TDS disallowance does not curtail section 80IB deduction; profit is computed on the enhanced business income figure.

Disallowance of expenses under Chapter XVII-B read with section 40(a)(ia) does not reduce the profits eligible for deduction under section 80IB. Business income is first computed under section 29 by applying sections 30 to 43D, and the deduction under section 80IB is then worked out on the profits as finally assessed. Where a TDS-related disallowance increases the business profit figure, there is no statutory bar to granting deduction on that enhanced amount. Separate penal and interest consequences for TDS default remain applicable.

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Issues: Whether disallowance of expenses under Chapter XVII-B read with section 40(a)(ia) of the Income-tax Act, 1961 could reduce the profits eligible for deduction under section 80IB of the Income-tax Act, 1961.

Analysis: The profits and gains of business are to be computed in accordance with section 29 of the Income-tax Act, 1961, applying sections 30 to 43D of the Act. On that basis, the business profits as finally computed by the Assessing Officer form the base for deduction under section 80IB. A disallowance made while computing business income therefore increases the profits on which the deduction is worked out, and there is no statutory bar to allowing the deduction on the enhanced profit figure merely because the addition arose from non-deduction of tax at source. The separate penal and interest consequences for TDS default were also noted.

Conclusion: The disallowance under section 40(a)(ia) does not curtail the deduction under section 80IB, and the assessee is entitled to the deduction on the profits as computed after such disallowance.

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