TaxTMI 
TaxTMI 
2017 (10) TMI 1344
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.... on the facts and in circumstances of the case, the ITAT has failed to appreciate the fact as brought on record by the Assessing Officer regarding disallowance of deduction u/s 10AA of deemed profit of Rs. 5021944/- not eligible for deduction u/s 10AA of the Income Tax Act, 1961. In DBITA No. 272/2017 "i) Whether on the facts and in circumstances of the case, the ITAT was justified in law in holding that surplus amount in the freight export account and in the insurance export of Rs. 2017500/- is derived from export activities and on those amounts deduction u/s 10AA is allowable. ii) Whether on the facts and in circumstances of the case, the ITAT has failed to appreciate the fact as brought on record by the Assessing Officer regarding disallowance of deduction u/s 10AA of deemed profit of Rs. 23314854/- not eligible for deduction u/s 10AA of the Income Tax Act, 1961. 4. Counsel for the appellant contended that the Tribunal has seriously committed an error in reversing the finding arrived at by the CIT(A) and after considering the case of the assessee has observed as under:- "4.3.1. I have perused the facts of the case, the assessment order and the su....
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....e expected to arise." 5. He further contended that the observations made by the Tribunal are contrary to law. 6. We have heard to counsel for the appellant. 7. Taking into consideration, the observations made by the Tribunal which reads as under:- "5.4. A similar view has been taken by the Hon'ble Karnataka High Court in case of CIT vs. H.P. Global Soft ltd. 342 ITR 263, in the context of section 10A(6) read with section 80-1(9) which is parimateria to section 80IA(10), wherein it was held that there has to be a material to indicate that course of business had been so arranged as to inflate profits and in absence of the same, it declined to interfere with the findings of the Tribunal. The relevant findings are reproduced as under:- "12. Insofar as the question of the profit from software manufacturing export units, i.e. the two software export units of the assessee is concerned, the Appellate Commissioner opined that the requirements of the provisions of Section 80-I(9) the Act is two fold, that not merely there should be a close connection between the assessee-company and the foreign buyer which may be a reason for assessee for indulging in boosting its ....
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....irement viz, it is a course of business is so arranged as to result in an inflated profit is not forthcoming from the order of the Assessing Officer and unfortunately for the Revenue the findings of the Appellate Authority which also go into the facts is that the profit margin as revealed by the assessee is a reasonable profit margin in comparison to other similar units. Ultimately, there being no material to indicate that the course of business had been so arranged as to inflate profits, i.e. to show a higher profit margin to answer the question in favour of the Revenue, but the only answer can be that the Tribunal was justified in taking this view and therefore, the first question is answered in the affirmative and in favour of the assessee and against the Revenue." 5.10. In our view, what is relevant to determine and has to be examined, in the instant case, is the course of arrangement in the context of the business which has actually been transacted between this two entities during the year which has resulted in more than ordinary profits to the assessee company. The business transactions which have actually happened during the year under consideration relates to 70% o....
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....rities. As we have stated above, the arrangement is a cause and the higher profit is the effect. The high profit must necessarily be the consequence of such an arrangement. The AO has to first show that the transactions were specially arranged to produce more than ordinary profits to the assessee company and the high profit is the end point of such an exercise. In absence of an arrangement, merely earning higher profits cannot be basis to invoke the provisions of section 80IA(10) of the Act. 5.12. Assuming that for sake of discussions, there existed an arrangement in respect of specified business transaction between these two connected entities, another aspect of the matter which has to be considered is what is the measure available and employed by the Revenue for determining more than normal profits in the hands of the assessee company. The authorities below have compared the profit earned by M/s Dwarka Jewels and the profit earned by the assessee company to hold that since assessee is earning higher profits, the prices charged by M/s Dwarka Jewels is at a very low price which has resulted in exorbitant profits in the hands of the assessee company. This is again a wrong a....