1984 (1) TMI 131 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of expenditure under Section 35CC of the Income-tax Act, 1961.
2. Requirement of approval before incurring expenditure.
3. Validity of audit certificate covering the expenditure.

Detailed Analysis:

1. Disallowance of expenditure under Section 35CC of the Income-tax Act, 1961:
The assessee claimed a deduction for rural development expenditure amounting to Rs. 4,56,898. The Income Tax Officer (ITO) disallowed Rs. 99,225 of this expenditure, stating that it was incurred before 21-2-1978, the date from which the approval was effective. The assessee argued that once the programme is approved, all related expenditures should be considered for deduction. The first appellate authority upheld the ITO's decision, leading the assessee to file a second appeal.

2. Requirement of approval before incurring expenditure:
The proviso to sub-section (1) of Section 35CC specifies that approval must be obtained before incurring expenditure. The assessee applied for approval on 12-12-1977 and incurred Rs. 18,833 up to this date, with the total expenditure up to 21-2-1978 being Rs. 99,225. The authorities relied on a clause in the approval letter, which stated that the programme was approved from 21-2-1978. The Tribunal found no statutory basis for fixing this date and concluded that approval should cover the entire accounting year once granted. They emphasized that the statute and guidelines expect approval for the expenditure incurred in a particular accounting year, not from any specific date within the year.

3. Validity of audit certificate covering the expenditure:
The Tribunal noted that the audit certificate did not cover the entire expenditure. The assessee should have been given an opportunity to provide an amended certificate. The Tribunal remitted the claim back to the ITO, allowing the assessee to furnish a revised certificate for the balance of the expenditure. They highlighted that fiscal laws should be construed to fulfill their purpose and that substantial compliance with the statutory requirements was sufficient.

Conclusion:
The Tribunal allowed the appeal, subject to the provision of a proper audit certificate covering the entire expenditure. They emphasized that the entire expenditure on the approved programme during the accounting year should be allowed, except for Rs. 18,833 incurred before the application date, even under strict interpretation. The appeal was partly allowed, providing relief to the assessee.