SUN INVESTMENT P.LTD,MUMBAI vs. DCIT CEN CIR 8(3), MUMBAI

The assessee is an investment company. The assessment for the year under consideration was completed by the AO under Section 143(3) of the Act determining the total income of the assessee at `79.54 lakhs under the normal provisions of the Act. The book profit was determined at a loss of `71.56 lakhs under Section 115JB of the Act. The AO disallowed the foreign travel expenses of `85.07 lakhs claimed by the assessee while computing the income under the normal provisions of the Act. For the purpose of M/s. Sun Investment P. Ltd. computing books profit under Section 115JB of the Act, the AO adopted disallowance computed by him under Section 14A of the Act, being the expenses related to exempt income for making addition to the net profit under clause(f) of Explanation 1 to sec. 115JB of the Act. The assessee challenged both the above said additions by filing appeal before the CIT(A) but could not succeed. Hence assessee has filed this appeal before us.

At the outset the learned A.R. submitted that both the issues are covered by the decisions rendered by the Coordinate Bench in assessee’s own case in dated 20.06.2018 passed for A.Y. 2013-14 and also the decision dated 25.04.2018 passed for A.Y. 2010-11 in ITA No. 777/Mum/2015 & others.

We heard the learned D.R. and perused the record. The first issue relates to disallowance of foreign travel expenses claimed by the assessee. From the assessment order we noticed that the AO was constrained to disallow foreign travel expenses, as the assessee failed to furnish specific details called for by the AO. In the absence of any detail/supporting documents/evidence to support the claim of foreign travel expenses, the AO was constrained to disallow the claim of the assessee. When this fact was pointed out to the learned A.R., he sought one more opportunity to furnish the relevant details before the AO. Accordingly, in the interest of natural justice, we are of the view that the assessee may be afforded one more opportunity to prove the claim of foreign travel expenses. Accordingly we set aside the order passed by the learned CIT(A) on this issue and restore the same to the file of the AO for examining the same afresh.

The next issue relates to addition made by the AO for computing book profit under Section 115JB of the Act. The AO adopted the amount of disallowance computed by him under Section 14A of the Act under normal provisions of the Act, for making addition under Section 115JB of the Act. The assessee, by placing reliance on the decision rendered by the Coordinate Bench in its own case (referred above), submitted that the AO was not justified in adopting the disallowance computed by him under M/s. Sun Investment P. Ltd. Section 14A of the Act. We noticed that the Coordinate Bench has followed the decision rendered by the Special Bench of the Tribunal in the case of M/s. Vireet Investment Pvt. Ltd. in dated 16.06.2017 in order to hold that the disallowance computed under Section 14A of the Act cannot be adopted for computing book profit under Section 115JB of the Act. Since the Coordinate Bench has followed the decision rendered by the Special Bench, following the same we also hold that the AO was not justified in adopting the disallowance computed under Section 14A of the Act for the purposes of Section 115JB of the Act.

However, as per clause (f) of Explanation (1) to Section 115JB of the Act 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 is required to be added to the net profit for the purpose of computing book profit under Section 115JB of the Act. Hence the AO is required to compute the disallowance for the purpose of clause (f) of Explanation (1) to Section 115JB of the Act independently without having resort to Section 14A of the Act. Since we have deleted the addition made by the AO by adopting the amount of disallowance made u/s 14A of the Act, in our view, the quantum of disallowance to be made for the purposes of clause (f) of Explanation (1) to sec. 115JB has to be determined by the AO, after affording opportunity of being heard to the assessee. Accordingly we restore this issue to the file of the AO. Accordingly the order passed by the learned CIT(A) on this issue is set aside.

In the result, the appeal filed by the assessee is treated as allowed for statistical purposes.