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2011 (11) TMI 514 - AT - Income TaxAdjustment made by AO u/s 10A(7) r.w.s. 80IA(10) - Diversion of profit - assessee engaged in the business of manufacturing and export of diamonds studded gold jewelery, declared nil income for the AY 2004-05 after claiming deduction u/s 10A - increase in GP rate - lower average purchase price - alleged transfer of profits from group concern M/s. Sanghvi Exports - Held that:- Assessee was not able to satisfactorily explain reason for sudden increase in GP rate, substantial increase in purchases from M/s. Sanghvi Exports, and purchase rate from the sister concern to be lower than the average sale rate of that concern. Hence authorities will, therefore, be justified in working out the shifting of the profit from M/s. Sanghvi Exports to assessee - Decided against the assessee. Transfer of profit on account of Labour charges - employee cost gone up by about 20%, but labour charges declined steeply from Rs. 73.00 lacs to only Rs. 15.00 lacs though raw material consumption has declined only by 20% - employees of the assessee also working in group concern of the assessee - Held that:- It is quite reasonable to conclude that the assessee had transferred the services of employees to the group concerns. The value of such transfer of services has to be computed on the basis of consumption of raw material. Therefore, transfer value is adopted at Rs. 40.00 lacs. Accordingly, we confirm the adjustment of Rs. 40.00 lacs to the profit on account of labour charges - Decided against the assessee. Dis-allowance in respect of delayed payment of employees contribution - PF/ESIC - Held that:- If employees contribution is paid within grace period allowed, deduction has to be allowed u/s 36(va) Deduction u/s 10A denied on income added by way of dis-allowance of expenses - Held that:- If any addition has been made to the profit of business by way of dis-allowance of expenses, the amount added will very much form part of the profit of the business and therefore, it has to be considered while working out deduction u/s 10A - Decided in favor of assessee. Netting of Interest Income - Gross Interest taken into account by Revenue - Held that:- It is settled legal position that in case some expenses have been incurred for earning of interest income, deduction has to be allowed u/s 57(iii). We, therefore, restore the matter to file of AO to examine and and allow the expenses having nexus with earning of interest - Decided in favor of assessee for statistical purposes.
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