DEEPAK VERMA vs. COMMISSIONER OF INCOME TAX II

ITA/445/2014HC Punjab & HaryanaPHHC01109602201420 October 2015Author: MR. JUSTICE SURINDER GUPTA,MRS JUSTICE DAYA CHAUDHARY10 pages
AI SummaryDismissed

What were the facts?

The assessee, Deepak Verma, filed an appeal before the High Court of Punjab and Haryana against an order of the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2010-11. The ITAT had set aside the order of the Commissioner of Income Tax (Appeals) and restored the order of the Assessing Officer (AO). The AO had re-allocated purchases between the assessee's exempt unit at Baddi and non-exempt unit at Mohali, making an addition of ₹55,41,224/-. The CIT(A) had partly allowed the appeal, deleting an addition of ₹50,19,196/-. The dispute centers on the invocation of Section 80IA(10) of the Income Tax Act, 1961, which allows the AO to recompute profits if they appear inflated due to a close connection between units.

What did the High Court hold?

The High Court held that the ITAT was justified in invoking Section 80IA(10) of the Income Tax Act, 1961. The Tribunal had found that the assessee showed a net profit rate of 12.66% in the Mohali unit versus 57.95% in the Baddi unit, despite the Baddi unit having significantly less machinery. The same products were sold from both units at comparable prices, ranging between ₹5,25,000/- to ₹6,25,000/-. The Tribunal concluded that this indicated an inflation of profits in the eligible Baddi unit. The assessee had also conceded before the CIT(A) that expenses were not properly allocated. The Tribunal reasoned that Section 80IA(10), made applicable to Section 80IC by Section 80IC(7), empowers the AO to recompute profits if they appear inflated due to a close connection or other reasons. The High Court found no error in the Tribunal's findings of fact. Therefore, the appeal was dismissed as no substantial question of law arose.

What were the issues?

1. Whether the ITAT was justified in reversing the CIT(A)'s order by ignoring Section 80IA(10) of the Income Tax Act, 1961, despite no cogent material showing 'business transacted' between the Mohali (non-exempt) and Baddi (exempt) units, and relying solely on a higher profit rate, which penalizes efficiency, contrary to the Bombay High Court's ruling in Schmetz India (P) Ltd.? 2. Whether the ITAT correctly interpreted Section 80IA(10) in its strict sense, as a deeming provision, given that the AO failed to discharge the burden of proving the twin conditions: 'business between them is so arranged' and 'business transacted' between the two units, as per Supreme Court judgments like CIT v. ACE Builders (P) Ltd.? 3. Whether the ITAT was justified in re-allocating purchases by invoking Section 80IA(10) without wholly relying on account book results or pointing out any discrepancy therein? 4. Whether the ITAT was justified in stating that when the end product is the same, the cost would also be the same, by comparing the two units, especially when they operate on different technologies and 'modus operandi', and thus cannot be said to have any connection under Section 80IA(10)? Assessee's contentions: The ITAT erred in invoking Section 80IA(10) as there was no evidence of 'business transacted' between the units, and the higher profit rate at the Baddi unit reflected efficient working, not inflated profits. The AO failed to prove the conditions for invoking Section 80IA(10). The ITAT re-allocated purchases without relying on account books or identifying discrepancies. The comparison of units was unjustified due to different technologies and operations. Revenue's contentions: Not recorded in the judgment.

Which sections of the Income-tax Act were involved?

Section 260A,Section 80IA(10),Section 80IC(7),Section 80IC,Section 80IA

AI-generated summary — verify with the full judgment below

-1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of Decision: 20.10.2015 Deepak Verma ....Appellant. Versus Commissioner of Income Tax-II, Chandigarh ...Respondent.

1.

Whether the Reporters of the local papers may be allowed to see the judgment?

2.

To be referred to the Reporters or not? Yes

3.

Whether the judgment should be reported in the Digest? CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. HON'BLE MR. JUSTICE RAMENDRA JAIN. PRESENT: Mr. Ravi Shankar, Advocate and Mr. B.M. Monga, Advocate for the appellant. Ms. Urvashi Dhugga, Advocate for the respondent. AJAY KUMAR MITTAL, J.

1.

This appeal has been preferred by the assessee under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 19.6.2014 (Annexure A-3) passed by the Income Tax Appellate Tribunal, Chandigarh Bench “B”, Chandigarh (hereinafter referred to as “the Tribunal”) in ITA No. 1026/CHD/2013, for the assessment year 2010-11, claiming the following substantial questions of law:- i. Whether the ITAT is justified in reversing the order of the CIT(A) while ignoring provisions of GURBACHAN SINGH 2015.11.19 16:07 I attest

The order continues below.

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