2014 (11) TMI 3 - AT - Income Tax

Enhancement of disallowance of repairs and maintenance of non-factory building Held that - There was a substantial damage to the non-factory building i.e. godowns of the assessee which were constructed during earlier financial years and assessee had to incur substantial amount for repair and maintenance of roof of these godowns - Neither the AO nor the CIT(A) have doubted the quantum of the expenditure so incurred by the assessee and the authorities below have also not considered the fact that the assessee adjusted the amount of claim which was received from the insurance company as compensation for the damages caused due to storm - the explanation, details, bills and vouchers of the assessee and adjustment of insurance claim require examination and verification at the end of the AO for proper quantification of the revenue expenditure on the basis of relevant principles for allowability of the claim of the assessee thus, the matter is to be remitted back to the AO for fresh adjudication Decided in favour of assessee. Amount added back out of interest account payable to Haryana Govt. u/s 43(B) Held that - The CIT(A) has noted that the assessee s case apparently does not fall under any of the clauses mentioned u/s 43B of the Act which is not a proper and judicious approach - the authorities below have not adjudicated the issue as per letter and spirit of the provisions of section 43B of the Act - The AO ought to have verified and examined the claim of the assessee mainly on two counts, i.e. whether the claimed sum was actually paid and the amount was actually paid by the assessee on or before the due date applicable in its case for furnishing the return u/s 139(1) of the Act thus, the matter is to be remitted back to the AO for proper verification and examination of claim of the assessee as per section 43B Decided in favour of assessee. Payment of auditors fees Held that - The auditor s fees is a necessary business expenditure which is allowable u/s 37(1) of the Act and additions made in this regard are not sustainable the AO is directed to allow the expenditure incurred by the assessee towards payment of auditors fees Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance under the head "Repairs & Maintenance" of non-factory building.
2. Disallowance of interest payable to Haryana Government under Section 43B of the Income Tax Act.
3. Disallowance of audit fees provision under Section 43B of the Income Tax Act.

Detailed Analysis:

1. Disallowance under the head "Repairs & Maintenance" of non-factory building:
The assessee contested the enhancement of disallowance from Rs. 16,26,000 to Rs. 19,58,785 by the CIT(A) without prior notice. The CIT(A) held that the expenditure was capital in nature, spent for creating a new asset or improving an existing one, and thus not allowable as a revenue expenditure. The assessee argued that the expenditure was for repairing storm-damaged godowns and should be considered a revenue expenditure. The Tribunal observed that the CIT(A) violated principles of natural justice by not affording a hearing before enhancing the disallowance. The Tribunal found no evidence that the expenditure increased capacity or created a new asset. The matter was remanded to the AO for fresh adjudication, considering the insurance claim adjustment and proper quantification of the revenue expenditure.

2. Disallowance of interest payable to Haryana Government under Section 43B of the Income Tax Act:
The assessee argued that the interest payable to Haryana Government did not fall under Section 43B, which pertains to statutory liabilities and payments to financial institutions. The CIT(A) acknowledged that the case did not fall under Section 43B but upheld the disallowance based on the section's objective to ensure government dues' return. The Tribunal noted that Section 43B allows deductions only in the year of actual payment, provided payment is made before the due date for filing the return. The Tribunal remanded the issue to the AO to verify if the interest was paid before the due date for filing the return, as per Section 43B.

3. Disallowance of audit fees provision under Section 43B of the Income Tax Act:
The assessee argued that the audit fees of Rs. 3 lakh were actually paid and should be allowed as a business expenditure under Section 37(1). The AO disallowed it, citing non-payment before the return filing due date. The Tribunal found that the audit fees were a necessary business expenditure and directed the AO to allow the expenditure, as the payment's genuineness was not in doubt.

Conclusion:
The appeal was partly allowed. Ground No. 1 and 2 were remanded for fresh adjudication by the AO, while Ground No. 3 was allowed, directing the AO to allow the audit fees expenditure. The order was pronounced in the open court on 20.10.2014.