“grossing up of tax”
The decision most relied on for grossing up of tax is CIT v. Andhra Pradesh State (200 Taxmann 220), cited in 348 judgments on BharatTax.
Leading authorities on grossing up of tax
Interest earned by a Co-operative Society from investing fixed deposits in banks is entitled to a deduction under Section 80P(2)(a)(i) of the Income-tax Act.
Deduction under Section 10A or 10AA of the Income-tax Act is computed on the profits of the eligible unit without first setting off losses from other units or non-eligible units. Conversely, losses incurred by an eligible unit are allowed to be set off against the assessee's other taxable business profits.
For computing the deduction under Section 80M, only the net dividend income (gross dividend income after reducing expenses attributable to earning it, as per Section 57(iii) and the principle in Section 80AB) is eligible. The case also holds that tax authorities are not bound to perpetuate an error from a previous assessment year, as each year is a separate unit and consistency cannot override substantive justice.
If an assessee possesses interest-free funds exceeding investments in tax-free securities, it is presumed that investments are made from these own funds, precluding disallowance of interest expenditure under Section 14A read with Rule 8D(2)(ii). Additionally, weighted deduction under Section 35(2AB) is computed on the gross expenditure incurred, not net expenditure after reducing income earned.
Indirect tax components, such as sales tax, are included when calculating gross turnover or sales receipts for determining business income. Deductions relating to these taxes are subject to the provisions of Section 43B, requiring actual payment for deductibility.
Income tax is levied on the real profit of a trade or business, not on gross receipts. Even for unaccounted transactions, only the profit component, after deducting legitimate expenses and cost of goods sold, can be brought to tax as undisclosed income.
Co-operative societies or banks engaged in both agricultural and non-agricultural activities are entitled to deduction under Section 80P of the Income Tax Act, 1961, limited only to the profits derived from agricultural activities, not 100% of their gross profits.
For computing presumptive income under Section 44BB, gross receipts do not include service tax reimbursements received from a client (like ONGC) if such amounts are not payments for services or plant/machinery directly used in the prospecting, extraction, or production of mineral oils.
