Kolkata ITAT recently held that the expenditure incurred to earn exempt income computed under section 14A of the Income Tax Act could not be added while computing book profit under section 115JB of the Act.
Accountant Member P.M. Jagtap and Judicial Member S.S. Viswanethra Ravi were considering the appeal of A.C.I.T. CIR 1(1) against M/s. Ridhi Portfolion (P) Ltd wherein the Revenue approached the Appellate Tribunal challenging the First Appellate Authority’s order.
The Assessee-NBFC offered disallowance under section 14A read with Rule 8D was offered in response to the notice issued by AO u/s 153A suo moto on account of expenditure incurred in relation to the exempt income while computing its income under the normal provisions of the Act for all the four years under consideration.
Accordingly, AO added back the amount of disallowance made under section 14A while computing the book profit of the assessee company under section 115JB for all the four years under consideration.
CIT (A) deleted the said addition made by the A.O. by endorsing the decision of Mumbai Bench of this Tribunal in the case of ACIT vs Spray Engineering Devices Ltd. while CIT (A) provided relief to the Assessee; the Revenue carried the matter to this tribunal.
Having both the parties’ contentions and perused the materials on record the tribunal bench observed that a similar issue relating to the aforementioned addition has been decided by the Special Bench of this Tribunal at Delhi in the case of ACIT vs Vireet Investment Pvt. Ltd. wherein it was held that the expenditure incurred to earn exempt income computed under section 14A of the Act could not be added while computing book profit under section 115JB of the Act.
Relying on various Tribunal decisions, the Tribunal bench set aside the impugned order of CIT (A) and restore the matter to the AO for computing the amount of expenditure relatable to the exempted income of the assessee independently for all the four years under consideration by applying clause (f) of Explanation (1) under section 115JB of the Act without resorting to section 14A or Rule 8D.
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