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2014 (7) TMI 168 - AT - Income TaxRejection of books of accounts on account of estimated profits – Held that:- As it has also been decided in assessee’s own case for the earlier assessment year, the Form 3CEB filed before the AO was found to be not about the number of motorcycles produced by the assessee during the period - it was found to be concerning the royalty paid by the assessee company during the relevant quarter - the assessee had furnished a complete reconciliation before the AO, as also incorporated in the assessment order - This reconciliation had been arbitrarily rejected by the AO. Average sales of motorcycles – Held that:- The AO had not pointed out any error in respect of any sale - It was on the basis of this, that the CIT(A) observed that there was no justification for the AO to make an assumption that the sale price charged by the assessee during the year was lower than that in the preceding year - merely since the realization per motor cycle for the year under consideration was low as compared to that in the preceding year, this by itself cannot lead the AO to assume that the sale price charged by the assessee company was under-stated and the AO evidently erred in making such assumption - unless there is material evidence to disprove the contention of the assessee, the sale stated in the books of account needs must be accepted. Losses incurred by it as compared to the profits earned by other competitors – Held that:- Nothing has been brought to support this action of the AO - profit can only be made when there is ability to do so - The factors pointed out by the assessee for not being able to make sales, have not been refuted - in the presence of the factors, without a doubt, the losses suffered by the assessee cannot be said to be either bogus, or inflated - The AO did not prove otherwise - No discrepancy was pointed out in the books of account of the assessee company concerning the expenditure incurred and claimed by the assessee - Nothing was brought to establish that the assessee had been charging a sale price higher than that noted in the books of account – Decided against Revenue. Royalty payment to 100% subsidiary – Held that:- It cannot be said that any expenditure incurred wholly and exclusively for the purposes of business is an allowable expenditure - the payment is made to a 100% shareholding company of the payer - u/s 40A(2) of the Act, it is only the fair value of such expenditure, which is allowable – AO proceeded merely on assumptions, surmises and conjectures which, undeniably, can never substitute hard evidence, which is entirely absent here - Neither Section 40(a)(i) nor Section 2(22)(e) of the Act are applicable – the order of the CIT(A) is upheld - Decided against Revenue. Set off of brought forward business losses and unabsorbed depreciation – Held that:- When an assessee furnishes an explanation on a specific query, the same is treated as accepted unless some inconsistencies are found by the AO on its vetting or the assessee fails to substantiate the same on being called upon to do so - If the Officer does not dispute the correctness of the specific explanation tendered by the assessee, the same is considered as correct and binding of the AO - It is totally impermissible to dub the explanation given by the assessee as a cooked up story without any evidence to the contrary - even if it is presumed without agreeing that the AO was under some misconception qua the assessee’s explanation during the assessment proceedings, he could have verified the same when remand reports were called for - revenue has brought no material on record to demonstrate any fallacy in the explanation tendered on behalf of the assessee – Decided against Revenue.
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