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| The Tax Publishers2020 TaxPub(DT) 1400 (Pune-Trib) INCOME TAX ACT, 1961
Section 10AA(9), 80-IA(10)
Mere existence of close connection and 'more than ordinary profits' are not enough to assume an arrangement as contemplated under section 80-IA (10). Since, AO was also required to prove any such arrangement existing, which resulted in more than ordinary profits. AO had not proved any arrangement between parties in the facts of case, AO was not justified in denying deduction.
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Deduction under section 10AA - Allowability - Denial on the ground of existence of close connection and 'more than ordinary profits' - AO failed to prove any arrangement between parties
Assessee-company earned profit of 31.27% as against average net margin of comparable companies of 11.34%. According to AO, average net margin of comparable companies of 11.34% represented 'ordinary profit' whereas, assessee's net margin of 31.27% was more than, 'ordinary profit' within the meaning of section 10AA(9) read with section 80-IA (10). Accordingly, AO denied deduction claimed under section 80-IA(10) read with section 80-IA(10) on the amount of net profit equivalent to difference between net margin of 31.27% and 11.34% amounting to Rs. 2,33,23,142. Held: Mere existence of close connection and 'more than ordinary profits' are not enough to assume an arrangement as contemplated under section 80-IA(10). AO was also required to prove any such arrangement existing, which resulted in more than ordinary profits. AO had not proved any arrangement between parties in the facts of case. Accordingly, AO was not justified in denying deduction.
REFERRED :
FAVOUR : In assessee's favour.
A.Y. :
INCOME TAX ACT, 1961
Section 14A(2)
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