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Facts
The assessee filed a return declaring a total loss and book profit. The Assessing Officer made additions under section 14A read with Rule 8D to both total income and book profit. The CIT(A) partly allowed the appeal but upheld the additions to book profit and the disallowance under section 14A.
Held
The Tribunal held that disallowance under section 14A cannot be added back while computing book profit under section 115JB, citing previous judicial precedents. The addition made by the Assessing Officer and sustained by the CIT(A) under section 14A was deleted.
Key Issues
Whether disallowance under Section 14A can be added to book profit under Section 115JB and whether interest under Sections 234B and 234C are also deleted consequent to deletion of addition.
Sections Cited
14A, 115JB, 8D, 234B, 234C, 250, 10(34), 10(38)
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Income Tax Appellate Tribunal, “D” BENCH KOLKATA
Before: Shri Rajesh Kumar & Shri Pradip Kumar Choubey
order
: February 05, 2026 ORDER
Per Pradip Kumar Choubey, Judicial Member:
This appeal filed by the assessee is directed against the order dated 29.08.2025 of the Addl/JCIT(A)-1, Chennai (hereinafter referred to as the “CIT(A)”) passed u/s 250 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for the assessment year 2017–18.
Brief facts of the case are that the assessee filed its return of income declaring total loss of Rs.40,527/- and Book Profit at Rs.4,49,73,148/-. Subsequently, the case of the assessee was taken up for scrutiny. The Assessing Officer completed the assessment of the assessee by assessing total income at Rs.57,970/- after making disallowances of Rs. 98,497/- u/s 14A read with Rule 8D(2). The Assessing Officer also assessed total income at Rs.4,50,71,645/- by adding Rs.98,497/- u/s 14A read with Rule 8D in the computation of book profit u/s 115JB.
M/s Topgrain Corporate Service Pvt. Ltd 3. Aggrieved by the said order, the assessee filed an appeal before the CIT(A) wherein the ld. CIT(A) partly allowed the appeal of the assessee. The ld. CIT(A) dismissed the contentions of the assessee with regard to additions to book profit u/s 115JB and disallowance u/s 14A of the Act.
Aggrieved and dissatisfied, the assessee is in appeal before us. The Ld. AR had challenged the very impugned order thereby submitting that the ld. CIT(A) has completely ignored the fact that the decision passed in dated 16.06.2017, wherein the Special Division Bench has categorically held that disallowance u/s 14A could not be added back while computing book profits u/s 115JB. The ld. AR further submits that the ld. CIT(A) has erred in not considering the provisions of section 14 r.w.r. 8D in the light of Clause (f) of Explanation 1 to section 115JB which does not authorise the addition of notional disallowance. The ld. AR further submits that there is apparent error on the findings of the ld. CIT(A) as the ld. CIT(A) did not consider the binding judicial precedents and he prayed for allowing the appeal of the assessee. The ld. AR has cited the following case laws: i. ACIT vs. M/s Ridhi Portfolion (P) Ltd. IT(SS) Nos.106 to 109/Kol/2016 ii. Special Bench Delhi - ACIT Vs Vireet Investment Pvt. Ltd. (ITAT Delhi) - Appeal Number Dated 16/06/2017 iii. Intas Biopharmaceuticals Ltd. Vs DCIT (ITAT Ahmedabad) -Appeal Number: ITA No. 1035/Ahd/2016-Date of Judgement Order 12/02/2025 iv. Sky AMA Infra Private Limited Vs DCIT (ITAT Chandigarh) Appeal Number ITA No. 396 CHAND1/2023 Date of Judgement Order 15/07/2025 v. Sundaram Finance Holdings Limited Vs ACIT (ITAT Chennai) Appeal Number: ITA No. 312/Chny/2022-Date of Judgement/Order 18/08/2022 M/s Topgrain Corporate Service Pvt. Ltd 5. Contrary to that, the ld. DR supports the impugned order.
We have considered the submissions of the counsels of the respective parties and perused the material available on record. We find that the assessee-company filed its Return of Income for AY 2017-18 declaring total loss of Rs. 40,527/- and Book Profit of Rs. 4,49,73,148/- u/s 115JB and the assessee claimed dividend income of Rs. 3,50,721/- u/s 10(34) and Long Term Capital Gains (LTCG) on shares of Rs. 4,50,13,857/- u/s 10(38) as exempt income. We also find that the total expenses claimed by the assessee during the year amounted to Rs.1,29,047/-, which included demat charges of Rs. 1,122/- directly relatable to exempt income. The moot question arises in this appeal is whether 14A disallowance can be added to book profit while computing income u/s 115JB and charging of interest u/s 234B and particularly interest u/s 234C. We have gone through the Clause (f) of Explanation 1 to Section 115JB states:
"The book profit is to be increased by 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."
Going over the above Clause (f) of Explanation 1 to Section 115JB of the Act, we find only actual expenditure related to section 10(34) dividend income should be added back and since LTCG u/s 10(38) is expressly excluded from Clause (f), no expenditure related to LTCG is to be added. We also gone through the cited Special Bench decision in Vireet Investment (supra) wherein it was held that section 14A disallowance cannot be added to Book Profit u/s 115JB and disallowance under Section 14A could not be added back while computing book profits under Section 115JB. We have also considered the decision of Jurisdictional ITAT Kolkata Bench in ACIT vs. M/s. Ridhi Portfolion (P) Ltd. (supra) wherein it was held that expenditure incurred M/s Topgrain Corporate Service Pvt. Ltd to earn exempt income computed u/s 14A cannot be added while computing Book Profit u/s 115JB. We note that the CIT(A) has completely ignored the various binding decisions and the CIT(A)'s reasoning that invoking provisions of Section 14 r.w. Rule 8D which justifies the addition is legally incorrect. In view of the above discussion, we find substance in the argument of the ld. AR and the addition u/s 14A r.w.r. 8D of Rs.98,497/- is deleted. Since we have already deleted the addition, hence charging of interest u/s 234B and 234C of Rs.7,25,878/- are also hereby deleted.
In the result, the appeal of the assessee is allowed. Kolkata, the 5th February, 2026.
Sd/- Sd/- [Rajesh Kumar] [Pradip Kumar Choubey] Accountant Member Judicial Member Dated: 05.02.2026. RS Copy of the order forwarded to: 1. Appellant - 2. Respondent - 3. CIT(A)- 4. CIT- , 5. CIT(DR),