2015 (2) TMI 628 - AT - Income Tax

Disallowance u/s 14A r.w. Rule 8D - CIT(A) has confirmed the disallowance - Held that - The AO has not brought on record any fact or material to show that any expenditure has been incurred on the activity which has resulted into both taxable and non taxable income. Therefore, in our view when the assessee has prima facie brought out a case that no expenditure has been incurred for earning the income which does not form part of the total income then in the absence of any finding that expenditure has been incurred for earning the exempt income the provisions of section 14A cannot be applied. Accordingly we delete the addition/disallowance made by AO u/s 14A r.w. Rule 8D. - Decided in favour of assessee. Addition u/s 14A to the Book Profit u/s 115JB - Held that - In view of finding in respect of disallowance u/s 14A in ground no. 1, the ground no. 2 of the assessee s appeal is allowed being consequential. Accordingly delete the addition made while computing the book profit in respect of the disallowance made u/s 14A.- Decided in favour of assessee. Depreciation - CIT(A)directing AO to allow the depreciation after working out the WDV of the assets for earlier years - Held that - Depreciation has to be allowed on written down value (WDV) after reducing the actual depreciation allowed in the earlier years. In view of the earlier years order of this Tribunal in assessment year 2007-08 as well as in assessment year 2008-09, we do not find any substance in the appeal of the revenue. - Decided against revenue.

Summary

Issues:
1. Additional disallowance u/s 14A r.w. Rule 8D
2. Addition u/s 14A to Book Profit u/s 115JB
3. Depreciation allowance from gross total income

Issue 1 - Additional disallowance u/s 14A r.w. Rule 8D:
The appellant contested the additional disallowance under section 14A r.w. Rule 8D, arguing that no expenditure was incurred to earn the exempt dividend income. The AO disallowed administrative expenses using Rule 8D, leading to a disallowance of &8377; 8,83,569/-. The CIT(A) upheld the AO's decision. However, the appellant argued that no expenditure was incurred for earning the exempt income, primarily due to investments made in a group concern for holding controlling stakes, not for earning dividends. The Tribunal agreed with the appellant, emphasizing that Section 14A requires a proximate cause for disallowance related to tax-exempt income. As no expenditure was incurred for earning the exempt income, the disallowance was deemed unjustified, and the addition was deleted.

Issue 2 - Addition u/s 14A to Book Profit u/s 115JB:
The second ground pertained to the adjustment made in computing the book profit under section 115JB concerning the disallowance u/s 14A. The appellant cited a previous Tribunal decision in their favor for the assessment year 2008-09. The Tribunal noted conflicting views on this matter but, based on the findings in Issue 1, allowed the appellant's appeal, leading to the deletion of the addition made while calculating the book profit related to the disallowance of &8377; 8,83,569/- under section 14A.

Issue 3 - Depreciation allowance from gross total income:
The revenue's appeal questioned the direction to allow depreciation at &8377; 35,22,140/- after adjusting the WDV of assets for earlier years. The Tribunal referenced a previous decision in the appellant's favor for assessment years 2007-08 and 2008-09, where it was established that depreciation must be allowed on WDV after considering previous allowances. The Tribunal upheld the direction given by the CIT(A) to rework the WDV, leading to the dismissal of the revenue's appeal. Consequently, the appeal of the assessee was allowed, and the revenue's appeal was dismissed.

This comprehensive analysis of the judgment highlights the key issues addressed by the Tribunal, the arguments presented by the parties, and the Tribunal's decisions and reasoning for each issue.