Case Law Details

Case Name : Malay N. Sanghvi Vs ITO (Bombay High Court)
Appeal Number : Income Tax Appeal No. 1342 of 2014
Date of Judgement/Order : 31/01/2017
Related Assessment Year : 2009-2010
Courts : All High Courts (3699) Bombay High Court (670)

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.

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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.

9. Being aggrieved, the Revenue carried the issue in Appeal to the Tribunal. The Tribunal by the impugned order allowed the Revenue’s Appeal, holding that the Assessing Officer was justified in invoking the provisions of Section 80IA(10) of the Act to re­determine the profits of the Appellant’s unit. This for the reasons that the Appellant’s unit at Jammu as well as his wife’s unit at Valsad makes sales of its liquid soaps to the same persons. Thus, concluding that restricting the benefit of Section 80IB of the Act at 10% of net profit ratio of the Jammu unit, was reasonable.

10. The grievance of the Appellant is that 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. It is submitted that the above aspect was completely overlooked by the Tribunal while disposing of the Appeal.

11 We note the there is nothing on rec between the Appellant’s generate more than ordinary profits or any transfer of goods and/or services interse, below the market price, resulting in inflated profits to the Appellant’s Jammuunit. Even before us, nothing has been shown by the Revenue thatthereis any business transacted between Appellant’s unit at Jammu and his wife’s unit at Valsad which resulted in inflating the profits beingearned by the Appellant or that there is any transaction between them.The Tribunal has without considering the validity of the above finding of CIT(A), adopted the test of common customers of both the Appellant’s Jammu unit and his wife’s unit at Valsad, to conclude that profits of the Appellants, are inflated. Common customers by itself in the absence of some arrangement between the parties does not indicate transfer of profits to Appellant’s Jammu unit. The factual finding of the CIT(A) has not been considered by the Tribunal in the impugned order. This issue requires re­consideration by the Tribunal in the context of the appropriate interpretation to be put on Section 80IB(8) and (10) of the Act.

12. In the above view, the substantial question of law is answered in the affirmative by way of remand. Therefore, We set aside the order of the Tribunal and restore the issue for fresh consideration by the Tribunal, in accordance with law.

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