Section 14A & section 115JB

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Manisha (Querist)
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04 January 2011 Respected members

I would like to know-
Whether Disallowance u/s 14A, calculated as per Rule 8D, be added while calculating Book Profit U/s 115JB

Aditya Maheshwari

Aditya Maheshwari (Expert)
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04 January 2011 YES

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Manisha

Manisha (Querist)
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04 January 2011 Mr. Maheshwari
Can you please cite case or give section or any other reference in support of this.

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Aditya Maheshwari

Aditya Maheshwari (Expert)
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04 January 2011 See Explanation 1 to Section 115JB as reproduced under:

Explanation [1].For the purposes of this section, book profit means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by

(a) the amount of income-tax paid or payable, and the provision therefor; or

(b) the amounts carried to any reserves, by whatever name called [, other than a reserve specified under section 33AC]; or

(c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or

(d) the amount by way of provision for losses of subsidiary companies; or

(e) the amount or amounts of dividends paid or proposed ; or

(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]

[(g) the amount of depreciation,]

[(h) the amount of deferred tax and the provision therefor,

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

clause (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] which is nothing but 14A.

Manisha

Manisha (Querist)
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04 January 2011 Sir
can you please explain why disallowance under section 14A(2) will be added back in case of computation of book profit under section 115JB because it is on the PRESUMPTIVE/NOTIONAL basis?
Again in section 14A the words used are "on total income" and total income doesn't include book profit as per MAT.

Aditya Maheshwari

Aditya Maheshwari (Expert)
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04 January 2011 Then why you should be allowed exemption for incomes not chargeable to tax as MAT should be on book profit going by you logic. There should not a mismatch between income and expense.

Manisha

Manisha (Querist)
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04 January 2011 Sir
I don't have a query regarding disallowance of expenses relating to exempt income. I completely agree with the logic of not having a mismatch between income and expense.
I am specifically asking about sec 14A(2) wherein the amount of disallowance is calculated as per rule 8D, and my query is in relation to Calculating Book Profits as per MAT.

Aditya Maheshwari

Aditya Maheshwari (Expert)
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04 January 2011 See though MAT is a presumptive taxation on book profit but for the purpose of the section itself a formula is given to add and less items. So this is one of the items which has to be added back to profit as per profit & loss a/c for the purpose of computing book profit.

When you are receiving deduction of incomes exempt from tax from book profit then the expenses in relation to earning those income should also be added to compute book profit for MAT.

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