Determination of book profit

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

14 November 2013 An Assesse engaged in making investments in shares & other securities. The assesse deals in shares whereas amount invested in other securities are held as investments. The assesse received dividend income on it.
While computing income from business & profession, it added back
1. Expenditure incurred in relation to exempt income
2. Amount determined under Section 14A read Rule 8D (@ .5% of average of investments)
Expenditure incurred in relation to exempt income (as aforesaid in point no. 1) was also added back in determining book profit but amount determined u/s 14A (point no. 2) was not added back.
In course of assessment proceedings, the assessing officer required the assesse to addback also the amount determined under Section 14A (point no. 2) as aforesaid.
Please advise whether the amount determined u/s 14A (point no. 2) should be added back because the provisions governing determination of book profit requires the amount to be added back which has been debited to profit & loss account.
Please give your expert opinion.

Nikhil Kaushik

Nikhil Kaushik (Expert)
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15 November 2013 dear Friend,

well your interpretation is logical but tax authorities take different stands when it comes to logic!!

You should read this article By Jigar and Bhavin to find arguments in your favor:

https://www.bdo.in/pdf/applicability-of-section-14a-while-computing-mat-cvoca-august-2012.pdf

Nikhil Kaushik

Nikhil Kaushik (Expert)
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15 November 2013 also refer to recent Mumbai ITAT bench judgment in the case of Reliance Industries:

https://indiankanoon.org/doc/135838820/

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