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Income Tax Appellate Tribunal, “B” BENCH, PUNE
आदेश / ORDER
PER SUSHMA CHOWLA, JM
The appeal filed by the assessee is against the order of the Commissioner of Income Tax (Appeals)-7, Pune dated 08.02.2016 relating to assessment year 2006-07 against order passed under section 143(3) r.w.s. 254 of the Income Tax Act, 1961 ( in short ‘the Act’).
The assessee has raised following grounds of appeal:
2 ITA No. 1529/PUN/2016 A.Y.2006-07
“On the facts of the case and in law, 1. The learned CIT(A) erred in confirming disallowance of Rs.33,48,120/- u/s. 14A of the Income Tax Act, 1961 while assessing total income as per regular provisions of the Act and book profits u/s. 115JB. 1.2 The ld. CIT(A) failed to appreciate that the assessee company had not incurred any direct expenditure to earn any exempt income in this year and on the same set of facts, no disallowance u/s. 14A was made in A.Y.2004-05 and 2005-06 and therefore, the disallowance made in this year was not justified at all and the same should have been deleted. 1.3 Without prejudice to the above, the Appellant Company submits that the disallowance sustained by the learned CIT(A) is very high and may be reduced substantially. 2. The Appellant Company craves leave to add to, alter, amend, modify and I or delete any or all of the above Grounds of Appeal.”
The only issue raised in the present appeal is against disallowance made under
section 14A of the Act while assessing total income as per regular provisions of the Act
and while determining book profits under section 115JB of the Act.
The Ld. AR for the assessee at the outset pointed that the year is assessment
year 2006-07 to which the provisions of Rule 8D of the Income Tax Rules were not
applicable. He further pointed out that the Tribunal in assessee’s own case while
deciding the appeal for assessment year 2007-08 had restricted the disallowance
under section 14A of the Act at Rs. 5,00,000/-.
On the other hand, the Ld. DR for the Revenue pointed out that Assessing
Officer has applied different formula and worked out disallowance at Rs.33,48,120/-.
We have heard rival contentions and perused the record. The year under appeal
is assessment year 2006-07 to which the provisions of section 14A of the Act are
applicable i.e. disallowance of expenses relatable to earning of exempt income is to be
worked out. However, provisions of Rule 8D of the Rules come into effect from
assessment year 2008-09. The Hon'ble Bombay High Court in the case of Godrej &
3 ITA No. 1529/PUN/2016 A.Y.2006-07
Boyce Manufacturing Co. Ltd. Vs. DCIT reported in 328 ITR 81(Bom.) held that the
provisions of Rule 8D are prospective in nature. In view thereof, we find no merit in the
order passed by the Assessing Officer. The Tribunal in assessee’s own case in appeal
filed by Revenue in ITA No.1491/PN/2011 relating to assessment year 2007-08
decided on 15.07.2013 had restricted the disallowance under section 14A of the Act to
Rs.5,00,000/- being fair and reasonable as general expenditure for earning exempt
income. Applying the said ratio, we hold that while computing income as per regular
provisions, disallowance under section 14A of the Act be restricted to Rs. 5,00,000/-.
In so far as provisions of section 115JB of the Act are concerned,
disallowance made under section 14A is not to be added while computing income
under said section. This view has been held by the Pune Bench of Tribunal in the case
of KPIT Technologies Limited Vs. ACIT, in ITA No. 594/PUN/2015 relating to
assessment year 2010-11 vide order dated 12.04.18 wherein it has been held as
under:
“22. We have heard the rival contentions and perused the record. The issue of adjustment of book profit under section 115JB of the Act does not arise since we have already directed the Assessing Officer to delete disallowance made under section 14A of the Act read with Rule 8D(iii) of the Rules. In any case, even if the disallowance is to be upheld, the same is not to be added to the book profits under section 115JB of the Act. The Tribunal in assessee's own case has decided the issue as under:- "20. The next issue vide ground of appeal No.6 is whether while computing the book profits under section 115JB of the Act, disallowance under section 14A is to be added back. 21. The learned Authorized Representative for the assessee pointed out that the said issue is also covered by the ratio laid down by the Pune Bench of Tribunal in Varroc Engineering Pvt. Ltd. Vs. ACIT (supra) that while computing book profits under section 115JB of the Act, no addition is to be made on account of disallowance under section 14A of the Act. In view of the decision of Pune Bench of Tribunal, we find no merit in the reliance placed upon by the learned Departmental Representative for the Revenue. The Tribunal while deciding the issue in para 42 had held as under:- "42. The issue before us is identical to the issue before the Chandigarh Bench of the Tribunal in Nahar Industrial Enterprises Ltd., Vs. DCIT (supra) and following the same parity of reasoning we direct the Assessing Officer to exclude the disallowance made under section 14A
4 ITA No. 1529/PUN/2016 A.Y.2006-07
of the Act, while computing the book profits u/s 115JB of the Act. Accordingly, we direct the Assessing Officer to re-compute the book profits under section115JB of the Act. The ground of appeal No.5 is thus, allowed."
Applying the said principle, we hold that even if disallowance under section 14A of the Act is made in the hands of assessee in normal provisions, no addition on that account is to be made while computing income under section 115JB of the Act. Accordingly, grounds raised by assessee are partly allowed.
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open Court on this 31st day of May, 2018.
Sd/- Sd/- (ANIL CHATURVEDI) (SUSHMA CHOWLA) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER
पुणे / Pune; �दनांक / Dated : 31st May, 2018 SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT (Appeals)-7, Pune. 4. The CIT-6, Pune. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” ब�च, 5. पुणे / DR, ITAT, “B” Bench, Pune. गाड� फ़ाइल / Guard File. 6.
// True Copy // आदेशानुसार / BY ORDER,
�नजी स�चव /Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.