NEC PHARMACEUTICAL,SOLAN vs. ITO, WARD, PARWANOO

Ground No. 1 of the assessee’s appeal is general in nature, it doesn’t require any specific adjudication.

In Ground No. 2, the assessee has challenged the passing of the assessment order under section 144 of the Act and in Ground No. 3, the assessee has challenged the action of the Ld. CIT(A) in sustenance of estimation of net profit @ 12% as against 22% declared by the assessee as eligible for deduction under section 80IC of the Act and treating the balance profit of Rs. 12,53,765/- as income from undisclosed sources.

1 In this regard, briefly the facts of the case are that the assessee filed its return of income declaring NIL income on 16/11/2007 after claiming 100% deduction under section 80IC of the Act amounting to Rs. 30,50,460/-.

2 During the course of assessment proceedings, the assessee was asked to give details of manufacturing process and also the justification with regard to fulfillment of condition for claim of deduction under section 80IC of the Act and the submissions so filed by the assessee were considered by the AO and the AO has recorded the findings of the assessee fulfilling the requisite conditions for claim of deduction under section 80IC of the Act.

3 Regarding the quantum of deduction which the assessee was eligible for deduction under section 80IC of the Act, the AO observed that the assessee has declared total sales of Rs. 1,24,60,268/-, G.P. Rate of 32.35% and N.P. Rate of 24.41% as compared to G.P. of 13.21% and N.P. of 4.55% for A.Y 2005-06 and G.P. of 11% and N.P of 5.41% for A.Y. 2006-07. Thereafter the assessee was asked to explain the increase in the N.P. Rate as compared to the previous years. The submissions so filed by the assessee were considered however the same were not found acceptable and the AO has stated that in absence of concrete documentary evidence in support of the submissions made by the assessee and the addresses of sundry debtors and creditors,

4 It was further stated by the AO that the G.P. has increased astronomically from 11% to 32.35% as compared to earlier years despite decrease in sales by almost 50% and the onus was on the assessee to prove the increase with documentary evidence which the assessee failed to do so despite number of opportunities allowed to it.

5 It was further stated by the AO that the assessee has consistently shown profits in the range of 4.5% to 5.5% and no concrete evidence has been submitted for the abnormal rise in profit and therefore taking into consideration the fact that the assessee did not have to pay any interest to the bank as compared to the earlier years and sale price of some of its products have increased and the clientele have undergone change, the profit from business was estimated @ 12% of the sale and profit of Rs. 14,95,232/- was determined and which was treated as exempt under section 80IC of the Act and accordingly, the remaining profit of Rs. 12,53,765/- was treated as assessee’s income from undisclosed sources.

Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A) who has sustained the said addition and the relevant findings are contained at para 13 to 17 of the impugned order and the contents thereof read as under :

Heard the ld DR and carefully perused the material available on record. Firstly, regarding the matter relating to rejection of the books of accounts and passing of the order u/s 144 of the Act, we find that during the course of assessment proceedings, the AO has returned a finding that the complete books of account along with bill books were not produced along with the addresses of the sundry debtors and sundry creditors and in the absence of such details it was not possible to ascertain the true profits of the appellant. Further, the AO has carried out comparative analysis of turnover and net profits shown in the earlier years and has held that the assessee has shown unusually high profits during the year inspite of reduction in turnover and whole of which has been claimed as exempt u/s 80IC of the Act. During the appellate proceedings, the ld CIT(A) has allowed further opportunity to the assessee to produce the necessary books of accounts and the AO was directed to make specific enquiries and to pursue the books of account and the AO in his remand report has pointed out that the bill books and other details were again not furnished before the AO during remand proceedings to enable the AO to complete the enquiries. The ld CIT(A) also examined a CD submitted by the assessee and stated that the books of account for the relevant year in terms of ledger and cash book have been found contained in the CD, however, there are no bill books in the CD and again, complete addresses of the debtors and creditors have not been provided. Considering the same, the ld CIT(A) has confirmed the action of the AO in terms of rejection of books of accounts and passing of the order under section 144 of the Act. There is nothing on record to rebut the findings of the ld CIT(A) and we find that the ld CIT(A) after due perusal of the assessment order, and after allowing opportunity to the assessee during the appellate proceeding, calling for the remand report from the AO and the rejoinder to the remand report submitted by the assessee has rightly upheld the findings of the AO in terms of rejection of books of accounts and estimation of net profits.

Regarding estimation of net profit @ 12%, the ld CIT(A) has recorded the finding that the GP from the earlier year has increased from 11% to almost 32% despite decrease in the sale by almost 50%. Prior to this year, the appellant had shown net profit in the rate of 4.5 to 5.5%, which has suddenly jumped to 24% during the year under consideration. The appellant was provided sufficient opportunities to explain this sudden increase; however the explanation submitted by the appellant could not be verified by the AO in the absence of complete records. Thus, based on the entire facts of the case, the AO has held that the business profit of the appellant for the year is estimated at 12% and rest of the income has not been taken as exempt u/s 80IC of the Income Tax Act, 1961 and was treated as income from undisclosed sources. There is nothing on record to rebut the said findings of the ld CIT(A) who has rightly appreciated and analysed the findings of the AO, who in turn has done the necessary comparative analysis of previous years and recorded the finding regarding abnormal increase in net profit inspite of reduction in sales/turnover during the year under consideration. We

In the result, the appeal of the assessee is dismissed.

""यथ"/ The Respondent 3. आयकर आयु"/ CIT 4. आयकर आयु" (अपील)/ The CIT(A) 5. िवभागीय "ितिनिध, आयकर अपीलीय आिधकरण, च"डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड" फाईल/ Guard File