DCIT CORPORATE CIRCLE 1(1), CHENNAI vs. A.V.THOMAS LEATHER AND ALLIED PRODUCTS PVT. LTD., CHENNAI

This appeal filed by the Revenue is directed against the order of the ld. Commissioner of Income Tax (Appeals) 1, Chennai, dated 21.05.2018 relevant to the assessment year 2014-15. The effective ground raised in the appeal of the Revenue is that the ld. CIT(A) has erred in deleting the disallowance under section 14A r.w. Rule 8D while computing book profit under section 115JB of the Income Tax Act, 1961 [“Act” in short].

Brief facts of the case are that the assessee has filed the return of income on 26.11.2014 for the assessment year 2014-15 admitting total income at ₹.2,52,71,820/-. The case of the assessee was selected for scrutiny and against the statutory notices, the assessee furnished the details as called for. On verification of the details furnished by the assessee as well as submissions, the assessment under section 143(3) of the Act was completed on 27,12,2016 determining the total income at ₹.3,67,63,498/- after making disallowance of additional depreciation, disallowance under section 40(a)(i) and disallowance of commission expenses under section 37 of the Act. The tax payable was computed on book profit under section 115JB of the Act as the same was higher than the normal computation. Subsequently, on perusal of the assessment records, the Assessing Officer has noticed that the assessee company itself has disallowed a sum of ₹.7,09,779/- under section 14A of the Act under normal computation. The Assessing Officer further observed that the said amount disallowed by the assessee was omitted to be considered under book profit. Since any expenditure relating to exempt incomes are to be added back to the book profit as per the provisions of section 115JB of the Act, which was not added while computing book profit, in order to rectify the above mistake, the Assessing Officer passed order under section 154 of the Act and revised the income of the assessee under section 115JB of the Act as under: Particulars Amount (in ₹.) Book Profit as per tax memo 8,34,74,359/- Add: Disallowance u/s 14A 7,09,779/- Adjusted book profit u/s. 115JB 8,41,84,138/- 3. Aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) and contended that the Assessing Officer went wrong in considering the 3 disallowance under section 14A of the Act in computing the book profits without following the decision in the case of Beach Minerals Company Pvt. Ltd. v. ACIT (2015) 64 taxmann.com 218 (Chennai – Tribunal). After considering the submissions of the assessee, by holding that the issue is covered by the decision in the case of ACIT v. Vireet Investment (P) Ltd. (2017) 82 taxmann.com 415 (Delhi – Trib)(SB), the ld. CIT(A) allowed the ground raised by the assessee.

Aggrieved, the Revenue is in appeal before the Tribunal. Placing reliance on the decision in the case of DCIT v. Viraj Profits ltd. in the ld. DR has submitted that erroneously following the decision in the case of ACIT v. Vireet Investments Pvt. Ltd. (2017 82 taxmann.com 415 (Delhi-Trib)(SB), the ld. CIT(A) has given relief to the assessee is incorrect. On the other hand, the ld. Counsel supported the order passed by the ld. CIT(A).

We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. While computing book profit under section 115JB of the Act, the Assessing Officer disallowed the sum of ₹.7,09,779/- under section 14A of the Act, which was disallowed by the assessee itself under section 14A of the Act. Thus, it is an admitted fact that what was disallowed by the Assessing Officer while computing book profit under section 115JB of the Act is only 14A disallowance, as disallowed by the 4 assessee and not any disallowance made under section 14A r.w. Rule 8D of 1962 Rules. More particularly, on perusal of the assessment order, we find that no disallowance under section 14A r.w. Rule 8D has been made in this case.

As relied on by the Department, in the case of DCIT v. Viraj Profiles Ltd. in dated 21.10.2015, the Mumbai Benches of the Tribunal decided that the disallowance of expenditure made by invoking the provisions of section 14A r.w. Rule 8D of 1962 Rules should also be disallowed while computing book profits under section 115JB of the Act. However, in the case of ACIT v. Vireet Investment (P) Ltd. 165 ITD 27(Delhi)(SB), the exempt income claimed by the assessee was ₹.36,44,09,991/- against which the assessee’s disallowance under section 14A was ₹.14,73,715/-, whereas, the Assessing Officer determined the disallowance under section 14A r.w. Rule 8D at ₹.2,82,51,259/-. While computing the book profits under section 115JB of the Act, the Assessing Officer made the addition of ₹.2,82,51,260/- on account of disallowance under section 14A of the Act. In these facts, the Delhi Special Bench of the Tribunal has held at para 6.22 that 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 under section 14A read with Rule 8D of the 1962 Rules, the Tribunal as well as the Department are bound by the decision of the Special Bench vis-à-vis decision of Division Bench of the Tribunal.

Thus, it is amply clear from clause (f) of Explanation 1 to section 115JB(2) of the Act that any expenditure relatable to earning of income admitted by the assessee has to be alone disallowed while computing book profits under section 115JB of the Act as, has also been decided by Delhi Special decision in the case of ACIT v. Vireet Investment (P) Ltd. (supra). In view of the above facts and circumstances, we direct the ld. CIT(A) to pass detailed speaking order by following the decision in the case of ACIT v. Vireet Investment (P) Ltd. (supra) as indicated above.

In the result, the appeal filed by the Revenue is allowed for statistical purposes.