2019 (10) TMI 69 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D(2)(iii) - Suo motu offered by the assessee - shares were held as strategic investments on which exempt income by way of dividend was earned - HELD THAT - In order to maintain consistency as laid down by Hon ble Supreme court in the case Radhasoami Satsang v. CIT 1991 (11) TMI 2 - SUPREME COURT , we decide the issue against the assessee. For Completeness, we would like to clarify that in the case of Maxopp Investment Limited v. CIT 2018 (3) TMI 805 - SUPREME COURT has rejected the dominant purpose theory for invoking provisions of Section 14A of the 1961 Act and hence the contention of the assessee that shares were held as strategic investments on which exempt income by way of dividend was earned and hence provisions of Section 14A cannot be invoked lacks merit in view of aforesaid decision of Hon ble Supreme Court in the case of Maxopp Investment Limited(supra). Depreciation which was not claimed by the assessee in earlier assessment years prior to AY 2002-03 - HELD THAT - We have observed that the assessee has not claimed depreciation in the earlier years prior to assessment year 2002-03 while computing its income under the 1961 Act. The AO has now taken into account depreciation which would have been allowable u/s 32 but was not claimed by the assessee while computing its written down value of the assets and income for all those years. We have observed that the tribunal while adjudicating appeal for AY 2012-13 in assessee s own case followed the decision in assessee s own case in Plastiblends India Ltd., v Addl. CIT 2017 (10) TMI 423 - SUPREME COURT . In order to maintain consistency as laid down by Hon ble Supreme court in the case of Radhasoami Satsang v. CIT 1991 (11) TMI 2 - SUPREME COURT we decide the issue against the assessee by following the above said decision of the tribunal in assessee s own case for immediately preceding assessment year 2012-13.

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income-tax Act.
2. Depreciation claim discrepancy.

Detailed Analysis:

Issue 1: Disallowance under Section 14A of the Income-tax Act

The first issue concerns the disallowance of expenditure incurred in relation to earning exempt income by invoking the provisions of Section 14A of the Income-tax Act, 1961, read with Rule 8D(2)(iii) of the Income-tax Rules, 1962. The assessee received ?25,56,845 as dividend income, claimed as exempt under Section 10(34) of the Act. The assessee had offered ?35,158 as disallowance under Section 14A. However, the Assessing Officer (AO) made a total disallowance of ?10,96,588, which included disallowance under Rule 8D(2)(ii) and Rule 8D(2)(iii). The CIT(A) deleted the addition of ?9,49,286 made by the AO under Rule 8D(2)(ii) but upheld the disallowance of ?1,82,460 under Rule 8D(2)(iii).

The matter reached the tribunal, where the assessee's counsel submitted that the issue was previously decided against the assessee by the Mumbai tribunal for AY 2012-13. The tribunal, following the precedent, upheld the disallowance under Rule 8D(2)(iii), maintaining consistency with earlier decisions. The tribunal also referenced the Supreme Court's decision in Maxopp Investment Limited v. CIT, which rejected the dominant purpose theory for invoking Section 14A, thus negating the assessee's argument that the shares were held as strategic investments.

Issue 2: Depreciation Claim Discrepancy

The second issue pertains to the depreciation claim. The assessee did not claim depreciation for its three divisions prior to AY 2002-03. The AO revised the written down value of the assets by considering the depreciation that would have been allowable under the Act, leading to an addition of ?8,38,581. The CIT(A) dismissed the assessee's appeal, citing the Bombay High Court's judgment in the assessee's own case for AYs 2008-09, 2009-10, and 2010-11, which was in favor of the revenue.

The tribunal noted that the issue was previously decided against the assessee for AY 2012-13, following the Supreme Court's decision in Plastiblends India Ltd. v. Additional CIT. The tribunal upheld the CIT(A)'s order, maintaining consistency with previous rulings and the Supreme Court's decision that the quantum of deduction under Section 80-IA is not dependent on the assessee claiming or not claiming depreciation.

Conclusion:

The tribunal dismissed the appeal of the assessee for AY 2013-14, upholding the disallowance under Section 14A read with Rule 8D(2)(iii) and the revision of the written down value of assets for depreciation purposes, in line with previous judicial decisions and the principle of consistency. The order was pronounced in the open court on 30.01.2019.