IT : Sum disallowed under section 14A be added while computing profit under section 115JB
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[2013] 37 taxmann.com 128 (Mumbai - Trib.)
IN THE ITAT MUMBAI BENCH 'D'
Income-tax Officer, Ward -4(2)(3), Mumbai
v.
RBK Share Broking (P.) Ltd.*
R.S. SYAL, ACCOUNTANT MEMBER
AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER
AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER
IT APPEAL NOS. 6678 & 7546 (MUM.) OF 2011
[ASSESSMENT YEAR 2008-09]
[ASSESSMENT YEAR 2008-09]
JULY 24, 2013
Section 14A of the Income-tax Act, 1961, read with rule 8D of the Income-tax Rules, 1962 - Expenditure incurred in relation to income not chargeable to tax [Rule 8D] - Assessment year 2008-09 - Assessee received exempt dividend income but he did not claim any expenses to be attributable to earn said income - Assessing Officer invoked provisions of rule 8D and made disallowance at 0.5 per cent towards expenses other than interest - Whether since disallowance had been computed as per mandate of rule 8D, there was no need to interfere with said order - Held, yes [Para 3] [In favour of revenue]
Section 115JB, read with section 14A, of the Income-tax Act, 1961 - Minimum alternate tax [Amount disallowable under section 14A] - Assessment year 2008-09 - Whether amount disallowable under section 14A can be added back while computing book profit under Explanation 1 to section 115JB - Held, yes [Para 6] [In favour of revenue]
Section 88E of the Income-tax Act, 1961 - Rebate - Securities transaction tax [Application of section 87] - Assessment year 2008-09 - Assessing Officer noticed that tax payable after rebate under section 88E was less than 10 per cent of book profit and, he held that benefit of rebate under section 88E could not be allowed - Commissioner (Appeals) directed Assessing Officer to allow rebate under section 88E subject to amended provisions of section 87 - Whether since direction was to allow rebate after verification as per law at end of Assessing Officer, there was no reason to interfere with same -Held, yes [Para 8] [In favour of assessee]
FACTS
| ■ | The assessee received exempt dividend income. | |
| ■ | The Assessing Officer noticed that no expenses were attributed to earning of said exempt income. Invoking the provisions of rule 8D, the Assessing Officer made disallowance at 0.5 per cent towards expenses, other than interest. Pursuant to the making of disallowance under section 14A, the Assessing Officer added back said sum in computing 'book profit' under section 115JB. Further, the Assessing Officer denied rebate under section 88E on tax on total income computed under section 115JB. | |
| ■ | On appeal, the Commissioner (Appeals) confirmed the disallowance under section 14A. Further, he directed the Assessing Officer to allow rebate under section 88E subject to provisions of section 87(2). | |
| ■ | On second appeal: |
HELD
Disallowance under section 14A read with rule 8D
| ■ | The disallowance under section 14A is required to be worked out as per the mandate of rule 8D. The Assessing Officer has recorded satisfaction about the expenses attributed to the tax free income not disallocated by the assessee. It is in the background of this scenario that the disallowance at 0.5 per cent has been made towards expenses other than interest. As this disallowance has been computed as per the mandate of Rule 8D, which is applicable for the year under consideration, there was no reason to interfere with the impugned order on this issue. [Para 3] |
Disallowance under section 14A be included in computation under section 115JB
| ■ | It would be relevant to note that 'Book profit' under section 115JB is computed as per Explanation (1) to sub-section (2) of section 115JB. A bare perusal of clause (f) of Explanation (1) makes it abundantly clear that the amount of expenditure 'relatable to' any exempt income, other than section 10(38), is liable to be added back to the amount of net profit as shown in the profit and loss account. [Para 6] | |
| ■ | As per section 14A, it transpires that it talks of disallowing any expenditure incurred in relation to income not includible in the total income. The expression 'in relation to' used for making disallowance under section 14A has been employed in Explanation (1) to section 115JB(2) as expenditure 'relatable to', in more or less the same form. It is manifest that the amount of dividend is exempt under section 10(33) [not section 10(38)] of the Act. Thus, any expenditure 'relatable to' the exempt dividend income would fall under clause (f). The assessee argued that unless an amount is specifically debited to the Profit and loss account in respect of an exempt income, the same cannot be brought within the purview of clause (f) of the Explanation 1 to section 115JB(2). He stated that since the disallowance under section 14A is computed as per rule 8D, the origin of the expenses disallowed cannot be traced to the profit and loss account and hence it cannot be covered within the mischief of clause (f) of theExplanation. There was no logic in this submission because of the clear language of the Explanation 1, which provides in unequivocal terms that the amount of expenditure 'relatable to' exempt income shall be added back. Neither the language of clause (f) expressly refers to the amount specifically debited to the profit and loss account nor there can be an implication in this regard. What has been contemplated by the provision is the amount of the expenditure 'relatable to' exempt income. Further, the amount disallowable under section 14A is always part of the expenses specifically debited to the profit and loss account. It is axiomatic that unless any expenditure is incurred and claimed as deduction, there can be no question of any hypothetical disallowance under section 14A. It, therefore, follows that the amount disallowable under section 14A is covered under clause (f) of Explanation (1) to section 115JB(2). [Para 6] |
Rebate under section 88E
| ■ | The Commissioner (Appeals) was right in directing the Assessing Officer to allow rebate under section 88E subject to amended sub-section (2) of section 87. As the direction is only for allowing the rebate after verification as per law applicable for the assessment year at the end of the Assessing Officer, there was no reason for interfering with the same. [Para 8] |
CASES REFERRED TO
Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2010] 328 ITR 81/194 Taxman 203 (Bom.) (para 3) and Esquire (P.) Ltd. v. Dy. CIT [IT Appeal No. 5688 (Mum.) of 2011, dated 29-8-2012] (para 6).
S.D. Srivastava for the Appellant. Prakash K. Jotwani for the Respondent.
ORDER
R.S. Syal, Accountant Member - These two cross appeals - one by the assessee and the other by the Revenue - arise out of the order passed by the Commissioner of Income-tax (Appeals) on 20.09.2011 in relation to the assessment year 2008-2009.
2. First ground of the assessee's appeal is against the confirmation of disallowance of Rs. 7,39,752 made u/s 14A read with rule 8D. Briefly stated the facts of the case are that the assessee received dividend income of Rs. 21.77 lakh which was claimed as exempt. The Assessing Officer noticed that no disallowance was offered u/s 14A. It was opined that : 'a certain percentage of expenses claimed by the assessee would definitely be attributable to tax free income earned by the assessee' as it was 'the common pool of human and financial resources which was being utilized for earning income in various forms'. Invoking the provisions of rule 8D, the A.O. made disallowance at 0.5% towards expenses, other than interest, amounting to Rs. 7,39,752. This disallowance was confirmed in the first appeal.
3. We have heard the rival submissions and perused the relevant material on record. The assessment year involved before us is 2008-2009. The Hon'ble jurisdictional High Court in the case of Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2010] 328 ITR 81/194 Taxman 203 (Bom.) has held that the provisions of Rule 8D are applicable from assessment year 2008-2009. In this view of the matter, the disallowance u/s 14A is required to be worked out as per the mandate of Rule 8D. The Assessing Officer has recorded satisfaction about the expenses attributed to the tax free income not disallowed by the assessee. It is in the background of this scenario that the disallowance at 0.5% has been made towards expenses other than interest. As this disallowance has been computed as per the mandate of Rule 8D, which is applicable for the year under consideration, we see no reason to interfere with the impugned order on this issue. This ground is not allowed.
4. Second ground of the assessee's appeal is as under:—
"The learned Commissioner of Income-tax (Appeals) erred in conforming addition of Rs. 7,39,752/- made while computing book profit u/s 115JB ignoring the fact that Supreme Court in the case of Apollo Tyres Ltd. held that book profit prepared in accordance with Schedule VI of the Companies Act cannot be disturbed."
5. Pursuant to the making of disallowance of Rs. 7.39 lakh u/s 14A, the Assessing Officer added back this amount in computing 'book profit' u/s 115JB. This issue was not taken up before the learned CIT(A) as is apparent from the grounds taken in the first appeal. From the second ground reproduced above, it is seen that the same has been worded as if the learned CIT(A) "erred in confirming the addition" of Rs. 7.39 lakh while computing the book profit u/s 115JB of the Act. However, the fact of the matter is that no such issue was ever raised before the learned CIT(A) and it is for the first time that the assessee has challenged this issue before the Tribunal. This ground can be dismissed on this very short note of it being not emanating from the impugned order.
6. Be that as it may, we will proceed to decide this ground on merits as well because it involves a pure legal issue as to whether the amount disallowed u/s 14A can be added while computing the book profit u/s 115JB of the Act. The learned AR relied on certain decisions to bring home the point that the amount disallowed u/s 14A cannot be added to net profit for computing 'book profit' u/s 115JB. On the other hand, the learned Departmental Representative took us through the language of clause (f) of Explanation (1) to section 115JB, as per which the amount of expenditure relatable to any exempt income is to be added back to the net profit shown in the profit and loss account. At this juncture, it would be relevant to note that 'Book profit' u/s 115JB is computed as per Explanation (1) to sub-section (2) of section 115JB. This Explanation provides that "book profit" means net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2) as increased by certain amounts specified under clauses (a) to (i) if debited to the profit and loss account and clause (j) if not credited to the profit and loss account. The amount so determined is further adjusted by reducing the amounts specified in clauses (i) to (vii). The amount which eventually results is the amount of 'book profit' on which tax liability is determined u/s 115JB. Clause (f) to Explanation (1) provides that the net profit shown in the profit and loss account shall be increased by : "(f) the amount or amounts of expenditure relatable to any income to which section 10 (other than the provisions contained in clause 38 thereof) or section 11 or section 12 apply;". A bare perusal of clause (f) of Explanation (1) makes it abundantly clear that the amount of expenditure "relatable to" any exempt income, other than section 10(38), is liable to be added back to the amount of net profit as shown in the profit and loss account. When we turn to the language of section 14A, it transpires that it talks of disallowing any expenditure incurred 'in relation to' income not includible in the total income. Sub-section (1) of this provision provides that : "For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act." The expression "in relation to" used for making disallowance u/s 14A has been employed in Explanation (1) to section 115JB(2) as expenditure "relatable to", in more or less the same form. It is manifest that the amount of dividend is exempt u/s 10(33) [not section 10(38)] of the Act. Thus any expenditure 'relatable to' the exempt dividend income would fall under clause (f). The ld. AR argued that unless an amount is specifically debited to the Profit and loss account in respect of an exempt income, the same cannot be brought within the purview of clause (f) of the Explanation 1 to section 115JB(2). He stated that since the disallowance u/s 14A is computed as per rule 8D, the origin of the expenses disallowed cannot be traced to the profit and loss account and hence it cannot be covered within the mischief of clause (f) of the Explanation. We fail to find any logic in this submission because of the clear language of the Explanation 1, which provides in unequivocal terms that the amount of expenditure 'relatable to' the exempt income shall be added back. Neither the language of clause (f) expressly refers to the amount specifically debited to the profit and loss account nor there can be an implication in this regard. What has been contemplated by the provision is the amount of the expenditure 'relatable to' the exempt income. Further, the amount disallowable u/s 14A is always part of the expenses specifically debited to the profit and loss account. It is axiomatic that unless any expenditure is incurred and claimed as deduction, there can be no question of any hypothetical disallowance u/s 14A. It, therefore, follows that the amount disallowable u/s 14A is covered under clause (f) of Explanation (1) to section 115JB(2). Our view is fortified by another order dated 29 August, 2012 passed by the Mumbai Bench of the tribunal in the case of Esquire (P.) Ltd. v. Dy. CIT [IT Appeal No. 5688/Mum/2011]. As the assessment year under consideration is assessment year 2008-2009 in which disallowance u/s 14A is required to be computed as per Rule 8D and further it is this amount which has been disallowed and also added to the amount of net profit for computing 'book profit' u/s 115JB, we see no reason to disturb the impugned order on this issue. This ground fails.
7. The only ground raised in the Revenue's appeal is against the allowing of rebate u/s 88E on the tax on total income computed u/s 115JB of the Act. The Assessing Officer computed income and payment of tax as per section 115JB which was more than the income under the regular provisions. In doing so, the Assessing Officer opined that if the tax payable after allowing rebate u/s 88E turns out to be less than 10% of its book profit then the provisions of section 115JB shall be applicable and since the tax payable after rebate u/s 88E was less than 10% of book profit, he held that the benefit of rebate u/s 88E could not be allowed. The learned CIT(A) directed to allow rebate u/s 88E subject to the provisions u/s 87(2) as relevant to assessment year 2008-2009. In reaching this conclusion he relied on certain decisions including an order passed by the Bangalore Bench of the Tribunal.
8. Having heard the rival submissions and perused the relevant material on record, we find that the learned CIT(A) was right in directing the Assessing Officer to allow rebate u/s 80E subject to amended sub-section (2) of section 87. The learned Departmental Representative was fair enough not to press this point beyond the limit. As the direction is only for allowing the rebate after verification as per law applicable for the assessment year at the end of the AO, we fail to find any reason for interfering with the same.
9. In the result, both the appeals stand dismissed.
POOJARegards
Prarthana Jalan
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