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2018 (12) TMI 982 - AT - Income TaxRejection of books of account - suppressed production expenses just to inflate profit for claiming deduction u/s 80IC - assessee has shown the higher profit in the books of accounts to claim the excess deduction under section 80IC - Held that:- Provisions of section 80IC(7) provides that the provisions contained in subsection 5 and subsection 7 – 12 of section 80IA shall so far as may be applied to the eligible undertaking or enterprise under that section. On looking at the provisions of subsection 10 of section 80 IA. Provides that where it appears to the assessing officer that owing to the close connection between the assessee carrying on the eligible business to which this section applies and any other person or for any other reason the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the assessing officer sale, in computing the profits and gains of such eligible business for the purposes of the deduction under that section, take the amount of profits as may be reasonably deemed to have been derived there from. On careful reading of the order of the learned assessing officer, we do not find that how the assessing officer has come to a conclusion that assessee is showing more than ordinary profits in its books of accounts. According to us, Such analysis has to be with respect to the profits of the comparable units. No such comparable units were examined by the learned assessing officer for holding that assessee has suppressed the contention of the raw material by 8%. AO has not traced that if the material consumption has been under booked by the assessee, whether the assessee is holding excess stock in the books of accounts then what assessee actually physically hold. Naturally when the assessee as under booked the consumption and in real sense has consumed the material higher than what is recorded in the books of accounts then such closing stock itself is inflated of the raw material to the extent of under booking of the raw material consumption. If the consumption of INR 80 is to be replaced by the consumption of rupees hundred then correspondingly the stock, which is overstated by INR 20 in books is also required to be reduced. Further, it is not the case of the AO that quantitative details, which are also subject to excise of the closing stock is incorrect. In that particular sense the whole exercise carried out by the assessing officer is devoid of any merit. The allegation of the AO is that assessee has shown the higher profit in the books of accounts to claim the excess deduction under section 80IC. To show the higher profit the assessee either might have inflated the assets or have understated certain liabilities, in absence of this, the profitability cannot be shown at higher figure. The corresponding effect of the higher profit has not been identified by the learned assessing officer. No indication has also been drawn by the assessing officer that how the assessee has inflated its profit and correspondingly inflated its assets or deflated its liabilities. According to us This is the simple accounting concept which should have been followed by the learned assessing officer before making the addition. - Decided against revenue.
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