Nakoda Chemicals Ltd., Secunderabad V. DCIT, Hyderabad

ITA 1009/HYD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3344 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 31-03-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 28-05-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: E S NAGENDRA PRASAD
• Keywords: Business income
• Section: 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI G.C. GUPTA, VICE-PRESIDENT AND SHRI AKBER BASHA, ACCOUNTANT MEMBER . ITA NO.1009/HYD/08 : ASSESSMENT Y EAR 2004-05 M/S. NAKODA CHEMICALS LTD., SECUNDERABAD. PAN:AAACN6893M VS DCIT, CIR-16(1), HYDERABAD. (APPLICANT) (RESPONDENT) APPELLANT BY : SHRI CHAITANYA KUMAR FOR SHRI S. RAMA RAO RESPONDENT BY : SHRI. E.S. NAGENDRA PRASAD O R D E R PER AKBER BASHA, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDE R OF CIT (A)-V, HYDERABAD DATED 13-3-2008 AND IT PERTAINS TO THE ASSESSMENT YEAR 2004-05. 2. GROUNDS RAISED IN THIS APPEAL ARE AS FOLLOWS: '1. THE ORDER OF THE CIT (A) IS ERRONEOUS BOTH ON FACT S AND IN LAW. 2. THE LEARNED CIT (A) ERRED IN CONFIRMING THE ACTION O F THE ASSESSING OFFICER IN RESORTING TO ESTIMATION OF THE BUSINESS INCOME ON THE GROUND THAT THE EXPENDITURE CLAIMED IS N OT VERIFIABLE. 2 3. THE LEARNED CIT(A) ERRED IN CONFIRMING THE NET PROFI T RATE AT 13% OF THE SALES AS MADE BY THE ASSESSING OFFICER WITHOUT CONSIDERING THE EXPLANATION SUBMITTED BEFORE HIM AND W ITHOUT CONSIDERING THE FACT THAT THE EXPENDITURE INCURRED IS VERIFIABLE.' 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAG ED IN MANUFACTURE OF BULK DRUGS AND FOR THE ASSESSMENT YEAR UN DER CONSIDERATION, IT HAS FILED ITS RETURN OF INCOME DECLARI NG INCOME OF RS.45,83,960 AFTER CLAIMING DEDUCTION OF RS.3,49,584 UN DER SECTION 80HHC OF THE ACT. AFTER PROCESSING THE RETURN UNDER SECTIO N 143(1) OF THE ACT, THE SAME WAS SELECTED FOR SCRUTINY AND THE ASSESSING OFFICER HAS ISSUED NOTICE UNDER S. 143(2) ALONG WITH QUESTIONNAIRE ON 25-8-2005 FIXING THE CASE FOR HEARING ON 23-9-2005. HOWEVER, TH E ASSESSEE HAS NOT MADE ANY COMPLIANCE ON 23-9-2005 AND LATER ON THE ASSESSING OFFICER HAS ISSUED ANOTHER NOTICE UNDER SECTION 143(2) ON 5-5-2006 FIXING THE CASE FOR HEARING ON 18-5-2006. BUT, THERE WAS NO COMPLIANCE FROM THE ASSESSEE AND SUBSEQUENTLY, THE ASSESSING OFFICER HAS ISSUED NOTICES UNDER SECTION 143(2) OF THE ACT. UNDER THE CIRCUM STANCES, THE CIT (A) HELD THAT THE ASSESSING OFFICER IS JUSTIFIED IN C OMPLETING THE ASSESSMENT AS PER HIS BEST OF JUDGMENT. THE CIT(A) AFTER CONSIDERING THE FACTS AND THE CIRCUMSTANCES AND HELD THAT THE ASSESSING OFFICER WAS JUSTIFIED IN ESTIMATING SUCH PROFIT ON SALES AT 13% AND THEREBY ADDING THE DIFFERENTIAL AMOUNT OF RS.9,77,165 TO THE INCOME OF THE ASSESSEE AND ACCORDINGLY HE UPHELD THE ADDITION MADE BY THE ASSE SSING OFFICER ON THIS ISSUE. 4. AGGRIEVED AGAINST THE FINDINGS OF THE CIT (A), T HE ASSESSEE IS IN APPEAL BEFORE US. WE HAVE CONSIDERED THE SUBMISSIONS OF THE BOTH THE 3 PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ARGUMENT ADVANCED BY THE LEARNED COUNSEL FOR THE ASSESSEE IS ONLY WI TH REGARD TO THE ESTIMATION OF NET PROFIT AT 13% OF THE SALES AS AGA INST 9.8% DECLARED BY THE ASSESSEE. WE FIND FORCE IN THE ARGUMENT OF THE LEARNED COUNSEL THAT THE RATE OF GROSS PROFIT AND NET PROFIT AR E SUBJECT TO MANY FACTORS SUCH AS VOLUME OF BUSINESS, PRODUCT MIX, EXISTENCE OF COMPETITORS IN THE MARKET, AND RATES FLUCTUATIONS ETC. B UT AT THE SAME TIME, THE ASSESSEE HAS SHOWN HIGHER NET PROFIT FOR THE EA RLIER THREE ASSESSMENT YEARS, IN PARTICULAR, 20.6% IN THE IMMEDIATE LY PRECEDING YEAR. EVEN IF WE AGREE THAT THERE WAS PRESSURE ON THE PROFIT MARGIN DUE TO NON-EXPORTING OF GOODS TO JAPAN MARKET, THERE CANN OT BE SUCH STEEP FALL IN THE PERCENTAGE OF PROFIT COMPARED TO THE PRECE DING YEAR. IN VIEW OF THIS MATTER, ENDS OF JUSTICE WILL BE MET IF WE ESTIM ATE THE NET PROFIT AT 11% ON SALES AS AGAINST 9.8% DECLARED BY THE ASSESSEE AND 1 3% SUSTAINED BY THE CIT (A). ACCORDINGLY, WE DIRECT THE ASSE SSING OFFICER TO ESTIMATE THE NET PROFIT AT 11% ON THE SALES AFFECTED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION AND HENCE THE APPEAL OF T HE ASSESSEE IS PARTLY ALLOWED. WE ORDER ACCORDINGLY. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PA RTLY ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 30 -4-2010. SD/- SD/- (G.C. GUPTA) (AKBER BASHA) VICE PRESIDENT ACCOUNTANT MEMBER. DT/- 30-4-2010. COPY FORWARDED TO: 1. G.D. UPADHYAH & CO., 15-1-53, 2ND FLOOR, OPP. GO SHAMAHAL 4 HIGH SCHOOLS, SIDDAMBER BAZAR, HYDERABAD. 2. 3. THE DCIT, CIR-16(1), HYDERABAD. CIT,A P, HYDERABAD. 4.CIT(A)-V, HYDERABAD. 5. THE D.R., ITAT, HYDERABAD JMR *