Tribunal dismisses revenue's appeal, allows assessee's claim on depreciation under section 14A, clarifying investment considerations.

The Tribunal dismissed the revenue's appeal due to the tax effect falling below the prescribed limit. The assessee's appeal regarding the disallowance of a depreciation claim under section 14A was allowed, emphasizing the need to consider all investments for disallowance under section 14A and clarifying the treatment of depreciation claims in such computations.

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Issues:
1. Disallowance under Rule 8D(2)(ii) for investments yielding exempt income.
2. Addition under section 115JB for disallowance made under section 14A.
3. Disallowance on account of depreciation claim u/s. 14A read with Rule 8D(2)(ii).

Issue 1: Disallowance under Rule 8D(2)(ii) for investments yielding exempt income:
The revenue's appeal sought further disallowance under section 14A of the Income-tax Act, 1961. The Appellate Tribunal noted that the appeal was dismissed due to the tax effect being below the threshold limit prescribed by the CBDT Circular No. 3/2018. The Tribunal emphasized that all investments, not just those yielding exempt income, are required to be considered for computing disallowance under section 14A, as per the provisions of the Act and CBDT Circular No. 5/2014.

Issue 2: Addition under section 115JB for disallowance made under section 14A:
The revenue's appeal also challenged the deletion of an addition made under section 14A to the book profit. The Tribunal observed that since the assessee was assessed under the normal computational provision and not under Minimum Alternate Tax (MAT), the disallowance added back to the book profit had no tax effect. Consequently, this ground of appeal by the revenue was dismissed as the tax effect did not meet the threshold limit set by the CBDT Circular.

Issue 3: Disallowance on account of depreciation claim u/s. 14A read with Rule 8D(2)(ii):
The assessee's appeal contested the disallowance of a depreciation claim under section 14A. The Tribunal referred to a previous Special Bench decision and held that depreciation claimed by the assessee under section 32 of the Act cannot be considered for computing disallowance under section 14A. Citing relevant case law, the Tribunal allowed the ground of appeal raised by the assessee, thereby overturning the disallowance related to the depreciation claim.

In conclusion, the Tribunal dismissed the revenue's appeal due to the tax effect falling below the prescribed limit and allowed the assessee's appeal regarding the disallowance of depreciation claim under section 14A. The judgment highlighted the importance of considering all investments for disallowance under section 14A and clarified the treatment of depreciation claims in such computations.

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