in accordance with law and emphasized that the appeal has to be decided on merits were the disallowance u/s 14A of the Act shall not be added in computing the book profits u/s 115JB of the Act. The quantum of disallowance u/s 14A of the Act cannot be automatically considered in computation of book profits.
We find the submissions of the Ld. AR are realistic as it is evident from the evidences filed, the assessee has opted for VSVS-2020 Scheme in the original assessment u/s 143(3) of the Act dated 17.03.2015 and not in the order under section 154 of the Act. We find on the disputed issue of disallowance u/sec14A of the Act, not to be considered in computing the Book Profits U/sec115JB of the Act the Honble ITAT Delhi
Creative Ashtech Power Projects, Mumbai. - 9 - Special Bench in the case of ACIT Vs. Vireet Investments Pvt Ltd., in dated 16.06.2017 has observed that the disallowance u/s 14A of the Act cannot be part of addition for computing book profit u/s 115JB of the Act. Further we find that the CIT(A) has not decided appeal filed against the order U/sec 154 of the Act order on merits and observed that the assessee has opted for VSVS-2020 Scheme and withdrawn the appeal and dismissed. Hence for making addition under clause (f) in Explanation(1) to section 115JB of the Act, the disallowance computed u/sec14A of the Act should not adopted, i.e. the addition under clause (f) should be computed from the books of account as held in the case of ACIT Vs. Vireet Investments Pvt Ltd(supra). Hence to avoid the multiplicity of the action of the revenue and to meet the ends of justice, we restore the disputed issue for limited purpose to the file of the Assessing officer to re-compute the book profits u/s 115JB of the Act applying the ratio of the Special Bench decision in the case of ACIT Vs. Vireet Investments Pvt Ltd(supra) that the addition of disallowance u/s 14A of the Act in computing the book
Creative Ashtech Power Projects, Mumbai. - 10 - profits u/s 115JB of the Act is not to be considered and allow the grounds of appeal of the assessee for statistical purposes.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 24.08.2022.