2018 (12) TMI 1638 - AT - Income Tax

Disallowance of expenses relatable to exempt income made by the AO by invoking the provisions of section 14A read with Rule 8D - HELD THAT - Admitted fact is that the assessee has no exempt income and in such circumstances, we are of the view the issue is squarely covered by the decision of Hon ble Bombay High Court, Nagpur Bench in the case of Pr. CIT vs. Ballarpur Industries Limited 2016 (10) TMI 1039 - BOMBAY HIGH COURT , wherein this issue has been considered and finally following the judgment of Hon ble Delhi High Court in the case of Cheminvest Limited vs. CIT 2015 (9) TMI 238 - DELHI HIGH COURT . We confirm the order of CIT(A) deleting the addition. This issue of Revenue s appeal is dismissed. Disallowance of claim of unabsorbed depreciation carried forward and adjusting against the income after a lapse of 8 years - HELD THAT - GENERAL MOTORS INDIA PVT. LTD VERSUS DEPUTY COMMISSIONER OF INCOME-TAX 2012 (8) TMI 714 - GUJARAT HIGH COURT in case there is a still balance left over, it is to be treated as unabsorbed depreciation and it is taken to the next succeeding year. Where there is current depreciation for such succeeding year the unabsorbed depreciation is added to the current depreciation for such succeeding year and is deemed as part thereof. If, however, there is no current depreciation for such succeeding year, the unabsorbed depreciation becomes the depreciation allowance for such succeeding year. Any unabsorbed depreciation available to an assessee on 1st day of April 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001. And once the Circular No.14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y. 1997-98 upto the A.Y. 2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever. - Revenue is dismissed.

Summary

Issues:
1. Disallowance of expenses relatable to exempt income under section 14A read with Rule 8D.
2. Deletion of disallowance of claim of unabsorbed depreciation carried forward and adjusting against income after 8 years.

Issue 1: Disallowance of expenses relatable to exempt income under section 14A read with Rule 8D:

The appeal by the Revenue challenges the order of CIT(A) deleting the disallowance of expenses relatable to exempt income made by the AO under section 14A read with Rule 8D. The AO disallowed interest and administrative expenses under Rule 8D, resulting in a total disallowance. The CIT(A) deleted the disallowance citing the absence of exempt income. The Tribunal, after considering the facts and legal precedents, upheld the CIT(A)'s decision. The Tribunal referenced a judgment of the Bombay High Court and the Delhi High Court to support its conclusion that Section 14A does not apply when no exempt income is received or receivable during the relevant previous year. Therefore, the Tribunal confirmed the CIT(A)'s order deleting the addition, dismissing this issue of the Revenue's appeal.

Issue 2: Deletion of disallowance of claim of unabsorbed depreciation carried forward and adjusting against income after 8 years:

The Revenue's appeal also contests the CIT(A)'s decision to delete the disallowance of the claim of unabsorbed depreciation carried forward and adjusted against income after 8 years. The AO noted that the assessee adjusted brought forward unabsorbed depreciation against the current year's income, claiming it beyond 8 years. The CIT(A) allowed the claim based on earlier years' decisions in favor of the assessee. The Tribunal referred to a judgment of the Gujarat High Court, which clarified the treatment of unabsorbed depreciation and the applicability of Section 32(2) as amended by the Finance Act, 2001. Relying on this precedent, the Tribunal upheld the CIT(A)'s decision, dismissing this issue of the Revenue's appeal. Consequently, the appeal of the Revenue was dismissed by the Tribunal.

This detailed analysis outlines the two main issues addressed in the judgment by the Appellate Tribunal ITAT Mumbai, providing a comprehensive overview of the legal reasoning and decisions made in each case.