SKY AMA INFRA PRIVATE LIMITED,LUDHIANA, PUNJAB vs. DCIT, CC-2, LUDHIANA

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ITA 396/CHANDI/2023Status: DisposedITAT Chandigarh15 July 2025AY 2018-19Bench: SHRI RAJPAL YADAV (Vice President), SHRI MANOJ KUMAR AGGARWAL (Accountant Member)4 pages

AI SummaryPartly Allowed

Facts

The assessee received exempt dividend income of Rs.863.10 Lacs but claimed no expenditure was incurred to earn it. The Assessing Officer (AO) disallowed Rs.79.21 Lacs under Section 14A, applying Rule 8D(2)(ii) at 1% of the monthly average investments, and added it back for both normal provisions and MAT under Section 115JB. The CIT(A) confirmed the AO's action, leading to the current appeal.

Held

The Tribunal confirmed the disallowance under Section 14A for computing income under normal provisions, affirming the AO's application of Rule 8D due to the absence of separate accounts for investment portfolios. However, the Tribunal deleted the adjustment of this disallowance for computing 'Book Profits' under Section 115JB, relying on the Special Bench decision in *Vireet Investments Pvt. Ltd.*.

Key Issues

Whether disallowance under Section 14A is applicable for exempt income under normal provisions, and whether such disallowance should be added back for computing book profits under Section 115JB.

Sections Cited

143(3), 14A, 115JB, Rule 8D(2)(ii)

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Cases cited in this judgment

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ACIT v. Vireet Investment Pvt. Ltd.
82 Taxmann.com 415 · 2017 · HC
789 citing

Income Tax Appellate Tribunal, “B” BENCH, CHANDIGARH

Before: HON’BLE SHRI RAJPAL YADAV & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM

O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2018-19 arises out of an order of learned Commissioner of Income Tax (Appeals)-5, Ludhiana [CIT(A)] dated 19-04-2023 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) of the Act on 02-02-2021. The sole grievance of the assessee is confirmation of disallowance u/s 14A for Rs.79.21 Lacs. Having heard rival submissions and upon perusal of case records, the appeal is disposed- off as under.

The assessee received exempt dividend income of Rs.863.10 Lacs on equity investment made in an entity M/s Fastway Transmissions Pvt. Ltd. (FTPL). However, the assessee did not offer any disallowance u/s 14A on the plea that no expense was incurred to earn the dividend income. However, rejecting the same, Ld. AO computed indirect expense disallowance u/r 8D(2)(ii) @1% of monthly average of opening and closing investments which resulted into disallowance u/s 14A for Rs.79.21 Lacs. The same was added back while computing income under normal provisions as well as while computing ‘Book Profits’ for the purpose of MAT u/s 115JB. The assessee has ultimately paid taxes u/s 115JB. The Ld. CIT(A) confirmed the action of Ld. AO against which the assessee is in further appeal before us 3. The perusal of assessee’s financial statements as placed on record would show that there is movement in trade investment portfolio of the assessee during the year. The opening investments are Rs.80.56 Crores whereas the closing investments are Rs.86.37 Crores. There is movement in investment made by the assessee in its holding company. The assessee has incurred employment benefit expenses as well as other expenses which are of administrative in nature. The assessee has not maintained separate accounts with respect to such investment portfolio. It is unconceivable that no effort was made by the assessee to maintain its investment portfolio and therefore, in the absence of any demonstrative evidences to support this plea, it could not be accepted that the assessee did not incur any expenditure on maintaining the investment portfolio. The Rule 8D applies exactly in a situation like this. This rule provides a mechanism for computation of disallowance where the demarcation of expenses is not available. The Ld. AO has applied Rule 8D and computed the indirect expense disallowance as per this rule only. Therefore, no fault could be found in the working of Ld. AO. Consequently, the impugned disallowance made while computing income under normal provisions stand confirmed. We order so.