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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-21, Mumbai, [in short CIT(A)] in appeal No. CIT(A)-21/DCIT-13(1)(2)/IT-434/2015-16 dated 28-12-2016. The Assessment was framed by the Deputy Commissioner of Income Tax, Circle 13(1)(2), Mumbai (in short DCIT) for the assessment year 2013-14, vide order dated 17-02-2016 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).
2. The only issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance of expenses relatable to exempt income under section 14A of the Act on account of interest by invoking the provisions of section 14A of the Act read with Rule 8D of the IT Rules, 1962 (hereinafter the rules) and also applying rule 8D while computing the Book Profit under section 115JB of the Act. For this assessee has raised following three grounds: -
“1. That the Learned Commissioner of Income Tax (Appeals) erred on (acts and in law in confirming the disallowance made by the Learned Assessing Officer u/s.14A of Rs.13.39.135/- out of interest paid u/s.14A of the Act.
That the Learned Commissioner of Income Tax (Appeals) erred on facts and in law in not appreciating that the disallowance computed under section 14A of the Act read with Rule SOot the I.T. Rules does not represent actual expenditure incurred for earning exempt income and the same, therefore, need not to be added back while computing book profit' under section 11 5JB of the Act.
2.1 That the Learned Commissioner of Income Tax (Appeals) erred on facts and in law in upholding the action of the Learned Assessing Officer in making addition of Rs.13.39.135/. oul of interest paid under section 14A read with Rule SD, while computing 'book profit under section 1 I5JB of the Act,
2.2 That on facts and in low, the addition of Rs.2.72.334/- being 1/2% of the investment under Rule SD to the profits computed u/s 15JB is not correct. Under the facts and circumstances of the matter, the learned CIT(A) ought to have directed the Learned Assessing Officer to exclude the said sum of Rs.2.72.334/- while computing profit u/s.115JB of the Act.
3. On facts and in low, the learned Commissioner of Income Tax (Appeals) ought to have directed the Learned Assessing Officer that disallowance computed under Rule SD read with Rule 8D is not to be added bock to the profits u/s. 115JB.”
At the outset, the learned Counsel for the assessee took us through the assessment order and stated that, the AO has disallowed the interest as relatable to exempt income amounting to ₹ 13,39,135/-. According to assessee it has earned divided income of ₹ 13,63,021/- and claim the same as exempt under section 10(38) of the Act. The learned Counsel for the assessee took us through the balance sheet and drew our attention to shareholders funds i.e. share capital and reserves and surplus in total amounting to ₹ 9,01,00,331/- as against the investment of ₹ 6,23,43,636/- as against the same the assessee has short term borrowing during the year at ₹ 7,77,94,982/-. The learned Counsel for the assessee stated that the entire investment in shares was made in earlier year and no investment was made during the year under consideration. Once this is the position that in this year no investment is made in share and particularly when loan i.e. short term borrowing is taken in the year under consideration, the short term borrowings cannot be used for the purchase of shares from which exempt income in the shape of dividend income is earned by assessee. In view of the above, the presumption is in favour of assessee. In view of the decision of Hon’ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd. (2014) 366 ITR 505, we delete the disallowance and allow the appeal of the assessee.
As regards to the disallowance under rule 8D of the Rules while computing income under section 115JB of the Act on the adjustment of Book Profit, the same is covered by the decision of Special Bench of this Tribunal in the case of ACIT vs. Vireet Investments (P.) Ltd. [2017] 58 ITR (AT) 313 (Delhi - Trib.) (SB), wherein the Tribunal has clearly held that no disallowance under section 14A of the Act r.w.r 8D of the Rules can be made while computing book profit under section 115JB of the Act, by observing in Para 6.22 as under: -
“6.22 In view of above discussion, we answer the question referred to us in favour of asssessee by holding that the computation under clause (f) of Explanation 1 to section 115JB(2). is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D of the Income-tax Rules, 1962.”
Respectfully following the Special Bench decision of this Tribunal, we delete the disallowance and issue of assessee’s appeal is allowed.
In the result, the appeal of assessee is allowed.
Order pronounced in the open court on 29-12-2017.