TMI Blog2016 (3) TMI 535X X X X Extracts X X X X X X X X Extracts X X X X ..... hat this is a case of putting cart before the horse. The Assessing Officer, with a preconceived mind, had analyzed the profit margins of the assessee company. The Assessing Officer has failed to bring on record any material to show the existence of any arrangement for business transacted between the two concerns. In such circumstances, we do not see any need for the Assessing Officer to carry out any exercise to compute the reasonable profits expected to be earned by the assessee. Therefore, we hold that in the present case, there was no need for the Assessing Officer to invoke the provisions of section 80IA(10) of the Act. - Decided against revenue Selection of comparables - Held that:- we are in agreement with the findings given by the learned CIT (Appeals) that the Assessing Officer has taken Procter & Gamble Home Products, Anchor Daewoo India Ltd., Jyothy Laboratories etc. comparables, which are not the proper comparables. The turnover of these companies are in the range of ₹ 100 crores, while the turnover of the assessee-company is only 3.84 crores. The assessee is a contract manufacturer, while these companies themselves are manufacturers. For making a comparative an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging from 13% to 64% is received by the assessee from M/s GCPL as processing charges on various finished products. After analyzing certain comparable companies, the Assessing Officer also concluded that the net profit margin of these companies ranges from 0.47% to 13.3%. After this, the Assessing Officer did a detailed FAR analysis for determination of arm's length price of a transaction for a business transacted between the two connected parties as prescribed under Rule 10B(2)(b) of the Income Tax Rules. After all this exercise, the Assessing Officer concluded that the net profit margin of the assessee is significantly higher than what it should ideally be. Considering the fact that there would be some difference in working environment and scale of business the Assessing Officer held that the reasonable net profit of the assessee should be 10% as against 35.5% declared. Applying section 80IA(10) of the Income Tax Act, 1961 (in short 'the Act') deduction under section 80IB of the Act was, therefore, allowed on an amount of ₹ 38,40,108/- being 10% of gross receipts and the balance amount of ₹ 1,02,14,280/- was held to be taxable as normal business income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before us, raising the following grounds of appeal : 1. On the facts and in the circumstances, the Ld. C1T(A) has erred in allowing deduction u/s 80IB of ₹ 1,31,08,963/- as against restriction of claim by the A.O. at ₹ 38,40,108/-. 2. It is prayed that the order of the Ld CIT(A) be set-aside and that of the A.O. restored. 3. The Appellant craves leave to add any other ground of appeal which may arise at the time of hearing. 6. The learned D.R. relying on the order of the Assessing Officer, submitted that there is close connection between the assessee and Godrej, as Mrs. Godrej is aunt of one of the Directors in assessee-company, Shri Uraaz Bahl, who holds 90% shares in the company. The Assessing Officer has amply demonstrated that the assessee is earning unreasonable profits to the extent of 35.5%, as it is an entity eligible for deduction under section 80IB of the Act. Further, he submitted that the Assessing Officer had done a detailed FAR analysis before arriving at a comparable net profit margin. In this view, it was prayed that the disallowance made by the Assessing Officer be confirmed. 7. The learned counsel for the assessee relying on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee's case. The copies of order under section 143(3) of the Act, passed for the same assessment year in the case of Bio Veda Action Research P. Ltd. and Security Products were filed to show that for the year under consideration. The net profit rate of 43.60% and 71.54% respectively have been accepted by the department in these cases. 8. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. Section 80IB of the Act provides for special provision for deduction of certain incomes in respect of certain undertakings or enterprises in certain special category states. Sub-section (13) of section 80IB of the Act makes the provision of sub-section (5) and sub-sections (7) to (12) of section 80IA of the Act applicable to eligible undertaking or enterprise under this section. According to section 80IA(10) of the Act, where profits in the eligible units have been inflated by an assessee, the Assessing Officer is empowered in terms of aforesaid section to determine the reasonable profit. 9. Sub-section (13) of section 80IB of the Act reads as under : 80IB.(13) The provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. Though the terms 'close connection' and 'affairs are arranged in a manner' are not defined in the section, one has to see these conditions on the facts and circumstances of a particular case. 12. Let us first analyze the 'close connection' issue. In a document received from H.P. Environment Protection Pollution Control Board, the Assessing Officer came to know that Mr. Uraaz Bahl is holding 90% of the share capital in assessee-company. This is an incorrect fact as Mr. Uraaz Bahl holds only 9% of shares of the assessee-company. It is also stated in the same information that Mr. Uraaz Bahl is the nephew of Mrs. Godrej and has been closely associated with the Godrej group. Here, we observe that the assessee-company is doing job work only for M/s Godrej Consumer Products Ltd. (GCPL) and how Mrs. Godrej is related to GCPL is not coming up anywhere in this order. Even the full name of Mrs. Godrej is not appearing anywhere. In this circumstances, how does he infer the close connection in not known to us. 13. As regards the arrangement of affairs, the Assessing Officer referred to the contract between the assessee and GCPL. From the perusal of the said c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ables, which are not the proper comparables. The turnover of these companies are in the range of ₹ 100 crores, while the turnover of the assessee-company is only 3.84 crores. The assessee is a contract manufacturer, while these companies themselves are manufacturers. For making a comparative analysis, apples are to be compared with apples and not with oranges. Further, there are companies like Bio Veda Action Research Pvt. Ltd. Security Products, where the net profit rate of 43.60% and 71.54% respectively has been accepted by the department, in the scrutiny proceedings for the same assessment year. In view of this, even 10% net profit margin computed by the Assessing Officer is not correct. 16. In view of the above, we confirm the order of the learned CIT (Appeals). 17. The appeal of the department is dismissed. C.O. No. 8/Chd/20012 In ITA No. 1041/Chd/2011: 18. As we have given our findings on the merits of the case while adjudicating the appeals of the Revenue, the issue in Cross Objection becomes academic, therefore, no separate finding is given on the same. 19. In the result, all the appeals of the Revenue and Cross Objection of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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