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TMI Blog2017 (10) TMI 419X X X X Extracts X X X X X X X X Extracts X X X X ..... nature, and what holds good for disallowance under section 40(a)(ia) applies, in principle, equally to disallowance under section 40(a)(i) as well. In this view of the matter, in terms of the CBDT circular (supra), the appeal filed by the Assessing Officer, on this point, is indeed not maintainable. Non-deduction of tax at source from payments made to the non-residents must be dealt with at a different level, and bearing in mind the need to protect our tax base, we can only point out that lapses with respect to tax withholding obligations from payments made to non-residents is visited with several type of consequences disallowance under section 40(a)(i), recovery under section 201, penalty under section 271C and, in certain situations, even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 10A, it will be revenue neutral inasmuch as even if disallowance under section 40(a)(i) is upheld, the corresponding enhanced income eligible for section 10 A benefit will also go up. She invites our attention to CBDT circular No. 37 dated 2nd November, 2016, and to Hon'ble jurisdictional High Court's judgment in the case of ITO Vs Keval Constructions [(2013) 33 taxmann.com 277 (Guj)], in support of this proposition. This objection of the assessee, alongwith the CBDT circular and Hon'ble jurisdictional High Court's judgment in the case of Keval Construction (supra), was placed before us in the documents filed before us as well. The objection of the assessee is that, in the light of the position accepted by the Central Board of Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the concession for not pursuing the appeal specifically refers to Section 40(a)(ia) and it cannot be extended to Section 40(a)(i). There is no need to bring in the notions of fairness and equity as we are dealing with a concession extended by the CBDT circular, and, something which is not dealt in the said circular cannot be inferred to be concession by the said circular. In any case, according to the learned Departmental Representative, nondeduction of tax at source from payments to non-residents cannot be treated at par with the payments made to the residents, as there are limited modes of recovery so far as tax liabilities from non-residents are concerned. He relied upon the stand of the Assessing Officer that the taxes were deductible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction needs to be allowed on the enhanced profits. Some illustrative cases upholding this view are as follows: (i) If an expenditure incurred by assessee for the purpose of developing a housing project was not allowable on account of non-deduction of TDS under law, such disallowance would ultimately increase assessee's profits from business of developing housing project. The ultimate profits of assessee after adjusting disallowance under section 40(a)(ia) of the Act would qualify for deduction under section 80-IB of the Act. This view was taken by the courts in the following cases: * Income-tax Officer -Ward 5(1) v. Keval Construction [2013] 33 taxmann.com 277 (Guj.) * Commissioner of Income-tax-IV, Nagpur v. Sunil Vishwambharnat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , are eligible for deduction under chapter VI, such appeals need not be pursued. The reference to Section 40(a)(ia) is no more than illustrative in nature, and what holds good for disallowance under section 40(a)(ia) applies, in principle, equally to disallowance under section 40(a)(i) as well. In this view of the matter, in terms of the CBDT circular (supra), the appeal filed by the Assessing Officer, on this point, is indeed not maintainable. As regards the point made by the learned counsel that the non-deduction of tax at source from payments made to the non-residents must be dealt with at a different level, and bearing in mind the need to protect our tax base, we can only point out that lapses with respect to tax withholding obligations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of medical and life insurance premium, and of ₹ 12.89 lakhs in respect of late payment of employee's contribution for PF/ESIC. [9] Learned representatives fairly agreed that in the event of our upholding the preliminary objection in respect of the first ground of appeal, the same will be the position with respect to these two grounds of appeal inasmuch as even if the disallowances are to be restored, the assessee will be eligible for corresponding increase in the tax exemption under section 10A. In this view of the matter, these grievances, whatever be the merits of these grievances in law, are academic in the present context and are liable to dismissed as non-maintainable in terms of the CBDT circular dated 2nd November 2016 (su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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