S.115JA : Company-Book profit-Exempted income- While computing book profits u/s

For AY 2007-08, the assessee invested Rs. 10 crores in shares and units. The assessee claimed that it
had incurred no expenditure to earn tax-free income though the AO & CIT (A) made a disallowance of
Rs. 19.58 lakhs u/s 14A r.w. Rule 8D. Before the Tribunal, the assessee claimed that (i) Rule 8D could
not apply to AY 2007-08 and (ii) No disallowance u/s 14A could be made for purposes of computing
book profits u/s 115JB. Held by the Tribunal:
Under the normal provisions of the Act, Rule 8D cannot apply till AY 2008-09 though the AO is at
liberty to identify actual expenditure incurred to earn tax-free income & make disallowance. However,
while computing book profit u/s 115JB, no actual expenditure was debited in the profit & loss account
relating to the earning of exempt income. S. 14A cannot be imported into while computing the book
profit u/s 115JB because clause (f) of Explanation to s. 115JB refers to the amount debited to the
profit & loss account which can be added back to the book profit while computing book profit u/s
115JB of the Act. In Goetze (India) Ltd. vs. CIT (2009) 32 SOT 101 (Del) it was held that sub-sec. (2)
& (3) of s. 14A cannot be imported into clause (f) of the Explanation to s. 115JA. Accordingly, it is
held that no addition to book profit can be made on account of alleged expenditure incurred to earn
exempt income while computing income u/s 115JB.
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