2019 (7) TMI 1547 - AT - Income Tax

Tribunal rules in favor of assessee on Section 35D and goodwill depreciation, upholds disallowance under Section 14A.

The Tribunal partially allowed the assessee's appeal. It ruled in favor of the assessee regarding the disallowance under Section 35D and the depreciation ... Disallowance u/s. 35D - HELD THAT:- As decided in own case [2018 (10) TMI 1036 - ITAT AHMEDABAD] in view of the issue being covered in favour of the assessee by the order of the Co-ordinate Bench for earlier year, we find merit in the claim of the aforesaid amount under Sec. 35D. Disallowance on account of depreciation on goodwill on demerger - raising new claim on account of depreciation by way of additional ground at this belated stage - HELD THAT:- As decided in own case [2018 (10) TMI 1036 - ITAT AHMEDABAD] Where the AO has readjusted the quantum of depreciation in the subsequent assessment year, the assessee is within its legitimate rights to be granted depreciation in AY 2009-10 as per the figures worked by the AO himself. No perceptible reason for not admitting such claim of the assessee. We also find bonafides in the plea of the assessee for raising new claim on account of depreciation by way of additional ground at this belated stage. The order for the AY 2012-13 was passed on 29.03.2015. By virtue of this order, the assessee came to know about the revision in the claim of depreciation concerning AY 2012-13. By that time, the order of the CIT(A) dated 13.12.2013 was already passed. Therefore, the assessee was incapacitated to put forward such new claim towards depreciation on goodwillvfor which relevant facts are duly available on record in the light of the decision of Hon’ble Supreme court in the case of Goetze (India) Ltd. vs. CIT [2006 (3) TMI 75 - SUPREME COURT] & NTPC vs. CIT [1996 (12) TMI 7 - SUPREME COURT]. - Decided in favour of assessee. Disallowance u/s. 14A r.w.r. 8D - Disallowance of administrative expenditure incurred towards earning exempt income - CIT(A) has restricted the disallowance - HELD THAT:- After perusal of the material on record we observe that it is not possible to earn huge volume of exempt income without incurring administrative expenses, therefore, we do not find any unreasonableness and infirmity in the decision of Ld. CIT(A). Accordingly, the appeal of the assessee on this issue is dismissed. Issues Involved:1. Disallowance under Section 35D for Rs. 5,02,818.2. Disallowance of Rs. 2,129 being employees’ contribution to ESI.3. Disallowance of Rs. 1,81,33,969 on account of depreciation on goodwill.4. Disallowance under Section 14A read with Rule 8D to the tune of Rs. 2,74,658.Issue-wise Detailed Analysis:1. Disallowance under Section 35D for Rs. 5,02,818:During the assessment, the Assessing Officer (AO) disallowed the preliminary expenses of Rs. 5,02,818 claimed under Section 35D of the Income Tax Act, 1961, treating them as capital in nature and not deductible under Section 37. The assessee appealed against this disallowance, but the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO’s decision. The assessee then referred to a Co-ordinate Bench of the ITAT decision, which had previously ruled in favor of the assessee on a similar issue. Respecting the precedent, the Tribunal allowed the assessee’s appeal and directed the modification of the assessment order to allow the claim under Section 35D.2. Disallowance of Rs. 2,129 being employees’ contribution to ESI:The assessee did not press this ground of appeal. Consequently, the Tribunal dismissed this ground.3. Disallowance of Rs. 1,81,33,969 on account of depreciation on goodwill:The AO noticed that the assessee claimed depreciation on goodwill arising from the demerger of Adani Energy Ltd., effective from the appointed date of 01.01.2007, as per the Gujarat High Court’s order. The AO disallowed the depreciation claimed from Assessment Year (AY) 2010-11, asserting it should have been claimed from AY 2007-08. The CIT(A) upheld the AO’s decision. During the appellate proceedings, the assessee referred to a Co-ordinate Bench decision which had ruled in favor of the assessee on an identical issue. The Tribunal, following the Co-ordinate Bench’s decision, allowed the assessee’s appeal, recognizing that the depreciation on goodwill should be allowed from AY 2010-11, the year in which the asset was created.4. Disallowance under Section 14A read with Rule 8D to the tune of Rs. 2,74,658:The AO made a disallowance under Section 14A read with Rule 8D, primarily for administrative expenses incurred to earn exempt income. The CIT(A) restricted this disallowance to Rs. 2,74,658. The Tribunal reviewed the material on record and found the CIT(A)’s decision reasonable, acknowledging that earning a substantial volume of exempt income without incurring administrative expenses is improbable. Therefore, the Tribunal dismissed the assessee’s appeal on this issue.Conclusion:The Tribunal's order resulted in a partial allowance of the assessee's appeal. Specifically, the appeal was allowed concerning the disallowance under Section 35D and the depreciation on goodwill, while the disallowance of employees’ contribution to ESI and the disallowance under Section 14A read with Rule 8D were upheld. This order was pronounced in open court on 12/07/2019.