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Issues involved: Appeal against order u/s 143(3) for AY 2007-08, disallowance of training and development expenses, eligibility for deduction u/s 10B.
Ground Nos.2 to 4 - Disallowance of Training and Development Expenses: The appeal challenged the confirmation of the addition of Rs. 27,63,505 disallowed by the AO for training and development expenses. An alternative ground was raised that even with the disallowed amount, the total profit would still be eligible for deduction u/s 10B. The assessee argued that the disallowed expenditure did not impact the net assessable income due to increased exemption u/s 10B, citing a judgment from the Delhi Tribunal. The DR contended that the AO did not find the income to be exempt u/s 10B. The Tribunal examined the computation of income and directed the AO to verify if the business income was eligible for deduction u/s 10B, allowing deduction for the increased profit assessed. The issue was restored to the AO for further examination, rendering Ground Nos.2 to 4 redundant pending verification of eligibility for deduction u/s 10B. Ground Nos.5 & 6 - Eligibility for Deduction u/s 10B: The assessee contended that the disallowed expenses did not affect the net assessable income due to increased exemption u/s 10B. The Tribunal noted that if the income of the eligible unit increased due to disallowed expenditure, the assessee would be eligible for deduction based on the assessed profits. Citing precedents, the Tribunal directed the AO to ascertain the eligibility for deduction u/s 10B and allow it for the increased profit assessed. The issue was restored to the AO for verification, and Ground Nos.5 & 6 were decided in favor of the assessee, indicating no need to address Ground Nos.1 to 4 due to the potential revenue implications. Conclusion: The Tribunal partially allowed the appeal, directing the AO to verify the eligibility for deduction u/s 10B based on the increased profit assessed. The issue of disallowed training and development expenses was restored for fresh adjudication in light of the eligibility for deduction u/s 10B. The decision was pronounced on 6th May 2011.
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