2015 (10) TMI 1862 - AT - Income Tax

Disallowance under S.14A read with Rule 8D - expenditure incurred towards earning of exempt income - whether the CIT(A) is correct in directing that the assessee will not be entitled to capitalize the amount of ₹ 2,41,51,811 in future and also will not be eligible for depreciation on such amount - Held that - once the expenditure claimed is disallowed, the same cannot be capitalized by the assessee. Therefore, we do not see any serious infirmity in the irections of learned CIT(A) in this regard. However, it is seen from the record that the expenditure shown by the assessee in the balance sheet under the head Applications of Fund is after reduction of the shown of ₹ 75,49,010. Therefore, expenditure disallowed under 14A read with Rule 8D which cannot be capitalized must be reduced by that amount. In the aforesaid facts and circumstances, we modify the order of the learned CIT(A) by directing the Assessing Officer to requantify the amount to be disallowed by taking into consideration income shown by the assessee of ₹ 75,49,010. The assessee s appeal is accordingly allowed to that extent - Decided partly in favour of assessee.

Summary

Issues:
Delay in filing the appeal, Disallowance of expenditure under S.14A read with Rule 8D, Capitalization of disallowed amount and eligibility for depreciation.

Analysis:

1. Delay in filing the appeal:
The appellant filed a petition seeking condonation of a 22-day delay in filing the appeal. The delay was condoned by the tribunal as they found sufficient cause for the belated filing of the appeal. The appeal was admitted for hearing on merit.

2. Disallowance of expenditure under S.14A read with Rule 8D:
The Assessing Officer disallowed an amount of &8377; 2,41,59,811 under S.14A read with Rule 8D as expenditure incurred for earning exempt income. The CIT(A) upheld this disallowance, stating that it would not result in taxable income due to the ongoing business setup. The tribunal noted that the disallowance under S.14A read with Rule 8D was final as the appellant did not challenge it. The main dispute was regarding the direction that the appellant could not capitalize the disallowed amount in the future or claim depreciation on it. The tribunal agreed with the CIT(A) that once expenditure is disallowed, it cannot be capitalized. However, they directed the Assessing Officer to reevaluate the disallowed amount considering the income shown by the appellant.

3. Capitalization of disallowed amount and eligibility for depreciation:
The tribunal held that the appellant cannot capitalize the disallowed amount of &8377; 2,41,59,811 in the future and would not be eligible for depreciation on that amount. They clarified that the disallowed expenditure shown in the balance sheet must be reduced by the income shown by the appellant. The tribunal modified the CIT(A)'s order and allowed the appeal to that extent.

In conclusion, the tribunal partly allowed the appellant's appeal, addressing the issues of delay in filing, disallowance of expenditure under S.14A read with Rule 8D, capitalization of disallowed amount, and eligibility for depreciation in a detailed and comprehensive manner.