Home Case Index All Cases Income Tax Income Tax + HC Income Tax - 2017 (11) TMI HC This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2017 (11) TMI 519 - HC - Income TaxDenial of deduction under Section 80-IC - profits of the Assessee were “more than ordinary” - denial by invocation of Section 80-IA (10) - what percentage of GP ratio should be considered to be ‘more than ordinary’? - Held that:- For the purposes of Section 80-IA (10) it is not enough for the AO to show that there was a close connection between the Assessee carrying on the eligible business and the other person with whom it has transactions. The AO has to further show that the business between them is so arranged that it produces for the Assessee ‘more than the ordinary profits’ which might be expected to arise in such eligible business. Section 80-IA (10) of the Act further requires the AO to compute the profits and gains of the eligible business by taking the amount of profits “as may be reasonably deemed to have been derived therefrom”. The adjective “reasonably” carries with it the responsibility of the AO to base his conclusion on some empirical data. In the present case the AO’s conclusion that the profits of the Assessee were “more than ordinary” was based on surmises and conjectures. During the course of his submission, Mr Singh sought to suggest that a 40% GP ratio by itself should be taken to be “more than ordinary”. Neither the Court nor the CIT (A) or the ITAT can take judicial notice of what percentage of GP ratio should be considered to be ‘more than ordinary’. That decision will hinge upon a variety of factors including the line business, the market conditions, the geographical location, the standard practices peculiar to the line of business and so on. To be fair, Mr Singh pointed out that by a subsequent amendment with effect from 1st April 2013, the legislature has inserted a proviso to Section 80-IA (10) of the Act to acknowledge the complexity of the exercise. It is not in every case that the CIT (A) has to ask for a remand report from the AO to make up for what was missed to be done in the first place by the AO. In the circumstances, the CIT (A) and the ITAT cannot be faulted for not undertaking themselves the required exercise under Section 80-I (10) of the Act.
|