No disallowance of expenditure u/s 14A while computing section 115JB Book Profits

Briefly the facts are, the assessee is a resident company. In course of assessment proceeding for the impugned assessment year, the Assessing Officer noticed that the assessee had made huge investment in shares, which is likely to yield exempt income. Thus, he called upon the assessee to explain, why expenditure attributable to exempt income, which is likely to be earned in future, should not be disallowed in terms with section 14A of the Income Tax Act, 1971 (The Act) read with Rule 8D. In reply, it was submitted by the assessee that since no exempt income was earned during the year, no disallowance under section 14A can be made. The Assessing Officer, however, did not accept the submissions of the assessee and disallowed an amount of Rs.20,63,500/- while computing income under the normal provisions. However, since the assessee’s tax liability was computed under section 115JB of the Act, the Assessing Officer did not make any disallowance under section 14A read with Rule 8D. Subsequently, the Assessing Officer initiated proceedings u/s 154 of the Act for rectification of the mistake arising due to non-disallowance of expenditure under section 14A read with Rule 8D while computing book profit under section 115JB of the Act and ultimately passed an order disallowing expenditure of Rs.20,63,500/- under section 14A read with Rule 8D while computing book profit under section 115JB of the Act.

Against the order passed under section 154 of the Act, assessee preferred an appeal before learned Commissioner (Appeals). Being convinced with the submissions of the assessee, learned Commissioner (Appeals) deleted the disallowance.

Before tribunal, ld. DR submitted that the appeal cannot be decided as a low tax effect case, since, the addition is made based on Revenue Audit objection. Hence, protected under the exception provided to CBDT Circular No. 17 of 2019, dated 08.08.2019. On the other hand, ld. AR submitted that the assessee did not earn any exempt income. Therefore, no disallowance u/s 14A read with Rule 8D can be made. Further, he submitted, the disallowance of expenditure u/s 14A read with Rule 8D while computing book profit u/s115JB being highly debatable issue cannot be covered under the provisions of section 154 of the Act.

Therefore, in light of the above submission ITAT find no infirmity in the decision of learned Commissioner (Appeals). Hence, grounds raised by the Department is dismissed.

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