2016 (6) TMI 1332 - AT - Income Tax

Addition u/s 80IA - yielding abnormal profits - excess profit on the ground that the assessee had not booked any expenses in respect of the technical know-how and goodwill - Held that - The assessee was not able to show any change in the given facts in the instant year. CIT(Appeals), after discussing the issue in detail was of the opinion that availability of technical know-how, good will and customer base to the assessee free of cost has resulted in yielding abnormal profits to the assessee which stand in glaring contrast to the profits returned by his sister concern M/s Stoneage in the same line of business. CIT(Appeals) was, therefore, of the opinion that assessee certainly would have been under an obligation to pay suitable price for the technical know-how, good will and customer base, had he followed the arm s length principles while dealing with M/s Stoneage Industrial. Therefore, ld. CIT(Appeals) correctly followed the decisions of earlier years while deciding the issue against the assessee. The finding of fact recorded by the authorities below in assessment year under appeal as well as in earlier years, have not been rebutted through any evidence or material on record. - decided against assessee.

Summary

Issues Involved:
1. Application of provisions of Section 80IA(10) of the Income Tax Act.
2. Addition of ?24,22,978 to taxable income for not booking expenses on technical know-how and goodwill.
3. Consistency of assessment across different years.

Issue-wise Detailed Analysis:

1. Application of provisions of Section 80IA(10) of the Income Tax Act:
The primary issue in this case is the application of Section 80IA(10) of the Income Tax Act, which relates to the computation of income from industrial undertakings and the prevention of tax evasion through arrangements that result in more than ordinary profits. The Assessing Officer (AO) invoked this provision, arguing that the assessee had not booked any expenses for technical know-how and goodwill, which were crucial for the business. The AO believed that the sister concern provided these resources without charge, leading to inflated profits for the assessee.

2. Addition of ?24,22,978 to taxable income for not booking expenses on technical know-how and goodwill:
The AO added ?24,22,978 to the taxable income, calculating 5% of the sales as notional expenditure for the use of technical know-how and another 5% for the use of customer base and goodwill. This addition was based on the observation that the assessee's net profit was significantly higher than that of the sister concern, indicating that essential expenses were not booked to inflate profits artificially. The AO's decision was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)], who noted that the assessee had previously agreed to similar additions in earlier assessment years (2006-07 and 2007-08) without penalty.

3. Consistency of assessment across different years:
The assessee argued that each assessment year should be treated independently and that the addition from previous years should not influence the current year's assessment. However, the CIT(A) and the Tribunal found this argument unconvincing, noting that the facts and circumstances remained unchanged across the years. The Tribunal emphasized the principle of consistency, citing the Supreme Court's decision in the Radha Soami Satsang case, which held that a fundamental aspect found as a fact in one year should not be changed in subsequent years without new evidence. The Tribunal also referenced other judicial precedents supporting the need for consistency in tax assessments.

Conclusion:
The Tribunal dismissed the appeal, affirming the lower authorities' decision to uphold the addition of ?24,22,978. The Tribunal agreed that the assessee's failure to book expenses for technical know-how and goodwill led to artificially inflated profits, justifying the application of Section 80IA(10). The Tribunal also reiterated the importance of consistency in tax assessments, especially when the facts and circumstances remain unchanged across different years. The appeal was dismissed, and the addition to the taxable income was upheld.