2012 (12) TMI 278 - AT - Income Tax

Deduction u/s 80IA alleged that the company inflated the income of Dehradun unit by deflating the income of other units. He arrived at the income of Dehradun unit by working out the gross profits of all units separately and arriving at the average gross profit rate and applied it to Dehradun sales Held that - Proviso to section 80IA(8) of the Act clearly empowers the assessing officer to re compute the eligible profits on a reasonable basis as he deems fit - it is most appropriate to consider the actual cost as per cost records maintained by the assessee and thereafter assessing off ice consider the profits on these transaction as compared to other industries in similar line or if there is no comparable fix reasonable percentage of profit depending upon market condition prevailing in the similar line of industry matter remanded to AO

Summary

Issues:
Application of provisions of section 80IA(8) and deduction u/s 80IC.

Analysis:
The appellant, a company engaged in manufacturing and sale of bulk drugs and formulations, filed its return of income for the assessment year 2008-09. The assessing officer determined the income at a lower amount than declared by the appellant, specifically focusing on the profits of the Dehradun unit. The assessing officer believed that the company artificially inflated the income of the Dehradun unit by deflating the income of other units. He calculated the income of the Dehradun unit by working out the gross profits of all units separately and applying an average gross profit rate, which the appellant contested as unjustified. The appellant claimed deduction u/s 80IC for the profits of the Dehradun unit, which was reduced by the assessing officer. The appellant argued that the assessing officer's method was irrational and did not consider the different circumstances and profit margins of products at various units.

The CIT(A) considered the submissions of the appellant and focused on the application of provisions of section 80IA(8) in relation to restricting the deduction u/s 80IC. The CIT(A) analyzed the turnover and net profits of the Dehradun unit compared to other units like Mekaguda and Kothur. The assessing officer recalculated the profits and deductions under section 80IC based on the comparison of profit margins at different units. The CIT(A) emphasized that the assessing officer had the power to recompute eligible profits on a reasonable basis as deemed fit. The CIT(A) found that the appellant had artificially shifted profits to the Dehradun unit to evade taxes, and upheld the assessing officer's decision to restrict the deduction u/s 80IC.

The appellant appealed before the ITAT, arguing that the CIT(A) erred in confirming the order of assessment and restricting the deduction u/s 80IC. The ITAT reviewed the arguments of both parties and examined the orders of the authorities below. The ITAT noted that the issue under consideration was similar to a previous decision in the appellant's own case for the assessment year 2007-08. The ITAT agreed with the previous decision and set aside the order of the CIT(A), restoring the issue to the file of the AO to bring comparable cases on record and redo the assessment on this issue. The ITAT allowed the appeal of the assessee for statistical purposes.

In conclusion, the judgment focused on the application of provisions of section 80IA(8) and the deduction u/s 80IC in the context of profit calculations and comparisons among different units of the appellant's company. The assessing officer's method of determining profits was scrutinized, leading to a decision in favor of the appellant based on a previous similar case.