2015 (6) TMI 1085 - AT - Income Tax

Allowability of deduction U/s.35D - Held that - Provisions of section 35D, in our opinion, are applicable only to those expenditure, which cannot be regarded to be the revenue expenditure but since the fees paid to the Registrar of Companies has not been included under section 35D(2)(c)(iv), therefore, the assessee cannot get deduction for the same, from the details filed by the assessee, which are available before us, it is not clear how much amount has been paid by the assessee by way of fees to the Registrar of Companies. If this expenditure is incurred as fees paid to the Registrar of Companies, it cannot be allowed even under section 35D. The rest of the expenditure, in our opinion, can be allowed under section 35D. We, therefore, in the interest of justice and fair play to both the parties, set aside this issue to the file of the AO with the direction that the AO shall verify, after giving the opportunity to the assessee whether the expenditure incurred by the assessee and claimed as amortization under section 35D comply with the condition that in case the AO finds that these expenses comply with the condition under section 35D and to the extent this expenditure does not include the fees paid to the Registrar of Companies, the AO is directed to allow 1/5th of such expenditure to the assessee under section 35D of the income-Tax Act. Thus, this ground is statistically allowed. MAT computation - addition in respect of FD interest and provisions for gratuity while computing the book profit under section 115JB - Held that - We find substance in the submissions of the ld. AR that the disallowance made under section 40A(7) by way of provision of gratuity as well as interest income added by the AO on FD does not fall under Explanation 1 to section 115JB. The disallowance made in respect of provision for gratuity does not fall under clauses (a) to (j), even the interest on FD, which has been added, also does not fall in any of the clauses as given under clauses (a) to (j) to Explanation 1. It is not the case of the Revenue that the accounts has not been prepared by the assessee in accordance with Part-II of Schedule-VI to the Companies Act or the assessee has not adopted the accounting policies, accounting standards and the method and rates adopted for calculating the depreciation as laid before the company in its Annual General Meeting. In view of this fact, we delete the addition made by the AO. - Decided in favour of assessee

Summary

Issues:
1. Disallowance under section 35D of the Income-Tax Act
2. Addition of FD interest and provisions for gratuity while computing book profit under section 115JB

Analysis:

Issue 1: Disallowance under section 35D of the Income-Tax Act
The appeal was filed against the order of the CIT(A) regarding the disallowance of &8377; 39,67,262 under section 35D. The AO considered the expenses as capital expenditure related to the expansion of the company's capital base. The CIT(A) upheld the AO's decision without distinguishing the case law relied upon. The ITAT noted that the expenses in question were related to the issue of shares for public subscription, which is eligible for deduction under section 35D. The ITAT clarified that fees paid to the Registrar of Companies are not eligible for deduction under section 35D. The matter was remanded to the AO to verify the expenses and allow deduction if they comply with section 35D, excluding fees paid to the Registrar of Companies.

Issue 2: Addition of FD interest and provisions for gratuity under section 115JB
The AO added &8377; 15,00,095 for FD interest and &8377; 7,10,093 for provisions for gratuity while computing the book profit under section 115JB. The CIT(A) confirmed this addition. The ITAT found that these disallowances did not fall under the clauses of Explanation 1 to section 115JB. It was noted that the accounts were prepared in accordance with the Companies Act, and the disallowances did not meet the criteria for adjustment under section 115JB. Therefore, the ITAT allowed the appeal on this ground.

In conclusion, the ITAT partly allowed the appeal for statistical purposes, remanding the disallowance under section 35D back to the AO for verification and allowing the appeal regarding the addition of FD interest and provisions for gratuity under section 115JB.