TMI Blog2021 (10) TMI 409X X X X Extracts X X X X X X X X Extracts X X X X ..... - ITA No.3239/MUM/2019 - - - Dated:- 1-10-2021 - Shri Pramod Kumar (Vice President) And Shri Ravish Sood (Judicial Member) For the Assessee : Shri Ravindra Naik, A.R For the Revenue : Shri Tharian Oommen, D.R ORDER PER RAVISH SOOD, J.M: The present appeal filed by the assessee is directed against the order passed by the CIT(A)-33, Mumbai, dated 25.03.2019 which in turn arises from the order passed by the A.O u/s 143(3) of the Income Tax Act, 1961 (for short Act‟), dated 16.12.2016 for A.Y. 2014-15. The assessee has assailed the impugned order on the following grounds before us: 1. The ld. CIT(Appeals) has erred in confirming the disallowance of provisions for expenses amounting to ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. Also, it was observed by the A.O that the assessee had made a provision of an amount of ₹ 37,17,500/- against which it had considered provisions only to the extent of ₹ 33,00,000/- in its computation of income. Accordingly, the difference of ₹ 4,17,500/- on account of provisions claimed by the assessee was also disallowed by the A.O. Further, the assessee‟s claim for deduction of donation of ₹ 60,005/- was also declined by the A.O for the reason that the same was not eligible as a deduction u/s 37 of the Act. Backed by his aforesaid observations, the A.O vide his order passed u/s 143(3), dated 10.12.2016 assessed the income of the assessee society at ₹ 63,77,260/-. 4. Aggrieved, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions for expenses aggregating to ₹ 4,17,500/- as under: Provision for expenses Amount Government Audit Fee 1,25,000.00 Internal Audit Fee 75,000.00 Education Fund (As per MCS Act) 5,000.00 Tax Audit Fee 12,500.00 Election fund expenses 2,00,000.00 Total 4,17,500.00 Although, it was the claim of the assessee that the aforesaid provision for business expenses was in accordance with the mercantile system of accounting follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d may also be made. The effect of such disallowances is an increase in the profits. Doubts have been raised as to whether such higher profits would also result in claim for a higher profit-linked deduction under Chapter VI-A. 2. The issue of the claim of higher deduction on the enhanced profits has been a contentious one. However, 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- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits of the eligible business, and that deduction under Chapter VI-A 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. In the backdrop of our aforesaid observations, we are of the considered view that the CBDT vide its aforesaid Circular No. 37/2016, dated 02.11.2016 had after taking cognizance of various judicial pronouncements, concluded, that in case a disallowance made u/s 32, 40(a)(ia), 40A(3), 43B etc. of the Act and other specific disallowances related to the business activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court. It was observed by the Hon‟ble High Court that now when the undisclosed cash found in the possession of the assessee during the course of the search proceedings was acquired by it while carrying on its business as a builder, therefore, there was no question of invoking the application of Sec. 68, 69 and 69A, 69B and 69C of the Act, as was done by the revenue. Backed by the aforesaid facts, it was further observed that now when the aforesaid undisclosed income was returned by the assessee as its income from profits and gains of business or profession and the same had been accepted by the department, therefore, no infirmity did emerge from the order of the Tribunal which had rightly concluded that qua such undisclosed income the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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