2015 (8) TMI 549 - AT - Income Tax

ITAT decision on disallowances: partial appeal success, share issue expense upheld, leave salary provision remanded

Aditya Birla Finance Ltd (Formerly Known As Birla Global Finance Company Ltd) And Others Versus Asstt Commissioner of Income Tax And Others

The ITAT partially allowed the appellant's appeal regarding disallowances under sections 14A and 43B(f), remanding the issues to the AO for further ... Disallowance u/s. 14A read with rule 8D - Held that:- In this case, the AO has straight away applied Rule 8D, which is not applicable for the year under consideration in the light of the decision given by Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Company Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT). Even in case Rule 8D is applicable still the same cannot be applied straight away ignoring the calculation given by the assessee. The disallowance under Rule 8D can be made if AO is not satisfied with the correctness of the claim made by the assessee in respect of such expenditure. Hence, in view of our above observation, this issue is restored back to the file of AO with a direction to give the assessee a reasonable opportunity to place on record all relevant facts including its accounts and examine the computation calculation made in this regard by the assessee regarding the suo-motu disallowance of ₹ 25,34,001/-. Disallowing claim u/s. 35D towards 1/5th of the share issue expense incurred on account of expansion of business - Held that:- Assessee has vehemently contended that the activities of the assessee company falls in the definition of industrial activity. However, he could not rebut the contention that as per the provisions of section 35D of the Act, the deduction is admissible in connection with the issue for public subscription of shares or debentures of a company. However, in the case in hand the assessee had increased the share capital by way of private placement with its holding company M/s. Aditya Birla Nuvo Ltd, hence, deduction under section 35D of the Act is not allowable to the assessee. This issue is accordingly decided against the assessee. Disallowance on account of leave salary - Held that:- Respectfully following subsequent decision of the Tribunal on this issue in the case of Essar Exploration & Production India Ltd.,(2012 (8) TMI 910 - ITAT MUMBAI), we restore this issue to the file of A.O with similar directions. Issues:1. Disallowance under section 14A read with Rule 8D2. Disallowance under section 35D for share issue expenses3. Disallowance of provision for leave salary under section 43B(f)Issue 1: Disallowance under section 14A read with Rule 8D:The appellant contested the disallowance of Rs. 32,19,195 made by the AO under section 14A of the Income Tax Act, 1961 r.w. Rule 8D. The AO calculated the disallowance based on Rule 8D, despite the inapplicability of Rule 8D for the assessment year 2007-08 as per the decision of the Hon'ble Bombay High Court. The ITAT observed that Rule 8D cannot be applied straight away without considering the assessee's calculation. The matter was remanded to the AO to allow the assessee an opportunity to present relevant facts and calculations, and to make a disallowance only if unsatisfied with the assessee's working.Issue 2: Disallowance under section 35D for share issue expenses:The appellant challenged the disallowance of Rs. 13,03,506 claimed under section 35D for share issue expenses. The AO rejected the claim on the grounds that the assessee was not eligible for deduction under section 35D as it was not a company and the expenses were not related to public subscriptions. The ITAT upheld the disallowance stating that the deduction under section 35D is admissible only for public subscriptions, not private placements, as in the present case.Issue 3: Disallowance of provision for leave salary under section 43B(f):The Revenue appealed the deletion of disallowance of Rs. 1,32,18,459 on account of leave salary provision by the Ld. CIT(A). The AO added the amount under section 43 of the Income Tax Act, 1961, but the Ld. CIT(A) deleted the disallowance based on a previous ITAT decision. The ITAT decided to restore the matter to the AO following a similar decision in a sister concern's case, emphasizing the need to adjudicate the issue in line with the decision of the Hon'ble apex Court in the case of Exide Industries Ltd. The issue was thus remanded to the AO for fresh adjudication.In conclusion, the ITAT partially allowed the appeal of the assessee for statistical purposes and allowed the appeal of the Revenue for statistical purposes. The matters were remanded to the respective authorities for further examination and decision in accordance with the legal provisions and precedents cited.