Section 14A disallowance deleted as investments held strategically, and depreciation on World Trade Centre allowed

ITAT DELHI - AT upheld the CIT(A)'s deletion of a section 14A disallowance, finding the assessee's investments in subsidiaries were strategic for running hotels, not made to earn exempt dividends; since the subsidiaries were located outside India any dividend would not have been exempt, the disallowance was dismissed and decided in favour of the assessee. The Tribunal also upheld deletion of a disallowance denying depreciation on the World Trade Centre and World Trade Tower, allowing depreciation as in prior assessment years.

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Issues Involved:
1. Deletion of disallowance made under Section 14A of the Income Tax Act.
2. Allowance of depreciation on World Trade Centre and World Trade Tower.

Issue 1: Deletion of Disallowance under Section 14A

The Revenue appealed against the deletion of disallowance made under Section 14A by the CIT(A). The assessee argued that no dividend was received during the year, and hence disallowance under Section 14A was not warranted. The assessee relied on several High Court decisions, including CIT Vs Holcim India Pvt. Ltd., CIT Vs Shivam Motors (P) Ltd., and CIT Vs Corrtech Energy Pvt. Ltd., which held that disallowance under Section 14A cannot be made if no exempt income is earned.

The Revenue countered with a Kerala High Court decision in South Indian Bank Vs CIT, arguing that earning of dividend is not relevant for disallowance under Section 14A. They also suggested that the investment in subsidiary companies could be a manipulation to avoid declaring dividend income.

The Tribunal noted the following undisputed facts:
- No dividend was received by the assessee during the year.
- Investments were made in subsidiary companies for strategic purposes.
- The subsidiary companies were situated outside India, and any dividend received would not be exempt.

The Tribunal referred to the Delhi High Court's decision in Holcim India Pvt. Ltd., which held that Section 14A cannot be invoked when no exempt income is earned. The Tribunal also cited similar decisions from the Punjab and Haryana High Court, Gujarat High Court, and Allahabad High Court. Additionally, it was noted that investments for strategic purposes are not made to earn dividends, further supporting the non-applicability of Section 14A.

The Tribunal concluded that disallowance under Section 14A cannot be made in the absence of dividend income and dismissed the Revenue's appeal on this ground.

Issue 2: Allowance of Depreciation on World Trade Centre and World Trade Tower

The second issue concerned the allowance of depreciation on World Trade Centre and World Trade Tower. The CIT(A) had allowed the depreciation, which was disallowed by the Assessing Officer (A.O.). The Tribunal noted that this issue was already covered in favor of the assessee by the Tribunal's order in the assessee's own case for the Assessment Year 2008-09. The Tribunal had consistently held that the depreciation claim was valid.

Following the precedent set in the earlier years, the Tribunal found no infirmity in the CIT(A)'s order allowing the depreciation and dismissed the Revenue's appeal on this ground as well.

Conclusion

Both appeals filed by the Revenue were dismissed. The Tribunal upheld the CIT(A)'s decision to delete the disallowance under Section 14A and to allow the depreciation on World Trade Centre and World Trade Tower. The order was pronounced in the open court on 29th Dec., 2014.

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