Section 10A deduction on enhanced business profits upheld where disallowances increased the assessee's profit base.

Amounts disallowed and added back to business income under Section 40(a)(ia) and Section 43B may form part of the profits eligible for deduction under Section 10A where the add-back increases the assessee's business profit. The Tribunal, following Merilyn Shipping & Transports and Gem Plus Jewellery (India) Ltd., treated the disallowances as an enhancement of business profits for Section 10A computation. That approach was upheld, and the assessee remained entitled to the deduction on the enhanced profit base.

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Issues: Whether disallowances added by the Assessing Officer, including amounts disallowed under Section 40(a)(ia) and Section 43B, are to be treated as business income for computing deduction under Section 10A.

Analysis: The Court noted that the Tribunal had followed the decisions in Merilyn Shipping & Transports and Gem Plus Jewellery (India) Ltd. and had taken the view that the effect of the disallowance and add-back made by the Assessing Officer was an increase in the business profit of the assessee. On that basis, the Tribunal held that the assessee remained entitled to deduction under Section 10A on the enhanced business profit.

Conclusion: The issue was answered in favour of the assessee. The Tribunal's view that the disallowed amounts formed part of the business profits for Section 10A computation was upheld.

Ratio Decidendi: Amounts added back to business income on disallowance can be included in the profits eligible for deduction under Section 10A where the add-back increases the business profit of the assessee.

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