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2017 (1) TMI 257 - ITAT MUMBAI100% EOU - Withholding tax u/s 195 - Disallowance made u/s 40(a)(i) - enhanced profits due to disallowance for non deduction of tax u/s 195 considered for deduction u/s 10B - Held that:- The sum , substance and spirit of the afore-stated Circular No. No. 37/2016 dated 2nd November, 2016 is that the Revenue does not want to continue the litigation with respect to disallowance made by the Revenue u/s 32,40(a)(ia), 40A(3), 43B etc. of the Act , which ultimately led to increase in profits which are otherwise eligible for profit linked deduction under Chapter VI-A of the Act. The Board has accepted that the disallowance made u/s 32, 40(a)(ia), 40A(3), 43B etc. of the Act and other disallowance out of specific expenditure related to the business activity may be made by Revenue which led to enhancement of profits against which Chapter –VIA profit linked deductions has been claimed and it is accepted that enhanced profit linked deduction under Chapter VI-A is admissible on the profits so enhanced by the said disallowance made by the Revenue. We find that the Revenue’s appeal and the assessee’s cross objection are duly covered by the CBDT circular although Section 10B of the Act is not placed under Chapter VI-A of the Act rather the same is placed under Chapter-III of the Act but the deductions u/s 10B of the Act are profit linked deductions and hence there is no reason why the same should not be allowed keeping in view the spirit of afore-stated CBDT circular as the deduction u/s 10 B of the Act is also profit linked deduction The use of the word ‘etc.’ clearly denotes that it will apply to similarly placed disallowances and disallowance u/s 40(a)(i) of the Act is also disallowance due to non-deduction of withholding tax as is contemplated by Section 40(a)(ia) of the Act. Hence the CBDT circular will be applicable to deductions u/s 10B of the Act as well to disallowance u/s 40(a)(ia) of the Act as well. Hence the appeal of the Revenue is not sustainable/maintainable in view of afore-stated CBDT circular dated 02-11-2016 and we dismiss the appeal filed by the Revenue , while the C.O. filed by the assessee is allowed as the additions of ₹ 1,35,556/- made by the AO are w.r.t. disallowance u/s 40(1)(ia) of the Act. In any case this issue is also covered by decision of Hon’ble jurisdictional Bombay High Court in favour of the assessee in CIT v. Gem Plus Jewellary India Limited in (2010 (6) TMI 65 - BOMBAY HIGH COURT) as disallowance u/s 40(a)(i) of the Act is a statutory disallowance and the hence enhanced profits due to disallowance shall be considered for deduction u/s 10B of the Act. We order accordingly.
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