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2016 (5) TMI 314 - AT - Income TaxReduction of deduction u/s 80IB - whether CIT(A) has erred in law and on facts in not appreciating that where income from exempted unit in respect of eligible business was higher than the normal profit in case of existing units, a burden of proof of very high order was cast on assessee to prove correctness of such profit and assesee failed to discharge this onus? - Held that:- The facts of the year under consideration are identical to those of earlier years. By following findings of earlier years' assessment order, in the year under consideration also the AO has reallocated the expenses to all units and thereby recalculating the profits of all units by applying the net profit rate of 4.57% to all units. Such net profit rate of 4.57% was percentage of profits of business as a whole and not of individual division/unit. By applying this percentage of profit of 4.57% the AO has reworked profits of the eligible units u/ s 80-IB of the Actbby application of fixed net profit rate of 4.57% to all units by AO was on assumption basis only without pointing out any defect, error in the books of accounts of all units maintained separately. Without quoting any example, on assumption basis, the AO held that the transactions were not at arm's length between the associate enterprises. The AO has not explained as to how he was not satisfied about the correctness or completeness of the accounts of the appellant. The AO has also not given any finding that the method of accounting has not been regularly followed by the appellant. Since the AO did not point out any defect in the books of accounts, the AO was not justified in rejecting appellant's books of accounts by invoking provisions of section 145(3) of the Act. In my considered view, following the appeal orders of earlier years, there were no circumstances/facts attracting the application of provisions of section 145(3) of the Act. The AO's action of rejecting the books of accounts is therefore, disapproved. Considering the above facts and circumstances and also considering that the facts of the year under consideration are identical to those of earlier years, by following the appeal orders of earlier years, it is held that the AO was not justified in applying the net profit ratio of 4.57% to determine the profits of units eligible for deduction u / s 80-IB of the Act. The AO's action of reducing the appellant's claim of deduction u /s 80-18 is therefore, disapproved. - Decided in favour of assessee
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