M/S Sobha Developers Ltd., vs Deputy Commissioner Of
2021 Latest Caselaw 49 Kant

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 IN THE HIGH COURT OF KARNATAKA AT BENGALURU

       DATED THIS THE 4TH DAY OF JANUARY 2021

                         PRESENT

        THE HON'BLE MR. JUSTICE ALOK ARADHE

                              AND

       THE HON'BLE MR. JUSTICE V. SRISHANANDA

                    I.T.A. NO.203/2015
BETWEEN:

M/S. SOBHA DEVELOPERS LTD.,
REP. BY ITS VICE-CHAIRMAN &
MANAGING DIRECTOR
SRI. J.C. SHARMA
'SOBHA', SARJAPUR-MARATHALLI ORR
DEVARABEESANAHALLI
BANGALORE-560103.
                                            ... APPELLANT
(BY MR. A. SHANKAR, SENIOR COUNSEL A/W
    MR. M. LAVA, ADV.,)

AND:

DEPUTY COMMISSIONER OF INCOME TAX
LTU, JSS TOWERS
100 FT. RING ROAD
BANASHANKARI III STAGE
BANGALORE-560085.
                                          ... RESPONDENT
(BY MR. K.V. ARAVIND, ADV.)
                          ---
     THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,
1961 ARISING OUT OF ORDER DATED 09.01.2015 PASSED IN ITA
NO.1410/BANG/2013 FOR THE ASSESSMENT YEAR 2008-09,
PRAYING TO:
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     (I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW AS
STATED ABOVE AND ANSWER THE SAME IN FAVOUR OF
APPELLANT.
     (II) ALLOW THE APPEAL AND SET ASIDE THE FINDINGS TO
THE EXTENT AGAINT THE APPELLANT IN THE ORDER PASSED BY
THE INCOME TAX APPELLANT TRIBUNAL, BANGALORE 'A' BENCH
IN ITA NO.1410/BANG/2013 RELAING TO ASSESSMENT YEAR
2008-09 VIDE ITS ORDER DATED 09-01-2015.

     THIS ITA COMING ON FOR HEARING,             THIS    DAY,
ALOK ARADHE J., DELIVERED THE FOLLOWING:

                      JUDGMENT

This appeal under Section 260A of the Income Tax

Act, 1961 (hereinafter referred to as the Act for short)

has been preferred by the assessee. The subject matter

of the appeal pertains to the Assessment year 2008-09.

The appeal was admitted by a bench of this Court vide

order dated 01.03.2016 on the following substantial

question of law:

"Whether the tribunal is justified in law in holding that the indirect expenditure disallowed under Section 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 MAT purposes under Section 115JB and thereby importing

the provision of Section 14A read with rule 8D into the MAT provisions on the facts and circumstances of the case?

2. Facts leading to filing of this appeal briefly

stated are that the assessee is a company and is a

undertaking of Government of Karnataka, which is

engaged in financing industrial units in the State of

Karnataka. The assessee filed its return of income for

the Assessment Year 2009-10 on 30.09.2011 declaring

'NIL' income under the Act. The assessee returned the

income of Rs.13,60,88,457/- under the provisions of

Section 115JB of the Act. The return filed by the

assessee was selected for scrutiny and Assessing Officer

by an order dated 29.12.2010 completed assessment

under Section 143(3) of the Act and determined loss of

Rs.1,73,60,700/- under the provisions of the Act. The

Assessing Officer also determined the book profit under

Section 115JB of the Act at Rs.30,01,07,991/-.

3. The assessee thereupon filed an appeal

before Commissioner of Income Tax (Appeals) who by

an order dated 31.08.2012 partly allowed the appeal of

the assessee with regard to provisions of gratuity and

leave encashment and partial relief in respect of

disallowance under Section 14A read with Rule 8D to the

extent of Rs.1,03,08,426/-. The assessee as well as the

rev.. filed appeals before the Income Tax Appellate

Tribunal (hereinafter referred to as 'the tribunal' for

short). The tribunal vide order dated 02.05.2014 write

back the provision for bad and doubtful debts to the

extent of Rs.14,77,53,747/- and held that the aforesaid

amount is liable to be added to profits for determination

of book profits under Section 115JB of the Act and held

that disallowance of Rs.49,75,359/- under Section 14A

of the Act is to be added back while computing book

profits under Section 115JB of the Act. In the aforesaid

factual background, the assessee has filed this appeal.

4. Learned counsel for the assessee submitted

that the aforesaid substantial question of law has

already been answered by this court in favour of the

assessee in 'COMMISSIONER OF INCOME TAX,

BANGALORE Vs. GOKALDAS IMAGES (P) LTD.'

(2020) 122 TAXMANN.COM 160 (KAR). On the

other hand, learned counsel for the revenue has

submitted that the assessee has earned income which is

exempt under Section 10(2A) and Section 10(35) of the

Act and the expenditure incurred on the exempt income

has been calculated under Rule 8D of the Rules. It is

also urged that he provisions of Section 115JB of the Act

are attracted in the fact situation of the case.

5. It is also argued that Section 10(2A) of the

Act exempts income of a person being partner of a firm

being separately assessed and its share in the total

income of the firm, whereas, Section 10(35) exempts

income exempts income by way of units of mutual

funds. It is also contended that income referred to in

Section 10A of the Act is exempt and income not

includable in total income referred to in Section 14A is

with respect to exempt income under Section 10 of the

Act. Therefore, any expenditure incurred for earning the

exempt income under Section10 of the Act has to be

disallowed under Section 14A of the Act. It is also

argued that any expenditure relatable to earning of

income exempt under Section 10(2A) and Section

10(35) of the Act has to be disallowed under Section

14A of the Act and has to be added back to book profit

under Section 115JB of the Act. It is further submitted

that the view taken by this court in COMMISSIONER

OF INCOME TAX, BANGALORE VS. GOKALDAS

IMAGES(P) LTD. (2020) 122 TAXMANN.COM 160(

KARNATAKA) requires reconsideration as the

disallowance of expenditure in relation to the income

referred to in Section 10 of the Act is provided only in

Section 14A the Act is not referred to in Clause (f) to

Explanation 1 to Section 115JB of the Act, would render

the provisions of Section 14A of the Act otiose. It is also

argued that in the absence of any provision excluding

the applicability of Section 14A of the Act to compute

book profit under Section 115JB of the Act, it is implied

and unambiguous that the Section 14A of the Act is

applicable to computation of book profit under Section

115JB of the Act. In support of aforesaid submission

reliance has been placed on 'JOINT COMMISSIONER

OF INCOME TAX VS. ROLTA INDIA LTD.' (2011)

330 ITR 470 (SC) and 'MAXOPP INVESTMENT LTD.

VS. COMMISSIONER OF INCOME TAX, NEW DELHI'

(2018) 402 ITR 640(SC).

6. We have considered the submissions made

on both sides and have perused the record. Before

proceeding further, it is apposite to take note of relevant

extract of Section 115JB of the Act, which reads as

under:

115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a

company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2012, is less than eighteen and one-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of eighteen and one-half per cent.

(f) the amount or amounts of expenditure relatable to any income to which section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply; or

(i) the amount or amounts set aside as provision for diminution in the value of any asset,

if any amount referred to in clauses (a) to

(i) is debited to the statement of profit and loss or if any amount referred to in clause (j) is not credited to the statement of profit and loss, and

as reduced by,--

              (i)    the amount          withdrawn      from   any
    reserve         or   provision       (excluding   a   reserve

created before the 1st day of April, 1997 otherwise than by way of a debit to the statement of profit and loss), if any such amount is credited to the statement of profit and loss:

(5) 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.

7. Thus from perusal of the relevant extract of

Section 115JB, it is evident that Sub-Section (1) of

Section 115JB provides the mode of computation of the

total income of the assessee and tax payable on the

assessee under Section 115JB of the Act. 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. Therefore, any expenditure

relatable to earning of income exempt under Section

10(2A) and Section 10(35) of the Act is disallowed under

Section 14A of the Act and is added back to book profit

under clause (f) of Section 115JB of the Act, the same

would amount to doing violence with the statutory

provision viz., Sub-Section (1) and (5) of Section 115JB

of the Act. It is also pertinent to mention here that the

amounts mentioned in clauses (a) to (i) of explanation

to Section 115JB(2) are debited to the statement of

profit and loss account, then only the provisions of

Section 115JB would apply. The disallowance under

Section 14A of the Act is a notional disallowance and

therefore, by taking recourse to Section 14A of the Act,

the amount cannot be added back to book profit under

clause (f) of Section 115JB of the Act. It is also pertinent

to mention here that similar view, which has been taken

by this court in Gokaldas Images (P) Ltd. supra was also

taken by High Court of Bombay in 'THE

COMMISSIONER OF INCOME TAX-8 VS. M/S

BENGAL FINANCE & INVESTMENTS PVT. LTD.',

I.T.A.NO.337/2013. It is pertinent to note that in

Rolta India Ltd., the Supreme Court was dealing with

the issue of chargeability of interest under Section 234B

and 234C of the ct on failure to pay advance tax in

respect of tax payable under Section 115JA/ 115JB of

the Act and therefore, the aforesaid decision has no

impact on the issue involved in this appeal. Similarly, in

MAXOPP Investment Ltd., supra the Supreme Court has

dealt with Section 14A of the Act and has not dealt with

Section 115JB of the Act. Therefore, the aforesaid

decision also does not apply to the fact situation of the

case.

In view of preceding analysis, the substantial

questions of law framed by a bench of this court are

answered in favour of the assessee and against the

revenue. In the result, the order passed by the tribunal

dated 09.01.2015 insofar as it pertains to the findings

recorded against the assessee is hereby quashed.

In the result, the appeal is allowed.

Sd/-

JUDGE

Sd/-

JUDGE ss