2019 (9) TMI 143 - AT - Income Tax

Tax Tribunal Affirms CIT(A) Decision on Section 10A Deduction Eligibility

ITO-15 (1) (3), Mumbai Versus M/s Credit Suisse Business Analytics (India) Pvt. Ltd.

The Tribunal upheld the ld. CIT(A)'s decision, emphasizing the significance of legal precedents and established principles in interpreting tax laws and ... Computing the deduction u/s 10A - addition made on account of the disallowance of the provident fund/ ESIC payments - HELD THAT:- As decided in assessee's own case in the present case it cannot be disputed that the net consequence of the disallowance of the employer's and the employees' contribution is that the business profits have to that extent been enhanced. There was as we have already noted, an add back by the Assessing Officer to the Income. All profits of the unit of the assessee have been derived from manufacturing activity. The salaries paid by the assessee, It has not been disputed, relate to the manufacturing activity. The disallowance of the provident fund/ ESIC payments has been made because of the statutory provisions-section 43B in the case of the employer's contribution and section 36(v) read with section 2(24) (x) in the case of the employees' contribution which has been deemed to be the income of the assessee. The plain consequence of the disallowance and the add back that has been made by the Assessing Officer is an increase in the business profits of the assessee. The contention of the Revenue that in computing the deduction under section 10A the addition made on account of the disallowance of the provident fund/ ESIC payments ought to be ignored cannot be accepted. No statutory provision to that effect having been made, the plain consequence of the disallowance made by the Assessing Officer must follow. Decided against the Revenue Issues:1. Interpretation of Section 10A deduction eligibility based on disallowed expenses under Section 40(a)(ia).2. Application of case law precedent in determining deduction eligibility under Section 10A.Issue 1:The appeal by the revenue challenged the order of the ld. Commissioner of Income Tax (Appeals) regarding the disallowance under Section 40(a)(ia) affecting the deduction under Section 10A for the Assessment Year 2011-12. The Assessing Officer disallowed a sum under Section 40(a)(ia), leading to the question of whether this disallowance impacts the eligibility for deduction under Section 10A. The ld. CIT(A) reversed the Assessing Officer's decision, following the decision of the jurisdictional High Court in a specific case. The revenue contended that the disallowance should not be considered for claiming Section 10A deduction. The Tribunal, after considering the arguments and case laws, upheld the ld. CIT(A)'s decision based on the precedent set by the High Court and dismissed the revenue's appeal.Issue 2:The Tribunal referenced a specific case where the High Court ruled on a similar issue regarding the interpretation of Section 10A deduction eligibility in light of disallowed expenses. The High Court held that the disallowance of certain contributions should not impact the deduction under Section 10A, as it led to an increase in business profits. The Tribunal also noted a decision by the ITAT Hyderabad Bench favoring the assessee on a similar issue. Based on these precedents and the absence of contrary facts or laws, the Tribunal affirmed the ld. CIT(A)'s order and dismissed the revenue's appeal. The Tribunal emphasized the importance of following established legal principles and case law precedents in determining deduction eligibility under Section 10A.In conclusion, the Tribunal upheld the ld. CIT(A)'s decision, emphasizing the significance of legal precedents and established principles in interpreting tax laws and determining deduction eligibility under Section 10A. The Tribunal dismissed the revenue's appeal based on the consistent application of legal principles and case law precedents in similar cases.