TaxTMI 
TaxTMI 
2021 (11) TMI 322
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....aken into consideration for deciding the above appeals en masse. 3. Although, these appeals filed by the Revenue for Assessment Years 2008- 09 to 2013-14 contain multiple ground of appeals. However, at the time of hearing we have carefully perused all the grounds raised by the Revenue. Most of the grounds raised by the Revenue are common and identical. Therefore, to meet the end of justice, we confine ourselves to the core of the controversy and main grievances of Revenue. With this background, we summarize and concise the grounds raised by the Revenue as follows: "1. Addition on account of suppressed profit at Unit-I, Vapi and exaggerated profit at Unit-II, Baddi. (i) Addition of Rs. 2,61,43,552/- for AY.2008-09. (ii) Addition of Rs. 2,75,42,684/- for AY.2009-10. (iii) Addition of Rs. 1,80,06,302/- for aY.2010-11. (iv) Addition of Rs. 2,90,04,937/- for AY.2011-12. (v) Addition of Rs. 1,85,17,067/- for AY.2012-13. ( Note: This is ground no.1 in appeal no.286/Ahd/2016 to 290/Ahd2016) 2. No incriminating material / documents were found during the course of search. (i) Assessment Year 2008-09. ....
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....record, that there is a strong and credible evidence to suggest inter unit transfer of profit with the intention of reducing the incidence of tax. At this juncture, the assessing officer has referred the important provisions of the Income Tax Act and observed that it is noteworthy, that as per the provisions of the section 80IC r.w.s 80IA(10) " Where it appears to the Assessing Officer that, owing to the close connection between the assessee carrying on the eligible business to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the Assessing Officer shall, in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom". During search, unaudited accounts of the assessment year 2013-14 were found and impounded. In the course of assessment proceedings, a perusal and verification of these unaudited accounts for A.Y. 201....
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.... that the assessee is resorting to inflation of expenditure or resorting to unaccounted production for sale in the open market and that assessee has arranged his affairs in such way that high margin pharma products are billed from Baddi unit and low margin pharma products are billed at Vapi Unit and that there is strong likelihood for the assessee to be producing one product at one unit and shifting the same to other unit and showing sale at non-taxable entity and claiming expenses at taxable entity and reducing the taxable profit in Vapi. In view of the above discussion, an addition of Rs. 2,61,43,552/- was made by assessing officer on account of suppressed profits at Unit-1, Vapi and exaggerated profits at Unit-II, Baddi. 6. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has deleted the addition made by the Assessing Officer. Aggrieved, the Revenue is in further appeal before us. 7. Learned Departmental Representative (ld. DR) for the Revenue submits that statement of Shri Kantibhai H. Patel working as Prodution Manager at Unit-I, Vapi of the assessee company viz., M/s. Vapi Care Pharma Pvt. Ltd. was reco....
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....tion 143(3) of the IT Act. The ld CIT(A) observed that statistical analysis made by AO for raw material consumption is prima-facie incorrect. Assessing Officer has mainly doubted for assessment year 2013-14. However, from the perusal of the detailed record submitted by assessee, it is very clear that in considering the figure of purchase for AY 2013-14, AO has missed out purchase of consumables, packing materials and other taxable purchases. Similarly, the AO has not considered figure of packing material closing stock while considering total closing stock. However, in all other years, the AO has correctly added all these purchases in total amount of purchase. Therefore, the distortion in the ratios is compounded. From the perusal of balance sheet as found and seized during search proceedings, all these purchases are recorded therein. However, AO has missed the same in his calculation. Also ratios calculated for F.Y. 2013-14 is clearly not for entire year and in absence of closing stock and data for entire year, it cannot be calculated. But for discussing the ratios, the assessing officer has not pointed out a single instance to establish that purchase of one unit is recorded in oth....
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....i Unit i.e. AY 2008-09,AY 2009-10 and AY 2010-11; the case was accepted by the AO in scrutiny assessment and in absence of any incriminating material cannot be revisited as a change of opinion. The expense has been debited equally to both the Units in the subsequent years. Moreover, the Baddi Unit is entitled to Excise Duty exemption; the unit cost of electricity in Baddi is lower as compared to that of Vapi unit. Similarly, in F.Y. 2011-12 and 2012-13, AO has taken wrong figures of packing material and misunderstood expenses of packing and forwarding expenses as purchase of packing material. Here again for the earlier years, assessing officer has taken correct figures. However, he himself has deviated in the stated years and miscalculated cost of packing material. As observed earlier when the product mix of unit 1 and Unit 2 is completely different, the ratio of sale cost to packing cost gives no dependable indicator. Packing cost of a medicine selling for Rs. 400 per strip can be of the same range as of a strip selling for Rs. 20/-.Therefore, ld CIT(A) found merit in the argument of the assessee that in the export sales special packing care has to be taken, high qualify material ....
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....only this, the assessee is subjected to Excise Tax and Food and Drug Departments monitoring and frequent inspections. Specific instances of any deliberate or conclusive cross-booking of expenses have not been brought on record. The basis of rejection of accounts and additions are all based on assessee's record, which was all before the AOs when they assessed the case after scrutiny for Asst. Years 2008-09, 2009-10 and 2010-11, where the AO's had substantively accepted assessee's results. Therefore, Ld CIT(A) held that additions were based merely only on computation/comparison of financial cost to sales of both the units, without any incriminating evidence, ignoring the prominent facts about the different products mix at the two Units, without rebutting/dealing with the factual explanations of the assessee giving reasons for different profit margins at the two units, without bringing and iota of evidence to substantiate the allegation that the assessee is producing one product at one unit and shifting the same to other unit and showing sale at non-taxable entity and claiming expenses at taxable entity and reducing the taxable profit in Vapi; cannot be sustained. We have ....
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....n 132 of the Act, notice under section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. (ii) Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the LD AOs as a fresh exercise. (iii) The LD AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The LD AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". (iv) Although Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the LD AO which can be related to the evidence found, it does not mean that the asses....
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....s without considering the submission and documents filed by assessee during the assessment proceedings. From the perusal of Assessment Order it is very clear that, additions/disallowances made by Assessing Officer is not based on any such material found during the course of search and entire addition is based on computation/comparison of financial cost to sales of both the units. During the course of search proceeding as well as during the assessment proceedings, all the details, bills and voucher were filed by the assesse. Under section 153A of the Act, assessment has to be made in relation to material found during the search. If in relation to any assessment year, no incriminating material is found, no addition or disallowance can be made in relation to that assessment year in exercise of powers under section 153A in unabated assessment. As no incriminating material was found during the search and records maintained by assessee are verified and approved by different government authorities, hence assessing officer cannot make addition merely on the basis of assumptions. Based on this factual position, we dismiss the concise and summarized ground no.2 raised by the Revenue. 1....
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....rk undertaken. In response to the said show cause notice, the assessee company has submitted his reply on 22.03.2016. The reply of the assessee company was perused by the assessing officer. However, after going through the reply of the assessee, the assessing officer rejected the contention of the assessee and made an addition of Rs. 3,00,94,336/- on account of suppressed receipt from Job Work undertaken and is added back to the total income of the assessee. 18. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has allowed the appeal of the assessee. Aggrieved, by the order of the ld. CIT(A), the Revenue is in appeal before us. 19. Ld. DR for the Revenue submits that during the course of search certain documents were found and inventorised as pages 187 and 189 which prima facie pertained to job work being undertaken by the assessee. Further, during the course of search, statement of Shri Kamlesh Mehta, executive director of the assessee company viz., M/s. Vapi Care Pharma Pvt. Ltd. was recorded u/s 132(4), wherein he has stated that in Baddi unit there is no job work or L2L type of manufacturing carried out. H....
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.... rate at which the work was charged (Rs. 8 per strip). It is claimed that the bills raised were returned and the assessee consequently did not book the revenue. It is further claimed that, the dispute was finally settled in F.Y. 2009-10 (A.Y. 2010-11) @ Rs. 1 per strip; bills were reraised accordingly, and revenue was shown. It was also assessed as income in A.Y. 2010-11 in scrutiny u/s 143(3) of the Act, before the search took place. 22. About the first contentious issue i.e. (a) above, ld CIT(A) noticed that the amount shown in column 4 is the "Assessable Value" of the goods removed (there is a apparent mistake wherein the value as per Excise Invoice No. 1140 dated 14.03.2007 amounting to Rs. 51,22,215/- has been taken in F.Y. 2007-08 instead of F.Y. 2006-07; thereby increasing the value in F.Y. 2007-08 and decreasing it in F.Y. 2006-07 by like amount) from the factory premises of Unit 2. This value doesn't reflect the labour charges charged by the assessee to the manufacturer but it reflects the total assessable value of the goods removed from the factory as defined in Rule 11 of Central Excise Rules, 2002. The provisions of the said Rule 11 (1) of Central Excise Rules....
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.... companies. Clearly, in all these years the assessing officer has considered assessable value of goods manufactured on job work as job work income received. It is not the case that any of the client company has shown these 'job work' claimed by the assessee as outright purchases or that the raw material (ingredients of medicine) have not been purchased by the client party and supplied. Clearly, in such circumstances, the job work charges cannot be by any stretch of imagination be equivalent to the assessable value. Nor any client has been proved or even alleged to have shown the assessable value as the job work charges.Clearly, the AO has arbitrarily, without any factual or legal evidence or material on record has just erroneously compared the actual job work charges income as per Profit and Loss A/c and assessable value of the goods for which job work was performed by assessee as per tax invoices/papers found during the course of search. The AO has thereafter on skewed logic, worked out year wise difference between the two and alleged that the assessee has not offered labour income to this extent for taxation. This erroneous justification/basis of the addition made b....
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....nts, ledger accounts or even in the audit reports and have come to notice only because of details coming to the notice as a result of search. Therefore, ld CIT(A) as already held in para 9.3.A of his order, no addition is sustainable on the basis of assessable value of the goods manufactured on job work basis, taken as actual job work charges receivable. Therefore, the additions made in A.Y. 2011-12 and 2012-13 would be entirely deleted by ld CIT(A). The ground of appeal no. 3 for A.Y. 2008-09 was partly allowed by ld CIT(A) and ground no. 4 for A.Y. 2011-12 and A.Y. 2012-13 were allowed fully by ld CIT(A). 24. We note that another related issue raised during the appellate proceedings are against denial of deduction u/s 80IC on alleged Job Work Income i.e. ground no. 4 for Assessment Years 2008-09 and ground no. 5 in both A. Yrs. 2011-12 and 2012-13. The ld CIT(A) held that law is very clear that the deduction under section 80IC is allowable in respect of income arising from the goods manufactured in eligible industrial undertaking. Nowhere, it is stated that the goods must be manufactured by the assessee for himself or on his own behalf. The ld CIT(A) relied on the judgment of ....
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....verage price of per strip @ 0.32 paise of tablets and 0.80 paise for capsules, which is 0.32 +0.80/2, i.e. 0.56 paise, the difference of total amount of strips produced is worked out and which is not shown in the books of accounts of Unit-I, Vapi and same is reproduced as per the chart shown below : FY Total Strip Difference Minimum average strip price Total amount of difference Given by K H Patel In Tally, ERP9 Sales Register 2010-11 150848000 35828929 115019071 0.56 6,44,10,680 2011-12 145700000 22115629 123584371 0.56 6,92,07,248 2012-13 193190000 63928851 129261149 0.56 7,23,86,243 The assessing officer has analyzed the above chart and noted that production made in Unit-1 of Vapi Care Pharma Pvt. Ltd is much more, even when calculated at the average lowest price of per strip i.e. @ 0.56 paise, than what is shown in the statement of accounts and audit report filed with the return of income in all the three years i.e. F.Y. 2010-11, 2011-12 & 2012-13. The sales shown in the statement of accounts nearly matches with the sales shown as per Tally ERP9. Sales Register found in the back up taken of ....
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....different tables given by Mr. K H Patel and reproduced as image of the same data in assessment order that assessing officer has mistakenly taken data of tablets and capsules given by Mr. K H Patel as data of strips. As a strip contains number of tablets and/or capsules, this evident error in comparison naturally resulted in absurd differences. The ld CIT(A) observed that as the Units of production figures as given by Mr. K H Patel of other products like Syrups and Dry Syrups which was litres and Kgs matched with the Units of quantity in the sale figures from tally ERP register; naturally the AO did not find any difference in these items. In the case of Capsules and Tablets where each of the strips contained 2,4,6,10,30,100 and even more tablets/capsules; it is clear that Assessing Officer has compared total tablets/capsules (considering the same as total strips) with total number in actual quantity column without taking into account the difference in units in which production quantity was given and sale data is maintained. Based on the above data, the ld CIT(A) noted that the approach of the department in taking figures from the production manager and arbitrarily taking the figures....