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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI MAHAVIR SINGHAND DR. DIPAK P. RIPOTE
Per Mahavir Singh, Vice President : This appeal by the assessee is arising out of the revision order u/s 263 of the Income Tax Act, 1961 (hereinafter ‘the Act’) of Principal Commissioner of Income Tax, Chennai-3 in Revision No. PCIT, Chennai-3/Revision-263/100000321493/2022 dated 30.03.2022. The Assessment was framed by Asst. Commissioner of Income Tax, Corporate Circle-6(2), Chennai for the relevant Assessment Year 2017-18 vide order dated 29.12.2019 u/s. 143(3) of the Act.
ITA No.312/Chny/2022 :- 2 -:
The only issue in this appeal of assessee is as regards to the
revision order passed by PCIT u/s. 263 of the Act for re-computing the
disallowance of expenses relatable to exempt income by invoking the
provisions of s. 14A of the Act r/w Rule 8D(2) of the Income Tax Rules,
1962 (hereinafter ‘the Rules’) for computing book profit u/s. 115JB of
the Act.
We have heard the rival contentions and gone through the facts
and circumstances of the case and also gone through the case
records and the documents filed before us including the case laws
referred.
Briefly stated facts are that the assessment was completed by
the ACIT, Corporate Circle-6(2), Chennai u/s. 143(3) of the Act vide
order dated 29.12.2019, wherein the issue of disallowance u/s. 14A of
the Act was considered by the A.O and he worked out the
disallowance at Rs. 76.91 Lakhs. Subsequently, the PCIT, Chennai
on perusal of profit and loss account noticed from the details of
miscellaneous expenses and computation of taxable book profit that
no amount was added towards the expenditure incurred to earn the
exempt income. According to PCIT, the A.O failed to consider the
disallowance of Rs. 76.91 Lakhs while computing the book profit u/s.
ITA No.312/Chny/2022 :- 3 -:
115 JB of the Act and therefore, he issued show cause notice to the
assessee as to why this amount of Rs. 76.91 Lakhs be not brought to
tax while computing taxable book profit u/s. 115JB of the Act.
The assessee replied that the assessee-company has not
incurred any expenses relating to exempt income as the dividend
income itself was transferred as a result of approved scheme of
demerger by National Company Law Tribunal, Chennai vide order
No.CP/210/214/CAA/2017 Dated 12.01.2018. The PCIT was not
convinced and according to PCIT, the assessment order passed by
A.O u/s. 143(3) of the Act dated 29.12.2019 is erroneous on this point
and therefore, he directed the A.O to compute the disallowance of
expenses of Rs. 76.91 Lakhs while computing book profit u/s. 115 JB
of the Act. For this, he gave direction in Para 8 as under:
“8. From the above, it is clear that the assessment order passed by the Assessing Officer u/s 143(3) on 29.12.2019 is erroneous on this point, as it is prejudicial to the interests of revenue and to be revised u/s 263 of the Income tax Act. Hence the assessment order is set aside with a direction to the Assessing Officer to recompute the income for the purposes of MAT under the provisions of Section 115JB of Income Tax Act, after providing sufficient opportunities of being heard to the Assessee.”
Aggrieved, the assessee is in appeal before the Tribunal. Now
before us, the Ld. Counsel for the assessee submitted that this issue is
settled by the decision of Hon’ble Karnataka High Court and that is the
solitary judgment till now in the case of Sobha Developers Ltd. v.
ITA No.312/Chny/2022 :- 4 -:
DCIT, LTU, Bangalore [2021] 434 ITR 266 (Kar.), wherein the entire
provision of s. 115JB of the Act was discussed in Para 7 and held that
the provisions of s. 115JB of the Act will not apply while making
disallowance u/s. 14A of the Act. The relevant Para 7 referred by the
Ld. Counsel for the assessee reads as under:
“7. Thus from perusal of the relevant extract of section 115JB, it is evident that sub-section (1) of section 115JB provides the mode of computation of the total income of the assessee and tax payable on the assessee under section 115JB of the Act. Sub-section (5) of section 115JB provides that save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee being a company mentioned in this section. Therefore, any expenditure relatable to earning of income exempt under section 10(2A) and section 10(35) of the Act is disallowed under section 14A of the Act and is, added back to book profit under clause (f) of section 115JB of the Act, the same would amount to doing violence with the statutory provision viz., sub-sections (1) and (5) of section 115JB of the Act. It is also pertinent to mention here that the amounts mentioned in clauses (a) to (i) of Explanation to section 115JB(2) are debited to the statement of profit and loss account, then only the provisions of section 115JB would apply. The disallowance under section 14A of the Act is a notional disallowance and therefore, by taking recourse to section 14A of the Act, the amount cannot be added back to book profit under clause (f) of section 115JB of the Act. It is also pertinent to mention here that similar view, which has been taken by this court in Gokaldas Images (P.) Ltd. (supra) was also taken by High Court of Bombay in CIT v. Bengal Finance & Investments (P.) Ltd. [IT Appeal. No. 337 of 2013, dated 10-2-2015 . It is pertinent to note that in Rolta India Ltd., the Supreme Court was dealing with the issue of changeability of interest under sections 234B and 234C of the Act on failure to pay advance tax in respect of tax payable under section 115JA/115JB of the Act and therefore, the aforesaid decision has no impact on the issue involved in this appeal. Similarly, in Maxopp Investment Ltd. (supra) the Supreme Court has dealt with section 14A of the Act and has not dealt with section 115JB of the Act. Therefore, the aforesaid decision also does not apply to the fact situation of the case. In view of preceding analysis, the substantial questions of law framed by a bench of this court are answered in favour of the assessee and against the revenue. In the result, the order passed by the tribunal dated 9-1-2015 insofar as it pertains to the findings recorded against the assessee is hereby quashed.”
ITA No.312/Chny/2022 :- 5 -:
We also noted that exactly an identical issue, the Co-ordinate
Bench of this Tribunal i.e., Special Bench in the case of ACIT Vs.
Vireet Investment Pvt. Ltd. dated 16.06.2017 has considered this issue
and held that the scheme of the Act is that the computation is first
made under the normal provisions of the Act and, thereafter, under an
alternate scheme provided u/s 115JB for computing total income as
per the prescribed method. If the tax liability on the basis of total
income as per MAT provisions is more than the tax computed under
the normal provisions of the Act then the former becomes the final tax
liability of the assessee. The mode of computation of book profit has
been prescribed under MAT provisions. Clause (f) of Explanation 1 to
section 115JB(2) of the Act is in conformity to matching principles of
accounting. As per the provisions of section 115JB(1) of the Act, a
comparison of the total income computed under the normal provisions
of the Act is to be made with the book profits as computed u/s 115JB
of the Act. This makes it clear that total income as contemplated under
normal provisions is inextricably linked with book profits under MAT
provisions and it is wrong to suggest that both operate in entirely
different fields. The Tribunal further held that if different modes of
computation are followed u/s 14A and in clause (f) of Explanation 1 to
section 115JB(2) of the Act, then the comparison will not be on same
ITA No.312/Chny/2022 :- 6 -:
footing and will produce absurd results. The phrase "in relation to"
used in section 14A of the Act and the phrase "expenditure relatable to
earning of exempt income", under clause (f) of Explanation 1 to section
115JB(2) of the Act, the word "relatable to" has wider connotation than
the words "in relation to", where the proximate relationship is required.
The computation under clause (f) of Explanation 1 to section 115JB(2)
of the Act, is to be made without resorting to the computation as
contemplated u/s 14A of the Act read with Rule 8D of the Rules.
The Ld. CIT-DR relied on the revision order. We have
considered the facts and circumstances of the case and gone through
the entire case laws and we are of the view that the issue is covered in
favour of the assessee and against Revenue that no disallowance of
expenses can be made in respect of exempt income by invoking the
provisions of s. 14A of the Act r/w Rule 8D of the Rules while
computing book profit u/s. 115JB of the Act. Since, the issue is
covered by Special Bench of this Tribunal in the case of ACIT Vs.
Vireet Investment Pvt. Ltd., supra, and by the decision of Hon’ble
Karnataka High Court in the case of Sobha Developers Ltd. v. DCIT,
LTU, Bangalore, supra, we quash the revision order passed by PCIT
and allowed the appeal of the assessee.
ITA No.312/Chny/2022 :- 7 -:
In the result, the appeal of the assessee is allowed.
Order pronounced in the Open Court on 18th August, 2022.
Sd/- Sd/- (डॉ दीपक पी. �रपोटे) (महावीर िसंह) (Dr. Dipak P. Ripote) (Mahavir Singh) उपा�� / Vice President लेखा लेखा सद�य लेखा लेखा सद�य सद�य /Accountant Member सद�य चे�ई/Chennai, �दनांक/Dated: 18th August, 2022. EDN/-
आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु� (अपील)/CIT(A) 4. आयकर आयु�/CIT 5. िवभागीय �ितिनिध/DR 6. गाड� फाईल/GF