9911796707
TMI Blog2014 (11) TMI 443X X X X Extracts X X X X X X X X Extracts X X X X ..... up, in the case of appellant company, for the year under reference, do not appear sustainable. Since assessee has not disclosed any income and AO could not establish any bogus purchases, estimation of bogus purchases as a percentage cannot be approved - Moreover there is no consistency also on this estimation as pointed out by CIT(A) - There is also no seized material to suggest that this company also resorted to bogus purchases – Decided against revenue. Claim of R & D expenditure disallowed – Expenses incurred for R&D activity or not – Held that:- CIT(A) rightly allowed the ground not only on the reason that there is no withdrawal of the claim u/s 35(1)(iv) by assessee company but also on the reason that similar issue was allowed in assessee's own appeal – wherein it has been held that the assessee is eligible for deduction u/s 35(1)(iv) and AO is accordingly directed to allow the claim – Decided against revenue. - ITA No. 786/Hyd/2012, 787/Hyd/2012, 788/Hyd/2012, 789/Hyd/2012 - - - Dated:- 15-10-2014 - B. Ramakotaiah, AM And Saktijit Dey, JM,JJ. For the Appellant : Mr P. Somasekhar Reddy For the Respondent : Mr S. Rama Rao ORDER Per: Bench: These app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rns are into the business of manufacturing and sale of bulk drugs and pharmaceutical formulations. As far as procurement of raw materials are concerned, a centralized mechanism was shown to have been adopted by the group concerns, with the procurement of raw materials made from various sources including the group of concerns located at Mumbai. The main raw materials that were shown to have purchased from the Bombay based firms are (a) methanol (b) caustic soda flakes (c) toluene (d) ethyl acetate (e) acetic acid (f) m.butanol (g) cyelo hexanone etc. The details of the total purchases and the purchases from the Bombay based concerns are indicated as under, to gauge the volumes of the businesses achieved by the group companies for various assessment years related to the search proceedings. Purchases from Mumbai concerns A.Y. Total purchases Shree Group Pooja Group Total (3+4) 2002-03 2201650390 -- 13701566 13701566 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial from various sources including the two concerns viz. Shree Group and Pooja Group located at Mumbai, for last several years allegation was that assessee obtained bogus purchases bills. Details of the total purchases and the purchases made by the assessee from the two group concerns at Mumbai, from whom the alleged fictitious purchases were shown to have been made, are as under : Cirex Pharmaceuticals P. Ltd., A.Y. Total Purchases Purchases from Shree Group Purchases from Pooja Group 2001-02 29321231 N.A. N.A. 2002-03 48478627 -- 353647 2003-04 120015902 604258 2696318 2004-05 166117677 - 4243012 2005-06 218693884 1716865 2006-07 333647159 1745633 2810913 2007-08 38142636 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 supplies, the procedure adopted in makingthe entry of such purchases in the stock register etc.. Similarly, statement was also recorded from Sri Srihari Reddy, Manager (Warehouse), working with M/s Hetero Drugs Limited on 10.11.2006, wherein he has indicated that there are certain bills which were received without the material and were entered into the stock register without verifying the quantities of the raw material received. In the process, Mr. Srihari Reddy also confirmed the correctness of the statement recorded from Sri A. Sudhakar, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atement 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 ₹ 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 quantification of fictitious purchases attributable to Shree Group, were based on the theory that few purchases were 'direct purchases' with purchases made from the manufacturers/importers directly and balance ordered by the traders from the importers/manufactures with goods delivered directly to the clients, wherein 55% of such purchases were treated as unverifiable by the Assessing Officer observing that certain bills were not fully verifiable and in case of direct purchases, entire purchases were treated as fict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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 details of production, with reference to books of accounts and books of accounts were not disturbed. 5.17 Regarding the reliance placed by the Assessing Officer on the statements of Mr. Rajesh K. Punamia of Pooja Group and Mr.Nishit J. Doshi of Shree Group at Mumbai, the basic fact remains that the statement from Mr. Punamia was recorded on 12.4.2006 and Mr. Nishit Doshi on 2.3.2007, both with a gap of few months from the date of search, in appellant's case i.e. 8.11.2006, which may make the things look ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 treated as fictitious. While treating a portion of 'Transit purchases' as fictitious, for the AY 2003-04 to 2006-07, the Assessing Officer has observed and concluded that 'on enquiry, it reveals that all transit purchases are not genuine and there is variation as regards to the rates and quantity to the extent of 50-55% of the bills' and quantified such bills through a common annexure marked as 'Annexure A' attached to the assessment order, which contain the details o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 quantificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 accommodate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated as 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 cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erabad in ITA No.398/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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
