Appeal partly allowed, service tax adjustment and IPO expenditure deductions granted, TDS credit remanded for verification.

The Tribunal partly allowed the appeal, directing the Assessing Officer to verify and allow certain claims. The disallowance of the service tax adjustment and interest on service tax was deleted subject to verification of forgone CENVAT credit. The deduction for expenditure on the aborted IPO was allowed as revenue expenditure. The short grant of TDS credit was remanded for proper verification and allowance in accordance with the law. The order was pronounced on 25/01/2021.

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Issues Involved:
1. Disallowance of service tax adjustment and interest on service tax.
2. Disallowance of expenditure incurred for increase in share capital.
3. Short grant of TDS credit.

Issue-wise Detailed Analysis:

1. Disallowance of Service Tax Adjustment and Interest on Service Tax:
The assessee, a company engaged in operating and chartering aircraft, claimed CENVAT credit on service tax paid on Passenger Service Fee (PSF) / User Development Fee (UDF) and advertisement expenses, which was initially offered as income in the assessment years 2010-11 and 2011-12. Upon legal advice, the assessee reversed this income in the assessment year 2012-13, claiming it as a deduction under section 37(1) of the Income Tax Act. The Assessing Officer disallowed this claim, viewing it as prior period expenditure. The Commissioner (Appeals) upheld this disallowance, stating that the deduction claimed was not against any existing liability and thus not allowable under section 37(1). The Tribunal, however, directed the Assessing Officer to delete the addition of Rs. 11,62,28,262/- subject to verification that the assessee had actually forgone its claim of CENVAT credit before the concerned authority.

Regarding service tax paid on chartered flights and discounts received on PSF/UDF, the Tribunal found merit in the assessee's claim that these amounts, included in the income of preceding assessment years, should be allowed as deductions under section 43B of the Act if paid in the impugned assessment year. The Assessing Officer was directed to verify the actual payment and allow the deduction accordingly.

For the interest on delayed payment of service tax, the Tribunal agreed with the Commissioner (Appeals) that such interest is compensatory and thus allowable, provided the liability arose during the year. The Assessing Officer was instructed to verify the date of actual payment and allow the deduction if the interest was paid in the impugned assessment year.

2. Disallowance of Expenditure Incurred for Increase in Share Capital:
The assessee claimed an expenditure of Rs. 40,92,638/- towards an initial public offer (IPO), which was subsequently aborted. The Assessing Officer treated this as capital expenditure, allowing amortization of 1/5th of the amount under section 35D of the Act. The Commissioner (Appeals) upheld this disallowance. The Tribunal, however, accepted the assessee's contention that since the IPO was aborted, no enduring benefit accrued, and hence the expenditure should be treated as revenue expenditure. The Tribunal relied on various judicial precedents, including the decisions in CIT vs Nimbus Communications Ltd and CIT vs General Insurance Corporation, to allow the assessee's claim by deleting the disallowance.

3. Short Grant of TDS Credit:
The assessee challenged the short grant of TDS credit. The Tribunal directed the Assessing Officer to verify the assessee's claim and allow due credit of TDS in accordance with law after proper verification of facts and materials on record.

Conclusion:
The appeal was partly allowed, with the Tribunal providing directions for verification and allowing certain claims subject to such verification. The order was pronounced in the Open Court on 25/01/2021.

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