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Malay N. Sanghvi vs. ITO (Bombay High Court)

COURT:
CORAM: ,
SECTION(S):
GENRE:
CATCH WORDS: ,
COUNSEL: , ,
DATE: January 31, 2017 (Date of pronouncement)
DATE: February 8, 2017 (Date of publication)
AY: 2009-10
FILE: Click here to download the file in pdf format
CITATION:
S. 80-IB(10): The profits of an undertaking eligible for deduction cannot be treated as "inflated" in the absence of material on record to show that there is an arrangement between the eligible unit and the non-eligible unit to generate more than ordinary profits for the eligible unit. The mere fact that there are common customers of both the units does not by itself indicate transfer of profits to the eligible unit

The Appellant claimed the benefit of deduction under Section 80IB of the Act being a specified industrial undertaking. During the course of Assessment Proceedings, the Assessing Officer by virtue of subsection (13) of Section 80IB of the Act invoked Sections 80IB (8) and (10) of the Act to determine the allowable claim. The Assessing Officer found that the Appellant had claimed deduction at the net profit ratio of 35% of its Jammu unit. However, the Assessing Officer found that the profit ratio of the unit belonging to Appellant’s wife at Valsad was 5%. Therefore, the Assessing Officer on invocation of Section 80IA(10) of the Act, taking the net profit ratio of the Valsad unit of his wife, adopted 10% net profit ratio to allow deduction under Section 80IB of the Act. The CIT(A) reversed the AO and the Tribunal reversed the CIT(A). On appeal by the assessee to the High Court HELD remanding the matter to the Tribunal:

(i) The grievance of the Appellant is that subsection (10) of Section 80IA of the Act, cannot be invoked in the facts of the present case to restrict its deduction under Section 80IB of the Act on the basis of the profits of the Appellant’s wife unit at Valsad. This for the reason that there are no business transaction between the Appellant’s unit at Jammu and his wife’s unit at Valsad. Moreover, there is nothing on record to indicate that any transaction between them has resulted in more than ordinary profits arising to the Jammu unit in the normal course of business. It is submitted that the above aspect was completely overlooked by the Tribunal while disposing of the Appeal

(ii) We note the fact that the CIT(A) has rendered a finding that there is nothing on record to indicate that there is any arrangement between the Appellant’s Jammu unit and his wife’s unit at Valsad to generate more than ordinary profits or any transfer of goods and/or services inter se, below the market price, resulting in inflated profits to the Appellant’s Jammu unit. Even before us, nothing has been shown by the Revenue that there is any business transacted between Appellant’s unit at Jammu and his wife’s unit at Valsad which resulted in inflating the profits being earned by the Appellant or that there is any transaction between them. The Tribunal has without considering the validity of the above finding of CIT(A), adopted the test of common customers of both the Appellant’s Jammu unit and his wife’s unit at Valsad, to conclude that profits of the Appellants, are inflated. Common customers by itself in the absence of some arrangement between the parties does not indicate transfer of profits to Appellant’s Jammu unit. The factual finding of the CIT(A) has not been considered by the Tribunal in the impugned order. This issue requires reconsideration by the Tribunal in the context of the appropriate interpretation to be put on Section 80IB(8) and (10) of the Act.

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