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2016 (5) TMI 314 - ITAT MUMBAI

2016 (5) TMI 314 - ITAT MUMBAI - TMI - Reduction of deduction u/s 80IB - whether CIT(A) has erred in law and on facts in not appreciating that where income from exempted unit in respect of eligible business was higher than the normal profit in case of existing units, a burden of proof of very high order was cast on assessee to prove correctness of such profit and assesee failed to discharge this onus? - Held that:- The facts of the year under consideration are identical to those of earlier years .....

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n of fixed net profit rate of 4.57% to all units by AO was on assumption basis only without pointing out any defect, error in the books of accounts of all units maintained separately. Without quoting any example, on assumption basis, the AO held that the transactions were not at arm's length between the associate enterprises. The AO has not explained as to how he was not satisfied about the correctness or completeness of the accounts of the appellant. The AO has also not given any finding that t .....

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, disapproved.

Considering the above facts and circumstances and also considering that the facts of the year under consideration are identical to those of earlier years, by following the appeal orders of earlier years, it is held that the AO was not justified in applying the net profit ratio of 4.57% to determine the profits of units eligible for deduction u / s 80-IB of the Act. The AO's action of reducing the appellant's claim of deduction u /s 80-18 is therefore, disapproved. - Dec .....

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peals are identical in both the assessment years hence we reproduce as lead grounds of appeal for A.Y. 2010-11 bearing ITA No. 5433/Mum/2013 as under: (i) The Learned CIT(A) has erred in law and on facts in deleting the reduction of deduction u/s 80IB as worked out by the Assessing officer without properly appreciating the factual and legal matrix as clearly brought out by the Assessing Officer in the Assessment Order. (ii) The Learned CIT(A) has erred in law and on facts in not appreciating the .....

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contrary in law and on facts and deserves to be set aside. 2. The brief facts of the case are that the assessee engaged in the business of manufacture and marketing of fabrics, value added yarn, readymade garments and furnishing fabrics. The assessee has its manufacturing facilities at Tarapur, Silvassa, Daman and also markets its readymade Garments under the brand like Oexemberg, MSD and J Hampstead. During the year under consideration the assessee has claimed deduction u/s 80IB to extent of &# .....

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shed before the AO. 3. After considering the replies, and the information gather during the course of assessment proceeding. The AO passed order of assessment and made disallowances in quantum of 80IB deduction and also made certain disallowances out of the claim of expenses and depreciation and made addition on account of difference between opening stock and closing stock. 4. Aggrieved by the order of the AO, assessee filed an appeal before the CIT(A) and the CIT(A) partly allowed the appeal. 5 .....

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s explained above, the appellant had different manufacturing divisions and the divisions had different units. The profit earned form the some of the divisions/units were entitled for deduction u/s 80-IB of the act. In the year under consideration, the appellant had claimed deduction u/s 80-IB of the act at ₹ 6,26,68,195/- on profits earned from eligible units. In earlier years also, the appellant was having eligible units entitled for deduction u/s 80IB of the Act on profits of eligible un .....

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B eligible units/non-eligible units and thereby reworked out the profits of all units, allocating expenses to all units and thereby reworked out the profits of the 80-IB eligible units. By applying a fixed percentage of profit, the AO therefore, reduced the appellant's claim of deduction u/s 80-IB of the Act in the assessment order of earlier years. On appeal filed by appellant for AY 2007-08,2008-09 & 2009-10, my predecessors i.e. CIT (A) have not approved AO's action of (i) applyin .....

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appeal order of A Y 2009-10, my predecessor has made a detailed discussion in respect of appellant's different units, profits of eligible/non-eligible units, overall percentage of net profit of business and percentage of high profit shown in 80-IB units, allocation of major expenses to different units, rejection of book result by the AO. After making a detailed discussion, my predecessor in appeal order of AY 2009-10 held that "The facts of the case under consideration is identical to t .....

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s had to be compared with similar divisions (manufacturing similar products/activities) and not with other units (manufacturing different products/carrying different activities) and by no stretch of imagination with the overall average profit of the whole company. My predecessor held that the AO erred in consolidating the overall profitability of all units together and applying average profit of whole company to all units without any adverse material on record is not maintainable. My predecessor .....

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claimed by appellant at ₹ 5.56 crores to ₹ 1.39 crores by the AO was therefore, deleted by my predecessor in appeal order for A Y 2009-10. The facts of the year under consideration are identical to those of earlier years. By following findings of earlier years' assessment order, in the year under consideration also the AO has reallocated the expenses to all units and thereby recalculating the profits of all units by applying the net profit rate of 4.57% to all units. Such net pro .....

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ny example, on assumption basis, the AO held that the transactions were not at arm's length between the associate enterprises. The AO has not explained as to how he was not satisfied about the correctness or completeness of the accounts of the appellant. The AO has also not given any finding that the method of accounting has not been regularly followed by the appellant. Since the AO did not point out any defect in the books of accounts, the AO was not justified in rejecting appellant's b .....

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