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TMI Blog2025 (3) TMI 289X X X X Extracts X X X X X X X X Extracts X X X X ..... al provisions of the Act and book profit u/s 115JB of the Act of Rs. 1,28,80,47,039/-. The case of assessee was selected for scrutiny assessment and the assessment was subsequently framed by the Assessing Officer u/s 143(3) of the Act on 30.03.2015 determining total business income of the assessee at Rs. 84,94,28,649/-, against the returned income of Rs. 27,56,70,614/-, by making various additions/disallowances of Rs. 13,19,12,485/- as capital gains under normal provisions of the Act and Rs. 129,12,24,408/- as book profits u/s 115JB of the Act. 3. Aggrieved by the order of the Assessing Officer, the assessee has filed appeal before the ld. CIT(A) who confirmed/deleted some of the additions/ disallowances made by the Assessing Officer. ITA No. 1184/Ahd/2018 - Assessee's Appeal 4. Aggrieved by the order of the Ld. CIT(A) confirming the additions/disallowances made by the Assessing Officer, the Assessee is now in appeal before the Tribunal on the following grounds:- "Ground No. 1: Levy of capital gains under section 45 of the Act considering demerger of the treasury undertaking as non-qualifying demerger. 1.1 On the facts and in the circumstances of the case and in law, the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.4 Without prejudice to above, on the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) has erred in observing that demerger of the undertaking was undertaken to avoid payment of taxes under the Act. 1.5 Without prejudice to above, on the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) has erred in affirming the order of the learned AO seeking to tax fictional and non- existent income in the hands of the Appellant, which is against the principles of law. 1.6 Without prejudice to above, on the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) has erred in affirming the order of the learned AO and failed to appreciate that in order to levy capital gains tax on the Appellant, it is a condition precedent that the alleged capital gains must arise from transfer of capital assets by the Appellant to its shareholders, which condition is not satisfied in the present case. 1.7 Without prejudice to above, on the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) has erred in affirming the order of the learned AO and failed to appreciate that in order to levy capital gains tax on the Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shareholders of Appellant is considered as distribution of dividend under section 2(22) of the Act, quantum of dividend which is paid by way of specie distribution of assets needs to be considered as market value on the date of distribution and not average book value of shares of resulting company. Ground No. 3: Disallowance under section 14A of the Act read with Rule 8D of the Income-tax Rules, 1962 ('Rules') 3.1. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in disallowing expenses amounting to Rs 9,48,784 (in addition to Rs 17,39,793 voluntarily disallowed by the Appellant) under section 14A of the Act by applying provisions of Rule 8D the Rules since the Appellant has already identified and disallowed expenditure incurred in relation to income which does not form part of total income under the Act. 3.1.1. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in stating that no separate books of accounts in respect of Treasury Unit has been maintained and no transparent method of allocation of indirect expenses has been followed by the Appellant and thereby invoking provisions of Rule 8D of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 45 of the Act considering demerger of the treasury undertaking as non- qualifying demerger; Ground No. 2 - Levy of Dividend Distribution Tax 5.1 The facts relating to this issue are that, during the course of assessment proceedings, the Assessing Officer observed that the assessee had claimed transfer of its so-called treasury unit to M/s. Sterling Addlife India Ltd. (herein and after referred to as 'Sterling') as per order of Hon'ble Gujarat High court in the petition no 88 of 2010. In response to said transfer, Sterling had given 2,68,01,557 of its shares to the shareholders of the assessee company. As the transfer of so-called treasury unit did not appear to be demerger of a unit, the Assessing Officer issued a show cause notice dated 05.03.2015 asking the assessee to show cause as to why the transfer of so called treasury unit, which was claimed as demerger by the assessee company, should be treated as not a demerger within the meaning prescribed under the Income-Tax Act. Ld. Assessing Officer also held that the essential components for any rearrangement to be considered as demerger is that all the assets and liabilities of the undertaking being demerged have to be transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers of the assessee; accordingly, all the shareholders of the assessee received shares of Sterling in the ratio as sanctioned by Hon'ble Gujarat High Court. * Regarding the transfer of the undertaking is on a going concern basis is concerned, it was submitted that treasury undertaking has been transferred on a going concern basis to Sterling. 5.3 The Ld. Counsel for the assessee, therefore, submitted that the Treasury Undertaking of the assessee fulfils all the conditions laid down in section 2(19AA) of the Act. Hence, demerger of the Treasury Undertaking by the assessee to Sterling should be held to be in compliance with provisions of section 2(19AA) of the Act and accordingly, the demerger of treasury undertaking be exempted from capital gains tax under section 47(vib) of the Act. 5.4 The Ld. DR, on the contrary, submitted that the transfer of Sterling's shares and units of mutual funds to Sterling in exchange of new shares allotted by Sterling as transfer of capital assets chargeable to capital gains under section 45 of the Act, and distribution of new shares allotted by Sterling as being distributed by the assessee to its shareholders as dividend under section 2(22) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he audited accounts was a 'mistake'. On admission of the mistake the A.O has held that the appellant has failed to reconcile the difference between mutual funds held as on 31/3/2010 by the Treasury Segment. As on 7/10/2010 the value of mutual funds at market value has been reflected at Rs. 5,09,783/- before the Hon'ble High Court. This meant that there was redumption of mutual funds between the period 1/4/2010 to 6/10/2010. The A.O has rightly pointed out that the redumption of assets will only give rise to corresponding increase in some other assets like cash/bank balance of the treasury segment. However, no such assets have been reported to the Hon'ble Court in the trial balance of treasury segment. The appellant has admitted that the Treasury Segment did not have a separate bank account. Thus, according to the A.O there was never a clear demarcation or separation of the assets of the Treasury Segment from the assets of the appellant as a whole and hence the basic condition of transfer of assets and liabilities of the undertaking under section 2(19AA) of the Act as a going concern, being demerged, has not been fulfilled. Further, the A.O has pointed out that out of total shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been transferred as a going concern leading to violation of sections prescribed u/s.2 (19AA) (i), (ii) of the act. According to the appellant the income generated out of the activities of the Treasury Segment has been offered to tax under the head capital gain and dividend income is claimed as exempt and no income of Treasury Segment was offered as business income. A.O has correctly pointed out that the various investments made by the appellant in the shares of Blue Information, IDBI, Trent etc. were investments and cannot be considered as business activities and so were the investments in mutual funds. Thus, according to the A.O as per the stand taken by the appellant the investments made by the Treasury Segment were always treated by the appellant as capital assets and it never treated the said investments as stock-in-trade or business assets. Therefore, according to the A.O., the stand of the appellant that the Treasury Segment was undertaking a business activity is not correct. A.O. has treated it as individual assets created from the surplus funds available with the appellant. Therefore, the transfer of assets as per the petition No.88 of 2010 cannot be treated as qualifying d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the investment activities undertaken by the treasury segment but to transfer certain assets only to Sterling without any liabilities. The liabilities of the treasury segment were reduced to Nil on the ground that they pertain to different divisions/segments. If a Macro view is taken on the overall transaction that has been undertaken by the appellant then it appears that as per the order of Hon'ble High Court, Sterling had issued 2961 equity shares of Rs. 10 each in lieu of 1000 equity shares of Rs. 10 each to shareholders of the appellant. Accordingly, the shareholders of the appellant were issued 2,68,01,557 shares of Sterling. Further, by means of the so called demerger of Treasury Segment the appellant had ended up transferring the shares of Sterling i.e. it's assets, numbering 2,68,01,490 held by the Treasury Segment back to Sterling, apart from few more assets and zero liability. Thus the appellant gave 2,68,01,490 shares of Sterling, worth of Rs. 32,23,24,536/-, held by treasury segment back to Sterling through the arrangement approved by hon'ble High Court and the shareholders of the appellant received 2,68,01,557 shares worth of Rs. 61,91,15,966/- of Sterling in return. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer, pursuant to a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956 (1 of 1956), by a demerged company of its one or more undertakings to any resulting company in such a manner that- (i) all the property of the undertaking, being transferred by the demerged company, immediately before the demerger, becomes the property of the resulting company by virtue of the demerger; (ii) all the liabilities relatable to the undertaking, being transferred by the demerged company, immediately before the demerger, become the liabilities of the resulting company by virtue of the demerger; (iii) the property and the liabilities of the undertaking or undertakings being transferred by the demerged company are transferred at values appearing in its books of account immediately before the demerger; (iv) the resulting company issues, in consideration of the demerger, its shares to the shareholders of the demerged company on a proportionate basis [except where the resulting company itself is a shareholder of the demerged company]; (v) the shareholders holding not less than three-fourths in value of the shares in the demerged company become share-holders of the result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered that the conditions of Section 2(19AA) are fulfilled. It cannot be disputed that the Treasury Unit is also a segment of the business activity. On this issue, the Ld. AR at page No. 1379 of the paper-book submitted as under:- "The schedules to the accounts for the year ended 31.03.2009 shows the Treasury Segment Assets at Rs 39,23,05,436 and the Treasury Segment Liabilities at Rs. 37,15,82,049. Similarly, schedules to the accounts for the year ended 31.03.2010 shows the Treasury Segment assets at Rs. 36,24,90,963 and Treasury Segment Liabilities at Rs. NIL Comparison of the Trial Balances as on 31.03.2009 and 31.03.2010 of the Treasury Segment also shows that the liabilities of Rs. 37,15,82,049/- as on 31/03/2009 got reduced to Rs. NIL There does not seem to be any corresponding reduction in assets or income generated as per your trial balances, which could lead to reduction of liabilities. The reduction in liability of the Treasury Segment may be explained, failing which it would be assumed that the liabilities of the Treasury Segment as on 31/03/2009 at Rs 37.15 crores were not transferred in the scheme of demerger." 6.5.2 In this regard, it is submitted that liabilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treasury undertaking on a going concern basis to SAIL. The A.O. has pointed out too many deficiencies as well as shortcomings in the order which according to the A.O. goes on to prove that the transfer of treasury undertaking was only a transfer of capital asset and not a demerger of treasury undertaking as per section 2(19AA) of the Act. It is seen from the submissions of the appellant as well as the findings of the A.O. and as a matter of fact that the business of treasury undertaking was never well defined. The appellant itself has submitted that the investment that it had made in the two subsidiary companies namely M/s. Paras Overseas Holding Ltd. and Paras Inc. USA that represented the core operations of the appellant were never a part of the treasury undertaking. According to AO SAIL was the subsidiary of appellant in AY 2008-09. Further, according to the appellant, in order to diversify on its own business operation in two hospital industry it had made investment in SAIL since A.Y.2002-03 to A.Y.2008-09. The treasury undertaking handled the investment in SAIL as well as it also handled the investments in mutual funds etc. but it did not handled the investments in two other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court. The A.O has observed that the appellant had shown market value of shares to Trent Ltd. at Rs. 500 per share whereas on 7/10/2010 the market value was Rs. 1,045/-. Similarly, the market value of Blue Information Ltd. does not correspond with the market value as on 7/10/2010. As the bonus shares of the IDBI too were shown as assets of the Treasury Segment before the Hon'ble High Court and other shares of IDBI were not reflected in the trial balance of the appellant. On enquiry by the A.O, the appellant submitted that as these were the bonus shares, their value was 'Zero' and they did not appear in the trial balance. According to the A.O the trial balance is generated from the individual accounts and so long as the accounts of bonus shares is existed even though at the face value of 'zero' the shares should have been reflected in the trial balance. Similar issues of Blue Information Ltd. and Trent Ltd. should have been reflected in the trial balance and a separate head for 'diminishing of value of assets' should have appeared. Thus, according to the A.O this involves violation of sub-clause-3 of sub sec.(19AA) of sec.2. According to AO, the shares of Blue Information and Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f treasury segment as an 'undertaking' and the treatment given by the appellant for inclusion of certain assets and exclusion of liabilities from the treasury segment. Based on this AO has concluded that the appellant has never treated the treasury segment as an 'undertaking'. I agree with the finding of the AO based on facts discussed above. On the issue of 'liability' of Treasury segment, according to A.O., as on 31/3/2009, the Treasury Segment had assets of Rs. 39,23,05,436/- and the liabilities were at Rs. 37,15,82,049/-. The accounts for the year ending 31/3/2010 show the assets of Treasury segment of Rs. 36,24,90,963/- whereas the liability of Treasury Segment were reflected at Rs. Nil. Thus, it appears that the liabilities of Rs. 37,15,82,049/- as on 31/3/2009 were got reduced to Rs. Nil on 31/03/2010. The A.O has correctly observed that there is no corresponding reduction in assets or income generated as per trial balance of the appellant that could lead to reduction of liabilities. The appellant had tried to explain to the A.O that the liabilities were internal liabilities pertaining to the other segments of the company and hence they are not in the trial balance. I agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er' within the meaning of 2(19AA). In fact, this court is inclined to clarify that the sanction of the scheme, as proposed by this court, does not in any way bind the Income-tax Department to take any particular view of the scheme of arrangements sanctioned by this court insofar as the tax implications of the transaction are concerned." The A.O has also further pointed out that even after the demerger of the Treasury Segment the appellant has continued its investments in mutual funds etc. Thus, it appears that the treasury segment which had the holding of the shares of SAIL as its main assets was demerged to SAIL only for the purpose of transferring SAIL's own shares to SAIL in order to avoid the payment of taxes under the Act. The appellant has continued with its activity of investments after the demerger of treasury segment to SAIL or transfer of shares back to SAIL through demerger. Thus, I agree with the stand of the AO that through the order of Hon'ble High Court, the appellant has only effectively transferred its capital asset of shares to SAIL in order to avoid the payment of tax under the head 'capital gain'. The appellant through its audited accounts of earlier years as we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidering a transaction as a transfer and thereby claiming exemption u/s 47(vib) r.w.s. 45 of the Act, whether the appellant has fulfilled all the conditions prescribed u/s 2(19AA) of the Act or not. I agree with the stand taken by the AO and based on the discussions above, hold that the appellant has not fulfilled all the conditions u/s 2(19AA) of the Act, thereby attracting tax under the head 'income from capital gain' on transfer of its assets. Transaction between the appellant company and SAIL will have to be treated as transfer of capital assets. Accordingly, I agree with the calculation of LTCG as worked out by the A.O. He has taken valuation of shares of SAIL at average amount attributable to shareholders for year ending of 31/3/2011 and 31/3/2010, resulting into average value of shares of SAIL at Rs. 23.10 and thereby resulting into capital gain of Rs. 13,19,12,485/-. Therefore, the levy of a capital gain taxes u/s.45 of the Act is hereby confirmed. Further, I also agree with the stand taken by the A.O that on sale of assets by appellant to SAIL the sale consideration of Rs. 61,91,15,966/- of the transferred assets was to be received by the appellant from SAIL. Instead, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in Section 2(19AA) of the Act and shares have been allotted by the 'resulting company' to the shareholders of the 'demerged company' against the transfer of assets and liabilities. The process of demerger generally consists of following transactions: * Transfer of assets and liabilities by the transferor company to the resulting transferee company; * Transfer/ extinguishment of shares of the transferor company; and * Issuance of shares of resulting transferee company to the shareholders of the transferor company. All the abovementioned transactions have been specifically exempted from the levy of capital gains tax by virtue of various clauses forming a part of Section 47 of the IT Act subjected to the applications of provisions of Section 2(19AA) of the Act. It is also settled position of law that the scheme of demerger once approved by the Hon'ble Jurisdictional High Court, it cannot be re-visited by any statutory authority. At the same time, the provisions of Income-tax Act had prescribed the conditions under which the benefits can be accorded in the case of demerger which means that mere fact that ipso facto does not entitle an assessee to claim benefit. The Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e investments yielding exempt income were made out of own funds. As per audited financial statements of RBHIL, RBHIL had own funds of Rs. 137,47,75,048 (share capital of Rs. 9,05,15,220plus free reserves of Rs. 128,42,59,828) for the year ended 31 March 2011. As against these owned funds, investment yielding exempt income amounted to only Rs. 37,54,06,040. * That RBHIL had generated net cash from its operating activities amounting to Rs. 104,15,44,432 whereas additional investment made during the year yielding exempt income amounted to only Rs. 2,57,97,695. The Ld. Counsel for the assessee, therefore, argued that, as investments were made by RBHIL from its own surplus funds and no expenses were incurred by RBHIL with respect to the aforesaid investments, the question of applicability of Section 14A of the Act does not arise. 6.5 The Ld. DR, placing reliance on the assessment order, contended that the Assessing Officer has rightly made the disallowance u/s 14A of the Act and relied on the order of the Tribunal in assessee's own case in ITA No. 3098/Ahd/2013 for AY 2008-09. 6.6. We have heard the rival contentions and perused the material available on record on this issue. We fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year, the Assessing Officer made disallowance on account of interest expenses of Rs. 7,74,777/- (page No. 37 of Assessment Order). Respectfully following the decision of the Tribunal in assessee's own case for AY 2008-09 (supra), the disallowance made by the Assessing Officer u/s. 14A of the Act to the extent of interest expenses amounting to Rs. 7,74,777/- is hereby deleted. This ground of appeal of the assessee is partly allowed. 6.8. In the result, the appeal of the assessee is partly allowed ITA No. 1225/Ahd/2018 - Revenue's Appeal 7. Product registration expenses - Rs. 1,57,98,657/- 7.1 The Assessing Officer held that the claim of the assessee on account of product registration expenditure of Rs. 1,57,98,657/- is Capital Expenditure on the grounds that in assessee's line of business, the goods cannot be exported to other countries unless and until the products are approved and registered with the authorities of the respective countries and the process of getting the products registered itself is a long drawn process wherein the goods/drugs have to pass through a series of tests and studies of bio-equivalence and clinical research to the satisfaction of the authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved that the assessee has claimed a sum of Rs. 98,94,80,551/- as deduction u/s.80IC of the Act for its unit at Baddi, Himachal Pradesh being 100% of the profit of the unit. On perusal of the accounts of the assessee, the Assessing Officer held that the turnover of this unit as per the P&L Account filed for the unit was shown at Rs. 326,34,37,682/-. He, thus, held that since the Baddi unit of the assessee-company only possesses manufacturing assets and is engaged solely in manufacturing activities, the profits of the Baddi unit should be restricted to those derived from manufacturing alone. He thus held that the profits must be segregated into three components: profits from manufacturing activities, profits from brand value of the assets, and profits from the marketing network. The Assessing Officer held that the Baddi unit was set up merely for manufacturing purposes, while other functions such as marketing and vendor management are controlled from the Head Office of the assessee-company, thus held that the unit was entitled to a deduction based only on the profits attributable to its manufacturing activity. He also held that the expenditure allocated to the Baddi unit during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve and selling expenses etc. have been accounted for on actual/ allocated on the basis of sales. Further there is no dispute by the Revenue on allocation of expenses, between eligible unit and non-eligible unit. * Tax deduction is admissible on the profits earned from the business carried on by the undertaking and 'business' means group of organized activities with a view to earn profits. * There is no provision in section 80IC of the Act which allows splitting up of the business activities i.e. manufacturing, marketing and branding in the given case. * Baddi unit is selling goods directly and hence all the activities ie hiring of labours, procurement of raw materials, consumables and stores, manufacturing, packaging and labeling, undertaking marketing and sales promotions efforts and finally dispatching the goods together constitutes the business and hence profits attributable to business as a whole would be eligible for tax deduction. * In the given facts profits has been derived only from the sale of goods and goods have been sold to customers only and not transferred to any other units of the Appellant for the further value addition. * It is not alleged that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are only two units located at Kalol and Baddi and while claiming tax benefits incomes and expenses incurred for Kalol units has been reduced from the total profits and deduction has been claimed on the basis of profit attributable to Baddi unit. The marketing and distribution costs are generally allocated on the basis of turnover on scientific basis therefore we do not justify the action of the assessing officer of segregation of profit to Baddi unit on assumption basis. In the given facts in the case of the assessee all the activities from beginning to end of the process together constitute the business of Baddi unit and profit derived from the entire process is eligible for the tax holiday and not from separate activities of the unit. In such circumstances, provisions of section 80IC do not require assessee to split the activities and contribute the profit attributable to separale activities which constitute one business. We have also considered the decision of the coordinate bench in the case of Cadila Healthcare Ltd. vide ITA No.3140/Ahd/2010 wherein on identical facts on claim of deduction from eligible profits derived by a Baddi unit of a pharmaceutical company it is held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to examine what these provisions prescribe for "computation of profits of the eligible business". It is evident that Section 80-IB provides for allowing of deduction in respect of profits and gains derived from the eligible business. The words "derived from is narrower in connotation as compared to the words "attributable to". In other words, by using the expression "derived from", Parliament intended to cover sources not beyond the first degree. On analysis of Sections 80-IA and 80-1B it becomes clear that any industrial undertaking, which becomes eligible on satisfying sub-section(2), would be entitled to deduction under sub-section (1) only to the extent of profits derived from such industrial undertaking after specified date(s). Hence, apart from eligibility, sub-section (1) purports to restrict the quantum of deduction to a specified percentage of profits. This is the importance of the words "derived from industrial undertaking" as against "profits attributable to industrial undertaking". 9.5 The Ld. AR, on the other hand, contended that :- * Scrap generated during manufacturing process does not have any alternative use and hence the same is disposed off. * The income g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 2,06,85,173/- 10.1 Assessing Officer observed from Form 10CCB submitted by the assessee that the assessee's computation for eligible profits u/s 80IC included a sum of Rs. 2,06,85,173/- which was the amount disallowed u/s 40a(ia). Thus, he held that, to the extent of the disallowed expenses, the profits of the eligible undertaking u/s 80IC increased and the assessee claimed enhanced deduction u/s 80IC. Accordingly, the assessee's claim of deduction u/s 80IC on the disallowance made under section 40(a)(ia) was disallowed. Aggrieved by this disallowance, assessee took up this issue before Ld. CIT(A) who allowed the claim of deduction relying upon the decision of his predecessor for AYs 2009-10 & 2010-11. 10.2 Ld. DR argued that the enhancement of profit on account of disallowance u/s 40(a)(ia) cannot increase the deduction u/s 80IC. He relied on the judgment of ITAT Ahmedabad 'C' Bench in the case of Rameshbhai C. Prajapati (Appeal no. 226/Ahd/2010 dt. 21.09.2012) wherein in was held as under:- "it is settled principle that the deeming fiction created under any provisions of the Act cannot be imported into a beneficial provisions of the Act. In this case, the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In computing the profits and gains of a business activity, the Assessing Officer may make certain disallowances, such as disallowances pertaining to sections 32 , 40 (a)(ia), 40A(3 ), 43B etc., of the Act. At times disallowance out of specific expenditure claimed may also be made. The effect of such disallowances is an increase in the profits. Doubts have been raised as to whether such higher profits would also result in claim for a higher profit-linked deduction under Chapter VI-A. 2. 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. 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 di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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