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Income Tax Appellate Tribunal - Bangalore

M/S Navbharat Global Services Private ... vs Deputy Commissioner Of Income Tax ... on 1 June, 2018

                  IN THE INCOME TAX APPELLATE TRIBUNAL
                           "A" BENCH : BANGALORE


             BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER
            AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER


                              ITA No. 450/Bang/2018
                             Assessment year : 2013-14

Navbharat Global Services Private Ltd.,      Vs.   The Deputy Commissioner of
421/G, First Main, 3rd Cross,                      Income Tax,
First Stage, Indiranagar,                          Circle 5(1)(1),
Bangalore - 560 038.                               Bengaluru.
PAN: AACCK 9182C
               APPELLANT                                     RESPONDENT

    Appellant by  : Shri Kotresh K., CA
    Respondent by : Shri C.H. Sundar Rao, CIT(DR-I)(ITAT), Bengaluru.

                    Date of hearing       : 23.05.2018
                    Date of Pronouncement : 01.06.2018


                                     ORDER


       Per N.V. Vasudevan, Judicial Member

This appeal by the assessee is against the order dated 01.12.2017 of the CIT(Appeals)-10, Bengaluru relating to assessment year 2013-14.

2. The grounds of appeal raised by the assessee reads as follows:-

"Being aggrieved by the order of the Commissioner of Income Tax (Appeals) - 10, Bengaluru, this appeal petition is being submitted on the following grounds which it is prayed may be considered without prejudice to one another.

1. The Learned Commissioner of Income tax - Appeals erred in upholding the addition of the Assessing officer of Rs. 1,30,98,615/- under Section 14A in computation of book profit under Section 115JB of the Income Tax Act, 1961 (hereinafter referred to as "the Act").

2. The Learned Commissioner of Income tax - Appeals also erred in upholding the re-computation of interest under section 234C made by Assessing officer which ought have been restricted to Rs. 1,76,745/- as per the Return of Income filed by the Appellant.

3. The appellant craves leave to add to alter or otherwise amend the above mentioned grounds of appeal."

3. As far as ground No.1 raised by the assessee is concerned, the facts are that the assessee is a company engaged in the business of rendering consultancy services in commercial, financial and engineering fields. For the AY 2013-14, the AO determined the total income of the assessee by his order dated 28.3.2016 passed u/s. 143(3) of the Income- Tax Act, 1961 ["the Act"] at Rs.Nil as per the normal provisions of the Act and at Rs.3,49,10,704 as per the provisions of section 115JB of the Act (tax on book profits). While computing income under the normal provisions of the Act, the AO had made disallowance of expenses u/s. 14A of the Act r.w. Rule 8D of the I.T. Rules [the Rules] of a sum of Rs.1,32,75,360. Similarly, while computing book profits u/s. 115JB of the Act, the AO added to the profit as per profit & loss account of the assessee prepared in accordance with the provisions of the Companies Act, 1956, expenditure incurred in earning the dividend income which was debited to the profit & loss account in terms of section 14A of the Act. It is not disputed that the sum so added by the AO was the same sum which was computed by the ITA No. 450/Bang/2018 Page 3 of 5 AO as expenses disallowable u/s. 14A while computing total income as per normal provisions of the Act.

4. According to the assessee, the disallowance of expenses u/s. 14A which is done while computing total income under the normal provisions of the Act cannot be automatically adopted while computing book profits u/s. 115JB of the Act as per Clause(f) of Explanation-1 below Sub-Section (2) of Sec.115JB of the Act and that such computation of expenses should be made independent of the provisions of section 14A r.w. Rule 8D of the Rules. The assessee accordingly filed an appeal before the CIT(Appeals) raising the above contention.

5. The CIT(Appeals), however, placed reliance on the decision of ITAT Bangalore Bench in the case of DCIT v. Micro Labs reported in (2015) 39 ITR (Trib.) 585 Bang. Trib., wherein it was held that disallowance made while computing total income under the normal provisions of the Act in terms of section 14A of the Act can be adopted while computing book profits u/s. 115JB of the Act. The CIT(Appeals) also noticed that the decision rendered by the Bangalore Bench of Tribunal was confirmed by the Hon'ble High Court of Karnataka in the decision in the case of CIT v. Micro Labs reported in (2016) 383 ITR 890 (Kar).

6. Aggrieved by the order of CIT(Appeals), the assessee preferred the present appeal before the Tribunal.

7. The grievance of the assessee on this issue is projected in ground No.1 referred to in the earlier part of this order. The ld. Counsel for the assessee submitted that the Special Bench of the Delhi Tribunal in the case of ACIT v. Vireet Investments Pvt. Ltd. (2017) 82 taxmann.com 415 (Del)(Trib)(SB) has taken the view that computation of disallowance of expenses incurred to earn exempt income while computing book profits u/s.

115JB of the Act by applying clause (f) to Explanation 1 to section 115JB(2) has to be done independently and cannot be based on the quantum of disallowance us/. 14A r.w. Rule 8D of the Rules made while computing total income of an Assessee under the normal provisions of the Act. In view of the aforesaid decision of the Special Bench, we are of the view that disallowance u/s. 14A of the Act while making computation under the normal provisions of the Act cannot be adopted while computing book profits u/s. 115JB of the Act. We may also mention that the decision of the Bangalore Bench of Tribunal in the case of Micro Labs was rendered prior to the decision of the Special Bench and therefore will have no binding effect. As far as the decision of the Hon'ble High Court of Karnataka in CIT v. Micro Labs, 383 ITR 490 is concerned, the same did not deal with the issue of disallowance to be made u/s. 14A of the Act while computing book profits and was on a different issue. The CIT(Appeals) in this appeal has quoted this decision as a decision rendered in the context of disallowance u/s. 14A of the Act while computing book profits u/s. 115JB of the Act which is incorrect. The AO is accordingly directed to compute the disallowance in terms of clause (f) of Explanation 1 to section 115JB(2) of the Act, without resorting to provisions of section 14A r.w. Rule 8D of the Rules. Ground No.1 is therefore treated as allowed.

8. As far as ground No.2 raised by the assessee is concerned, the issue of charging interest u/s.234C of the Act was not subject matter of appeal before the CIT(Appeals) and therefore does not arise out of the order of CIT(Appeals). The assessee, is, however, at liberty to take recourse to other remedy for redressing the grievance projected in ground No.2 in accordance with law.

9. In the result, the appeal of the assessee is treated as partly allowed for statistical purposes.

Pronounced in the open court on this 1st day of June, 2018.

              Sd/-                                            Sd/-
     ( INTURI RAMA RAO )                           ( N.V. VASUDEVAN)
       Accountant Member                               Judicial Member

Bangalore,
Dated, the June, 2018.

/ Desai Smurthy /

Copy to:

1.    Appellant
2.    Respondent
3.    CIT
4.    CIT(A)
5.    DR, ITAT, Bangalore.
6.    Guard file




                                                 By order



                                           Senior Private Secretary
                                             ITAT, Bangalore.