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Issues involved:
1. Whether deduction under s. 35B can be allowed against income exempt under s. 80-O of the IT Act. 2. Claim for relief under s. 91(1). 3. Interpretation of provisions of s. 80-O and s. 80AB for computing deduction. 4. Allocation of corporate office losses against income for deduction under s. 80-O. 1. Deduction under s. 35B against income exempt under s. 80-O: The Appellate Tribunal held that the Assessing Officer correctly computed the deduction under s. 80-O by deducting expenses and other deductions from gross receipts, including the deduction under s. 35B. The Tribunal emphasized that there is no statutory bar against claiming deduction under s. 35B even if the income is exempt from tax. Citing a decision of the Madras High Court, the Tribunal directed the Assessing Officer to allow the claim of the assessee for weighted deduction under s. 35B, which had been accepted in the computation of deduction under s. 80-O. 2. Claim for relief under s. 91(1): The second ground of appeal, which pertained to the claim for relief under s. 91(1), was not pursued during the appeal hearing. 3. Interpretation of provisions of s. 80-O and s. 80AB for computing deduction: The Tribunal rejected the additional ground raised by the assessee that s. 80AB should not apply while computing the relief under s. 80-O. It highlighted that the income for which deduction is claimed must be computed as per the provisions of the Act, deducting expenses incurred for earning that income. Referring to a Supreme Court decision, the Tribunal emphasized that relief under s. 80-O should be based on income determined after deducting expenses. The Tribunal concluded that the provisions of s. 80AB must be applied to all sections in Chapter VIA of the IT Act. 4. Allocation of corporate office losses against income for deduction under s. 80-O: Regarding the allocation of corporate office losses against income for deduction under s. 80-O, the Tribunal found merit in the claim that only expenses with a nexus to the earning of exempted income should be adjusted. It directed the matter to be reconsidered by the Assessing Officer to determine the allocation of corporate expenses based on their relevance to earning exempted income. The Tribunal rejected the contention that expenses on management cannot be allocated to income not liable to tax, citing a Supreme Court decision that expenses incurred wholly and exclusively for the business purpose should be allowed as a deduction. In conclusion, the appeal was allowed in part, with directions given for reconsideration of certain aspects by the Assessing Officer.
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