Case Law Details
SJR Commodities & Consultancies (P) Ltd. Vs ITO (ITAT Mumbai)
Section 80IA(10) of the Act to find out as to whether the AO was empowered to make adjustments to the eligible profit claimed under s.10A of the Act on the grounds of extraordinary profits. As noticed, it is the case of the AO that assessee has indulged in arrangement whereby the profits of non eligible units have been shifted to eligible unit through the conduit of same set of customers and related parties. The AO has accordingly alleged that assessee has made an ‘arrangement’ whereby it did not make any profit from non SEZ unit for supply of similar commodity while has generated extraordinary profits in SEZ units in the similar circumstances. In this context, we take note of the plea on behalf of the assessee that there must be a ‘close connection’ between the assessee carrying on eligible business and the other person i.e. its customers in the instant case for Section 80IA(10) of the Act to come into play. The assessee has pointed out that Cochin SEZ has exported goods to unrelated parties and therefore there is total absence of any close connection contemplated in the aforesaid provision and consequently no arrangement can be inferred. The Hon’ble Bombay High Court in the case of Malay Sanghvi (supra) relied upon by the assessee has observed that the test of common customers of eligible unit and non eligible unit by itself would not indicate transfer of profits to eligible units in the absence of some arrangement. Pertinent here to say, the observations made by AO towards absence of profits as non-eligible unit qua eligible unit engaged in similar business do raise strong suspicion. However, such circumstances can not in our view, lead to inference of presence of ‘arrangement’ in the absence of any objective material. The arrangement demonstrated by the AO by circumstantial inference is obscure. The AO has primarily compared the profits of the two units and has inferred the presence of arrangements which to our mind would not fulfill the objective requirement of law without anything more. Similar view has been taken by the co-ordinate bench in Aquila Software Services Hyderabad (P) Ltd. (supra) and Pramukh International (supra). The Hon’ble Delhi High Court in the case of CIT vs. Delhi Press Patra Prakashan Ltd. (2013) 355 ITR 1 (Delhi HC) has emphasized on presence of justifiable reasons for invoking Section 80IA(8), (9) & (10). The Hon’ble Bombay High Court in Schmetz India (P) Ltd. (supra) has also observed that merely because an assessee makes an extraordinary profit, it would not lead to the conclusion that same was organized / arranged. The onus is on AO to prove the presence of any arrangement between the parties which have resulted in extraordinary profits to the eligible unit. The AO could have, at least, brought variation in price of supply of commodity from different units on record to establish collusion/arrangement. The onus remains undischarged except for presence of suspicious circumstances.
We have perused the decision rendered by Hon’ble Punjab & Haryana High Court in the case of Deepak Verma (supra) relied upon on behalf of the Revenue. The aforesaid case relates to re-allocation of expenses between eligible unit and non eligible unit. We agree with the case made out on behalf of the AO for re-allocation of expenses to the extent of Rs.17.70 Lakhs and therefore do not delineate with the same any further.
Therefore, in the light of factual position and applicable law as interpreted by the judicial fiats, we are of the view that Section 80IA(8) and 80IA(10) of the Act has not applicability to the facts of the Case. Therefore, the adjustments made by the AO scaling down the deduction under s.10AA of the Act, is without sanction of law. The order of the CIT(A) is accordingly set aside. At this stage, we however also notice that the AO had made re-allocation of expenditure to Rs.17,70,848/- to SEZ unit on account of common expenses debited in non SEZ unit on account of salary, bank charges, legal and professional fees and repair & maintenance fees etc. The CIT(A) has granted relief towards this adjustment for the reason that once the adjustment has been made by applying net profit rate of 3%, no separate re-allocation would be necessary. However, once the regular profits as declared for eligible unit is restored, the re-allocation of expenses relatable to eligible unit would be necessary. This aspect was confronted to the assessee in the course of hearing. It was fairly conceded on behalf of the assessee that it does not seek to press the aforesaid re-allocation on restoring the claim of deduction of the assessee. In the light of the aforesaid decision, the AO directed to restore the claim of deduction under s.10AA of the Act subject to adjustment towards re-allocation of expenses to the extent of Rs.17.70 Lakhs.
FULL TEXT OF THE ITAT JUDGEMENT
Please become a Premium member. If you are already a Premium member, login here to access the full content.
