2011 (1) TMI 1499 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of consultancy charges.
2. Deduction u/s 80HHE.
3. Recalculation of deduction u/s 80HHE.
4. Levy of interest u/s 234B and u/s 234D.

Summary:

1. Disallowance of Consultancy Charges:
The assessee, a Private Ltd. Co. engaged in consulting engineering services, appealed against the disallowance of Rs. 95,89,626/- incurred on consultancy charges. The AO disallowed the claim for two bills raised in April 2004, arguing that the expenses were not crystallized in FY 2003-04. The CIT(A) confirmed this disallowance without detailed reasoning. The Tribunal found the disallowance unjustified, stating that the consultancy charges pertained to the same agreement and services rendered throughout the year. The Tribunal emphasized that the liability accrued in FY 2003-04 and should be allowed based on the mercantile system of accounting. The Tribunal cited several judicial precedents supporting the principle that expenses incurred for earning income should be deducted in the relevant year, even if the payment is made later. Consequently, the Tribunal allowed the assessee's claim for consultancy charges.

2. Deduction u/s 80HHE:
The assessee claimed a deduction u/s 80HHE of Rs. 15,96,993/- in the original return, which was revised to Rs. 16,58,315/- due to recalculated depreciation. The AO disallowed the additional claim, citing the lack of a revised auditor's report. The CIT(A) upheld this disallowance. The Tribunal, however, held that the filing of the audit report in form No.10CCAF before the CIT(A) satisfied the legal requirement, considering it a technical breach. The Tribunal allowed the assessee's claim for the additional deduction without remanding the matter back to the AO, deeming it unnecessary.

3. Recalculation of Deduction u/s 80HHE:
The Tribunal did not specifically address this issue separately, as it was inherently resolved within the discussion on the deduction u/s 80HHE.

4. Levy of Interest u/s 234B and u/s 234D:
The Tribunal deemed the issue of interest u/s 234B and u/s 234D as consequential and did not require specific adjudication. The Tribunal noted that no specific arguments were raised by the assessee on this matter and thus rejected this ground.

Conclusion:
The appeal was partly allowed, with the Tribunal granting relief on the disallowance of consultancy charges and the additional deduction u/s 80HHE, while rejecting the ground related to interest u/s 234B and u/s 234D.