Official Liquidator custody and manufacturing evidence supported lower gross-profit estimation and industrial deduction claims.

Where books of account remained with the Official Liquidator and the assessee substantiated its inability to produce them, gross-profit estimation could not proceed on a presumption of deliberate non-production; the appellate reduction in the estimated rate was therefore upheld. On the deduction claim, substantial evidence of manufacturing activity in a backward area, including audited accounts, prescribed audit reports, location notifications and supporting industrial records, was sufficient to establish eligibility under sections 80HH and 80I. In the absence of contrary evidence from the Revenue, the claim was rightly allowed and the appellate relief sustained.

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Issues: (i) Whether the reduction of the estimated gross profit rate and deletion of part of the trading addition was justified when the books of account were not produced because they remained with the Official Liquidator. (ii) Whether the assessee was entitled to deduction under sections 80HH and 80I on the basis of the manufacturing activity carried on in a backward area and the evidence filed in support of the claim.

Issue (i): Whether the reduction of the estimated gross profit rate and deletion of part of the trading addition was justified when the books of account were not produced because they remained with the Official Liquidator.

Analysis: The addition was founded on rejection of the books and estimation of gross profit by comparing past and current margins. The material on record showed that the assessee's records had remained with the Official Liquidator after the winding-up proceedings and were not handed back when possession was restored on an as-is-where-is basis. The explanation that the assessee could not produce the books was supported by the Official Liquidator's correspondence and was not rebutted. The reduction in turnover and margins due to technological change and business distress was also accepted on the facts. In these circumstances, the lower gross-profit estimate adopted by the appellate authority was found to be reasonable.

Conclusion: The reduction of the gross-profit rate was upheld and the Revenue's challenge on this issue failed.

Issue (ii): Whether the assessee was entitled to deduction under sections 80HH and 80I on the basis of the manufacturing activity carried on in a backward area and the evidence filed in support of the claim.

Analysis: The assessee had filed audited accounts, the prescribed audit reports, notifications showing the industrial location as a backward area, supporting material relating to the industrial licence and sales tax relief, and evidence of manufacturing operations and employment strength. The appellate record also showed that the assessee's industrial activity had been accepted in earlier proceedings. The objection that the claim was unverifiable was not sustained because the assessee had furnished substantial supporting material and the Revenue did not bring contrary evidence to disprove the manufacturing activity or the statutory conditions for the deduction.

Conclusion: The deduction under sections 80HH and 80I was rightly allowed and the Revenue's challenge on this issue failed.

Final Conclusion: The Revenue's appeal was rejected in full, and the appellate relief granted to the assessee on the gross-profit estimation and deduction claims was sustained.

Ratio Decidendi: Where records remain with the Official Liquidator and the assessee substantiates the inability to produce them, gross-profit estimation cannot rest on a presumption of deliberate non-production; and deduction for an industrial undertaking is admissible when the assessee adduces substantial evidence of manufacturing activity and fulfilment of the statutory conditions.

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