2018 (6) TMI 1093 - AT - Income Tax

Addition taking the net profit ratio at the rate of the unit which was exempted under section 10AA - both the units were engaged in manufacture of similar item and were located in the same area, with the exempted unit only declaring abnormally high profit, for which no satisfactory explanation was put forth by the assessee - Held that - As found by the DRP that taxable units were manufacturing H7 bulbs meant for European market/continent which fetched high profit, whereas H4 bulbs were meant for local market where the returns were low. This factual finding of the learned Dispute Resolution Panel was never contradicted by the Revenue before this Tribunal. So far as managing the business affairs by the assessee to reduce its tax liability the learned Dispute Resolution Panel duly considered the decision from hon ble apex court in CIT v. Calcutta Discount Company Ltd. (2006 (11) TMI 135 - SUPREME COURT) wherein it was held that it is the discretion of the assessee to arrange its affairs in a manner which advances his interest subject to the conditions that the transaction in question are bonafide. In the instant case, this factual matrix was not doubted by the learned Assessing Officer rather in the remand report it was accepted by the Assessing Officer that cost of H4 and H7 bulbs reconcile . The learned Dispute Resolution Panel duly considered the remand report and the submissions of the assessee and thereafter reached to a conclusion in which we find no infirmity. We affirm the same. - Decided against revenue

Summary

Issues:
1. Addition made by Assessing Officer under section 10AA of the Income-tax Act, 1961.
2. Transfer pricing adjustment and suppressed profits of taxable units at Noida.
3. Consideration of distinctive items manufactured by each unit.
4. Manufacturing operations in different units and unit-wise profitability.
5. Discretion of the assessee to arrange affairs to reduce tax liability.
6. Decision based on factual findings and remand report.

1. Addition made by Assessing Officer under section 10AA of the Income-tax Act, 1961:
The Revenue challenged the order of the Dispute Resolution Panel directing the Assessing Officer to delete the addition made by taking the net profit ratio of the exempted unit under section 10AA. The Tribunal analyzed the manufacturing operations of various units and found that the exempted unit declared abnormally high profit without a satisfactory explanation. However, the Dispute Resolution Panel considered the facts and concluded that the taxable units were manufacturing different products with varying profitability. The Tribunal upheld the Panel's decision, citing the discretion of the assessee to manage affairs to reduce tax liability as long as transactions are bonafide.

2. Transfer pricing adjustment and suppressed profits of taxable units at Noida:
The Assessing Officer proposed additions to the income declared by the assessee, including suppressed profits of taxable units at Noida and transfer pricing adjustments. The Tribunal noted the arguments presented by the Departmental representative and the counsel for the assessee. The Dispute Resolution Panel considered the objections raised by the assessee and the assessment order, finding that the taxable units manufactured products for different markets with varying profitability. The Panel's decision was based on factual findings and the remand report, which confirmed the correctness of unit-wise profitability declared by the assessee.

3. Consideration of distinctive items manufactured by each unit:
The Tribunal observed that the Assessing Officer did not request details regarding distinctive items manufactured by each unit. A remand report was sought to address additional evidence filed by the assessee. The report confirmed that the assessee was manufacturing different items in different units, with correct unit-wise profitability details provided during assessment proceedings. The Dispute Resolution Panel's decision considered the distinct products manufactured by each unit and their impact on profitability.

4. Manufacturing operations in different units and unit-wise profitability:
The Tribunal analyzed the manufacturing operations in various units, noting the different products manufactured and their profitability levels. The Panel found that the taxable units catered to different markets, resulting in varying profits. This factual finding was accepted by the Tribunal, as it was not contradicted by the Revenue. The Panel's decision considered the unit-wise profitability declared by the assessee and affirmed the correctness of the same.

5. Discretion of the assessee to arrange affairs to reduce tax liability:
The Tribunal referred to the discretion of the assessee to manage business affairs to reduce tax liability, citing the decision in CIT v. Calcutta Discount Company Ltd. The Panel found that the assessee's management of business operations to minimize tax liability was within its discretion, as long as transactions were conducted in good faith. The Tribunal upheld this aspect of the Panel's decision.

6. Decision based on factual findings and remand report:
The Tribunal considered the remand report, submissions of the assessee, and factual findings to reach a conclusion. It noted that the Panel's decision was based on factual analysis and that the Revenue did not challenge the factual findings before the Tribunal. Therefore, the Tribunal affirmed the decision of the Dispute Resolution Panel, ultimately dismissing the appeal of the Revenue.

This comprehensive analysis of the judgment covers the various issues involved and provides a detailed overview of the Tribunal's decision on each aspect of the case.