Tribunal allows deduction of audit fee and interest, dismisses Revenue's appeal

The Tribunal allowed the assessee's appeal regarding the disallowance of audit fee under section 43B for unpaid audit fee, directing the AO to permit the deduction upon actual payment. Similarly, the disallowance of interest payable to NABARD Bank under section 43B was overturned as NABARD was not considered a public financial institution under section 4A of the Companies Act. The Tribunal also held that the prima facie adjustment disallowing audit fee under section 143(1)(a) was impermissible, directing the AO to exclude the audit fee from the adjustment. The Revenue's appeal, challenging the cancellation of additional tax based on the disallowed audit fee, was dismissed.

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Issues:
1. Disallowance of audit fee under section 43B for unpaid audit fee.
2. Disallowance of interest payable under section 43B for interest payable to NABARD Bank.
3. Prima facie adjustment made by disallowance of audit fee under section 143(1)(a).

Issue 1: Disallowance of audit fee under section 43B for unpaid audit fee:
In the case, the assessee appealed against the disallowance of Rs. 1,25,000 under section 43B towards unpaid audit fee. The counsel argued that audit fee payable to the State Government is not covered by section 43B as it is not a levy by the Government. The Tribunal directed the AO to allow the deduction in the year of actual payment, considering the loss in the relevant year.

Issue 2: Disallowance of interest payable under section 43B for interest payable to NABARD Bank:
The disallowance of Rs. 1,46,953 towards interest payable to NABARD Bank was challenged by the assessee. The counsel contended that NABARD is not specified as a public financial institution under section 4A of the Companies Act, and thus, not covered under section 43B. The Tribunal agreed and deleted the disallowance.

Issue 3: Prima facie adjustment made by disallowance of audit fee under section 143(1)(a):
The assessee raised a ground against the prima facie adjustment disallowing audit fee of Rs. 1,25,000 under section 143(1)(a). The Tribunal held that the disallowance of audit fee as a prima facie adjustment was not permissible, as it was a debatable issue whether it falls under section 43B. The AO was directed to rectify the order and exclude the audit fee from the adjustment.

Additional Point:
In the Revenue's appeal, it was noted that the AO levied additional tax based on the disallowance of audit fee, which was later cancelled by the CIT(A). The Tribunal upheld the decision that the audit fee was not disallowable, leading to the cancellation of the additional tax levy. Consequently, the Revenue's appeal was dismissed, while the assessee's appeals were partly allowed and allowed.

This judgment provides a comprehensive analysis of the issues involved, addressing the legal interpretations of relevant sections and providing detailed reasoning for the decisions made by the Tribunal.

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