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

The ITAT partially allowed the appellant's appeal regarding disallowances under sections 14A and 43B(f), remanding the issues to the AO for further consideration. The disallowance under section 35D for share issue expenses was upheld, as the expenses were not related to public subscriptions. The Revenue's appeal against the deletion of leave salary provision disallowance was accepted, with the matter remanded for fresh adjudication in line with legal precedents. The cases were remanded to the respective authorities for proper examination and decision in accordance with the law.

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Issues:
1. Disallowance under section 14A read with Rule 8D
2. Disallowance under section 35D for share issue expenses
3. 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.

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