2016 (2) TMI 1266 - AT - Income Tax

Additions u/s 40(a)(ia) - assessee is entitled to deduction u/s 80IB of the Act and that no tax can be imposed on these additions - HELD THAT - In Sun Pharmaceuticals ( 2013 (9) TMI 598 - ITAT, AMRITSAR ) , however, consequential higher deduction u/s 80IB of the Act on account of disallowance u/s 40(a)(ia) of the Act has been allowed, holding, inter-alia, that addition of income u/s 40(a)(ia) results into increase in the income of the assessee, which income would be profit derived from the industrial undertaking. The provision contained under section 80IB for computation of income was found to contain a mandate that where any deduction is required to be made or allowed under any law, included in this Chapter under the heading, C.- deductions in respect of certain income in respect of any income of the nature specified in that section, which is included in the gross income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act ( before making any deduction under this Chapter) shall alone to be deemed to the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income. The decision of the Tribunal in the case of Sun Pharmaceuticals (supra), as noted, was followed by the Tribunal in the assessee s own case for the AY 2008-09. The facts in the present case of the assessee for the AY 2008-09 have not been shown to be any different from those present in the assessee s case for the year under consideration, i.e., 2009-10. Moreover, the order of the Tribunal in the assessee s case for the AY 2008-09 has also not shown to have been accepted on appeal. It has also not been shown to have even been stayed. - Appeal of the assessee is allowed.

Summary

Issues:
Appeal against CIT(A) order for AY 2009-10 - Disallowance u/s 40(a)(ia) - Entitlement to deduction u/s 80IB.

Analysis:
1. The assessee declared income with a claimed deduction u/s 80-IB, which was later found to be in excess. The AO disallowed the excess deduction due to non-deduction of TDS under section 40(a)(ia) for loading and unloading expenses. The disallowance was based on violation of specific provisions of the Act and lack of direct nexus with manufacturing activity. The CIT(A) upheld the assessment order.

2. The assessee argued that a previous Tribunal order in their favor for AY 2008-09 supported their case. The DR supported the CIT(A) order. The Tribunal noted the favorable precedent in the assessee's case for AY 2008-09 and another case supporting the assessee's position.

3. The CIT(A) reasoned that the legal fiction under section 40(a)(ia) cannot affect a beneficial provision like section 80-IB(1). It was emphasized that deductions under section 80IB should strictly follow its provisions without importing legal fictions from other sections. However, a previous Tribunal decision allowed higher deduction u/s 80IB due to disallowance u/s 40(a)(ia), considering the increased income as profit derived from the industrial undertaking.

4. The Tribunal found no material differences in the facts of the current case compared to the favorable precedent for AY 2008-09. As the previous order was not appealed against or stayed, the Tribunal accepted the assessee's grievance, reversing the CIT(A) order and allowing the appeal.

5. The Tribunal's decision was pronounced in favor of the assessee, granting the appeal and allowing the deduction u/s 80IB.