Tribunal grants full depreciation on goodwill but upholds disallowance under section 14A Rule 8D.

The Tribunal allowed the appellant's appeal regarding the disallowance of depreciation on goodwill, granting full depreciation claimed. However, the appeal concerning the disallowance under section 14A Rule 8D was dismissed, upholding the Commissioner of Income Tax (Appeals) decision. The Tribunal found in favor of the appellant on the depreciation issue but upheld the previous findings on the disallowance under section 14A Rule 8D.

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Issues Involved:
1. Disallowance of Rs. 1,36,00,477/- on account of depreciation on goodwill arising from the demerger of Adani Energy Ltd.
2. Disallowance under section 14A Rule 8D of the Act.

Issue-Wise Detailed Analysis:

1. Disallowance of Rs. 1,36,00,477/- on account of depreciation on goodwill:

The first issue relates to the disallowance of Rs. 1,36,00,477/- on account of depreciation on goodwill arising from the demerger of Adani Energy Ltd. The appellant argued that the depreciation on goodwill should be claimed from the effective date of the demerger, which is the Assessment Year (A.Y.) 2010-11, rather than the appointed date, A.Y. 2007-08, as per the Gujarat High Court's order dated 09.12.2009.

During the hearing, the appellant's representative submitted that the issue is covered by a previous judgment of the Co-ordinate Bench in ITA No. 1806/Ahd/2017. The respondent's representative did not counter this claim. The Tribunal reviewed the relevant materials and noted that in the prior judgment, the Co-ordinate Bench had decided a similar issue in favor of the appellant. The Tribunal observed that the appellant company was a resultant company from the demerger of Adani Energy Ltd., with the scheme of demerger being sanctioned by the Gujarat High Court effective from 01.01.2007. However, the transfer of assets and liabilities took place in A.Y. 2010-11, and the goodwill was recognized in the appellant's books in A.Y. 2010-11. Therefore, the depreciation could not be claimed from A.Y. 2007-08 when the asset itself was created in A.Y. 2010-11.

The Tribunal found that the lower authorities had erred in disallowing the depreciation claim and noted the appellant's right to claim depreciation from the effective date. Consequently, the Tribunal allowed the appellant's claim for full depreciation on goodwill amounting to Rs. 2,35,25,149/- as claimed in the return of income.

2. Disallowance under section 14A Rule 8D of the Act:

The second issue pertains to the disallowance under section 14A Rule 8D of the Income Tax Act. The Tribunal noted that this issue was also covered by the judgment in ITA No. 1806/Ahd/2017. The major part of the disallowance was related to administrative expenses incurred towards earning exempt income. The Commissioner of Income Tax (Appeals) had restricted the disallowance to Rs. 2,74,658/-.

The Tribunal observed that it is not feasible to earn a significant amount of exempt income without incurring administrative expenses. Therefore, it found no unreasonableness or infirmity in the decision of the Commissioner of Income Tax (Appeals). Consequently, the Tribunal dismissed the appellant's appeal on this issue, finding no reason to deviate from the Co-ordinate Bench's previous findings.

Conclusion:

In conclusion, the Tribunal allowed the appellant's appeal regarding the disallowance of depreciation on goodwill and dismissed the appeal concerning the disallowance under section 14A Rule 8D. The appellant's appeal was thus allowed, and the order was pronounced in open court on 06/12/2019.

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