IMPORTANT POINT
Disallowance under Section 14A cannot be added to compute MAT under Section 115JB of the Income Tax Act.

JUDGMENT

Purushaindra Kumar Kaurav, J.

1. The present appeal under Section 260A of the Income Tax Act, 1961 ["Act"], at the instance of the Revenue, impugns the order dated 31.10.2017 passed by the Income Tax Appellate Tribunal ["ITAT"] for the assessment year ["AY"] 2011-12.

2. Vide the instant appeal, the Revenue has proposed the following questions of law for our consideration:-

A. Whether on facts and in the circumstances of the case the ITAT was correct in law in deleting disallowance of Rs.12,65,71,862/- made by the Assessing Officer ["AO"] under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 ["Rules"]?

B. Whether on facts and in the circumstances of the case the ITAT was correct in law in deleting the increase made by the AO in the book profits by adding the disallowance under Section 14A of the Act read with Rule 8D of the Rules for the purpose of calculating Minimum Alternate Tax ["MAT"] under Section 115JB of the Act?

3. The facts of the case exhibit that on 01.09.2012, the respondent- assessee filed its Income Tax Return ["ITR"] declaring nil income, which was selected for scrutiny assessment and a notice under Section 143(2) of the Act was duly issued by the Revenue. During the concerned AY, the respondent-assessee had earned an exempt income by way of dividend amounting to Rs.58,09,619/- and consequently, it disallowed the same in accordance with Section 14A of the Act.

4. However, on 10.01.2014, the assessment order was passed by the AO, whereby, the aforesaid disallowance was enhanced to a sum of Rs.12,65,71,862/- as per Section 14A of the Act read with Rule 8D of the Rules, under normal provisions and to Rs.12,65,71,862/-, under special provision of the Act i.e., Section 115JB.

5. Aggrieved with the said order of the AO, the respondent-assessee preferred an appeal before the Commissioner of Income Tax (Appeals) ["CIT(A)"], wherein, the CIT(A), while partially allowing the appeal, upheld the invocation of Section 14A of the Act read with Rule 8D of the Rules. The CIT(A) determined the disallowance to the tune of Rs.2,08,72,836/- as against the original computation of Rs.12,65,71,862/- made by the AO.

6. Thereafter, the Revenue as well as the respondent-asseessee, filed cross appeals against the order of the CIT(A) before the ITAT. The ITAT, while ruling in favour of the respondent-assessee, held that the disallowance made by the AO under Section 14A of the Act read with Rule 8D of the Rules, without recording any satisfaction, is unsustainable. The ITAT further held that the disallowances under Section 14A of the Act cannot be considered for computation of MAT as per the scheme of Section 115JB of the Act.

7. The Revenue, therefore, being aggrieved by the order of the ITAT, preferred the instant appeal.

8. This Court vide order dated 11.04.2018 in the instant appeal, while relying upon the decision in the case of CIT v. Taikisha Engineering India Ltd. [2014 SCC OnLine Del 7156], upheld the order of the ITAT to the extent of rejecting the disallowance under Section 14A of the Act in the absence of any satisfaction by the AO. It was further noted that only proposed Question (B), as already mentioned above, requires consideration. The order dated 11.04.2018 reads as under:-

"Two questions are urged by the Revenue in this appeal under Section 260-A of the Income Tax Act (hereafter 'the Act`). The first question is with respect to the disallowance directed by the Assessing Officer (=AO`) to the extent of over Rs.12.5 Crores under Section 13- A of the Act by applying Rule 8-D of the Income Tax Rules, 1962. This issue is covered by the judgment of this Court in the case of 'Commissioner of Income Tax-VI vs. Taikisha Engineering India Ltd.`, 370 ITR 338 (Delhi), where the Court held that unless the AO rejects the explanation that induces the necessity to offer a specific amount as expenditure by some reasons, the mere rejection per se is unacceptable. The ITAT followed that decision; therefore, no question o