Tribunal Upholds CIT(A) Decisions on Depreciation & Disallowance

The Tribunal upheld the CIT(A)'s decisions to delete the depreciation claimed on the civil work of the factory building and vacate the disallowance under section 14A of the Income Tax Act. The revenue's appeal was dismissed in its entirety, with the Tribunal emphasizing that no disallowance was warranted as no exempt dividend income was earned during the year. The general grounds of appeal were also dismissed as not pressed.

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Issues Involved:

1. Deletion of depreciation claimed by the assessee on civil work of factory building.
2. Deletion of expenditure incurred on earning exempt income by invoking provisions of section 14A of the Income Tax Act read with Rule 8D.

Issue-wise Detailed Analysis:

1. Deletion of Depreciation Claimed by the Assessee on Civil Work of Factory Building:

The revenue contested the deletion of an addition of Rs. 2,28,26,405 made by the Assessing Officer (A.O) concerning depreciation claimed by the assessee on the civil work of the factory building. The A.O had initially disallowed the depreciation claim due to doubts about the genuineness of the transaction with M/s Teracon Construction (I) Pvt. Ltd., which executed the civil works. The CIT(A) had previously vacated a similar disallowance for A.Y 2009-10, and the Tribunal had restored the issue to the A.O for fresh adjudication, which was pending. Consequently, the CIT(A) followed the earlier decision and directed the A.O to vacate the disallowance for A.Y 2012-13 as the basis for the disallowance no longer existed. The Tribunal upheld the CIT(A)'s decision, noting that the disallowance’s basis from A.Y 2009-10 was still under fresh adjudication, and thus, the disallowance for A.Y 2012-13 could not be sustained. The Tribunal dismissed the revenue's ground of appeal.

2. Deletion of Expenditure Incurred on Earning Exempt Income by Invoking Provisions of Section 14A of the Income Tax Act Read with Rule 8D:

The revenue challenged the CIT(A)'s decision to vacate the disallowance of Rs. 23,79,327 made by the A.O under section 14A read with Rule 8D. The A.O had disallowed this amount, arguing that the assessee must have incurred expenses to maintain and manage its investment portfolio, even though no exempt dividend income was earned during the year. The CIT(A) noted that a similar disallowance had been vacated in the assessee’s case for A.Y 2009-10, where it was established that the investments were made out of the assessee’s own funds and no administrative costs were involved. The Tribunal upheld the CIT(A)’s decision, emphasizing that no disallowance under section 14A was warranted since the assessee did not receive any exempt dividend income during the year. However, the Tribunal clarified that pursuant to the Supreme Court's judgment in Maxopp Investment Ltd. Vs. CIT, the dominant purpose of the investment is irrelevant, but no administrative expenses could be attributed due to the lack of exempt income. Thus, the Tribunal dismissed the revenue's ground of appeal.

General Grounds:

The Tribunal dismissed the general grounds of appeal as not pressed.

Conclusion:

The appeal filed by the revenue was dismissed in its entirety, with the Tribunal upholding the CIT(A)'s decisions on both the deletion of depreciation on the civil work of the factory building and the disallowance under section 14A. The order was pronounced in the open court on 27.07.2021.

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