Section 80IA deduction cannot be restricted merely for low net profit Ratio of Unit of Assessees wife

Sub-­section (10) of Section 80IA of the Act, cannot be invoked in the facts of the present case to restrict its deduction under Section 80IB of the Act on the basis of the profits of the Appellant’s wife unit at Valsad. This for the reason that there are no business transaction between the Appellant’s unit at Jammu and his wife’s unit at Valsad. Moreover, there is nothing on record to indicate that any transaction between them has resulted in more then ordinary profits arising to the Jammu unit in the normal course of business.

RELEVANT EXTRACT OF THE JUDGMENT

6 The Appellant ­Assessee is an individual, who carries on business of manufacturing and selling of liquid soap and hand-­wash at Jammu. The Appellant’s wife has a unit of her own, also engaged in the manufacture of liquid soap and hand­-wash in the name and style of M/s. Umbergam Industries at Valsad.

7 The Appellant claimed the benefit of deduction under Section 80IB of the Act being a specified industrial undertaking. During the course of Assessment Proceedings, the Assessing Officer by virtue of sub­-section (13) of Section 80IB of the Act invoked Sections 80IB (8) and (10) of the Act to determine the allowable claim. The Assessing Officer found that the Appellant had claimed deduction at the net profit ratio of 35%of its Jammu unit. However, the Assessing Officer found that the profit ratio of the unit belonging to Appellant’s wife at Valsad was 5%.Therefore, the Assessing Officer on invocation of Section 80IA(10) of the Act,taking the net profit ratio of the Valsad unit of his wife, adopted 10% net profit ratio to allow deduction under Section 80IB of the Act.

8 Being aggrieved, the Appellant carried the issue in Appeal to the Commissioner of Income Tax(Appeals)[CIT(A)]. By an order dated 18th July, 2012, the CIT(A) held that Section 80IA(8) and (10) of the Act, cannot be invoked to restrict the deduction claimed under Section 80IB of the Act. This for the reason that there is no arrangement between the wife’s unit at Valsad and the Appellant’s unit at Jammu to produce more than ordinary profits at Jammu unit or any transfer of goods/services, interse, resulting in extra ordinary profits. Thus, allowed the appeal and deleted the disallowance.

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