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Facts
The assessee, engaged in real estate, filed its return declaring total income and book profit. The AO made an addition under Section 14A for dividend income and also adjusted book profits. The CIT(A) upheld the AO's actions, leading to the present appeal.
Held
The Tribunal held that the assessee had sufficient interest-free funds available, which were more than the investments yielding dividend income. Furthermore, disallowance under Section 14A is not applicable to Minimum Tax Computation.
Key Issues
Whether the disallowance under Section 14A and consequential adjustment to book profit under Section 115JB are sustainable, particularly when the assessee had sufficient interest-free funds and Section 14A is not applicable to MAT computation.
Sections Cited
115JB, 14A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “A”, NEW DELHI
Before: SHRI SUDHIR KUMAR & MRS. RENU JAUHRI
ORDER
Per Sudhir Kumar, JM :
The Assessee has filed the instant Appeal against the Order of the Ld. Addl/JCIT(Al)-12, Mumbai dated 6.11.2023, relating to assessment year 2017- 18.
The appeal filed by the assessee is time barred by 429 days. For this, assessee has filed the condonation petition. After perusing the condonation petition, we are of the view that reasonable cause has been attributed to the assessee in filing the belated appeal, hence, the delay in dispute is condoned, appeal is admitted for adjudication.
Brief facts of the case are that the assessee is engaged in the business of real estate activities. Assessee filed return of income declaring its total income at Rs. 2,13,27,837/- and at book profit of Rs. 3,09,69,622/- as per the provisions of Section 115JB of the Income Tax Act. Assessment was completed at a total income of Rs. 2,27,25,339/- thereby making an addition of Rs. 13,97,502/- under section 14A in normal income as well as increased the book profits for the calculation of MAT. In appeal, Ld. CIT(A) dismissed the appeal of the assessee. Aggrieved with the action of the Ld. CIT(A), assessee is in appeal before us on the following grounds of appeal:-
1. That on the facts and in the circumstances of the assessee company’s case the Addl/JCIT (A) erred on facts and in law in confirming the disallowance of Rs. 13,97,502/- made by the AO under section 14A and also making consequential adjustment while computing book profit under section 115JB of the Act.
2. That on the facts and in the circumstances of the assessee company’s case the Ld. Addl/JCIT (A) erred in law in not disposing off the ground of appeal by way of speaking order relating to increase made by the AO to the amount of book profits for the purposes of section 115JB by adding thereto the amount of disallowance under section 14A.
4. Ld.AR has submitted that the assessee company has earned the tax free dividend income from investments in mutual funds and for making these investments, assessee had enough free interest free owned funds. Also all expenses debited in profit and loss statement and profession. He further submitted that AO has not brought any material on record to show that assessee has incurred any expenditure for earning the tax free dividend income. He further submitted that assessee company has paid tax under the provisions of 2 | P a g e section 115JB of the Act as the tax payable under MAT is more than tax payable under normal provisions of the Act and while calculating he book profits u/s. 115JB the assessee has correctly reduced the amount of tax free dividend income of Rs. 13,97,502/- as per the provisions of section 115JB. In view of above, it is submitted that the AO erred in disallowance under section 14A and also making consequential adjustment while computing book profits under section 115JB of the Act, hence, the same may be deleted.
On the other hand, Ld. DR relied upon the orders of the authorities below.
We have heard the rival contentions and perused the records. We note that the assessee company is engaged in real estate business and assessee declared income from business, capital gains and other sources. The AO made the addition of Rs. 13,97,502/- under section 14A read with Rule 8D i.e. to the extent of exempt income being dividend from mutual funds. It is noted that while computing its income from business the assessee company disallowed entire administrative expenses of Rs. 10,04,980/-. It claimed interest expenses of Rs. 13,45,855/- against interest income from FDRs of Rs. 13,53,729, thus its income under the head ‘other sources was Rs. 7875/-. Assessee has outstanding unsecured loans/ other current liabilities as at 31.3.2017 or Rs. 24,34,95,625/-. The assessee company did not claim deduction of any administrative expenses at all for earning dividend income of Rs. 13,97,502/- as the entire administrative expenses were disallowed while calculating income under head ‘income from business’. The assessee company had interest free funds available with it as on 31.3.2017 amounting to Rs. 31,46,58,704/- which includes investment in mutual funds of Rs. 26,99,98,329/- and Rs. 4,46,60,375/- towards surplus interest free funds. It is further noted that total investments of the assessee company as on 31.3.2017 was Rs.3,32,04,218/- towards non-current investments in shares of private limited company; Rs. 26,99,98.329/- towards current investments in mutual funds (other than FDs with Bank). In view of the aforesaid factual matrix, it is abundantly clear that assessee had enough interest 3 | P a g e free funds available with it and such funds were more than the investments which yielded dividend during the financial year. As regards addition to total income u/s. 115JB of the Act, the AO did not make addition in terms of section 115JB of the Act in the assessment order, however, while computing income tax in the computation sheet attached with the return of income AO assumed deemed total income in terms of section 115JB of the Act at Rs. 3,23,67,124/- as against u/s. 115JB declared by the assessee at Rs. 3,09,69,622/-. There is no subsequent order u/s. 154 of the Act. We find that it is settled law that disallowance u/s. 14A of the Act shall not apply to Minimum Tax Computation. Hence the addition in dispute is not sustainable, thus, the same is hereby deleted and accordingly, the grounds raised
by the assessee are allowed.
9. In the result, the Assessee’s appeal is allowed. Order pronounced in the open court on 11.2.2026