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2016 (3) TMI 535 - AT - Income TaxEligibility of deduction under section 80IB - unreasonable profits earned - Held that:- Assessing Officer during the assessment proceedings, though, painfully analyzed the product margins of the assessee and also the FAR analysis as well as the analysis of comparables. However, we see that all this lengthy exercise has been done by the Assessing Officer in a haste. To comply with the provisions of section 80IA(10) of the Act, firstly the Assessing Officer should have brought on record how the two entities, viz the assessee and GCPL are 'closely linked' and how their affairs are arranged so as to produce more profit by the assessee. Then only he can proceed to quantify the unreasonable profits earned. Whatever basis he has taken are found either factually incorrect or are too vague. The Assessing Officer, in fact, on the basis of large profits earned by the assessee, has pre-supposed that there is some arrangement to this effect. This approach is not as per law. At this stage, we agree with the finding recorded by the learned CIT (Appeals), that this is a case of putting cart before the horse. The Assessing Officer, with a preconceived mind, had analyzed the profit margins of the assessee company. The Assessing Officer has failed to bring on record any material to show the existence of any arrangement for business transacted between the two concerns. In such circumstances, we do not see any need for the Assessing Officer to carry out any exercise to compute the reasonable profits expected to be earned by the assessee. Therefore, we hold that in the present case, there was no need for the Assessing Officer to invoke the provisions of section 80IA(10) of the Act. - Decided against revenue Selection of comparables - Held that:- we are in agreement with the findings given by the learned CIT (Appeals) that the Assessing Officer has taken Procter & Gamble Home Products, Anchor Daewoo India Ltd., Jyothy Laboratories etc. comparables, which are not the proper comparables. The turnover of these companies are in the range of ₹ 100 crores, while the turnover of the assessee-company is only 3.84 crores. The assessee is a contract manufacturer, while these companies themselves are manufacturers. For making a comparative analysis, apples are to be compared with apples and not with oranges. Further, there are companies like Bio Veda Action Research Pvt. Ltd. & Security Products, where the net profit rate of 43.60% and 71.54% respectively has been accepted by the department, in the scrutiny proceedings for the same assessment year. In view of this, even 10% net profit margin computed by the Assessing Officer is not correct. - Decided against revenue
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