In absence of exempt income, Section 14A disallowance cannot be added to Section 115JB book profits

Minda Sai Limited Vs. Income Tax Officer (ITAT Delhi), I.T.A. No.: 2974/Del/13, Date- 09.01.2015 Disallowance of Rs 2,00,225 under section 115JB on the ground that this amount pertains to disallowance under section 14A - Learned counsel for the assessee has invited our attention to Hon’ble Delhi High Court’s decision in the case of CIT Vs Holcim India Pvt Ltd [ 2014 TIOL 1586 HC DEL IT] wherein it is held that unless there is an exempt income, disallowance under section 14A cannot be invoked. When, however, it was pointed out to him that this decision is in respect of disallowance under section 14A on merits but when the challenged is not made to such a disallowance under section 14A, this decision cannot support assessee’s case against adjustment made in computation of book profits under section 115JB, learned counsel submitted that the same principle must apply in computation of book profits under section 115 JB as well since the provisions of Section 115 JB cannot be applied contrary to the law laid down by Hon’ble jurisdictional High Court. Learned Departmental Representative, on the other hand, relies upon the orders of the authorities below which rely on clause (f) of Explanation to Section 115JB(2) which refers to the adjustment in respect of “the amount or amounts of expenditure relatable to any income to which section 10 (other than provisions contained in clause 38 thereof) or section 11 or section 12 apply”. His contention is that once the assessee has on his own accepted this disallowance, the adjustment under section 115JB in respect thereof is only a natural corollary thereto. In our considered view, the plea of the learned counsel is indeed well The assessee may have accepted the disallowance under section 14A but once it is a settled legal position, in the light of the law laid down by Hon’ble jurisdictional High Court, that there cannot be any disallowance under section 14A unless there is corresponding exempt income and the assessee has no such exempt income, adjustment under clause (f) of Explanation to Section 115JB (2) cannot indeed be made. The adjustment has to meet the tests of law and what cannot be considered to be ‘expenditure relatable to exempt income’ under the law, cannot be subjected to the adjustment either. There is no estoppel against the law. The mere fact that the assessee has accepted this disallowance affects that disallowance only and nothing more than that; it does not clothe such an adjustment, in computation of book profit under section 115JB, with legality. There is no dispute that there is no corresponding tax exempt income. Therefore, the adjustment in question is indeed unsustainable in law. In view of these discussions, as also bearing in mind entirety of the case, we direct the AO to delete the impugned adjustment of 2,00,225.