DCIT Vs Adani Wilmar Ltd (ITAT Ahmedabad)
ITAT Ahmedabad held that book profit under section 115JB of the Income Tax Act cannot be computed by including disallowances made under section 14A of the Income Tax Act.
Facts- The assessee had earned exempt income of Rs. 15 crores from investment made in KOG KTV Food Products for Rs. 16.12 crores. AO made proportionate disallowance under Rule 8D(2)(iii) of Rs. 8.25 crores. AO also made disallowance under Rule 8D(2)(iii) for Rs. 75.62 lakhs and the aggregate disallowance worked out at Rs. 9.01 crores.
The assessee filed appeal before CIT(A). CIT(A) held that interest expenditure of Rs. 253.50 crores cannot be considered for making disallowance u/s. 14A. Being aggrieved, revenue has preferred the present appeal.
Conclusion- Held that CIT(A) in our view correctly observed that out of total expenditure of Rs. 314 crores, a sum of Rs. 253.50 crores was incurred for specified purpose and the same had to be excluded for the purpose of disallowance of interest expenditure u/s. 14A of the Act. Further, the ld. CIT(A) also correctly observed that since the assessee had offered an amount of Rs. 59.58 crores as interest income, such interest income was also required to be reduced from the remaining interest expenditure of Rs. 60.99 crores. Accordingly, only the net expenditure of Rs. 1.41 crores was considered for the purpose of making disallowance u/s. 14A of the Act.
Held that it is well settled law that book profit u/s. 115JB cannot be computed by including disallowance made u/s. 14A of the Act.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This is an appeal filed by the Revenue against the order of the ld. Commissioner of Income Tax (Appeals)-1, Ahmedabad, in proceeding u/s. 250 vide order dated 08/01/2020 passed for the assessment year 2016-17.
2. The Department has raised the following grounds of appeal:-
“(1) The CIT(A) has erred in restricting the disallowance u/s 14A r.w. Rule 8D from Rs. 9,01,28,550/- to Rs. 8,50,235/-.
(2) The CIT(A) has erred in deleting the adjustment of Rs. 9,01,28,550/- made u/s 115JB of the Act.
(3) It is, therefore, prayed that the order of Id. CIT(A) may be set aside and that of the Assessing Officer be restored.”
3. The brief facts of the case are that the assessee had earned exempt income of Rs. 15 crores from investment made in KOG KTV Food Products for Rs. 16.12 crores. As the total investments as on 31st March, 2015 were Rs. 250.5 crores and Rs. 47.45 crores as on 31st March, 2016, the Assessing Officer made proportionate disallowance under Rule 8D(2)(iii) of Rs. 8.25 crores. The Assessing Officer also made disallowance under Rule 8D(2)(iii) for Rs. 75.62 lakhs and the aggregate disallowance worked out at Rs. 9.01 crores.
4. The assessee filed appeal before the ld. CIT(A) and claimed that it had sufficient interest free funds in the form of share capital and reserves and surplus and therefore, no disallowance of interest expenditure can be made. The assessee also submitted that interest expenditure of Rs. 314.49 crores includes specific interest expenditure incurred on loan taken for specific purpose which cannot be attributed to investments made to earn exempt income. Accordingly, the assessee contended that interest expenditure of Rs. 253.50 crores cannot be considered for making disallowance u/s. 14A of the Act. The Ld. CIT(A) substantially allowed the appeal of the assessee on the ground that identical issue has been decided by the predecessor CIT(A) vide order dated 26th June, 2017 in assessment year 2013-14. The ld. CIT(A) observed that the assessee had given below table giving details of interest expenditure incurred:-
