ITAT: No 14A Disallowance Without Exempt Income; Depreciation on Slump Sale Assets Allowed

The assessee was engaged in wind energy generation and related services. The company filed its return declaring NIL income with a loss of Rs. 13.94 crore. The Assessing Officer, in scrutiny, disallowed Rs. 5.32 crore under Section 14A read with Rule 8D and also added to book profits u/s 115JB, despite the assessee’s claim of no exempt income during the year and Rs. 36.24 lakh depreciation on assets acquired through slump sale, holding that composite slump price could not be apportioned to individual assets for depreciation.

CIT (A) Held: The CIT(A) deleted both disallowances, holding Section 14A inapplicable absent exempt income, and depreciation allowable since granted in earlier years. The revenue thus filed the said appeal before Hon’ble ITAT.

Issue Raised: Whether disallowances under Section 14A without exempt income, and denial of depreciation on slump sale assets already allowed in earlier years, were valid in law.

ITAT Held:  Tribunal upheld CIT(A)’s deletion under Section 14A, relying on settled law (Corrtech Energy, Era Infrastructure, etc.) that no disallowance can be made when no exempt income is earned. Therefore, no adjustment under Section 115JB survived, as per Vireet Investment (SB).

Tribunal observed that the depreciation on the same assets was allowed in AY 2012-13. Once depreciation is granted in the initial year, it cannot be disturbed in later years unless facts change. Supporting documents like Form 3CEA and valuation reports provided verifiable basis for depreciation. Thus, deletion of Rs. 36.24 lakh disallowance was confirmed. Thus, Revenue’s appeal was entirely dismissed.

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