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Facts
The assessee, M/s Aptiv Components India Private Limited, filed its return of income, and during assessment under Section 143(3), an advance written off of Rs. 94,14,147/- was disallowed. This disallowance was confirmed up to the Tribunal level. The assessee claimed a consequential benefit of deduction of Rs. 2,94,25,184/- under Section 10A of the Income Tax Act, arguing that any additions/disallowances should increase the profits eligible for Section 10A deduction.
Held
The Tribunal held that the assessee is entitled to the consequential benefit of deduction under Section 10A of the Act, in respect of disallowance/addition made by the AO. This decision was based on the principles established by the Hon'ble Bombay High Court and affirmed by the Hon'ble Apex Court in similar cases, which held that statutory disallowances enhance the profits eligible for Section 10A deduction.
Key Issues
Whether the assessee is eligible for a consequential benefit of deduction under Section 10A of the Income Tax Act on enhanced profits resulting from statutory disallowances/additions made by the Assessing Officer.
Sections Cited
10A, 143(3), 14A, 43B, 36(v), 2(24)(x), 40(a), 40(a)(ia), 260A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH, F: NEW DELHI
Before: SHRI CHALLA NAGENDRA PRASAD & SHRI BRAJESH KUMAR SINGH
Assessee by Shri Gagan Kumar, Adv. Shri Gagan Deep, Adv. Revenue by Ms. Harpreet Kaur Hansra, Sr. DR Date of Hearing 30.09.2025 Date of Pronouncement 19.12.2025 ORDER PER BRAJESH KUMAR SINGH, AM:
This appeal was decided by the Co-ordinate Bench of the Tribunal vide order dated 24.10.2023, wherein ground no. 4 of the appeal was decided by observing as under:
“ No arguments were advanced by the ld. AR before us at the time of hearing with regard to Ground no. 4. Hence, the same is here by dismissed as not pressed.”
ITA No- 1129/Del/2020 M/s Ap�v Components India Pvt. Ltd. 2. Thereafter, the said order of the Tribunal was recalled in M.A. no. 483/Del/2023 vide order dated 31.07.2025, only for limited purpose of adjudication of ground no. 4 of the appeal. Ground no. 4 of the appeal is reproduced as under:
““4. That in law and under the facts and circumstances of the case, the Ld. AO/Ld. CIT (A) has grossly erred in not giving the consequential benefit of deduction of Rs. 2,94,25,184/-claimed under section 10A of the Act.”
Brief facts of the case: The assessee company during the year was a subsidiary of M/s Delphi Automotive Systems (Holding) Inc. USA and was engaged in the business of manufacture and sale of automotive components, viz., drive shafts (constant velocity joint), integrated wiring harnesses, catalytic converters, heating, cooling and ventilating systems and suspension systems.
3.1 During the year, the assessee had filed its return of income on 31.10.2005 and the assessment was completed u/s 143(3) of Income Tax Act, 1961 vide order dated 24.12.2018 and the total income was assessed at Rs. 1,58,98,550/-. In the assessment order AO made disallowance of Rs. 94,14,147/- on account of Advances written off. Being aggrieved, an appeal was filed against the aforesaid assessment order before the Commissioner of Income Tax (Appeals) who vide his order dated 11th September, 2014 deleted the addition. Against this order, the Revenue filed an appeal before the Tribunal. The Tribunal vide its order dated 31st October 2017 remanded back the matter to the file of Assessing Officer to verify the claim of amount of Rs. 2
ITA No- 1129/Del/2020 M/s Ap�v Components India Pvt. Ltd. 94,14,147/- as to whether it was bad debts written off or advances written off. During set-aside proceedings the assessee failed to prove justification of claim of advances written off. Even the AR admitted that no documents were available for verification of this claim. Considering the admission of the assessee and fact that it had failed to produce the evidences of advances claimed as written off the AO again disallowed it and added back in the income of the Appellant. Aggrieved with the said addition, the assessee filed an appeal before the Ld. CIT(A), who vide the impugned order dated 31.01.2020 dismissed the appeal of the assessee. On further appeal, by the assessee, the Tribunal vide its order dated 20.10.2023 confirmed the above findings of the AO and the Ld. CIT(A). Thus, as on date, the disallowance of Rs. 94,14,147/- made by the AO towards advances written off stands confirmed.
3.2 The facts regarding the claim of deduction of Rs. 2,94,25,184/- (stated at Rs. 2,94,35,183/-) under section 10A of the Act was stated in para no. 2.2 of its Miscellaneous Application filed before the Tribunal, which is reproduced as under:
“ It is most respectfully submitted that the appellant had argued that the appellant was entitled to a deduction of Rs. 29,435,183/- under section 10A of the Act. The same is evident from Form 56. However, due to the profits for the year being restricted to Rs. 6,484,398/-, only a portion of the deduction available could be utilized by the appellant. Consequently, it was argued that, additions/ disallowances if any, shall be adjusted in accordance with the deduction available to the appellant under section n 10A of the Act, and the consequential benefit / relief be given.”
ITA No- 1129/Del/2020 M/s Ap�v Components India Pvt. Ltd. 4. In the above matter, the assessee, in respect of the present ground no. 4, had taken the same as Ground no. 3 in the appeal before the Ld. CIT(A), which is reproduced as under:
“ 3. That in law and under the facts and circumstances of the case, Ld. A.O. erred in not giving the consequential benefit of deduction of Rs 2,94,25,184/-claimed under section 10A of the Act. 3.1 Without prejudice to the above, it is respectfully submitted that any disallowance made to the total income will increase profits eligible for deduction under section 10A of the Act. Reliance in this regard is placed on the case of Informed Technologies India Ltd. v. Dy. CIT [2017] 162 ITD 153 (Mum. Trib.) wherein the core issue is as to whether pursuant to disallowance of expenses under section 14A, a consequential enhancement of deduction allowable under section 10A is liable to be made or not. It was held as under:
"6.2 We have given a thoughtful consideration to the factual position so averred by the Ld. A.R. before us and find that the CIT (A) had absolutely failed to deal with and adjudicate the aforesaid specific ground of appeal raised by the assessee before him. The Ld. A.R had submitted before us that the assessee company had business income only from one source, Le software unit located in Software Technology Park (for short 'STP), which pursuant to its corresponding entitlement towards claim of deduction u/s 10A, therein reduced the taxable income to Rs. Nil. It was thus submitted by the Ld. AR that now when any part of the expenditure claimed by the assessee was disallowed u/s 14A, then as a consequence thereto the profits of the assessee eligible for deduction u/s 10A would witness a corresponding increase, leading to a consequent increase in the claim of deduction of the assessee u/s 10A of the 'Act', pursuant whereto the net effect would remain at Rs. Nil. We find substantial force in the contention of the Ld. A.R and are persuaded to be in agreement with him that pursuant to disallowance u/s 14A, the business profits eligible for deduction u/s 10A, to the said extent would stand enhanced. We find that the issue involved is covered by the judgment of the Hon'ble High Court of Bombay in the case of: CIT v. Gem Plus Jewellery India Ltd. [2011] 330 ITR 175 (Bom.), wherein the Hon'ble High Court held as under:-
"The disallowance of the PF/ESIC payments has been made because of the statutory provisionss 43B in the case of the employer's contribution and s. 36(v) r/w s. 2(24)(x) in the case of the employees contribution which has been deemed to be the income of the assessee. The plain consequence of the disallowance and the add back that has been made by the A.O is an increase 4
ITA No- 1129/Del/2020 M/s Ap�v Components India Pvt. Ltd. in the business profits of the assessee. The contention of the Revenue that in computing the deduction under s. 10A the addition made on account of the disallowance of the PF/ESIC payments ought to be ignored cannot be accepted. No statutory provision to that effect having been made, the plain consequence of the disallowance made by the AO must follow."
We thus in light of the aforesaid facts of the case r.w the settled position of law, herein direct the A.O that pursuant to the disallowance of Rs. 3,10,868/- so made by him u/s 14A, a consequent enhancement of the entitlement of the assessee towards claim of deduction u/s 10A of the 'Act' be carried out. The Ground of appeal No. 1 is thus allowed."
3.2 Thus, it is most humbly prayed before your goodself to allow deduction under section 10A of the Act on the additions made on account of advances written off as the same has not been considered for computing deduction under section 10A of the Act.” (Emphasis supplied by us)
The same was rejected by ld. CIT(A) on the ground that from the order of the Tribunal it was apparent that no such ground was restored to the AO for adjudication and also that this ground did not arise from the order of the AO. The relevant finding of the Ld. CIT(A) in para no. 6.5 of her order is reproduced as under:
“6.5 In Ground No. 3, the Appellant has claimed that the A.O. has erred in not giving the consequential benefit of deduction of Rs 2,94,25,184/- claimed under section 10A of the Act. From the order of Hon'ble ITAT it is apparent that no such ground was restored to the AO for adjudication. Even this ground is not arising from the order of AO. Hence, no fresh ground for relief can be taken at this stage and ground no. 3 raised by the Appellant deserves to be rejected.”
6. During the hearing before us, the Ld. AR relied upon the decision of the Hon’ble Bombay High Court in the case of Principal Commissioner of Income tax
ITA No- 1129/Del/2020 M/s Ap�v Components India Pvt. Ltd. vs. BMC Software India (P.) Ltd [2019] 109 taxmann.com 277 (Bom.), which was affirmed by the Hon’ble Apex Court in the case of Principal Commissioner of Income Tax-1 vs. BMC Software India (P.) Ltd. [2019] 109 taxmann.com 278 (SC), in support of its claim.
The Ld. Sr. DR relied upon the orders of the authorities below.
We have heard both the parties and perused the material available on record. The issue involved in the present case is squarely covered by the decision of the Hon’ble Bombay High Court in the case of Principal Commissioner of Income tax vs. BMC Software India (P.) Ltd (supra), which has also been affirmed by the Hon’ble Apex Court. The relevant extract of the order of Hon’ble Bombay High Court in the above-cited case is reproduced as under:
“ 1. This Appeal under Section 260-A of the Income Tax Act, 1961 (the Act), challenges the order dated 4th February, 2015 passed by the Income Tax Appellate Tribunal (the Tribunal). This Appeal relates to Assessment Year 2006-07.
2. The Revenue urges the following question of law for our consideration: "Whether, on the facts and circumstances of the case and in law the Hon'ble Tribunal is correct in holding that the assessee is eligible to claim deduction u/s 10A on enhanced profit due to statutory disallowance u/s. 40 (a)(ia)?"
3. We find that the impugned order of the Tribunal has held that disallowance made under Section 40(a) (ia) of the Act would not affect the assessee's liability to tax. This is so as even if the above amount are disallowed and added to the income the same would be exempted under Section 10A of the Act. This by following the decision of this Court in CIT v. Gem Plus Jewellery India Ltd. [2010] 194 Taxman 192/[2011] 330 ITR 175. As the impugned order of the Tribunal has only followed the binding decision of this Court, the proposed question does not give rise to any substantial question of law. Therefore, not entertained.
4. Accordingly, appeal dismissed. No order as to costs.” (emphasis supplied by us)
ITA No- 1129/Del/2020 M/s Ap�v Components India Pvt. Ltd.
8.1 Further, the relevant extract of the order of the Hon’ble Apex Court affirming the said order is also reproduced as under:
“1. Delay condoned.
We have heard Mr. Dhruv Agarwal, learned Senior counsel appearing for the Petitioner-Department.
3. The issue is whether claim of certain expenses are to be taken into account to claim statutory disallowance under section 40(a) of the Income-tax Act.
The said issued is covered in the Judgment of this Court in CIT v. HCL Technologies Ltd. 2018 (6) 5. Mr. Dhruv Agarwal, learned senior counsel appearing for the petitioner- Department, has also fairly submitted that the monetary implication involved in this special leave petition is only Rs. 44,00,000/-(Rupees Forty Four Lakhs).
In such view of the matter, the special leave petition is dismissed.”
Therefore, respectfully following the above orders, we hold that the assessee is entitled for deduction u/s 10A of the Act, in respect of disallowance / addition made by the AO in the assessment order as held in the aforesaid cited case. Accordingly, we allow Ground no. 4 of the appeal of the assessee and direct the AO to allow the consequential benefit of deduction of Rs. 2,94,25,184/- claimed u/s 10A of the Act by the assessee, in light of the above decisions after due verification. Accordingly, Ground no. 4 of the appeal is partly allowed.
ITA No- 1129/Del/2020 M/s Ap�v Components India Pvt. Ltd. 10. In the result, appeal of the assessee in respect of ground no. 4 is partly allowed.
Order pronounced in the open court on 19th December, 2025.