THE DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-6(4) , MUMBAI V. M/S RATTAN INDIA POWER LTD, MUMBAI

ITA 2443/MUM/2022

AI Insights

The case involves the revenue's appeal against the order of the Ld CIT(A)-54, Mumbai, which pertained to the assessment year 2018-19. The primary contention was regarding the disallowance made under section 14A of the Income Tax Act, which the Assessing Officer (AO) had enhanced significantly based on Rule 8D. The Ld CIT(A) had earlier reduced this disallowance, following the precedent set by the Delhi Special Bench of ITAT in Vireet Investments P Ltd. The Tribunal's decision reaffirmed that the disallowance under section 14A should not affect the computation of book profit under section 115JB, aligning with the principles laid down in the aforementioned case.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123969 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2023
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: D
• Next Hearing Date: 13-03-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 22-09-2022
• Other Referred Cases: Vireet Investments P Ltd (2017)(82 taxmann.com 415)
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI ‘D’ BENCH, MUMBAI. Before Shri B.R. Baskaran (AM) & Smt. Kavitha Rajagopal (JM) I.T.A. No. 2443/Mum/2022 (A.Y. 2018-19) DCIT, Central Circle-6(4) Room No. 1925 19 th Floor, Air India Building, Nariman Point, Mumbai-400 021. Vs. M/s. Rattan India Power Ltd. 5 th Floor, Tower-B Worldmark-1 Aerocity, New Delhi-110 037. PAN : AALCS2063D (Appellant) (Respondent) Assessee by Shri Rajiv Khandelwal Department by Ms. Riddhi Mishra Date of Hearing 14.03.2023 Date of Pronouncement 21.03.2023 O R D E R Per B.R.Baskaran (AM) :- The revenue has filed this appeal challenging the order dated 10-06- 2022 passed by Ld CIT(A)-54, Mumbai and it relates to the assessment year 2018-19. The revenue is aggrieved by the decision of Ld CIT(A) (a) in granting partial relief to the disallowance made u/s 14A of the Act while computing income under normal provisions of the Act and (b) in holding that the disallowance computed u/s 14A of the Act cannot be added while computing Book Profit u/s 115JB of the Act. 2. The assessee company is engaged in the business of generation, distribution, trading and transmission of power and other ancillary and incidental activities. The AO noticed that the assessee had held non-current investments of Rs.3523.85 crores and Rs.3302.33 crores respectively as on 1.4.2017 and 31.3.2018. The current investments were held at Rs.70.00 crores and Rs.5.00 crores respectively as on 1.4.2017 and 31.3.2018. It had M/s. Rattan India Power Ltd. 2 earned dividend income of Rs.2,77,98,501/- and claimed the same as exempt. However, the assessee had disallowed a sum of Rs.67,80,478/- only u/s 14A of the Act. 3. The AO took the view that the disallowance has to be computed as per Rule 8D of I T Rules r.w.s 14A of the Act. Accordingly, he computed the disallowance at Rs.34.34 crores and accordingly enhanced the disallowance made u/s 14A by the assessee by Rs.33.66 crores. The AO also adopted the very same amount of Rs.34.34 crores for making addition under clause (f) of Explanation 1 to sec. 115JB of the Act for computing ‘Book Profit’ u/s 115JB of the Act. Aggrieved, the assessee filed appeal before Ld CIT(A) challenging the above said decision of the AO. 4. The Ld CIT(A) noticed that his predecessor, in the immediately preceding assessment year, i.e., AY 2017-18, has followed the decision rendered by Delhi Special bench of ITAT in the case of Vireet Investments P Ltd (2017)(82 taxmann.com 415) and held that (a) only those investments which had yielded exempt income should be considered for computing “average value of investments” for the purposes of Rule 8D. (b) the disallowance computed u/s 14A of the Act for the purpose of normal provisions of the Act should not be adopted for the purposes of computing book profit u/s 115JB of the Act. Following the decision rendered by Ld CIT(A) in AY 2017-18, the first appellate authority gave similar directions to the AO. The revenue is aggrieved. 5. We heard the parties and perused the record. We notice that the above said directions given by Ld CIT(A) to the assessing officer is in accordance with the binding decision rendered by the Special Bench of ITAT in the case of Vireet Investments P Ltd (supra). M/s. Rattan India Power Ltd. 3 6. It is well settled proposition that the disallowance computed u/s 14A is for the purpose of computing total income under normal provisions of the Act. The ‘Book Profit” is computed u/s 115JB of the Act on the basis of the Profit and Loss account computed under the provisions of the Companies Act, after making adjustments provided for in Explanation 1 to sec.115JB of the Act. Clause (f) of the said Explanation 1 states that the expenses incurred for earning exempt income should be added to the Net Profit. Hence the addition to be made under clause (f) is required to be computed on the basis of Profit and Loss account prepared under the Companies Act and accordingly, the Special bench held that the disallowance computed under Rule 8D r.w.s 14A of the Act cannot be imported in sec.115JB of the Act. Accordingly, we direct the AO to compute the addition to be made under clause (f) to Explanation 1 to sec.115JB of the Act on the basis of Profit and Loss account considered for the purposes of sec.115JB of the Act. 7. Accordingly, we uphold the order passed by Ld CIT(A) subject to the clarifications discussed in the preceding paragraph. 8. In the result, the appeal filed by the revenue is treated as partly allowed. Pronounced in the open court on 21.3.2023. Sd/- Sd/- (KAVITHA RAJAGOPAL) (B.R. BASAKARAN) Judicial Member Accountant Member Mumbai; Dated : 21/03/2023 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(Judicial) 4. PCIT 5. DR, ITAT, Mumbai M/s. Rattan India Power Ltd. 4 6. Guard File. BY ORDER, //True Copy// (Assistant Registrar) PS ITAT, Mumbai