Court allows deduction under Section 35(2AB) for expenses related to eligible units.

The court ruled in favor of the appellant, allowing the deduction under Section 35(2AB) for expenses related to units eligible for deduction under Section 10B. The tribunal's decision disallowing the deduction was overturned, and the appeal was disposed of in favor of the appellant.

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Issues:
1. Interpretation of deduction provisions under Section 35(2AB) and Section 10B of the Income Tax Act, 1961.
2. Applicability of Section 14A of the Act to the appellant's case.

Analysis:

Issue 1: Interpretation of Deduction Provisions
The appellant, a company engaged in biotechnological products, claimed deductions under Section 10B and Section 35(2AB) of the Act for the Assessment Year 2004-05. The Assessing Officer disallowed the deduction under Section 35(2AB) since the appellant had already claimed deduction under Section 10B. The Commissioner of Income Tax (Appeals) and the Tribunal upheld this decision. The appellant argued that Section 10B and Section 35(2AB) are independent provisions, with Section 10B providing income-based deduction for the undertaking and Section 35(2AB) providing expenditure-based deduction at the entity level. The appellant highlighted the Supreme Court's decision that Section 10B is a deduction provision. The appellant also pointed out the amendment in Section 10B by the Finance Act, 2003, removing restrictions on other tax concessions for eligible units after April 1, 2001. The appellant contended that Section 14A does not apply as it pertains to exempt incomes, which the appellant did not have.

Issue 2: Applicability of Section 14A
The revenue argued that the appellant is not entitled to double deduction under Sections 37 and 35(2AB) due to Section 35(2) of the Act. The revenue claimed that all deductions are deemed to have been claimed under Section 10A(6) of the Act. The revenue emphasized that profits of a unit must be computed on a stand-alone basis without reference to other units. The Division Bench referred to the decision in CIT Vs. YOKOGAWA LTD., which held that Section 10B is a deduction provision, not an exemption provision. The court noted that the restriction in Section 10B(6) applies only until April 1, 2001, and Section 35(2AB)(2) does not apply to the case as it deals with expenditure, unlike Section 10B, which deals with income. The court also cited the Supreme Court's ruling on Section 14A, stating it aims to prevent claiming expenses related to exempt income against taxable income, which is not applicable in the appellant's case.

In conclusion, the court ruled in favor of the appellant, quashing the tribunal's decision that the appellant was not entitled to claim deduction under Section 35(2AB) for expenses related to units eligible for deduction under Section 10B. The appeal was disposed of in favor of the appellant.

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