2010 (9) TMI 1250 - AT - Income Tax

Summary

Issues: Appeal filed by Revenue against CIT(A) order for AY 2006-07 regarding deduction u/s 80IB on disallowed expenses u/s 40(a)(ia) of IT Act.

Summary:
1. The Revenue appealed against CIT(A) order for AY 2006-07, challenging the allowance of deduction u/s 80IB on disallowed expenses of Rs. 16.49 lakhs u/s 40(a)(ia).

2. Despite no representation from the assessee, the appeal was heard by the Bench. The AO disallowed the deduction u/s 80IB due to non-deduction of TDS on a payment of Rs. 16,49,762, citing Section 40(a) provisions.

3. CIT(A) allowed the deduction u/s 80IB, stating that the disallowed expenses do not pertain to profit & gains derived from business, hence not admissible for deduction u/s 80IB. CIT(A) referenced the Delhi High Court judgment on profit computation u/s 80HHC.

4. CIT(A) emphasized that profits of business, as computed by the AO, should be considered for deduction u/s 80IB, including all additions and disallowances. The disallowance of expenses for TDS breach should not bar the deduction u/s 80IB.

5. CIT(A) clarified that any disallowance of expenses automatically increases business profits eligible for deduction u/s 80IB. The detailed findings of CIT(A) were upheld, and the appeal of Revenue was dismissed.

Decision: The appeal of the Revenue was dismissed by the ITAT, upholding the CIT(A) order allowing deduction u/s 80IB on disallowed expenses.