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2020 (4) TMI 453 - AT - Income TaxDeduction u/s 10A - disallowance of claim of deduction u/s 35D - Whether any disallowance u/s 35D of the Act would go to increase the profit of the business of the assessee and deduction u/s.10A of the Act had to be allowed on such enhanced profits? - CIT(A) in directing the AO to compute the capital employed by treating the FCCB also as part of the capital employed - HELD THAT - Tribunal in assessee s own case 2015 (9) TMI 556 - ITAT BANGALORE has taken a view that for the purpose of computing the capital employed for allowing deduction u/s 35D of the Act, the FCCBs should also be taken into consideration. The grievance projected by the Revenue in its appeal is that the decision of the Tribunal has not been accepted by the Revenue and a further appeal to the Hon ble High Court is being preferred. We are of the view that the fact that the revenue has preferred appeal against the order of Tribunal is ground no ground not to follow the decision in assessee s own case, especially when the decision of the Tribunal has not been so far reversed by any higher forum. Accordingly, we find no merit in the appeal by the revenue and the same is dismissed. Disallowance of deduction u/s 35D of the Act would go to increase profit of the business on which deduction u/s 10A of the Act was to be allowed to the assessee. - Following the decision in the case of M/s Eka Software Solutions Pvt.Ltd., Vs DCIT 2020 (1) TMI 1182 - ITAT BANGALORE , decided in favor of assessee.
Issues:
1. Reduction of claim of deduction u/s 35D of the Income Tax Act, 1961. 2. Inclusion of foreign currency convertible bonds (FCCBs) in capital employed for deduction u/s 35D. 3. Impact of disallowance u/s 35D on profit assessment and eligibility for deduction u/s 10A. Issue 1: Reduction of claim of deduction u/s 35D: The Appellate Tribunal considered an appeal by the assessee and the revenue against the CIT(A)'s order related to assessment years 2007-08. The AO reduced the deduction claimed u/s 35D by the assessee, citing a wrong claim based on the cost of the project or capital employed. The assessee contended that FCCBs should be included in capital employed, as per a previous Tribunal decision. The CIT(A) upheld the reduction but directed the AO to consider FCCBs for deduction u/s 35D. The Tribunal dismissed the revenue's appeal, citing consistency with previous decisions. Issue 2: Inclusion of FCCBs in capital employed for deduction u/s 35D: The Tribunal analyzed the treatment of FCCBs in capital employed for deduction u/s 35D. The assessee argued that FCCBs should be part of capital employed, increasing the eligible deduction. Referring to a previous case, the Tribunal directed the AO to consider FCCBs in capital employed, leading to a higher deduction. The Tribunal dismissed the revenue's appeal, emphasizing the inclusion of FCCBs in capital employed for consistent treatment. Issue 3: Impact of disallowance u/s 35D on profit assessment and eligibility for deduction u/s 10A: The Tribunal addressed the impact of disallowing deduction u/s 35D on profit assessment and eligibility for deduction u/s 10A. It noted that increased profit due to disallowance should still be eligible for deduction u/s 10A, following precedents and CBDT Circular No.37/2016. The Tribunal accepted the assessee's grievance on this issue, allowing deduction u/s 10A on enhanced profits. The appeal by the revenue was dismissed, while the appeal by the assessee was partly allowed based on these considerations. This detailed analysis of the legal judgment from the Appellate Tribunal ITAT Bangalore highlights the issues related to the reduction of deduction u/s 35D, inclusion of FCCBs in capital employed, and the impact on profit assessment and eligibility for deduction u/s 10A. The Tribunal's decisions were based on interpretations of relevant provisions and precedents, ensuring consistent treatment and adherence to legal principles.
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