The AO had made an adjustment on account of supressed profits, by taking the net profit ratio at the rate of unit which was exempted under section 10AA of the Act, ignoring the fact that both the units were engaged in manufacture of similar item and were located in the same area, with the exempted unit only declaring abnormally high profit. The DRP had directed to delete the said addition made by AO.

The DRP held that the assesse was not asked by the AO to furnish the details with respect to distinctive items manufactured by each units. The AO conceded the original claim of the assessee that it was manufacturing different items in different units and the unit-wise profitability, declared by the assesse, was correct and all the details with respect to manufacturing units were produced before the AO at the at the time of assessment proceedings. The taxable units were manufacturing H7 bulbs meant for European markets which fetched a high profit, whereas H4 bulbs were meant for the local market where the returns were low.

The Tribunal held that the factual finding of the DRP was not contradicted by the Department. It was the discretion of the assesse to arrange its affairs in a manner which advanced its interest subject to the conditions that the transactions in questions are bona fide. In the remand report it was accepted by the AO that cost of H4 and H7 bulbs reconcile. The DRP duly considered the remand report and the submissions of the assesse and thereafter reached a conclusion in which there was no infirmity. Thus the Tribunal dismissed the Department’s appeal.( AY.2011-12)