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2016 (2) TMI 428 - AT - Income TaxDisallowance u/s.40(a)(ia) - whether disallowance made u/s.40(a)(ia) to be considered as part of business profit of the assessee of the eligible projects so as to grant deduction u/s.80-IB(10)? - Held that - An amount outstanding at the end of the close of the assessment year is not to be allowed as business expenditure in view of provisions 40(a)(ia) of the Act. Further, we make it clear that the AO should consider only payment which is not subject to TDS for disallowance and not short deduction of TDS. Since we have followed the order of the Special Bench in the case of Merilyn Shipping and Transporters vs. Addl.CIT 2012 (4) TMI 290 - ITAT VISAKHAPATNAM and also CIT Vs. M/s.Vector Shipping Services (P) Ltd cited 2013 (7) TMI 622 - ALLAHABAD HIGH COURT , also the judgement Shri Thomas George Muhoot 2015 (7) TMI 810 - KERALA HIGH COURT Further regarding the alternate submission of the Authorized Representative to consider the disallowance made u/s.40(a)(ia) of the Act, if any to be considered as part of the business profit in view of the judgement of Bombay High Court in the case of CIT Vs. GEM Plus Jewellery India Ltd. 2010 (6) TMI 65 - BOMBAY HIGH COURT , wherein it was held that the assessee is entitled to exemption u/s.10A with reference to addition of disallowance of PF/ESIC payments as the plain consequence of the disallowance and add back made by the A.O is an increase in the business profits of the assessee. In our opinion, this plea of the assessee s counsel to be upheld in view of the judgement. - Decided in favour of assessee
Issues:
1. Disallowance under section 40(a)(ia) of the Income Tax Act. 2. Eligibility for deduction under section 80-IB(10) of the Income Tax Act. 3. Computation of eligible income for deduction under section 80-IB(10). 4. Levy of interest under section 234B of the Income Tax Act. Issue 1: Disallowance under section 40(a)(ia) of the Income Tax Act: The assessee claimed an expenditure without deduction of tax at source, leading to disallowance under section 40(a)(ia). The tribunal referred to the Special Bench decision in the case of Merilyn Shipping and Transporters vs. Addl. CIT, holding that section 40(a)(ia) applies only to expenses outstanding at the end of the relevant financial year. Citing judgments from various High Courts, the tribunal ruled that the disallowance should only cover payments not subject to TDS. Additionally, the tribunal accepted the assessee's alternative submission to treat the disallowance as part of business profit for deduction under section 80-IB(10), following the judgment of the Bombay High Court in CIT Vs. GEM Plus Jewellery India Ltd. Issue 2: Eligibility for deduction under section 80-IB(10) of the Income Tax Act: The assessee contended that disallowance under section 40(a)(ia) should be considered as part of business profit for deduction under section 80-IB(10). The tribunal upheld this plea, citing the Bombay High Court judgment. The tribunal emphasized that the AO should only consider payments without TDS for disallowance, not short deduction of TDS. The tribunal's decision was based on precedents from various High Courts and previous tribunal orders. Issue 3: Computation of eligible income for deduction under section 80-IB(10) of the Income Tax Act: The assessee challenged the computation of eligible income for deduction under section 80-IB(10) before the CIT(A). The tribunal observed that the CIT(A) did not provide specific findings on the issue of the built-up area of the project "Riverview Country." Consequently, the tribunal remitted the entire issue back to the CIT(A) for a fresh consideration. The tribunal found the CIT(A)'s order to be cryptic and lacking detailed analysis, necessitating a reevaluation of the matter. Issue 4: Levy of interest under section 234B of the Income Tax Act: The tribunal noted that the assessee objected to the levy of interest under section 234B. However, the tribunal's decision primarily focused on the issues related to disallowance under section 40(a)(ia) and eligibility for deduction under section 80-IB(10). The tribunal allowed the appeals of the assessee for statistical purposes, indicating a favorable outcome for the assessee in the context of the issues raised in the appeals. In conclusion, the tribunal's detailed analysis and application of legal precedents resulted in a favorable outcome for the assessee concerning the disallowance under section 40(a)(ia) and the eligibility for deduction under section 80-IB(10). The remittance of the computation issue under section 80-IB(10) back to the CIT(A) reflects the tribunal's commitment to ensuring a thorough examination of all relevant aspects of the case.
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