TaxTMI 
TaxTMI 
2010 (4) TMI 892
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....iness income eligible for deduction under s. 10B of the Act. 3. It was submitted by the learned Authorised Representative that for the relevant assessment year, the assessee had filed its return of income declaring the total income of Rs. 46,68,240 after claiming deduction under s. 10B of the Act to an extent of Rs. 12,51,67,670. It was the submission that in the course of assessment, the AO had referred the assessee's case to the TPO since foreign transactions were involved in the assessee's case. The TPO had verified the transaction and had given a report, which was placed at pp. 139 to 143of the paper book. It was the submission that the TPO had accepted that no adjustment was considered necessary to the value of the international transaction entered into by the assessee. It was the submission that while passing his order under s. 92CA(3), the learned TPO, however exceeded his jurisdiction and passed the remark as follows: "The arithmetic mean of the PLI for the two comparable companies comes to 48.7 per cent. But the PLI for the assessee is 83.1 per cent. Hence, the arm's length PLI is adopted as 48.7 per cent. Accordingly, the arm's length profits would be Rs. 733.42 lakhs a....
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....t of the said amount of Rs. 3.54 crores was liable to be reduced while computing the deduction under s. 10B. It was the submission that against this reduction, the Revenue was in appeal. 5. The learned Authorised Representative further drew our attention to p. 19 of the paper book, which was a copy of the P&L a/c for the year ended 31st March, 2004, which also showed the P&L a/c for the year ended 31st March, 2003. It was the submission that the sales had substantially increased, so also the bank interest receipt. He further drew our attention to p. 195 of the paper book, which was the comparative statement of the profitability of the assessee-company. It was the submission that for the year ended 31st March, 2001, the assessee had a profitability of 80.66 per cent, for the year ended 31st March, 2002-78.66 per cent, for the year ended 31st March, 2003-78.63 per cent, for the year ended 31st March, 2004-79.87 per cent, for the year ended 31st March, 2005-77.85 per cent, for the year ended 31st March, 2006-78.3 per cent and for the year ended 2007 the net profit to total income was 74.16 per cent. It was the submission that for all the earlier and preceding years to the relevant as....
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....would affect the Indian company insofar as it would be hit under the transfer pricing provisions. It was the further submission that when the transaction between the two associated companies, one in India and one outside India has been considered and accepted at the ALP under s. 92C then it cannot be treated as an arrangement to avoid tax as contemplated under s. 10B(7) of the Act. Since in such case, the source or cost erosion is not happening, which is a precondition for invoking the provisions of s. 92C of the Act. He further drew our attention to the order of the learned CIT(A) at para 4.5. It was the submission that the learned CIT(A) had while following the order of the Co-ordinate Bench of the Tribunal in the case of Digital Equipment India Ltd. vs. Dy. CIT (2006) 103 TTJ (Bang) 329 had held that there was a close connection between the assessee and the US company to whom the assessee was supplying the manufactured products. It was the further submission that the learned CIT(A) also held that the assessee had arranged the affairs so as to earn more profits than the ordinary profits from the business. It was the submission that this was not so. He drew our attention to the co....
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....showed that the profits as declared by the assessee were excessive and the affairs have been arranged to claim higher deduction in India and avoid payment of taxes. It was the further submission that the decision in the case of Digital Equipment India Ltd. vs. Dy. CIT (supra) was distinguishable on the facts. It was the further submission that the action of the AO in taxing the excess profits under the head "Other sources" was liable to be upheld. 7. In respect of the issue of sale of scrap, it was the submission that the assessee itself had disclosed the scrap sales under the head "Income from other sources" and consequently it was not open to the assessee to modify its claim without filing a revised return. It was the submission that under the provisions of s. 10B what is allowable is the profits and gains derived by the assessee from 100 per cent export oriented undertaking. It was the submission that the sale of scrap was not the profits and gains derived by the assessee from 100 per cent export oriented undertaking. It was the submission that the order of the learned CIT(A) and the AO on this issue was also liable to be upheld. 8. We have considered the rival submissions. A ....
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....e eligible business the taxable income of an AE is not reduced by shifting its income to the eligible business. However, he has given a further fact in his order that the profit level indicator of the assessee is higher than the mean of the profit level indicator of the comparable cases. The assessee has been right from the beginning claiming that M/s Rahul Electricals & Electronics, which showed a low ratio of profit before tax to sales was not a comparable. This has not been refuted by either the TPO or the AO. In fact, with the comparable, which the assessee itself is pointing out being a sister-concern of the assessee showed the ratio of the PBT to sales at 90.1 per cent, if M/s Rahul Electricals & Electronics is being considered as comparable and had shown a PBT to sales at 7.3 per cent, has the TPO taken any action under transfer pricing against M/s Rahul Electricals & Electronics has also not been placed before us. This is because, after all the assessee-company is showing a higher margin and complying with the intention of the transfer pricing policy in the country, whereas the comparable which has been taken by the TPO and the AO showed a far lower margin than even the mea....
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....comparability when comparing two different enterprises. M/s Rahul Electricals & Electronics which has a turnover of only Rs. 1.28 crores, obviously cannot be compared with the assessee which has the turnover of more than Rs. 15.06 crores. Further, from the order of the TPO, M/s Rahul Electricals & Electronics is also in the business of making tools, which include tweezers, whereas manufacture of tweezers is nearly 90 per cent of the total manufacturing of the assessee. The fact that the AO has also not shown any calculation on the basis of which he has determined Rs. 3.54 crores is the excess profit received by the assessee cannot stand in view of the fact that he has not shown as to what he feels is the actual ordinary profit which the assessee could have generated nor has he shown any particulars he has used for arriving at such a figure especially when the assessee himself has filed the calculation showing the error in the difference between the profits and the ALP as filed before the TPO. Under these circumstances, we are of the view that the reduction of the eligible profits of the assessee by an amount of Rs. 3.54 crores as done by the AO by invoking the provisions of s. 80-I....