TaxTMI 
TaxTMI 
2005 (7) TMI 572
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....the assessment. 3. The Ld. CIT(A) erred in upholding the action of the Assessing Officer in excluding the interest income of Rs. 13,09,782 from the profits of undertaking of the appellant for the purpose of deduction under section 80-IA of the Act." 4. In view of above, Ground Nos. 1 and 3 are dismissed as not pressed. 5. Ground No. 4 has nothing to do with the ground that the Ld. CIT(A) erred in stating the name of the Proprietor of M/s. S.M.B. Corporation as Shri Rashiklal A. Shah instead of Shri Ratilal A. Shah. 6. The only effective ground, urged by the assessee, is directed against order of the Ld. CIT(A) in upholding the invocation by the Assessing Officer of the provisions of sub-section (10) of section 80-IA. The facts, leading to the dispute, briefly are as under. 7. The assessee is engaged in the business of production of Copper T components and surgical sutures at Daman. The original return of income, declaring total income at NIL, was filed on 28-11-1997. The return was accompanied with Tax Audit Report, as required under section 44AB of the Income-tax Act, 1961, copies of the Profit & Loss Account, the balance sheet of the assessee alongwith its enclosures. The sa....
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....Assessing Officer held the reason for such disparity in the high profit disclosed by the assessee, would be that the assessee enjoyed deduction under section 80-IA whereas M/s. SMB Corporation was not entitled to claim such deduction. Hence the Assessing Officer came to the conclusion that the profit of M/s. SMB Corporation was shifted to the hands of the assessee. 11. While examining one of the Directors of the assessee, Shri Girish R. Shah, who was asked specific and direct questions. His statements were recorded under section 132(4). Shri Shah, in his statement, stated that he was not aware of such facts and, according to the Assessing Officer, he tried to evade the facts relating to higher profit of the assessee. The Assessing Officer noted that it was not properly explained as to how the profit declared by the assessee, was fair, reasonable and in accordance with accounts maintained by the assessee. The assessee was given opportunity to substantiate the claim under section 80-IA. It mainly contended that the conditions under which the components were manufactured, are only in assessee's favour and its Directors have vast experience in such manufacturing activities and that M/....
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.... products, sold by the assessee, were not accepted and returned because of the quality problems for which no final bills were made. These facts were not considered at all in the Excise Returns. Thus it was submitted by the assessee that the Excise Returns were not correct and valid. The IT Returns were on the basis of the audited figures showing higher sales. It was further submitted that the sales shown to M/s. SMB Corporation, were also confirmed from their accounts. The Assessing Officer held this explanation neither convincing nor correct for the following reasons : (a)Firstly, sale is not an item of account which would significantly vary in the unaudited and audited account and that too in the year under consideration; (b)Merely because the product is not liable to Excise Duty, it does not mean that the figures of sale, at variance with the books of account, should not be taken note of; (c)The fact that the IT Returns showed more sales, in the assessment years 1997-98 and 1998-99, were inflated just to show higher profit, on which less tax was to be paid in view of the provisions of section 80-IA. Inflating the figures of the assessee for purchases by M/s. SMB Corporation, ....
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....and the resultant profits of the assessee and that of SMB Corporation are not worthy of comparing. It is also to be placed on record that M/s. SMB Corporation is not an eligible unit for benefit under section 80-IA whereas the assessee is. Thus, it is evident from the figures of sales and the profits earned thereon that the profits are booked only in the eligible unit of the assessee and only a negligible profit is shown in the non 80-IA benefit unit i.e., SMB Corporation. Therefore, there is no doubt that owing to the close connection between the assessee carrying on the eligible business to which section 80-IA applies and the SMB Corporation, the course of business between the assessee and M/s. SMB Corporation is so arranged that the business transacted between them produces the assessee more than the ordinary profit which might be expected to arise in such eligible business." 13. Aggrieved by this order, the assessee approached the Ld. CIT(A). The Ld. CIT(A), vide para 4 of his Order, records the past history and the present dispute of the assessee. The reasoning for invoking the provisions of section 80-IA(10) is that the Share Holders of Novel Consumers Products P. Ltd. are t....
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....SMB Corporation, was Rs. 11 per set. He further noted that the Assessing Officer has not made any attempt to obtain comparable sales or purchases of Copper Flanges from any other source. It was the case of the assessee that Copper T is considered as drug. Its sales and manufacture are considered as drug goods. There is strict supervision on the part of the Government so that such units maintain all hygienic conditions. Since the only other supplier was M/s. Hindustan Latex (Public Sector Undertaking), according to him, the assessee has monopoly in the market. Except the transactions between Inter Plast it was not dealing with any other third party. Hence the Ld. CIT(A) asked the assessee to submit the working of the profit objectively in the year in which full tax holiday was available to compare it with other years. Comparative figures of net profit varied from 35 to 39% or a little more. The Ld. CIT(A) held that the dealing with Inter Plast was not relevant because the stringent quality norms were not fulfilled. The party was supposed to continue this. Therefore, he held that section 80-IA(10) was rightly applied by the Assessing Officer. He further held that even on assuming tha....
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....ing to the Assessing Officer, as noted by the Ld. CIT(A), prior to production of the components by the assessee, other parties margin of profit was as low as 3.41%. He further stated that the Revenue Authorities failed to bring any comparative case to show that the assessee had committed anything unhealthy. He submitted that the price of the products sold by the other supplier, Hindustan Latex, Public Sector Undertaking, and its products at what price, was never verified. Merely stating by the Revenue that the assessee has manipulated the sale figures, is not a fact. Hindustan Latex is a competitor. 18. Coming to the objection of the Assessing Officer that the assessee's Director was asked specific and direct questions as well as his statements were recorded, the Ld. Counsel for the assessee submitted that there was not a single question and he was not examined for invocation of the provisions of section 80-IA(10). The Ld. Counsel for the assessee submitted that Inter Plast is completely outsider. The Revenue could have checked up the fact with some other parties also but they have failed to do so and invocation of section 80-IA(10) was made without any basis. He further submitted....
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....t for producing Dextrose for which starch is the raw material, held, "Starch, supplied by all the Industrial Undertakings, should be valued at the market price and not at its cost price of production". 23. Further relying on the decision of the Kerala High Court in the case of Padinjarekara Agencies (P.) Ltd. v. CIT [1988] 173 ITR 637 the Ld. Departmental Representative submitted that sales should be bona fide and intermediaries should not be dummies. It should not be stated for the purpose of sale or purchase and for the beneficial interest of the parties concerned etc. Hence, the Ld. Departmental Representative submitted that the order of the Ld. CIT(A), on the punt, is to be set aside. 24. We have heard the rival submissions, gone through the orders of the Revenue Authorities and the decisions cited. In the case of PCA Engineers Ltd. (supra) the Bombay Bench of the Tribunal held that denial of exemption under section 80HH was not justified because the business transactions for more than ordinary profit is liable to arise in case of Industrial Undertaking. In the instant case, it is the contention of the Ld. Counsel for the assessee that the Revenue has not tried to bring any c....