2013 (5) TMI 88 - HC - Income Tax

Eligibility for deduction u/s.80IB on the disallowance made u/s.40(a)(ia) - ITAT allowed the claim - Held that - AO has wrongly disallowed the deduction u/s 80-IB stating that deduction u/s 80-IB was not allowable as the disallowance was made on technical ground because this does not form part of the business profits as the profit has already been determined as per P&L Account. Tribunal committed no error in considering assessee eligible for deduction u/s 80-IB on the profits worked out after including therein the disallowance of Rs.24,45,367/- made by the AO u/s 40(a)(ia) - Against revenue.

Summary

Issues involved:
1. Eligibility of income from duty drawback for deduction under section 80IB of the Income Tax Act.
2. Eligibility for deduction under section 80IB on disallowance made under section 40(a)(ia) of the Act.

Issue 1:
The first issue revolves around the eligibility of income from duty drawback for deduction under section 80IB of the Income Tax Act. The Tribunal had allowed the deduction, which was challenged by the Revenue in the appeal. The Tribunal held that the assessee was entitled to the deduction under section 80IB on the profits computed after including the disallowance made by the Assessing Officer under section 40(a)(ia) of the Act. The Tribunal disagreed with the Revenue's contention that the disallowance was on technical grounds and did not form part of business profits. The Tribunal, after considering the arguments of both parties, concluded that the assessee was indeed eligible for the deduction under section 80IB on the profits derived from the industrial undertaking, including the disallowance amount.

Issue 2:
The second issue concerns the eligibility for deduction under section 80IB on the disallowance made under section 40(a)(ia) of the Act. The Revenue contended that the disallowance of commission or brokerage should be excluded for the purpose of section 80IB as the tax was not deducted at source. However, the Tribunal upheld the assessee's claim for deduction, stating that the disallowance made under section 40(a)(ia) did not affect the eligibility for deduction under section 80IB. The Tribunal agreed with the assessee's argument that the disallowance should not preclude the deduction under section 80IB. The High Court, after perusing the order and considering the arguments, found no error in the Tribunal's decision regarding this issue and admitted the tax appeal for further consideration.

In conclusion, the judgment by the Gujarat High Court addressed two key issues related to the eligibility of deductions under sections 80IB and 40(a)(ia) of the Income Tax Act. The Court upheld the Tribunal's decision that the assessee was entitled to the deduction under section 80IB on the profits derived after including the disallowance amount. Additionally, the Court agreed with the Tribunal that the disallowance under section 40(a)(ia) did not impact the eligibility for deduction under section 80IB. The judgment provides clarity on the interpretation and application of these provisions in the context of the specific case at hand.