PUNJAB PRODUCE HOLDINGS LTD,KOLKATA vs. D.C.I.T., CIRCLE - 5(1),KOLKATA, KOLKATA

The assessee in the present case is a non-banking finance company which is engaged in the business of granting of loans and advances and dealing and investing in shares. The return of income

The disallowance made by the A.O. under section 14A while computing the income under the normal provisions of the Act as well as book profit under section 115JB of the Act was challenged by the assessee in the appeal filed before the Ld. CIT(A) and after considering the submissions made by the assessee as well as material available on record, the Ld. CIT(A) directed the A.O. to re-compute the disallowance under section 14A by applying Rule 8D after taking into account only that investment in shares which had yielded dividend income during the year under consideration. For this conclusion, he relied on the decision of the ITAT in the case of REI Agro Ltd. vs DCIT 144 ITD 141 (Kol). Aggrieved by the order of Ld. CIT(A), the assessee has preferred this appeal before the Tribunal.

I have heard the arguments of both the sides and also perused the relevant material available on record. As submitted by the learned counsel for the assessee, a disallowance of Rs. 5,44,958/- was offered by the assessee in its computation of total income on account of expenditure incurred in relation to the earning of exempt income as required by section 14A. He has contended that the A.O., however, proceeded to make higher disallowance under section 14A without recording any dissatisfaction about the correctness of the disallowance offered by the assessee under section 14A. By relying on the decision of Coordinate Bench of this Tribunal in the case of M/s. Chengmari Tea Co. Ltd. vs DCIT rendered vide its order dated 02.02.2018 in ITA No. 1433/Kol/2016, he contended that in the absence of any satisfaction recorded by the A.O. disputing the correctness of the disallowance offered by the assessee under section 14A having regard to the account of the assessee, the higher disallowance made by the A.O. was not sustainable and the Ld. CIT(A) is not justified to sustain the same even partly. I find merit in this contention of the learned counsel for the assessee. As held by the Division Bench of this Tribunal in the case of M/s. Chengmari Tea Co. Ltd. (supra) cited by the learned counsel for the assessee, where the assessee makes a claim that only the particular amount is to be disallowed under section 14A and the A.O. proposes to make higher disallowance by invoking section 14A, he has to record a satisfaction about the incorrectness of the amount disallowed by the assessee having regard to the accounts of the assessee. Such satisfaction is a requisite condition for making higher disallowance by invoking section 14A and in the absence of such satisfaction, any disallowance

As regards the addition made by the A.O. on account of disallowance under section 14A while computing the book profit of the assessee company under section 115JB which is sustained partly by the Ld. CIT(A), the learned representatives of both the sides have agreed that provisions of section 14A and Rule 8D are not applicable while computing the book profit of assessee company under section 115JB of the Act as held in the various judicial pronouncements including the decisions of this Tribunal. As held in the said judicial pronouncements, the amount of expenditure relatable to any income which is exempt under section 10 that is required to be added as per Clause (f) of Explanation 1 to Section 115JB is required to be worked out by the A.O. separately independent of provisions of Section 14A of Rule 8D. I, therefore, restore to this issue to the file of the A.O. for re- computing such addition to be made while computing the book profit of the assessee company under section 115JB of the Act. As rightly contended by the learned counsel for the assessee, if the amount of such addition worked out by the A.O. exceeds the disallowance sustained by the Ld. CIT(A) under section 14A, the A.O. shall restrict the said addition to the extent of the disallowance sustained by the Ld. CIT(A).