TMI Blog2013 (2) TMI 349X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that if the negative profit as calculated by the assessee on exports of onions which is a trading activity, the net profit on the sale of Rs.9,96,48,019/- that is from manufacturing activity actually performed by the assessee comes to Rs.2,06,30,644/- (net profit of Rs.1,46,42,804 + negative profit of Rs.59,97,840). Thus agreeing with the observation of the AO that the said calculation as given by the assessee has no merit considering that the net profit as per tax audit report for the entire business activity is 6.14% and on the other hand, the profit from actual manufacturing activity will be 20.70%. The assessee has not disputed the fact that the assessee is not maintaining separate books of account and has allocated some of the expenses to the trading activity which the CIT(Appeals) has held that the same should not be allocated to trading activity and be considered for manufacturing activity. Therefore, finding substance in the contention of the DR that when some of the expenses which should not have been allocated to trading and are allocated to manufacturing activity, the profit from manufacturing activity will reduce. There are also certain common expenses like es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er bags and corrugated boxes for exports. During the manufacturing we use ground nut husk, firewood and leagnight for fuel. The onion and Ground nut is main crop in Bhavnagar district. Raw Onion is seasonal crop. The AO stated that the assessee is claiming to be manufacturer and exporting 100% of its goods. It was seen from the details furnished that during the year the assessee purchased finished dehydrated onions amounting to Rs.11,19,19,308/-. The AO after considering the manufacturing process of dehydrated onions from raw onion, (chart given at page No.2 of the assessment order) stated that the assessee was asked to explain why not purchase and sale of dehydrated onions be treated as trading activity which is not eligible for exemption u/s 10B of the Act. The AO has stated that the assessee was further asked to work out the net profit out of sale of such finished goods. The AO has stated that the assessee in its reply dated 26th December, 2008 accepted that it purchased dehydrated onions of Rs.11,19,19,308/- during the year under consideration and exported it by processing and packaging but earned negative profit and filed the details before him which the AO has also stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wherein the description of the goods sold is given as dehydrated Indian onion mm or Dehydrated onion or Dehydrated white onion kibbled or Dehydrated onion power. It is clear that the assessee is only purchasing the totally finished goods from these group concerns. Even otherwise assessee has purchased finished goods from some other parties also, albeit in smaller quantity. 4.4 As far as the method of working out profit from the trading activity is concerned, the method given by the assessee suffers from material defects. Assessee has taken 58.20% of some expenses attributable to trading and in some cases 25% of expenses to Crushing Rs.10,17,336/-, Onion Stuffing Expenses Rs.6,39,297/-, Onion Vinat Expenses Rs.11,45,638/-, Sterilization Expenses Rs.2,23,340/- are not actually related to the purchase and sales of finished dehydrated onions which has already been discussed above. In fact the only direct expenses attributable to trading are the packing material consumption and related expenditures. 4.5. The assessee has already determined that the trading activity constitutes 58.20% of total sales. Hence net profit has to be worked out based on this percentage on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to trading activity could be considered. In this way, the learned CIT(Appeals) computed the deduction u/s 10B of the Act at Rs.1,35,45,075/-. Hence this appeal by the Department. 5. During the course of hearing, the learned DR submitted that the assessee agreed with the AO that it was also doing trading activities in respect of export of onions and on which exemption u/s 10B could not be claimed. He submitted that the learned CIT(Appeals) also agreed with the AO in principle but reduced the disallowance by working out of its own the ineligible items to be considered and to be reduced from the profit of the activity on which deduction u/s 10B is allowable. The learned DR submitted that the assessee inflated eligible profit. He submitted that the assessee is not maintaining separate books of account. The learned DR submitted that the learned CIT(Appeals) himself stated that some expenses should not have been allocated by the assessee to trading activity and if it is so there is more profit from the trading activity and consequently profit of manufacturing activity will reduce and the assessee is entitled for lesser exemption u/s 10B of the Act. The learned DR submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehydrated onions of Rs.11,19,19,308/-, the assessee purchased from its group concern dehydrated onions of Rs.10,22,63,149/-. We observe that during the assessment proceedings, the AO asked the assessee to furnish explanation that the material being purchased from its group concerns was at market rates but the assessee could not furnish any proof regarding the comparable market rates. There is also no dispute to the fact that the trading activity constituted 58.20% of total sales. The assessee worked out from the said trading activity negative profit (Rs.59,97,840/-). The assessee has shown the net profit from both the activities i.e. trading and manufacturing of Rs.1,46,32,804/-. The AO has stated that if the negative profit as calculated by the assessee on exports of onions which is a trading activity, the net profit on the sale of Rs.9,96,48,019/- that is from manufacturing activity actually performed by the assessee comes to Rs.2,06,30,644/- (net profit of Rs.1,46,42,804 + negative profit of Rs.59,97,840). We agree with the observation of the AO that the said calculation as given by the assessee has no merit considering that the net profit as per tax audit report for the entire ..... X X X X Extracts X X X X X X X X Extracts X X X X
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