July 2021

Company – Book profits – Computation – Amount disallowed u/s 14A cannot be included

K. B. Bhujle
Advocate

31 Sobha Developers Ltd. vs. Dy. CIT(LTU) [2021] 434 ITR 266 (Karn) A.Y.: 2008-09; Date of order: 1st April, 2021 Ss. 14A and 115JB of ITA, 1961

Company – Book profits – Computation – Amount disallowed u/s 14A cannot be included

This appeal u/s 260A was preferred by the assessee and was admitted by the Karnataka High Court on the following substantial question of law:

‘Whether the Tribunal is justified in law in holding that the indirect expenditure disallowed u/s 14A read with rule 8D(iii) of Rs. 24,64,632 in computing the total income under normal provisions of the Act is to be added to the net profit in computation of book profit for Minimum Alternate Tax purposes u/s 115JB and thereby importing the provisions of section 14A read with rule 8D into the Minimum Alternate Tax provisions on the facts and circumstances of the case?’

The High Court held as under:

‘Sub-section (1) of section 115JB provides the mode of computation of the total income of an assessee-company and tax payable on the assessee u/s 115JB. Sub-section (5) of section 115JB provides that save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee being a company mentioned in this section. The disallowance u/s 14A is a notional disallowance and therefore, by recourse to section 14A, the amount cannot be added back to the book profits under clause (f) of Explanation 1 to section 115JB.’

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