2015 (1) TMI 146 - AT - Income Tax

Deduction u/s 10A - Disallowance u/s 40(a)(ia) - CIT (A) held that disallowance would only enhance profits otherwise entitled for section 10A deduction - Held that - Revenue does not point out any distinction on facts in the present case vis-a-vis clause involved before the hon ble high court (2010 (6) TMI 65 - BOMBAY HIGH COURT). It only pleads that its special leave petition is pending before the hon ble Supreme Court of India. In our view, this contention only does not form a valid ground to adopt a different approach in the instant case. The hon ble high court has settled the law that in case of a section 10A undertaking, a disallowance only gives rise to enhanced profits/ income otherwise entitled for deduction. The CIT(A) s order is upheld. - Decided against Revenue.

Summary

Issues: Appeal against CIT(A) order allowing section 10A deduction on enhanced profits due to section 40(a)(ia) disallowance of Rs. 26,57,636.

Analysis:
1. The appeal pertains to the assessment year 2008-09 and challenges the CIT(A) order regarding the allowance of section 10A deduction on enhanced profits resulting from the disallowance of Rs. 26,57,636 under section 40(a)(ia) of the Income Tax Act, 1961.

2. The assessee, a software development and export company, initially declared a loss of Rs. 17,56,759 in its return filed on 30.09.2008, which was processed summarily. Subsequently, the Assessing Officer made a regular assessment on 30.11.2010, disallowing export commission payments of Rs. 26,57,603 for non-deduction of TDS.

3. The CIT(A) upheld the disallowance, but agreed to the alternative plea that this disallowance would only enhance profits eligible for section 10A deduction, citing the case law CIT vs. M/s. GEM Plus Jewellery India Ltd 2010-TIOL-456-HC-MUM-IT. The Revenue appealed against this decision.

4. The ITAT Chennai, after hearing both parties and examining the case file, noted that the Revenue failed to establish any factual distinction from the case cited before the high court. The Revenue's argument that its special leave petition was pending before the Supreme Court of India was deemed insufficient to warrant a different approach. The high court precedent established that in the case of a section 10A undertaking, a disallowance only results in enhanced profits eligible for deduction. Consequently, the CIT(A)'s order was upheld, and the Revenue's appeal was dismissed.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved, the facts of the case, the legal arguments presented, and the final decision rendered by the ITAT Chennai.