9911796707
TMI Blog2008 (9) TMI 421X X X X Extracts X X X X X X X X Extracts X X X X ..... s commercial production only on 1st Sept., 1999. The AO further found that purchase of material of value of Rs. 5.55 crores was made from the above named promoter company of Italy. Having regard to 32 per cent loss shown to have been suffered by the assessee, the AO held that provision of Section 92 of the IT Act was applicable. He, therefore, rejected assessee's account and computed assessee's profit at 10 per cent of the total turnover and Rs. 1,58,20,000 against loss of Rs. 14,86,78,247. 3. The assessee impugned above assessment in appeal before the learned CIT(A) and drew his attention to provision of Section 92 of the IT Act. 4. It was contended that the AO has erred in invoking above provision without providing opportunity of being heard to the appellant. The AO was also in error in arbitrarily estimating assessee's income at 10 per cent of the total turnover without bringing any adverse material or evidence on record against the appellant. The appellant also filed written submissions by letters dt. 5th Jan., 2004, 28th March, 2004 and 10th Feb., 2005. The AO's remand report was received on above submissions. The learned CIT(A) found that claim of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e. 28.75 per cent of sales. The above profit margin was better than the margin earned by M/s Carraro Italy. The learned CIT(A) found that in subsequent year, the assessee had made substantial domestic sales in India. On the basis of material before him he worked out the percentage of profit as under: Asst. yr. On export sale Domestic sales Total 2000-01 Mainly export sales 28.75% 2001-02 31.47% 19.61% 29.21% 2002-03 29.85% 25.95% 27.59% 2003-04 38.56% 30.35% 33.71% 6. On the basis of above analysis, the learned CIT(A) held that margin earned from export sales made to M/s Carraro Italy was more than gross margin earned from domestic sales. However, he held that appellant had not explained reasons for comparatively low profit of 28.75 per cent in asst. yr. 2000-01 as compared to high profit of 38.56 per cent in asst. yr. 2003-04. For this low margin of profit, the learned CIT(A) disallowed loss to the extent of Rs. 2.52 crores. He rejected the basis of AO's computation of profit at 10 per cent of sale. This way, loss of Rs. 12,34,78,247 was allowed to the assessee. 7. Both the assessee and the Revenue have challenged respectively the decision of CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss with a non-resident (M/s Carraro Italy); there is close connection between the resident and the non-resident party (out of total export sale of Rs. 15.81 crores, Rs. 15.60 crores have been made to the non-resident) who is partner and promoter of the appellant company. Therefore, there is close connection between the assessee and the nonresident party. The resident had suffered net loss of Rs. 5,19,97,663 crores because of arrangement existing between the parties. It is relevant to mention here that it is a case of earning of no profit by the: resident and not a case of less than ordinary profit as has been highlighted in para 5.5 of the impugned order. Therefore, we see no error in the approach of the AO in the assessment order or in the remand report. Prima facie application of Section 92 is justified on facts and circumstances of the case. It was, therefore, for the assessee to show that "no profit" was not on account of arrangement existing between the parties. As per the accounts, in the net loss of Rs. 5,19,97,663, there was depreciation of Rs. 1,95,59,506. Even if it is excluded, there is balance loss of Rs. 3,24,38,157. So it remains a case of no profit earned by the resi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 92 of the IT Act, 1961 corresponds to Section 42(2) of IT Act, 1922. The latter reads as under: Where a person not resident or not ordinarily resident in the taxable territories carries on business with a person resident in the taxable territories, and it appears to the ITO that owing to close connection between such persons, the course of business is so arranged that the business done by the resident person with the person not resident or not ordinarily resident produces to the resident either no profits or less than the ordinary profits which might be expected to arise in that business, the profits derived therefrom, or which may reasonably be deemed to have been derived therefrom, shall be chargeable to income-tax in the name of the resident person who shall be deemed to be, for all the purposes of this Act, the assessee in respect of such income-tax. 15. The aforesaid provision was considered by Courts in a large number of decisions. However, the case of Mazagaon Dock Ltd. v. CIT (supra) remains one of the fundamental decisions. 16. In the said case, the fact and the finding given were as under: The appellant company which carried on business as marine engineers and sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions carried between unrelated parties were to be seen. 18. Shri Ved Jain, during the course of hearing, also placed strong reliance on orders passed in the subsequent years in the case of this very assessee after application of provision of transfer pricing. He argued that TPO accepted that international transactions were carried at arm's length in the subsequent years. Copies of orders passed by TPO were placed on file. 19. We are unable to accept the contention of Shri Ved Jain that case for the year under consideration be closed as transactions with the party have been accepted in the subsequent years. It is not in dispute that statutory provisions in the subsequent years were different from provisions of Section 92 applicable in the year under consideration. The orders passed by TPO contain only her conclusions and not detailed facts and circumstances on which such conclusion is based. There is no presumption that if in one year, business with the associated concern is carried at arm's length, then it is carried at arm's length in all other assessment years. The facts and circumstances of each year are to be examined. As already observed, conditions of Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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