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2019 (1) TMI 471 - DELHI HIGH COURTExemption u/s 10A - Separate and segregated accounts - profit margin of the STPI unit was higher than the profit margin of the non-STPI unit - book results rejection - Held that:- On the substantive aspect and reasoning, the Tribunal agreed with the findings recorded by the CIT (A) that AO was not justified in transposing expenditure from non-exempt to exempt unit on the general assumption that net profit in distinct lines cannot be different and must be the same. Separate and segregated accounts cannot be rejected on the ground that the profit margin of the STPI unit was higher than the profit margin of the non-STPI unit, without pointing out any discrepancy, error or mistake in the accounts. The findings are unchallengeable. AO was unable to point out any defects, deficiencies or wrong entry in the books of accounts for the exempt and non-exempt unit. The Act does not prohibit an assessee from having non-STPI unit and STPI unit. This is not the case and the allegation made by the Revenue. It is also not the case and allegation of the Revenue that the business or orders undertaken by the non-STPI unit were transferred to the STPI unit. The two lines of business were separate. The finding that the two lines of business were separate has not been questioned. Expenditure declared and disclosed as incurred for non-exempt unit cannot be treated and transposed as expenditure incurred on exempt unit, on assumptions and surmises by referring to difference in turnover, expenses and net profit rate of exempt and non-exempt units. This cannot justify the AO’s direction to shift 90% of the expenditure from the non-exempt unit and treat it as expenditure of the exempt unit, thereby reducing the profit in the STPI unit. Inference and deduction solely based and predicated on net profit rate is nothing but a surmise and conjecture. U/s 144 book results cannot be rejected only on the ground of decrease or difference in gross profit rate compared to other years or another assessee. Neither can the book results be rejected for the reason that gross or net profit rates in the two lines of business are different. The difference can be the starting point of investigation and verification but not the essence to reject the book results and make best judgment assessment. No substantial question of law arises for consideration
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