TMI Blog2017 (6) TMI 1112X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus the appeal of the assessee is dismissed. - ITA No. 878/JP/2016 - - - Dated:- 27-2-2017 - Shri Bhagchand, Accountant Member Assessee by : Shri P.C. Parwal , CA Revenue by : Smt. Poonam Rai, DCIT- DR Shri R.A. Verma, Addl. CIT DR ORDER Per Bhagchand, AM The assessee has filed an appeal against the order of the ld. CIT(A)-2 , Jaipur dated 25-08-2016 for the assessment year 2012-13 raising following grounds of appeal. 1. The ld. CIT(A) has erred on facts and in law in confirming the action of AO in holding that provisions of section 80-IA(10) are applicable without properly considering and analyzing the various evidences filed by the assessee 1.1 The ld. CIT(A) has erred on facts and in law in confirming Restricting the claim of deduction u/s 80IC by holding that profits of the eligible business should be determined by considering net profit rate of 30% as against 43.50% declared by assessee and 7.12% applied by AO and thereby allowing the deduction at ₹ 25,65,237/- as against ₹ 36,15,771/- claimed by the assessee. 2.1 Apropos Ground No. 1 and 2 of the assessee, the facts as emerges from the order of the ld. CIT(A) is as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of more than ordinary profits to the eligible business and hence, the provisions of Section 80IA(10) would not be applicable. I have examined the details furnished by the assessee. The fact that both units deal in similar business even though the production, as per authorized representative, in the assessee company is only of LED bulbs which is an innovative product, is a fact. Further, there is regular purchase and sale of components and finished products between the two concerns. During the year 60.25% of raw material purchase are from sister concern and entire sales which include semi finished goods, are to the sister concern. It was submitted that the sister concern deals in traditional products, products are subject to CST and excise duty of about 7%, administration and other expenditures are more, there is an interest burden which is substantial part of the expenditure and the turnover is ₹ 4.4 crores as compared to ₹ 85,50,789/- in the assessee company. I have also perused the details submitted to prove that sales and purchase have been made on similar rates to the sister concern and the other concerns. It is seen that these details do not present compar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom. From the above provision, it can be noted that: (a) Two conditions, close connection and arranged , need to be cumulatively satisfied for invoking the provisions of section 80IC read with section 80-IA(10) of the Act. (b) Merely because extra-ordinary profit has beenmade, it would not lead to aconclusion that the businesstransaction was arranged forthe purpose of claiminghigher deduction undersection 80IC of the Act. The AO is to bring material on record that business has been arranged to produce more than ordinary profit to the unit claiming deduction u/s 80IC. 2. The following facts clearly demonstrate that the assessee has not earned any extra-ordinary profits from its dealing with M/s Fairdeals nor it has entered into any arrangement with M/s Fairdeals so as to claim higher deduction u/s 80IC: (i) It may be noted that in the first year of the manufacturing of the LED bulb by the Baddi Unit i.e. in A.Y. 2011-12, the Baddi unit declared a gross profit rate of 55.74% on turnove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on u/s 80IC. (ii) In the year under consideration assessee has declared G.P. Rate of 47.33% on turnover of ₹ 85,50,789/-. In this year assessee has purchased raw material of ₹ 16,91,516/- from M/s Fairdeals out of total purchase of ₹ 28,07,364/- which constituted 60.25% of its total purchase. The rate at which purchase is made by the assessee from M/s Fairdeals is at market rate as is evident from the chart placed at PB14 submitted before the AO from which it can be noted that the rate of purchases of various items from M/s Fairdeals is at same rate or at a higher rate when compared to the purchase of the same item from other parties.A statement indicating the rate at which purchases are made by M/s Fairdeals and the rate at which it was sold to assessee is also placed at PB 14submitted to the AO from which also it is evident that purchase made by the assessee from M/s Fairdeals is at market price. The AO without finding any defect in the rate at which purchases are made from M/s Fairdeals and other parties has not accepted the contention for the reason that the date of purchase from M/s Fairdeals is different than the date of purchase from the other p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s Fairdeals is higher during the year as compared to last year. All these shows that the transactions made with M/s Fairdeals is at market rate and the allegation that by making transaction with M/s Fairdeals super profit is earned to claim deduction u/s 80IC is incorrect. The AO accepted that the raw material was sold by the assessee to M/s Fairdeals at the same rate at which it was purchased. However in respect of finished goods and semi finished goods he held that the contention of the assessee is not tenable as the rate at which these goods were sold to M/s Fairdeals could not be verified in absence of any sales made by the assessee to other parties. However at the same time the AO has not brought on record any evidence that the market rate of the goods sold by the assessee to M/s Fairdeals was lower than the rate at which it was sold to M/s Fairdeals. Therefore without bringing any material on record, it can t be presumed that assessee has sold goods to M/s Fairdeals at a higher rate to earn super profit with the intention to claim higher deduction u/s 80IC. (iv) The AO has worked out the consolidated net profit rate of the assessee and M/s Fairdeals at 7.12% and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tc. The AO has not brought any evidence on record that any of the purchase made by the assessee from M/s Fairdeals is at lower than the market rate or any of the sales made by the assessee to M/s Fairdeals is at higher than the market rate. Hence without evidence it can t be presumed that the course of business between the assessee and M/s Fairdeals has been so arranged that it produces more than ordinary profit to the assessee. 3. From the above discussion and facts on record it can be noted that assessee has produced material on record to support that its transaction with M/s Fairdeals are at market rate. AO has not brought any material or evidence on record to prove that these transactions are not at market rate. Therefore, only by making theoretical observations, it can t be presumed that the dealings between the assessee and M/s Fairdeals has been arranged so as to produce more than extraordinary profit to the assessee. It is pertinent to mention that the g.p. rate and the n.p. rate declared by the assessee in A.Y. 2011-12 has been accepted. In the year under consideration the g.p. rate and n.p. rate declared by the assessee is lower as compared to the last year. Relianc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of 30% for allowing deduction u/s 80IA. In view of the above, the AO be directed to accept the N.P. rate declared by the assessee and allow deduction u/s 80IA accordingly. 2.3 On the other hand, the ld. DR relied on the orders of the authorities below. 2.4 I have heard the rival contentions and perused the materials available on record. Brief facts of the case are that the assessee firm is engaged in the business of trading and manufacturing of electrical bulbs and CFL and their components. During the year under consideration , the total turnover of ₹ 85,52,789/-, gross profit of ₹ 40,48,319/- resulting into gross profit rate of 47.33% has been declared by the assessee. It is noted that assessee submitted the books of accounts , consisting of cash, journal ledger, bank books, purchase and sales vouchers, bills and vouchers for expenses were produced and they were put to test check by the AO. It is also noted from the records that the assessee claimed 100% deduction u/s 80IC on the net profit declared by it at its branch office at Baddi. On perusal of the details filed by the assessee, the AO observed that the assessee as well as its sister concern M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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