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TMI Blog2012 (4) TMI 397X X X X Extracts X X X X X X X X Extracts X X X X ..... rdance with -Section 80-I(9) read with Section 10A(6) the assessee and its supplier Digital Group Worldwide/Overseas need not actually maintain books separately bat deciphering the profit would be sufficient compliance. (3) Whether the Appellate Commissioner is correct in holding that before the books could be rejected, the Assessing Officer has to satisfy himself the provisions of Section 145 of the Act and not Section 80-I(9) read with Section 10A(6) of the Act. 3. At the time of hearing Sri. G. Kamaladhar, Standing counsel appearing for the appellant-revenue, submitted that yet another question viz., 'whether the appellate authorities were correct in holding that the MODVAT credit income as well as value of the closing stock for the current assessment year, as held by the Assessing Officer, is also a question that arises for examination in the above four appeals Sri. Suryanarayana, learned counsel appearing for the respondent-assessee having submitted that this question also arises and may be examined in these appeals for our answer, we are examining the appeals in the context of these questions for the purpose of disposal of these four appeals. 4. We have heard Sri. Ka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13.44% Profit of the company excluding profits of these two units 250,26,67,619 30,23,77,844 12.08% ITA. No. 806/2006 1998-99 Total Turnover Profit Shown Rate of Profit Profit of IDC Unit 15,29,69,362 9,19,43,640 60.09% Profit of STP Unit 32,70,06,769 10,07,85,585 30.81% Profit of the company as a whole including the profit of the above two units 3,35,57,90,872 38,20,11,409 11.45% Profit of the company excluding profits of these two units 2,85,57,94,741 18,92,82,184 6.63% is not merely unusually high in comparison to the assessee's non-export business in the other units of the assessee-company, but having regard to the close relationship between the assessee-company and its foreign buyer which was almost in the position of the parent company of the assessee and because of which reason the Assessing Officer opined that the provisions of Section 80-I(9) are to be applied in terms of Section 10A(6) of the Act and therefore, disallowed the claim of the assessee, to exclude the percentage of the profit in respect of the export activities of the two units of the assessee as claimed, but allowed at the same percentage of profit in respect of the entire turnover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of the closing stock has been taken at a lower amount corresponding to the amount of MODVAT credit said to be available to the assessee on the last day of the accounting period, which for the assessment year 1995-96 was noticed at 1,18,61,885/- and after having called upon the assessee to furnish the details of the justification, but the assessee merely contending that as it had not added the corresponding duty amount to its purchases and the expenditure claimed towards the cost of purchase of its raw-material being exclusive of the duty paid for the purpose of preparation of the profit and loss account, but at the same time not producing any commensurate evidence or material to show the actual amount of duties paid by it to this extent i.e., to the extent of 1,18,81,885/- rejected the contention of the assessee and also rejected the method of maintenance of the accounts of the assessee for the purpose of ascertaining the taxable profits of the assessee and proceeded to add back this amount to the value of the stock and on such premise re-computed the profit and brought the corresponding amount to tax. 10. The assessee being aggrieved on such inference dramas by the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Section 10-A benefit claimed by the assessee and so also the MODVAT credit aspect. 14. It is because of the failure of the Revenue before the Tribunal, the present appeals and on the questions as above. 15. Adverting to the question relating to Section 10A benefit of the assessee, submission of Sri. G. Kamaladhar, learned standing counsel for the Revenue, is that the assessee had not maintained any separate accounts to indicate the precise profits attributable to the two export units; that the assessee had not placed even any material or books of account relating to these units to indicate either at the manner of arriving at the profits attributable to these units or in any other way, that when the Assessing officer has noticed the close relationship between the assessee and the foreign buyer which is not all in dispute and if the Assessing officer also had noticed the abnormal high profit ratio shown by the assessee only in respect, of the export units and in comparison to the average profits of the entire production of the assessee, if the Assessment officer found that the profit margin attributable to the export sales was abnormally high and therefore, it had applied the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity or before the Appellate Authority to show that he had actually paid the corresponding excise duty, customs up to the amount of the MODVAT credit which it had claimed as MODVAT credit available to it at the end of the accounting period and therefore, was to be excluded in computing the value of the closing stock; that when the initial payments itself had not been demonstrated, a claim of this nature was not tenable. It is also pointed out that the Assessing Officer found sufficient reasons to reject the manner of maintenance of the accounts for the purpose of arriving at the profits of the assessee and in exercise of the powers u/s.143(2) of the Act, if had rejected the accounting method being of the opinion that such manner was nothing but a device to understate the profits of the assessee and if had made addition of the amount of the duty claimed as a deduction form the value of the stock, there was nothing wrong with the same and the Appellate Commissioner and the Commissioner should not have interfered math the conclusion of the Assessing Officer. 19. On the other hand, Sri. Suryanarayana, learned counsel appearing on behalf of the assessee with reference to the question o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit amount. Mr. Suryanarayana further, submits that the Tribunal has correctly disposed of the appeals on these two aspects and therefore questions raised are required to be answered in favour of the assessee and against the revenue. 23. We have bestowed our attention to the submissions made at the bar, perused the order of the Assessing Authority, Commissioner for Income Tax (appeals) and also of the Income tax Appellate Tribunal. 24. Insofar as the first question is concerned, while it is true that there did exist a close connection between the assessee- company and the foreign buyer and it is not disputed that the other requirement such as the nature of arrangement and the manner of rejection of the profits margin due to export sales as inflated profits attributable to export activities, having not been disclosed by the Assessing Officer arid though considerable reliance is placed by the learned counsel for the respondent on the judgment of the Supreme Court, while it is true that to some extent these two provisions are analogous (S.42 and Section 80-I(9) of the Act) the questions that were examined in the judgment of the Supreme court were not on the so-called arrangement as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the accounts maintained by the assessee in terms of the provisions of Section 145(2), has enabled the Assessing Officer to proceed pass best judgment assessment, but at the same time the order should spell out reasons and the basis for passing a best judgement order. 28. The reason if at all as discernible from the assessment order on this aspect can only be that the Assessing Officer is of the view that the assessee was not entitled for the deduction in terms of Section 43B of the Act as the actual payments had not been made good by placing before the Assessing Officer the commensurate material for the accounting period of excise duty and customs. 29. In this regard submission on behalf of the assessee to the effect that it was not a deduction claimed against the payment, but an available MODVAT credit which was taken out of the value of the closing stock as the assessee had not factored in the duties paid by it at the stage of valuing its purchases. 30. We are of the view that it was not an accounting procedure that was involved in a claim made by the assessee insofar as the deduction was claimed attributable to the MODVAT credit, but a specific deduction claimed in res ..... X X X X Extracts X X X X X X X X Extracts X X X X
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