Partial success in tax appeal: Remand for fresh adjudication, audit fees allowed. Disallowances under review.

The appeal was partly allowed, with Grounds 1 and 2 remanded for fresh adjudication by the Assessing Officer. Ground 3 was allowed, directing the AO to permit the audit fees expenditure. The Tribunal found disallowances under "Repairs & Maintenance" and interest payable to the Haryana Government under Section 43B of the Income Tax Act required further review, while the disallowance of audit fees provision was overturned.

---

---

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.

---