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2020 (1) TMI 1182 - ITAT BANGALOREDeduction u/s. 10AA - TDS u/s 195 - payments made to M/s. Eka Software Solutions Inc. [EKA, USA] as “business service-marketing charges - assessee failed to deduct tax at source on the aforesaid payment made to a non-resident - HELD THAT:- As noticed from the order of CIT(Appeals) that in assessee’s own case for AY 2010-11 [2015 (1) TMI 1445 - ITAT BANGALORE] the Tribunal has held that disallowance of business service-marketing charges will go to increase the profits of the business which is eligible for deduction u/s. 10AA of the Act and that deduction u/s. 10AA of the Act should be allowed on such enhanced profit consequent to disallowance u/s. 40(a)(i) of the Act. In this regard, we find that in the case of CIT v. Gem Plus Jewellery India Ltd. [2010 (6) TMI 65 - BOMBAY HIGH COURT] and ITO v. Kewal Construction [2013 (7) TMI 291 - GUJARAT HIGH COURT] have taken the view that when disallowance u/s. 40(a)(ia) of the Act goes to enhance the profits that are eligible for deduction under Chapter VIA of the Act, the deduction under Chapter VIA should be allowed on such increased profit. This position has also been now confirmed by the CBDT in its Circular No.37/2016 dated 02.11.2016 It therefore appears that there will be no tax liability on the assessee, consequent to disallowance u/s. 40(a)(i) of the Act. In such circumstances, we are of the view that the question whether disallowance u/s. 40(a)(i) of the Act is justified or not, is academic, if the alternative relief is provided to the assessee. We therefore dismiss the appeal with a direction to the AO to comply with the directions of CIT(Appeals) in allowing relief u/s. 10AA of the Act on the enhanced profit consequent to disallowance u/s. 40(a)(i) - Decided against assessee.
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