Kamat Hotels India Ltd Mumbai v. Dcit Osd Rg 8 2 Mumbai

In The Income Tax Appellate Tribunal Mumbai Bench A Mumbai Before Shri D T Garasia Judicial Member And Shri N K Pradhan Accountant Member Ita No 7083 Mum 2014 Assessment Year 2011 12 Kamat Hotels India Ltd 70 C Nehru Road Vile Parle E Mumbai 400099 Vs Dcit Osd 8 2 2 Nd Floor Aayakar Bhavan Mumbai 400020 Pan No Aaack 2912 L Appellant Respondent Assessee By Mr R C Jain Ar Revenue By Mr Rajesh Kumar Yadav Dr Date Of Hearing 04 10 2017 Date Of Pronouncement 14 12 2017 Order Per N K Pradhan A M This Is An Appeal Filed By The Assessee The Relevant Assessment Year Is 2011 12 The Appeal Is Directed Against The Order Of The Commissioner Of Income Tax Appeals 17 Mumbai And Arises Out Of The Assessment Completed U S 143 3 Of The Income Tax Act 1961 The Act 2 The 1 St Ground Raised By The Assessee In This Appeal Is Against The Order Of The Ld Cit A Upho Lding The Disallowance Of Rs 3 90 13 648 Made By The Ao U S 14 A R W Rule 8 D Kamat Hotels Ltd Ita No 7083 Mum 2014 2 2 1 Briefly Stated The Facts Of The Case Are That The Assessee Company In Its Computation Of Total Income Filed Along With The Original Return Of Income Computed The Disallowance U S 14 A R W Rule 8 D At Rs 3 90 13 648 Subsequently It Revised The Same To R S 3 89 09 022 The Main Reason Fo R Revising Computation Was That The Assessee Disallowed Expenditure Incurred For Earning Exempt Income On Acc Ount Of Investment In Bw Highway Star Pvt Ltd Of Rs 3 50 77 397 The Assessee Company Contend Ed That Interest Paid On Borrowing For Acquiring Controlling Interest In Bw Highway Star Pvt Ltd Is Not Liable To Be Disallowed U S 14 A R W Rule 8 D As The Purpose For Such Loan Was For Acquiring Controlling Interest Acquiring 79 17 Of Shares And Not Fo R Earning Dividend However The Ao Was Not Convinced With The Explanation Of The Assessee Company And Made A Disallowance Of Rs 3 90 13 648 U S 14 A R W Rule 8 D To The Normal Profit As Well As The Book Profit Since The Tax Payable On Book Profit Comput Ed U S 115 Jb Is More Than The Tax Payable On Total Income Computed Under Normal Provisions Of The Act The Ao Computed Tax Liability Of The Assessee U S 115 Jb 2 2 Aggrieved By The Order Of The Ao The Assessee Filed An Appeal Before The Ld Cit A Duri Ng The Appellate Proceedings The Assessee Submitted Before The Ao That During The Impugned Assessment Year No Exempt Income Has Been Earned Or Received By It And Hence No Disallowa N Ce U S 14 A Be Made However The Ld Cit A Was Not Convinced With The Sam E And Upheld The Disallowance Made By The Ao Kamat Hotels Ltd Ita No 7083 Mum 2014 3 2 3 Before Us The Ld Counsel Of The Assessee Relies On The Decision In The Case Of Cit Vs Chettinad Logistics P Ltd 2017 80 Taxmann Com 221 Mad Pcit Vs M S Reliance Capital Asset Management Ita No 487 2015 Bombay High Court And Quantum Advisors Pvt Ltd Vs Dcit Ita No 3418 Mum 2015 Itat Mumbai 2 4 On The Other Hand The Ld Dr Relies On The Order Passed By The Ld Cit A And The Cbdt Circular No 5 2014 2 5 We Have Heard The Rival Submissions And Perused The Relevant Materials On Record The Reasons For Our Decisions Are Given Below In The Cbdt C Ircular Relied On By The Ld Dr It Has Been Stated That Legislative Intent Is To All Ow Only That Expenditure Which Is Relatable To Earning Of Income And It Therefore Follows That The Expen Ses Which Are Relatable To Earning Of Exempt Income Have To Be Considered For Disallowance Irrespective Of The Fact Whe Ther Any S Uch Income Has Been Earned During The Financial Year Or Not 2 5 1 We Are Of The Considered View That The Legislative Intent Is More Discernible In The Judicial Decisions In Chettinad Logistics P Ltd Supra The Honble Madras High Court Has Held That Section 14 A Cannot Be Invoked Where No Exempt Income Was Ear Ned By The Assessee In The Relevant Assessment Year In The Case Of Cit V Shivam Motors P Ltd 2015 55 Taxmann Com 262 All It Has Been Held That In Absence Of Any Tax Free Income Earned By The Assessee Disallowance U S 14 A Could Not Be Made In A Similar Vein It Has Been Held In Cheminvest Ltd V Cit 2015 61 Taxmann Com 118 Del That Sec Tion 14 A Will Not Apply If No Kamat Hotels Ltd Ita No 7083 Mum 2014 4 Exempt Income Is Received Or Receivable During The Relevant Previous Year In Vi Ew Of The Above Position Of Law We Delete The Disallowance Of Rs 3 90 13 648 Made By The Ao Thus The 1 St Ground Of Appeal Is Allowed 3 T H E 2 Nd Ground Of Appeal Is Against The Order Of The Ld Cit A Confirming The Addition Of Provision For Doubtful Debts Advances Amounting To Rs 43 67 928 Made By The Ao To The Book Profit U S 115 Jb 3 1 In A Nutshell The Facts Are That The Assessee Company Had Suo Motu Added Back The Provision For Doubtful Debts Advances Of Rs 43 67 928 While Computing The Books Profit U S 115 Jb However In The Revised Return Of Income Filed On 28 03 2013 The Assesse E Excluded The Book Profit U S 115 Jb Relying On The Decision In The Case Of Cit Vs Yokogawa India Ltd 2012 17 Taxmann Com 15 Kar The Ao Was Not Convinced With The Said Working Of The Assessee Because As Per Clause I In Explanation 1 To Sub Se Ction 2 Of Section 115 Jb Which Was Introduced With Retrospectively Effect From 01 04 2011 If Any Provision For Diminution In The Value Of Any Asset Has Been Debited To The Profit And Loss Account It Is To Be Added To The Net Profit As Shown In The Profit And Loss Account For The Purpose Of Computation Of Book Profit Therefore The Ao Increased The Net Profit As Per The Prof It And Loss Account By The Amount Of Provision Of Doubtful Debts Advances Of Rs 43 67 928 Kamat Hotels Ltd Ita No 7083 Mum 2014 5 3 2 Aggrieved By The Order Of The Ao The Assessee Filed An Appeal Before The Ld Cit A The Ld Cit A Relying On The Decision In The Case Of Cit Vs Ilpea Paramo Unt Pvt Ltd 2011 336 Itr 54 Del And Dcm Shriram Consolidated Ltd Vs Cit 2010 39 Sot 203 Del Confirmed The Action Of The Ao Increasing The Net Profit As Per Profit And Loss Account By The Amount Of Provision For Doubtful D Ebts Advances Of Rs 43 67 928 3 3 Before Us The Ld Counsel Of The Assessee Relies On The Decision In Yokogawa India Ltd Supra Whereas The Ld Dr Relies On The Order Passed By The Ld Cit A 3 4 We Have Heard The Rival Submissions And Perused The Relevant Material S On Record The Reasons For Our Decisions Are Given Below In Yokogawa India Ltd Supra The Honble Karnataka High Court Has Held That While Computing Book Profits Provisions Made For Bad And Doubtful Debts Cannot Be Added Back In Accordance With Ex Planation C To Section 115 Jb 1 As Same Is Not An Ascertain Liability On The Other Hand In The Case Of Ilpea Paramount Pvt Ltd Supra The Honble Delhi High Court Has Held That Provision For Doubtful Debts And Provision For Doubtful Advances Are Nothing But The Provisions For Diminution In The Value Of Assets Hence The Same Are To Be Added Back In Computing Book Profit In View Of The Retrospective Amendment Introduced In Section 115 Ja By Inserting Clause G In Explanation To Section 115 Ja 2 Which Specifically Mentions The Amount Set Aside As Provision For Dimin Ution In The Value Of Any Asset Kamat Hotels Ltd Ita No 7083 Mum 2014 6 Also In The Case Of Cit Vs Steriplate P Ltd 2011 338 Itr 547 P H The Honble Punjab And Haryana High Court Has Held Tha T By Virtue Of Clause I Of Explanation 1 To Sub Section 2 Of Section 115 Jb As Inserted By The Finance 2 Act 2009 Retrospectively From 1 St April 2001 Any Amount Set Aside As Provision For Diminution In The Value Of Any Asset Would Not Reduce The Book Profits Of An Assessee For The Assessment Year 2002 03 3 4 1 We Follow The Above Judgment Of The Honble Delhi High Court And Punjab And Har Yana High Court And Uphold The Order Of The Ld Cit A Confirming The Addition Of Rs 43 67 928 Made By The Ao Thus This Ground Of Appeal Is Dismissed 4 Another Part Of The 2 Nd Ground Raised By The Assessee Is Against The Order Of The Ld Cit A Confi Rming The Disallowance Made By The Ao Of Rs 3 90 13 648 U S 14 A R W Rule 8 D While Computing Book Profit U S 115 Jb 4 1 We Find That In A Recent Decision The Itat Delhi Bench H Special Bench In The Case Of Acit Vs Vireet Investment P Ltd 2017 165 Itd 27 Delhi Trib Sb Has Held That Computation Under Clause F Of Explanation 1 To Section 115 Jb 2 Is To Be Made Without Resorting To Computation As Contemplated U S 14 A R W Rule 8 D We Follow The Above Decision Of The Special Bench Of The Tribunal And Delete The Addition Of Rs 3 90 13 648 Made By The Ao U S 14 A R W Rule 8 D While Computing Book Profit U S 115 Jb Kamat Hotels Ltd Ita No 7083 Mum 2014 7 Thus This Part Of The 2 Nd Ground Of Appeal Filed By The Assessee Is Allowed 5 In The Result The Appeal Is Partly Allowed Order Pronounced In The Open Court On 14 12 2017 Sd Sd D T Garasia N K Pradhan Judicial Member Accountant Member Mumbai Dated 14 12 2017 Rahul Sharma Sr P S Copy Of The Order Forwarded To 1 The Appellant 2 The Respondent 3 The Cit A 4 Cit 5 Dr Itat Mumbai 6 Guard File By Order True Copy Dy Asstt Registrar Itat Mumbai