TaxTMI 
TaxTMI 
2014 (11) TMI 443
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....up, consisting of the following group concerns, on 10.11.2006; (i) Cirex Pharmaceuticals P. Ltd., (ii) Hetero Drugs Limited (iii) Hetero Labs Limited (iv) Symed Labs Limited The Hetero group of concerns as referred above, are into the business of manufacturing and sale of bulk drugs and pharmaceutical formulations. Consequent to the notices issued assessee filed revised returns not admitting additional incomes. 2.1. The Revenue has raised common grounds in all the assessment years as under : "2. The Ld. CIT(A) ought to have upheld the total disallowance made on fictitious/bogus purchases claim of assessee, as the same is logically and arithmetically estimated in assessment order as per in principle confession of assessee to have made unverifiable purchases from the said parties of Mumbai for his concerns. 3. The Ld. CIT(A) ought not have given credence to the search subsequent statement of assessee and related persons as it is an afterthought to negate the fact of assessee's unverifiable purchases claim that too without any verifiable proofs/justification for the contradiction of search day confession. 2.2. In ITA.No.787/Hyd/2012 and 788/Hyd/2012 for ....
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....portion of purchases of raw material were inflated and entries were made in the register without receiving the material while indicating the sources of such purchases from Mumbai. Statements were also recorded from the two associated persons of the groups mentioned above located at Mumbai on two different dates, during the course of survey/search conducted in their respective business premises, wherein it was shown to have indicated that the said parties were issuing certain bogus sale bills to the Hetero group companies. During the course of search & seizure proceedings, the CMD of the group concerns was examined on oath who have made a disclosure of additional income of Rs. 25.00 crores for the group concerns, by taking certain omissions committed by the paid employees/managers of the companies into consideration. However, in the case of M/s. Cirex Pharmaceuticals P. Ltd., no disclosures were made. 3.3. The assessee company is involved in manufacturing and sale of bulk drugs and pharmaceutical formulations and while procuring the raw material from various sources including the two concerns viz. Shree Group and Pooja Group located at Mumbai, for last several years allegation wa....
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.... Pooja Group, located at Mumbai, where survey/search proceedings were conducted at their places, wherein it was stated by the representatives of the said concerns viz. Mr.Nishit J. Doshi and Mr.Rajesh K.Punamia that bills were organized by them to the four Hetero group of companies viz. M/s Symed Labs Ltd. M/s Hetero Drugs Ltd. M/s Hetero Labs Ltd and M/s Cirex Pharmaceuticals Pvt Ltd. during the period of financial year 2002-03 to 2006-07, without supplying the raw material. Meanwhile, search & seizure proceedings have taken place in the case of Hetero Group of companies with proceedings initiated on 10.11.2006 and concluded on 8.1.2007, during which statements were recorded from the Senior Employees of the group concerns, a security guard at factory premises of M/s Hetero Labs Ltd. The statements of Sri B. Parthasarathy Reddy, Chairman of the Group companies, was also recorded on 8.1.2007. In the initial statement recorded from Sri B.Ramachandra Reddy, Vice-President (Materials), working for M/s Hetero Labs Ltd, on 10.11.2006, it was stated by him on enquiry that there are certain bills which were accommodated by the two Bombay based concerns while indicating the period of such s....
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....f the total purchases. A portion of such purchases from both the groups were treated as fictitious purchases by the Assessing Officer and the basis for such treatment/conclusion is the statements recorded from the senior employees/managers of the Hetero group companies apart from the statements of Mr. Rajesh K.Punamia, the representative of Pooja group and Mr.Nishit J. Doshi, the representative of Shree group. In quantification of such fictitious purchases, from Pooja group, the Assessing Officer relied upon the statement of Mr. Rajesh K. Punamia and the assessment order passed by DClT CC-46, Mumbai, in the case of two group concerns. In the case of Shree group, the basis adopted is the statement of Mr. Nishit J. Doshi apart from the few enquiries made with reference to the variations, as regard to quantity and amounts in the bills issued by Shree group. 5.15. Coming to the facts for the year under reference, the total fictitious purchases were quantified at Rs. 6,38,913 which include the fictitious purchases attributable to the purchases made from Shree Group and Pooja Group (Rs.3,06,571) and Shree Group (Rs.3,32,342), as per the assessment order. As indicated, the quantificati....
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....ents. As argued by the appellant, which are supported by the established judicial decisions as referred in their submissions, the affidavits filed by the employees as well as the appellant should not have been rejected by the Assessing Officer without controverting the contents of the affidavits and without bringing any additional evidence on the record. Hence, it can be held that the reliance of the Assessing Officer on the mere statements and coming to the conclusion that certain portion of purchases made from Shree Group as fictitious is not sustainable. Further, no evidence was shown to have been found during the course of search & seizure proceedings or brought on record to prove that the records maintained by the appellant are not reliable or verifiable. As could be seen from the copy of the stock register filed during the course of appeal proceedings, wherein the quantitative details of various raw material received and issued under various codes given to them, are recorded in the computerized format, which appears not examined by the Assessing Officer. Based on the deficit on account of fictitious purchases quantified, the Assessing Officer did not analyse the quantitative ....
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....inst the total purchases made from the group quantified at Rs. 48.37 crores. While quantifying the unverifiable sales in the hands of Pooja Petrochemicals and Shree Vallabh Pharmachem Pvt Ltd. the Assessing Officer of the group has drawn the gist of such amounts as attributable to AY 2003-04 to 2006-07, at Rs. 2.48 crores against which the Assessing Officer of the Hetero group has adopted different set of figures and parameters as indicated in a chart at para 5.6 of this order in distributing such purchases among the Hetero group companies, which also indicates the presumptive methods adopted in quantification of fictitious purchases. While quantifying such unverifiable purchases among the group companies, the Assessing Officer has adopted the prorata basis and the basis adopted is quantum of purchases made by the group companies from pooja group. 5.20. On similar lines, the purchases made from Shree group were categorized as 'Direct purchases' and 'Transit purchases', as indicated in the earlier part of this order, with 55% of the 'Transit purchases', are estimated and quantified as fictitious purchases, while 100% of the 'Direct purchases' were ....
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....n of fictitious purchases without reference to specific bill or information is varying from case to case in the same group, which is on account of the element of estimation involved in the process of quantification. Under the circumstances, I am of the opinion that the statements from senior employees of the group, which were supported by affidavits, that were not controverted by the Assessing Officer and the statements from Mr. Rajesh Punamia and Mr. Nishit Doshi, which were not supported by the seized material or further enquiries made in the regard, are not fully reliable to treat few purchases as bogus. The method/procedures adopted in quantification of fictitious purchases in the cases of the appellant company as well as the group concerns are not on sound basis, so as to be used for quantification of unaccounted income, in a search related assessments. Accordingly, the addition of Rs. 6,38,913 on account of fictitious purchases quantified against the purchases made from Shree group and Pooja group, in the case of appellant company, for the year under reference, do not appear sustainable. 5.22. As could be seen from the assessment order, in this method of quantification,....
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.... to the production of drugs which was not disputed by the Assessing Officer and books of accounts were not disturbed. (e) The amounts for purchase of the material were paid by cheques and no evidence whatsoever was found/ unearthed to show that the amounts were returned to the appellant despite such claim made by Mr. Nishit J. Doshi in his statement and during the course of search & seizure proceedings, no findings were made as regards to the assets or cash received, as relatable to such fictitious purchases. (f) Sri Rajesh Punamia of Pooja group has never stated that he has not supplied goods but he has only accepted certain addition on account of absence of availability of the transport receipts and to save himself from the litigation to the department. (g) The Assessing Officer of the Pooja Group has mentioned in assessment order that both purchases and sales made by the group are reflected by the books on which profit was shown at 5% and as such no further inference can be drawn, and such observation indicates that profit of 5% on sales was acceptable, and in no manner it indicates the sales by the group to be bogus. (h) The methodology and quantums of accommodated ....
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....unaccounted income for the year under reference, held to be unsustainable for the reasons discussed above. Accordingly, this ground of appeal is treated as allowed, for the year under reference. 4. After considering the detailed submissions of learned D.R. and Ld. Counsel, we do not see any reason to interfere with the orders of Ld. CIT(A) as he has considered not only the facts but also statements on the basis of which A.O. made disallowance. Since assessee has not disclosed any income and AO could not establish any bogus purchases, estimation of bogus purchases as a percentage can not be approved. Moreover there is no consistency also on this estimation as pointed out by Ld.CIT(A). There is also no seized material to suggest that this company also resorted to bogus purchases. Accordingly, his orders are upheld. Revenue grounds 2 and 3 on this issue in all the assessment years are dismissed. 5. Ground No.4 raised in ITA.No.787/Hyd/ 2012 and ITA.No.788/Hyd/2012 for the A.Y. 2004-05 and 2005-06 is with reference to claim of R & D expenditure disallowed by AO. It was the submission that while computing the taxable income of the assessee, the A.O. has disallowed the claim of the....
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....98/Hyd/2011 dt.14.10.2011 has allowed the appeal of the appellant on similar facts and grounds. Under the circumstances, I am inclined to accept the submissions of the appellant and hold that the appellant is eligible for deduction u/s 35(1)(iv) and Assessing Officer is accordingly directed to allow the claim. While allowing the claim, depreciation allowed by the Assessing Officer to the tune of Rs. 8,51,764 for the year under reference and the same may be withdrawn accordingly. Therefore, this ground of appeal is treated as allowed". 5.2. After considering the rival contentions, we do not see any reason to interfere with the order of Ld. CIT(A). He has followed the decision in assessee's group case of M/s Symed Labs Ltd in ITA.No.398/Hyd/2011 dated 14.10.2011 in which this issue was considered by the ITAT and held as under : "6. With regard to the merits of the claim of the assessee regarding deduction on account of R & D expenditure claimed under section 35(1)(iv) of the Act, we find that the assessee in its written explanation filed before the A.O. during the course of assessment proceedings has claimed that the assessee company as carrying on the R&D activity at the f....