2021 (8) TMI 1034 - AT - Income Tax

Disallowance of claim for depreciation as regards the opening W.D.V of the fixed assets, viz. civil work of factory building - HELD THAT - As observed by us hereinabove, the CIT(A) for A.Y 2009-10 had allowed the assessee s claim for depreciation in so far the same pertained to the civil work of factory building executed by M/s Teracon Construction (I) Pvt. Ltd. was concerned. On further appeal by the revenue, the Tribunal vide its order for A.Y 2009-10 2017 (11) TMI 1965 - ITAT MUMBAI had restored the issue as regards the disallowance of the assessee s claim for depreciation to the file of the A.O, which as observed by the CIT(A) was pending on the date of passing of his order. Nothing has been brought to our notice by the ld. Authorized representatives for either of the party to show that the set-aside assessment consequent to the directions of the Tribunal had thereafter been framed by the A.O. Backed by the aforesaid facts, we concur with the view taken by the CIT(A) that now when the very basis for making of the disallowance by the A.O while framing the assessment for A.Y. 2009-10, as on date, does no more survive any more, therefore, the disallowance of the assessee s claim for depreciation on fixed assets, viz. civil work of factory building executed by M/s Teracon Construction (I) Pvt. Ltd. for the year under consideration i.e A.Y 2012-13 also cannot be sustained. Disallowance u/s 14A r.w.r. 8D - HELD THAT - Admittedly, as the facts and the issue pertaining to the disallowance of the interest expenditure U/rule 8D(2)(ii) during the year under consideration remains the same as were there before the Tribunal in the assessee s own case for A.Y. 2009-10, therefore, we respectfully follow the view therein taken and vacate the disallowance of the interest expenditure. As pursuant to the judgment of Maxopp Investment Ltd. Vs. CIT 2018 (3) TMI 805 - SUPREME COURT as the dominant purpose for which the investment into shares is made by an assessee may not be relevant, therefore, the claim of the assessee that no administrative expenses could be attributed qua the investments made by the assessee in its wholly owned subsidiary company cannot be accepted. But then, as it is a matter of fact borne from the record that the assessee had during the year under consideration not received any exempt dividend income, therefore, on the said count we herein conclude that no disallowance under Sec. 14A was called for in its hands. Accordingly, we in terms of our aforesaid observations modify the view taken by the CIT(A) but at the same time concur with him that no disallowance under Sec. 14A was warranted in the case of the assessee for the year under consideration.

Summary

Issues Involved:

1. Deletion of depreciation claimed by the assessee on civil work of factory building.
2. Deletion of expenditure incurred on earning exempt income by invoking provisions of section 14A of the Income Tax Act read with Rule 8D.

Issue-wise Detailed Analysis:

1. Deletion of Depreciation Claimed by the Assessee on Civil Work of Factory Building:

The revenue contested the deletion of an addition of ?2,28,26,405 made by the Assessing Officer (A.O) concerning depreciation claimed by the assessee on the civil work of the factory building. The A.O had initially disallowed the depreciation claim due to doubts about the genuineness of the transaction with M/s Teracon Construction (I) Pvt. Ltd., which executed the civil works. The CIT(A) had previously vacated a similar disallowance for A.Y 2009-10, and the Tribunal had restored the issue to the A.O for fresh adjudication, which was pending. Consequently, the CIT(A) followed the earlier decision and directed the A.O to vacate the disallowance for A.Y 2012-13 as the basis for the disallowance no longer existed. The Tribunal upheld the CIT(A)'s decision, noting that the disallowance’s basis from A.Y 2009-10 was still under fresh adjudication, and thus, the disallowance for A.Y 2012-13 could not be sustained. The Tribunal dismissed the revenue's ground of appeal.

2. Deletion of Expenditure Incurred on Earning Exempt Income by Invoking Provisions of Section 14A of the Income Tax Act Read with Rule 8D:

The revenue challenged the CIT(A)'s decision to vacate the disallowance of ?23,79,327 made by the A.O under section 14A read with Rule 8D. The A.O had disallowed this amount, arguing that the assessee must have incurred expenses to maintain and manage its investment portfolio, even though no exempt dividend income was earned during the year. The CIT(A) noted that a similar disallowance had been vacated in the assessee’s case for A.Y 2009-10, where it was established that the investments were made out of the assessee’s own funds and no administrative costs were involved. The Tribunal upheld the CIT(A)’s decision, emphasizing that no disallowance under section 14A was warranted since the assessee did not receive any exempt dividend income during the year. However, the Tribunal clarified that pursuant to the Supreme Court's judgment in Maxopp Investment Ltd. Vs. CIT, the dominant purpose of the investment is irrelevant, but no administrative expenses could be attributed due to the lack of exempt income. Thus, the Tribunal dismissed the revenue's ground of appeal.

General Grounds:

The Tribunal dismissed the general grounds of appeal as not pressed.

Conclusion:

The appeal filed by the revenue was dismissed in its entirety, with the Tribunal upholding the CIT(A)'s decisions on both the deletion of depreciation on the civil work of the factory building and the disallowance under section 14A. The order was pronounced in the open court on 27.07.2021.