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Facts
The assessee filed an appeal against the NFAC's order for AY 2016-17. The sole issue was the denial of deduction under Section 80P of the Act on an enhanced profit amount resulting from disallowances made by the AO. The disallowed items included audit fees, staff gratuity, leave encashment, and service tax.
Held
The Tribunal held that the assessee is eligible for deduction under Section 80P on the enhanced amount of profit resulting from disallowances. This decision aligns with a previous finding by the ITAT and is supported by CBDT Circular No. 37/2016.
Key Issues
Whether the assessee is eligible for deduction under Section 80P on profits enhanced due to disallowances, and if the ITAT's prior finding on this matter is binding.
Sections Cited
80P, 32, 40(a)(ia), 40A(3), 43B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘SMC’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order passed by the NFAC, Delhi dated 14/11/2023 in 24/1057939467(1) for the assessment year 2016-17.
The only issue raised by the assessee is that the learned CIT-A erred in not allowing the benefit of deduction under section 80P of the Act on the enhanced amount of profit on account of disallowance/ addition made by the AO for the provisions debited in the profit and loss account.
Before we proceed to deal with the issue on hand, it is pertinent to take a note that the issue discussed above in the grounds of appeal was decided by the ITAT on the previous occasion in favour of the assessee vide order dated 27th May 2024. However, the ITAT in its earlier order inadvertently has also dealt with the issue which was not subject matter of dispute. As such, the ITAT has also addressed the issue with respect to the interest from the cooperative bank/nationalized bank. On account of such apparent mistake, the entire order was recalled by the ITAT vide MA No. 60/Bang/2024 order dated 20-12-2024.
4. In view of such recalled order, the present appeal is before us for adjudication whether the disallowance made by the AO on account of provisions made by the assessee will result the enhanced deduction under the provisions of section 80P of the Act. In other words, the assessee has claimed the deduction for the provisions made in the profit and loss account amounting to Rs. 7,80,650/- for the items detailed below: i. Audit fees: Rs. 74,750/-, ii. Staff gratuity: Rs. 4,05,900/-, iii. Leave encashment: Rs. 1,00,000/-, and iv. Service tax: Rs. 2,00,000/-
The above items of deduction claimed by the assessee were disallowed by the AO and the learned CIT-A which was also not challenged by the assessee in the appeal filed before us. It was only prayed by the assessee in the ground of appeal
that whatever amount of . disallowance would be made, it will enhance the amount of income of the assessee which consequentially be considered for the purpose of the deduction under section 80P of the Act in view of the CBDT circular No. 37/2016 dated
2. November 2016. At the time of hearing, the ld. AR prayed only for the higher amount of deduction under section 80P of the Act on account of disallowance of expenses.
On the other hand, the learned DR could not controvert the arguments advanced by the ld. AR for the assessee. However, the learned DR vehemently supported the order of the authorities below
We have heard the rival contentions of both the parties and perused the materials available on record. The CBDT circular No. 37/2016 dated 2 November 2016 has a bearing on the issue on hand and therefore it is pertinent to refer the impugned circular. The relevant extract of the circular is reproduced as under:
7.1 In view of the above, we hold that the assessee shall be eligible for the deduction under section 80P of the Act on the amount enhanced on account of disallowance/ addition made by the authorities below.
7.2 In addition to the above it is also pertinent to note that the ITAT in its earlier order (Supra) has already given favourable finding for the issue on hand for which there was no MA filed by the assessee. In the . other words, the finding of the ITAT has already reached to is finality. In view of the above and after considering the facts in detail, we direct the AO to allow the deduction to the assessee under section 80P of the Act on the enhance amount as discussed above. Hence, the ground of appeal of the assessee is hereby allowed.
In the result, the appeal filed by the assessee is allowed.