Sec. 14A disallowance not to be considered while computing book profits under MAT: ITAT special bench

The issue before the special bench of ITAT was:-

“Whether the expenditure incurred to earn exempt income computed u/s 14A could not be added while computing book profit u/s 115JB of the Act” ITAT special bench held in favour of assessee as under:

1) Applicability of provisions of sec. 14A is confined to computation of tax liability under the five heads of income enumerated in sec. 14 under normal provisions contained in Chapter IV of the Act. The said section 14A cannot be extended and read into section 115JB, falling under Chapter XI1-B of the Act.

2) Further, the scope of section 14A and section 115JB is entirely different. Under section 14A, disallowance is made of expenditure in relation to the earning of income not forming part of the total income. Thus, it takes within its sweep both direct and indirect expenditure having proximate connection with earning of exempt income.

3) However, under clause (f) of the Explanation 1 to section 115JB, only those expenditures debited to the profit and loss amount, which are relatable to earning of income exempt u/s 10 (excluding section 10(38) or section 11 or section 12 are added back while computing adjusted book profit. Thus, only direct expenditure associated with the earning of said income would be added back.

4) Therefore, there could not be any room for making adjustment in accordance with any other provision of the Act, except to the extent specified under the Explanation. Therefore, computation under clause (f) of the Explanation 1 to section 115JB(2) was to be made without resorting to the computation as contemplated u/s 14A, read with Rule 8D of the Income-tax Rules, 1962. - [2017] 82 taxmann.com 415 (Delhi - Trib.) (SB)