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Before: Shri Duvvuru RL Reddy & Shri S. Jayaraman
आयकर अपीलीय अिधकरण, ‘‘सी” �ायपीठ, चे�ई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘C’ 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. 809/Chny/2019 िनधा�रण वष�/Assessment Year:2014-15 M/s. TVS Automobile Solutions Private The Income Tax Officer, Limited, 7-B, TVS Building, West Veli Vs. Corporate Ward 3, Street, Madurai 625 001. Madurai. [PAN:AAGCM0329K] (अपीलाथ�/Appellant) (��थ�/Respondent) अपीलाथ� की ओर से / Appellant by : Shri B. Ramakrishnan, CA for Shri N.V. Balaji, Advocate ��थ� की ओर से/Respondent by : Shri R. Clement Ramesh Kumar, Addl. CIT सुनवाई की तारीख/ Date of hearing : 10.07.2019 घोषणा की तारीख /Date of Pronouncement : 24.09.2019 आदेश /O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER:
This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) 1, Madurai, dated 28.01.2019 relevant to the assessment year 2014-15. The grounds raised in the appeal of the assessee are that the ld. CIT(A) has erred in confirming the disallowance made under section 14A of the Income Tax Act, 1961 as well as confirmation of disallowance made under section 14A r.w. Rule 8D in computing the book profits under section 115JB of the Act.
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Brief facts of the case are that the assessee filed his return of income for the assessment year 2014-15 on 29.11.2014 declaring loss of ₹.13,38,57,033/ and the loss admitted under section 115JB of the Act was ₹.35,71,72,635/-. After verification of details submitted by the assessee as well as considering the submissions, the assessment under section 143(3) of the Income Tax Act, 1961 [“Act” in short] was completed by determining the loss at ₹.12,89,65,319/- after making disallowance of ₹.48,91,714/- under section 14A r.w Rule 8D.
The assessee carried the matter in appeal before the ld. CIT(A). After considering the facts of the case as well as following the decision of the Tribunal, the ld. CIT(A) confirmed the assessment.
On being aggrieved, the assessee is in appeal before the Tribunal. By relying upon the decision in the case of CIT v. Chettinad Logistics (P) Ltd. [2017] 248 taxman 55 (Mad) as well as rejection of SLP by Hon’ble Supreme Court decision in the above case, the ld. Counsel for the assessee prayed for deleting the disallowance made under section 14A r.w Rule 8D. On the other hand, the ld. DR strongly 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. Admittedly, the assessee has not earned any exempt income in the relevant assessment
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year. Under these circumstances, in the case of CIT v. Chettinad Logistics (P) Ltd. (supra), the Hon’ble Jurisdictional High Court has observed and held that when there was no dividend income in the relevant assessment year, the addition made by the Assessing Officer relying on section 14A of the Act was completely contrary to the provisions of that section as Rule 8D only provides for a method to determine the amount of expenditure incurred in relation to income, which does not form part of total income of the assessee. Against the decision of the Hon’ble High Court, the Department preferred Special leave Petition, which was dismissed by the Hon’ble Supreme Court [2018] 257 Taxman 02. However, the ld. DR has submitted that while passing the appellate order, the ld. CIT(A) relied on the decision of the ITAT, wherein, the decision of the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT [2018] 91 taxmann.com 154 has been referred to. We have gone through the judgements of the Hon’ble Supreme Court, in which the decision in the case of Maxopp Investment Ltd. v. CIT (supra) has been pronounced on 12.02.2018, whereas, the Special leave Petition filed against the decision of CIT v. Chettinad Logistics (P) Ltd. (supra) was dismissed by the Hon’ble Supreme Court on 02.07.2018. In view of the above decision rendered in the case of CIT v. Chettinad Logistics (P) Ltd. (supra), the disallowance made by the Assessing Officer under section 14A r.w. Rule 8D stands deleted. Thus, the ground raised by the assessee is allowed.
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The next ground raised by the assessee relates to inclusion 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) confirmed the addition.
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: “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
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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; (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:-
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“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 Registrar of Companies who has a statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. Sub-section (1A) of section 115J does not empower the Assessing Officer to embark upon a fresh enquiry in regard to the entries made in the books of account of the company.” From the above decision it is clear that while computing the “Book Profit” of the company under the provisions of section 115JB of the Act; any disallowance made under the normal provisions of the Act also cannot be given effect to for arriving at the “Book Profit” for the purpose of Section 115JB of the Act. Accordingly, this ground raised by the assessee is allowed in its favour.” 6.2 Moreover, in the case of ACIT v. Vireet Investment (P) Ltd. [2017] 82 taxmann.com 415 (Delhi – Trib.)(SB), the Delhi Special Bench of the Tribunal has also given a categorical findings that the computation under clause (f) of Explanation 1 to section 115JB(2) of the Act is to be made without resorting to computation as contemplated under section 14A read with rule 8D. Respectfully following the above decisions, we set aside the
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order of the ld. CIT(A) on this issue and direct the Assessing Officer to exclude the disallowance made under section 14A r.w. rule 8D while computing book profits under section 115JB of the Act. Thus, the ground raised by the assessee stands allowed.
In the result, the appeal filed by the assessee is allowed. Order pronounced on the 24th September, 2019 in Chennai.
Sd/- Sd/- (S. JAYARAMAN) (DUVVURU RL REDDY) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai, Dated, 24.09.2019 Vm/- आदेश की �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant, 2.��थ�/ Respondent, 3. आयकर आयु� (अपील)/CIT(A), 4. आयकर आयु�/CIT, 5. िवभागीय �ितिनिध/DR & 6. गाड� फाईल/GF.