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2008 (9) TMI 421 - AT - Income TaxTax Avoidance - disallowance on loss - TP Adjustment - Determination of ALP in respect of an international transaction - Export turnover - no profit - Conditions invoking provisions of s. 92 - CIT(A) held that margin earned from export sales made to M/s Carraro Italy was more than gross margin earned from domestic sales. However, he held that appellant had not explained reasons for comparatively low profit of 28.75 per cent in AY 2000-01 as compared to high profit of 38.56 per cent in AY 2003-04. For this low margin of profit, the ld CIT(A) disallowed loss and rejected the basis of AO's computation of profit at 10 per cent of sale. This way, loss was allowed to the assessee. HELD THAT:- It is evident that following conditions need to be satisfied for invoking sec. 92 : (1) The business is carried on between a resident and a non-resident. (2) There is a close connection between the resident and non-resident party. (3) The resident earns either no profits or less than ordinary profits because of arrangement existing between parties. These are the three conditions which are required to be satisfied before invoking provisions of s. 92. It was not and could not be disputed that the assessee, a resident, carried business with a non-resident (M/s Carraro Italy); Therefore, there is close connection between the assessee and the nonresident party. The resident had suffered loss because of arrangement existing between the parties. It is relevant to mention here that it is a case of earning of no profit by the resident and not a case of less than ordinary profit. Therefore, we see no error in the approach of the AO in the assessment order or in the remand report. Condition No. 3 of the section emphasises case of no profit or less than the ordinary profit. So, the ultimate result whether it is a case of no profit or less than ordinary profit is to be seen. The emphasis is on no profit and, therefore, the CIT(A) was not correct in taking into account some figures of gross profit of the year under consideration and subsequent years. In our considered opinion, where it is ultimately a case of no profit, it is immaterial that there was some gross profit. The section clearly requires to consider net results We are unable to accept the contention of Shri Ved Jain that case for the year under consideration be closed as transactions with the party have been accepted in the subsequent years. It is not in dispute that statutory provisions in the subsequent years were different from provisions of s. 92 applicable in the year under consideration. The orders passed by TPO contain only her conclusions and not detailed facts and circumstances on which such conclusion is based. There is no presumption that if in one year, business with the associated concern is carried at arm's length, then it is carried at arm's length in all other assessment years. The facts and circumstances of each year are to be examined. Conditions of s. 92 in this case are, prima facie, satisfied and, therefore, the burden was on the assessee to show that no profit resulted to the assessee on account of arrangement with the connected non-resident. As appellant complained that reasonable opportunity was not allowed to the assessee by the AO and there is no basis available for estimating profit at 10 per cent of turnover without considering provisions of rr. 10 and 11 of IT Rules, we are of the view that interest of justice would be served if impugned order of CIT(A) is set aside and matter is restored to the me of the AO for making a fresh assessment. Therefore, both the appeals are allowed for statistical purposes.
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