No Disallowance of Expenses can be made for Exempt Income u/s 14A r/w Rule 8D of IT Rules while Computing Book Profit: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Chennai held that No disallowance of expenses can be made for exempt income u/s 14A of The Income Tax Act, 1961 and Rule 8D of Income Tax Rules,1962 while computing book profit under Section 115JB of the Income Tax Act,1961.

The only issue in this appeal of the assessee, M/s. Sundaram Finance Holdings Limited is as regards the revision order passed by PCIT u/s. 263 of the Act for re-computing the disallowance of expenses relatable to exempt income by invoking the provisions of s. 14A of the Act r/w Rule 8D(2) of the Income Tax Rules, 1962 for computing book profit u/s. 115JB of the Act

The assessment was completed by the ACIT, u/s. 143(3) of the Act, wherein the issue of disallowance u/s. 14A of the Act was considered by the A.O and he worked out the disallowance at Rs. 76.91 Lakhs. Subsequently, the PCIT, on perusal of the profit and loss account noticed from the details of miscellaneous expenses and computation of taxable book profit that no amount was added towards the expenditure incurred to earn the exempt income.

According to PCIT, the AO failed to consider the disallowance of Rs. 76.91 Lakhs while computing the book profit u/s. 115 JB of the Act and therefore, he issued show cause notice to the assessee as to why this amount of Rs. 76.91 Lakhs be not brought to tax while computing taxable book profit u/s. 115JB of the Act. The assessee replied that the assessee-company has not incurred any expenses relating to exempt income as the dividend income itself was transferred as a result of the approved scheme of demerger by the National Company Law Tribunal.

 The PCIT was not convinced and according to PCIT, the assessment order passed by A.O u/s. 143(3) of the Act is erroneous on this point and therefore, he directed the A.O to compute the disallowance of expenses of Rs. 76.91 Lakhs while computing book profit u/s. 115 JB of the Act. Aggrieved, the assessee is in appeal before the Tribunal.

The Bench consisting of Mahavir Singh, Vice President, and Dipak P Ripote, Accountant Member held that” We have considered the facts and circumstances of the case and gone through the entire case laws and we are of the view that the issue is covered in favor of the assessee and against Revenue that no disallowance of expenses can be made in respect of exempt income by invoking the provisions of s. 14A of the Act r/w Rule 8D of the Rules while computing book profit u/s. 115JB of the Act.”

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates