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Facts
The AO noticed that additions made under Section 14A were not factored into the computation of book profits under Section 115JB. The AO rectified this under Section 154, adding the Section 14A additions to the book profit computation. The assessee appealed this action.
Held
The Tribunal held that the issue of whether additions under Section 14A should be considered for book profit computation under Section 115JB is a debatable issue. Furthermore, on merits, various High Court and Tribunal decisions prohibit such additions for book profit calculation.
Key Issues
Whether disallowances under Section 14A can be added to book profits for computation under Section 115JB when the issue is debatable and rectifiable under Section 154.
Sections Cited
14A, 115JB, 154, 250
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Income Tax Appellate Tribunal, “A” BENCH, KOLKATA
Associated Global Finance Ltd., 17, Ganesh Chandra Avenue, Bowbazar, Kolkata - 700013 [PAN: AABCA9235B] ……..…...…………….... Appellant vs. Assistant Commissioner of Income Tax, Central Circle 4(1), Kolkata, 110 Shantipally, Aayakar Bhawan (Poorva), Kolkata - 700107 ................................ Respondent Appearances by: Assessee represented by : S.K. Tulsiyan, Advocate, Abha Agarwal, FCA Department represented by : Sandeep Lakra, Addl. CIT, Sr. DR Date of concluding the hearing : 24.11.2025 Date of pronouncing the order : 27.11.2025 O R D E R
PER SANJAY AWASTHI, ACCOUNTANT MEMBER:
This appeal arises from order u/s 250 of the Income Tax Act, 1961 (hereafter “the Act”), dated 30.07.2025, passed by the Ld. Commissioner of Income Tax (Appeals)-Kolkata [hereafter “the Ld. CIT(A)”].
1.1 In this case, the Ld. AO noticed that certain additions to the income u/s 14A of the Act were not factored into the computation of book profits u/s 115JB of the Act. The Ld. AO, thereafter, proceeded ahead to rectify the alleged error u/s 154 of the Act and thereby included the addition u/s 14A of the Act in the computation of income for the purposes of section 115JB of the Act.
“7.1.2 The financial statement pertains to the instant year in the case of assessee reflects that the assessee had an exempt income of Rs. 78,70,907/- and Rs. 90,91,056/- respectively both for the A.Y.2017-18 (the year under appeal and AY 2016-17 (immediately preceding year), Schedule No.3.14 to the relevant financial statement, under Other Income. The exempt Income like earning of dividend completely depends on procurement of scrip and the investment in shares both in quoted and unquoted remains same since last year (the year ended on 31.03.2016] and sum of which was Rs.12.24.67.984/- Schedule No 7 to the relevant financial statement. Further, the earning of dividends directly involved with the Employee Benefit Expenses (paid in any form like Salary. Perquisites. Commissions etc) who applied their mind continuously to keep track and hold the shares for periodical manner as well as some other stationery expanse required and used to keep track of all those in the instant case the assessee company has earned Dividend of Rs.78,70,907/- out of total revenue or gross income of Rs.2.28.26.398/ [Rs. 78.29.185 for Sale of Mutual Fund Units Rs. 16,35,991/-for Interest Received Rs.54.90.335-Profit on Sale of investment Rs 7870 907-as Dividend) which is 34.5% of Gross Revenue and against which the assessee has claimed Employee Benefit Expenses of Rs. 12,00,000/- and Other Expenses of Rs.2.00,153/- inter alia other different expenses. Thus, it is lucid from the relevant financial statement of the assessee itself that expenses incurred directly for deriving Dividend but booked in the PSL A/c. consolidate manner. 7.1.3.As the expenses involved at least, under those two heads are directly related to the Dividend earning also hence, the denial as well as failure to quantify the figure by the assessee itself who had expended the money is nothing but only a wilful attempt to avoid depositing the legitimate tax on actual total income Even the assessee has not come forward with the cogent evidence to justify its claim on merit during the appeal proceedings also. Rather, the assessee has preferred to refer the judgments of various Hon'ble ITATs and Hon'ble Karnataka High Court which was adjudicated on similar issue of Book Profit but favoured the assessee only on different footings like e.g. the AO has already concluded in the original assessment without extending any addition u/s 14A or where sufficient fund was in hand to invest in shares and no direct expenses incurred or where no exempt income has been claimed etc. Thus, the reference of the judicial pronouncements made by the assessee in this case has been misconstrued Hence, the AO has not exceeded has jurisdiction while Initiating the action and re-computed the income of the assessee for the subjected AY 154 of the Act (supra). Therefore, the legal plea of the assessee through these grounds of appeal is failed completely and the assessee has failed to explain with the help of any cogent evidence that no expenditure has never ever actually and really incurred when the entire businesses had been run under a common set-up and expenses were also booked in integral form can't be segregated till today. Hence, all the grounds of appeal raised by the assessee are dismissed.” 1.3 Further aggrieved the assessee has approached the ITAT with grounds challenging this action of Ld. AO. The Ld. AR argued that there Associated Global Finance Ltd. were a catena of judgments which specifically prohibited the consideration of any addition made u/s 14A of the Act, read with Rule 8D of the IT Rules, for the purposes of computing book profit u/s 115JB of the Act. The Ld. AR relied on the following case laws:
(i) PCIT Vs. J.J. Glastronics (P) Ltd. 139 taxmann.com 375 (Kar. HC)
(ii) DCIT Vs. Jammu Pigments Ltd., (Delhi Trib)
(iii) DCIT, Circle2, LTU, Kolkata Vs. Century Plyboards (I) Ltd. 123 taxmann.com 256 (Kolkata-Trib.) (04.11.2020).
It was the further argument that the issue of whether or not enhancements to income u/s 14A of the Act should be considered for the purpose of computing book profit u/s 115JB of the Act, was a debatable issue at best and thus it could not be considered u/s 154 of the Act, in any case.
2.1 The Ld. DR relied on the orders of authorities below.
We have carefully considered the rival submissions and have gone through the documents before us. We have also perused the case laws cited by the Ld. AR. Right at the outset, it deserves to be mentioned that notwithstanding the merit of the case we are easily reminded about the case of Volkart Brothers reported in 82 ITR 50 (SC), which is the locus classicus on the subject of rectifiable matters, in which it has been held that “a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions.” From the mere fact that the Ld. CIT(A) has relied on a few cases which support his view on the matter, would readily indicate that the impugned issue is not a clear cut black and white matter and thus would immediately go out of the purview of section 154 of the Act.
Associated Global Finance Ltd. 3.1 Even if we leave aside the argument of “two opinions” possible on the matter, on merit also the impugned issue is practically settled in favour of the assessee as of now. In this regard, the case of Biral Corporation Ltd., dated 24.12.2024, in which one of us was the author, the following has been held on this issue:
“5.1 It is seen that while coming to the conclusion as extracted above, the Hon'ble Bench was presumably not made aware of the ITAT Special Bench decision in the case of ACIT Vs. Vireet Investments Pvt. Ltd. reported in 82 taxmann.com 415 (Delhi- Trib-SB). In this case it has been held that the computation u/s 115JB of the Act is to be made without resorting to computation as contemplated under Section 14A read with Rule 8D of the Rules. Furthermore, a review of literature on this issue reveals that the Hon'ble Karnataka High Court in the case of PCIT Vs. J.J. Glastronics Pvt. Ltd. reported in 446 ITR 712 (Kar) has specifically directed that the amount disallowed under Section 14A could not be added to net profit while computing book profit under Section 115JB of the Act. Similarly, the Hon'ble Delhi High Court in the case of PCIT (Central)-1, Vs. Moon Star Securities Trade and Finance Co. (P) Ltd. reported in 161 taxmann.com 158 as also directed that disallowance made under Section 14A of the Act could not be considered while computing MAT under Section 115.JB of the Act. These authorities are merely cited as illustrations since there are other judicial pronouncements also on the subject, including an unreported judgement of the Hon'ble Calcutta High Court: CIT vs Jayshree Tea Limited (ITAT 47 of 2014 and GA 1501 of 2014, order dated 19.11.2014]. Respectfully following these judgements, and differing from the order of ITAT for AY 2015-16 (supra), the issue of computing for book profits after including additions made under Section 14A read with Rule 8D, cannot be supported and thus, the action of Ld. CIT(A) as per his findings on page 45 of the impugned order is upheld and the specific ground of the revenue is dismissed.” Thus, even on merits, the assessee deserves relief on the impugned actions.
In result, relief is granted to the assessee on account of the impugned issue being debatable issue at best and also on the ground of non- applicability of additions u/s 14A of the Act to any computation u/s 115JB of the Act.
In result, appeal of the assessee is allowed.