ITO, New Delhi V. Sh. Virender Singh Kochar, New Delhi

ITA 2081/DEL/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7042 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 27-06-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 27-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEEPAK GARG SENIOR
• Assessee Lawyers: K C SINGHAL
• Keywords: Business income
• Section: 143(3); 142(1); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D : NEW DELHI) BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.844/DEL./2011 (ASSESSMENT YEAR : 2006-07) ITA NO.2081/DEL./2011 (ASSESSMENT YEAR : 2007-08) INCOME TAX OFFICER, VS. MRS. HARPREET KAUR, WARD 20 (4), (L/H OF SHRI VIRENDER SINGH KOCHAR, ) 5, KASTURBA GANDHI MARG, NEW DELHI 110 001. (PAN : AAIPK4655R) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.C. SINGHAL ADVOCATE REVENUE BY : SHRI DEEPAK GARG, SENIOR DR DATE OF HEARING : 27.06.2016 DATE OF ORDER : 29.06.2016 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : SINCE IDENTICAL QUESTION OF FACT AND LAW HAS BEEN RAISED IN BOTH THE AFORESAID APPEALS, THE SAME ARE BEING DISP OSED OFF BY WAY OF CONSOLIDATED ORDER TO AVOID REPLETION OF DISCUSS ION. 2. APPELLANT, INCOME TAX OFFICER, WARD 20 (4), NEW DELHI (HEREINAFTER REFERRED TO AS THE REVENUE), BY FILI NG THE PRESENT APPEALS SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATE D 10.11.2010 ITA NOS.844 & 2081/DEL./2011 2 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS)- III, NEW DELHI AND DATED 27.01.2011 PASSED BY THE COMMISSION ER OF INCOME-TAX (APPEALS)-XXII, NEW DELHI QUA THE ASSESS MENT YEARS 2006-07 & 2007-08 RESPECTIVELY ON THE GROUNDS INTER ALIA THAT :- ITA NO.844/DEL/2011 (AY 2006-07) 1. THE LD. CIT (A) ERRED IN LAW AND ON THE FACTS AN D CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION OF RS.1,44,97,282/- MADE BY THE A.O. ON ACCOUNT OF EXC ESS DEDUCTION CLAIMED U/S 80-IC OF INCOME TAX ACT, 1961 . 2. THE LD. CIT (A) ERRED IN LAW AND ON THE FACTS AN D CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION OF RS.1,44,97,282/- MADE BY THE A.O. WITHOUT APPRECIAT ING THE CRUCIAL FACT THAT THE ASSESSEE HAD INDULGED IN SUBSTANTIAL; INTER-UNIT TRANSACTIONS WITH ITS RELAT ED CONCERNS PARTICULARLY M/S. SACHET AGENCIES TO WHOM THE ENTIRE SALES OF THE ASSESSEES UNIT AT BADDI HAD BE EN MADE. ITA NO.2081/DEL/2011 (AY 2007-08) 1. THE LD. CIT (A) ERRED IN LAW AND ON THE FACTS AN D CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION OF RS.1,77,74,976/- MADE BY THE A.O. ON ACCOUNT OF EXC ESS DEDUCTION CLAIMED U/S 80-IC OF INCOME TAX ACT, 1961 . 2. THE LD. CIT (A) ERRED IN LAW AND ON THE FACTS AN D CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION OF RS.1,77,74,976/- MADE BY THE A.O. WITHOUT APPRECIAT ING THE CRUCIAL FACT THAT THE ASSESSEE HAS INDULGED IN SUBSTANTIAL INTER-UNIT TRANSACTIONS WITH ITS RELATE D CONCERNS PARTICULARLY M/S. SUCHET AGENCIES TO WHOM THE ENTIRE SALES OF THE ASSESSEES UNIT AT BADDI HAD BE EN MADE. ITA NOS.844 & 2081/DEL./2011 3 ITA NO.844/DEL/2011 (AY 2006-07) 3. BRIEFLY STATED THE FACTS OF THIS CASE ARE : PURS UANT TO THE NOTICES ISSUED UNDER SECTION 143(2) AND 142(1) OF T HE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) ALONG WITH QUESTION NAIRE, DURING THE SCRUTINY PROCEEDINGS, SHRI H.K. BATRA, AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE PUT IN APPEARANCE, FILED NECESSARY DETAILS AND DISCUSSED THE CASE. ASSESSEE BEING PROPRIETOR OF M /S. VI-JOHN INTERNATIONAL, DELHI (VJI) AND M/S. MAJA PERSONAL C ARE, BADDI (HP) (MPC) IS INTO THE BUSINESS OF MANUFACTURING OF COSMETIC GOODS AND HAS DECLARED BUSINESS INCOME FROM PROPRIE TORSHIP CONCERN AND INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. ASSESSEE CLAIMED NET PROFIT OF RS.54,136 /- FROM VJI AND RS.3,46,68,810/- FROM MPC AND HAS DECLARED TOTAL IN COME AT RS.2,02,760/- AFTER CLAIMING DEDUCTION U/S 80-IC AM OUNTING TO RS.3,46,68,810/- FROM MPC ON ACCOUNT OF PROFIT OF M PC LOCATED AT BADDI (HP), WHICH IS 100% OF THE TOTAL PROFIT OF MP C AT BADDI. 4. AO NOTICED THAT GP RATIO OF MPC UNIT AT BADDI AT 38.05% WHICH IS HIGHER THAN THAT OF VJI AT 28.57% AND NET PROFIT RATIO OF MPC AT 36.09% WHICH IS HIGHER THAN THAT OF VJI AT 3 5.09%, THOUGH BOTH THE ABOVE MANUFACTURING UNITS ARE INVOLVED IN PRODUCTION OF ITA NOS.844 & 2081/DEL./2011 4 SIMILAR COSMETIC GOODS AND UTILIZED SIMILAR RAW MAT ERIAL AND THE ONLY DIFFERENCE IS OF LOCATION OF THE UNIT. AO CAM E TO THE CONCLUSION THAT MARGIN OF PROFITS OF MPC AS WELL AS KHCD IS IRRECONCILABLE WHEN EXAMINED IN THE LIGHT OF THE TR ADE LOGIC AND NORMAL AVERAGE EXISTING IN THE INDUSTRIAL SECTOR AN D AS SUCH, FIGURES OF PROFITS OF MPC HAS BEEN ARTIFICIALLY INFLATED FO R AVAILING UNDUE BENEFIT OF PROFIT AVAILABLE U/S 80-IC AND ASSESSEE WAS CALLED UPON TO SHOW CAUSE AS TO WHY THE NET PROFIT OF MPC BE NO T CONSIDERED FALSE. 5. AO ALSO NOTICED FROM FORM NO.10CCB THAT OUT OF T OTAL PURCHASE OF RS.5,54,57,326/-, THE ASSESSEE HAD MADE SUBSTANTIVE PURCHASES FROM HIS RELATED CONCERNS AND HAS MADE AL L THE SALES OF RS.9,60,51,726/- TO ANOTHER OF HIS RELATED CONCERN, NAMELY, M/S. SUCHET AGENCIES ON CONSIGNMENT BASIS AND BY INVOKIN G THE PROVISIONS CONTAINED U/S 80-IC (7) READ WITH SECTIO N 80-IA (8) AND (10) OF THE ACT CONSIDERED THE SAME AS INTER-UNIT T RANSFER WITH THE RELATED UNIT AT BADDI (MPC) AND DELHI. AO TO ARRIV E AT AVERAGE GP RATE MADE COMPARISON OF THE ASSESSEE WITH VJI AS AL L THE MANUFACTURING UNITS ARE MANAGED AND OPERATED BY THE MEMBERS OF THE FAMILY AND AFTER CONSIDERING THE AVERAGE GP OF COMPARABLES GAVE BENEFIT OF 23% TO MPC AS AGAINST 38.05% DECLAR ED BY THE ITA NOS.844 & 2081/DEL./2011 5 ASSESSEE. AO REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE U/S 145 OF THE ACT BEING NOT RELIABLE. 6. AO ALSO CONSIDERED REMAINING GP AT 15% BEING INAPPROPRIATELY INFLATED TO CLAIM UNWARRANTED DEDUC TION U/S 80-IC AND COMPUTED THE NET PROFIT ELIGIBLE FOR DEDUCTION U/S 80-IC AT NP OF 21% AMOUNTING TO RS.2,01,71,527/- AND DISALLOWED THE DIFFERENCE OF RS.1,44,97,282/- IN THE NET PROFIT AS DECLARED BY THE ASSESSEE BEING NOT ELIGIBLE FOR AVAILING DEDUCTION U/S 80-IC AND THEREBY MADE AN ADDITION OF RS.1,44,97,282/-. ITA NO.2081/DEL/2011 (AY 2007-08) 7. BRIEFLY STATED THE FACTS OF THIS CASE ARE : DURI NG THE SCRUTINY PROCEEDINGS, PURSUANT TO THE NOTICES ISSUED UNDER S ECTION 143(2) AND 142(1) OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) ALONG WITH QUESTIONNAIRE, SHRI H.K. BATRA, AUTHORIZED REP RESENTATIVE FOR THE ASSESSEE PUT IN APPEARANCE, FILED NECESSARY DET AILS AND DISCUSSED THE CASE. ASSESSEE BEING PROPRIETOR OF M /S. VI-JOHN INTERNATIONAL, DELHI (VJI) AND M/S. MAJA PERSONAL C ARE, BADDI (HP) (MPC) IS INTO THE BUSINESS OF MANUFACTURING OF COSMETIC GOODS AND HAS DECLARED BUSINESS INCOME FROM PROPRIE TORSHIP CONCERN AND INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. ITA NOS.844 & 2081/DEL./2011 6 8. DURING THE YEAR UNDER ASSESSMENT, ASSESSEE HAS C LAIMED NET LOSS OF RS.62,296/- FROM VJI AND DECLARED NET PROFI T OF RS.3,72,28,870/- FROM MPC AND DECLARED THE TOTAL IN COME AT RS.58,880/- AFTER CLAIMING DEDUCTION U/S 80-IC AMOU NTING TO RS.3,72,28,870/- ON ACCOUNT OF PROFIT FROM MPC LOCA TED AT SOLAN (HP). AO AFTER NOTICING THAT THE NET PROFIT DECLAR ED IN RESPECT OF MPC UNIT ON HIGHER SIDE AS COMPARED TO ASSESSEES O THER UNIT LOCATED IN DELHI VIZ. GP RATIO OF MPC, SOLAN AT 43. 07% AS COMPARED TO THE VJI, DELHI AT 13.88% WHICH IS APPRO XIMATELY 30% HIGHER, DESPITE THE FACT THAT BOTH THE UNITS ARE IN VOLVED IN THE SAME LINE OF BUSINESS AND UTILIZING SIMILAR RAW MATERIAL AND CALLED UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY BENEFIT OF SPE CIAL DEDUCTION AVAILABLE U/S 80-IC BE NOT DISALLOWED. 9. AFTER CONSIDERING THE REPLY FILED BY THE ASSESSE E, AO CAME TO THE CONCLUSION THAT DUE TO INTER-UNIT TRANSFERS BET WEEN THE RELATED UNITS AT BADDI (MPC) AND DELHI, PROVISIONS CONTAINE D U/S 80-IC READ WITH SECTION 80-IA (8) & (10) OF THE ACT ARE A PPLICABLE AND AFTER REJECTING THE BOOKS OF ACCOUNT U/S 145 OF THE ACT BEING NOT RELIABLE, AO COMPUTED THE NP AT 19.78% FOR THE PURP OSE OF DEDUCTION U/S 80-IC AMOUNTING TO RS.1,94,53,893/- A ND OUT OF TOTAL DEDUCTION CLAIMED BY THE ASSESSEE U/S 80-IC I.E. RS .3,72,28,870/-, ITA NOS.844 & 2081/DEL./2011 7 AO DISALLOWED A SUM OF RS.1,77,74,976/- AND THEREBY MADE AN ADDITION OF RS.1,77,74,976/-. 10. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT (A) BY CHALLENGING THE ASSESSMENT ORDERS WHO HAS ALLOWED T HE APPEALS. FEELING AGGRIEVED, THE REVENUE HAS COME UP IN APPEA L BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEALS. 11. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE S OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 12. LD. DR, CHALLENGING THE IMPUGNED ORDERS, CONTEN DED INTER ALIA THAT THE AO HAS RIGHTLY REJECTED THE BOOKS OF ACCOUNT AND COMPUTED THE GP RATE AT 23% BY MAKING COMPARISON WI TH THE SIMILAR UNITS BEING RUN BY THE FAMILY MEMBERS OF TH E ASSESSEE; THAT AO HAS RIGHTLY INVOKED THE PROVISIONS CONTAINED U/S 80IA (8) & (10) BY CONSIDERING THE INTER-UNIT TRANSFERS BEING RUN BY THE FAMILY MEMBERS OF THE ASSESSEE. 13. HOWEVER, ON THE OTHER HAND, LD. AR FOR THE ASSE SSEE TO REPEL THE ARGUMENT ADDRESSED BY THE LD. DR CONTENDED INTE R ALIA THAT THE AO HAS ARBITRARILY REJECTED THE BOOKS OF ACCOUNT WI THOUT POINTING OUT ANY ENTRY BEING FALSE AND DEFECTIVE; THAT THE P ROVISIONS CONTAINED U/S 80-IC READ WITH SECTION 80-IA (8) & ( 10) ARE NOT ITA NOS.844 & 2081/DEL./2011 8 APPLICABLE IN THIS CASE AS NOT EVEN A SINGLE ITEM H AS BEEN TRANSFERRED FROM ELIGIBLE UNIT TO INELIGIBLE UNIT T O CLAIM DEDUCTION U/S 80-IC AND RELIED UPON THE JUDGMENTS CITED AS CIT VS. PARADISE HOLIDAYS 325 ITR 13 (DELHI), CIT VS. SMT. POONAM RA NI 326 ITR 223 (DELHI), PANDIT BROS. VS. CIT 26 ITR 159 (P UNJAB) AND AQUILA SOFTWARE SERVICES HYDERABAD (P) LTD. VS. DCI T (2015) 61 TAXMANN.COM 106 (HYDERABAD TRIB.) . 14. UNDISPUTEDLY, THE AO HAS INVOKED THE PROVISIONS CONTAINED U/S 80-IC RED WITH SECTION 80-IA (8) & (10) OF THE ACT BY REJECTING THE BOOKS OF ACCOUNT U/S 145 OF THE ACT MERELY ON T HE BASIS OF COMPARISON MADE IN THE GP RATIO OF THE ASSESSEE, WH ICH IS A 80-IC UNIT WITH ITS NON-80-IC UNIT BEING RUN BY FAMILY ME MBER OF THE ASSESSEE. 15. LD. CIT (A) DELETED THE ADDITION MADE BY THE AO BY RETURNING THE FOLLOWING FINDINGS :- 5. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MA DE ON BEHALF OF THE APPELLANT AND ALSO GONE THROUGH TH E CASE LAWS RELIED UPON BY HIM. IT IS SEEN FROM THE ASSESS MENT ORDER THAT THE ASSESSING OFFICER HAS DISALLOWED THE EXEMPTION CLAIMED U/S 80-IC IN RESPECT OF PART OF P ROFITS OF THE BADDI UNIT ON THE GROUND THAT THE GROSS PROF IT SHOWN BY THE ASSESSEE WAS ABNORMALLY HIGH. ON THE O THER HAND, THE APPELLANT HAS CONTENDED THAT THE PROFIT I N BADDI UNIT WAS HIGH BECAUSE THERE WERE CERTAIN FACI LITIES AND CONCESSIONS GRANTED BY HIMACHAL PRADESH GOVERNMENT IN RESPECT OF APPELLANT'S BADDI UNIT. ITA NOS.844 & 2081/DEL./2011 9 IT HAS ALSO BEEN SUBMITTED BY THE APPELLANT THAT HE HAS BEEN MAINTAINING REGULAR ACCOUNT BOOKS WHICH WE RE PRODUCED AND CHECKED BY THE ASSESSING OFFICER. THE APPELLANT HAS BEEN FOLLOWING THE SAME METHOD OF ACCOUNTING FROM YEAR TO YEAR. THE SAME METHOD OF ACCOUNTING WAS ACCEPTED BY THE ASSESSING OFFICER IN HIS ORDER DATED 30.03.2007 UNDER SECTION 143(3) FOR THE ASSESSMENT YEAR 2005-06. THE ASSESSING OFFICER DID NOT POINT OUT ANY DISCREPANCIES OR INFIRMITIES EITHER I N THE ACCOUNT BOOKS OF THE APPELLANT FOR THIS YEAR NOR IN RESPECT OF THE OPENING STOCK, PURCHASES, SALES AND THE CLOSING STOCK. THERE WAS NO FINDING THAT THE ACCOUN T BOOKS OF THE APPELLANT WERE NOT CORRECT AND COMPLET E NOR WAS THE FINDING THAT THE PROFITS OF BADDI UNIT COUL D NOT BE CORRECTLY DEDUCED, TO WARRANT THE REJECTION OF ACCO UNT BOOKS OF THE APPELLANT OF BADDI UNIT AND DELHI UNIT . THE ASSESSING OFFICER DID NOT DISPUTE THE CERTIFICATE I SSUED BY THE CHARTERED ACCOUNTANT UNDER SUB-SECTION (7) OF SECTION 80-IA FOR DEDUCTION U/S 80-IC OF THE ACT. M ERELY, ON THE BASIS OF COMPARING THE G.P. RATE SHOWN BY TH E OTHER COMPANIES OF THE SAME GROUP LIKE M/S VI-JOHN INTERNATIONAL, DELHI (VJI), M/S. BIO SKIN CARE (BSC ), DELHI, M/S. VI JOHN HEALTH CARE LINE (VJHCL), DELHI , M/S. VI JOHN BEAUTY TECH. (VJBT), THE ASSESSING OFF ICER HAS ASSUMED THAT THE APPELLANT HAD CLAIMED EXCESSIV E G.P. RATE AND NET PROFIT. MOREOVER, THE COMPARISON MADE BY THE A.O. OF THE G.P. RATE SHOWN BY THE APPELLANT FROM BADDI UNIT IN HIMACHAL PRADESH WITH THE G.P. RATE SHOWN BY OTHER SISTER CONCERNS OF DELHI IS NOT FAIR BECAUSE THE PLACE OF BUSINESS MAKES A DIFFERENCE ESPECIALLY IN VIEW OF THE FACT THAT THE CONCESSIONS AVAILABLE TO APPELLANT'S BUSINESS UNIT AT BADDI WER E NOT AVAILABLE TO THE SISTER CONCERNS AT DELHI. THE HIGH ER G.P. RATE/ NET PROFIT SHOWN BY BADDI UNIT IN COMPARISON TO SISTER CONCERNS AT DELHI WAS NOT ABNORMAL IN VIEW O F THE CONCESSIONS AVAILABLE TO BADDI UNIT IN HIMACHAL PRADESH. AFTER CONSIDERING THE EXPLANATION GIVEN BY THE ASSESSEE TO JUSTIFY THE HIGHER G.P. AND NET PROFIT OF BADDI UNIT, I AM OF THE VIEW THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN REJECTING THE TRADING RESULTS SHOWN BY THE ASSESSEE SUMMARILY WITHOUT POINTING OUT EITHER ANY ITA NOS.844 & 2081/DEL./2011 10 MISTAKE/DEFICIENCY IN THE ACCOUNTS OR DISTURBING TH E FIGURES OF SALES OR PURCHASE AS DECLARED BY THE ASS ESSEE. HE WAS ALSO NOT JUSTIFIED IN COMPARING THE TRADING RESULTS OF ASSESSEE'S BUSINESS UNIT IN BADDI (HIMACHAL PRAD ESH) WITH THE TRADING RESULTS SHOWN BY ASSESSEE'S SISTER CONCERNS IN DELHI BECAUSE THERE WERE CONSIDERABLE DIFFERENCES IN BUSINESS CONDITIONS OF THE TWO CONCE RNS. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, I HOLD THAT THE ASSESSING OFFICER WAS NOT CORRECT IN HOLDI NG THAT THE G.P. OF 23% ONLY WAS ALLOWABLE FOR DEDUCTION UN DER SECTION 80-IC IN THE CASE OF MPC INSTEAD OF 38.05% AS DECLARED BY THE ASSESSEE AND DISALLOWING THE DEDUCT ION FOR THE REMAINING G.P. @ 15.05% AND IN THE PROCESS MAKING DISALLOWANCE/ADDITION OF RS.1,44,97,282/-. T HE DISALLOWANCE OF RS.1,44,97,282/- MADE BY THE ASSESS ING OFFICER IS HEREBY DELETED. 16. IN THE BACKDROP OF THE AFORESAID FACTS AND CIRC UMSTANCES OF THE CASE, THE FIRST QUESTION ARISES FOR DETERMINATI ON IN THIS CASE IS :- AS TO WHETHER AO HAS ARBITRARILY REJECTED THE BOOK S OF ACCOUNT WITHOUT DISPUTING THE CORRECTNESS AND COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE? 17. SCRUTINY OF THE ASSESSMENT ORDER AND IMPUGNED O RDER PASSED BY THE LD. CIT (A) DELETING THE ADDITION MADE BY TH E AO IN THE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE AN D RATIO OF THE JUDGMENTS CITED AS CIT VS. PARADISE HOLIDAYS AND CIT VS. SMT. POONAM RANI (SUPRA), LEADS TO THE CONCLUSION THAT AO HAS ARBITRARILY MADE THE ADDITION BY REJECTING THE BOOK S OF ACCOUNT, WHICH HAS BEEN RIGHTLY DELETED BY THE LD. CIT (A) F OR THE FOLLOWING REASONS :- ITA NOS.844 & 2081/DEL./2011 11 (I) THAT THE AO HAS ARBITRARILY BASED THE ASSESSMEN T ORDER ON THE BASIS OF COMPARISON MADE IN THE GP RATIO AND NP RATIO OF ASSESSEE UNIT, WHICH IS ENTITLED FOR DEDUCTION U/S 80-IC, WITH OTHER NON 80-IC UNIT OF ASSESSEE SITUATED AT DELHI, WHICH COULD NOT BE A GROUND IN ITSELF TO REJECT THE BOOKS OF ACCOUNT; (II) THAT SINCE THE AO HAS NEITHER DISPUTED THE COR RECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE NOR DISPUTED THE METHOD OF ACCOUNTING, WHICH HAS OTHERWISE BEEN ADMITTED BY THE ASSESSING OFFICER ASSESSEE IN THE ASSESSMENT ORDER COMPLETED U/S 143( 3) QUA THE AY 2005-06, HE WAS NOT EMPOWERED TO REJECT THE BOOKS OF ACCOUNT; (III) THAT WHEN THE AO HAS NOT DISPUTED TRADING ACC OUNT OR OPENING STOCK OR THE PURCHASES OR THE SALES OR THE CLOSING STOCK, WHICH HAVE OTHERWISE BEEN ACCEPTED B Y THE EXCISE AND TAXATION DEPARTMENT, SUMMARILY REJECTING THE ACCOUNT BOOKS WITHOUT POINTING OUT AN Y DEFECT IS NOT PERMISSIBLE UNDER LAW; (IV) THAT THE FACTUM OF ALLOWING THE DEDUCTION U/S 80-IC TO THE ASSESSEE TO THE EXTENT OF 23% FOR AY 2006-07 AN D TO THE EXTENT OF 19.78% QUA AY 2007-08 ITSELF GOES TO ITA NOS.844 & 2081/DEL./2011 12 PROVE THAT THE AO HAS CATEGORICALLY ADMITTED THE CORRECTNESS OF THE BOOKS OF ACCOUNT BUT PREFERRED T O DISALLOW THE DEDUCTION CLAIMED U/S 80-IC ON THE BAS IS OF PRESUMPTIVE GROSS PROFIT ARRIVED AT ON THE BASIS OF COMPARISON OF THE 80-IC UNIT WITH NON 80-IC UNIT, WHICH IS SELF CONTRADICTORY; (V) THAT WHEN THE AO HAS NOT DISPUTED CERTIFICATE I SSUED BY THE CHARTERED ACCOUNTANT U/S 80-IC (7) FOR THE PURPOSE OF DEDUCTION U/S 80-IC OF THE ACT, HE IS ESTOPPED BY HIS OWN ACT AND CONDUCT FROM REJECTING THE BOOKS OF ACCOUNTING MERELY ON THE BASIS OF DIFFERENCE IN THE RATIO OF GROSS PROFIT; (VI) THAT EVEN OTHERWISE THE DIFFERENCE IN THE GROS S PROFIT RATIO MAY BE DUE TO NUMEROUS REASONS VIZ. EASY AND LOCAL AVAILABILITY OF THE RAW MATERIAL, DEGREES IN DEMAND AND SUPPLY OF THE FINISHED GOODS, INCREASE I N THE COST OF PROCESSING, THE ENDEAVOUR OF THE ASSESS EE TO EARN MAXIMUM PROFIT FROM A UNIT ATTRACTING DEDUCTION U/S 80-IC ETC. SO, DIFFERENCE IN THE GRO SS PROFIT RATIO CANNOT BE A GROUND IN ITSELF TO REDUCE THE DEDUCTIONS CLAIMED BY THE ASSESSEE U/S 80-IC; ITA NOS.844 & 2081/DEL./2011 13 (VII) THAT THE AO WITHOUT DISPUTING THE PURCHASE OF RAW MATERIAL, SALE OF THE FINISHED GOODS AND WITHOUT SPECIFICALLY POINTING OUT THAT THERE WAS INTER-UNIT TRANSFER OF FINISHED GOODS JUMPED TO THE CONCLUSION THAT THE TRADING RESULTS ARE NOT RELIABLE AND THERE BY REJECTED THE BOOKS OF ACCOUNT, WHICH IS NOT SUSTAIN ABLE IN THE EYES OF LAW; (VIII) THAT WE ARE OF THE CONSIDERED VIEW THAT THE GROSS PROFIT OF THE ASSESSEE MAY VARY EVEN WITH HIS OWN GROSS PROFIT OF THE PRECEDING YEARS AND ON THE BASIS OF W HICH PART OF DEDUCTION CANNOT BE DISALLOWED, WHAT TO TAL K OF MAKING COMPARISON OF GROSS PROFIT BETWEEN THE 80-IC UNIT AND NON 80-IC UNIT WHICH ARE UNDISPUTEDLY DIFFERENTLY LOCATED AND GOVERNED BY DIFFERENT RULES AND REGULATIONS; (IX) THAT EVEN IT IS NOWHERE CASE OF THE AO THAT AS SESSEE HAS NOT MAINTAINED STOCK REGISTER OR HAS INFLATED T HE FIGURES OF PURCHASE OR RAW MATERIAL OR HAS INFLATED THE FIGURES OF THE SALE BUT HAS PROCEEDED TO DISALLOW P ART OF THE DEDUCTION MERELY ON THE BASIS OF CONJECTURES AND SURMISES BY ADOPTING PRESUMPTIVE GP RATIO AND THAT THE BOOKS OF ACCOUNT ARE NOT RELIABLE. ITA NOS.844 & 2081/DEL./2011 14 18. NOW, THE NEXT QUESTION ARISES FOR DETERMINATION IN THIS CASE IS :- AS TO WHETHER THE AO HAS ARBITRARILY INVOKED THE PROVISIONS CONTAINED U/S 80-IC (7) READ WITH SECTIO N 80- IA(8) & (10) OF THE ACT. 19. THE AO HAS INVOKED THE PROVISIONS CONTAINED U/S 80-IC READ WITH SECTION 80-IA (8) & (10) BY RETURNING THE FIND ING THAT THERE IS INTER-UNIT TRANSFERS BETWEEN THE RELATED UNITS AT B ADDI AND DELHI WHICH IS CLEAR FROM UNNATURAL PROFIT RATIO OF 80-IC UNIT AND NON 80- IC UNIT AND IS VERIFIABLE FROM THE ACCOUNTS OF THE ASSESSEES OWN RELATED CONCERN. 20. HOWEVER, THERE IS NOT AN IOTA OF MATERIAL ON TH E FILE TO PROVE THE INTER-UNIT TRANSFERS BETWEEN THE RELATED UNITS OF THE ASSESSEE, ONE SITUATED AT BADDI, HIMACHAL PRADESH, AND ANOTHE R SITUATED AT DELHI. MOREOVER, WHEN CORRECTNESS AND COMPLETENESS OF THE AUDITED BOOKS OF ACCOUNT HAS NOT BEEN DISPUTED, MER ELY DISPUTING THE TRADING RESULT ON THE BASIS OF HIGHER GROSS PRO FIT RATIO IS NOT PERMISSIBLE UNDER LAW. WHEN AO HAS ALSO NOT RETURN ED ANY SPECIFIC FINDINGS THAT THERE WAS SOME ARRANGEMENT B ETWEEN THE ASSESSEE UNIT, AN 80-IC UNIT AND HIS NON 80-IC UNIT SITUATED AT DELHI TO CARRY OUT SUCH TRANSFER OF GOODS, THE QUESTION O F INVOKING PROVISIONS CONTAINED U/S 80-IA (8) & (10) DOES NOT ARISE. ITA NOS.844 & 2081/DEL./2011 15 21. IDENTICAL ISSUE HAS BEEN DEALT WITH BY THE COOR DINATE BENCH OF THE TRIBUNAL IN CASE CITED AS AQUILA SOFTWARE SERVICES HYDERABAD (P) LTD. (SUPRA) WHEREIN THE FOLLOWING FINDINGS HAVE BEEN RETURNED IN FAVOUR OF THE ASSESSEE :- SECTION 10A, READ WITH SECTION 80-IA, OF THE INCOM E-TAX ACT, 1961 - FREE TRADE ZONE COMPUTATION OF DEDUCTIO N) - ASSESSMENT YEAR 2007-08 - ASSESSEE-COMPANY EXPORTED SOFTWARE DEVELOPED BY IT TO ITS AES - IT HAD SHOWN PROFIT AT 50 PER CENT AND CLAIMED DEDUCTION UNDER SECTION 10A - SINCE AVERAGE MARGIN OF COMPARABLE COMPANIES IN SIMILAR LINE OF BUSINESS WAS 15 PER CENT, DEPARTMEN TAL AUTHORITIES HAD REDUCED DEDUCTION CLAIMED UNDER SEC TION 10A BY RESTRICTING PROFIT FROM ELIGIBLE BUSINESS OF ASSESSEE INVOKING PROVISIONS OF SECTION 80-IA(10) - WHETHER SINCE ASSESSING OFFICER HAD NOT CONCLUSIVEL Y PROVED FACT THAT THERE WAS AN ARRANGEMENT BETWEEN ASSESSEE AND ITS AE BY WHICH TRANSACTIONS WERE SO ARRANGED AS TO PRODUCE MORE THAN ORDINARY PROFITS I N HANDS OF ASSESSEE, DISALLOWANCE OF PART DEDUCTION U NDER SECTION 10A BY APPLYING PROVISIONS OF SECTION 80-IA (10), WAS NOT JUSTIFIED - HELD, YES. 22. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE AND TH E FACT THAT IDENTICAL ISSUE HAS BEEN SETTLED BY THE COORDINATE BENCH OF THE TRIBUNAL, WE ARE OF THE CONSIDERED VIEW THAT THE AO HAS INVOKED THE PROVISIONS CONTAINED U/S 80-IC READ WITH SECTIO N 80-IA (8) & (10) ON THE BASIS OF CONJECTURES AND SURMISES ONLY WITHOUT HAVING AN IOTA OF MATERIAL ON RECORD AND AS SUCH, THE QUES TION IS ANSWERED IN FAVOUR OF THE ASSESSEE. ITA NOS.844 & 2081/DEL./2011 16 23. CONSEQUENTLY, WE FIND NO ILLEGALITY OR PERVERSI TY IN THE FINDINGS RETURNED BY LD. CIT (A), HENCE BOTH THE AP PEALS FILED BY THE REVENUE ARE HEREBY DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS29TH DAY OF JUNE, 2016. SD/- SD/- (N.K. SAINI) (KULDIP SING H) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 29 TH DAY OF JUNE, 2016 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-III, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.