2016 (12) TMI 1340 - AT - Income Tax

Eligibility of deduction u/s 35(1)(iii) - alternative claim of assessee u/s 80G - Held that - Insofar as the deduction u/s 35(1)(ii)/(iii) of the Act is concerned, assessee failed to submit before us as to how the deduction is allowable in the absence of approval by the CBDT. Thus, the order of CIT(A) on this issue is sustained. However, in respect of the alternative claim of assessee that the donation paid by it to Research Foundation for Jainology is to be allowed as deduction u/s 80G, we are inclined to set aside this matter to the file of Assessing Officer to examine this issue afresh in accordance with law. CIT(A) should have entertained the claim of assessee as there are no restrictions in his appellate powers to entertain any claim of assessee which is not made in the return of income. This position is clearly explained by the jurisdictional High Court in the case of CIT vs. Pruthvi Brokers & Shareholders Pvt. Ltd. (2012 (7) TMI 158 - BOMBAY HIGH COURT ). Thus, respectfully following the said decision, we direct the Assessing Officer to consider the alternative claim of assessee u/s 80G of the Act in accordance with law. Expenditure incurred on wire mesh fitted on the buses plied by assessee for the school children revenue or capital expenditure - Held that - We are of the view that the expenditure incurred by assessee on the Aluminium mesh fitted on the buses is not an asset which is creating an enduring benefit to the assessee. Every addition to the asset is not a Capital expenditure. The Aluminium mesh provided to the buses is not in the capital field but is of revenue in nature and there is no enduring benefit to the assessee. Thus, we reverse the orders of the authorities below and direct the Assessing Officer to allow the expenditure as Revenue expenditure.

Summary

Issues:
1. Deduction under sections 35(1)(iii) and 80G of the Income Tax Act for donation to "Research Foundation for Jainology."
2. Treatment of expenditure on wire mesh fitted on buses as Capital expenditure.

Analysis:

Issue 1: Deduction under sections 35(1)(iii) and 80G:
The appellant contested the denial of deduction under section 35(1)(iii) of the Income Tax Act for a donation to "Research Foundation for Jainology," citing lack of notification by the CBDT. The Assessing Officer disallowed the deduction under section 35(1)(iii) as the foundation was not officially gazetted for the relevant period. The appellant alternatively sought deduction under section 80G, which was also rejected. The CIT(A) upheld the disallowance, stating the foundation lacked approval under section 35(1)(iii) post-2006. The appellant's claim under section 80G was dismissed due to no original return claim and absence in the revised return. The appellant argued before the ITAT that CIT(A) should have considered the section 80G claim. The ITAT upheld the disallowance under section 35(1)(iii) but directed the AO to reassess the section 80G claim, citing appellate authority's power to admit unclaimed deductions.

Issue 2: Treatment of expenditure on wire mesh as Capital expenditure:
The AO treated the expenditure on wire mesh for buses as Capital expenditure, emphasizing its enduring benefit. The CIT(A) agreed, deeming the mesh an addition to assets. The appellant contended that the mesh was a safety measure, not providing enduring benefit. The ITAT reversed the lower authorities' decision, ruling the mesh installation as current repairs, not capital expenditure, as it did not confer enduring benefit. The expenditure was directed to be allowed as Revenue expenditure.

In conclusion, the ITAT partially allowed the appeal, directing the reassessment of the section 80G claim and permitting the wire mesh expenditure as Revenue expenditure.