2016 (2) TMI 875 - AT - Income Tax

Computation of deduction under section 80IA - assessee had already claimed deduction under section 80HHC - Held that - We modify the directions of the CIT(A) and direct the Assessing Officer to first compute the deduction under section 80IA of the Act and restrict the deduction under section 80HHC of the Act to the profits of business that remains after excluding the profits on which deduction under section 80IA of the Act is allowed. Further, the Assessing Officer is directed to restrict the total deduction to be allowed under sections 80IA and 80HHC of the Act to the extent of 100% of the eligible profits as directed by the Hon ble Bombay High Court in Associated Capsules (P.) Ltd. Vs. DCIT (2011 (1) TMI 787 - BOMBAY HIGH COURT ).

Issues Involved:
1. Disallowance of third-party commission paid by the assessee.
2. Computation of deduction under section 80IA and 80HHC of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Disallowance of Third-Party Commission Paid by the Assessee:

The Revenue appealed against the consolidated order of CIT(A) for assessment years 1989-90 and 1995-96, and a separate order for 1997-98, contesting the deletion of disallowance of third-party commissions paid by the assessee. The amounts in question were Rs. 23,44,400/- and Rs. 32,79,650/- for the respective years, and Rs. 39,34,928/- for 1997-98. The Revenue argued that there was no justification for allowing these payments.

The Tribunal noted that the issue was identical to those decided in earlier years in the assessee's favor. The Tribunal referenced its own previous orders and the Hon'ble Bombay High Court's dismissal of Revenue's appeals on similar issues. The Tribunal reiterated that the assessee's practice of paying commissions to dealers for various services, including logistics and communication support for government orders, was well-established and regularly incurred. The Tribunal found no adverse material to challenge the genuineness of these payments, and thus upheld the CIT(A)'s order to delete the disallowance. Consequently, the Tribunal dismissed the Revenue's grounds of appeal related to third-party commissions for all the assessment years in question.

2. Computation of Deduction under Section 80IA and 80HHC of the Income Tax Act, 1961:

For the assessment year 1997-98, the Revenue challenged the CIT(A)'s order allowing deduction under section 80IA without reducing the deduction under section 80HHC, subject to the condition that the total deduction does not exceed 100% of eligible profits. The Tribunal relied on the decision of the Hon'ble Bombay High Court in Associated Capsules (P.) Ltd. Vs. DCIT (2011) 197 TAXMAN 84 (Bom), which clarified the interpretation of section 80IA(9).

The High Court held that the deduction under section 80IA should first be computed, and then the deduction under section 80HHC should be restricted to the remaining profits of the business, ensuring the total deduction does not exceed 100% of the eligible profits. The Tribunal modified the CIT(A)'s directions accordingly and instructed the Assessing Officer to follow this method of computation. The Tribunal allowed the Revenue's ground of appeal on this issue.

Conclusion:

The Tribunal dismissed the Revenue's appeals concerning the disallowance of third-party commissions for the assessment years 1989-90, 1995-96, and 1997-98. However, it partly allowed the Revenue's appeal for the assessment year 1997-98 by directing the Assessing Officer to compute deductions under sections 80IA and 80HHC as per the guidelines laid down by the Hon'ble Bombay High Court, ensuring the total deductions do not exceed 100% of the eligible profits.

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