2012 (11) TMI 1172 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility of profits for relief u/s 10A.
2. Estimation of profits u/s 10A.
3. Set-off of losses from non-10A units against profits of 10A units.

Summary:

1. Eligibility of Profits for Relief u/s 10A:
The Revenue contended that the profits derived by the assessee from the export-oriented unit were due to extraordinary arrangements with a German company, aimed at boosting profits. The Tribunal, however, found no evidence of such collusion and upheld that the profits of Rs. 20,53,26,910/- should be considered for relief u/s 10A. This decision was based on the Tribunal's earlier ruling for the assessment year 2004-05, which was affirmed by the Hon'ble Jurisdictional High Court. The Tribunal emphasized that extraordinary profits alone do not indicate collusion and penalizing efficient functioning is unjustified.

2. Estimation of Profits u/s 10A:
The Assessing Officer (AO) had estimated the profits for deduction u/s 10A by adopting a 60% gross profit rate, contrary to the 67.91% shown by the assessee. The Tribunal, referencing its previous decision, held that the AO failed to prove any arrangement between the assessee and the German company that resulted in extraordinary profits. The Tribunal noted that the cost of raw materials and other operational efficiencies justified the higher profits, and there was no evidence of inflated sales prices or understated expenses.

3. Set-off of Losses from Non-10A Units Against Profits of 10A Units:
The Revenue argued that losses from the non-10A trading unit should be set off against the profits of the 10A export-oriented unit before computing the deduction u/s 10A. The Tribunal, following its earlier decision and supported by the Hon'ble Jurisdictional High Court, held that deduction u/s 10A should be computed on the profits of the eligible undertaking alone, without adjusting for losses from other units. The Tribunal cited the decision in Siemens Information System Ltd. v/s ACIT and emphasized that the relief under section 10A is to be determined based on the profits of the business of the undertaking, not the total income of the assessee.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, affirming that the profits derived from the export-oriented unit should be considered for relief u/s 10A without setting off losses from the non-10A unit. The decision was pronounced in the open Court on 30th November 2012.