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TMI Blog2012 (4) TMI 397X X X X Extracts X X X X X X X X Extracts X X X X ..... intained by the assessee which was according to standard accounting practices. Assessing Officer is of the view that the assessee was not entitled for the deduction in terms of Section 43B of the Act as the actual payments had not been made good by placing before the Assessing Officer the commensurate material for the accounting period of excise duty and customs. - The second question posed for our answer is answered in the negative and against the assessee but after setting aside the orders of the Tribunal and the Appellate Commissioner on this aspect the matter is remanded to the Assessing Officer on this aspect i.e., regarding the claim of the assessee for reducing the claim of the MODVAT credit available to it at the end of the accounting period from the date of the closing stock and for such purpose, the Assessing Officer shall give an opportunity to the assessee to place material and pass orders afresh on this aspect of the matter. – Appeals are allowed in part - I T APPEAL NOS. 806 & 809 TO 811 OF 2006 - - - Dated:- 17-1-2012 - D.V. SHYLENDRA KUMAR AND H.S. KEMPANNA, JJ. G. Kamaladhar for the Appellant. T. Suryanarayana for the Respondent. JUDGMENT D. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under the provisions of section 10A of the Income Tax Act, 1961 (for short hereinafter referred to as 'the Act') is in respect of the two units which are involved in creation of software and which is exported, the second question relating to MODVAT credit, which the assessee had claimed, as available to it at the end of the accounting period and as reflected in his books of account as unutilised MODVAT credit, is a question which arises in genera! and in respect of entire manufacture and trading activity of the assessee. 6. The bone of contention between the revenue and the assessee on the first question is one of entitlement, or otherwise of exemption in terms of Section 10A of the Act, at a percentage or a ratio of value of the exports, as a deduction available to the assessee in computing its total income, was due to the reason that the Assessing Officer opined the amount so claimed for each of the assessment year as under :- ITA. No. 811/2006 1995-96 Total Turnover Profit Shown Rate of Profit Profit of IDC Unit 7,69,49,886 1,86,38,204 24.22% Profit of STP Unit 34,54,02,490 6,66,78,880 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xport activities of the two units of the assessee as claimed, but allowed at the same percentage of profit in respect of the entire turnover of the assessee inclusive of the export turnover in respect of each of the assessment year and as indicated in the table above. 7. Provisions of Section 10A(6) and 80-I(9) reads as under :- S.80-I. (9) Where it appears to the Assessing Officer that, owing to the close connection between the assessee carrying on the business of the industrial undertaking or the hotel or the operation, of the ship or the business of repairs to ocean-going vessels or other powered craft to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in the business of the industrial undertaking or the hotel or the operation of the ship or the business of repairs to ocean-going vessels or other powered craft, the Assessing Officer shall, in computing the profits and gains of the industrial undertaking or the hotel or the ship or the business of repairs to ocean-going ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the stock and on such premise re-computed the profit and brought the corresponding amount to tax. 10. The assessee being aggrieved on such inference dramas by the Assessing Officer and the conclusions and on other aspects also had preferred appeals for each of the four assessment years to the Commissioner of Income tax Appeals. 11. Insofar as the question of adding back the MODVAT credit to the value of the stock-in-trade for the assessment years 1995-96 and 1996-97 is concerned, the Commissioner of Appeals purporting to follow the earlier view on this aspect taken by the predecessor Commissioner of appeals in respect of the very assessee for the earlier years and purporting to follow the ratio laid down by the Income Tax Appellate Tribunal, Mumbai Bench in the case of S.H. Khelkar Co. Ltd. v. Dy. CIT [1993] 44 ITD 170, opined that adding back was not warranted and directed deletion of the amounts. 12. Insofar as the question of the profit from software manufacturing export units, i.e. the two software export units of the assessee is concerned, the Appellate Commissioner opined that the requirements of the provisions of Section 80-I(9) the Act is two fold, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e profits of the entire production of the assessee, if the Assessment officer found that the profit margin attributable to the export sales was abnormally high and therefore, it had applied the profit margin at the average profit margin of the assessee inclusive of the export business, that was a very reasonable thing to do and as enabled u/s.80-I(9) of the Act and in such circumstances, there was no occasion for the Appellate Commissioner as well as the Tribunal to have interfered with such order of the Assessing Authority. 16. Mr. Kamaladhar has also placed reliance on the judgment of the Supreme Court in the case of Mazagaon Dock Ltd. v. CIT [1958] 34 ITR 368. Drawing our attention to the judgment of the Supreme Court in this case which was in the context of the provisions of Section 42(2) of the Indian Income Tax Act (X) of 1922, which provision also deals with a situation of an arrangement between a resident and a nonresident ensuring that the profits attributable to the resident assessee are transferred to the non-resident or the resident assessee by an arrangement with a non-resident business contact, ensuring that its profits are reduced, will be a situation attract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner should not have interfered math the conclusion of the Assessing Officer. 19. On the other hand, Sri. Suryanarayana, learned counsel appearing on behalf of the assessee with reference to the question of claim u/s 10A of the Act submits that the Assessing Officer had without any proper reason or justification proceeded to re-determine the profit margin; that the Appellate Authority had examined the matter in detail before the Commissioner, and found that in comparison the profit margin attributable to the export activity of the two units, in, respect of export of software by the two units compared favourably with the profit margin of similar companies in the same line of activity and therefore, there was no reason or justification even to express any doubt or suspicion, moreover when the Assessing officer had not noticed any other material indicative of such arrangement, there was no reason to re-determine the profit. He also submits that the assessee having maintained its account books in a standard form and procedure, there was no reason for the Assessing Officer to reject the same by invoking Section 145(2) of the Act. 20. Insofar as the question of arresting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court, while it is true that to some extent these two provisions are analogous (S.42 and Section 80-I(9) of the Act) the questions that were examined in the judgment of the Supreme court were not on the so-called arrangement aspect, bat mainly as to the deeming provision operating against the resident or the non-resident and also as to the manner of business activity and existence of the business connection which argument on behalf of the assesses was negatived. 25. The course of business was so arranged that the business transaction between two units of the assessee which might expected to arise in the business undertaking or the hotel. The word 'appears' cannot be taken in isolation de hors the qualifying words of 'so arranged' with the business more than the ordinary profits. While on the first aspect there is not much dispute. The second requirement viz., it is a course of business is so arranged as to result in an inflated profit is not forthcoming from the order of the Assessing Officer and unfortunately for the Revenue the findings of the Appellate Authority which also go into the facts is that the profit margin as revealed by the assessee is a reasonable profit ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuing its purchases. 30. We are of the view that it was not an accounting procedure that was involved in a claim made by the assessee insofar as the deduction was claimed attributable to the MODVAT credit, but a specific deduction claimed in respect of the available MODVAT credit, but at the same time we also find that the Assessing Officer possibly could not have added back the entire MODVAT without affording opportunity to the assessee to make good the actual duty payments it had made in respect of the purchases and in respect of which amount the assessee wanted a deduction to be made or an addition to be made to its cost of purchase of the raw material. 31. This aspect having not been examined by any of the authorities below, we are of the opinion that this requires proper examination at the level of the Assessing Officer. Therefore, the second question posed for our answer is answered in the negative and against the assessee but after setting aside the orders of the Tribunal and the Appellate Commissioner on this aspect the matter is remanded to the Assessing Officer on this aspect i.e., regarding the claim of the assessee for reducing the claim of the MODVAT credit a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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