Section 14A Calculations Cannot Increase Section 115JB Book Profit: Gujarat HC

PCIT Vs Gujarat State Fertilizers And Chemicals Ltd (Gujarat High Court)

Summary: The Gujarat High Court considered a Revenue appeal under Section 260A of the Income Tax Act, 1961 arising from the order dated 17.12.2024 passed by the Income Tax Appellate Tribunal, “A” Bench, Ahmedabad in ITAT No. 538/Ahd/2020 for Assessment Year 2016-17. The substantial question concerned whether the disallowance under Section 14A of Rs.2,50,39,551/- towards administrative expenses attributable to activity generating tax-exempt income was required to be added back while computing book profit under Section 115JB, on the footing that the amount disallowable under Section 14A read with Rule 8D was covered by clause (f) of Explanation 1 to Section 115JB(2).

The respondent-assessee, Gujarat State Fertilizers and Chemicals Ltd., was engaged in manufacturing and selling fertilizers and chemicals. For AY 2016-17, it filed its return on 29.11.2016 declaring total income of Rs.4,53,30,15,020/- and book profit of Rs.5,38,85,05,347/-. The Assessing Officer passed the assessment order dated 25.12.2018 under Section 143(3), making several additions in the normal computation and book profit which resulted in disallowance of Rs.54,57,00,943/-. The assessee appealed to the Commissioner of Income Tax (Appeals), which partly allowed the appeal. Both the Revenue and assessee thereafter appealed to the Tribunal. The assessee’s appeal was partly allowed, while the Revenue’s appeal was dismissed. The present Tax Appeal arose from the partial allowance granted to the assessee.