Appellate Tribunal upholds private construction company's eligibility for tax deduction under section 32AB.

The Appellate Tribunal upheld the decision of the CIT(Appeals), affirming the eligibility of a private limited company engaged in construction activities like grouting and drilling of dams for deduction under section 32AB. The Tribunal emphasized that CBDT Circulars, even if deviating from the law, are binding on Income-tax Authorities and can override the legal position if beneficial to the assessee. Therefore, the Tribunal rejected the revenue's appeal, confirming the company's eligibility for the deduction under section 32AB.

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Issues:
Interpretation of eligibility for deduction under section 32AB for a private limited company engaged in grouting and drilling of dams.

Analysis:
The appeal before the Appellate Tribunal ITAT Indore involved the eligibility of a private limited company engaged in the business of grouting and drilling of dams for deduction under section 32AB for the assessment year 1988-89. The revenue contended that the business of construction, including grouting and drilling of dams, is not covered under the 11th Schedule of the Act and, therefore, not eligible for the deduction. The Assessing Officer denied the deduction, citing that section 32AB excludes businesses of construction from eligibility for the deduction. However, the CIT(Appeals) allowed the deduction based on a CBDT Circular clarifying the scope of the provisions relating to Direct Taxes. The revenue appealed the decision before the Appellate Tribunal.

The revenue argued that the private limited company, engaged in construction activities like grouting and drilling of dams, is not eligible for the deduction under section 32AB as construction is excluded from the definition of 'eligible business or profession.' The revenue relied on a Supreme Court decision associating 'manufacture' and 'production' with movables, not construction activities. Additionally, the revenue contended that the CBDT circular relied upon by the CIT(Appeals) is not binding and cited various court decisions to support the argument that circulars deviating from the Act are not enforceable.

In response, the counsel for the assessee supported the CIT(Appeals) decision, emphasizing that the CBDT Circular is binding on departmental authorities even if it deviates from the Act. The counsel referenced a Gujarat High Court decision to support the position that beneficial circulars are enforceable by the Courts.

After considering the arguments and relevant legal precedents, the Appellate Tribunal upheld the decision of the CIT(Appeals). The Tribunal noted that the CBDT Circular clarified that businesses of construction, including grouting and drilling of dams, are eligible for deduction under section 32AB. The Tribunal emphasized that circulars issued by the CBDT, even if deviating from the legal position, are binding on Income-tax Authorities and can supplant the law if beneficial to the assessee. Therefore, the Tribunal rejected the revenue's appeal, affirming the eligibility of the private limited company for the deduction under section 32AB.

In conclusion, the Appellate Tribunal dismissed the appeal, affirming the eligibility of the private limited company engaged in construction activities like grouting and drilling of dams for deduction under section 32AB based on the CBDT Circular's clarification.

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