TMI Blog2017 (10) TMI 419X X X X Extracts X X X X X X X X Extracts X X X X ..... o disallowance under section 40(a)(i) as well. In this view of the matter, in terms of the CBDT circular (supra), the appeal filed by the Assessing Officer, on this point, is indeed not maintainable. Non-deduction of tax at source from payments made to the non-residents must be dealt with at a different level, and bearing in mind the need to protect our tax base, we can only point out that lapses with respect to tax withholding obligations from payments made to non-residents is visited with several type of consequences disallowance under section 40(a)(i), recovery under section 201, penalty under section 271C and, in certain situations, even prosecution under section 276B. We, therefore, see no need to even deal with the matter on me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible for exemption under section 10A, it will be revenue neutral inasmuch as even if disallowance under section 40(a)(i) is upheld, the corresponding enhanced income eligible for section 10 A benefit will also go up. She invites our attention to CBDT circular No. 37 dated 2nd November, 2016, and to Hon ble jurisdictional High Court s judgment in the case of ITO Vs Keval Constructions [(2013) 33 taxmann.com 277 (Guj)], in support of this proposition. This objection of the assessee, alongwith the CBDT circular and Hon ble jurisdictional High Court s judgment in the case of Keval Construction (supra), was placed before us in the documents filed before us as well. The objection of the assessee is that, in the light of the position accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that, as noted by the CBDT, the concession for not pursuing the appeal specifically refers to Section 40(a)(ia) and it cannot be extended to Section 40(a)(i). There is no need to bring in the notions of fairness and equity as we are dealing with a concession extended by the CBDT circular, and, something which is not dealt in the said circular cannot be inferred to be concession by the said circular. In any case, according to the learned Departmental Representative, nondeduction of tax at source from payments to non-residents cannot be treated at par with the payments made to the residents, as there are limited modes of recovery so far as tax liabilities from non-residents are concerned. He relied upon the stand of the Assessing Officer tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, the courts have generally held that if the expenditure disallowed is related to the business activity against which the Chapter VI - A deduction has been claimed, the deduction needs to be allowed on the enhanced profits . Some illustrative cases upholding this view are as follows : ( i ) If an expenditure incurred by assessee for the purpose of developing a housing project was not allowable on account of non - deduction of TDS under law, such disallowance would ultimately increase assessee's profits from business of developing housing project . The ultimate profits of assessee after adjusting disallowance under section 40 ( a )( ia ) of the Act would qualify for deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that deduction under Chapter VIA is admissible on the profits so enhanced by the disallowance . 4 . Accordingly, henceforth, appeals may not be filed on this ground by officers of the Department and appeals already filed in Courts / Tribunals may be withdrawn / not pressed upon . The above may be brought to the notice of all concerned . [6] What has been accepted by the CBDT, as learned counsel rightly points out, is the principle that when a disallowance results in an enhancement of business profits but such an enhancement is revenue neutral inasmuch as related business profits, in totality, are eligible for deduction under chapter VI, such appeals need not be pursued. The reference to Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the context of the present proceedings, even as we take on record learned counsel s submission that, even on merits, the issue is now covered in favour of the assessee and that the assessee did not have any obligations to deduct tax at source at all. That aspect of the matter is wholly academic. In view of these discussions, and bearing in mind entirety of the case, we uphold the preliminary objection of the assessee and dismiss this ground of appeal as not maintainable. [7] Ground no. 1 is thus dismissed. [8] In ground no. 2 and 3, the Assessing Officer is aggrieved of the learned CIT(A) s deleting the disallowance of ₹ 8.16 lakhs in respect of medical and life insurance premium, and of ₹ 12.89 lakhs in respect of late pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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