Pragati Aroma Oil Distillers Private Ltd. Vs DCIT (Bombay High Court)
The appeal was filed under Section 260A of the Income Tax Act, 1961 challenging the order of the Income Tax Appellate Tribunal (ITAT) dated 25.11.2014 for Assessment Year 2009-10. The substantial question of law before the High Court was whether the ITAT was justified in comparing and adopting the net profit margin of the assessee’s sister concern in the absence of an arrangement contemplated under Section 10B(7) read with Section 80-IA(10) of the Income Tax Act.
The appellant, engaged in the manufacture and export of perfumery compounds and essential oils, had established a 100% Export Oriented Unit (EOU) in Tamil Nadu during Financial Year 2002-03 and claimed a deduction of ₹2,32,48,056 under Section 10B for the previous year 2008-09. The return of income for Assessment Year 2009-10 declared total income of ₹7,13,460, whereas the Assessing Officer assessed the income at ₹3,78,64,804.
The Assessing Officer disallowed the deduction under Section 10B on the grounds that earlier disallowances were pending before the High Court, that the claim violated Section 10B(7) read with Sections 80-IA(8) and 80-IA(10), that profits of the eligible unit were allegedly inflated through non-market factors, including interest-free loans and substantial purchases from related concerns, and that the activity appeared to be processing rather than manufacturing.
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