LUPIN INVESTMENTS P. LTD, MUMBAI V. ASST CIT 10(1), MUMBAI

ITA 7103/MUM/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2812 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 16-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 20-10-2011
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A; 115JB; 12; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI SANJAY GARG (JM) I.T.A. NO. 7103 /MUM/ 20 1 1 (ASSESSMENT YEAR 200 8 - 0 9 ) LUPIN INVESTMENT PVT .LTD. 159, CST ROAD KALINA MUMBAI - 400 098. VS. ACIT 10(1) 4 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. ( APPELLANT ) ( RESPONDENT ) PAN NO . AAACL1070G ASSESSEE BY MS. VASANTI PATEL DEPARTMENT BY SHRI V.K. BORA DATE OF HEARING 16.8 . 201 6 DATE OF PRONOUNCEMENT 16 . 8 . 201 6 O R D E R PER B.R. BASKARAN (AM ) : - THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 10.8.2011 PASSED BY LEARNED CIT(A) - 21, MUMBAI AND IT RELATES TO A.Y. 2008 - 09. 2. THOUGH THE ASSESSEE HAS RAISED AS MANY AS SEVEN GROUNDS, ALL OF THEM ARE DIRECTED AGAINST THE ADD I TION MADE TO THE BOOK PROFIT COMPUTED UNDER SECTION 115JB OF THE ACT. 3. THE ASSESSEE RECEIVED DIVIDEND INCOME OF ` 1.54 CRORES AND CLAIMED THE SAME AS EXEMPT. THE ASSESSING OFFICER DISALLOWED A SUM OF ` 1.76 CRORES U/S. 14A OF THE ACT IN ACCORDANCE WI TH THE FORMULA PROVIDED IN RULE 8D OF THE I.T. RULES. FOR WORKING OUT THE BOOK PROFIT U/S. 115JB OF THE ACT THE ASSESSING OFFICER ADDED THE ABOVE SAME AMOUNT OF ` 1.76 CRORES TO THE NET PROFIT DISCLOSED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNTS. THU S THE ADDITION U/S 14A OF THE ACT WAS MADE WHILE COMPUTING TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT AND FOR COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. LUPIN INVESTMENTS P. LTD. 2 4. IN THE APPELLATE PROCEEDINGS, THE ASSESSEE CONTESTED THE ADDITION OF ` 1.76 CRORES MADE B Y THE AO BOTH UNDER NORMAL PROVISIONS OF THE ACT AND FOR COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. LEARNED CIT(A) NOTICED THAT THE ASSESSEE HAS COMPUTED THE INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND ACCORDINGLY DISALLOWED ENTIRE EXPENSES AGGREGAT ING TO ` 2.73 CRORES. SINCE THE ASSESSEE DID NOT CLAIM ANY EXPENDITURE, THE LEARNED CIT(A) HELD THAT THERE IS NO REQUIREMENT TO MAKE ANY DISALLOWANCE U/S. 14A OF THE ACT WHILE COMPUTING TOTAL INCOME UNDER NORMAL PROVISIONS OF THE ACT. WITH REGARD T O THE COMPUTATION OF BOOK PROFIT U/S 115JB OF THE ACT , THE LEARNED CIT(A) HELD THAT THE EXPENDITURE INCURRED FOR EARNING OF EXEMPT INCOME IS REQUIRED TO BE ADDED TO THE NET PROFIT AS PER EXPLANATION TO SECTION 115JB OF THE ACT AND ACCORDINGLY HELD THAT THE DISALLOWANCE OF ` 1.76 CRORES COMPUTED BY THE ASSESSING OFFICER AS PER RULE 8D OF THE I.T. RULES WAS RIGHTLY ADDED BY THE ASSESSING OFFICER WHILE COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. IT IS PERTINENT TO NOTE THAT THE ASSESSEE HAD ITSELF ADDED A SUM OF ` 49,773/ - AS PER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB OF THE ACT WHILE COMPUTING THE BOOK PROFIT . 5. THE L EARNED COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED THAT LEARNED CIT(A) HAS TAKEN CONTRADICTORY STAND WHILE ADJUDICATING IDENTICAL ISSU E UNDER TWO DIFFERENT CIRCUMSTANCES . SHE SUBMITTED THAT LEARNED CIT(A) HAS ACCEPTED THE FACT THAT THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE WHILE COMPUTING INCOME UNDER NORMAL PROVISIONS OF THE ACT AND HENCE HELD THAT THERE IS NO REQUIREMENT OF MAKING A NY DISALLOWANCE U/S 14A OF THE ACT. HAVING HELD SO, HE SHOULD NOT HAVE TAKEN THE VIEW THAT DISALLOWANCE COMPUTED AS PER PROVISIONS OF RULE 8D SHOULD BE ADDED TO THE BOOK PROFIT COMPUTED U/S. 115JB OF THE ACT . 6. ON THE CONTRARY, THE LD D.R SUBMITTED T HAT CLAUSE (F) TO EXPLANATION 1 TO SEC. 115JB MANDATES ADDITION OF EXPENDITURE RELATABLE TO EXEMPT INCOME WHILE COMPUTING BOOK PROFIT. HE SUBMITTED THAT THE ASSESSEE HAS CLAIMED EXPENDITURE WHILE ARRIVING AT NET PROFIT AND HENCE THE LD CIT(A) WAS JUSTIFIE D IN LUPIN INVESTMENTS P. LTD. 3 HOLDING THAT THE DISALLOWANCE WORKED AS PER RULE 8D OF I.T RULES R.W.S. 14A SHOULD BE ADDED WHILE COMPUTING THE BOOK PROFIT. 7. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. THE BOOK PROFIT IS COMPUTED U/S 115JB OF THE ACT FROM THE PRO FIT AND LOSS ACCOUNT PREPARED IN ACCORDANCE WITH THE PROVISIONS OF THE COMPANIES ACT OR OTHER APPLICABLE ACT AS PRESCRIBED IN SEC. 115JB(2) OF THE ACT. AS PER EXPLANATION 1 TO SEC. 115JB OF THE ACT, THE NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT IS T AKEN AS THE STARTING POINT FOR COMPUTING THE BOOK PROFIT AND THE ADDITION AND DEDUCTION PRESCRIBED IN THAT EXPLANATION IS REQUIRED TO BE MADE. CLAUSE (F) OF EXPLANATION 1 PROVIDES FOR ADDITION OF THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH SECTION 10 (OTHER THAN PROVISIONS C ONTAINED IN CLAUSE (38) THEREOF OR SECTION 11 OR SECTION 12 APPLY. 8. IN THE INSTANT CASE, THE DIVIDEND INCOME IS EXEMPT U/S 10(34) OF THE ACT AND HENCE, AS PER THE PROVISIONS OF CLAUSE (F) TO EXPLANATION 1 TO SEC. 115JB OF THE ACT, THE EXPENDITURE RELATABLE TO THE DIVIDEND INCOME IS REQUIRED TO BE ADDED TO THE NET PROFIT. 9. FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT, THE EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME SHALL BE DISALLOWED IN TERMS OF SEC. 14A OF THE ACT. SECTION 14A FURTHER PROVIDES FOR A MECHANISM FOR COMPUTING THE DISALLOWANCE IN TERMS OF RULE 8D OF THE IT RULES, IF THE AO, HAVING REGARD TO T HE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE WITH REGARD TO THE DISALLOWANCE. IN THE INSTANT CASE, EVEN THOUGH THE ASSESSEE HAS DEBITED ITS PROFIT AND LOSS ACCOUNT WITH VARIOUS TYPES OF EXPENSES, YET IT DI D NOT CLAIM ANY EXPENDITURE WHILE COMPUTING TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT, SINCE IT DECLARED ITS RENTAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE ASSESSEE WAS CONSTRAINED TO DO SO DUE TO STATUTORY COMPULSION. LUPIN INVESTMENTS P. LTD. 4 10. WE H AVE EARLIER NOTICED THAT THE ASSESSEE DID NOT CLAIM ANY EXPENDITURE WHILE COMPUTING TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT AND HENCE THE LD CIT(A) HAS DELETED THE DISALLOWANCE MADE BY THE AO AS PER RULE 8D OF THE I.T RULES FOR THE PURPOSE OF C OMPUTING TOTAL INCOME UNDER NORMAL PROVISIONS OF THE ACT. HOWEVER, THE FACT REMAINS THAT THE ASSESSEE HAS DEBITED ITS PROFIT AND LOSS ACCOUNT WITH VARIOUS TYPES OF EXPENDITURE AND HENCE, IN OUR VIEW, IT IS IMPERATIVE ON THE PART OF THE ASSESSEE AS WELL AS THE AO TO DETERMINE THE AMOUNT OF EXPENDITURE RELATABLE TO THE INCOME EXEMPT U/S 10 OF THE ACT FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S 115JB OF THE ACT FROM THE PROFIT AND LOSS ACCOUNT . S INCE THE BOOK PROFIT U/S 115JB OF THE ACT IS REQUIRED TO BE COM PUTED FROM THE PROFIT AND LOSS ACCOUNT PREPARED UNDER THE COMPANIES ACT OR OTHER APPLICABLE ACT, WE ARE OF THE VIEW THAT T HE ASSESSEE, IN THE INSTANT CASE, CANNOT PLEAD THAT NO DISALLOWANCE SHOULD BE MADE WHILE COMPUTING THE BOOK PROFIT, SINCE IDENTICAL DI SALLOWANCE MADE BY THE AO WHILE COMPUTING THE TOTAL INCOME WAS DELETED BY THE LD CIT(A). WE HAVE EARLIER NOTICED THAT THE ASSESSEE WAS CONSTRAINED TO DISALLOW THE ENTIRE EXPENDITURE WHILE COMPUTING THE TOTAL INCOME DUE TO STATUTORY COMPULSION. HOWEVER, TH E FACT REMAINS THAT THE ASSESSEE HAS DEBITED ITS PROFIT AND LOSS ACCOUNT WITH VARIOUS TYPES OF EXPENSES. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT THE DISALLOWANCE THAT IS REQUIRED TO BE MADE UNDER CLAUSE (F) TO EXPLANATION 1 TO SEC. 115JB IS REQU IRED TO BE COMPUTED FROM THE EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT. T HE AMOUNT OF DISALLOWANCE COMPUTED UNDER RULE 8D OF THE I.T RULES IS COMPUTED UNDER A LEGAL FICTION UPON SATISFACTION OF CERTAIN CONDITIONS. THE REFERENCE TO RULE 8D IS AVAILA BLE IN SEC. 14A OF THE ACT AND NO SUCH REFERENCE IS AVAILABLE IN SEC. 115JB OF THE ACT. HENCE WE ARE OF THE VIEW THAT THE DISALLOWANCE COMPUTED UNDER THE LEGAL FICTION PRESCRIBED UNDER RULE 8D SHOULD NOT HAVE BEEN STRAIGHT AWAY ADOPTED BY THE LD CIT(A) IN THE INSTANT CASE . ACCORDINGLY WE ARE OF THE VIEW THAT THE DISALLOWANCE REQUIRED TO BE MADE UNDER CLAUSE (F) TO EXPLANATION 1 TO SEC. 115JB IS REQUIRED TO BE COMPUTED INDEPENDENTLY , IN THE FACTS AND CIRCUMSTANCES OF THE CASE, BY CONSIDERING THE LUPIN INVESTMENTS P. LTD. 5 EXPENDITURE DEBITED TO THE PROFIT AND LOSS ACCOUNT. WE HAVE EARLIER NOTICED THAT THE ASSESSEE HAS COMPUTED THE DISALLOWABLE AMOUNT AT RS.49,773/ - . WE NOTICE THAT THE AO DID NOT EXAMINE THE CORRECTNESS OF THE AMOUNT SO DISALLOWED BY THE ASSESSEE FOR COMPUTING THE BO OK PROFIT AND IN OUR VIEW THE SAME REQUIRES FRESH EXAMINATION. 11. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES FRESH EXAMINATION AT THE END OF THE AO IN THE LIGHT OF DISCUSSIONS MADE SUPRA. ACCORDINGLY, WE SET ASI DE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO EXAMINE THE DISALLOWANCE THAT WAS MADE BY THE ASSESSEE UNDER CLAUSE (F) TO EXPLANATION 1 TO SEC. 115JB OF THE ACT AND DECIDE THE SAME IN ACCORDANCE WITH THE LAW, AFTER AFFORDING ADEQUATE O PPORTUNITY TO THE ASSESSEE. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 1 6. 8 .2016 SD/ - SD/ - (SANJAY GARG ) (B.R.BASKARAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 16 / 8 / 20 1 6 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) ITAT, MUMBAI PS