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Income Tax Appellate Tribunal, MUMBAI BENCH “D” MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the Revenue. The relevant assessment year is 2013-14. The appeal is directed against the order of the Commissioner of Income Tax-14, Mumbai [in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).
The grounds of appeal filed by the revenue read as under:
1. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in restricting the disallowance u/s 14A of the Act r.w.r 8D(2)(iii) to the extent of expenses claimed by the assessee, even though the CBDT Circular No. 5/2014 dated 11.02.2014 which clarify on rules of 8D does not specify any such limit.
2. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in restricting the book profit u/s 115JB(2) to 50% of expenses claimed without giving any proper basis for adopting this value. 3. On the facts and in the circumstances of the case and in law the Ld. CIT(A) while deciding on the issue of addition of disallowance u/s 14A to book profit u/s 115JB(2) erred in not considering the decision of ‘F’ bench of ITAT, Mumbai in the case of Viraj Profiles Ltd. (2016) 156 ITD 72, Mumbai which is squarely covered in favour of the revenue. 3. Briefly stated, the facts are that the assessee filed its return of income for the assessment year (AY) 2013-14 on 17.09.2012 declaring total income of Rs.57,880/-. The Assessing Officer (AO) arrived at a total taxable income of Rs.3,51,54,530/- under normal provisions and book profit of Rs.18,38,31,897/- u/s 115JB of the Act. As per the normal provision, tax payable is less than the tax calculated u/s 115JB of the Act. Therefore, the AO considered for tax purpose the book profit of Rs.18,38,31,897/- u/s 115JB of the Act. While arriving at the book profit u/s 115JB, the AO made a disallowance of Rs.3,50,96,652/- u/s 14A of the Act. During the impugned assessment year, the assessee has shown dividend income of Rs.4,43,81,857/- and has claimed it as exempt u/s 10(34) of the Act. In response to a query raised by the AO to show cause as to why the disallowance u/s 14A r.w. Rule 8D of the Income Tax Rules, 1962 (the ‘Rules’) should not be made, the assessee filed a calculation sheet on the above. However, the AO was not convinced with the said reply of the assessee and made a disallowance of Rs.3,50,96,652/- u/s 14A r.w Rule 8D. Both in the normal computation and also in book profit u/s 115JB, the AO made an addition of the above amount of Rs.3,50,96,652/-.
Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). In the order dated 01.02.2018, the Ld. CIT(A) partly allowed the appeal filed by the assessee which is reproduced below: “So far as the third ground of appeal challenging the addition of amount disallowed under section 14A of the IT Act to the book profit is concerned, I am in agreement with the contention of the appellant that the same cannot be done. In view of the decision of Special Bench of Tribunal, Delhi in case of ACIT v Vireet Investment Pvt. Ltd. [2017] 82 taxmann.com 415 (Delhi - Trib.) (SB) it is held that 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 r.w. Rule 8D of the Rules. In the case of Reliance Natural Resources Ltd for AY 2009-10, vide order dated 11/08/2017, ITAT Mumbai has upheld the addition of 10% of dividend income while computing the book profit u/s. 115JB of the Act. In the year under consideration, the Appellant has earned Rs.4,43,81,857 as exempt Income. 10% of this amount will exceed the total expenses debited by the appellant. Therefore, considering the other income, 50% of total expenses debited to the profit and loss account i.e. Rs.14,19,092 is directed to be added