9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2010 (4) TMI 892 - AT - Income TaxDenying deduction under s. 10B of the profits in excess of the ALP by invoking the provisions of s. 10B(7) r/w s. 80-IA(10) - Held that - the provisions of s. 80-IA(10) do not give an arbitrary power to the AO to fix the profits of the assessee. The AO has to specify as to why he feels that the profits of the assessee are being shown at a higher figure. He has further to show as to how he has computed the ordinary profits which he deems to be the ordinary profits which the assessee might be expected to generate. The fact that the AO has also not shown any calculation on the basis of which he has determined the excess profit received by the assessee cannot stand in view of the fact that he has not shown as to what he feels is the actual ordinary profit which the assessee could have generated nor has he shown any particulars he has used for arriving at such a figure especially when the assessee himself has filed the calculation showing the error in the difference between the profits and the ALP as filed before the TPO. Under these circumstances the reduction of the eligible profits of the assessee as done by the AO by invoking the provisions of s. 80-IA(10) r/w s. 10B(7) is unsustainable and consequently the same is deleted. CIT(A) not giving relief by treating the income from the scrap sales as business income - Held that - As it is noticed that as per the provisions of s. 10B, it is the profits and gains derived by the assessee from a 100 per cent export oriented undertaking that are eligible for deduction. The sale of scrap is not profit and gain derived by the assessee from the 100 per cent export oriented undertaking. The sale of scrap is not an export and on that ground itself the assessee is not entitled to relief. Further while filing its return of income, the assessee itself has treated the income from the sale of scrap as income from other sources. It is not open to the assessee to modify its stand in its return in the course of assessment proceedings other than by filing a revised return as held by the Hon ble Supreme Court in the case of Goetze (India) Ltd. vs. CIT (2006 (3) TMI 75 - SUPREME COURT). Under these circumstances, the findings of the learned CIT(A) stand confirmed. CIT(A) directed AO to allow 5 per cent of the interest income as expenditure relatable to the earning of the interest income - Held that - Merit in the submissions of the DR that the assessee has not produced any evidence of having incurred any expenditure for the purpose of earning the interest income. In the absence of any expenditure having been incurred the Act does not provide for any ad hoc estimated expenditure. This is because the income of the assessee itself is assessed as per the books of account maintained by the assessee, wherein all the expenditure have been claimed. Under these circumstances, no expenditure is liable to be allowed. Even otherwise, as per the provisions of s. 57(iii), as the assessee has not been able to point out any expenditure which has been laid out or expended wholly or exclusively for the purpose of making or earning such interest income from the bank, no ad hoc expenditure is allowable. Under these circumstances, the findings of the CIT(A) stand reversed and ground of the Revenue is allowed.
Issues Involved:
1. Denial of deduction under Section 10B for profits in excess of the Arm's Length Price (ALP). 2. Treatment of income from scrap sales. 3. Levy of interest under Sections 234B, 234C, and 234D. 4. Allowance of 5% expenditure on interest income. Detailed Analysis: 1. Denial of Deduction under Section 10B for Profits in Excess of ALP: The assessee contested the CIT(A)'s decision to uphold the AO's denial of deduction under Section 10B for profits exceeding the ALP by invoking Section 10B(7) read with Section 80-IA(10). The AO had referred the case to the TPO due to foreign transactions, and the TPO found no need for adjustments to the international transaction values. However, the TPO noted that the assessee's Profit Level Indicator (PLI) was significantly higher than the mean PLI of comparable companies. The AO adopted the assessee's working of excess profit at Rs. 3.54 crores and reduced this from the eligible profit for deduction under Section 10B, assessing it under "Income from other sources." The CIT(A) partially upheld this by reducing only 83.1% of Rs. 3.54 crores from the eligible profit. The Tribunal found that the TPO had confirmed the ALP and no adjustment was necessary. The AO's application of Section 80-IA(10) was deemed unsustainable as he failed to specify why he believed the profits were inflated and did not provide a basis for determining ordinary profits. The Tribunal deleted the reduction of Rs. 3.54 crores from the eligible profits. 2. Treatment of Income from Scrap Sales: The assessee argued that income from scrap sales should be considered business income eligible for deduction under Section 10B. The AO and CIT(A) treated scrap sales as "Income from other sources," and the Tribunal upheld this view. It was noted that scrap sales do not qualify as profits derived from a 100% export-oriented undertaking, and the assessee had originally classified this income under "Income from other sources" in its return. The Tribunal confirmed the CIT(A)'s findings, disallowing the deduction under Section 10B for scrap sales. 3. Levy of Interest under Sections 234B, 234C, and 234D: The Tribunal noted that the levy of interest under Sections 234B, 234C, and 234D is consequential in nature. No substantial arguments were presented on this issue, and the Tribunal confirmed the CIT(A)'s findings. 4. Allowance of 5% Expenditure on Interest Income: The Revenue appealed against the CIT(A)'s direction to allow 5% of the interest income as expenditure. The Departmental Representative argued that the assessee did not provide evidence of incurring such expenditure and had already claimed all expenses in computing business income. The Tribunal found merit in this argument, noting that the Act does not provide for ad hoc estimated expenditure without evidence. Consequently, the Tribunal reversed the CIT(A)'s decision and disallowed the 5% expenditure on interest income. Conclusion: The Tribunal partly allowed the appeals of both the assessee and the Revenue. The reduction of Rs. 3.54 crores from the eligible profits under Section 10B was deleted, the treatment of scrap sales as "Income from other sources" was upheld, and the allowance of 5% expenditure on interest income was disallowed. The levy of interest under Sections 234B, 234C, and 234D was confirmed as consequential.
|
