DAMAYANTHI FINANCE & PROPERTIES P LTD,CHENNAI vs. ITO, CORPORATE WARD - 1(4), CHENNAI

PER G.MANJUNATHA, ACCOUNTANT MEMBER:

“1. The order of The Commissioner of Income Tax (Appeals) 3, Chennai dated 30.11.2017 in I.T.A.No.290/2014-15 for the above mentioned Assessment Year is contrary to law, facts, and in the circumstances of the case.

2. The CIT (Appeals) erred in not adjudicating the grounds challenging the applicability of section 14A of the Act for making disallowance/quantifying the disallowance of notional expenses

as per Rule 80 of the Income Tax Rules, 1962 without assigning proper reasons and justification.

3. The CIT (Appeals) erred in not adjudicating the Ground No.8 of the statutory Form No.35 read with the notes of arguments dated 27.11.2017 without assigning proper reasons and justification and ought to have appreciated that the addition of Rs.25,74,797/- being the notional expenses quantified as per Rule 80 of the Income Tax Rules, 1962 in the computation of book profits u/s 115 JB of the Act was wrong, erroneous, unjustified, incorrect and not sustainable in law.

4. Being aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). Before the CIT(A), the assessee has challenged disallowances computed by the Assessing Officer under section 14A read with Rule 8D and has also challenged additions made by the Assessing Officer towards computation of book profit u/s.115JB of the Act on account of disallowances computed under section 14A of the Act. The learned CIT(A) after considering the submissions of the assessee allowed partial relief in respect of disallowance computed under rule 8D(2)(iii) being 0.5% of the average value of investments and restricted disallowances computed by the Assessing Officer to `1,54,043/- as against disallowance computed by the Assessing Officer at `15,41,543/-. As regards disallowance of interest, the learned CIT(A) upheld the disallowance determined by the Assessing Officer, however, restricted the total disallowance computed u/s.14A read with Rule 8D to the extent of exempt income earned by the assessee which is at `12,97,911/-. Being aggrieved by the order of the CIT(A), the assessee is in appeal before us.

5. The learned A.R. for the assessee, at the time of hearing, only argued on the issue of additions made by the Assessing Officer towards disallowance computed u/s.14A read with Rule 8D of the I.T. Rules, 1962, to book profit computed under section 115JB of the Act. The learned counsel for the assessee referring to page 3 of the assessment order submitted that the Assessing Officer has not made any additions to total income declared under normal provisions of the Act, whereas he has made addition to book profit computed under section 115JB of the Act. He further argued that notional disallowances computed under section 14A read with rule 8D cannot be added back to book profit computed under section 115JB of the Act.

6. The learned DR, on the other hand, referring to para 4 to 4.3 of the learned CIT(A) order submitted that the assessee had pleaded before the CIT(A) to restrict the disallowances computed u/s.14A of the Act to the extent of exempt income being dividend earned at `12,97,911/- and hence, there is no merit in the argument of the assessee on the issue of adjustment made to book profit computed u/s. 115JB of the Act.

7. We have heard both the parties and perused the material available on record and gone through the orders of the authorities below. The only argument taken by the counsel for the assessee is with regard to adjustment made to book profit computed u/s.115JB of the Act towards disallowance computed u/s.14A read with Rule 8D of the Income Tax Rules, 1962 for `25,74,797/-. It is well settled principle of law by the decision of the ITAT., Special Bench, Delhi in the case of ACIT Vs. Vireet Investments P. Ltd., (2017) 165 ITD 27 (Del), where the Tribunal after considering relevant provisions of section 115JB of the Act held that computation under clause (f) of Explanation 1 to section 115JB of the Act has to be made without resorting to computation as contemplated u/s.14A read with Rule 8D of the Income Tax Rules, 1962. Therefore, we are of the considered view that the Assessing Officer has erred in making additions towards disallowance computed u/s. 14A read with Rule 8D to compute book profit under section 115JB of the Act, hence, we direct the Assessing Officer to delete the adjustment made to book profit towards disallowance computed u/s.14 of the Act.

Order pronounced in the open court on 27th October, 2020