INCOME TAX ACT, 1961

--Disallowance under section 14A--Expenditure against exempt income Applicability of rule 8D--During the course of assessment proceedings, assessing officer noticed that assessee had made investment in shares and mutual funds. He, then, asked assessee to give details of expenses which were incurred on earn exempt income from investments made in shares and mutual funds. In reply thereto, assessee submitted that it had not earned any exempt income during the year, investments in shares and mutual funds were made through internal funds and no borrowed funds were utilised for this purpose. Assessing officer took a view that it was not necessary that some income had been actually earned to disallow any expenditure relating thereto under section 14A. He, accordingly, applied the provisions of rule 8D and worked out amount of expenses disallowable under section 14A. Held: Rule 8D, applicable from assessment year 2008-09 was not retrospective in operation and the assessment years involved in present appeal was assessment year 2007-08 and thus, rule 8D could not be applied, therefore, matter was restored to assessing officer for passing fresh order after necessary examination in the light of the judgment of Bombay High Court in case of Godrej Boyce v. DCIT (2010) 43 DTR 177 (Bom) : 2010 TaxPub(DT) 2182 (Bom-HC).

Income Tax Act, 1961 Section 14A

Income Tax Rules, 1962 Rule 8D

INCOME TAX ACT, 1961

--MAT--Book profit under section 115JB Addition on account of alleged expenditure incurred to earn exempt income, disallowable under section 14A--assessing officer had also made addition on account of alleged expenditure incurred to earn exempt income while computing book profit under section 115JB. Assessing officer had applied rule 8D while computing amount of expenditure disallowable under section 14A. Assessee challenged the addition made by assessing officer before Commissioner (Appeals), who confirmed the action of assessing officer. Held: While adjudicating the issue of disallowance under section 14A, Tribunal had already held that the provisions of rule 8D were not applicable to the present assessment year under consideration. Therefore, disallowance of expenditure by applying rule 8D was not justified. Further, no actual expenditure was debited in the profit & loss account relating to the earning of exempt income. Therefore, the provision of section 14A cannot be imported into while computing the book profit under section 115JB of the Act inasmuch as clause (f) of Explanation to section 115JB refers to the amount debited to the profit & loss account which can be added back to the book profit while computing book profit under section 115JB. [para 11]

Income Tax Act, 1961 Section 115JB

Income Tax Act, 1961 Section 14A

In the ITAT, Jaipur F Bench

G. E. Veerabhadrappa, V.P. & C. L. Sethi, J.M.

Quippo Telecom Infrastructure Ltd. v. Asstt. CIT

ITA No. 4931/Del/2010

A.Y. 2007-08

18 February, 2011

Decision: In assessees favour.