Recently, the Ahmedabad Bench of the Income Tax Appellate Tribunal ( ITAT ) held that the provisions of Section 14A of the Income Tax Act, 1961, are not applicable in computing book profit under Section 115JB of the act.
In this case, the assessee company, Suzlon Energy Ltd., is engaged in the manufacturing of wind turbine generators [WTG], rotor blades, etc.
The assessee company has invested in many shares, mutual funds, and similar instruments, generating income that is exempt from tax under the Act. Thus, the provisions of Section 14A of the Income Tax Act, 1961, are applicable, and the assessee has voluntarily disallowed Rs. 3,93,211.
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However, the Assessing Officer (AO), without recording dissatisfaction, issued a Show Cause Notice to the assessee, seeking an explanation on the applicability of Rule 8D read with Section 14A of the Income Tax Act.
In the letter sent by the assessee, it was contended that disallowance under Section 14A of the Income Tax statute is not applicable while computing income under Section 115JB of the Act. It was submitted that under Section 115JB of the Income Tax Act, total income is not computed but book profit is computed, and a comparison is made between tax on total income and tax on book profit.
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It was argued by the counsel on behalf of the assessee that provisions of Section 14A cannot be applied for computing the book profit under Section 115JB and placed reliance on the decision rendered by the Coordinate Bench of the Tribunal in the assessee’s own case in ITA No. 2216/Ahd/2018 dated 22-02-2021.
The bench relied on the judgment of the Bombay High Court in the case of Commissioner of Income Tax vs. Gujarat State Fertilizers & Chemicals Ltd., in which the HC held that ‘no addition in the book profit would be made on the basis of calculations worked out under Section 14A of the Act.’
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The Tribunal held that the provisions of Section 14A of the Income Tax Act cannot be applied to computing the book profit under Section 115JB of the Income Tax Act.
The ITAT, comprising T.R. Senthil Kumar ( Judicial Member ) and Vasat Mahadeokar ( Accountant Member), deleted the addition made by the AO.
The assessee was represented by Shri Soumitra Choudhary, and the revenue was represented by Shri Prithviraj Meena.
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