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TMI Blog2021 (11) TMI 322X X X X Extracts X X X X X X X X Extracts X X X X ..... ny excess raw material purchase, out of books expenses, labour and other manufacturing expenses or receipt of unaccounted sales proceeds, has been found or brought on record even after a detailed search. The additions for alleged suppression have been made purely on selective misinterpretation, without dealing with the explanations/clarification of the production manager and the assessee, completely ignoring the record including audits/inspection by third party and in absence of any incriminating evidence.That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed. - IT(SS) A Nos.286 to 291/AHD/2016 - - - Dated:- 29-10-2021 - Shri Pawan Singh, JM And Dr. A. L. Saini, AM For the Revenue : Shri Ritesh Mishra, CIT(DR) For the Assessee : Shri Hardik Vora, Advocate ORDER PER DR. A. L. SAINI, ACCOUNTANT MEMBER: Captioned six appeals filed by the Revenue, pertaining to assessment years (AYs) 2008-09 to 2013-14, are directed against the separate orders passed by the Learned Commissioner of Income Tax (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o.3,4 and 5 in appeal no.286/Ahd/2016 for A.Y.2008- 09, ground no.4,5 and 6 in appeal no.289/Ahd/2016 and 290/Ahd/2016 for A.Y.2011-12 and 2012-13 respectively) 4. Addition based on unaccounted production at Unit-I, Vapi. (i) Addition of ₹ 6,44,10,680/- for AY.2011-12. (ii) Addition of ₹ 6,92,07,248/- for AY.2012-13. (iii) Addition of ₹ 7,23,86,243/- for AY.2013-14. (Note: These are ground no.3 in appeal no.289/Ahd/2016 and 290/Ahd/2016 for A.Y.2011-12 and 2012-13 and ground no.1 in appeal no.291/Ahd/2016 for A.Y.2013-14) 4. Now, we shall take these concise and summarized grounds one by one, as follows: 1. Addition on account of suppressed profit at Unit-I, Vapi and exaggerated profit at Unit-II, Baddi. (i) Addition of ₹ 2,61,43,552/- for AY.2008-09. (ii) Addition of ₹ 2,75,42,684/- for AY.2009-10. (iii) Addition of ₹ 1,80,06,302/- for aY.2010-11. (iv) Addition of ₹ 2,90,04,937/- for AY.2011-12. (v) Addition of ₹ 1,85,17,067/- for AY.2012-13. ( Note: This is ground no.1 in appeal no.286/Ahd/2016 to 290/Ahd2016) To adjudicate the concise and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on from it in submissions given after the search, seem like mere afterthought. Similarly, it is also observed that the Raw Material consumption percentage in unaudited books of A.Y.2013-14 of Unit-II is 40%, whereas it is claimed to be 69 to 70% in earlier years. Therefore, assessing officer observed that it is evidently clear that as all the books of accounts are maintained in central accounts office, Vapi stationed at office premises of M/s Veritas Bioventions Pvt Ltd, and as the Assessee was claiming deduction u/s 80IC of the I.T Act on the profits of Unit-II, Baddi, Himachal Pradesh, the books were manipulated for generating exaggerated profits. The assessee by claiming less expenditure, which is not in tune with the turnover of the said unit, by shifting expenditure between units. For better insight in to assessee modus operandi of manipulation of books of accounts to his convenience, year wise consumption of raw material, Packing material, Man power expenses, Financial charges and other expenses in both the units form F.Y. 2006-07 to 2012-13 was compared and ratios were calculated which are reproduced in the assessment order, vide page no.3 to 12 of the assessment order. In v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned Counsel for the assessee defended the order passed by the ld. CIT(A). 9. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that main issue before us relates to addition on account of alleged suppressed profit at Unit-1, Vapi and alleged exaggerated profits at Unit-11, Baddi; made for AY 2008-09 to 2012-13. We note that ld CIT(A) has directed the Assessing Officer to delete the addition holding that the addition is based merely on the computation /comparison on financial cost of sales of both the units, without any incriminating evidence, ignoring the prominent facts about the different products manufactured at the two units, without rebutting, dealing with the factual explanations of the assessee having reasons for different profit margins at the two units, without bringing any evidence to substantiate the allegation that the assessee is producing one product at one unit and shifting the same to other unit and showing sales at no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it are mainly subject to price control (ii) Unit 1 is mainly engaged in manufacturing of products on what is popularly known as Principal to Principal business, Leave and license business, manufacturing for Merchant Export business. Whereas, Unit 2 at Baddi is mainly engaged in manufacturing of products on Principal to Principal Line of business. Moreover, Unit 1 has approximately 28 to 30% of Merchant Exports sales whereas the Unit 2 has 100% domestic sales. The units are totally incomparable having no common products. The AO has neither rebutted nor disputed any of the assertions of the assessee. The ld CIT(A) noted that AO has taken an adverse view of the stamps which are pertaining to Baddi unit and found from Vapi unit. The assessee has claimed that stamps are kept for the purpose of administrative convenience only as all the directors are based at Vapi. The explanation offered is a plausible reason and not rebutted by material evidence. Only on the basis of these stamps it cannot be inferred that sales of one unit were being booked at other unit. No corroborative evidence of diversion of production of any product has been brought on record. The ld CIT(A) observed that in case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unit was established in year 1996-97 and hence majority of employees' staff have served the company for more than 7 to 10 years and are entitled to various employment benefit gratuity, retirement benefit. Even salary/wages of the employees keeps on rising year on year, whereas Baddi unit was setup in FY 2005-06, therefore the salary and wages structure of Baddi unit is low since it is a new unit and there are no retirement benefits in Baddi unit. Further Vapi unit is located at industrial area of Vapi Gujarat whereas Baddi Unit is located at backward area. Further there is no ES1C applicable in Baddi unit. Accordingly, manpower cost of both the units cannot be doubted and rejected without an iota of evidence of diversion of expenditure like expenditure of a staff working at Baddi booked at Vapi. 12. Therefore, ld CIT(A) observed that Assessing Officer has merely calculated ratio of financial cost to sales of both the units. The working ratio does not serve any purpose without normalizing for important variables like Product mix, conditions, etc. The AO has ignored material facts like the composition of raw material in both the units are different, the end products are diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) Assessment Year 2010-11. (iv) Assessment Year 2011-12. (v) Assessment Year 2012-13. ( Note: This is ground no.2 in appeal no.286/Ahd/2016 to 290/Ahd/2016) 14. Learned DR for the Revenue contends that during the course of search, certain incriminating material and documents were found and various additions were made by the assessing officer based on these incriminating materials. However, ld Counsel opposed the plea taken by the ld DR for the Revenue. We have heard both the parties and note that no incriminating material/documents were found during the course of search. We note that scrutiny assessment was already completed u/s 143(3) in the case of the assessee for earlier years and, therefore, the addition based on computation/comparison of financial cost to sales of the units, without any incriminating evidence and such addition in any way barred to be made in orders u/s 153A read with section 143(3) of the IT Act. Hence, unless there is any incriminating material found during the course of search relatable to such concluded year, the statute does not confer any power on the ld AO to disturb the findings given thereon and income determined ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the LD AO. (vii) Completed assessments can be interfered with by the LD AO while making the assessment under section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. 38. The present appeals concern AYs 2002-03, 2005-06 and 2006-07, on the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed. 15. We note that as per section 132 of the Act, search action can be carried out in case of person, who is believed to be the owner of income, money, bullion, jewellery, etc. which is not disclosed and assessment u/s 153A of the Act is subject to undisclosed income detected as a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 and 290/Ahd/2016 for A.Y.2011-12 and 2012-13 respectively) 17. So far concise ground no.3 is concerned; the relevant material facts are like this. 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. The 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 the Baddi unit, there is no job work or L2L type of manufacturing carried out. However, a verification of impounded material and impounded back up of Hard Drive found on the premises of Veritas Bioventions Pvt. Ltd, the assessing officer noted that job work was being undertaken in successive years at Baddi unit and same is indicated in the sales tax assessment forms of Baddi Unit which were found in different premises. Based on the entries found in the said documents, the labour income suppressed by Unit II of M/s Vapi Care Pharma in successive years has been quantified by AO, as below:- Sr. No. F.Y. Labour charges received as per audi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e premises of Veritas Bioventions Pvt. Ltd. reveals that job work was being undertaken in successive years at Baddi unit and same is indicated in the sales tax assessment forms of Baddi unit found in different premises. From the seized material and evidences found during the course of search and Mirror Images of data in Hard Disc /Scanned Copies of the documents based on which Labour Income/Job Work Income of the assessee through job work undertaken has been quantified. In view of the above facts and incriminating material found and seized during the course of search the addition on account of suppressed reciept from Job Work undertaken by the assessee was rightly treated as undsiclsoed income of the assessee by the Assessing Officer. 20. On the other hand, Learned Counsel for the assessee defended the order passed by the ld. CIT(A). 21. We have heard both the parties. We note that Assessing Officer has given following table, concluding in column 5 that assessee has not offered labour charges income of ₹ 24,12,34,011/- from Baddi Unit for the purpose of taxation. The year-wise chart is reproduced below : Sr. No. F.Y. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 2002, inter alia, reads as follows: No excisable goods shall be removed from a factory or a warehouse except under an invoice signed by the owner of the factory or his authorized agent..... And the provisions of the said Rule 17 (2) of Central Excise Rules, 2002, inter alia, reads as follows: The invoice shall be serially numbered and shall contain the registration number, address of the concerned Central Excise Division, name of the consignee, description, classification, time and date of removal, mode of transport and vehicle registration number, rate of duty, quantity and value, of goods and the duty payable thereon. From the plain reading of the provisions of Sub - Rule (1) and (2) it is amply clear that the assessee is duty bound to remove excisable goods manufactured in his f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /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 by the AO is held inherently misconceived and is rejected. 23. About the second issue (b) above, arising out of the assessee's claim that it had done job work, exclusively for Zydus Cadila Health Care Ltd. In F.Y. 2006-07 and 2007-08 and they have not booked the revenue because the client company, Zydus Cadila disputed the rate at which the work was charged (₹ 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. 2010-1 1) @ ₹ 1 per strip; bills were re-raised 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. Having gone through the facts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Hon`ble Delhi High Court in the case of Commissioner of Income-tax Vs. Delhi Press Patra Prakashan Ltd. [2013] 34 taxmann.com 3 and the Hon`ble Punjab and Haryana High Court in the case of Saimbhi Cycles Auto Industries, Ludhiana, 47 taxmann.com 369, wherein it held that deduction under section 80-IB is to be allowed even on income earned from job work carried out. Therefore, it is held that the deduction u/s 80IC of the Act would be allowable to the Baddi Unit even if it has done 'manufacturing' on job work (which is the case here) and not on its own account. Therefore, ld CIT(A) has allowed ground of appeal accordingly. Thus, we note that there is no infirmity in the order passed by the ld CIT(A). Thus, summarized and concise ground no.3 raised by the Revenue is allowed to the extent indic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the computer system found and seized/impounded during the course of search. In the crux of the matter, from all the above analysis of the material found and seized/impounded and statement taken of Shri Kantibhai H Patel during the course of search and post search proceedings, it is seen that Vapi Care Pharma P Ltd Unit-I, V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 of lakhs of capsules/tablets as strips; without any indication or clarification is not acceptable, not only this, the department against all natural justice failed to consider the explanations of the assessee and even the affidavit of the production manager clarifying the issue. 28. We note that assessee has pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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