ITAT remands section 35D disallowance, allows appeal on FD interest & gratuity provisions

The ITAT partly allowed the appeal, 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.

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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.

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