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TMI Blog2010 (9) TMI 1260X X X X Extracts X X X X X X X X Extracts X X X X ..... fference between the GP rate and net profit rate of both the concerns, the assessing officer was of the opinion that profit of M/s V. Rajendra Exports has been diverted to the Assessee firm so that such, firm may claim deduction under Section 10B of the Act on the enhanced profit. The assessing officer has referred to Sub-section (7) of s, 10B of the Act which provides that Sub-section (8) of Sub-section (10) of Section 80-IA will also apply in relation to undertaking referred in Section 10B. Sub-section (10) of Section 80-IA provides that in case it appears to the assessing officer that owing to the close connections between the Assessee carrying on eligible business or for any other reasons, the course of the 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 such eligible business then the assessing officer in computing the profits and gains of such eligible business for the purposes of deduction under Section 10B may take the amount of profits as may be reasonably deemed to have been derived therefrom. The assessing officer gave the show-cause notice to the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the same business and are also selling the goods to a concern in New York. Such concern is a proprietorship concern of brother of the common partners of both the firms. (ii) The business address of both the concerns is the same i.e. 3946, M.S.B. Ka Rasta, Jaipur. (iii) The Assessee firm has exported the goods worth ₹ 64,81,057 out of total turnover of ₹ 1,22,07,492 to M/s Pioneer Gems, New York an AE as per the observation of the assessing officer while dealing with transfer pricing provisions. M/s V. Rajendra Exports has exported ₹ 41,06,574 to M/s Pioneer Gems, New York as against turnover of ₹ 68,47,807. (iv) In the case of the Assessee firm, the percentage of direct expenses to turnover is 6 per cent as against 11.64 per cent in the case of M/s V. Rajendra Exports. The percentage of indirect expenses in the case of Assessee firm is 4.09 per cent as against 23.58 per cent in the case of M/s V. Rajendra Exports. The GP rate and net profit rate of both the concerns for the last three years have been mentioned in the assessment order to show that the GP rate in the case of M/s V. Rajendra Exports decline year after year while the GP rate of Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessing officer shall, in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom. 2.6 Section 80-IA(10) is applicable when there is close connection between the Assessee carrying on the eligible business and any other person. It means that there should be two concerns between for having a close connection and one of them should be the Assessee. The other parties may be different for having close connection but one of the parties should be the Assessee. The word between refers to the two parties. Hence, the assessing officer is required to establish the close connection between the Assessee and the other parties. In the instant case, the assessing officer is making reference to the fact that two concerns are making exports to the same concern. In case, both the concerns are making export to the same concern then it does not show that the two concerns which are dealing with the other concern are having business between them. The department carried out the search over the Assessee and M/s V. Rajendra Exports on 18-12-2003 and separate boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t have estimated the gross profit. Moreover, the net result of net profit of both the concerns has been accepted and the assessing officer has only apportioned the profit in the ratio of turnover then the assessing officer was required to substantiate the diversion of income from M/s V. Rajendra Exports after collecting the material. Both the concerns have been assessed by the same assessing officer and both the concerns were having audited books of account. The assessing officer could have examined the vouchers to show that the expenses debited in the books of account of M/s V. Rajendra Exports relate to the business of the Assessee firm. In the absence of any material collected by the assessing officer, the assessing officer was not justified in holding that the deduction under Section 10B is to be restricted to ₹ 12,72,153 as against ₹ 28,03,943. Hence, the learned Commissioner (Appeals) was justified in deleting the addition of ₹ 15,31,790. 3.1 The second grievance of the revenue is that the learned Commissioner (Appeals) has erred in deleting the addition of ₹ 12,69,701 made by the assessing officer on account of ALP. 3.2 The Assessee firm has mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em stones where value differs from piece to piece. From the working given by the Assessee/Revenue, it appears that no favour was made to M/s Pioneer Gems as in one particular item if the gross profit is more in the case of the associated concern then in certain other items the gross profit is less also. The assessing officer in the beginning itself has found GP rate declared by the Appellant on higher side which goes against his observation that the price quoted to the associated person was not at arms length. Further meaning of associated enterprise is given in Section 92A and same has been reproduced by the assessing officer in the body of assessment order. The assessing officer after quoting the Section 92A has inferred that the case of the Appellant is covered under the proviso to Sub-section (1) of 92A and the scope of Sub-section (1) is wider and broad and that Section 2 defines the deemed to be A Es which mean that irrespective of other factors mentioned in Sub-section (1), the case falls under Sub-section (1). How it falls under clause or Sub-section (1) has not been explained by the assessing officer. Thus from the definition in Section 92A, the assessing officer has faile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han M/s Pioneer Gems Particulars M/s Pioneer Gems, New York Other than Pioneer Gems By sales : Exports (a) Finished goods Qty. (cts.) Amount Rate Qty. (cts.) Amount Rate Amethyst 1,051.68 23,724 22.56 17,962.96 2,44,048 13.58 Citrine 461.62 10,407 22.54 13,885.25 1,54,747 11.05 Emerald 38,865.79 61,98,347 159.48 10,097.37 26,55,460 262.99 Ruby 2,364.80 42,598 1801 -- -- -- Shapphlre 111.79 10,420 93.21 2,308.69 3,03,378 131.44 Tourmollne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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