Section 10AA Deduction allowable on disallowance proposed in assessment

DIC Fine Chemicals Pvt. Ltd. Vs DCIT (ITAT Kolkata)

It was a case where on account of the disallowance made by the AO, the loss returned by the assessee stood converted into positive sum and made the appellant eligible to claim deduction u/s 10AA of the Act. We thus find that as per the position put forth by the assessee in the return of income filed, it could not have legally claimed such deduction but only as a consequence of the disallowance proposed in the assessment, the returned loss stood converted into positive income; consequent to which the appellant became eligible to avail deduction u/s 10AA of the Act. We therefore find merit in the submissions of the appellant that there was no “failure” on the part of the appellant to claim deduction u/s 1 0AA in the return of income so as to attract the rigors of Section 80A(5) of the Act.

We also find that Circular No. 37/2016 dated 02.11.2016 was issued by the CBDT subsequent to enactment of Section 80A(5) of the Act wherein the Board clarified that profit-based deductions permissible under the Act have to be granted with reference to business income, finally assessed. The CBDT clarified that if in arriving at the business income any disallowances are made by the AO relating to the eligible business, then the deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowances.

It is only account of disallowance of the forex loss under Section 37(1) that the returned loss stood converted into positive business income for the relevant year and as a consequence, the assessee became eligible to claim deduction. We also note that the AO per se did not dispute or object to the assessee’s claim on merits but it was rejected only on technical grounds. We are of the considered view that there is no estoppel in law and an assessee cannot be denied a rightful deduction to which it is eligible unless there is specific bar in law from claiming such deduction. On the peculiar facts of the present case we find that statutory bar provided in Section 80A(5) did not operate as there was no “failure” on the assessee’s part to claim deduction u/s 10AA of the Act but it was a case where the deduction became claimable only as a result of disallowance proposed in the assessment. Accordingly the objection raised by the Ld. CIT(A) in support of rejection of claim u/s 10AA also fails.

FULL TEXT OF THE ITAT JUDGEMENT

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