Revenue's appeal dismissed as tribunal upholds consideration of only investments yielding exempt income under section 14A rule 8D

ITAT Delhi dismissed Revenue's appeal regarding disallowance under section 14A read with rule 8D. The tribunal upheld CIT(A)'s direction that AO should consider only investments yielding exempt income, as assessee received dividend from only one company. The tribunal also confirmed deletion of expense disallowances and depreciation adjustments on software licenses, following consistent precedents from assessee's own cases in previous assessment years. CIT(A)'s findings were deemed in consonance with law provisions.

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Issues: Disallowance under section 14A, Disallowance of expenses, Disallowance of depreciation on software licenses

Disallowance under section 14A:
The Revenue appealed against the order of the ld. CIT(A) regarding the disallowance under section 14A of the Income-tax Act, 1961. The Revenue argued that the disallowance should be allowed even if no exempt income is earned, citing circular no. 5/2014. However, the Tribunal found that the Assessing Officer should consider only those investments that yielded exempt income, in line with the provisions of the law. The Tribunal upheld the directions of the ld. CIT(A) in this regard, emphasizing the need for disallowance under section 14A.

Disallowance of expenses:
The Assessing Officer disallowed expenses claimed by the assessee, alleging that they were partly incurred for another business. The ld. CIT(A) deleted this disallowance, citing similar issues considered by the Tribunal in previous years. The Tribunal, following the precedent set by a co-ordinate bench, declined to interfere with the deletion of the disallowance. The Revenue failed to provide any distinguishing decision in their favor, leading to the dismissal of their appeal.

Disallowance of depreciation on software licenses:
The Assessing Officer restricted the depreciation claimed on software licenses to 25% instead of 60%. The ld. CIT(A) deleted this disallowance based on a decision in a previous year in favor of the assessee. The Tribunal, following the precedent set by a co-ordinate bench and the Hon'ble Delhi High Court, upheld the deletion of the disallowance. The appeal filed by the Revenue was ultimately dismissed, and the Tribunal pronounced the order on 30.03.2021.

This judgment provides a detailed analysis of the issues related to disallowances under section 14A, expenses, and depreciation on software licenses, highlighting the importance of following legal provisions and precedent in making such determinations.

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