DCIT, Central Circle-4, Hyderabad V. Symed Labs Limited, Hyderabad

CO 114/HYD/2012

• Counselvise Citation: [2014] 123 COUNSELVISE.COM (IT) 0037 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 24 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 15-10-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2003-2004
• Appeal Filed On: 21-08-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: THIS CONSOLIDATED
• Assessee Lawyers: ARE BEING DISPOSED OF; HEARD TOGETHER
• Keywords: Bogus purchase; Business income; Depreciation; Income from undisclosed sources; Search and seizure; Additional evidence; Wrong claim; Revised return; Capital expenditure
• Section: 143(3); 80HHC; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO. A.Y. APPELLANT RESPONDENT 703/HYD/2012 2003-04 M/S. SYMED LABS LTD., HYDERABAD PANAADCS5186M DCIT, CENTRAL CIRCLE-4, HYDERABAD. 704/HYD/2012 2004-05 705/HYD/2012 2005-06 706/HYD/2012 2006-07 707/HYD/2012 2007-08 ITA. NO. A. Y. APPELLANT RESPONDENT 635/HYD/2012 2003-04 DCIT, CENTRAL CIRCLE-4, HYDERABAD. M/S. SYMED LABS LTD., HYDERABAD. PANAADCS5186M 636/HYD/2012 2004-05 637/HYD/2012 2005-06 638/HYD/2012 2006-07 CO.NO. ITA.NO. A.Y. CROSS OBJECTOR RESPONDENT 114/H/12 635/H/12 2003-04 M/S. SYMED LABS LTD., HYDERABAD PANAADCS5186M DCIT, CENTRAL CIRCLE-4, HYDERABAD. 115/H/12 636/H/12 2004-05 116/H/12 637/H/12 2005-06 117/H/12 638/H/12 2006-07 2 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. DATE OF HEARING : 07.08.2014 DATE OF PRONOUNCEMENT : 15.10.2014 ORDER PER BENCH: APPEALS ARE FILED BY ASSESSEE AGAINST THE ORD ERS OF THE CIT(A)-VII, HYDERABAD DATED 17.2.2012 FOR TH E ASSESSMENT YEARS 2003-2004 TO 2007-08. REVENUE HAS ALSO FILED APPEALS AGAINST THE ORDERS OF THE CIT(A) FOR THE A.YS 2003- 04 TO 2006-07 AGAINST WHICH ASSESSEE TOO FILED CROS S OBJECTIONS. SINCE, COMMON ISSUES ARE INVOLVED IN AL L THESE APPEALS, THEY ARE CLUBBED AND HEARD TOGETHER AND AR E BEING DISPOSED OF BY THIS CONSOLIDATED ORDER. 2. WE HAVE HEARD LD COUNSEL FOR ASSESSEE AND LD. CIT DR. BRIEFLY STATED, ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF BULK DRUGS AND FORMULA TIONS AND OPERATING ITS MANUFACTURING ACTIVITIES THROUGH ITS MANUFACTURING UNITS WITH ITS CORPORATE OFFICE LOCAT ED AT 8-3- 166/7/1, ERRAGADDA, HYDERABAD. THE SEARCH & SEIZURE PROCEEDINGS HAVE TAKEN PLACE ON THE GROUP, CONSISTI NG OF THE FOLLOWING GROUP CONCERNS, ON 10.11.2006; (I) HETERO DRUGS LIMITED. (II) HETERO LABS LIMITED. (III) SYMED LABS LIMITED. (IV) CIREX PHARMACEUTICALS PVT LTD. FOR ASSESSEE : MR. S. RAMA RAO FOR REVENUE : MR. P. SOMASEKHAR REDDY 3 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. THE HETERO GROUP OF CONCERNS AS REFERRED ABOVE, ARE INTO THE BUSINESS OF MANUFACTURING AND SALE OF BULK DRUGS AN D PHARMACEUTICAL FORMULATIONS. CONSEQUENT TO THE NOTI CES ISSUED ASSESSEE FILED REVISED RETURNS ADMITTING ADD ITIONAL INCOMES. AO COMPLETED ASSESSMENTS ESTIMATING BOGUS PURCHASES AND MAKING OTHER ADDITIONS. DEDUCTIONS U/ S 80HHC AND 80IB WERE RECOMPUTED. MANY OF THE ISSUES ON DEDUCTIONS AROSE IN ASSESSMENTS COMPLETED EARLIER U /S 143(3). LD CIT(A) GAVE PARTIAL RELIEF. THEREFORE ASSESSEE A ND REVENUE ARE IN APPEAL. IN ALL THE ASSESSEES APPEALS THE M AJOR GROUNDS ARE WITH REFERENCE TO NON-ALLOWANCE OF 80IB DEDUCTI ON ON OTHER INCOMES EARNED BY ASSESSEE. THE OTHER CONTE NTION GENERALLY IN ALL THE YEARS IS THAT A.O. HAS EXCLUDE D THE 80IB DEDUCTION WHILE CALCULATING THE DEDUCTION UNDER SEC TION 80HHC. THERE ARE OTHER GROUNDS WHICH ARE DEALT WITH SEPARATELY. ISSUE NO.1 : ALLOWANCE OF DEDUCTION UNDER SECTIO N 80IB ON OTHER INCOMES. 3. ASSESSEE HAS EARNED INCOMES, SHOWN IN THE P & L ACCOUNT AS THE OTHER INCOME, WHICH WERE EXCLUDED BY THE A.O. FROM THE COMPUTATION OF 80IB. MANY OF THE ISSUES WE RE CONTESTED IN THE ORIGINAL ASSESSMENT AND IN THE CON SEQUENTIAL PROCEEDINGS AFTER SEARCH AND SEIZURE OPERATIONS, MO ST OF THE ISSUES WERE REPEATED BY A.O. AS WAS DONE IN THE ORI GINAL ASSESSMENT. SINCE MANY OF THE ISSUES HAVE CRYSTALLI ZED BY THE ORDERS OF LD. CIT(A)/ITAT, LD. CIT(A) FOLLOWING THE SAME HAS NOT ALLOWED THE DEDUCTIONS. FOR THE RECORD, THE INC OMES EARNED IN VARIOUS ASSESSMENT YEARS SHOWN AS OTHER INCOME ARE AS UNDER : 4 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. OTHER INCOME A.Y. 2003-04 RS. A.Y. 2004-05 RS. A.Y. 2005-06 RS. A.Y. 2006-07 RS. A.Y. 2007- 08 RS. INTEREST ON L.C. MARGIN MONEY 91,071 N.A. 1,46,523 69,450 1,14,163 INTEREST ON I.T. REFUND N.A. 2,19,341 99,744 50,116 N.A. INTEREST ON DEPOSIT WITH APSEB 6,747 16,271 41,839 82,767 1,08,288 INCOME FROM FOREIGN EXCHANGE FLUCTUATIONS 68,217 N.A. N.A. N.A. N.A. MISCELLANEOUS INCOME 9,319 N.A. N.A. N.A. 451 INTEREST FROM SUPPLIERS N.A. N.A. 4,734 N.A. N.A. TOTAL RS. 1,75,354 2,35,612 2,92,840 2,19,233 2,22,902 4. AS SEEN FROM THE ORDERS, THESE ISSUES WERE ALRE ADY DECIDED IN THE ORIGINAL ASSESSMENTS AND THEREFORE, THIS FORUM CANNOT RE-ADJUDICATE THE ISSUE. IN CASE, THERE ARE NO ORDERS ON ANY ISSUE IN ANY OF THE YEARS, AO IS DIRECTED TO FO LLOW THE SAME DIRECTION/ PRINCIPLES DECIDED IN ANY OF THE YEARS O N SAME NATURE OF INCOME IN DECIDING THE ISSUE. 5. AS FAR AS ASSESSEES ALTERNATE CONTENTION THAT ONLY NET INCOME CAN BE CONSIDERED AND NOT THE GROSS INCO ME, EVEN THOUGH THERE IS LEGAL PRINCIPLES INVOLVED IN IT, WH ICH WERE UPHELD BY HONBLE APEX COURT IN THE CASE OF ACG ASS OCIATED CAPSULES P. LTD., VS. CIT 343 ITR 89 GIVEN IN THE C ONTEXT OF 5 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. 80HHC, THE SAME PRINCIPLES CANNOT BE DIRECTED TO BE APPLIED HERE AS THESE ISSUES WERE ALREADY DECIDED IN THE EA RLIER APPEALS . AS WE FIND FROM SOME OF THE ORDERS PLACED ON RECORD BY ASSESSEE THE ISSUE OF EXCLUDING GROSS INT EREST AND OTHER INCOME FROM THE PROFITS OF BUSINESS FOR T HE PURPOSE OF COMPUTATION AND DEDUCTION UNDER SECTION 80HHC WERE DECIDED BY THE COORDINATE BENCH OF THE TRIBUNAL IN ITA.NO.74,75 AND 76/HYD/2007 FOR ASSESSMENT YEARS 2002-03 TO 2004-05 IN THE CASE OF M/S. HETERO LABS LTD., WHEREIN THE ITAT VIDE PARA 1 4 OF ITS ORDER HAS DECIDED THE ISSUE AS UNDER : 14. WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE APEX COURT IN THE C ASE OF ACG ASSOCIATED CAPSULES P. LTD. VS. CIT (2012-TIOL- 13- SC-IT-LB) WHEREIN THE APEX COURT HAS HELD THAT NETT ING OF INCOME FROM EXPENDITURE IS ALLOWED UNDER EXPLANATIO N (BAA) TO 80HCC I.E., ONLY 90% OF THE NET INCOME FRO M OF THE NATURE MENTIONED IN CLAUSE (1) OF EXPLANATION BAA T O 80HHC WHICH IS ACTUALLY INCLUDED IN THE PROFITS OF THE ASSESSEE IS TO BE DEDUCTED FROM THE PROFITS OF THE ASSESSEE FOR DETERMINING PROFITS OF THE BUSINESS. WE THERE FORE SET ASIDE THE ISSUE TO THE FILE OF ASSESSING OFFICER TO RE-COMPUTE THE RELIEF U/S.80HHC FOLLOWING THE RATIO OF THE APE X COURT DECISION . 6. THEREFORE, A.O. IS DIRECTED TO FOLLOW THE ORDER S OF THE APPELLATE AUTHORITIES ON THE ISSUE. IN CASE NO SUCH INSTRUCTIONS/DIRECTIONS WERE GIVEN IN ANY YEAR, AO IS DIRECTED TO FOLLOW THE PRINCIPLE AND EXCLUDE ONLY NET INCOME , SUBJECT TO ASSESSEE FURNISHING SUCH EXPENDITURE DETAILS, WHILE COMPUTING THE DEDUCTIONS. WITH THESE DIRECTIONS, WE PARTLY AL LOW THE FOLLOWING GROUNDS INCLUDING THE ALTERNATE GROUND RA ISED ON THIS ISSUE IN THE FOLLOWING APPEALS. 6 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. IN ITA.NO.703/HYD/2012 GROUNDS NO.2 TO 5 IN ITA.NO.704/HYD/2012 GROUNDS NO.2 AND 3 IN ITA.NO.705/HYD/2012 GROUNDS NO.2 AND 3 IN ITA.NO.706/HYD/2012 GROUNDS NO.2, 3 AND 4 IN ITA.NO.707/HYD/2012 GROUNDS NO.2, 3, 4 AND 5 ISSUE NO. 2 : ALLOWING DEDUCTION UNDER SECTION 80HH C AFTER REDUCING DEDUCTION UNDER SECTION 80IB. 7. THIS ISSUE HAS BEEN RAISED IN A.Y. 2003-04, 2004- 05 AND 2005-06 (ITA.NO.703, 704 & 705/HYD/2012). W ITH RESPECT TO THIS GROUND, WHILE COMPUTING THE RELIEF U/S 80HHC, THE ASSESSING OFFICER HAD REDUCED FROM THE PROFITS AND GAINS OF THE BUSINESS, THE DEDUCTION COMPUTED U/S 80IB. IN A SSESSEE'S GROUP CASE IN ITA NO 74 TO 76/HYD/2007 DATED 30.3.2 012 FOR THE AY 2002-03 TO 2004-05, THE CLAIM OF ASSESSEE WA S ALLOWED FOLLOWING THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF ASSOCIATED CAPSULES P LTD V DCIT (332 ITR 42) WHERE IN IT HAS BEEN HELD THAT THE TRIBUNAL WAS NOT RIGHT IN HOLDIN G THAT SECTION 80-IA(9) OF THE ACT, MANDATES THAT THE AMOU NT OF PROFITS ALLOWED AS DEDUCTION UNDER SECTION 80-IA(1) OF THE ACT HAVE TO BE REDUCED FROM THE PROFITS OF THE BUSINESS OF THE UNDERTAKING WHILE COMPUTING DEDUCTION UNDER ANY OTH ER PROVISIONS UNDER HEADING C IN CHAPTER VI-A OF THE A CT'. T HE COORDINATE BENCH IN ITA.NO.74 TO 76/HYD/2007 IN THE CASE OF HETERO LABS LTD., (SUPRA) HAS DECIDED THE I SSUE VIDE PARAS 17 AND 18 AS UNDER : 17. WE FIND THAT THIS ISSUE IS COVERED BY THE DEC ISION OF ASSOCIATED CAPSULES P LTD. VS. DCIT (332 ITR 42 (BO M. HC), WHEREIN IT HAS BEEN HELD : 7 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. THE TRIBUNAL WAS NOT RIGHT IN HOLDING THAT SECTION 80IA(9) OF THE ACT, MANDATES THAT THE AMOUNT OF PROFITS ALL OWED AS DEDUCTION U/S 80IA(1) OF THE ACT HAVE TO BE REDUCED FROM THE PROFITS OF THE BUSINESS OF THE UNDERTAKING WHIL E COMPUTING DEDUCTION UNDER ANY OTHER PROVISIONS UNDE R HEADING C IN CHAPTER VI-A OF THE ACT. 18. RESPECTFULLY FOLLOWING THE DECISION OF THE MUM BAI HIGH COURT WE HOLD THAT WHILE COMPUTING THE RELIEF U/S. 80HHC THE DEDUCTION ALLOWABLE U/S.80IB NEED NOT BE DEDUCTED FROM BUSINESS PROFITS. 7.1 SINCE, THIS ISSUE IS ALREADY DECIDED IN FA VOUR OF ASSESSEE IN A GROUP CASE, WE DO NOT HAVE TO ADJUDIC ATE IT AFRESH. A.O. IS DIRECTED TO FOLLOW INSTRUCTIONS ON THIS IN ALL THE YEARS CONCERNED. ACCORDINGLY THE FOLLOWING GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES. ITA.NO. 703/HYD/2012 GROUND NO.6 ITA.NO. 704/HYD/2012 GROUND NO.4 ITA.NO.705/HYD/2012 GROUND NO.5 ADDITIONAL GROUND : 8. IN THE COURSE OF APPEAL PROCEEDINGS, ASSESSEE HAS RAISED ADDITIONAL GROUND IN ITA.NO.703 , 704, 705/HYD/2012 FOR THE A.YS. 2003-04 TO 2005-06. ASSESSEE HAS DECLARED ADDITIONAL INCOMES CONSEQUENT TO SEARCHES AND A.O. AND LD. CIT(A) TREATED THE ADDITIONAL INCOMES AS INCOME FROM OTHER SOURCES CONSEQUENTLY, DEDUCTION UNDER SECTION 80HHC AND 80IB ARE NOT ALLOWED. ASSESSEE HAS RAISED ADDITIONA L GROUNDS AND SUBMITTED DETAILED NOTE AS UNDER : 8 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. THE ASSESSEE HUMBLY SUBMITS THAT THE ADDITIONAL AMOUNTS OFFERED BY THE ASSESSEE HEREIN AND ADDED BY THE ASSESSING OFFICER FORMS PART OF THE INCOME FROM BUSINESS AND NOT INCOME FROM OTHER SOURCES. THE ASSESSEE SUBMITS THAT THE ADDITIONAL INCOME WAS ACCEPTED BY THE CMD DURING THE COURSE OF SEARCH AND SEIZURE OPERATIONS. THE STATEMENT IS AT PAGE NOS. 11 TO 13 OF THE PAPER BOOK WHICH CLEARLY INDICATES THAT ADDITIONAL INCOME FORMS PART OF THE INCOME FROM BUSINESS AND NOT INCOME FROM OTHER SOURCES. FURTHER, EVEN THE ASSESSING OFFICER WORKED OUT THE DISALLOWANCE FROM THE PURCHASES AND, THEREFORE, ARMS PART OF BUSINESS INCOME. THE CMD ALSO OFFERED THE ADDITIONAL INCOME ON THE GROUND TH AT THERE MAY BE SOME EXCESSIVE CLAIM OF PURCHASES. THEREFORE, THE ADDITION REPRESENTS INCOME FROM BUSINESS. THE SAID AMOUNT CANNOT BE ASSESSED SEPARATELY AS INCOME FROM OTHER SOURCES BUT IS TO B E INCLUDED 3S FORMING PART OF THE BUSINESS INCOME OF THE ASSESSEE HEREIN. THE ASSESSEE SUBMITS THAT ONCE THE ADDITIONAL INCOME FORMS PART OF THE BUSINESS INCOME, THE SAID AMOUNT IS ALLOWABLE FOR DEDUCTION U/ S 80HHC AND 80LB OF THE I.T. ACT. IN THIS REGARD, THE ASSESSEE SUBMITS THAT FOR THE PURPOSE OF 80HHC, THE PROFITS OF THE BUSINESS IS DEFINED BY SEC.80HHC EXPLANATION (BAA). ACCORDING TO THE SAID DEFINITION, THE PROFIT S OF THE BUSINESS MEANS THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE SAID HEAD. THE WORD 'COMPUTED' WOULD INDICATE THAT THE AMOUNT ARRIVED AT AFTER MAKING ADDITIONS. THEREFORE, THE ASSESSING OFFICER AND THE CIT (A) ARE NOT JUSTIFIED IN EXCLUDING THE SAID SUM FOR THE PURPOSE OF WORKING 80HHC. IN SO FAR AS 80I B IS CONCERNED, THE DEDUCTION IS TO BE ALLOWED FROM THE GROSS TOTAL INCOME AND IT IS TO BE COMPUTED WITH REFERENCE TO THE PROFITS AND GAINS DERIVED FROM THE U NDERTAKING, THE PROFITS AND GAINS WOULD INDICATE THE AMOUNT COMPUTED UNDER THE HEAD BUSINESS. FURTHER, THE PROVISIONS OF SEC.80IB DEF INES THE WORD TOTAL INCOME TO INCLUDE ALL THE INCOMES ASSESSABLE AFTER CONSIDERING ALL THE PROVISIONS OF THE ACT BEFORE ALLOWING DEDUCTION UNDER CHAPTER VIA. THEREFORE, THE A.O. AND THE LD. CIT(A) ARE NOT JUST IFIED 9 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. IN REDUCING SUCH ADDITIONS FOR THE PURPOSE OF WORKI NG 80IB OF THE ACT. THE ASSESSEE PRAYS THE HONBLE TRIBUNAL TO HOLD THAT THE ADDITIONAL INCOME REPRESENTS THE INCO ME FROM BUSINESS AND IS ENTITLED FOR DEDUCTION U/S.80H HC AND 80IB OF THE ACT. 9. AFTER CONSIDERING RIVAL CONTENTIONS, WE NOTICE THAT THE LD. CIT(A) DELETED THE ADDITIONS MADE AS B OGUS PURCHASES SEPARATELY MADE BY A.O. WHILE DIRECTING T HE A.O. TO ACCEPT THE INCOMES OFFERED BY ASSESSEE AS OTHER INCOME OF ASSESSEE. IT WAS THE CONTENTION THAT THI S INCOME ALSO SHOULD BE TREATED AS BUSINESS INCOME AN D DEDUCTIONS UNDER SECTION 80HHC AND 80IB ARE TO BE ALLOWED ON THIS. THIS CONTENTIONS WERE NOT RAISED E ITHER BEFORE THE A.O. OR BEFORE LD. CIT(A) AND RAISED FOR THE FIRST TIME AS ADDITIONAL GROUND BEFORE US. IN VIEW OF THI S, WHILE ADMITTING LEGAL GROUND THE ISSUE IS RESTORED TO THE FILE OF A.O. TO EXAMINE WHETHER THE INCOMES CAN BE CONSIDER ED AS INCOME OF THE BUSINESS ELIGIBLE FOR DEDUCTION OF ELIGIBLE UNITS/ UNDERTAKING UNDER SECTION 80HHC OR 80IB AS T HE CASE MAY BE, SUBJECT TO SATISFYING THE CONDITIONS T HEREIN. THEREFORE, THE ISSUE PERTAINING TO COMPUTATION OF I NCOME ALONG WITH ELIGIBILITY IS RESTORED TO THE FILE OF A .O. FOR FRESH CONSIDERATION AS PER FACTS AND LAW. NEEDLESS TO SAY THAT ASSESSEE SHOULD BE GIVEN DUE OPPORTUNITY OF HEARING . WITH THIS THE ADDITIONAL GROUNDS RAISED IN ITA.NO.703, 704 AND 705/HYD/2012 ARE ALLOWED FOR STATISTICAL PURPOSES. 10 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. 10. IN THE RESULT, ITA.NO.703, 704, 705, 706 AND 707/HYD/2012 OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. REVENUE APPEALS : ITA.NO.635/HYD/2012 AY 2003-04 ITA.NO.636/HYD/2012 AY 2004-05 ITA.NO.637/HYD/2012 AY 2005-06 ITA.NO.638/HYD/2012 AY 2006-07 11. THESE 4 APPEALS ARE BY REVENUE FOR ASSESSMENT YEARS 2003-04 TO 2006-07. REVENUE HAS RAISED COMMON GROUNDS 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 ASSESSEES UNVERIFIABLE PURCHASES CLAIM THAT TOO WITHOUT ANY VERIFIABLE PROOFS/JUSTIFICATION FOR THE CONTRADICTION OF SEARCH DAY CONFESSION. 4. THE LD. CIT(A) OUGHT TO HAVE UPHELD THE DISALLOWANCE MADE ON ACCOUNT OF ASSESSEES WRONG CLAIM OF R & D CAPITAL EXPENDITURE AS THE SAME IS NOT INCURRED FOR R & D ACTIVITIES OF THE ASSESSEE ONLY AT ITS APPROVED LABORATORY. 12. COMING TO GROUNDS NO. 2 AND 3 IN ALL THE YEARS THE FACTS ARE AS UNDER : 11 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. 12.1 BRIEFLY STATED, HETERO GROUP OF CONCERNS ARE INTO THE BUSINESS OF MANUFACTURING AND SALE OF BULK DRUG S AND PHARMACEUTICAL FORMULATIONS. AS FAR AS PROCUREMENT OF RAW MATERIALS ARE CONCERNED, A CENTRALIZED MECHANISM WA S SHOWN TO HAVE BEEN ADOPTED BY THE GROUP CONCERNS, WITH TH E PROCUREMENT OF RAW MATERIALS MADE FROM VARIOUS SOUR CES INCLUDING THE GROUP OF CONCERNS LOCATED AT MUMBAI. THE MAIN RAW MATERIALS THAT WERE SHOWN TO HAVE PURCHASED FRO M THE BOMBAY BASED FIRMS ARE (A) METHANOL (B) CAUSTIC SOD A FLAKES (C) TOLUENE (D) ETHYL ACETATE (E) ACETIC ACID (F) M.BUT ANOL (G) CYELO HEXANONE ETC. THE DETAILS OF THE TOTAL PURCHASES AN D THE PURCHASES FROM THE BOMBAY BASED CONCERNS ARE INDICA TED AS UNDER, TO GAUGE THE VOLUMES OF THE BUSINESSES ACHIE VED BY THE GROUP COMPANIES FOR VARIOUS ASSESSMENT YEARS RELATE D TO THE SEARCH PROCEEDINGS. PURCHASES FROM MUMBAI CONCERNS A.Y. TOTAL PURCHASES SHREE GROUP POOJA GROUP TOTAL (3+4) 2002-03 2201650390 -- 13701566 13701566 2003-04 1896852370 31628717 52770523 84399240 2004-05 3133018520 41328562 143539030 184867592 2005-06 4093073397 62614788 124308602 186923390 2006-07 6626050454 151419013 145744355 297163368 2007 - 08 7995503539 26087710 2563878 28651588 TOTAL 27850987818 313078790 482627954 795706744 12.2. DURING THE COURSE OF THE SEARCH/SURVEY PROCEEDINGS CONDUCTED AT THE GROUP CONCERNS, IT WAS ALLEGED TO HAVE FOUND SOME EVIDENCE, THAT THE ASSESSEE COMPANY ALONG WITH THE OTHER GROUP CONCERNS WERE INDULGING IN INF LATION OF 12 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. PURCHASES OF THE RAW MATERIAL, SPECIALLY THROUGH TW O GROUPS OF CONCERNS VIZ. SHREE GROUP AND POOJA GROUP LOCATED A T MUMBAI. IN ARRIVING AT THE SAID CONCLUSION, THE ASS ESSING OFFICER HAS RELIED ON THE STATEMENTS RECORDED FROM THE SENIOR EMPLOYEES OF THE GROUP CONCERNS ON THE DAY OF SEARC H, WHEREIN IT WAS STATED BY THEM THAT A PORTION OF PURCHASES O F 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 RE CORDED FROM THE TWO ASSOCIATED PERSONS OF THE GROUPS MENTI ONED ABOVE LOCATED AT MUMBAI ON TWO DIFFERENT DATES, DUR ING THE COURSE OF SURVEY/SEARCH CONDUCTED IN THEIR RESPECTI VE BUSINESS PREMISES, WHEREIN IT WAS SHOWN TO HAVE INDICATED TH AT THE SAID PARTIES WERE ISSUING CERTAIN BOGUS SALE BILLS TO TH E HETERO GROUP COMPANIES. DURING THE COURSE OF SEARCH & SEIZ URE PROCEEDINGS, THE CMD OF THE GROUP CONCERNS WAS EXAM INED ON OATH WHO HAVE MADE A DISCLOSURE OF ADDITIONAL INCOM E OF RS.25.00 CRORES FOR THE GROUP CONCERNS, BY TAKING C ERTAIN OMISSIONS COMMITTED BY THE PAID EMPLOYEES/MANAGERS OF THE COMPANIES INTO CONSIDERATION. THE DETAILS OF THE DI SCLOSURE ARE AS UNDER : AY 03-04 AY 04-05 AY 05-06 AY 06-07 TOTAL SYMED LABS LTD., 10000000 7000000 18000000 20000000 55000000 HETERO DRUGS LTD., 5000000 13000000 21000000 80000000 119000000 HETERO LABS LTD., 5000000 10000000 21000000 40000000 76000000 TOTAL 20000000 30000000 60000000 140000000 250000000 13 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. 12.3 AS COULD BE SEEN FROM THE ABOVE CHART, T HE DISCLOSURES WERE MADE IN THE NAMES OF THE THREE COM PANIES FOR AYS 2003-04 TO 2006-07 EXCLUDING THE ASSESSMENT YEA R 2007- 08 AND IN CASE OF M/S CIREX PHARMACEUTICALS PVT LTD , THE OTHER CONCERN OF THE GROUP, NO DISCLOSURES WERE MADE. 12.4. THE ASSESSEE COMPANY IS INVOLVED IN MANUFACTURING AND SALE OF BULK DRUGS AND PHARMACEUT ICAL FORMULATIONS AND WHILE PROCURING THE RAW MATERIAL F ROM VARIOUS SOURCES INCLUDING THE TWO CONCERNS VIZ. SHR EE GROUP AND POOJA GROUP LOCATED AT MUMBAI, FOR LAST SEVERAL YEARS ALLEGATION WAS THAT ASSESSEE OBTAINED BOGUS PURCHAS ES BILLS. DETAILS OF THE TOTAL PURCHASES AND THE PURCHASES MA DE BY THE ASSESSEE FROM THE TWO GROUP CONCERNS AT MUMBAI, FRO M WHOM THE ALLEGED FICTITIOUS PURCHASES WERE SHOWN TO HAVE BEEN MADE, ARE AS UNDER : A.Y. TOTAL PURCHASES PURCHASES FROM SHREE GROUP PURCHASES FROM POOJA GROUP 2002-03 109234278 -- 11756264 2003-04 132221195 16174521 28919185 2004-05 206696051 8421432 40016533 2005-06 214020180 18588302 34385348 2006-07 230837301 21018672 45730917 2007-08 393464744 459015 849711 TOTAL 1345906653 64661942 161657958 14 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. 12.5. THE ASSESSEE COMPANY HAS FILED ITS RETURN OF INCOME ON 18.6.2007 ADMITTING THE TOTAL INCOME OF RS.2,95,34,060 INCLUDING THE ADDITIONAL INCOME OF RS.1,00,00,000 DECLARED U/S 132(4) OF THE I.T. ACT, 1961. WHILE COMPUTING THE TAXABLE INCOME AND FINALIZING THE ASS ESSMENT ORDER, THE ASSESSING OFFICER HAS MADE CERTAIN ADDIT IONS AND DISALLOWANCES AND THE NOTABLE AMONG THEM BEING THE ADDITION OF RS.1,21,84,094 TREATING A PORTION OF PURCHASES M ADE FROM BOMBAY GROUP CONCERNS, AS FICTITIOUS PURCHASES. 12.6. ASSESSING OFFICER HAS MADE ADDITIONS ON ACCOUNT OF FICTITIOUS/UNAUTHENTIC PURCHASES AND WHI LE TAXING THE SAME DECLARED INCOMES HAVE NOT BEEN CONSIDERED. LD. CIT(A) ON THE CONTENTIONS OF THE ASSESSEE ANALYSED THE ISSUE, EXAMINED THE DETAILED SUBMISSIONS PLACED ON RECORD AND CONTENTIONS OF THE ASSESSEE AND HELD THAT DISALLOWANCE ON ESTIMATE BAS IS AND DISALLOWANCE ON PERCENTAGE BASIS CANNOT BE UPHELD. SO, WHILE CANCELLING THE DISALLOWANCE MADE BY A.O. ON THE PURCHASES, THE DIRECTION WAS GIVEN TO T AX ADDITIONALLY DECLARED INCOME OF ASSESSEE IN RESPECT IVE ASSESSMENT YEARS. HIS DETAILED ORDERS IN PARA 5.13 TO 5.26 ARE AS UNDER : 5.13. THE FINDINGS OF THE ASSESSING OFFICER AND THE WRITTEN SUBMISSIONS OF THE APPELLANT WITH REFERENCE TO THE NOTE GIVEN ON FICTITIOUS PURCHASES, ARE PERUSED. AS COULD BE SEEN FROM THE FACTS OF THE CASE, THE APPELLANT COMP ANY IS INTO THE BUSINESS OF MANUFACTURING AND SALE OF BULK DRUGS AND PHARMACEUTICAL FORMULATIONS FOR MANY YEARS, WIT H HIGH VOLUMES OF TURNOVERS, AS INDICATED IN THE FOREGOING PARAGRAPHS OF THIS ORDER. THE APPELLANT COMPANY WAS BUYING THE RAW MATERIAL AS REFERRED FROM VARIOUS SO URCES INCLUDING THE TWO GROUP OF COMPANIES/CONCERNS VIZ. SHREE 15 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. GROUP AND POOJA GROUP, LOCATED AT MUMBAI, WHERE SURVEY/SEARCH PROCEEDINGS WERE CONDUCTED AT TWO DIF FERENT PLACES AND TIMES, WHEREIN IT WAS STATED BY THE REPRESENTATIVES OF THE SAID CONCERNS VIZ. MR.NISHIT J. DOSHI AND MR.RAJESH K.PUNAMIA AS PER WHOM CERTAIN BILLS W ERE ORGANIZED BY THEM TO THE FOUR HETERO GROUP OF COMPA NIES VIZ. M/S SYMED LABS LTD. M/S HETERO DRUGS LTD. M/S HETERO LABS LTD AND M/S CIREX PHARMACEUTICALS PVT L TD. DURING THE PERIOD OF FINANCIAL YEAR 2002-03 TO 2006 -07, WITHOUT SUPPLYING THE MATERIAL. MEANWHILE, SEARCH & SEIZURE PROCEEDINGS HAVE TAKEN PLACE IN THE CASE OF HETERO GROUP OF COMPANIES INITIATED ON 10.11.2006 AND CONC LUDED ON 8.1.2007, DURING WHICH STATEMENTS WERE RECORDED FROM THE SENIOR EMPLOYEES OF THE GROUP CONCERNS, A SECUR ITY GUARD AT FACTORY PREMISES OF M/S HETERO LABS LTD.AP ART FROM THE STATEMENTS OF SRI B. PARTHASARATHY REDDY, CHAIRMAN OF THE GROUP COMPANIES RECORDED ON 8.1.20 07. IN THE INITIAL STATEMENT RECORDED FROM SRI B.RAMACH ANDRA REDDY, VICE-PRESIDENT (MATERIALS), WORKING FOR M/S HETERO LABS LTD, ON 10.11.2006, IT WAS STATED BY HIM ON EN QUIRY THAT THERE ARE CERTAIN BILLS WHICH WERE ACCOMMODATE D BY THE TWO BOMBAY BASED CONCERNS WHILE INDICATING THE PERIOD OF SUCH SUPPLIES, THE PROCEDURE ADOPTED IN MAKING T HE 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 THA T THERE ARE CERTAIN BILLS WHICH WERE RECEIVED WITHOUT THE M ATERIAL AND WERE ENTERED INTO THE STOCK REGISTER WITHOUT VE RIFYING 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, A SECURITY GUARD, POSTED AT HETERO LABS LTD, AS REGARDS TO THE PROCED URE ADOPTED IN ENTERING THE BILLS THAT WERE NOT ACCOMPA NIED BY THE MATERIAL. IT IS ALSO A FACT THAT WHILE GIVING T HE STATEMENT MR. RAMACHANDRA REDDY AND SRI SRIHARI REDDY WERE REFERRING TO NAME OF SRI K.V. BHASKER REDDY, GENERA L MANAGER (FINANCE), STATING THAT MR. BHASKER REDDY I S THE IN-CHARGE OF THE ACCOUNTS AND AS SUCH HE IS AWARE A BOUT ALL SUCH TRANSACTIONS. HOWEVER, IT IS NOTICED THAT NO S TATEMENT FROM SRI K.V. BHASKER REDDY WAS RECORDED DURING THE COURSE OF SEARCH & SEIZURE PROCEEDINGS EXCEPT ON 26.12.2008 JUST BEFORE CONCLUSION OF THE ASSESSMENT PROCEEDINGS AND IN THE STATEMENT RECORDED, MR. BHAS KER REDDY HAS DENIED THE INITIAL STATEMENTS GIVEN BY MR . 16 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. RAMCHANDRA REDDY AS WELL AS MR. SRIHARI REDDY ON 10.11.2006. FURTHER, THEY HAVE DENIED THE STATEMENT S GIVEN BY THEM EARLIER AND AFFIDAVITS WERE FILED BY THE APPELLANT INDICATING THE DETAILS AND REASONS FOR DE NIALS OF THEIR STATEMENT DT.10.11.2006. SIMILARLY, MR. A. SU DHAKAR ALSO FILED AFFIDAVIT DENYING THE STATEMENT GIVEN BY HIM ON 10.11.2006. 5.14 AS COULD BE SEEN FROM THE SUBMISSIONS OF THE APPELLANT THAT THE FICTITIOUS PURCHASES WERE QUANTI FIED AT RS.1,21,84,094 FOR THE YEAR UNDER REFERENCE AND CON SISTS OF FICTITIOUS PURCHASES AS ATTRIBUTABLE TO THE PURCHAS ES MADE FROM SHREE GROUP AND POOJA GROUP. FOR THE YEAR UNDE R REFERENCE, SUCH AMOUNTS ARE QUANTIFIED AT RS.32,88, 107 FROM POOJA GROUP AND RS.88,95,987 FROM SHREE GROUP. IN THE CASE OF SHREE GROUP, THE QUANTIFICATION OF FICT ITIOUS PURCHASES WERE BASED ON THE THEORY THAT FEW PURCHAS ES ARE 'DIRECT PURCHASES' WITH PURCHASES MADE FROM THE MANUFACTURERS/IMPORTERS DIRECTLY AND BALANCE ORDERE D BY THE TRADERS FROM THE IMPORTERS/MANUFACTURES WITH GO ODS DELIVERED DIRECTLY TO THE CLIENTS. IN CASE OF THE T RANSIT PURCHASES, 55% OF SUCH PURCHASES WERE TREATED AS UNVERIFIABLE BY THE ASSESSING OFFICER OBSERVING THA T CERTAIN BILLS WERE NOT FULLY VERIFIABLE AND IN CASE OF DIRE CT PURCHASES, ENTIRE PURCHASES WERE TREATED AS FICTITI OUS, ON THE BASIS THAT THE ASSESSEE HAS NOT OBJECTED TO SUC H TREATMENT OR COULD DISPROVE THE CONCLUSIONS DRAWN B Y THE ASSESSING OFFICER. HOWEVER, THIS ASPECT APPEARS NOT CORRECT AS VERIFIABLE FROM THE RECORD AND WAS DISPUTED BY T HE APPELLANT SAYING THAT THEY HAVE FILED THEIR OBJECTI ONS TO THE SHOW CAUSE NOTICE WHERE SUCH TREATMENT WAS OPPOSED BUT WAS NOT TAKEN INTO CONSIDERATION BY THE ASSESSING O FFICER. IN CASE OF THE QUANTIFICATION OF FICTITIOUS PURCHAS ES FROM POOJA GROUP, THE ASSESSING OFFICER HAS GONE BY THE STATEMENT OF MR. PUNAMIA AND THE OBSERVATIONS MADE BY THE ASSESSING OFFICER (DCLT CC-46, MUMBAI), AS REGA RDS TO THE QUANTIFICATION/BASIS FOR ARRIVING AT THE FIGURE OF FICTITIOUS PURCHASES, WITHOUT ANY EVIDENCE, OR THE SEIZED MATERIAL IN THIS REGARD. 5.15 IT IS PERTINENT TO MENTION HERE THAT THE APPELLANT MADE CERTAIN DISCLOSURES OF UNACCOUNTED I NCOME DURING THE COURSE OF THE SEARCH PROCEEDINGS AND SUC H DISCLOSURES WERE MADE TO COVER UP THE OMISSIONS, IF ANY, ON THE PART OF THE APPELLANT COMPANY AND GROUP CONCERN S, AS 17 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. PER THE SWORN STATEMENT RECORDED FROM DR. B. PARTHA SARTHY REDDY ON 8.1.2007. THE AMOUNT OF SUCH DISCLOSURE MA DE BY THE APPELLANT COMPANY FOR THE ASSESSMENT YEARS 2 003- 04 TO 2006-07, WAS INDICATED AT RS.5,50,00,000 INCL UDING THE AMOUNT OF RS.1,00,00,000 FOR THE YEAR UNDER REF ERENCE, AS AGAINST THE TOTAL ADDITION OF RS.1,21,84,094 MAD E UNDER THE HEAD FICTITIOUS PURCHASES' BY THE ASSESSING OFF ICER. 5.16. FURTHER, THE ARGUMENTS AND THE LINES OF DISCUSSION THAT GO AGAINST THE FICTITIOUS PURCHASES , ON ESTIMATED BASIS, RUN AS UNDER : (A) THE APPELLANT COMPANY IS AN ESTABLISHED MANUFAC TURER OF BULK DRUGS AND FORMULATIONS, WHEREIN THE RECORDS ARE COMPUTERIZED, STOCK REGISTERS ARE MAINTAINED AND NO VERIFICATION WHATSOEVER WAS MADE BY THE ASSESSING AUTHORITIES TO POINT OUT THE INFLATION OF THE PURCH ASES AND THE RESULTANT DEFECTS IN THE ACCOUNTS ACCORDINGLY. THE MATERIAL PURCHASED ARE VERY MUCH REQUIRED AND USED IN PRODUCTION OF DRUGS. (B) THE ACTUAL SUPPLIERS/MANUFACTURERS/IMPORTERS SU CH AS M/S GUJARAT ALKALIES & CHEMICALS ARE NOT ONLY WELL KNOWN COMPANIES BUT FEW ALSO THE GOVERNMENT UNDERTAKINGS AND THEIR ACCOUNTS WERE NOT EXAMINED TO VERIFY WHETHER THE SUPPLIES MADE BY THEM WERE GENUINE OR BOGUS. (C) THE SUPPLIES WERE SUPPORTED BY INVOICES OF SUPPLIERS/MANUFACTURER/IMPORTERS WHEREAS THE ASSESS ING OFFICER HAS RELIED UPON THE STATEMENTS RECORDED ON EXAMINATION OF THE AGENTS INVOLVED. (D) MATERIAL RECEIVED WERE ENTERED INTO THE BOOKS O F ACCOUNTS AND WERE ISSUED TO THE PRODUCTION OF DRUGS WHICH WAS NOT DISPUTED BY THE ASSESSING OFFICER.. (E) THE AMOUNTS FOR PURCHASE OF THE MATERIAL WERE P AID BY CHEQUES AND NO EVIDENCE WHATSOEVER WAS FOUND/ UNEARTHED TO SHOW THAT THE AMOUNTS WERE RETURNED T O THE APPELLANT DESPITE SUCH CLAIM MADE BY MR. NISHIT J. DOSHI IN HIS STATEMENT AND DURING THE COURSE OF SEARCH & SEI ZURE PROCEEDINGS, NO FINDINGS WERE MADE AS REGARDS TO TH E ASSETS OR CASH RECEIVED, AS RELATABLE TO SUCH FICTI TIOUS PURCHASES. 18 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. (F) SRI RAJESH PUNAMIA OF POOJA GROUP HAS NEVER STA TED THAT HE HAS NOT SUPPLIED GOODS BUT HE HAS ONLY ACCEPTED CERTAIN ADDITION ON ACCOUNT OF ABSENCE OF AVAILABILITY OF T HE TRANSPORT RECEIPTS AND TO SAVE HIMSELF FROM THE LIT IGATION TO THE DEPARTMENT. (G) THE ASSESSING OFFICER OF THE POOJA GROUP HAS ME NTIONED IN ASSESSMENT ORDER THAT BOTH PURCHASES AND SALES M ADE BY THE GROUP ARE REFLECTED BY THE BOOKS ON WHICH PR OFIT WAS SHOWN AT 5% AND AS SUCH NO FURTHER INFERENCE CAN BE DRAWN, AND SUCH OBSERVATION INDICATES THAT PROFIT O F 5% ON SALES WAS ACCEPTABLE, AND IN NO MANNER IT INDICATES THE SALES BY THE GROUP TO BE BOGUS. 5.17. THE FINDINGS AND OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AS WELL A S THE SUBMISSIONS OF THE APPELLANT, WITH REFERENCE TO THE ANALYSES OF THE STATEMENTS RECORDED FROM SENIOR EMP LOYEES OF GROUP COMPANIES INDICATE THAT NONE OF THEM WERE ASSOCIATED WITH THE APPELLANT COMPANY AND IT STRONG LY INDICATE THAT ASSESSING OFFICER HAS GONE BY THEIR I NITIAL STATEMENTS WITHOUT ANY DISCUSSION ON THE STATEMENTS RECORDED FROM THEM IN LATER PERIODS AND THE AFFIDAV ITS FILED. IT IS ALSO A FACT THAT THE STATEMENT OF THE MAIN PE RSON IN- CHARGE OF THE ACCOUNTS FOR THE GROUP CONCERNS, MR. K.V. BHASKAR REDDY, ONLY COULD BE OBTAINED AT THE FAG EN D OF THE ASSESSMENT PROCEEDINGS WHEREIN HE CATEGORICALLY DENIED THE SUBMISSIONS MADE BY THE SENIOR EMPLOYEES , IN THEIR INITIAL STATEMENTS. AS ARGUED BY THE APPELLAN T, 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 CONTROVER TING 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 SUCH STATEMENTS IN COMING TO THE CONCLUSION THAT CERTAIN PORTION OF PURCHASES MADE FROM SHREE GROUP AND POOJA GROUP AS FICTITIOUS, CANNOT BE UPHELD. FURTHER, NO EVIDENCE WAS SHOWN TO HAVE BEEN FOUND DURING THE COURSE OF SEARC H & SEIZURE PROCEEDINGS ARE BROUGHT ON RECORD TO PROVE THAT THE RECORDS MAINTAINED BY THE APPELLANT ARE NOT RELIABL E OR VERIFIABLE. AS COULD BE SEEN FROM THE COPY OF THE S TOCK REGISTER FILED DURING THE COURSE OF APPEAL PROCEEDI NGS, WHEREIN THE QUANTITATIVE DETAILS OF VARIOUS RAW MAT ERIAL 19 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. RECEIVED AND ISSUED UNDER VARIOUS CODES GIVEN TO TH EM, ARE RECORDED IN THE COMPUTERIZED FORMAT, WHICH APPEARS NOT EXAMINED BY THE ASSESSING OFFICER. FURTHER, BASED ON THE FICTITIOUS PURCHASES QUANTIFIED, THE ASSESSING OFFI CER DIDNOT ANALYSE THE QUANTITATIVE DETAILS OF PRODUCTION AND SALES, BOOKS OF ACCOUNTS WERE NOT DISTURBED. 5.18 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 ST ATEMENT FROM MR. PUNAMIA WAS RECORDED ON 12.4.2006 AND MR. NISHIT DOSHI ON 2.3.2007, BOTH WITH A GAP OF FEW MO NTHS FROM THE DATE OF SEARCH, IN APPELLANT'S CASE I.E. 8 .11.2006, WHICH MAY MAKE THE THINGS LOOK LITTLE INCOHERENT AS FAR AS COLLATING THE EVIDENCES ARE CONCERNED. FURTHER, AS ARGUED BY THE APPELLANT, THE STATEMENTS RECORDED FROM SUCH PERSONS WERE ON THE BACK OF THE APPELLANT AND IT AP PEARS THAT THERE WAS NO OCCASION OR OPPORTUNITY PROVIDED FOR THE CROSS EXAMINATION OF THE SAID PARTIES. UNDER THE CIRCUMSTANCES, IT CAN BE HELD THAT SUCH STATEMENTS ARE NOT FULLY RELIABLE FOR DRAWING CONCLUSION ON THE NATURE OT BOGUS/FICTITIOUS PURCHASES WHICH HAS THE ELEMENT OF EVASION OF INCOME. 5.19 THE OTHER INFORMATION RELIED UPON BY THE ASSESSING OFFICER WAS THE ASSESSMENT ORDERS PASSED BY THE DCIT, CC-46, MUMBAI, IN THE CASE OF POOJA PETROCHEMICALS AND SHREE VALLABH PHARMACHEM PVT. LT D. WHEREIN THE CONCLUSIONS DRAWN BY THE ASSESSING OFFI CER WERE ABRUPT AND LEADING IN NATURE, WITH NO RELIABLE EVIDENCE BROUGHT ON THE RECORD TO INDICATE THAT THE FICTITIOUS SALES MADE BY POOJA GROUP CAN BE STRAIGHTAWAY QUANT IFIED IN THE BOOKS/HANDS OF HETERO GROUP CONCERNS, WITH S UCH AN ACCURACY, AS INDICATED IN THE ASSESSMENT ORDERS OF POOJA GROUP WHEREIN THE AMOUNTS WERE QUANTIFIED AT RS.2.4 8 CRORES. FURTHER, AS AGAINST RS.2.59 CRORES QUANTIFI ED IN THE ASSESSMENT ORDER AND WITH OTHER SMALL BUYERS ALSO I N THE FRAME, IT IS NOT KNOWN HOW THE AMOUNT OF RS.2.48 CR ORES WAS ATTRIBUTED TO THE HETERO GROUP CONCERNS. IN THI S CONTEXT, IT IS RELEVANT TO MENTION THAT AT EVERY ST AGE THE GUESS WORK HAS PLAYED THE LEADING ROLE THAN THE FAC TS. THIS HAS BEEN FURTHER ILLUSTRATED IN TEH ADOPTION OF PRE SUMPTIVE FIGURES OF FICTITIOUS PURCHASES AGAINST PURCHASES M ADE FROM POOJA GROUP AS WELL AS SHREE GROUP. 20 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. 5.20. IN CASE OF POOJA GROUP, THE UNVERIFIABLE PURCHASES WERE QUANTIFIED AT RS.2.48 CRORES AS AGAI NST 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 GR OUP HAS DRAWN THE GIST OF SUCH AMOUNTS FOR AY 2003-04 T O 2006-07 AGAINST WHICH THE ASSESSING OFFICER OF THE HETERO GROUP HAS ADOPTED DIFFERENT SET OF FIGURES AS INDIC ATED IN A CHART AT PARA 5.10 OF THIS ORDER AND IT INDICATES T HAT THE PRESUMPTIVE METHODS ADOPTED IN QUANTIFICATION OF FI CTITIOUS PURCHASES IS VERY MUCH VISIBLE. WHILE QUANTIFYING S UCH UNVERIFIABLE PURCHASES AMONG THE GROUP COMPANIES, T HE ASSESSING OFFICER HAS ADOPTED THE PRORATA BASIS AND THE BASIS ADOPTED IS QUANTUM OF PURCHASES MADE BY THE G ROUP COMPANIES FROM POOJA GROUP WHICH AGAIN INDICATE THE ELEMENT OF ESTIMATION IN QUANTIFICATION OF THE FICT ITIOUS PURCHASES, PERSISTED. . 5.21. ON SIMILAR LINES, THE PURCHASES MADE FROM SHREE GROUP WERE CATEGORIZED AS 'DIRECT PURCHASES' AND 'TRANSIT PURCHASES', AS INDICATED IN THE EARLIER PA RT OF THIS ORDER, WITH 55% OF THE 'TRANSIT PURCHASES', ARE EST IMATED AND QUANTIFIED AS FICTITIOUS PURCHASES, WHILE 100% OF THE 'DIRECT PURCHASES' WERE TREATED AS FICTITIOUS. WHIL E TREATING A PORTION OF 'TRANSIT PURCHASES' AS FICTITIOUS, FOR THE AY 2003-04 TO 2006-07, THE ASSESSING OFFICER HAS OBSER VED THAT 'ON ENQUIRY, IT REVEALS THAT ALL TRANSIT PURCH ASES ARE NOT GENUINE AND THERE IS VARIATION AS REGARDS TO THE RA TES AND QUANTITY TO THE EXTENT OF 50-55% OF THE BILLS' AND QUANTIFIED SUCH BILLS THROUGH A COMMON ANNEXURE MARKED AS 'ANNEXURE A' IN THE ASSESSMENT ORDER, FOR THE CORRE SPONDING YEAR UNDER REFERENCE. 5.22. AS COULD BE SEEN FROM THE ASSESSMENT ORDER IN THIS METHOD OF QUANTIFICATION, THERE IS NO SPECI FIC INFORMATION OR BASIS AND AS SUCH IT ASSUMED THE EST IMATION ANGLE. UNDER THE CIRCUMSTANCES, IT APPEARS THAT IN SEARCH ASSESSMENTS OF ALL THE GROUP OF CONCERNS INCLUDING THE APPELLANTS CASE FOR THE YEAR UNDER REFERENCE, ESTI MATION HAS PLAYED VITAL ROLE IN QUANTIFICATION OF UNACCOUN TED INCOME IN THE FORM OF FICTITIOUS PURCHASES, PUSHING THE ROLE OF THE FACTS OF THE BACKSTAGE. IT HAS BEEN HELD ALL ALONG THAT ESTIMATION SHOULD BE THE LAST RESORT IN ASSESSMENTS OF INCOME, MORE SO IN THE CASES OF SEARCH ASSESSMENTS, 21 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. UNLESS THE ASSESSEE TURNS NON-COOPERATIVE IN INVESTIGATIONS/ENQUIRIES AND THE ASSESSEE FORCES TH E ASSESSING OFFICER TO RESORT TO SUCH SITUATION. EVEN IN CASES OF INEVITABLE/UNAVOIDABLE CIRCUMSTANCES, THE ESTIMA TION SHOULD BE GUIDED BY SOME RELEVANT FACTORS OR BASIS. IN THIS CASE, NO SUCH INSTANCES OF FALTERING ON THE PART OF THE APPELLANT AS COULD BE SEEN FROM THE ASSESSMENT PROCEEDINGS AND THE RELEVANT FACTORS THAT DECIDED T HE ASSESSMENT OF INCOME FROM THE PERCEIVED FICTITIOUS PURCHASES ARE ONLY THE STATEMENTS RECORDED FROM THE SENIOR EMPLOYEES AND THE PROMOTERS OF TWO GROUP OF SUPPLIE RS OF MUMBAI, WHICH WERE NOT SUPPORTED FULLY BY FURTHER EVIDENCE. SUCH STATEMENTS WERE NOT TAKEN INTO LOGIC AL CONCLUSIONS EITHER WITH THE HELP OF FURTHER EVIDENC ES OR CROSS-EXAMINATIONS OF THE PARTIES CONCERNED. 5.23. THE INCONSISTENCY OR THE INCIDENCE OF ESTIMATIONS INVOLVED IN QUANTIFICATION OF THE FICTI TIOUS PURCHASES ARE ILLUSTRATED IN DISTRIBUTION OF SUCH F ICTITIOUS PURCHASES AMONG THE GROUP CONCERNS WITH THEIR PERCENTAGES AS REGARDS TO THE TOTAL PURCHASES MADE FROM THE TWO GROUPS I.E. POOJA GROUP AND SHREE GROUP. NAME OF THE CONCERN TOTAL PURCHASES FROM SHREE GROUP FICTITIOUS PURCHASES FROM SHREE GROUP & % TOTAL PURCHASES FROM POOJA GROUP FICTITIOUS PURCHASES FROM POOJA GROUP & % 1 2 3 4 5 CIREX PHARMACEUTICALS PVT. LTD., 2350161 1860304/79.15% 11820755 720273/6.09% HETERO DRUGS LTD., 146272953 120203092/82.17% 153954819 7509150/4.87% HETERO LABS LTD., 99794004 77637913/77.80% 156290013 9370444/6.00% SYMED LABS LTD., 64661942 42736292/66.09% 161657958 8717195/5.39% TOTAL 313079060 242437601 / 77.43% 483723545 26317062 / 5.44% 22 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. AS COULD BE SEEN FROM THE ABOVE, THOUGH THE PURCHASES ARE MADE FROM THE SAME/COMMON SOURCES, TH E QUANTIFICATION OF FICTITIOUS PURCHASES WITHOUT REFE RENCE TO SPECIFIC BILL OR INFORMATION IS VARYING FROM CASE T O CASE IN THE SAME GROUP, WHICH IS ON ACCOUNT OF THE ELEMENT OF ESTIMATION INVOLVED IN THE PROCESS OF QUANTIFICATIO N. UNDER THE CIRCUMSTANCES, I AM OF THE OPINION THAT THE STA TEMENTS FROM SENIOR EMPLOYEES OF THE GROUP, WHICH WERE SUPP ORTED BY AFFIDAVITS, THAT WERE NOT CONTROVERTED BY THE AS SESSING OFFICER AND THE STATEMENTS FROM MR. RAJESH PUNAMIA AND MR. NISHIT DOSHI, ARE NOT FULLY RELIABLE TO QUANTIF Y FEW PURCHASES AS BOGUS, FOR THE REASONS AND FACTS AS TH AT ARE BROUGHT ON RECORD. 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.1,21,84,094 ON ACCO UNT OF FICTITIOUS PURCHASES QUANTIFIED AGAINST THE PURCHAS ES MADE FROM POOJA GROUP (RS.32,88,107) AND SHREE GROUP (RS.88,95,986) IN THE CASE OF APPELLANT COMPANY, FO R THE YEAR UNDER REFERENCE, IS NOT SUSTAINABLE. 5.24. IN THIS CONTEXT, IT IS PERTINENT TO MENTION THAT AN AMOUNT OF RS.25.00 CRORES WAS DISCLOSED AS UNACCOUNTED. INCOME OF THE APPELLANT GROUP CONCERNS VIZ. M/S SYMED LABS LTD, M/S HETERO DRUGS LTD & M/S HETERO LABS LTD. FOR ASSESSMENT YEARS 2003-04 TO 2006-07, AS INDICATED AT PARA 3.2 OF THIS ORDER AND SUCH DISCLO SURES MADE BY THE APPELLANT COMPANY WAS PUT AT RS.5,50,00 ,000 FOR FOUR YEARS WITH AN AMOUNT OF RS.1,00,00,000 DIS CLOSED FOR THE YEAR UNDER REFERENCE. DISCLOSURE WAS MADE B Y THE CHAIRMAN OF THE GROUP ON THE CONCLUDING DAY OF SEAR CH VIDE HIS STATEMENT DT.8.1.2007 AND THE DISCLOSURES WERE TO COVER THE OMISSIONS AND MISTAKES COMMITTED BY THE APPELLANT GROUP COMPANIES RUN BY PAID MANAGERS. THI S ASPECT ALSO INDICATE THAT THE BOOKS OF ACCOUNT MAIN TAINED BY THE GROUP CONCERNS AS WELL AS THE APPELLANT COMP ANY ARE NOT FULLY RELIABLE, AS REGARDS TO THE PURCHASES AND OTHER ASPECTS OF THE APPELLANT. HOWEVER, THE DIFFICULTY H AS ARISEN IN ADOPTING THE METHODOLOGY FOR QUANTIFICATION OF T HE EXTRA INCOMES EARNED BY THE GROUP CONCERNS AND THE APPELL ANT. SINCE THE DEFICIENCIES AS POINTED OUT BY THE ASSESS ING OFFICER AND AS EVIDENCED THROUGH THE ACTIVITIES OF SOME OF THE SUPPLIERS, ARE TAKEN CARE BY THE DECLARATIONS M ADE BY 23 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. THE APPELLANT, THE QUANTIFICATIONS OF FICTITIOUS PU RCHASES WITHOUT VERIFIABLE EVIDENCE/INFORMATION, ARE HELD T O BE NOT SUSTAINABLE. 5.25. HOWEVER, IT MAY BE NOTED THAT THE ASSESSING OFFICER HAS NOT CONSIDERED THE DECLARATIONS MADE BY THE APPELLANT WHICH WERE ALSO ADMITTED IN FILING THE RE TURNS OF INCOME, THEREBY CREATING A SITUATION WHERE THE DECL ARED INCOME IS MORE THAN THE UNACCOUNTED INCOME ASSESSED ON ACCOUNT OF QUANTIFICATION OF FICTITIOUS PURCHASES F OR CERTAIN YEARS, IN THE CASE OF THE APPELLANT AS WELL AS OTHE R GROUP CONCERNS. THE SAME ARE ILLUSTRATED AS UNDER ; AY SYMED LABS LTD., HETERO LABS LTD., HETERO DRUGS LTD., TOTAL 03- 04 QUANTIFICATION DISCLOSURE QUANTIFICATION DISCLOSURE QUANTIFICATION DISCLOSURE QUANTIFICATION DISCLOSURE 12184094 10000000 5387828 5000000 5184960 5000000 22756882 20000000 04 - 05 6806310 7000000 11372601 10000000 16630477 13000000 34809388 30000000 05 - 06 11689614 18000000 13940749 21000000 14652512 21000000 40282875 60000000 06 - 07 20314454 20000000 41228091 40000000 79177624 80000000 140720169 140000000 TOTAL 50994472 55000000 71929269 76000000 115645573 119000000 238569314 250000000 AS COULD BE SEEN FROM THE ABOVE, THE DISCLOSURES WERE MADE FOR AY 2003-04 TO AY 2006-07, IN THE CASE OF THREE COMPANIES AND IN FEW YEARS THE AMOUNT OF DISCLOSURES MADE BY THE APPELLANT ARE HIGHER THAN T HE QUANTIFICATIONS OF FICTITIOUS PURCHASES MADE BY THE ASSESSING OFFICER WHICH WAS TREATED AS UNACCOUNTED INCOME OF THE APPELLANT. FURTHER, THE TOTAL AMOUNTS OF SUCH DISCLOSURE ALSO IS LITTLE HIGHER THAN THE TOTAL QUA NTIFICATION OF FICTITIOUS PURCHASES IN EACH OF THE INDIVIDUAL C ASES AS WELL AS GROUP AS A WHOLE. FOR THE ASSESSMENT YEARS 2007- 08 IN THE CASE OF ABOVE THREE APPELLANT COMPANIES A ND A.YS. 2003-04 TO 2006-07 IN CASE OF M/S CIREX 24 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. PHARMACEUTICALS PVT LTD, THERE WERE NO DISCLOSURES MADE BY THE APPELLANT BUT QUANTIFICATIONS WERE MADE BY T HE ASSESSING OFFICER ON THE METHODS AS DISCUSSED ABOVE WHICH ARE DEALT SEPARATELY. SINCE THE QUANTIFICATIO N MADE BY THE ASSESSING OFFICER AND THE DISCLOSURES MADE B Y THE APPELLANT COMPANY WERE BASED ON THE ESTIMATION, THE QUANTIFICATION ON ACCOUNT OF THE OPTION EXERCISED B Y THE APPELLANT COMPANY IS ON HIGHER SIDE FOR THE YEARS T AKEN TOGETHER FOR WHICH THE DISCLOSURES WERE MADE. ACCOR DINGLY, THE ASSESSING OFFICER IS DIRECTED TO ACCEPT THE ADD ITIONAL INCOMES ADMITTED BY THE APPELLANT IN FILING THE RET URNS OF INCOME FOR THE RESPECTIVE YEARS OF THE APPELLANT CO MPANY AND THE SAID INCOME MAY BE ASSESSED AS INCOME FROM OTHER SOURCES SINCE THE APPELLANT HAS NOT QUANTIFIE D AND ACCEPTED IT AS INCOME FROM THE BUSINESS OF THE UNDE RTAKING, THE SAME IS ALLOWED TO BE ASSESSED AS OTHER INCOME. ACCORDINGLY, THE QUANTIFICATION OF THE FICTITIOUS P URCHASES TO THE TUNE OF RS.1,21,84,094 WHICH WERE TREATED AS UNACCOUNTED INCOME HELD TO UNSUSTAINABLE FOR THE RE ASONS DISCUSSED ABOVE AND THE INCOME OF RS.1,00,00,000 DECLARED BY THE APPELLANT FOR THE YEAR UNDER REFERE NCE IS DIRECTED TO BE ASSESSED AS OTHER INCOME OF THE AP PELLANT. ACCORDINGLY, THIS GROUND OF APPEAL IS TREATED AS AL LOWED. 13. AFTER CONSIDERING THE DETAILED SUBMISSIONS OF LEARNED D.R. AND LD. COUNSEL, WE DO NOT SEE ANY REA SON TO INTERFERE WITH THE ORDERS OF LD. CIT(A) AS HE HA S CONSIDERED NOT ONLY THE FACTS BUT ALSO STATEMENTS O N THE BASIS OF WHICH A.O. MADE DISALLOWANCE. SINCE ASSESSEES DISCLOSED INCOME IS MORE THAN THE QUANTI FIED INCOME, EVEN THOUGH VARIES IN DIFFERENT YEARS, WE A RE OF THE OPINION THAT LD. CIT(A) HAS CORRECTLY CAME TO T HE CONCLUSION THAT THE DISCLOSED INCOMES CAN BE ASSESS ED AS SUCH. ACCORDINGLY, HIS ORDERS ARE UPHELD. REVENU E GROUNDS 2 AND 3 ON THIS ISSUE ARE DISMISSED. 14. THE NEXT ISSUE CONTESTED IN GROUND NO 4 IN ITA. NO. 635, 636 & 637/HYD/2012 IS WITH REFERENCE TO 25 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. 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 ASSESSEE U/S. 35(1)(IV) OF THE I.T. ACT, 1961, BEIN G THE CAPITAL EXPENDITURE INCURRED BY ASSESSEE ON R & D T O THE EXTENT OF RS.58,64,336, FOR THE YEAR UNDER REFERENCE. IT WAS SHOWN THAT ASSESSEE HAS INCURRED SIMILAR EXPENDITURE FOR OTHER ASSESSMENT YEARS WHIC H ARE AS UNDER : A.Y. AMOUNT OF CLAIM U/S.35(1)(IV) 2001-02 1390373 2002-03 497147 2003-04 5864336 2004-05 3648551 2005-06 4248458 WHILE MAKING THE DISALLOWANCE, THE A.O. HAS ARRIVED AT A CONCLUSION THAT THE CLAIM MADE BY ASSESSEE IS A WRONG CLAIM, FOR THE REASON THAT (I) ASSESSEE FILED THE LETTER BEFORE DCIT, CIRCLE 2(3), HYDERABAD WITHDRAWING THE CLAIM MADE IN THE CASE OF HETERO DRUGS LTD., AS EVIDENCE BY THE SWORN STATEMENT OF MR. B. PARTHASARATHY REDDY DT.08.01.2007. (II) NO CLAIMS ARE MADE FOR THE AY 2006-07 ONWARDS IN THE HANDS OF M/S. HETERO DRUGS LTD., SYMED LABS LTD., AND M/S. CIREX PHARMACEUTICALS P. LTD., (III) SINCE THE EXPENDITURE NOT INCURRED FOR R & D AT ITS LABORATORY, CLAIM IS NOT ALLOWABLE. 26 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. A.O. HAS ALLOWED THE DEPRECIATION OF RS.14,78,297 O N SUCH CAPITAL EXPENDITURE BRINGING THE NET DISALLOWA NCE TO RS.43,86,039, FOR THE YEAR UNDER REFERENCE. 14.1. ON ASSESSEES OBJECTIONS, THE LD. CIT(A) ALLOWED THE GROUND NOT ONLY ON THE REASON THAT THER E IS NO WITHDRAWAL OF THE CLAIM UNDER SECTION 35(1)(IV) BY ASSESSEE COMPANY BUT ALSO ON THE REASON THAT SIMILA R ISSUE WAS ALLOWED IN ASSESSEES OWN APPEAL BY ITAT IN ITA.NO.798/HYD/2011 DATED 14.10.2011. THE FINDINGS OF LD. CIT(A) IN PARA 6.4 OF THE ORDER ARE AS UNDER : 6.4. AS COULD BE SEEN FROM THE SUBMISSIONS OF THE APPELLANT AND PERUSAL OF THE SWORN STATEMENT OF SRI B.P.S.REDDY, THE FACTS RELIED UPON BY THE ASSESSING OFFICER APPEARS TO BE BASED ON WRONG PREMISES, SINCE IT HAS BEEN CATEGORICALLY STATED AND PROVED BY THE APPELLANT TH AT THE WITHDRAWAL OF CLAIM U/S 35(L)(IV) ARE CONFINED TO M /S HETERO DRUGS LTD AND HETERO LABS LTD BUT NOT SYMED LABS LT D, THE APPELLANT COMPANY. FURTHER, THERE WERE NO ENQUIRIES MADE BY THE ASSESSING OFFICER AS REGARDS TO THE USE OF T HE EQUIPMENT FOR QUALITY CONTROL PURPOSE APART FROM TH E R&D. ON LEGAL BASIS ALSO, THE APPELLANT'S CASE SUPPORTED BY THE RATIO OF THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS SANDOZ INDIA LTD. SUPRA. EVEN ON THE FRONT OF FACTS, THE CLAIM OF THE APPELLANT FOR ASSESSMENT YE ARS 2002- 03, 2003-04 & 2004-05 IN THE ORDERS U/S 143(3) WERE ALLOWED BY THE ASSESSING OFFICER AND NO CASE WAS MA DE FOR THE DISALLOWANCES OF CAPITAL EXPENSES ON R & D, IN SUCH ORDERS. FURTHER, IN THE CASE OF APPELLANT'S OWN APP EAL, THE HON'BLE ITAT, HYDERABAD IN ITA NO.398/HYD/2011 DT.14.10.2011 HAS ALLOWED THE APPEAL OF THE APPELLA NT 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 T HE ASSESSING OFFICER TO THE TUNE OF RS.14,78,297 FOR T HE YEAR UNDER REFERENCE AND THE SAME MAY BE WITHDRAWN ACCORDINGLY. THEREFORE, THIS GROUND OF APPEAL IS TREATED AS ALLO WED. 27 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. 15. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF L D. CIT(A). HE HAS FOLLOWED THE DECISION IN ASSESSEES OWN CASE IN ITA.NO.398/HYD/2011 DATED 14.10.2011 IN WHICH THIS ISSUE WAS CONSIDERED BY THE ITAT AND HEL D 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 EXPLANATIO N FILED BEFORE THE A.O. DURING THE COURSE OF ASSESSME NT PROCEEDINGS HAS CLAIMED THAT THE ASSESSEE COMPANY AS CARRYING ON THE R&D ACTIVITY AT THE FACTORY PREMISE S ITSELF AND THIS WAS EVIDENT FROM THE REVENUE AS WELL AS CA PITAL EXPENDITURE ON SCIENTIFIC RESEARCH INCURRED BY THE ASSESSEE COMPANY YEAR AFTER YEAR. ASSESSEE FURTHER, CLAIMED THAT FOR SURVIVAL OF DRUG AND PHARMACEUTICA L BUSINESS, IT WAS NECESSARY TO CARRY OUT SUCH DEVELOPMENTAL ACTIVITY IN RELATION TO PROCESS DEVEL OPMENT AND COST AMBIT AND THIS EXPENDITURE INCURRED BY THE ASSESSEE FALLS WITHIN THE SCOPE OF 5.35(1)(IV) OF T HE ACT. THE ASSESSEE HAS RELIED ON THE DECISION OF THE HON' BLE BOMBAY HIGH COURT IN CIT VS. SANDOZ (INDIA) LTD. (SUPRA). THE CLAIM OF THE ASSESSEE COMPANY WAS THAT THE NATURE OF THE ASSESSEE'S BUSINESS REQUIRES CONTINUO US PROCESS RESEARCH TO SUSTAIN ITSELF IN BUSINESS. WE FIND THAT THIS EXPLANATION OF THE ASSESSEE COULD NOT BE CONTROVERTED BY THE ASSESSING OFFICER. WE FIND THAT THERE WAS NO BASIS FOR THE ASSESSING OFFICER TO OBSERVE T HAT THE EXPENDITURE WAS NOT INCURRED FOR R & D AT ITS LABOR ATORY BY THE ASSESSEE. WE FIND THAT THE ASSESSEE HAS CLAI MED THAT IT WAS CARRYING ON R & D ACTIVITY AT ITS FACTO RY PREMISES ITSELF. THE SAID CLAIM OF THE ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER IN A SUMMARY MANN ER, WITHOUT ASSIGNING ANY VALID REASON FOR THE SAME AND HAD NOT MADE FURTHER ENQUIRIES IN THAT REGARD. WE FIND THAT THE NATURE OF THE ASSESSEE REQUIRES UNDERTAKING OF CONTINUOUS RESEARCH AND DEVELOPMENT ACTIVITY TO SUS TAIN ITSELF IN THE MARKET. WE FIND THAT SIMILAR CLAIM WA S MADE BY THE ASSESSEE IN THE SUBSEQUENT YEARS AND THE ASSESSMENT WAS FRAMED IN SCRUTINY ASSESSMENTS UNDER 28 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. 5.143(3) ACCEPTING SUCH CLAIMS OF THE ASSESSEE. IN THAT PROCESS, SIMILAR CLAIMS OF THE ASSESSEE WERE ACCEPT ED BY THE ASSESSING OFFICER IN THE ASSESSMENTS FRAMED UND ER 5.143(3) OF THE ACT FOR ASSESSMENT YEARS 2002-03, 2 003- 04 AND 2004-05. IN THE FACTS OF THE CASE, WE HOLD T HAT NO CASE FOR DISALLOWANCE OF THE CLAIM OF DEDUCTION UND ER 5.35(1)(IV) COULD BE MADE OUT BY THE REVENUE. ACCORDINGLY, ORDER OF THE CIT(A) IN DECIDING THE IS SUE IN FAVOUR OF THE ASSESSEE IS CONFIRMED AND THE GROUNDS OF APPEAL OF THE REVENUE ARE REJECTED. IN VIEW OF THIS, SINCE THE ISSUE WAS ALREADY DECIDE D IN FAVOUR OF ASSESSEE FOR A.Y. 2001-02, THERE IS NO ME RIT IN REVENUES CONTENTION. ACCORDINGLY, GROUND NO.4 OF ASSESSEE IN ITA. NO.635, 636 & 637/HYD/2012 STANDS DISMISSED. 16. IN THE RESULT, ITA. NO. 635, 636, 637 & 638/HYD/2012 OF THE REVENUE ARE DISMISSED. CROSS OBJECTIONS : 17. ASSESSEES CROSS OBJECTIONS IS ON THE DIRECTION OF LD. CIT(A) IN ASSESSING THE ADMITTED INCOME. IT WAS ASSESSEES CONTENTION THAT A.O. HAS NOT BROUGHT TO TAX THE ADMITTED INCOME, THEREFORE, LD. CIT(A) SHOULD HAVE CONFINED HIMSELF TO THE DELETION OF THE SO-CALLED FICTITIOUS PURCHASES AND SHOULD NOT H AVE DIRECTED THE A.O. TO TAX THE ADMITTED INCOME. 18. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE DO NOT SEE ANY MERIT IN ASSESSEES CONTENTIONS. IT IS A FACT THAT THERE ARE BOGUS PURCHASES AND ASSESSEE CONSEQUENT TO THE SEARCH AND SEIZURE OPERATIONS AND ALSO ON ENQUIRIES FROM THE SO-CALLED FIRMS, WHO 29 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. ACCOMMODATED ASSESSEE IN ITS GROUP IN PROVIDING CERTAIN BOGUS BILLS, ASSESSEE ADMITTED INCOMES. ASSESSING OFFICER HOWEVER, CHOSE NOT TO TAKE THE ADMITTED INCOME BUT WENT BY THE QUANTIFICATION OF BOGUS PURCHASES IN A DIFFERENT METHOD BUT MORE OR L ESS TALLYING WITH ASSESSEES ADMITTED INCOMES. CONSEQUENTLY, LD. CIT(A) INSTEAD OF DELETING FULL AMOUNTS, DIRECTED THE A.O. TO CONSIDER THE ADMITTED INCOMES AS INCOMES ON THIS COUNT. EVEN ASSESSEE HAS ALSO RAISED ADDITIONAL GROUND FOR CONSIDERING THE ADMITTED INCOME AS PART OF BUSINESS INCOME SO AS TO CLAIM DEDUCTION UNDER SECTION 80HHC AND 80IB WHICH ISSUE HAS BEEN CONSIDERED IN ASSESSEES APPEAL AS ADDITIONAL GROUND. HAVING ADMITTED THE INCOMES, ASSESSEE CANNOT NOW CONTEND THAT THE AMOUNT SHOULD NOT BE BROUGHT TO TAX. IN VIEW OF THIS, WE SEE NO M ERIT IN THE CONTENTION AND ACCORDINGLY, CROSS OBJECTIONS AR E DISMISSED. 19. IN THE RESULT, CROSS OBJECTIONS NO.114, 115, 116, 117/HYD/2012 OF THE ASSESSEE ARE DISMISSED. 20. TO SUM-UP, ITA.NO.703, 704, 705, 706 AND 707/HYD/2012 OF ASSESSEE ARE PARTLY ALLOWED FOR STA TISTICAL PURPOSES, ITA.NO.635, 636, 637 AND 638/HYD/2012 OF THE REVENUE ARE DISMISSED AND CROSS OBJECTION NO.114, 1 15, 116 AND 117/HYD/2012 OF THE ASSESSEE ARE DISMISSED. 30 ITA.NO.703 TO 707/HYD/2012, ITA.NO.635 TO 638/HYD/2012 & C.O.NO.114 TO 117/HYD/2012 M/S. SYMED LABS LTD., HYDERABAD. ORDER PRONOUNCED IN THE OPEN COURT ON 15.10.2014. SD/- SD/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 15 TH OCTOBER, 2014 VBP/- COPY TO 1. M/S. SYMED LABS LIMITED, HYDERABAD, C/O. MR. S. RAMA RAO, ADVOCATE, FLAT NO.102, SHRIYAS ELEGANCE, H.NO .3-6- 643, STREET NO.9, HIMAYATNAGAR, HYDERABAD 500 029 . 2. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL C IRCLE- 4, 8 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 3. CIT(A)-VII, HYDERABAD. 4. CIT-(CENTRAL), HYDERABAD. 5. D.R. ITAT A BENCH, HYDERABAD.