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Before: Shri Duvvuru RL Reddy & Shri S. Jayaraman
आयकर अपीलीय अिधकरण, ‘‘डी’’ "ायपीठ, चे"ई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI "ी धु"ु" आर.एल रे"ी, "ाियक सद" एवं "ी एस जयरामन, लेखा सद" के सम" Before Shri Duvvuru RL Reddy, Judicial Member & Shri S. Jayaraman, Accountant Member आयकर अपील सं./I.T.A.No.1974/Chny/2019 िनधा"रण वष"/Assessment Year:2015-16 The Joint Commissioner of M/s. TI Financial Holdings Limited, Income Tax (OSD), Vs. Date House, No. 234, Large Taxpayer Unit – 2, Room No. NSC Bose Road, 711, 7th Floor, Wanaparthy Block, No. Chennai 600 001. 121, M.G. Road, Chennai 34. [PAN:AAACT1249H] (अपीलाथ" /Appellant) (""थ"/Respondent) अपीलाथ" की ओर से / Appellant by : Ms. R. Anita, JCIT ""थ" की ओर से/Respondent by : Shri R. Vijayaraghavan, Advocate सुनवाई की तारीख/ Date of hearing : 21.10.2019 घोषणा की तारीख /Date of Pronouncement : 01.11.2019 आदेश /O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: This appeal filed by the Revenue is directed against the order of the ld. Commissioner of Income Tax (Appeals) 9, Chennai dated 21.03.2019 relevant to the assessment year 2015-16. The grounds raised in the appeal of the Revenue are that the ld. CIT(A) has erred in directing the Assessing Officer to recomputed the disallowance under section 14A to the extent of investments which yield exempt income during the year under consideration and the ld. CIT(A) has erred in holding that the 2 I.T.A. No.1974/Chny/19
disallowance under section 14A cannot be added in the book profit under section 115JB of the Income Tax Act, 1961 [“Act” in short].
Brief facts of the case leading the ground raised by the Revenue are that the assessee showed income by way of dividend to the tune of ₹.29,60,79,638/- and the same has been claimed as exempt under section 10(34) of the Act. On the above receipt of exempted income, the assessee has attributed an expenditure to the tune of ₹.1,43,324/- in the memo of income and disallowance under section 14A of the Act. Further, during the year under consideration, the assessee made fresh investments of ₹.17,50,00,000/-, but no dividend income received. The Assessing Officer called for quantification of expenditure towards huge dividend yielding investment and earning huge income that were exempt from tax. After considering the submissions of the assessee, the Assessing Officer quantified the disallowance under section 14A r.w. Rule 8D and disallowed ₹.8,29,14,403/-. On appeal, the ld. CIT(A) directed the Assessing Officer to recomputed the disallowance only on the investments which yielded exempt income during the year under consideration are to be included for the purpose of average value of investments.
Aggrieved, the Revenue is in appeal before the Tribunal. The ld. DR has submitted that in view of the CBDT directions, against the investments, Rule 8D r.w. section 14A of the Act has to be applied for making
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disallowance of the expenditure even where the assessee in a particular year has not earned any exempt income and pleaded for confirming the assessment order.
Per contra, the ld. Counsel for the assessee has submitted that the average value of investments on which the assessee has received dividend income during the year only have to be adopted for calculating the disallowance under Rule 8D(2)(ii)/(iii) in view of the Special Bench decision of the Tribunal in the case of Vireet Investment (P) Ltd. [2017] 82 taxmann.com 415 (Delhi – Trib.)(SB), which was followed by the ld. CIT(A) may be confirmed.
We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. The Assessing Officer quantified expenditure towards huge dividend yielding investment and earning huge income that were exempt from tax. By following the decision in the case of ACIT v. Vireet Investment (P) Ltd. (supra), the ld. CIT(A) directed the Assessing Officer to recompute the disallowance only on the investments which yielded exempt income during the year under consideration are to be included for the purpose of average value of investments. We have perused the said case law, wherein, the Special Bench of the Delhi Tribunal has observed that only those investments are to be considered for computing average value of investment which yielded
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exempt income during the year. If an investment has yielded exempt income in a particular year then, it will enter the computation of average value of investments for the purposes of Rule 8D(2)(iii). Accordingly, by following the above decision, the ld. CIT(A) directed the Assessing Officer to recomputed the disallowance in line with the directions of the Special Bench of the Tribunal. Thus, we find no infirmity in the order passed by the ld. CIT(A) and therefore, the ground raised by the Revenue stands dismissed.
The next ground raised by the Revenue relates to deletion of disallowance under section 14A while computing book profit under section 115JB of the Act. The Assessing Officer included the expenditure attributable to earning of exempt income under section 14A r.w. Rule 8D while computing book profit under section 115JB of the Act. On appeal, the ld. CIT(A) deleted the disallowance, against which the Revenue preferred further appeal before the Tribunal.
6.1 We have considered the rival submissions. While computing the tax as per provisions of section 115JB of the Act, the Assessing Officer made additions to the book profit with respect to the disallowance made under section 14A of the Act read with Rules-8D. Similar issue was subject matter in appeal before the Tribunal in the case of Beach Minerals Company Pvt. Ltd. v. ACIT in I.T.A. No. 2110/Mds/2014 & dated 06.08.2015 and the Tribunal has adjudicated the case as under:
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“8.1. Ground No.5.(a) – Computation of book profit U/s.115JB of the Act by giving effect to the disallowance of expenditure made invoking the provisions of the Section-14A of the Act for `3,11,34,630/- and also the disallowance of expenditure under the normal provisions of the Act. 8.1.1 The Ld. Assessing Officer while computing the tax as per provisions of section 115JB of the Act made additions to the book profit with respect to the disallowance made U/s.14A of the Act read with Rules-8D of the Income Tax Rules. On appeal, the Ld. CIT (A) citing the provisions of clause (f) of Explanation-1 to Section-115JB, confirmed the order of the Ld. Assessing Officer. The relevant portion of the order of the Ld. CIT (A) is reproduced herein below for reference:- “10.2 I have gone through the facts and circumstances of the case. The Assessing Officer has taxed the income U/s.115JB since the tax on book profits is more than the tax under normal computation. While doing so, she made disallowance of the amount relatable to exempt income on the basis of the amount worked out U/s.14A r.w. Rule 8D under normal computation. The provisions of clause (f) of Explanation-1 to s.115JB makes it abundantly clear that the amount of expenditure ‘relatable to’ any exempt income, other than s.10(38), is liable to be added back to the amount of net profit as shown in the P&L A/c. Reliance is placed on the latest decision of the ITAT Mumbai in the case of Dabur India Ltd., 37 taxmann.com 289. Reliance is also placed on the latest decision of the ITAT Mumbai in the case of RBK Share Broking P. Ltd in ITA No.6678 & 7546/Mum/2011 dated 24.7.2013 wherein it was held that the amount disallowable U/s.14A can be added back while computing book profit under Explanation-1 to s. 115JB(para 6). Respectfully following the above decisions, I uphold the addition made by the Assessing Officer. This ground is dismissed.” However, on perusing the Explanation-1(f) of Section-115JB(2) of the Act, we do not find merit in the contention of the Ld. CIT (A). The relevant provision of the Act is extracted herein below for reference:- Section.115JB Explanation-[1] – For the purposes of this section, “book profit” means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section(2), as increased by – (a) To (e) ---------------------------------------------------- (f) the amount or amounts of expenditure relatable to any income to which [Section-10 (other than the provisions contained in clause (38) thereof] or section 11 or section 12 apply;
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(g) To (j) ----------------------------------------------------- From the above it is apparent that the aforesaid provision of the Act does not refer to any disallowance made U/s.14A of the Act while arriving at the Book Profit for the purpose of Section-115JB(2) of the Act. Further Section 14A of the Act is a provision with fiction disallowing the deemed expenditure attributable to exempt income viz., dividend income U/s. 10 of the Act and Section 115JB of the Act is also a provision with fiction for payment of tax in respect of deemed income. Therefore while computing the profit for the purpose of Section 115JB of the Act another provision with fiction cannot be superimposed. Hence the question of increasing the ‘Book Profit’ due to the disallowance U/s.14A of the Act will not arise. However, in the instant case of the assessee, since we have already deleted the addition made U/s.14A, increasing the book profit will not arise. Further the decision of Hon’ble Apex Court cited by the assessee in the case M/s.Apollo Tyres Ltd. Vs. CIT reported in 255 ITR 273 is also squarely applicable to the case of the assessee. The gist of the same is reproduced herein below for reference:- “The Assessing Officer, while computing the book profits of a company under section 115J of the Income-tax Act, 1961, has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer, thereafter, has the limited power of making increases and reductions as provided for in the Explanation to section 115J . The Assessing Officer does not have the jurisdiction to go behind the net profits shown in the profit and loss account except to the extent provided in the Explanation. The use of the words “in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act” in section 115J was made for the limited purpose of empowering the Assessing Officer to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, the Assessing Officer has to accept the authenticity of the accounts with reference to the provisions of the Companies Act, which obligate the company to maintain its accounts in a manner provided by that Act and the same to be scrutinised and certified by statutory auditors and approved by the company in general meeting and thereafter to be filed before the