Tribunal allows deduction under Section 10AA, upholds commission as salary, remands salary apportionment issue.

The Tribunal ruled in favor of the assessee, allowing the deduction under Section 10AA of the Income Tax Act on a standalone basis without setting off losses from non-eligible units. The Tribunal upheld the deletion of disallowance of commission paid to directors under Section 40(a)(ia) of the Act, considering it as part of salary. The issue of apportionment of salary or operational expenses was remanded for fresh adjudication. The appeal of the assessee was partly allowed, and the appeal of the Revenue was partly allowed for statistical purposes.

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Issues Involved:
1. Claim of deduction under Section 10AA of the Income Tax Act.
2. Disallowance of commission paid to directors under Section 40(a)(ia) of the Act.
3. Apportionment of salary or operational expenses between eligible and non-eligible undertakings.

Issue-wise Detailed Analysis:

1. Claim of Deduction under Section 10AA of the Income Tax Act:
The assessee challenged the restriction of deduction under Section 10AA to the extent of Gross Total Income. The assessee argued that the deduction should be allowed in full on a standalone basis without setting off losses from non-eligible units. The Tribunal admitted this additional ground, citing the Supreme Court decision in CIT vs Yokogawa India Ltd (391 ITR 274), which clarified that the deduction under Section 10AA is to be allowed on a standalone basis for the eligible undertaking without reference to other units. The Tribunal ruled in favor of the assessee, allowing the deduction of Rs. 72,08,44,373 on a standalone basis.

2. Disallowance of Commission Paid to Directors under Section 40(a)(ia) of the Act:
The Revenue appealed against the deletion of disallowance of commission paid to directors where no tax was deducted at source. The Tribunal noted that similar disallowances in previous assessment years were deleted by the Tribunal and CIT(A). The commission paid was treated as salary in the subsequent year, and tax was deducted under Section 192. The Tribunal upheld the CIT(A)'s decision, stating that the commission was part of the salary and not subject to disallowance under Section 40(a)(ia), following the precedent set in the assessee's own case for earlier years.

3. Apportionment of Salary or Operational Expenses:
The Revenue questioned the deletion of the addition made by the AO by apportioning expenses of the CEO, MD, and Finance Department between eligible and non-eligible units. The assessee argued that the SEZ unit had its own setup and maintained separate books of accounts. The Tribunal referred to previous decisions where head office expenses were not allocated to eligible units for deduction purposes. The Tribunal remanded the issue back to the CIT(A) for denovo adjudication, allowing the assessee to present fresh evidence and legal arguments.

Conclusion:
The appeal of the assessee was partly allowed, and the appeal of the Revenue was partly allowed for statistical purposes. The Tribunal's decisions were based on legal precedents and the specifics of the case, ensuring a thorough examination of each issue. The order was pronounced on 18/08/2021.

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