ITAT affirms CIT(A) decision on deduction u/s 80IB, dismissing Revenue's challenge.

The ITAT upheld the CIT(A)'s decision, allowing the assessee's appeal for deduction u/s 80IB on enhanced profit post disallowance u/s 40A(3). The Revenue's challenge was dismissed, affirming the order of CIT(A), in line with established legal precedents.

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Issues involved: Appeal against order of CIT(A)-II, Hyderabad for assessment year 2008-09 regarding deduction u/s 80IB on enhanced profit after disallowance u/s 40A(3).

Summary:
The appeal was filed by the Revenue against the order of CIT(A)-II, Hyderabad, challenging the addition made u/s 40A(3) on the ground of cash payment exceeding a specified limit for land purchase. The assessee contended that the disallowance u/s 40A(3) should enhance the profit, making them eligible for deduction u/s 80IB. The AO disallowed the expenditure incurred in cash, treating it as deemed income unrelated to business profits, thus denying the deduction u/s 80IB. The assessee appealed to CIT(A) seeking allowance of deduction u/s 80IB on the enhanced profit post disallowance.

CIT(A) relied on various Tribunal/High Court decisions, including the Bombay High Court ruling in CIT Vs. Gem Plus Jewellery India Ltd., to support the view that disallowance leading to enhanced profits should entitle the assessee to deduction u/s 80IB. The Revenue challenged CIT(A)'s decision, arguing that the disallowance under u/s 40A(3) was due to non-compliance with the law, not related to housing projects, and thus should not impact the deduction u/s 80IB.

The ITAT, after considering the arguments and precedents, upheld CIT(A)'s decision, citing the law laid down by various ITAT benches and High Courts. The ITAT confirmed that the assessee was entitled to deduction u/s 80IB on the enhanced profit resulting from the disallowance u/s 40A(3). Consequently, the appeal of the Revenue was dismissed, affirming the order of CIT(A).

In conclusion, the ITAT judgment on 27th July 2012 confirmed the entitlement of the assessee to deduction u/s 80IB on the enhanced profit post disallowance u/s 40A(3, in line with established legal precedents.

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