Enhanced eligible business profits from section 43B disallowance remain deductible under section 80IC when linked to the qualifying business.

Disallowance under section 43B that increases the profits of an eligible business can support a higher deduction under section 80IC, because the enhanced profits are treated as part of the business profits for Chapter VI-A purposes. The Tribunal relied on CBDT guidance recognising that disallowances under provisions such as sections 32, 40(a)(ia), 40A(3) and 43B, when connected with the eligible business activity, result in enhanced deductible profits. Applying that settled position, the Tribunal held that the assessee was entitled to deduction on the increased profit figure and decided the issue in favour of the assessee.

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Issues: Whether deduction under section 80IC of the Income-tax Act, 1961 is admissible on enhanced business profits arising from disallowance made under section 43B of the Income-tax Act, 1961.

Analysis: The disallowance under section 43B increased the profits of the eligible business units. The Tribunal relied on the CBDT circular accepting that disallowances under provisions such as sections 32, 40(a)(ia), 40A(3) and 43B, when relating to the business activity for which Chapter VI-A deduction is claimed, result in enhancement of eligible profits and that deduction is allowable on such enhanced profits. The Tribunal held that the assessee's case was covered by this settled position.

Conclusion: Deduction under section 80IC was held allowable on the enhanced profits, and the issue was decided in favour of the assessee.

Ratio Decidendi: Where a disallowance relating to the eligible business increases its profits, the enhanced profits remain eligible for profit-linked deduction under Chapter VI-A if the deduction is otherwise available for that business.

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