DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-6(3), MUMBAI vs. M/S.BOMBAY RAYON FASHIONS LIMITED( FORMALLY KNOWN AS MUDRA FABRICS LIMITED), MUMBAI

This appeal has been filed by the revenue against the order dated 23.08.2017 passed by the Commissioner of Income Tax (Appeals)-54 (for short ‘the CIT(A), Mumbai, for the assessment year 2012-13, whereby the Ld. CIT(A) has partly allowed the appeal filed by the assessee against the assessment order passed u/s 143 (3) r.w.s 144C (13) of the Income Tax Act, 1961 (for short the ‘Act’).

Brief facts of the case are that the assessee engaged in the business of manufacture, exports and retail of high-end designer ranges for fabrics and garments, filed its return of income for the assessment year under consideration declaring the Nil income under the normal provision of the Act and Rs. 307,25,09,928/- u/s 115JB of the Act. The return was processed u/s Assessment Year: 2012-13 143 (1) of the Act. In response to the notices u/s 143(2) and 142 (1), the authorized representative of the assessee appeared before the AO and submitted the details called for and discussed the case. The AO inter alia made addition of Rs. 1,38,48,551/- u/s 14A of the Act read with rule 8D (2) of the Income Tax Rules. The AO also made addition of the said amount to the income of assessee u/s 115JB of the Act. The assessee challenged the assessment order before the Ld. CIT (A). The Ld. CIT (A) following the decision of the ITAT rendered in the assessee’s own case for the earlier years restricted the disallowance to 0.5% of the average value of the investments which earned exempt income during the year relevant to the assessment year under consideration. So far as the book profit u/s 115JB is concerned, the Ld. CIT (A) following the decision of the Special Bench of the ITAT Delhi, in the case of Vireet Investments Pvt. Ltd. 82 taxmann.com 415 deleted the addition of Rs. 1,38,48,551/-made by the AO. Against the said findings of the Ld. CIT (A), the department is in appeal before the Tribunal. 3. The revenue has challenged the impugned order passed by the Ld. CIT (A) on the following effective grounds:- 1. “On the facts and in the circumstances of the case and in law the learned CIT (A) has erred in deleting the addition u/s 14A of the Income Tax Act, 1961 ignoring that the provisions of Section 14A apply even if no exempt income is actually earned or received during the year in any form whatsoever. 2. On the facts and in the circumstances of the case and in law the learned CIT (A) has erred in deleting the addition u/s 14A of the Income Tax Act, 1961 by ignoring the provisions of CBDT Circular no. 5/2014 dated 11.02.2014 wherein, it has been clarified that the Rule 8D r.w.s 14A provides for the disallowance of expenditure even where the assessee in particulars has not earned exempt income. 3. On the facts and in the circumstances of the case and in law the learned CIT (A) has erred in holding that the disallowance made U/s 14A cannot be considered while Assessment Year: 2012-13 computing the book profit U/s 115JB, when the issue in the case of the assessee is squarely covered by the decision of ‘F’ bench of ITAT, Mumbai I the case of Viraj Profiles Ltd. (2016) 156 ITD 72, Mumbai.”