ACIT, Shimla V. M/s Ishwar Manufacturing Co (P) Ltd., Solan

ITA 966/CHANDI/2011

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 2528 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-12-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 05-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: JITENDER JAIN
• Keywords: Business income; Transfer pricing
• Section: 143(3); 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI H.L.KARWA, VICE PRESIDENT AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.966/CHD/2011 (ASSESSMENT YEAR : 2007-08) ITA NO.1041/CHD/2011 (ASSESSMENT YEAR : 2006-07) THE A.C.I.T., VS. M/S ISHWAR MANUFACTURING CO.(P) LTD., CIRCLE SHIMLA, VILLAGE KATHA, BADDI, SHIMLA. DISTT,. SOLAN (H.P.) PAN: AABCI1400N & C.O.NO.8/CHD/2012 ARISING OUT OF ITA NO.1041/CHD/2011 (ASSESSMENT YEAR : 2006-07) M/S ISHWAR MANUFACTURING CO.(P) LTD., VS. THE A.C.I.T., VILLAGE KATHA, BADDI, CIRCLE SHIMLA, DISTT,. SOLAN (H.P.) SHIMLA. PAN: AABCI1400N AND ITA NO.1042/CHD/2011 (ASSESSMENT YEAR : 2008-09) THE A.C.I.T., VS. M/S ISHWAR MANUFACTURING CO.(P) LTD., CIRCLE SHIMLA, VILLAGE KATHA, BADDI, SHIMLA. DISTT,. SOLAN (H.P.) PAN: AABCI1400N (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI JITENDER JAIN & HARRY RIKHY 2 DEPARTMENT BY : SHRI S.K. MITTAL, DR DATE OF HEARING : 02.12.2015 DATE OF PRONOUNCEMENT : 11.01.2016 O R D E R PER RANO JAIN, A.M . : THESE THREE APPEALS FILED BY THE REVENUE ARE DIRECTED AGAINST THE ORDERS OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS), SHIMLA DATED 24.8.2011, 20.7. 2011 AND 24.8.2011 FOR ASSESSMENT YEARS 2006-07, 2007-08 AND 2008-09 RESPECTIVELY. THE ASSESSEE HAS FILED CROSS OBJECTIONS IN THE APPEAL OF THE REVENUE IN ITA NO.1041/CHD/2011, I.E. ASSESSMENT YEAR 2006-07. 2. IN ALL THE APPEALS, THE ISSUE IS COMMON AND, THEREFORE, THESE APPEALS WERE HEARD TOGETHER AND AR E BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. SINCE THE FACTS AND CIRCUMSTANCES ARE IDENTICAL IN ALL THE APPEALS, WE MAY REFER TO THE FACTS IN IT A NO.966/CHD/2011 FOR ASSESSMENT YEAR 2007-08. FOR DISPOSAL OF ALL THE APPEALS. 3. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE MANUFACTURING AND PACKING OF CONSUMER ARTICLES LIKE EZEE LIQUID, CINT HOL TELCOM POWDER AND DISH WASH FOR M/S GODREJ CONSUMER 3 PRODUCTS LTD.(IN SHORT M/S GCPL). DURING THE ASSESSMENT PROCEEDINGS, ON AN INFORMATION RECEIVED FROM HP STATE ENVIRONMENT PROTECTION & POLLUTION CONTROL BOARD, BADDI, IT CAME TO THE NOTICE OF THE ASSESSIN G OFFICER THAT SHRI URAAZ BAHL, THE MAIN PROMOTER, HO LDING 90% OF SHARE CAPITAL IS THE NEPHEW OF MRS.GODREJ AN D HAS BEEN CLOSELY ASSOCIATED WITH THE GODREJ GROUP. DUR ING THE YEAR, THE ASSESSEE COMPANY HAS SHOWN NET PROFIT @ 3 5% OF THE GROSS SALES. A COMPARISON OF THE CHART OF FIXE D AND VARIABLE COMPONENTS OF COST REIMBURSED TO THE ASSES SEE BY M/S GCPL AND THE PURCHASE ORDER PLACED BY M/S GCPL WITH ASSESSEE, WAS MADE BY THE ASSESSING OFFICER. ON THE BASIS OF THIS, THE ASSESSING OFFICER CONCLUDED THAT A MARK- UP RANGING FROM 13% TO 64% IS RECEIVED BY THE ASSES SEE FROM M/S GCPL AS PROCESSING CHARGES ON VARIOUS FINI SHED PRODUCTS. AFTER ANALYZING CERTAIN COMPARABLE COMPA NIES, THE ASSESSING OFFICER ALSO CONCLUDED THAT THE NET P ROFIT MARGIN OF THESE COMPANIES RANGES FROM 0.47% TO 13.3 %. AFTER THIS, THE ASSESSING OFFICER DID A DETAILED FA R ANALYSIS FOR DETERMINATION OF ARMS LENGTH PRICE OF A TRANSACTION FOR A BUSINESS TRANSACTED BETWEEN THE T WO CONNECTED PARTIES AS PRESCRIBED UNDER RULE 10B(2)(B ) OF THE INCOME TAX RULES. AFTER ALL THIS EXERCISE, THE ASSESSING OFFICER CONCLUDED THAT THE NET PROFIT MAR GIN OF THE ASSESSEE IS SIGNIFICANTLY HIGHER THAN WHAT IT S HOULD IDEALLY BE. CONSIDERING THE FACT THAT THERE WOULD BE SOME DIFFERENCE IN WORKING ENVIRONMENT AND SCALE OF BUSI NESS THE ASSESSING OFFICER HELD THAT THE REASONABLE NET PROFIT OF 4 THE ASSESSEE SHOULD BE 10% AS AGAINST 35.5% DECLARE D. APPLYING SECTION 80IA(10) OF THE INCOME TAX ACT, 19 61 (IN SHORT THE ACT) DEDUCTION UNDER SECTION 80IB OF TH E ACT WAS, THEREFORE, ALLOWED ON AN AMOUNT OF RS.38,40,10 8/- BEING 10% OF GROSS RECEIPTS AND THE BALANCE AMOUNT OF RS.1,02,14,280/- WAS HELD TO BE TAXABLE AS NORMAL BUSINESS INCOME. 4. BEFORE THE LEARNED CIT (APPEALS) THE ASSESSEE SUBMITTED THAT IT HAD ENTERED INTO AN AGREEMENT WIT H M/S GODREJ CONSUMER PRODUCTS LTD. VIDE AGREEMENT DATED 27.4.2004 FOR CARRYING OUT MANUFACTURING ACTIVITIES FOR MANUFACTURING OF PRODUCTS LIKE TALCUM POWDER, EZEE DETERGENT ETC. THE ASSESSEE SOLD ENTIRE PRODUCED I TEMS TO M/S GODREJ CONSUMER PRODUCTS LTD. ONLY. IN ORDER T O MAINTAIN THE QUALITY, IT WAS AGREED BETWEEN THE PAR TIES THAT RAW MATERIALS WOULD BE SUPPLIED BY GODREJ. IT WAS SUBMITTED THAT ALL CONDITIONS WERE FULFILLED TO PRO VE THE GENUINENESS OF CLAIM OF DEDUCTION UNDER SECTION 80I B OF THE ACT. IT WAS FURTHER SUBMITTED THAT THE TERM S O FAR AS MAY APPLY USED IN SECTION 80IB(13) OF THE ACT WAS TO BE USED LIBERALLY AS IT APPLIES TO PROCEDURAL FORMALIT IES ONLY. MERELY BECAUSE URAAZ BAHL, DIRECTOR OF THE COMPANY WAS THE NEPHEW OF MRS. GODREJ, THE ASSESSEE CANNOT BE S AID TO BE CONNECTED TO M/S GODREJ CONSUMER PRODUCTS LTD. IT WAS TOO LOOSELY CONNECTED TO BE CALLED CLOSELY CONN ECTED. THE REQUIREMENTS OF SECTION 80IA(10) OF THE ACT IS THAT IF THE AFFAIRS ARE SO ARRANGED TO PRODUCE MORE PROFITS TO THE ASSESSEE, WHICH IS NOT PROVED BY THE ASSESSING OFFI CER. IN 5 THIS ORDER, THE ASSESSING OFFICER HIMSELF HAS MENTI ONED THAT THE WORK OF THE ASSESSEE WAS IN THE NATURE OF JOB WORK. THIS ITSELF SHOWS THAT THE ASSESSEE IS A SMA LL COMPANY DOING JOB WORK OF MANUFACTURING AND, THEREF ORE, CLOSENESS WITH A COMPANY LIKE GODREJ IS BASELESS. FURTHER, IT WAS SUBMITTED THAT THE PROVISIONS OF TR ANSFER PRICING CANNOT BE BROUGHT ON THE FACTS AND CIRCUMST ANCES OF THE CASE. THE LEARNED CIT (APPEALS) AFTER CONSI DERING THE SUBMISSION OF THE ASSESSEE, HELD THAT THE ASSESSING OFFICER HAS NOT BEEN ABLE TO PROVE WITH MATERIAL FACTS AS T O HOW THE COURSE OF BUSINESS BETWEEN THE TWO PARTIES WAS SO A RRANGED THAT IT PRODUCED TO THE ASSESSEE MORE THAN ORDINARY PROFITS. FURTHER, THE LEARNED CIT (APPEALS) OBSERVED THAT IT IS NOT KNOWN ON WHAT BASIS THE ASSESSING OFFICER HAS ARRIV ED AT THE NET PROFIT RATE OF 10%. THERE ARE INSTANCES, PROD UCED BY THE ASSESSEE, WHERE NET PROFIT RATE OF 71.45% HAS ALSO BEEN ACCEPTED BY THE DEPARTMENT IN SCRUTINY ASSESSMENTS. BEING CONVINCED BY THE ARGUMENTS OF THE ASSESSEE, T HE LEARNED CIT (APPEALS) ALLOWED THE ASSESSEE DEDUCTIO N UNDER SECTION 80IB OF THE ACT IN FULL. 5. AGGRIEVED BY THIS ORDER OF THE LEARNED CIT (APPEALS), THE DEPARTMENT HAS COME IN APPEAL BEFORE US, RAISING THE FOLLOWING GROUNDS OF APPEAL : 1. ON THE FACTS AND IN THE CIRCUMSTANCES, THE LD. C1 T(A) HAS ERRED IN ALLOWING DEDUCTION U/S 80IB OF RS. 1,31,08,963/- AS AGAINST RESTRICTION OF CLAIM BY THE A.O . AT RS. 38,40,108/-. 6 2. IT IS PRAYED THAT THE ORDER OF THE LD CIT(A) BE SE T-ASIDE- AND THAT OF THE A.O. RESTORED. 3. THE APPELLANT CRAVES LEAVE TO ADD ANY OTHER GROU ND OF APPEAL WHICH MAY ARISE AT THE TIME OF HEARING. 6. THE LEARNED D.R. RELYING ON THE ORDER OF THE ASSESSING OFFICER, SUBMITTED THAT THERE IS CLOSE CO NNECTION BETWEEN THE ASSESSEE AND GODREJ, AS MRS. GODREJ IS AUNT OF ONE OF THE DIRECTORS IN ASSESSEE COMPANY, SHRI U RAAZ BAHL, WHO HOLDS 90% SHARES IN THE COMPANY. THE ASSESSING OFFICER HAS AMPLY DEMONSTRATED THAT THE ASSESSEE IS EARNING UNREASONABLE PROFITS TO THE EXT ENT OF 35.5%, AS IT IS AN ENTITY ELIGIBLE FOR DEDUCTION UN DER SECTION 80IB OF THE ACT. FURTHER, HE SUBMITTED THA T THE ASSESSING OFFICER HAD DONE A DETAILED FAR ANALYSIS BEFORE ARRIVING AT A COMPARABLE NET PROFIT MARGIN. IN THI S VIEW, IT WAS PRAYED THAT THE DISALLOWANCE MADE BY THE ASS ESSING OFFICER BE CONFIRMED. 7. THE LEARNED COUNSEL FOR THE ASSESSEE RELYING ON THE ORDER OF THE LEARNED CIT (APPEALS), AGAIN REITE RATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. HE SUBMITTED THAT SINCE THE ASSESSEE HAS CLAIMED DEDUC TION UNDER SECTION 80IB AND NOT UNDER SECTION 80IA OF TH E ACT, THE PROVISIONS OF SECTION 80IA(10) SHOULD NOT BE AP PLIED TO THE SAME. FURTHER, EVEN IF THE PROVISIONS ARE SO A PPLIED, HIS CONTENTION WAS THAT THE ASSESSING OFFICER HAS N OT BEEN ABLE TO PROVE THE CLOSE CONNECTION BETWEEN THE ASSE SSEE 7 AND GCPL. THE ONLY REFERENCE IS THAT MR.URAAZ BAHL , ONE OF THE DIRECTORS IS NEPHEW OF MRS.GODREJ. FILING A COPY OF THE SHAREHOLDING PATTERN OF THE ASSESSEE COMPANY, IT WAS BROUGHT TO OUR NOTICE THAT MR.URAAZ BAHL IS HOLDING ONLY 9% OF THE SHARES OF THE ASSESSEE COMPANY AND NOT 90 % AS THE ASSESSING OFFICER HAS STATED IN HIS ORDER. EVE N THE FULL NAME OF THE AUNT OF THE ASSESSEE MRS.GODREJ HA S NOT BEEN STATED ANYWHERE IN HIS ORDER BY THE ASSESSING OFFICER. HE HAS NOT EVEN STATED HOW MRS.GODREJ IS CONNECTED WITH M/S GODREJ CONSUMER PRODUCTS LTD. I N THIS WAY, IT WAS STATED THAT THERE IS NO CLOSE CONN ECTION BETWEEN THE TWO ENTITIES. FURTHER, AS REGARDS TO ARRANGEMENT OF AFFAIRS, IT WAS SUBMITTED THAT THE ASSESSING OFFICER HAS NOT BEEN ABLE TO BRING ON REC ORD HOW THE TWO ENTITIES HAVE ARRANGED THE AFFAIRS SO AS TO HAVE UNREASONABLE PROFITS IN ASSESSEES CASE. IT WAS AL SO SUBMITTED THAT THE ASSESSING OFFICER IS NOT JUSTIFI ED IN BRINGING THE PROVISIONS OF RULE 10B(2)(B) OF THE INCOME TAX RULES, THE SAME RELATES TO COMPUTATION O F ARMS LENGTH PRICE OF TRANSACTION WITH THE FOREIGN ASSOCIATED ENTERPRISES. THE PROVISIONS OF DOMESTIC TRANSFER PRICING ARE NOT APPLICABLE IN THE YEAR UND ER CONSIDERATION. AS REGARDS THE COMPARABLES CHOSEN B Y THE ASSESSING OFFICER, IT WAS STATED THAT THE NET P ROFIT OF THE CONCERNS LIKE PROCTER & GAMBLE HOME PRODUCTS , ANCHOR DAEWOO INDIA LTD., JYOTHY LABORATORIES, ETC. , WHOSE TURNOVERS ARE IN THE RANGE OF RS.100/- OF CRO RES ARE NOT COMPARABLE, SINCE THE ASSESSEES TURNOVER IS MERELY 8 RS.3.84 CRORES DURING THE YEAR UNDER CONSIDERATION. IT WAS A CASE OF COMPARING CONTRACT MANUFACTURERS WITH THE MANUFACTURING CONCERN HAVING THEIR BUSINESS SPREAD OVER MANY GEOGRAPHICAL TERRITORIES. IT WAS ALSO BROUGHT TO OUR NOTICE THAT THE DEPARTMENT HAS BEEN ACCEPTING A LAR GE NUMBER OF CASES WITH NET PROFIT RATES RANGING FROM 33% TO 77% AGAINST NET PROFIT RATE 35.5% REFLECTED IN ASSE SSEES CASE. THE COPIES OF ORDER UNDER SECTION 143(3) OF THE ACT, PASSED FOR THE SAME ASSESSMENT YEAR IN THE CASE OF BIO VEDA ACTION RESEARCH P. LTD. AND SECURITY PRODUCTS WERE FILED TO SHOW THAT FOR THE YEAR UNDER CONSIDERATION . THE NET PROFIT RATE OF 43.60% AND 71.54% RESPECTIVELY H AVE BEEN ACCEPTED BY THE DEPARTMENT IN THESE CASES. 8. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. SECTION 80IB OF THE ACT PROVIDES FOR SPECIAL PROVIS ION FOR DEDUCTION OF CERTAIN INCOMES IN RESPECT OF CERTAIN UNDERTAKINGS OR ENTERPRISES IN CERTAIN SPECIAL CATE GORY STATES. SUB-SECTION (13) OF SECTION 80IB OF THE AC T MAKES THE PROVISION OF SUB-SECTION (5) AND SUB-SECTIONS ( 7) TO (12) OF SECTION 80IA OF THE ACT APPLICABLE TO ELIGI BLE UNDERTAKING OR ENTERPRISE UNDER THIS SECTION. ACCO RDING TO SECTION 80IA(10) OF THE ACT, WHERE PROFITS IN TH E ELIGIBLE UNITS HAVE BEEN INFLATED BY AN ASSESSEE, THE AS SESSING 9 OFFICER IS EMPOWERED IN TERMS OF AFORESAID SECTION TO DETERMINE THE REASONABLE PROFIT. 9. SUB SECTION (13) OF SECTION 80IB OF THE ACT REA DS AS UNDER : 80IB. (13) THE PROVISIONS CONTAINED IN SUB-SECTION (5 ) AND SUB-SECTIONS (7) TO (12) OF SECTION 80-IA SHALL, SO FAR AS MAY BE , APPLY TO THE ELIGIBLE BUSINESS UNDER THIS SECTION. 10. FROM THE ABOVE, IT IS CLEAR THAT THE PROVISION S OF SUB-SECTION (5) AND SUB-SECTIONS (7) TO (12) OF SEC TION 80IA OF THE ACT ARE ALSO APPLICABLE FOR CONSIDERING THE CLAIM OF DEDUCTION UNDER THIS SECTION. FURTHER, SECTION 80IA (10) OF THE ACT READS AS UND ER: (10) WHERE IT APPEARS TO THE ASSESSING OFFICER THAT, OWING TO THE CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYING ON THE ELIGIBLE BUSINESS TO WHICH THIS SECTION APPLIES AND ANY OTHER PERSON, OR FOR ANY OTHER REASON, THE COURSE OF BUSINESS BETWEEN THEM IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS, THE ASSESSING OFFICER SHALL, IN COMPUTING THE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTION, TAKE THE AMOUNT OF PROFITS AS MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED THEREFROM. 11. THIS MAKES VERY CLEAR THAT IN CASE THE ASSESSI NG OFFICER FORMS AN OPINION THAT THE ELIGIBLE BUSINESS HAS BEEN ARRANGED SO AS TO INFLATE PROFITS, HE HAS THE POWER TO RECOMPUTED PROFITS OF SUCH ELIGIBLE BUSINESS. THE 10 ARGUMENT OF THE ASSESSEE THAT THE TERM SO FAR AS MENTIONED IN SECTION 80IB(13) OF THE ACT HAS TO BE CONSTRUED LIBERALLY IS OF NO CONSEQUENCE, AS THE PR OVISION IS QUITE UNAMBIGUOUS AND THERE IS NO SCOPE OF READI NG IT DOWN OR TO CONSTRUE IT SO LIBERALLY. FURTHER, IT I S SEEN THAT SECTION 80IA(10) OF THE ACT IS A DEEMING PROVI SION, WHEREBY WHAT ACTUALLY IS NOT THE INCOME OF THE AS SESSEE IS DEEMED TO BE THE INCOME OF THE ASSESSEE. IN THAT CASE, SINCE DEEMING FICTIONS ARE TO BE CONSTRUED ST RICTLY, THE ONUS IS ON THE REVENUE TO PROVE THAT ALL THE CO NDITIONS NECESSARY FOR INVOKING SUCH DEEMING FICTIONS ARE PR ESENT IN THE CASE. 12. AS PER THE PROVISIONS OF SECTION 80IA(10), IT IS THE DUTY OF THE ASSESSING OFFICER TO BRING ON RECOR D THAT THERE IS A CLOSE CONNECTION OF THE ASSESSEE WITH TH E OTHER ENTITY AND FURTHER THE AFFAIRS ARE ARRANGED IN SUCH A MANNER TO INFLATE THE PROFITS OF THE ELIGIBLE BUSIN ESS. ONCE BOTH THESE CONDITIONS ARE SATISFIED, ONLY THEN THE ASSESSING OFFICER CAN INVOKE THE PROVISIONS OF DEEM ING FICTION CREATED UNDER SECTION 80IA(10) OF THE ACT. THOUGH THE TERMS CLOSE CONNECTION AND AFFAIRS ARE ARRAN GED IN A MANNER ARE NOT DEFINED IN THE SECTION, ONE HAS TO SEE THESE CONDITIONS ON THE FACTS AND CIRCUMSTANCES OF A PARTICULAR CASE. 12. LET US FIRST ANALYZE THE CLOSE CONNECTION IS SUE. IN A DOCUMENT RECEIVED FROM H.P. ENVIRONMENT PROTEC TION & POLLUTION CONTROL BOARD, THE ASSESSING OFFICER CA ME TO 11 KNOW THAT MR.URAAZ BAHL IS HOLDING 90% OF THE SHARE CAPITAL IN ASSESSEE COMPANY. THIS IS AN INCORRECT FACT AS MR.URAAZ BAHL HOLDS ONLY 9% OF SHARES OF THE ASSESS EE COMPANY. IT IS ALSO STATED IN THE SAME INFORMATION THAT MR.URAAZ BAHL IS THE NEPHEW OF MRS.GODREJ AND HAS B EEN CLOSELY ASSOCIATED WITH THE GODREJ GROUP. HERE, WE OBSERVE THAT THE ASSESSEE COMPANY IS DOING JOB WORK ONLY FOR M/S GODREJ CONSUMER PRODUCTS LTD.(GCPL) AND HOW MRS.GODREJ IS RELATED TO GCPL IS NOT COMING UP ANYW HERE IN THIS ORDER. EVEN THE FULL NAME OF MRS.GODREJ IS NOT APPEARING ANYWHERE. IN THIS CIRCUMSTANCES, HOW DOE S HE INFER THE CLOSE CONNECTION IN NOT KNOWN TO US. 13. AS REGARDS THE ARRANGEMENT OF AFFAIRS, THE ASSESSING OFFICER REFERRED TO THE CONTRACT BETWEEN THE ASSESSEE AND GCPL. FROM THE PERUSAL OF THE SAID CONTRACT, WE OBSERVE THAT RESPONSIBILITY TO CHECK T HE QUALITY OF THE PRODUCTS MANUFACTURED IS THAT OF GCP L, WHILE COMPLIANCE OF ALL LAWS AND MANAGEMENT OF LABO UR ,PRODUCTION, SCHEDULE AND QUALITY CONTROLS IS THE A BSOLUTE RESPONSIBILITY OF THE ASSESSEE. THE PRICES ARE TO BE DECIDED ON MUTUALLY AGREED UPON BASIS. IT SEEMS TO US A VERY NORMAL CONTRACT. EVEN THE ASSESSING OFFICER H AS NOT DOUBTED TO THE GENUINENESS OF THIS CONTRACT. ON PE RUSAL OF THE SAME, WE DO NOT FIND AS IF THE AFFAIRS ARE B EING ARRANGED. 14. HAVING SAID SO, WE OBSERVE THAT THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS, THOUGH, 12 PAINFULLY ANALYZED THE PRODUCT MARGINS OF THE ASSES SEE AND ALSO THE FAR ANALYSIS AS WELL AS THE ANALYSIS O F COMPARABLES. HOWEVER, WE SEE THAT ALL THIS LENGTHY EXERCISE HAS BEEN DONE BY THE ASSESSING OFFICER IN A HASTE. TO COMPLY WITH THE PROVISIONS OF SECTION 80 IA(10) OF THE ACT, FIRSTLY THE ASSESSING OFFICER SHOULD HA VE BROUGHT ON RECORD HOW THE TWO ENTITIES, VIZ THE ASS ESSEE AND GCPL ARE CLOSELY LINKED AND HOW THEIR AFFAIRS ARE ARRANGED SO AS TO PRODUCE MORE PROFIT BY THE ASSESS EE. THEN ONLY HE CAN PROCEED TO QUANTIFY THE UNREASONAB LE PROFITS EARNED. WHATEVER BASIS HE HAS TAKEN ARE FO UND EITHER FACTUALLY INCORRECT OR ARE TOO VAGUE. THE A SSESSING OFFICER, INFACT, ON THE BASIS OF LARGE PROFITS EARN ED BY THE ASSESSEE, HAS PRE-SUPPOSED THAT THERE IS SOME ARRANGEMENT TO THIS EFFECT. THIS APPROACH IS NOT A S PER LAW. AT THIS STAGE, WE AGREE WITH THE FINDING RECO RDED BY THE LEARNED CIT (APPEALS), THAT THIS IS A CASE OF P UTTING CART BEFORE THE HORSE. THE ASSESSING OFFICER, WITH A PRECONCEIVED MIND, HAD ANALYZED THE PROFIT MARGINS OF THE ASSESSEE COMPANY. THE ASSESSING OFFICER HAS FAILED TO BRING ON RECORD ANY MATERIAL TO SHOW THE EXISTENCE OF ANY ARRANGEMENT FOR BUSINESS TRANSACTED BETWEEN THE TWO CONCERNS. IN SUCH CIRCUMSTANCES, WE DO NOT SEE ANY NEED FOR THE ASSESSING OFFICER TO CARRY OUT ANY EXERCISE TO COMPUTE THE REASONABLE PROFITS EXPECTED TO BE EARNE D BY THE ASSESSEE. THEREFORE, WE HOLD THAT IN THE PRESE NT CASE, THERE WAS NO NEED FOR THE ASSESSING OFFICER TO INVO KE THE PROVISIONS OF SECTION 80IA(10) OF THE ACT. 13 15. ON THE ISSUE OF COMPARABLES ALSO, WE ARE IN AGREEMENT WITH THE FINDINGS GIVEN BY THE LEARNED CI T (APPEALS) THAT THE ASSESSING OFFICER HAS TAKEN PROC TER & GAMBLE HOME PRODUCTS, ANCHOR DAEWOO INDIA LTD., JYO THY LABORATORIES ETC. COMPARABLES, WHICH ARE NOT THE PR OPER COMPARABLES. THE TURNOVER OF THESE COMPANIES ARE I N THE RANGE OF RS.100 CRORES, WHILE THE TURNOVER OF THE A SSESSEE COMPANY IS ONLY 3.84 CRORES. THE ASSESSEE IS A CON TRACT MANUFACTURER, WHILE THESE COMPANIES THEMSELVES ARE MANUFACTURERS. FOR MAKING A COMPARATIVE ANALYSIS , APPLES ARE TO BE COMPARED WITH APPLES AND NOT WITH ORANGES. FURTHER, THERE ARE COMPANIES LIKE BIO VE DA ACTION RESEARCH PVT. LTD. & SECURITY PRODUCTS, WHER E THE NET PROFIT RATE OF 43.60% AND 71.54 % RESPECTIVELY HAS BEEN ACCEPTED BY THE DEPARTMENT, IN THE SCRUTINY PROCEEDINGS FOR THE SAME ASSESSMENT YEAR. IN VIEW OF THIS, EVEN 10% NET PROFIT MARGIN COMPUTED BY THE ASSESSING OFFICER IS NOT CORRECT. 16. IN VIEW OF THE ABOVE, WE CONFIRM THE ORDER OF THE LEARNED CIT (APPEALS). 17. THE APPEAL OF THE DEPARTMENT IS DISMISSED. C.O.NO.8/CHD/2012 IN ITA NO.1041/CHD/2011 : 18. AS WE HAVE GIVEN OUR FINDINGS ON THE MERITS OF THE CASE WHILE ADJUDICATING THE APPEALS OF THE REVE NUE, 14 THE ISSUE IN CROSS OBJECTION BECOMES ACADEMIC, THER EFORE, NO SEPARATE FINDING IS GIVEN ON THE SAME. 19. IN THE RESULT, ALL THE APPEALS OF THE REVENUE AND CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 11 TH DAY OF JANUARY, 2016. SD/- SD/- (H.L. KARWA) (RANO JAIN) VICE PRESIDENT ACCOUNTANT MEMBER DATED : 11 TH JANUARY, 2016 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 15