For those companies claiming profit-linked tax benefits under the Income Tax (I-T) Act, a recent circular issued by the apex body Central Board of Direct Taxes (CBDT) will prove to be a boon.

The board has clarified that if during the course of I-T assessment, certain specified expenditure is denied in the hands of the company, resulting in an upward revision in business profits, then such higher profit will be eligible for the profit-linked deduction claimed under chapter VI-A of the I-T Act.

CBDT's circular issued on November 2 (Wednesday) points out, "The issue of a higher deduction on enhanced profits has been a contentious one." It refers to several favourable decisions issued by the Bombay, Allahabad and Gujarat high courts and calls for withdrawal of appeals filed by the I-T department, if litigation is pending on this issue. It also emphasises that the I-T department will no longer litigate on this matter.

The infrastructure sector will largely stand to benefit. For instance, if a company has commenced development on roads, highways, ports, airports, water supply or special economic zone (SEZ) projects before March 31, 2017, it gets a 10-year tax holiday. Companies, subject to meeting certain conditions, engaged in housing projects, also enjoy a 100% tax deduction. These tax holiday and tax deduction benefits are available under various sections of Chapter VI-A.

There are many instances, which result in disallowance of a business expenditure and upward revision of profits, during an I-T assessment. CBDT's circular refers to disallowances made during assessment for cash payments, improper deduction or deposit of tax deducted at source, depreciation or even in case of certain payments such as employers' contribution to provident fund, which are allowed only in the year of payment.