CIT vs. Bengal Finance & Investments Pvt. Ltd (Bombay High Court)

The Assessing Officer added the amount disallowed by him u/s 14A to the tune of Rs. 78.84 lakh to the book profit computed u/s 115JB. The CIT(A) ordered for the deletion of this amount. The Tribunal confirmed the deletion on the following basis:

“The learned AR has placed on record a copy of the order passed by the Mumbai Bench of the Tribunal in the case of M/s.Essar Teleholdings Ltd. v. DCIT in ITA No.3850/Mum/2010 in which it has been held that the amount disallowed u/s 14A cannot be added to the amount of book profit u/s 115JB. In this order it has been laid down that unless a particular expenditure is debited to the profit and loss account relating to the earning of exempt income, the same cannot be imported into the computation of book profit as clause (f) of Explanation 1 to section 115JB which only refers to the amount debited to the profit and loss account. In reaching this conclusion the Mumbai Bench relied on another order of the Delhi Bench in the case Goetze (India) Ltd. v. CIT [(2009) 32 SOT 101 (Del.)] laying down similar proposition. The learned AR has also placed on record one more order passed by the Delhi Bench in the case of Quippo Telecom Infrastructure Ltd. v. ACIT in ITA No.4931/Del/2010 in which it has been reiterated that the amount disallowed u/s 14A cannot be considered while computing book profit u/s 115JB of the Act. No contrary decision has been brought on record by the learned Departmental Representative. In view of these facts, we are of the considered opinion that the learned CIT(A) was justified in directing that the amount of disallowance u/s 14A cannot be considered while computing book profit u/s 115JB.”

The Department filed an appeal in the High Court in which the following question of law was raised:

“(b) Whether on the facts and in the circumstances of the case, and in law, the ITAT is justified in deleting the addition of Rs.78,84,387/under clause (f) of Explanation 1 to Section 115JB relying upon the decision in the case of Goetze (India) Ltd. v/s. CIT (2009) 32 SOT 101 (Del.), which has been followed by ITAT, Mumbai in the cases referred to in para 5 of the impugned order without appreciating that the above decision in the case of Goetze (India) Ltd. was rendered by the ITAT, Delhi Bench on completely distinguishable set of facts, peculiar to the said case?”

The High Court dismissed the appeal by holding as follows:

“So far as Question (b) is concerned, the impugned order of the Tribunal followed its decision in M/s. Essar Teleholdings Ltd. v/s. DCIT in ITA No. 3850/Mum/2010 to held that an amount disallowed under Section 14A of the Act cannot be added to arrive at book profit for purposes of Section 115JB of the Act. The Revenue’s Appeal against the order of the Tribunal in M/s. Essar Teleholdings (supra) was dismissed by this Court in Income Tax Appeal No.438 of 2012 rendered on 7th August, 2014. In view of the above, question (b) does not raise any substantial question of law.”

Note: While in the aforesaid case, the High Court dismissed the department’s appeal and affirmed the judgement of the Tribunal, in Essar Teleholdings Ltd. v/s. DCIT in ITA No. 3850/Mum/2010 (attached) the High Court held as follows:

“(B) Whether on the facts and circumstances of the case and in law, the Hon’ble ITAT is right in deleting the addition of Rs.4.06 crores made by the AO u/s 14A of the Act for the purpose of computing book profit u/s 115JB(f) of the Income Tax Act 1961 ?”

3. In relation to the second question, Mr Ahuja stated that it is a substantial question of law simply because the Tribunal while remanding and restoring the case to the file of the Assessing Officer has given a finding with regard to the course to be adopted after restoration by the Assessing Officer. The Tribunal should not have done this. In such circumstances, the Appeal raises substantial questions of law. We are of the view that the Tribunal had only reiterated in paragraph 8 of the order under challenge delivered on 29th July 2011 the finding on the expenditure as per rule 8D r/w section 14A of the Income Tax Act 1961. In relation to that, the Tribunal held that Rule 8D is not applicable to the A.Y under consideration. Hence, applying the provisions of Rule 8D is not justified. The further finding of the Tribunal is only to bring to the notice of the Assessing Officer that he has to abide by clause (f) of Explanation 115JB of the Income Tax Act. In such circumstances, what the Tribunal has done is to invite attention of the Assessing Officer to the orders passed by the Tribunal, Delhi Bench. Beyond this, we do not think that the Tribunal has adjudicated the claim or has accepted the contentions raised before it by either side. In these circumstances and when the Assessing Officer is expected to determine the claim afresh and in accordance with law, we do not see any basis for the apprehension and which is voiced by Mr Ahuja. With this additional clarification, the Appeal does not raise any substantial question of law. Appeal is dismissed. No costs.”