Kolkata bench of Income Tax Appellate Tribunal in ACIT vs M/s Adhunik Metaliks Ltd dismissed the appeal of Revenue and ruled that disallowance u/s 14A of the Act read with Rule 8D can’t be made while computing book profit.
In instant case Assessee is a company engaged in the business of manufacturing and selling of sponge iron, pig iron & billets, wire rods and mining iron ores filed its return of income declaring a loss to the tune of 90 crores and book loss about 22 crores under normal provision of the ACT and under section 115JB of the Act.
During the time of scrutiny AO found huge investment made by Assessee in shares units of mutual funds and bonds from the balance sheet and he did not received any exempt income in the form of dividend.
Accordingly AO while invoking provision of Section 14A of the Act read with rule 8D of the Rules made a disallowance to the tune of 7 crores and added same towards both the losses.
CIT (A) impressed with the contention of Assessee that no exempt income has been derived by the assessee. Hence lower appellate authority deleted the said disallowance towards both under normal provisions of the Act as well as in the computation of books profits u/s 115JB of the Act.
Being aggrieved Revenue approached this tribunal on an appeal. The tribunal bench heard the rival submission and perused the records.
Therein bench observed that “It is not in dispute that the assessee has not derived any exempt income in the form of dividend during the year. The provisions of section 14A of the Act could be put in motion only when there is exempt income and if certain expenses were debited by the assessee in its profit and loss account for the purpose of earning such income. This is very clear from the wordings of the said section. In the instant case, admittedly, the assessee has not derived any exempt income. Hence, the provisions of section 14A of the Act cannot be invoked at all in the instant case”.
Finally bench including S.S. Viswanethra Ravi, Judicial Member and M.Balaganesh, Accountant Member restored the decision of CIT (A) and deleted the disallowance both under normal provisions as well as in the computation of book profits u/s 115JB of the Act.
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