ITAT directs to Delete Disallowance of Expenditure incurred towards Exempt Income based on Book Profits [Read Order]

The Income Tax Appellate Tribunal, Chennai Bench, has recently, in an appeal filed before it, directed to delete the disallowance of expenditure incurred towards except income based on book profits.

The aforesaid observation was made by the Chennai ITAT, when an appeal was preferred before it by the assessee, directed against the final assessment order passed by the Assessing Officer, under Section 143(3) read with Section 144C of the Income Tax Act, 1961, in pursuant to the directions of the Dispute Resolution Panel, Bengaluru, pertaining to the assessment year 2013-14.

The ground of the assessee’s appeal being additions towards disallowance under Section 14A r.w.r. 8D of the Income Tax Rules, 1962 to book profit computed under Section 115JB of the Income Tax Act, the brief facts of the case were that the the assessee company was engaged in the business of manufacturing and trading of Petrochemical products.

It had filed its return of income for the assessment year 2013-14 on 28.11.2013, by declaring a total income of Rs. 18,84,37,850/, and the case was selected for scrutiny. The draft assessment had been completed under Section 143(3) read with Section 144C of the Income Tax Act, and the total income was determined at Rs. 19,72,45,117/-.

The AO thus made additions towards disallowance under Section 14A r.w.r. 8D of the Income Tax Rules, 1962 for Rs. 4,07,267/- and disallowance of capital subsidy received from Government of India for Rs. 84 lakhs.

The assessee filed objection against draft assessment order passed by the AO before the DRP and the DRP vide their directions issued under Section. 144C (5) of the Income Tax Act, upheld the additions made by the AO towards disallowance of capital subsidy received from Government of India, through Tamil Nādu Energy Development Agency.

Thereafter, the AO passed final assessment order and made additions towards capital subsidy received from Government of India and also disallowance under Section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules, 1962. And it is being aggrieved by this assessment order, that the assessee is presently appeal before Chennai ITAT.

Hearing the opposing contentions of both sides as submitted by Shri. R. Vijayaraghavan, the Advocate on behalf of the assessee, and by Shri. P. Sajit Kumar, the JCIT on behalf of the Revenue, the ITAT coram of V. Durga Rao, the Judicial Member and Manjunatha G, the Accountant Member thus, held:

“We find that the issue of addition towards disallowance under Section. 14A r.w.r. 8D of the I.T. Rules, 1962, to book profit computed under Section. 115JB (2) of the Act, is covered in favour of the assessee by the decision of the ITAT Special Bench in the case of ACIT vs Vireet Investments Pvt Ltd, where it has been clearly held that the computation of clause (f) to Explanation (1) of section 115JB (2) of the Act, is to be made without resorting to the computation as contemplated under Section. 14A r.w.r. 8D of the I.T. Rules, 1962. Thus, by following the decision of ITAT Special Bench, we direct the Assessing Officer to delete additions made towards disallowance under Section. 14A r.w.r. 8D of the I.T. Rules, 1962 to book profit computed under Section. 115JB(2) of the Act.”

To Read the full text of the Order CLICK HERE

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