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TMI Blog2023 (9) TMI 735X X X X Extracts X X X X X X X X Extracts X X X X ..... te of Rs. 1400/- per metric ton is market rate qua assessee. Because, the same bagasse is sold to third party by the assessee and to its own unit. Therefore, the quality of the bagasse sold to third party by the assessee and to its own unit is same. Thus most appropriate market rate is the rate at which assessee itself has sold bagasse to third parties. As observed that assessee has sold bagasse at Market Rate to its eligible unit. Therefore, AO has erred in recalculating the profit of eligible unit i.e. power unit, as per section 80IA(8). Therefore, the Assessing Officer is directed to delete the addition made on account of difference in the rate of bagasse - Assessee appeal allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment proceedings, the AO observed that assessee's manufacturing unit has sold "bagaase" to assessee's power unit at Rs. 1600/- per metric ton. The AO called information under section 133(6) of the Act from Kadwa Sahakari Sakhar Karkhana Ltd., (KSSKL). The Kadwa Sahakari Sakhar Karkhana Ltd., (KSSKL) informed AO that they have sold "bagasse" at average rate of Rs. 2874/- per metric ton during F.Y.2012-13. AO also collected information regarding "bagasse" sold from Chavhan Bagasse Supplier and Satpuda Tapi Pariar SSK. The average rate was Rs. 1700/- per metric ton. Therefore, AO held that assessee's manufacturing unit has sold "bagasse" to its power unit at Rs. 1600/- per metric ton which was less than the market price and according to the AO the average market price was Rs. 2000/- per metric ton. Therefore, AO recalculated the profit of the power unit and made an addition of Rs. 39,30,800/-. Aggrieved by the order of the AO, assessee filed appeal before the ld. CIT(A). The ld. CIT(A) upheld the order of the AO. The relevant portion of the para 4.2 of the ld. CIT(A)'s order is as under: 4. Aggrieved by the order of the ld.CIT(A) assessee filed appeal before this Tribunal. 5. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dec- 12/B/13 22.32 1400.00 31248.00 31248.00 31248.00 18/12/2012 NANA PANDA KUMBHAR Dec- 12/B/14 Bill no. Dec- 12/B/14 22.81 1400.00 31934.00 31934.00 31934.00 18/12/2012 PRADIP RAJARAM Dec- 12/B/15 Bill no. Dec- 12/B/15 15.84 1400.00 22176.00 22176.00 22176.00 16/12/2012 Chouhan Baggas Suppliers (Shirpur) Dec- 12/B/16 Bill no. Dec- 12/B/16 532.91 1400.00 74607400 783378.00 746074.00 37304.00 16/12/2012 Yashodhan Traders Vadhachil Dec- 12/B/17 Bill no. Dec- 12/B/17 108.92 1400.00 152488.00 160112.00 152488.00 7624.00 16/12/2012 Ekveera Traders Vadhachil Dec- 12/B/18 Bill no. Dec- 12/B/18 119.00 1400.00 166600.00 174930.00 166600.00 8330.00 16/12/2012 Chouchan Baggas Suppliers (shirpur) Dec- 12/B/19 Bill no. Dec- 12/B/19 55.07 1400.00 77098.00 80953.00 77098.00 3855.00 6. The ld. AR submitted that assessee was selling "bagasse" to independent third parties as well as its power units. Therefore, for comparison, AO should have taken the rate at which assessee has sold "bagasse" to third parties. The AO erred in comparing the rate of "bagasse" sale of some other sugar factories like Shri Satpura Tapi Parisar Sahakari Karkh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Rs. 1400/- per metric ton, the said rate of Rs. 1400/- per metric ton is "market rate" qua assessee. Because, the same "bagasse" is sold to third party by the assessee and to its own unit. Therefore, the quality of the "bagasse" sold to third party by the assessee and to its own unit is same. We cannot comment on the quality of the bagasse sold by the another sugar factories like Shri Satpura Tapi Parisar SSK, or Kadwa Sahakari Sakhar Karkhana Ltd., (KSSKL), from whom the AO has collected information under section 133(6) of the Act. "Market Rate" depends on many factors like Location, Quality, Demand etc. Therefore, in these facts and circumstances of the case, we are of the opinion that the most appropriate market rate is the rate at which assessee itself has sold "bagasse" to third parties. As mentioned earlier, assessee has sold "bagasse" to third parties at Rs. 1400/- per metric ton whereas it has sold "bagasse" to its power unit at Rs. 1600/- per metric ton. It means assessee has sold the "bagasse" to its power unit at higher rate. It means, assessee is not trying to reduce the profit of manufacturing unit. Section 80IA(8) is reproduced here as under: Deductions in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd gains on such reasonable basis as he may deem fit." (emphasis supplied) 11. The expression "such reasonable basis" pre-supposes that the AO has to explain with sufficient clarity why the AO is rejecting the profit figures as put forth by the Assessee which emerges from the audited accounts of the Assessee. In the present case, for instance, the AO had to explain why he was rejecting for AY 2006-07 the GP ratio of 38.05% and substituting it with a rate of 23%. What the AO appears to have done in the present case is to reject an explanation given by an Assessee as to the difference in the selling price of the products manufactured by it at its Baddi unit compared to that at Delhi unit. The AO proceeded on the basis that the sales were to related parties thus giving an unfair advantage to the Assessee. 12. The above approach of the AO was rightly found by the CIT(A) to be not justified. Without pointing out the error, if any, in the accounts or disturbing the figures of sales or purchases, to compare the trading results of business of two units and simply reject was clearly not a "reasonable basis", as contemplated by the proviso to Section 80-IA (8) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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