Case summary, Income Tax

Addition of disallowance under Section 14A for the purpose of calculating book profits under section 115JB

Case: Gujarat Urja Vikas Nigam Board vs. Dy. CIT, Ahmedabad ITAT

Case Outcome: Partial

Facts

  • The Assessing Officer during the assessment proceedings had made the disallowance of Rs.50.85 crores in determining the income under normal computation of income under the provisions of Section 14A read with Rule 8D of Income Tax Rule. The Assessing Officer made the addition of the same disallowance while determining the income of the Assessee under the provisions of Section 115JB of the Act.

Key Points

  • Reliance was placed on the decision of the Hon’ble Calcutta High Court in the case of CIT Vs. Jayshree Tea Industries Ltd., wherein it was concluded that computation of the amount of expenditure relatable to exempted income of the Assessee must be made since the Assessee had not claimed such expenditure to be Nil. Such computation must be made by applying clause (f) of Explanation 1 under section 115JB of the Act. The provision of section 115JB in the matter of computation was a complete code in itself and resort need not and could not be made to section 14A of the Act.
  • Hence, it was inferred that that the disallowances made under the provisions of section 14A read with rule 8D of the Income Tax Rules, cannot be applied to the provision of section 115JB. The disallowance on ad-hoc basis was limited to 1% of the exempted income as per the Clause (f) to Explanation-1 of section 115JB of the Act.
  • Issue Outcome: Partial

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