2023 (8) TMI 882 - AT - Income Tax

Tribunal allows appeal, disallows depreciation on IP rights, directs deletion of Section 14A disallowance.

Mukand Engineers Limited (Since merged/amalgamated with Mukand Engineers Limited) Versus Asstt. Commissioner of Income Tax Circle–3 (2) (1), Mumbai

The Tribunal allowed the appeal by the assessee, directing the deletion of the disallowance under Section 14A read with Rule 8D as no exempt income was ... Disallowance u/s 14A r.w.r. 8D - HELD THAT:- As in the present case, the assessee has not earned any dividend income, therefore, disallowance of expenditure u/s 14A read with Rule 8D is not sustainable. We further find that vide amendment by the Finance Act, 2022, the non-obstante clause and explanation were inserted in section 14A of the Act to the effect that the section shall apply even if no exempt income has accrued or arisen or has been received during the year. We find that while dealing with the issue of whether the aforesaid amendment by the Finance Act, 2022 is prospective or retrospective in operation, M/s Era infrastructure (India) Ltd [2022 (7) TMI 1093 - DELHI HIGH COURT] held that the amendment by Finance Act, 2022 in section 14A is prospective and will apply in relation to the AY 2022–23 and subsequent assessment years. Thus, even in view of the aforesaid amendment also, the disallowance u/s 14A r.w.r. 8D is not permissible in the present case. Disallowance computed u/s 14A read with Rule 8D is directed to be deleted - Decided in favour of assessee. Issues:The judgment involves the disallowance under section 14A read with Rule 8D of the Income Tax Act, 1961 and the disallowance of depreciation on intellectual property rights.Disallowance under Section 14A read with Rule 8D:The assessee challenged the disallowance of Rs. 18,45,867 made by the Assessing Officer under Section 14A read with Rule 8D. The assessee contended that since no dividend income was earned, Section 14A should not apply. The CIT(A) upheld the disallowance. The Tribunal noted that the assessee did not receive any dividend income during the relevant year and had not claimed any exemption under section 10(34) of the Act. Citing judicial precedents, the Tribunal held that if no exempt income is received or receivable, Section 14A will not apply. The Tribunal also considered the amendment by the Finance Act, 2022, which clarified the applicability of Section 14A. Following the judicial decisions, the Tribunal concluded that the disallowance under Section 14A read with Rule 8D was not sustainable and directed its deletion. Therefore, the ground raised in the assessee's appeal regarding this issue was allowed.Disallowance of Depreciation on Intellectual Property Rights:The assessee contested the disallowance of Rs. 1,30,924 claimed as depreciation on intellectual property rights under Section 32 of the Act. The CIT(A) disallowed the depreciation, which the assessee argued was allowable. During the hearing, the Authorized Representative chose not to press this ground, leading to its dismissal. As a result, the Tribunal did not delve further into this issue due to the ground being dismissed.Conclusion:The Tribunal partially allowed the appeal by the assessee, directing the deletion of the disallowance under Section 14A read with Rule 8D while dismissing the ground related to the disallowance of depreciation on intellectual property rights. The judgment was pronounced on 17/08/2023.