The assessing officer has made a dis-allowance under section 40(a)(ia) in the draft assessment for want of deduction of tax source in respect of the expenses which are claimed to be reimbursement towards power and fuel expenses. The assessing officer held that these expenses are incurred against the services rendered and, therefore, liable for TDS. Since the assessee did not deduct the TDS therefore the assessing officer disallowed this amount of Rs. 6,08,46,978.
Before the DRP the assessee contented that these expenses are not incurred towards any service rendered by M/s. Golflinks Software Park (P) Ltd. But these were only reimbursement of the expenses towards power and fuel. The DRP while adjudicating the objection on this issue directed the assessing officer to verify whether any service has been rendered by M/s. Golflinks Software Park (P) Ltd. or the expenditure is purely in the nature of reimbursement on account of power and fuel. Since the assessee also raised an alternative plea that even in the case of dis allowance under section 40(a)(ia) the enhanced income of the undertaking of the assessee is eligible for deduction u/s. 10A. The DRP has accepted this alternative plea of the assessee by holding that such enhanced profit of business undertaking would qualify for deduction under section 10A.
Before us, the learned Department Representative has submitted that the Ahmedabad bench of the Tribunal in case of DCIT v. Rameshbhai C. Prajapati IT Appeal No. 226 (Ahd.) of 2010, date 21-09-2012 has held that the amount disallowed under section 40(a)(ia) cannot be taken into account to determine the profit of business for the purpose of computing deduction under section 80-IB. Thus, the learned Department Representative has submitted that the dis allowance made under section 40(a)(ia) is not eligible for deduction under section 10A of the Income Tax Act.
On the other hand, the learned Authorized Representative of the assessee has submitted that the said decision of the Ahmedabad bench of the Tribunal relied upon by the revenue has been reversed by the Hon’ble Gujarat High Court in case of ITO v. Keval Construction (2013) 354 ITR 13 Therefore this issue is covered by the decision of Honorable Gujarat High Court in case of Keval Construction (supra) and submitted that the Honorable High Court has held that even if certain expenditure which were incurred by the assessee for the purpose of developing house project was not allowable by virtue of section 40(a)(ia) of the Act for want of TDS it cannot be denied that such dis allowance would ultimately go to increase the assessee’s profit from the business of developing house project and would qualify for deduction as provided under the law.
Having considered the rival submissions as well as relevant material on record, at the outset we note that this issue of dis allowance made under section 40(a)(ia) eligible for deduction of tax holiday under law is covered by the decision of Hon’ble Gujarat High Court in case of Keval Construction (supra) wherein the Honorable High Court has held in para 5 as under:–
“5. Having heard counsel on both the question today in this appeal, we find no error in the Tribunal’s ultimate conclusion. Even if a certain expenditure which was incurred by the assessee for the purpose of developing housing project was not allowable by virtue of section 40(a)(ia) of the Act, since the assessee had not deducted the tax at source as required under law, it cannot be denied that such dis allowance would ultimately go to I increase the assessee’s profit from the business of developing housing project Whatever be the ultimate profit of assessee as computed even after making dis allowance under section 40(a) (ia) of the Act, would qualify for deduction as provided under the law.”
Following the decision of Honorable Gujarat High Court we upheld the directions of the DRP on this issue. Since the alternative claim of the assessee is allowed therefore we do not propose to go into the issue of nature of payment in question. The same becomes infructuous.