2014 (4) TMI 694 - HC - Income Tax

High Court overturns Tribunal's decision on deduction claim under Income Tax Act, 1961, directs fresh review.

The High Court set aside the Tribunal's order disallowing the appellant's deduction claim under Section 37 of the Income Tax Act, 1961. The Court directed ... Disallowance of claim u/s 48(1) of the Act assuming that appellant had claimed deduction as business expenditure under Section 37 – Held that:- The matter has been remitted back to the Tribunal for fresh adjudication - as the assesse is ready to give up his claim of deduction u/s 37, this issue cannot be taken into remand proceedings - the claim of the assessee related to deduction u/s 48 of the act only needs to be considered – Decided in favour of Assessee. Issues involved:Appeal against order of Income Tax Appellate Tribunal regarding deduction claims under Section 37 and Section 48 of the Income Tax Act, 1961 for Assessment Year 2009-10.Detailed Analysis:1. Issue 1 - Deduction under Section 37:The appellant claimed a deduction of Rs. 20,97,600 under Section 37 of the Income Tax Act, 1961. The Tribunal disallowed this claim, stating that the condition of setting up a trust for ex-employees was not fulfilled as per the sale deed terms. The Assessing Officer held that since no trust was established and the purpose of the contribution remained doubtful, the expenditure could not be allowed. The appellant argued that the deduction should have been considered under Section 48(i) instead of Section 37.2. Issue 2 - Deduction under Section 48:The appellant contended that the expenditure claimed was linked to the transfer of shares and met the requirement of being incurred wholly and exclusively in connection with the transfer of a long-term capital asset, as per Section 48(i) of the Act. The appellant's counsel emphasized that the Tribunal wrongly assumed the claim was under Section 37, whereas it should have been considered under Section 48. The respondent suggested that if the appellant was willing to forego the claim under Section 37, the matter could be remanded for consideration under Section 48.3. Judgment and Order:After hearing the arguments, the High Court set aside the Tribunal's order and restored the appeal for fresh consideration. The Court directed the Tribunal to review the appeal on merits in accordance with the law, specifically focusing on the appellant's claim under Section 48 of the Act. The appellant was barred from claiming deduction under Section 37 before the Tribunal. The Court clarified that the substantial questions of law raised were not addressed in this decision, and no costs were awarded. The appeal was disposed of with these directions for further proceedings.