DCIT- CC - 8(4) , MUMBAI vs. BERMACO ENERGY SYSTEMS PVT. LTD., MUMBAI

The two inter-connected issues in this appeal of Revenue are against the order of CIT(A), deleting the addition made by the AO by disallowing the expenses relatable to exempt income, by invoking the provisions of Section 14A r.w.r. 8D of Income Tax Rules, 1962 (Rules). The CIT(A) also deleted the addition made by the AO in regard to the disallowance of expenses by invoking the provisions of Section 14A r.w.r.8D while computing book profit u/s.115JB of the Act. For these inter-connected issues, the Revenue has raised the following grounds:

1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in denting the addition of Rs.87,17,124/- made under section 14A r.w. Rule 8D of the Act by relying the decision of Hon. ITAT in the case of M/s. Future Corporate Resources Ltd. vs. Dy. CIT(OSD)-8(1), Mumbai reported in 167 ITD 33 without appreciating the fact that the decision of the Hon. ITAT has not been accepted by the Department and appeal under section.260A is filed before the Hon'ble Bombay High Court which is pending for adjudication,"

At the outset, it is stated that assessee has earned exempt income i.e., dividend income to the extent of ₹1,85,613/-. The CIT(A) has restricted the disallowance to the extent of dividend income. We find that this issue is squarely covered by the decision of the Hon'ble Bombay High Court in the case of Pr.CIT Vs. Ballarpur Industries Limited in Income Tax Appeal No.51 of 2016, wherein this issue has been considered following the judgment of Hon’ble Delhi High Court in the case of Chem invest Limited vs. CIT (2015) 378 ITR 33 (Delhi) held as under: - “On hearing the learned Counsel for the Department and on a perusal of the impugned orders, it appears that both the Authorities have recorded a clear finding of fact that there was no exempt income earned by the assessee. While holding so, the Authorities relied on the judgment of the Delhi High Court in Income Tax Appeal No. 749/2014, which holds that the expression “does not form part of the total income” in Section 14A of the Income Tax Act, 1961 envisages that there should be an actual receipt of the income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. The Income Tax Appellate Tribunal held that the provisions of Section 14A of the Income Tax Act, 1961 would not apply to the facts of this case as no exempt income was received or receivable during the relevant previous year. It is not the case of the Assessing Officer that any actual income was received by the assessee and the same was includible in the total income. In the facts of the case, the Authorities held that since the investments made by the assessee in the sister concerns were not the actual income received by the assessee, they could not have been included in the total income.”

As regards the computation of book profit u/s.115JB of the Act and making disallowance u/s.14A r.w.r.8D, we noted that this issue is squarely covered in favour of assessee and against Revenue by the decision of the Special Bench of this Tribunal in the case of ACIT Vs. Vireet Investment Pvt. Ltd., in dt.16-06-2017, wherein it was held that - the provisions of Section 14A r.w.r.8D(2) of the Rules will not apply wherever book profit is computed u/s.115JB of the Act. Hence, this issue of Revenue is dismissed.

In the result, the appeal of Revenue is dismissed.