TaxTMI 
TaxTMI 
2010 (9) TMI 1261
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....ot entitled to deduction under Section 10B of the Act. Considering the difference between the GP rate and net profit rate of both the concerns, the assessing officer was of the opinion that profit of M/s V. Rajendra Exports has been diverted to the Assessee firm so that such, firm may claim deduction under Section 10B of the Act on the enhanced profit. The assessing officer has referred to Sub-section (7) of s, 10B of the Act which provides that Sub-section (8) of Sub-section (10) of Section 80-IA will also apply in relation to undertaking referred in Section 10B. Sub-section (10) of Section 80-IA provides that in case it appears to the assessing officer that owing to the close connections between the Assessee carrying on eligible business or for any other reasons, the course of the business between them is so arranged that the business transacted between them produces to the Assessee more than the ordinary profits which might be expected to arise in such eligible business then the assessing officer in computing the profits and gains of such eligible business for the purposes of deduction under Section 10B may take the amount of profits as may be reasonably deemed to have been deri....
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....p concern of brother of the common partners of both the firms. (ii) The business address of both the concerns is the same i.e. 3946, M.S.B. Ka Rasta, Jaipur. (iii) The Assessee firm has exported the goods worth Rs. 64,81,057 out of total turnover of Rs. 1,22,07,492 to M/s Pioneer Gems, New York an AE as per the observation of the assessing officer while dealing with transfer pricing provisions. M/s V. Rajendra Exports has exported Rs. 41,06,574 to M/s Pioneer Gems, New York as against turnover of Rs. 68,47,807. (iv) In the case of the Assessee firm, the percentage of direct expenses to turnover is 6 per cent as against 11.64 per cent in the case of M/s V. Rajendra Exports. The percentage of indirect expenses in the case of Assessee firm is 4.09 per cent as against 23.58 per cent in the case of M/s V. Rajendra Exports. The GP rate and net profit rate of both the concerns for the last three years have been mentioned in the assessment order to show that the GP rate in the case of M/s V. Rajendra Exports decline year after year while the GP rate of Assessee firm stood increased from year to year. The chart is reproduced as under: M/s Kanchan Tara Exports ....
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.... having close connection but one of the parties should be the Assessee. The word between refers to the two parties. Hence, the assessing officer is required to establish the close connection between the Assessee and the other parties. In the instant case, the assessing officer is making reference to the fact that two concerns are making exports to the same concern. In case, both the concerns are making export to the same concern then it does not show that the two concerns which are dealing with the other concern are having business between them. The department carried out the search over the Assessee and M/s V. Rajendra Exports on 18-12-2003 and separate books of account and stock were found. There has been no purchase, sales and other financial transactions of the Assessee with M/s V. Rajendra Exports. The factory premises of the Assessee is different from the premises of M/s V. Rajendra Exports. The Assessee firm has exported the entire sale proceeds after manufacturing the precious and semi-precious stones from Kharad. M/s V. Rajendra Exports is engaged in the trading of precious and semi-precious stones and also manufacturing emerald from Kharad. Since there is no business betw....
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.... expenses debited in the books of account of M/s V. Rajendra Exports relate to the business of the Assessee firm. In the absence of any material collected by the assessing officer, the assessing officer was not justified in holding that the deduction under Section 10B is to be restricted to Rs. 12,72,153 as against Rs. 28,03,943. Hence, the learned Commissioner (Appeals) was justified in deleting the addition of Rs. 15,31,790. 3.1 The second grievance of the revenue is that the learned Commissioner (Appeals) has erred in deleting the addition of Rs. 12,69,701 made by the assessing officer on account of ALP. 3.2 The Assessee firm has made sales to a concern which is a proprietorship concern of Shri Ashok Sancheti who is the brother of Shri Rajendra Sancheti and Shri Vijay Sancheti. Shri Rajendra Sancheti and Shri Vijay Sancheti are also partners in the Assessee firm in addition to other partners. Before the assessing officer, it. has been contended that M/s Pioneer Gems, New York a concern of Shri Ashok Sancheti cannot be considered as an AE. The learned Commissioner (Appeals) also held that M/s Pioneer Gems, New York cannot be considered as an AE. This issue has been consider....
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....se is given in Section 92A and same has been reproduced by the assessing officer in the body of assessment order. The assessing officer after quoting the Section 92A has inferred that the case of the Appellant is covered under the proviso to Sub-section (1) of 92A and the scope of Sub-section (1) is wider and broad and that Section 2 defines the deemed to be A Es which mean that irrespective of other factors mentioned in Sub-section (1), the case falls under Sub-section (1). How it falls under clause or Sub-section (1) has not been explained by the assessing officer. Thus from the definition in Section 92A, the assessing officer has failed to establish that the Appellants case falls under Sub-section (1) of Section 92A and hence M/s Pioneer Gems is an AE with reference to the Appellant. Proviso to Sub-section (3) of Section 92C prescribes that an opportunity shall be given by the assessing officer by serving a notice calling upon the Assessee in show-cause with date and time to be specified in the notice, why the ALP should not be so determined on the basis of material or information or document in the possession of the assessing officer. From the submission of the Authori....
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....9 3,03,378 131.44 Tourmollne 1,711.86 1,54,381 90.18 12,769.56 24,09,982 188.72 3.6 From the above chart, it is clear that the Assessee has obtained better sale rate in respect of item Nos. 1 and 2. However, the sale rate in respect of item No. 3.5 and 6 is less as compared to sale rate made to other concerns. In the case of M/s V. Rajendra Exports, we have noticed that the sale rate in respect of emerald varies from size to size. Moreover, the cost of emerald also depends upon the quality of Kharad. At the time of purchase of Kharad, one cannot be sure as to whether a person is likely to get semi-precious stones of big size. The Assessee has explained the reasons as to why the GP rate in respect of emerald is less. The learned Commissioner (Appeals) has accepted the explanation offered by the Assessee and there is no material to show that explanation given by the Assessee is incorrect. The sale in respect of item No. 5 is negligible and is not of much relevance for ascertaining the ALP. In respect of Tourmoline, the Assessee has shown the GP rate of 40.71 per cent relating to sale to M/s Pioneer Gems, New York. Our attention was drawn towards the asse....