Wednesday, May 29, 2013

Expenditure disallowed for default in withholding tax would qualify for sec. 80-IB deductions

Disallowance for non-deduction of TDS liability would increase profit of assessee from business of developing housing projects and ultimate profit would qualify for deduction under section 80-IB

In the instant case, interalia, the issue that arose before the Gujarat HC was as under:

Whether disallowance under section 40(a)(ia) would  qualify for deduction under section 80IB(10) of the Act?

The High Court held as under:

Even if a expenditure 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 couldn’t be denied that such disallowance would ultimately go to increase the assessee's profit from the business of developing housing project. So, whatever be the ultimate profit of assessee even after making disallowance under section 40(a)(ia) of the Act, would qualify for deduction as provided for under the law. As no question of law arose, tax appeal was dismissed – ITO v. Keval Construction [2013] 33 277 (Gujarat)

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