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TMI Blog2008 (4) TMI 355X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 92 of the IT Act, 1961 (referred to as 'Act' hereafter) for both additions i.e., addition of Rs. 45,12,400 on account of commission profits and another addition of Rs. 2,02,34,946 on account of GPs of the assessee's business. CIT(A) deleted the addition of Rs. 45,12,400. It is not shown that the Revenue is in appeal against the relief granted by the learned CIT(A). It has been stated by the learned Departmental Representative that the Revenue is unable to trace the assessment files as per the letter vide F. No. ITO/Ward-14(3)/2007-08 dt. 24th March, 2008 of the ITO (copy of the letter filed before us by the CIT-Departmental Representative). On finding that the appeal in question is of nearly 5 years old and was adjourned several times, in the interest of justice, we proceed to hear the appeal on its own merits. 3. The brief facts about the addition of Rs. 2,02,34,946 by the AO on account of GPs of the assessee's business under s. 92 of the Act are as follows. Assessee is a joint venture with Picker International (PI) Inc. (incorporated in USA) and Network Ltd., Noida, UP (incorporated in India). AO found that the PI participates in the management and control of the company di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een Picker International Inc. and the assessee. The assessee could not give any reason as to why there is so much difference in the GP rate between trading of CT from Picker International and from other items from third parties. Further it is worthwhile to mention that since CT machines are more advanced technology driven machinery than ultrasound machines. Picker International possesses the technology for manufacture of CT machines. In the normal circumstances, the profit margin for CT machines should be higher because the manufacturer technology holder must receive something for the know how which is being used for the manufacturing of the machines from the customers. The details of GP rate as trading by competitors of the assessee is not available. Again the case of Bentley Venture One LLC who is assessed in this circle may be referred for finding of comparable uncontrolled price in respect of trading undertaken by the assessee. As discussed earlier Bentley Venture One LLC is showing in its return of income approx. 30 per cent GP in respect of equipment of Bentley Nevada traded by it. Considering the facts and circumstances, it is held that 30 per cent of the profit would be rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates between trading of CT products from PI and other items from third parties. The assessee objected to the comparisons of the AO and mentioned that there is no common ground with the ultra sound machines, which are sourced from Network Limited and sophisticated CT scanners, which are sourced from PI. Further assessee objected to the AO's attempt in exploiting the data belonging to M/s Bentley Venture One LLC for making additions in the case, as the products of the said company and the products sold by the assessee from PI are entirely different. AO has not informed the assessee about the details extracted from the Bentley Venture One LLC despite the request from for the same vide assessee's letter dt. 1st Sept., 200l. 7. The CIT(A) while adjudicating the issue has held as under: "There is no doubt that the appellant company has declared GP rate of 5.8 per cent only in respect of CT scanners sourced from Picker International which is very low keeping in view the fact that the appellant company has itself shown GP rate of 35.93 per cent on CT accessories. The GP declared by the appellant company in respect of ultra sound machines is also much higher as compared to the GP rate d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO and the purchase prices are as per ALP nor the customs authorities have raised any objections on the issue of prices. 9. We have heard the rival submissions and perused the orders of the lower authorities. We have gone through the paper book containing the written 'Broad submission' and the judicial pronouncements in this regard. We find that the scope of the provisions of s. 92 as it existed prior to 1st April, 2002 has been commented upon by the Hon'ble apex Court in the case of Mazagaon Docks Ltd. vs. CIT (1958) 34 ITR 368 (SC) and found that there are three limbs in s. 92 and they are : (a) business is carried on between a resident and non-resident person; (b) there exists a close connection between resident and non-resident person; and (c) the course of business is so arranged that the business produces either no profit or less than ordinary profit to the resident. CIT(A) found that all three limbs prima facie apply in assessee's case whereas the 'assessee has objected the fulfilling of conditions by the assessee relating to the third limb. We have re-examined the above provisions and their applicability to the assessee's case and found that (a) and (b) above are u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits'. In order to apply this part of the legislation, AO or CIT(A) ought to have data or material on what are the 'ordinary profits' in the line of assessee's business. Unless the "ordinary profits' are known, the AO cannot compare the recorded profits with the said 'ordinary profits' in order to arrive at the profits taxable under s. 92 of the IT Act, 1961. 11. The two basis/reasons given by the AO and confirmed by the learned CIT(A) for sustaining addition in dispute are as under: (i) GP shown by the assessee on CT scanners is 5.8 per cent whereas on CT accessories it is 35.93 per cent. Similarly higher GP is shown on sale of ultra sound. (ii) GP disclosed by M/s Bentley Venture One LLC is approx. 30 per cent. The said company is also dealing in heavy scientific equipment and received commission of more than 30 per cent. 12. The AO accordingly applied the GP rate of 30 per cent and made disputed addition. The AO further observed that GP rate disclosed by assessee was comparatively less than earlier years which was not explained. The assessee further did not file separate P L a/c in spite of opportunity given vide letter dt. 9th March, 2001. The AO accordingly applied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... costly and such machines even in big towns are very few. GP on sale of ultra sounds cannot be compared with CT scanners. Likewise GP on sale of accessories is also not comparable. It would have been reasonable for the AO to find profit disclosed by three other companies selling CT scanners. Those results would have been good guide. Like is to be compared with like. However instead of finding that relevant evidence, the AO used results of Bentley Venture at the back of the assessee and without establishing how those results were comparable. Addition on the basis of above material is not justified. 15. In the case of Kishinchand Chellaram vs. CIT (1980) 19 CTR (SC) 360 : (1980) 125 ITR 715 (SC) Lordship of the Supreme Court observed as under: "It was true that proceedings under the IT law were not governed by the strict rules of evidence, and, therefore, it might be said that even without calling the manager of the bank in evidence to prove the letter dt. 18th Feb., 1955, it could be taken into account as evidence. But before the IT authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct sale of the CT scanner and others are the factors that led the AO or CIT(A) to the suspicion. Having found that there is travel expenses are not wholly and exclusively for the assessee's business, AO should have pointed out the extent of such travel expenses and made disallowance. Having failed to do so and merely there is loss, it cannot be suspected that the course of business is so arranged to have no profits or less than ordinary profits to the assessee as held in the case of Rohm Hass (India) (P) Ltd. (2006) 8 SOT 803 (Mumbai). In the light of the above, we find that the prima facie opinion of the CIT(A) is misplaced and accordingly, his remand is bad in law. Further, we also find that the CIT(A) has already called for remand report for which the AO has already responded vide his letter dt. 27th Jan., 2000 as discussed above. Except requesting the CIT(A) to invoke s. 92 to assessee's case, no particulars, data on comparable transactions, any other relevant information was gathered during the first remand. CIT(A)'s decision to set aside the issue to the files of the assessee is nothing but giving third round to the Revenue, which is not allowed in law as held in series of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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