Deputy Commissioner of Income-tax, V. Ram Infrastructure Ltd., Jalgaon

ITA 463/PUN/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7465 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-01-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 07-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K GAUTAM
• Keywords: Business income; Question of law; Commercial expediency
• Section: 43B; 40A(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 463/PUN/2014 %' ( ')( / ASSESSMENT YEAR : 2010-11 THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 1, OLD BHIKAMCHAND JAIN MARKET, JALGAON 425001 (MAHARASHTRA) ....... / APPELLANT ' /VS. RAM INFRASTRUCTURE LTD., 6, SHREYAS RESIDENCY, GANESHWADI, JALGAON 425001 PAN : AACCR2739N / RESPONDENT ASSESSEE BY : SHRI NEELESH KHANDELWAL REVENUE BY : SHRI M.K. GAUTAM / DATE OF HEARING : 11-01-2017 / DATE OF PRONOUNCEMENT : 11-01-2017 * / ORDER PER VIKAS AWASTHY, JM : THIS APPEAL BY THE DEPARTMENT IS DIRECTED AGAINST THE OR DER OF COMMISSIONER OF INCOME TAX (APPEALS)-2, NASHIK DATED 23-12 -2013 FOR THE ASSESSMENT YEAR 2010-11. THE ONLY ISSUE RAISED IN THE APPEAL BY THE DEPARTMENT IS AGAINST ALLOWING DEDUCTION U/S. 80IA OF THE INCOME TAX ACT, 1961 ( HEREINAFTER REFERRED TO AS THE ACT) ON THE ADDITION MADE U/S. 14A R.W. RULE 8D. 2 ITA NO. 463/PUN/2014, A.Y. 2010-11 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE: THE ASSESSEE COMPANY IS ENGAGED IN INFRASTRUCTURE DEVELOPMEN T ACTIVITY, MAINLY CONSTRUCTION OF ROADS AND BRIDGES ON BUILT OPERATE AND TRANSFER (BOT) BASIS. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR ON 15-10-2010 DECLARING TAXABLE INCOME AS NIL. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS TH E ASSESSING OFFICER MADE DISALLOWANCE OF ` 7,41,26,060/- U/S. 14A R.W. RULE 8D. AGGRIEVED BY THE ASSESSMENT ORDER DATED 01-03-2013, T HE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF I NCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) BY PLAC ING RELIANCE ON VARIOUS DECISIONS INCLUDING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. G EM PLUS JEWELLERY INDIA LTD. REPORTED AS 42 DTR 73 AND THE DEC ISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. KALBHOR GAWAD E BUILDERS REPORTED AS 155 TTJ 124 DECIDED THE ISSUE IN FAVOUR OF T HE ASSESSEE. AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IN ALLOWING DEDUCTION U/S. 80IA OF THE ACT ON THE ADDITIONS MADE U/S . 14A R.W. RULE 8D, THE DEPARTMENT IS IN APPEAL BEFORE THE TRIBUNAL. 3. SHRI NEELESH KHANDELWAL APPEARING ON BEHALF OF THE ASSE SSEE SUBMITTED AT THE OUTSET THAT THE ISSUE RAISED IN THE PR ESENT APPEAL BY THE DEPARTMENT HAS ALREADY BEEN ADJUDICATED BY THE TR IBUNAL IN ASSESSEES OWN CASE IN ITA NO. 746/PN/2013 FOR THE ASS ESSMENT YEAR 2009-10 DECIDED ON 30-12-2016. 3.1 THE LD. AR FURTHER SUBMITTED THAT THE CBDT CIRCULAR NO . 37/2016 DATED 2 ND NOVEMBER, 2016 CATEGORICALLY MENTIONS THAT THE DEPARTMENT SHALL NOT FILE ANY FRESH APPEAL IN RESPECT OF DE DUCTION CLAIMED ON ENHANCED PROFITS DUE TO DISALLOWANCES MADE U/S. 32, 3 ITA NO. 463/PUN/2014, A.Y. 2010-11 40(A)(IA), 40A(3), 43B ETC. OF THE ACT. WHERE THE APPEALS HAVE ALREADY BEEN FILED AND ARE PENDING FOR ADJUDICATION THE SAME MAY B E WITHDRAWN/NOT PRESSED. 4. ON THE OTHER HAND SHRI M.K. GAUTAM REPRESENTING THE DEPARTMENT FAIRLY ADMITTED THAT THE ISSUE RAISED IN THE P RESENT APPEAL HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN AS SESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10. 5. BOTH SIDES HEARD. ORDERS OF THE AUTHORITIES BELOW PER USED. THE DEPARTMENT HAS FILED PRESENT APPEAL BY RAISING SOLITARY GRO UND AGAINST ALLOWING DEDUCTION U/S. 80IA ON THE ADDITION MADE U/S. 14A R.W. RULE 8D. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE IS ELIGIB LE TO CLAIM DEDUCTION U/S. 80IA OF THE ACT. THE EFFECT OF DISALLOWANCE U/ S. 14A R.W. RULE 8D IS THAT THERE IS INCREASE IN PROFITS. THE ASSESSE E IS ELIGIBLE TO CLAIM DEDUCTION ON SUCH INCREASE IN PROFITS, AS THE SAID PRO FITS ARE ARISING FROM THE BUSINESS OF ASSESSEE ELIGIBLE TO CLAIM DEDUCT ION U/S. 80IA OF THE ACT. SIMILAR VIEW HAS BEEN TAKEN BY THE TRIB UNAL IN THE CASE OF ITO VS. KALBHOR GAWADE BUILDERS (SUPRA). FURTHER, WE FIND THAT DISALLOWANCE U/S. 14A R.W. RULE 8D WAS MADE IN THE CASE OF ASSESSEE ON SIMILAR GROUNDS IN ASSESSMENT YEAR 2009-10. THE ASS ESSEE CARRIED THE ISSUE IN APPEAL BEFORE THE TRIBUNAL. THE CO-ORDINATE BENCH OF THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT EXTRACT OF THE ORDER OF TRIBUNAL IS AS UNDER : 8. IN GROUND NO. 2 RAISED IN THE GROUNDS OF APPEAL , THE ASSESSEE HAS ASSAILED DISALLOWANCE U/S. 14A. THE ASSESSEE IS A HOLDING COMPANY OF M/S. HARI INFRASTRUCTURE (P) LTD. THE ASSESSEE HAS ADVANCED BORROWED MONEY TO THE SAID SUBSIDIARY COMPANY FOR REPAYMENT OF LOAN. IT HAS BEEN CONTENDED THAT THE BORROWED MONEY HAS BEEN ADV ANCED TO THE SUBSIDIARY ON ACCOUNT OF COMMERCIAL EXPEDIENCY. FU RTHER, THE ASSESSEE HAS MADE INVESTMENT IN TWO SUBSIDIARY COMPANIES I.E . M/S. NAGAR 4 ITA NO. 463/PUN/2014, A.Y. 2010-11 KOPERGAON INFRASTRUCTURE PVT. LTD. (HEREINAFTER REF ERRED TO AS NKIPL) ` 26.50 CRORES AND M/S. PRANJAL INFRASTRUCTURE PVT. L TD. (HEREINAFTER REFERRED TO AS PIPL) OF ` 3.02 CRORES. THE ASSESSEE HAS FORMED THESE TWO NEW COMPANIES AS SPECIAL VEHICLE PURPOSE (SPV) TO ACCOMPLISH THE PROJECTS ALLOTTED BY PUBLIC WORKS DEPARTMENT (PWD), GOVERNMENT OF MAHARASHTRA. THE SAID PROJECTS WERE PURPORTEDLY AL LOTTED TO THE ASSESSEE ON THE CONDITION THAT EACH PROJECT SHOULD BE CARRIED OUT BY SEPARATE SPV OF THE ASSESSEE COMPANY. THE ASSESSEE HAS MADE INVESTMENT IN THE ABOVE SAID TWO NEWLY FORMED SPVS BY UTILIZING BORROWED FUNDS. THE ASSESSEE HAS PAID INTEREST TO THE TUNE OF ` 3.44 CRORES ON THE INVESTMENT MADE IN NKIPL AND ` 0.23 CRORES IN RESPECT OF INVESTMENT MADE IN THE SHARES OF PIPL. IT IS THE C ASE OF THE ASSESSEE THAT THE ASSESSEE HAS NOT RECEIVED ANY EXEMPT INCOM E IN THE FORM OF DIVIDEND ETC. FROM THE AFORESAID TWO NEWLY FORMED C OMPANIES. THE LD. AR HAS MADE AN ALTERNATE SUBMISSION IN GROU ND NO. 4 OF THE APPEAL THAT EVEN IF DISALLOWANCE U/S. 14A IS SU STAINED. THE ASSESSEE IS ELIGIBLE TO CLAIM DEDUCTION U/S. 80(IA) ON THE SAID DISALLOWANCE. TO SUPPORT HIS SUBMISSIONS THE LD. A R HAS PLACED RELIANCE ON THE CBDT CIRCULAR DATED 02-11-2016. 9. WE FIND THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ORIENTAL STRUCTURAL E NGINEERS PVT. LTD. (SUPRA) HAS UPHELD THE ORDER OF TRIBUNAL WHERE DISA LLOWANCE MADE U/S. 14A R.W. RULE 8D WAS DELETED UNDER SIMILAR CIRCUMST ANCES. IN THE SAID CASE THE ASSESSEE HAD MADE INVESTMENT IN THE SUBSID IARY COMPANY OUT OF BORROWED FUNDS. THE SAID SUBSIDIARY COMPANY WAS FORMED AS SPV TO OBTAIN CONTRACTS FROM NHAI. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF HARI INFRASTRUCTURE PVT. LTD. VS. DY. CIT I N ITA NO. 848/PN/2013 FOR THE ASSESSMENT YEAR 2009-10 DECIDED ON 18-01-20 16, UNDER SIMILAR CIRCUMSTANCES BY FOLLOWING THE DECISION RENDERED IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ORIENTAL STRUCTURAL E NGINEERS PVT. LTD. (SUPRA) DELETED THE DISALLOWANCE MADE U/S. 14A R.W. RULE 8D IN RESPECT OF INVESTMENTS MADE IN THE SUBSIDIARY COMPANIES WHI CH WERE CREATED AS SPV TO OBTAIN AND EXECUTE GOVERNMENT CONTRACTS. TH E RELEVANT EXTRACT OF THE FINDINGS OF TRIBUNAL ARE AS UNDER : 17. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAP ER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE AO ON THE BASIS OF HIS FINDING THAT INTEREST BEARING FUNDS HAVE BEEN DIVERTED TO HOLDING COMPANY FOR ACQUISITION OF THEIR SHARES MADE DISALLOWANCE OF RS.1,08,81,177/- U/S.14A OF THE I.T. ACT R.W. RULE 8D OF THE I.T. RULES. WHILE DOING SO, HE REJECTED THE 5 ITA NO. 463/PUN/2014, A.Y. 2010-11 CONTENTION OF THE ASSESSEE THAT THE INVESTMENT MADE IN THE SHARES OF HOLDING COMPANIES ARE DUE TO COMMERCIAL EXPEDIENCY AND THEREFORE NO DISALLOWANCE OF INTEREST SHOULD BE MADE U/S.36(1)(I II) OR U/S.14A. WE FIND THE LD.CIT(A) REJECTING THE VARIOUS SUBMISSION S MADE BEFORE HIM AND DISTINGUISHING THE VARIOUS DECISIONS CITED BEFO RE HIM REJECTED THE CLAIM OF THE ASSESSEE THAT NO DISALLOWANCE IS CALLE D FOR U/S.14A OF THE I.T. ACT. 18. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SINCE THE INVESTMENTS ARE MADE IN SHARES OF THE HOLDING COMPA NY WHO IN TURN HAS INVESTED THE AMOUNT IN THE SUBSIDIARY COMPANY AND S PECIAL PURPOSE VEHICLE COMPANIES, FOR GETTING CONTRACTS FROM THE P WD DEPARTMENT OF GOVERNMENT OF MAHARASHTRA, THEREFORE, THE INVESTMEN T WAS FOR COMMERCIAL EXPEDIENCY AND THEREFORE NO DISALLOWANCE OF INTEREST IS CALLED FOR. IT IS ALSO THE ALTERNATE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SINCE NO DIVIDEND INCOME HAS BEEN REC EIVED WHICH IS EXEMPT FROM TAX, THEREFORE, NO DISALLOWANCE U/S.14A SHOULD BE MADE. IT IS ALSO ANOTHER ALTERNATE CONTENTION OF THE LD. COU NSEL FOR THE ASSESSEE THAT SINCE THE ENTIRE INCOME OF THE ASSESSEE IS ELI GIBLE FOR DEDUCTION U/S.80IA(4), THEREFORE, EVEN IF ANY DISALLOWANCE IS MADE THE BUSINESS INCOME OF THE ASSESSEE WILL GO UP AND THEREFORE THE RE WILL BE CORRESPONDING DEDUCTION OF THE SAID AMOUNT AND THER EFORE IT IS REVENUE NEUTRAL. 18.1 WE FIND SOME FORCE IN THE ARGUMENTS ADVANCED B Y THE LD. COUNSEL FOR THE ASSESSEE. WE FIND AN IDENTICAL ISSUE HAD CO ME UP BEFORE THE HONBLE DELHI HIGH COURT IN THE CASE OF ORIENTAL ST RUCTURE ENGINEERS PVT. LTD. (SUPRA). IN THAT CASE ALSO INVESTMENTS WERE MA DE IN THE SUBSIDIARY COMPANIES OUT OF BORROWED FUNDS. THE SUBSIDIARY COM PANY HAD TO FORM SPECIAL PURPOSE VEHICLES (SPV) IN ORDER TO OBTAIN C ONTRACTS FROM NHAI. THE DISALLOWANCE U/S.14A R.W. RULE 8D WAS RESTRICTE D BY THE CIT(A) WHICH WAS UPHELD BY THE ITAT. ON FURTHER APPEAL BY THE REVENUE, THE HONBLE HIGH COURT DISMISSED THE APPEAL FILED BY TH E REVENUE BY OBSERVING AS UNDER : THIS APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAI NST THE ORDER DATED 02.12.2011 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, NEW DELHI IN ITA NO.4245/DEL/20 11 IN RESPECT OF TH E ASSESSMENT YEAR 2008-09. THE ISSUE BEFORE THE TRIBU NAL, WHICH IS ALSO AN ISSUE BEFORE US, WAS WHETHER IN THE FACT S AND CIRCUMSTANCES OF THE CASE THE COMMISSIONER OF INCOM E TAX (APPEALS) HAD ERRED IN RESTRICTING THE DISALLOWANCE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 TO 2% OF DIVIDEND I NCOME OF RS.20,27,812/-. IT WAS THE CONTENTION OF THE REVENUE THAT RULE 8D O F THE INCOME TAX RULES, 1962 HAD NOT BEEN APPLIED PROPERLY IN RE SPECT OF THE 6 ITA NO. 463/PUN/2014, A.Y. 2010-11 ASSESSMENT YEAR 2008-09. THIS ASPECT HAS BEEN CONSI DERED BY THE TRIBUNAL IN DETAIL AND IT HAS OBSERVED AS UNDER : - 6.3 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AN D PERUSED THE RECORDS. WE FIND THAT LD. COMMISSIONER OF INCOM E TAX (APPEALS) HAS GIVEN A FINDING THAT ONLY INTEREST OF RS 2,96,731/- WAS PAID ON FUNDS UTILIZED FOR MAKING INVESTMENTS O N WHICH EXEMPTED INCOME WAS RECEIVABLE. FURTHER, LD. COMMIS SIONER OF INCOME TAX (APPEALS) HAS OBSERVED THAT IN RESPECT O F INVESTMENT OF RS 6,07,775,000/- MADE IN SUBSIDIARY COMPANIES A S PER DOCUMENTS PRODUCED BEFORE HIM, THEY ARE ATTRIBUTABL E TO COMMERCIAL EXPEDIENCY, BECAUSE AS PER SUBMISSION MA DE BY THE ASSESSEE, IT HAD TO FORM SPECIAL PURPOSE VEHICLES ( SPV) IN ORDER TO OBTAIN CONTRACTS FROM THE NHAI AND THE SPVS SO F ORMED ENGAGED THE ASSESSEE COMPANY AS CONTRACT TO EXECUTE THE WORKS AWARDED TO THEM (I.E. SPVS) BY THE NHAI. IN ITS PRO FIT AND LOSS ACCOUNT FOR THE YEAR, THE ASSESSEE HAS SHOWN THE TU RNOVER FROM EXECUTION OF THESE CONTRACTS AND THEREFORE NO EXPEN SE AND INTEREST ATTRIBUTABLE TO THE INVESTMENTS MADE BY TH E APPELLANT IN THE PSVS CAN BE DISALLOWED U/S. 14A R.W. RULE 80 BE CAUSE IT CANNOT BE TERMED AS EXPENSE/ INTEREST INCURRED FOR EARNING EXEMPTED INCOME. UNDER THE CIRCUMSTANCES, LD. COMMI SSIONER OF INCOME TAX (APPEALS) IS CORRECT IN HOLDING THAT DIS ALLOWANCE OF A FURTHER SUM RS 40,556/- CALCULATED @ 2% OF THE DIVI DEND EARNED IS SUFFICIENT. UNDER THE CIRCUMSTANCES, WE DO NOT F IND ANY INFIRMITY IN THE ORDER OF THE LD. COMMISSIONER OF I NCOME TAX (APPEALS), HENCE WE UPHOLD THE SAME. ON GOING THROUGH THE ABOVE OBSERVATIONS WE ARE OF T HE VIEW THAT THIS IS MERELY A QUESTION OF FACT AND DOES NOT INVO LVE ANY QUESTION OF LAW MUCH LESS A SUBSTANTIAL QUESTION OF LAW, AS THE TRIBUNAL HELD THAT THE EXPENSES WHICH HAVE BEEN CLA IMED BY THE ASSESSEE WERE NOT TOWARDS THE EXEMPTED INCOME. THE DISALLOWANCE, THEREFORE, WAS RIGHTLY LIMITED TO A S UM OF RS 40,556/-. THE QUESTION OF INTERPRETING RULE 8-D IS NOT IN DISPUTE AND THE ONLY DISPUTE IS WITH REGARD TO FACTS WHICH HAVE BEEN SETTLED BY THE TRIBUNAL. THE APPEAL IS DISMISSED. 19. WE ALSO FIND MERIT IN THE ALTERNATE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SINCE ASSESSEE IS ENTITLED TO DED UCTION U/S.80IA(4), THEREFORE, THE ADDITION, IF ANY, HAS TO BE ALLOWED U/S.80IA(4) AND THEREFORE, THE SAME IS REVENUE NEUTRAL. ADMITTEDLY, THE INCOME OF THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S.80IA WHICH T HE AO HIMSELF HAS ALLOWED IN THE BODY OF THE ASSESSMENT ORDER. THE RE TURNED BUSINESS INCOME HAS BEEN ALLOWED BY THE AO AS DEDUCTION U/S. 80IA AS PER THE 7 ITA NO. 463/PUN/2014, A.Y. 2010-11 CLAIM. THEREFORE, ONCE A PART OF THE INTEREST EXPEN DITURE IS DISALLOWED THEN THE CORRESPONDING BUSINESS INCOME WILL GO UP. THEREFORE, THE REQUEST OF THE LD. COUNSEL FOR THE ASSESSEE THAT TH E AO MAY BE DIRECTED TO INCREASE THE DEDUCTION U/S.80IA(4) TO THE EXTENT OF DISALLOWANCE U/S.14A WHICH INCREASES THE BUSINESS PROFIT TO THAT EXTENT IS ACCEPTABLE. IN THIS VIEW OF THE MATTER, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO DELETE THE DISALLOWANCE MADE U/SA.14A. GR OUND OF APPEAL NO.1 AS WELL AS THE FIRST ISSUE IN THE ADDITIONAL G ROUND RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED. 10. WE FURTHER OBSERVE THAT THE CBDT VIDE CIRCULAR NO. 37/2016 DATED 02-11-2016 HAS CLARIFIED THAT WHERE DISALLOWA NCE HAS BEEN MADE U/S. 32, 40(A)(IA), 40A(3), 43B ETC., OF THE ACT AN D OTHER SPECIFIC DISALLOWANCE RELATING TO BUSINESS ACTIVITY DEDUCTIO N UNDER CHAPTER VI-A IS ADMISSIBLE ON THE PROFITS SO ENHANCED BY THE DIS ALLOWANCE. THE RELEVANT EXTRACT OF THE CIRCULAR IS AS UNDER: CHAPTER VI-A OF THE INCOME-TAX ACT, 1961 (THE ACT ), PROVIDES FOR DEDUCTIONS IN RESPECT OF CERTAIN INCOMES. IN COMPUT ING THE PROFITS AND GAINS OF A BUSINESS ACTIVITY, THE ASSESSING OFFICER MAY MAKE CERTAIN DISALLOWANCES, SUCH AS DISALLOWANCES PERTAINING TO SECTIONS 32, 40(A)(IA), 40A(3), 43B ETC., OF THE ACT. AT TIMES D ISALLOWANCE OUT OF SPECIFIC EXPENDITURE CLAIMED 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 TH E ENHANCED PROFITS HAS BEEN A CONTENTIOUS ONE. HOWEVER, THE COURTS HAVE GE NERALLY HELD THAT IF THE EXPENDITURE DISALLOWED IS RELATED TO THE BUSINE SS 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 A CCOUNT OF NON- DEDUCTION OF TDS UNDER LAW, SUCH DISALLOWANCE WOULD ULTIMATELY INCREASE ASSESSEE'S PROFITS FROM BUSINESS OF DEVELO PING HOUSING PROJECT. THE ULTIMATE PROFITS OF ASSESSEE AFTER ADJ USTING DISALLOWANCE UNDER SECTION 40 (A)(IA) OF THE ACT WOULD QUALIFY F OR DEDUCTION UNDER SECTION 80-IB OF THE ACT. THIS VIEW WAS TAKEN BY THE COURTS IN THE FOLLOWING CASES: INCOME-TAX OFFICER - WARD 5(1) VS. KEVAL CONSTRUCTI ON, TAX APPEAL NO. 443 OF 2012, DECEMBER 10, 2012, GUJARAT HIGH CO URT. COMMISSIONER OF INCOME-TAX-IV, NAGPUR VS. SUNIL VISHWAMBHARNATH TIWARI, IT APPEAL NO. 2 OF 2011, SE PTEMBER 8 ITA NO. 463/PUN/2014, A.Y. 2010-11 11,2015, BOMBAY HIGH COURT. (II) IF DEDUCTION UNDER SECTION 40A(3) OF THE ACT I S NOT ALLOWED, THE SAME WOULD HAVE TO BE ADDED TO THE PROFITS OF THE U NDERTAKING ON WHICH THE ASSESSEE WOULD BE ENTITLED FOR DEDUCTION UNDER SECTION 80-IB OF THE ACT. THIS VIEW WAS TAKEN BY THE COURT IN THE FOLLOW ING CASE: PRINCIPAL CIT, KANPUR VS. SURYA MERCHANTS LTD., I.T . APPEAL NO. 248 OF 2015, MAY 03, 2016, ALLAHABAD HIGH COURT. THE ABOVE VIEWS HAVE ATTAINED FINALITY AS THESE JUD GMENTS OF THE HIGH COURTS OF BOMBAY, GUJARAT AND ALLAHABAD HAVE BEEN A CCEPTED BY THE DEPARTMENT. 3. IN VIEW OF THE ABOVE, THE BOARD HAS ACCEPTED THE SETTLED POSITION THAT THE DISALLOWANCES MADE UNDER SECTIONS 32, 40(A)(IA) , 40A(3), 43B, ETC. OF THE ACT AND OTHER SPECIFIC DISALLOWANCES, RELATED T O THE BUSINESS ACTIVITY AGAINST WHICH THE CHAPTER VI-A DEDUCTION HAS BEEN C LAIMED, RESULT IN ENHANCEMENT OF THE PROFITS OF THE ELIGIBLE BUSINESS , AND THAT DEDUCTION UNDER CHAPTER VL-A IS ADMISSIBLE ON THE PROFITS SO ENHANCED BY THE DISALLOWANCE. 11. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CA SE OF HARI INFRASTRUCTURE PVT. LTD. VS. DY. CIT (SUPRA) HAS AL READY DECIDED THE ISSUE WITH RESPECT TO DISALLOWANCE U/S. 14A HAS ACCEPTED THE CONTENTIONS OF THE ASSESSEE IN RESPECT OF DISALLOWANCE U/S. 14A ON BOTH THE GROUNDS. THUS, IN VIEW OF THE FACTS OF THE CASE, THE ORDER O F CO-ORDINATE BENCH AND THE CBDT CIRCULAR, WE DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE U/S. 14A OF THE ACT. ACCORDINGLY , GROUND NOS. 2 AND 4 RAISED IN THE GROUNDS OF APPEAL BY THE ASSESSEE A RE ALLOWED. 6. THE LD. AR HAS POINTED THAT THE PRESENT APPEAL FILED BY THE DEPARTMENT IS NOT MAINTAINABLE IN VIEW OF CBDT CIRCULAR. WE FIND THAT IN PARA 4 OF THE CIRCULAR IT HAS BEEN CATEGORICALLY MENTION ED THAT NO APPEAL IS TO BE FILED ON THIS ISSUE AND IF ANY APPEAL IS PENDIN G IN TRIBUNAL THE DEPARTMENT MAY WITHDRAW/NOT PRESS THE SAM E. THE RELEVANT EXTRACT OF PARA 4 OF THE CBDT CIRCULAR READS AS UNDER : 4. ACCORDINGLY, HENCEFORTH, APPEALS MAY NOT BE FIL ED ON THIS GROUND BY OFFICERS OF THE DEPARTMENT AND APPEALS ALREADY F ILED IN COURTS/TRIBUNALS MAY BE WITHDRAWN/NOT PRESSED UPON. THE ABOVE MAY BE BROUGHT TO THE NOTICE OF ALL CONCERNED. 9 ITA NO. 463/PUN/2014, A.Y. 2010-11 7. THUS, IN VIEW OF THE FACT THAT THE ISSUE RAISED BY THE DEPARTMENT IN APPEAL HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSES SEE IN THE IMMEDIATELY PRECEDING YEAR AND IN THE LIGHT OF CBDT CIRCULAR DATED 2 ND NOVEMBER, 2016, THE PRESENT APPEAL BY THE DEPARTMENT IS LIABLE TO BE DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 11 TH DAY OF JANUARY, 2017. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 11 TH JANUARY, 2017 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-2, NASHIK 4. ' / THE CIT-2, NASHIK 5. !*+ %%,- , ,- , . ./0 , / DR, ITAT, B BENCH, PUNE. 6. + 1 23 / GUARD FILE. // ! % // TRUE COPY// #4 / BY ORDER, 5 6 / ASSISTANT REGISTRAR, ,- , / ITAT, PUNE