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TMI Blog2022 (1) TMI 342X X X X Extracts X X X X X X X X Extracts X X X X ..... /2016 at times disallowance out of specific expenditure claimed may also be made. The effect of such disallowances is an increase in the profits. The issue of the claim of higher deduction on the enhanced profits has been a contentious one. However, the courts have generally held that if the expenditure disallowed is related to the business activity against which the Chapter VI-A deduction has been claimed, the deduction needs to be allowed on the enhanced profits. The assessee is also eligible to claim for deduction u/s 80IA on the profit earned from its business. The issue before us is also regarding the enhancement of the profit of the assessee which is covered by the said Circular quoted supra and, therefore, the assessee is eligible to claim deduction u/s 80IA of the Act - we set aside the order of the CIT(A) and direct the AO to allow the assessee s claim of deduction u/s 80IA of the Act on the enhanced expenditure towards the payment to sub-contractors, which was disallowed by the AO and confirmed by the CIT(A) in all the appeals under consideration. We allow the grounds raised by the assessee with regard to inflated expenditure by way of sub-contract payments in all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in the hands of the sub-contractors, to whom the impugned payment has been made, in which the payments made by the assessee have been accepted as Turnovers of the sub-contractors for the year under consideration. (j) The Ld. CIT(A) ought to have appreciated that transfer of funds by the sub-contractor companies to the appellant company cannot be equated with or compared to their turnovers in a particular Asst. Year. (k) The Ld. CIT(A) ought to have appreciated that the impugned payment of ₹ 50,00,000/- has already suffered taxation in the hands of the sub-contractor companies and therefore, taxing the same in the hands of the appellant company tantamount to double taxation. (I) The Ld. CIT(A) grossly erred in holding that the appellant had withdrawn the surplus funds from the banks through its trusted employees and had inflated the sub-contract payments. (m) The Ld. CIT(Al erred in holding that the management of the assessee company had used the sub-contractors for siphoning of funds by using their employees for withdrawing the cash through self-signed cheques. 3(a) The Ld. CIT(Al, having allowed the grounds raised before here in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g with questionnaire were issued by the AO on 27.11.2012. After examining the material on record and the information furnished, assessment was completed by the Assessing Officer u/s. 143(3) r.w.s. 153A of the income Tax Act, 1961, making the following additions / disallowances, in all the appeals under consideration: Sl.No. Nature of addition/disallowance 2007-08 2009-10 2010-11 2011-12 1. Inflated expenditure by way of sub-contract payments 5000000 390200000 435620600 84500000 2. Disallowance of claim u/s 80IA 375147551 47,85,90,697 756529257 852813200 3. Cash withdrawal from the bank account of M/s Madhucon land developers. 3,00,00,000 220000000 4 Disallowance of loss on shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng pages 1 to 63 dated 19/10/2021, which are assessment orders of the sub-contractors to whom the payments have been made for different assessment years, the details of which are as under: Left space intentionally 7.2 Referring to the above, he submitted that the amounts disallowed by the AO have been taken as turnover by the concerned recipients/sub-contractors and those sub-contractors turnover has been accepted by the revenue authorities in the assessments made and copies of the assessment orders are available in the paper book as quoted supra. He, therefore, pointed out that once the turnover is accepted by the revenue authorities, the same would be the expenditure of the payer. He, therefore, submitted that the assessee is eligible to get deduction u/s 80IA in the facts and circumstances of the case of the assessee. The ld. AR of the assessee submitted that there is no dispute about the payments made to the sub-contractors and TDS has also bee deducted on the payments made to them and the recipients have offered it as their turnover and corresponding TDS credits have been given to the sub-contractors. He, therefore, submitted that disallowance made by the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r on the basis of which the additions made by the AO as per para 11, which is reproduced below for the sake of clarity: 11. During the previous year relevant to the AY 2007-08, it is observed that an amount of ₹ 50 lakhs was withdrawn from the bank account of M/s Maa Highways maintained at Axis Bank, Begumpet, Greenlands by Sri Raju Magrulkar vide Instrument No. 914303. In light of the detailed narrations in the preceding paragraphs, this amount of ₹ 50 lakhs is treated as inflated expenditure by way of subcontract payments. Accordingly, the same is added. 9.1 The basis for making the addition as noted above, the AO has made the addition only on the basis of inflated expenditure by way of subcontract payments, which is in the nature of disallowance u/s 37(1) of the Act. On the above order of the AO, we find that nowhere mentioned that it is other than the business expenditure of the assessee. We observe from the arguments and paper book submitted by the assessee quoted supra, the amounts received by the sub-contractors have been offered as their turnover and the turnovers had been accepted by the revenue authorities. Therefore, it clearly shows that the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ari [2016] 63 taxmann.com 241 (Bom.) (ii) If deduction under section 40A(3) of the Act is not allowed, the same would have to be added to the profits of the undertaking on which the assessee would be entitled for deduction under section 80-IB of the Act. This view was taken by the court in the following case: Principal CIT, Kanpur v. Surya Merchants Ltd. [2016] 72 taxmann.com 16 (All.). The above views have attained finality as these judgments of the High Courts of Bombay, Gujarat and Allahabad have been accepted by the Department. 3. In view of the above, the Board has accepted the settled position that the disallowances made under sections 32, 40(a)(ia), 40A(3), 43B, etc. of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed, result in enhancement of the profits of the eligible business, and that deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance. 4. Accordingly, henceforth, appeals may not be filed on this ground by officers of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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