TaxTMI 
TaxTMI 
2012 (12) TMI 278
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....sessment was taken up for scrutiny and the income was determined at Rs 34,65,56,187/- vide order u/s 143(3) dated 29.12.2010. The appellant claimed deduction u/s 80IC of Rs. 46,57,43,949 in respect of profits of Dehradun unit 3. The Company's Mekaguda unit manufactures Active Pharmaceutical ingredients and finished dosage formulations are produced at its Kottur and Dehradun Units. Active Pharmaceutical Ingredients manufactured at Mekaguda are transferred to Dehradum and Kothur units. Certain anti cancer drugs i.e. Veenat and Geftinat are manufactured at Dehradum plant. The materials transferred from Mekaguda to Dehradun is at cost price. 4. The assessing officer was of the view that the company inflated the income of Dehradun unit ....
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....material sold by non eligible unit to an eligible unit but it does not empower the assessing officer to meddle with the items or resort to estimation of income. If the assessing officer was not satisfied with the justification given by the assessee. The proper course of action open to him Is to ascertain the market value. Similarly if he was of the opinion that expenses on salaries and other expenses are low he ought to have made reasonable estimate of such expenses. Without specifically pointing out the areas and extent of deflation of expenses the assessing officer resorted to an estimate of rate of profit by considering and aggregating both eligible and ineligible business which are not comparable and which is also not permitted by the p....
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.... the provisions of section 80IA(8) which are applicable in respect of the appellant only stipulate that market value of goods transfers from other units to their units be considered for calculation of deduction under section 80IC. The appellant states that no other method can be considered. I find that proviso to section 80IA(8) clearly empowers the Assessing Officer to re compute the eligible profits on a reasonable basis as he deems f it. The said section is quoted below: "Section 80IA(8) where any goods or se vices held for the purposes of the eligible business are transferred to any other business carried on by the assessee or where any goods or services held by the purposes of any other business carried on by the assessee are transfer....
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....net profit Rs 47,80,13,876/- i.e. 77.37% The Assessing Officer has rightly pointed out in the assessment order that the appellant has clearly deflated salary expenses raw material expenses etc with respect to Dehradun to artificially inflate the profit. In fact the total salaries wages and staff welfare expenses debited in the P& L a/c is Rs 45,75,322/ which is equivalent to 0.74% of the turnover, This clearly shows that expenses had not been booked in Dehradun but in other units to artificially shift profits into Dehradun unit Since the formulations in Mekaguda unit cannot be sold in the market it is obviously not practical for the assessing officer to calculate the prices of inputs on the basis of market prices vis a vis Dehradun unit. Th....
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.... CIT(A) failed to appreciate the fact that the profits of all the units cannot be same when the activities in each units differ and thereby erred in confirming the action of the AO who considered average profits by clubbing profits of all the units some of which are not eligible for deduction u/s 80IC. 4. The learned CIT(A) failed to appreciate the fact the provisions of sec 80IC are similar to transfer pricing provisions and it is required to have comparable case which is with similar nature of business and it is not left to the AO to determine in a whimsical manner and there by erred in confirming the action of the AO in restricting the deduction u/s 80IC by adopting average Gross Prof it rate by clubbing profits of all units including i....