M/s. Wings Pharamaceuticals (P) Ltd., New Delhi V. ACIT, New Delhi

CO 353/DEL/2012

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9379 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 4 month(s) 10 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 07-02-2014
• Appeal Filed By: Assessee
• Bench Allotted: H
• Next Hearing Date: 12-11-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 27-09-2012
• Court: TRIBUNAL
• Department Lawyers: R S MEENA
• Keywords: Bogus purchase; Unexplained investment; Value adopted by valuation officer; Unexplained expenditure; Depreciation; Search and seizure; Opportunity of cross examination; Earning of tax free income; Source of fund; Proportionate interest; Additional evidence; Cost of acquisition; Fair market value; Wrong claim; Corroborative evidences; Valuation report; Accommodation entries; Assessment record; Retraction; Reason to believe
• Section: 133A; 153A; 14A; 131; 69; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH H : NEW DELHI) BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.3287/DEL./2012 (ASSESSMENT YEAR : 2006-07) ITA NO.4072/DEL./2012 (ASSESSMENT YEAR : 2007-08) ITA NO.4073/DEL./2012 (ASSESSMENT YEAR : 2008-09) ACIT, CENTRAL CIRCLE 2, VS. M/S. WINGS PHARMACEUTI CALS PVT. LTD., NEW DELHI. J 13, UDYOG NAGAR INDUSTRIAL AREA, NEW DELHI. (PAN : AAACW0963B) CO NO.353/DEL/2012 (IN ITA NO.3287/DEL./2012) (ASSESSMENT YEAR : 2006-07) CO NO.417/DEL/2012 (IN ITA NO.4072/DEL./2012) (ASSESSMENT YEAR : 2007-08) CO NO.418/DEL/2012 (IN ITA NO.4073/DEL./2012) (ASSESSMENT YEAR : 2008-09) M/S. WINGS PHARMACEUTICALS PVT. LTD., VS. ACIT, CEN TRAL CIRCLE 2, J 13, UDYOG NAGAR INDUSTRIAL AREA, NEW DELHI. NEW DELHI. (PAN : AAACW0963B) (APPELLANT) (RESPONDENT) ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 2 ASSESSEE BY : SHRI VED JAIN, ADVOCATE REVENUE BY : SHRI R.S. MEENA, CIT DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : ITA NO.3287/DEL/2012 AND CO NO.353/DEL/2012 EMANATE FROM THE ORDER OF THE CIT (APPEALS)-III, NEW DELHI DATED 23. 04.2012 FOR THE ASSESSMENT YEAR 2006-07. ITA NO.4072/DEL/2012 AND C O NO.417/DEL/2012 EMANATE FROM THE ORDER OF THE CIT (APPEALS)-III, NE W DELHI DATED 11.05.2012 FOR THE ASSESSMENT YEAR 2007-08. ITA NO.4073/DEL/20 12 AND CO NO.418/DEL/2012 EMANATE FROM THE ORDER OF THE CIT ( APPEALS)-III, NEW DELHI DATED 28.05.2012 FOR THE ASSESSMENT YEAR 2008 -09. THE ASSESSEE IS ENGAGED IN THE MANUFACTURING OF PHARMACEUTICAL FORM ATIONS AND AYURVEDIC PRODUCTS HAVING ITS PLANT AND DELHI AND BADDI IN HI MACHAL PRADESH. EXCISE AUTHORITIES CARRIED OUT INVESTIGATION OF SHRI DINES H SHARMA WHEREIN HE WAS FOUND TO BE PROVIDING ACCOMMODATION ENTRIES TO VARI OUS CONCERNS IN DELHI AND NCR THROUGH ITS CONCERNS M/S. KRISHNA MACHINE T OOLS AND SHRI KRISHNA MACHINE TOOLS. ASSESSEE WAS ALSO FOUND TO HAVE OBT AINED ACCOMMODATION BILLS FOR MACHINERIES. CONSEQUENT TO THIS INVESTIG ATION, A SEARCH AND SEIZURE OPERATION WAS CARRIED OUT AT THE PREMISES OF ASSESS EE ON 14.02.2008 AND SURVEY U/S 133A OF THE ACT ON 03.03.2008. NOTICES U /S 153A WERE ISSUED. THE ASSESSEE COMPANY GOT INCORPORATED IN THE YEAR 1987 AND THE MANUFACTURING ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 3 ACTIVITIES WERE CARRIED OUT FROM DELHI. THE COMPANY ALSO ESTABLISHED PRODUCTION UNIT FOR PRODUCTION OF ALLOPATHIC PHARMA PRODUCTS AT BADDI WHICH CAME INTO OPERATION WITH EFFECT FORM 03.05.2005. TH E ASSESSEE COMPANY ALSO DID JOB WORK FOR CIPLA LIMITED AND OTHERS. DURING THE SEARCH OPERATION, SOME MATERIAL WAS FOUND THAT ASSESSEE HAS SHIFTED S OME MACHINERY FROM ITS DELHI UNIT TO BADDI UNIT WHICH WAS ALSO ADMITTED IN THE STATEMENTS RECORDED DURING THE SEARCH OPERATION. A SURVEY WAS ALSO CAR RIED OUT AT BADDI UNIT AND A VALUATION REPORT WAS ALSO OBTAINED BY REVENUE AUTHO RITIES TO ASCERTAIN THE VALUE OF THE MACHINERIES AT BADDI UNIT. THE MACHIN ERY WAS VALUED AT RS.6,36,52,889/- AND OUT OF THIS, MACHINERY TO THE EXTENT OF RS.5,72,01,279/- WERE OBSERVED TO BE OLD MORE THAN 3 TO 5 YEARS. IN THE ASSESSMENTS PROCEEDINGS, DEDUCTION U/S 80IC WAS DENIED. HOWEVE R, IN APPEAL, CIT (A) GRANTED RELIEF TO THE ASSESSEE IN ALL THESE YEARS. 2. IN ALL THESE APPEALS AND CROSS OBJECTIONS, THE G ROUNDS OF APPEAL ARE BY AND LARGE COMMON, THEREFORE, THESE APPEALS AND CROS S OBJECTIONS ARE BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF C ONVENIENCE. 3. THE GROUNDS OF APPEALS AND CROSS OBJECTIONS ARE REPRODUCED AS BELOW :- ITA NO.3287/DEL/2012 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN LAW AND OR FACTS IN ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 4 RESTRICTING THE ADDITION TO RS.1,06,000/- OUT OF TO TAL ADDITION OF RS.21,00,000/- MADE BY THE ASSESSING OFFICER ON ACC OUNT OF OBTAINING ACCOMMODATION BILLS OF MACHINERY. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING TH E ADDITION OF RS.1,15,89,750/- MADE BY THE ASSESSING OFFICER ON A CCOUNT OF SUPPRESSION OF WAGES. 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THA T ASSESSING OFFICER WAS NOT JUSTIFIED IN HOLDING THAT THE ASSES SEE HAD SUPPRESSED PRODUCTION OF RS.72,91,213/-. 4 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING TH E DISALLOWANCE OF RS.18,01,14,280/- MADE BY THE ASSES SING OFFICER ON ACCOUNT OF DEDUCTION U/S 80IC OF THE INC OME TAX ACT, 1961. 5 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING T HE ASSESSING OFFICER NOT TO DISALLOW ANY DEDUCTION U/S 80IC ON T HE 'JOB WORK INCOME' FROM MANUFACTURING ACTIVITY CARRIED OU T AT BADDI UNIT. 6 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING TH E DISALLOWANCE OF RS.47,97,439/- MADE BY THE ASSESSIN G OFFICER ON ACCOUNT OF INVESTMENT IN PLANT AND MACHINERY. 7 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING T HE ASSESSING OFFICER TO RECOMPUTED THE DEPRECIATION THUS, GIVING A RELIEF OF RS.3,06,413/- TO THE ASSESSEE OUT OF TOTAL DISALLOW ANCE OF RS.8,10,000/- MADE BY THE ASSESSING OFFICER ON ACCO UNT OF DEPRECIATION CLAIMED ON BADDI UNIT. 8 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING T HE ASSESSING OFFICER TO RECOMPUTED THE DEPRECIATION THUS, GIVING A RELIEF OF RS.23,93,587/- TO THE ASSESSEE OUT OF TOTAL DISALLO WANCE OF ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 5 RS.27,00,000/- MADE BY THE ASSESSING OFFICER ON ACC OUNT OF DEPRECIATION C1AIMED ON DELHI UNIT. 9 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING TH E ADDITION OF RS.24,98,104/- MADE BY THE ASSESSING OFFICER ON ACC OUNT OF UNACCOUNTED INVESTMENT AND EXPENSES. 10 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A) BAS ERRED IN LAW AND ON FACTS IN DELETING TH E ADDITION OF RS.30,48,737/- MADE BY ASSESSING OFFICER ON ACCOUNT OF INCOME OF D-6 UNIT, DELHI. 11 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING TH E DISALLOWANCE OF RS.12,00,000/- MADE BY THE ASSESSIN G OFFICER ON ACCOUNT OF SCRAP SALE. 12 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE DISALLOWANCE TO RS.1,36,000/- OUT OF TOTAL DISALLOW ANCE OF RS.10,11,000/- MADE BY THE ASSESSING OFFICE U/S 14A OF THE INCOME TAX ACT, 1961. 13 THE ORDER OF THE CIT(A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 14. THE APPELLANT CRAVES TO ADD, ALTER OR AMEND ANY /ALL OF THE GROUND OF APPEAL BEFORE OR DURING THE COURSE OF THE HEARING OF THE APPEAL. CROSS OBJECTION NO.353/DEL/2012 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN REJECT ING THE CONTENTION OF THE ASSESSEE THAT THE PROCEEDINGS INI TIATED UNDER SECTION 153A AND ORDER PASSED BY THE LEARNED ASSESS ING OFFICER (AO) UNDER SECTION 153A/143(3) IS WITHOUT JURISDICTION. ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 6 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN REJECT ING THE CONTENTION OF THE ASSESSEE THAT THE PROCEEDINGS INI TIATED UNDER SECTION 153A ARE LIABLE TO BE QUASHED IN THE ABSENC E OF A VALID SEARCH. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN REJECT ING THE CONTENTION OF THE ASSESSEE THAT THE PROCEEDINGS INI TIATED UNDER SECTION 153A ARE BAD IN LAW IN THE ABSENCE OF ANY INCRIMINATING MATERIAL BELONGING TO THE ASSESSEE BE ING FOUND DURING THE COURSE OF THE SEARCH. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIR MING THE ACTION OF AO IN MAKING DISALLOWANCE OF AN AMOUNT OF RS.1,36,000/- INVOKING THE PROVISIONS OF SECTION 14 A OF THE ACT. 5. (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW I N REJECTING THE CONTENTION OF THE ASSESSEE THAT THE AO HAS ERRE D IN REVIEWING THE ASSESSMENT PROCEEDINGS FOR THE YEAR U NDER CONSIDERATION WITHOUT THERE BEING ANY ADVERSE MATER IAL ON RECORD. (II) THAT THE ABOVE SAID ADDITIONS ARE OTHERWISE UNTENABLE SINCE REASSESSMENT UNDER SECTION 153A CON SEQUENT TO SEARCH IS TO BE CONFINED ONLY TO THE INCRIMINATI NG MATERIAL BELONGING TO THE ASSESSEE FOUND DURING THE COURSE O F THE SEARCH. 6. THE RESPONDENT CRAVES LEAVE TO ADD, AMEND OR ALT ER ANY OF THE GROUNDS OF CROSS OBJECTION. ITA NO.4072/DEL/2012 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING TH E DISALLOWANCE OF RS.22,10,42,520/- MADE BY THE ASSES SING ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 7 OFFICER ON ACCOUNT OF DEDUCTION U/S 80IC OF THE INC OME TAX ACT, 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING T HE ASSESSING OFFICER NOT TO DISALLOW ANY DEDUCTION U/S 80IC ON T HE 'JOB WORK INCOME' FROM MANUFACTURING ACTIVITY CARRIED OU T AT BADDI UNIT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING TH E ADDITION OF RS.1,02,40,635/- MADE BY THE ASSESSING OFFICER ON A CCOUNT OF SUPPRESSION OF PRODUCTION. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THA T THE ASSESSING OFFICER WAS NOT JUSTIFIED IN HOLDING THAT THE ASSESSEE HAD SUPPRESSED WAGES EXPENSES OF RS.62,26,820/-. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE ADDITION TO RS.2,000/- OUT OF TOTAL ADDITION OF RS.9,00,000/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF OBTAINING ACCOMMODA TION BILLS OF MACHINERY. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING TH E ADDITION OF RS.47,97,439/- MADE BY THE ASSESSING OFFICER ON ACC OUNT OF INVESTMENT IN PLANT AND MACHINERY. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING T HE ASSESSING OFFICER TO RECOMPUTE THE DEPRECIATION THUS, DELETIN G THE DISALLOWANCE OF RS.2,62,321/- OUT OF TOTAL DISALLOW ANCE OF RS.6,88,500/- MADE BY THE ASSESSING OFFICER ON ACCO UNT OF DEPRECIATION CLAIMED ON BADDI UNIT. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING TH E ADDITION OF RS.4,71,000/- MADE BY THE ASSESSING OFFICER ON ACCO UNT OF SHORT TERM CAPITAL GAIN ON THE BASIS OF DVO'S REPOR T. ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 8 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING TH E ADDITION OF RS.12,00,000/- MADE BY THE ASSESSING OFFICER ON ACC OUNT OF SCRAP SALE. 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE DISALLOWANCE TO RS.3,16,096/- OUT OF TOTAL DISALLOW ANCE OF RS.13,21,000/- MADE BY THE ASSESSING OFFICER U/S 14 A OF THE INCOME TAX ACT, 1961. 11. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING TH E ADDITION OF RS.3,90,00,000/- MADE BY THE ASSESSING OFFICER ON A CCOUNT OF INFLATED INCOME. 12. THE ORDER OF THE CIT(A) IS ERRONEOUS AND IS NO T TENABLE ON FACTS AND IN LAW. 13. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AME ND ANY/ALL OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURS E OF THE HEARING OF THE APPEAL. CROSS OBJECTION NO.417/DEL/2012 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN REJECT ING THE CONTENTION OF THE ASSESSEE THAT THE PROCEEDINGS INI TIATED UNDER SECTION 153A AND ORDER PASSED BY THE LEARNED ASSESS ING OFFICER (AO) UNDER SECTION 153A/143(3) IS WITHOUT JURISDICTION. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN REJECT ING THE CONTENTION OF THE ASSESSEE THAT THE PROCEEDINGS INI TIATED UNDER SECTION 153A ARE LIABLE TO BE QUASHED IN THE ABSENC E OF A VALID SEARCH. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN REJECT ING THE CONTENTION OF THE ASSESSEE THAT THE PROCEEDINGS INI TIATED UNDER ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 9 SECTION 153A ARE BAD IN LAW IN THE ABSENCE OF ANY INCRIMINATING MATERIAL BELONGING TO THE ASSESSEE BE ING FOUND DURING THE COURSE OF THE SEARCH. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIR MING THE ACTION OF AO IN MAKING DISALLOWANCE OF AN AMOUNT OF RS.3,16,096/- INVOKING THE PROVISIONS OF SECTION 14 A OF THE ACT. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN SUSTAINING ADDITION OF RS.10,00 ,171/- AS UNEXPLAINED INVESTMENT U/S 69B OF THE ACT ON ACCOUN T OF CONSTRUCTION COST AT PLOT NO.43-44, HPSIDC, BADDI A S PER THE REPORT OF DVO CHANDIGARH. 6. (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW I N REJECTING THE CONTENTION OF THE ASSESSEE THAT THE AO HAS ERRE D IN REVIEWING THE ASSESSMENT PROCEEDINGS FOR THE YEAR U NDER CONSIDERATION WITHOUT THERE BEING ANY ADVERSE MATER IAL ON RECORD. (II) THAT THE ABOVE SAID ADDITIONS ARE OTHERWISE UNTENABLE SINCE REASSESSMENT UNDER SECTION 153A CON SEQUENT TO SEARCH IS TO BE CONFINED ONLY TO THE INCRIMINATI NG MATERIAL BELONGING TO THE ASSESSEE FOUND DURING THE COURSE O F THE SEARCH. 7. THE RESPONDENT CRAVES LEAVE TO ADD, AMEND OR ALT ER ANY OF THE GROUNDS OF CROSS OBJECTION. ITA NO.4073/DEL/2012 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING TH E DISALLOWANCE OF RS.14,40,38,568/- MADE BY THE ASSES SING OFFICER ON ACCOUNT OF DEDUCTION U/S 80LC OF THE INC OME TAX ACT, 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING T HE ASSESSING ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 10 OFFICER NOT TO DISALLOW ANY DEDUCTION U/S 80IC ON T HE 'JOB WORK INCOME' FROM MANUFACTURING ACTIVITY CARRIED OU T AT BADDI UNIT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING TH E ADDITION OF RS.4,44,86,782/- MADE BY THE ASSESSING OFFICER ON A CCOUNT OF SUPPRESSION OF PRODUCTION. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THA T THE ASSESSING OFFICER WAS NOT JUSTIFIED IN HOLDING THAT THE ASSESSEE HAD SUPPRESSED WAGES EXPENSES OF RS.26,47,992/-. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING AD DITION OF RS.24,00,000/- MADE BY THE ASSESSING OFFICER ON ACC OUNT OF OBTAINING ACCOMMODATION BILLS OF MACHINERY. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING TH E ADDITION OF RS.47,97,439/- MADE BY THE ASSESSING OFFICER ON ACC OUNT OF INVESTMENT IN PLANT AND MACHINERY. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING T HE ASSESSING OFFICER TO RECOMPUTE THE DEPRECIATION THUS, DELETIN G THE DISALLOWANCE OF RS.5,85,225/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DEPRECIATION CLAIMED ON BADDI UNIT. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING TH E ADDITION OF RS.4,71,000/- MADE BY THE ASSESSING OFFICER ON ACCO UNT OF SHORT TERM CAPITAL GAIN ON THE BASIS OF DVO'S REPOR T. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE ADDITION TO RS.7,30,355 OUT OF TOTAL ADDITION OF RS.10,00,00 0/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SCRAP SALE. 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING TH E ADDITION OF ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 11 RS.2,50,00,000/- MADE BY THE ASSESSING OFFICER ON A CCOUNT OF INFLATED INCOME. 11. THE ORDER OF THE CIT(A) IS ERRONEOUS AND IS NO T TENABLE ON FACTS AND IN LAW. 12. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AME ND ANY/ALL OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURS E OF THE HEARING OF THE APPEAL. CROSS OBJECTION NO.418/DEL/2012 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIR MING THE ACTION OF AO IN MAKING DISALLOWANCE OF AN AMOUNT OF RS.26,26,000/- INVOKING THE PROVISIONS OF SECTION 1 4A OF THE ACT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN SUSTAINING ADDITION OF RS.13,33 ,033/ AS UNEXPLAINED INVESTMENT U/S 69B OF THE ACT ON ACCOUN T OF CONSTRUCTION COST AT PLOT NO.43-44 HPSIOC, BADDI AS PER THE REPORT OF DVO CHANDIGARH. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN SUSTAINING ADDITION OF RS.7,30, 355/- ON ACCOUNT OF SUPPRESSED SCRAP RECEIPT. 4. THE RESPONDENT CRAVES LEAVE TO ADD, AMEND OR ALT ER ANY OF THE GROUNDS OF CROSS OBJECTION. ITA NO.3287/DEL/2013 6. ONE OF THE COMMON ISSUES IN ALL THESE THREE APPE ALS OF REVENUE IS WITH REGARD TO DEDUCTION U/S 80IC OF THE ACT. IT IS GR. NO.4 IN ITA NO.3287/DEL/ 2013 AND GR. NO.1 IN ITA NOS.4072 & 4073/DEL/2012. THE FACTS INVOLVED ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 12 IN THIS GROUND ARE ALSO RELEVANT IN MANY OTHER GROU NDS, HENCE BEING DECIDED FIRST. 7. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE AO CONFRONTED THE ASSESSEE WITH THE MATERIAL FOUND DURING THE COU RSE OF THE SEARCH AND SURVEY AND ALSO WITH THE VALUATION REPORT OBTAINED DURING SURVEY OPERATION. ASSESSING OFFICER ISSUED QUESTIONNAIRE ON 20.11.200 9 AND 10.12.2009. IN RESPONSE THERETO THE ASSESSEE SUBMITTED CLARIFICATI ONS VIDE LETTERS DATED 27.11.2009, 30.11.2009, 7.12.2009, 11.12.2009 AND 2 4.12.2009. THE ASSESSING OFFICER, HOWEVER, WAS NOT CONVINCED WITH THE REPLY SUBMITTED BY THE ASSESSEE AND DENIED DEDUCTION UNDER SECTION 80I C OF THE ACT. RELEVANT OBSERVATIONS OF ASSESSING OFFICER ARE AS FOLLOWS :- 9. I HAVE CONSIDERED THE REPLY OF THE ASSESSEE CAR EFULLY. DURING THE COURSE OF SEARCH AMPLE EVIDENCES HAVE BE EN FOUND WHICH CLEARLY ESTABLISH THAT THE ASSESSEE COMPANY W AS ENGAGED IN THE ACTIVITY OF PROCURING ACCOMMODATIONS BILLS F OR THE PLANT & MACHINERY INSTALLED AT BADDI UNIT WHICH IS EVIDEN CED FROM THE STATEMENT OF MR. DINESH SHARMA WHO CONTROLLED T HE BILLING PROCESS OF M/S KRISHNA MACHINE & TOOLS AND ITS SIST ER CONCERNS. IN HIS STATEMENT HE STATED THAT THE ASSE SSEE COMPANY PROCURED MERELY BILLS INSTEAD OF ACTUAL DELIVERY OF GOODS. MR. DINESH SHARMA PROCURED MERELY BILLS INSTEAD OF ACTU AL DELIVERY OF GOODS. MR. DINESH SHARMA WAS INVESTIGATED BY TH E CENTRAL EXCISE & CUSTOM DEPARTMENT AS WELL AS BY THE INCOME TAX DEPARTMENT. IN BOTH THE INVESTIGATIONS MR. DINESH SHARMA ACCEPTED THAT HE WAS PROVIDING MERELY BILLS INSTEAD OF GOODS. 9.2 AS EVIDENT FROM THE SEIZED MATERIAL, TWO LETTER S FROM THE ASSESSEE ONE ADDRESSED TO MR. CHAUHAN AND AN OTHER LETTER ADDRESSED TO M/S KRISHNA MACHINE & TOOLS FOR PROCUR ING BILLS, WHICH ARE ANNEXED AS PER ANNEXURE A AND B WITH THIS ORDER. FROM THESE PAPERS IT IS ESTABLISHED THAT THE ASSESS EE COMPANY ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 13 WAS PROCURING THE BOGUS PURCHASE BILLS FOR MACHINE. CLAIM OF THE ASSESSEE IS INCORRECT IN RESPECT OF M/S KRISHNA MACHINE & TOOLS AND MR. DINESH SHARMA AS PER FOLLOWING REASON S : (1) ASSESSEE WAS ASKED TO PRODUCE OWNER OF M/S KRIS HNA MACHINE & TOOLS, BUT DESPITE HAVING REPEATED OPPORT UNITIES HE WAS NOT PRODUCED. BASIC ONUS WAS ON ASSESSEE TO PR OVE ITS PURCHASES CLAIMED IN ITS BOOKS. THE ASSESSEE HAS C OMPLETELY FAILED IN DISCHARGING THIS ONUS. (2) PAYMENT OF MACHINERY TO SH. KRISHNA MACHINE & T OOLS WERE AND ITS SISTER CONCERNS M/S KRISHNA MACHINE & TOOLS WERE MADE BY THE ASSESSEE AS LATE AS IN 2008 WHICH IS AFTER 3 YEARS FROM SO CALLED OF PURCHASE. ACCOMMODATION BI LLS WERE OBTAINED AMOUNTING RS.8,48,640/- AND RS.36,24,660/- DURING A.Y. 05-06 AND A.Y. 06-07 RESPECTIVELY FROM THESE P ARTIES OF DINESH SHARMA. PAYMENTS OF THESE BILLS TO KRISHNA MACHINE & TOOLS WERE MADE DURING A.Y. 0607 OF RS.15,00,000/- AND IN A.Y. 08-09 RS.20,55,560/- AND BALANCE AMOUNT OF RS. 69,100/- WAS ADJUSTED BY WAY OF DEBIT NOTE. SRI KRISHNA MAC HINE & TOOL WAS PAID DURING A.Y. 06-07 AND A.Y. 08-09 AMOU NT OF RS. 5,50,000/-, RS.2,88,775/- RESPECTIVELY AND BALA NCE AMOUNT OF RS.9,865/- WAS ADJUSTED BY WAY OF DEBIT NOTE. I N NORMAL COURSE THE MACHINE SUPPLIER DO TAKE ADVANCE MONEY A ND ONLY THEN THEY SUPPLY MACHINE. BUT IN THIS CASE PAYMENT PATTERN ITSELF PROVES THAT THEY ARE ACCOMMODATION BILLS. (3) AT THE LAST EVEN PAYMENT WAS NOT MADE TO SH. KR ISHNA MACHINE & TOOLS AMOUNTING TO RS.69,100/- WHICH WAS ADJUSTED FROM THE ACCOUNT OF M/S KRISHNA MACHINE & TOOLS AFTER THREE YEARS FROM THE DATE OF THE PURCHASE. I T COULD BE SEEN FROM ITS LEDGER IN THE BOOKS OF THE ASSESSEE. 9.3 IT IS FOUND THAT THERE WERE TWO TYPE OF ACCOMMO DATION BILL PROVIDER IN THE CASE OF THE ASSESSEE. (I) THOSE WHO ARE NOT DOING ANY MANUFACTURING ACTIV ITY AND MERELY PROVIDING BILLS, (II) THOSE WHO ARE ACTUALLY DOING MANUFACTURING WOR K BUT HAVE PROVIDED ASSESSEE ACCOMMODATION BILL TO THE AS SESSEE, IN ORDER TO SECURE THERE BUSINESS INTEREST WITH THE AS SESSEE. ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 14 COMMON PATTERN IN BOTH ARE THAT THE PAYMENT MADE BY THE ASSESSEE IN RESPECT OF ACCOMMODATION BILLS TOOK MUC H LONGER TIME THAN THE PAYMENT OF OTHER PURCHASE BILLS, IN M OST OF THE TIMES. 10 AS REPRODUCED IN BEGINNING SHRI SURENDRA SINGH BANGA (IN TWO STATEMENTS), SHRI D.V. SARDANA, T KUKUNDAN, ALL HAVE STATED IN THEIR STATEMENTS RECORDED DURING COURSE O F SEARCH THAT THE ASSESSEE COMPANY HAS SHIFTED ITS OLD AND USED M ACHINERY FROM NEW DELHI AND FORMED A UNIT AT BADDI. TWO OF THEM SHRI SURENDER SINGH BANGA AND SHRI D.V. SARDANA HAVE CLA IMED TO HAVE RETRACTED THEIR STATEMENT. IT IS IMPORTANT TO NOTE THAT MR. SURENDRA SINGH BANGA HAD GIVEN TWO STATEMENTS DURIN G THE SEARCH PROCEEDING. IT IS NOT CLEAR AS TO WHICH STA TEMENT HE SO CLAIMED TO HAVE RETRACTED. COGNIZANCE OF THEIR RET RACTION CANNOT BE TAKEN. REASON IS LIVELIHOOD UPON THE ASS ESSEE COMPANY. RETRACTION LETTER WERE FILED AFTER MONTHS FROM THE DAY WHEN THERE STATEMENT ON OAK WERE RECORDED. IT CLEARLY PROVES THAT UNDER INFLUENCE OF THE ASSESSEE ITS EMP LOYEES HAD RETRACTED THEIR STATEMENTS. THE SO CALLED RETRACTI ON LETTER IS SELF SERVING EVIDENCE CREATED BY THE ASSESSEE. THE SAME THEREFORE, CANNOT BE TAKEN INTO COGNIZANCE. 11. AS PER THE INSPECTION REPORT OF THE APPROVED V ALUER WHICH WAS SUBMITTED ON 09.05.2008, IT WAS REPORTED THAT VALUE WISE 88.72% OF THE PLANT AND MACHINERY AT BADDI UNI T OF THE ASSESSEE WERE OLD WHERE AS ONLY 11.28% OF THE PLANT & MACHINERY WERE NEW. THE TOTAL VALUE OF PLANT & MAC HINERY AT BADDI UNIT WAS WORKED OUT AT RS.5,72,01,279/-, OUT OF WHICH THE VALUE OF NEW PLANT & MACHINERY HAS BEEN CERTIFI ED AT RS.64,51,610/- AS PER VALUATION REPORT. A) AS PER THE INSPECTION REPORT, THE AGGREGATE AMOUNT OF NEW PLANT & MACHINERY ACCOUNTING FOR 11.2 8% OF TOTAL VALUE OF PLANT & MACHINERY INSTALLED AT BADDI UNIT IS ONLY RS.64,51,610/-. B) IT IS ESTABLISHED THAT OLD PLANT & MACHINERY WE RE TRANSFERRED BY THE ASSESSEE COMPANY FROM ITS DELHI UNIT TO BADDI UNIT AS IS EVIDENT BY THE SEIZED MATERIAL (I. E. ANNEXURE A-29 OF PARTY WB-2). ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 15 (C) IT IS FOUND THAT PLANT & MACHINERY WORTH RS. 40,64,691/- WAS CLAIMED TO BE SOLD/ WRITTEN OFF BY THE ASSESSEE COMPANY FROM D-06 UNIT DURING THE AY 2006-07 AND LO SS OF RS.39,42,380/- WAS BOOKED IN THE P & L ACCOUNT OF D -06 UNIT. THIS ISSUE HAS ALSO BEEN DISCUSSED IN THE OR DER OF A.Y. 05-06 IN THE CASE OF THE ASSESSEE. IT HAS BEEN CON CLUDED THAT THE SAID ENTRY OF LOSS ON SALE OF MACHINERY WAS INT RODUCED TO CREATE A SMOKE SCREEN ON FOR SHIFTING OF MACHINERIE S BY THE ASSESSEE FROM ITS DELHI UNIT TO ITS BADDI UNIT. 8. BASED ON THE ABOVE FINDING THE ASSESSING OFFICER CONCLUDED AS UNDER:- 13. IN VIEW OF THE ABOVE AND DISCUSSION MADE IN TH E PRECEDING PARAS OF THIS ORDER, IT IS ESTABLISHED TH AT THE ASSESSEE COMPANY HAS FORMED ITS BADDI UNIT BY TRANSFERRING I TS PLANT & MACHINERY FROM ITS DELHI UNIT. AS PER SECTION 80IC OF THE ACT, A NEW UNIT SHOULD BE FORMED. INSTEAD OF THAT, THE A SSESSEE SHIFTED PLANT &MACHINERY OF ITS OLD UNIT AT DELHI A ND INSTALLED THESE USED AND OLD MACHINERIES AT ANOTHER UNIT IN T AX FREE AREA AT BADDI (HP) WHICH IS NOT PERMISSIBLE AS PER CONDI TIONS LAID DOWN UNDER SECTION 80IC OF THE ACT. 13.2 INCONTROVERTIBLE EVIDENCE OF ACCOMMODATION BIL LS OF MORE THAN RS. 54 LACS OF MACHINERY PURCHASE AS INTR ODUCED BY THE ASSESSEE HAS BEEN FOUND BY THE DEPARTMENT DURIN G AY 2005-06 AND 2006-07. FURTHER UNASSAILABLE EVIDENCE OF SHIFTING OF MACHINERY FROM D-6, DELHI UNIT TO BADDI UNIT IS IN THE POSSESSION OF THE DEPARTMENT. AS PER STATEMENTS ON OATH RECORDED (MR. D.V. SARDANA) D-6, DELHI UNIT WAS CLO SED IN MAY, 2006. THE ASSESSEE ITSELF CLAIMS THAT THE BADD I UNIT WAS STARTED IN MAY, 2006. 13.3 THE WDV OF PLANT & MACHINERY AS ON 31.03.2005 OF D- 6 UNIT AS PER COMPANIES ACT WAS RS. 1,60,50,810/-. MAJORITY OF THESE MACHINERIES HAD BEEN SHIFTED TO THE BADDI UNIT. 13.4 IT IS ALSO FOUND THAT THE VALUE OF OLD PLANT & MACHINERY OF THE ASSESSEE COMPANY, AS PER VALUATION REPORT OF THE APPROVED VALUER WAS 88.72% WHEREAS ONLY 11.28% OF T HE MACHINERY WERE NEW. AS PER REPORT OF SHRI UMESH JOH AR OF M/S JOHAR & ASSOCIATES MORE THAN 70% OF THE MACHINE S IN ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 16 NUMBERS WERE MANUFACTURED/ PURCHASED DURING THE PER IOD 1998 TO 2003. THEREFORE, IT IS INCONTROVERTIBLY CLEAR TH AT MAJORITY OF MACHINERY INSTALLED AT BADDI UNIT WAS SHIFTED FROM THE OLD EXISTING UNIT AT D-6 NEW DELHI OR THE ASSESSEE HAD PURCHASED OLD AND USED MACHINES. VALUE OF THE OLD MACHINERY ( 88.72%) IS MUCH HIGHER THAN THE LIMIT OF 20% OF OLD MACHINE RY BEING THE LIMIT LAID DOWN IN SECTION 80IC OF THE I.T. ACT . 13.5 AS DISCUSSED EARLIER, THE CERTIFICATE FILED BY THE ASSESSEE IN FORM NO. 10CCB HAS BEEN FOUND UNRELIABLE. AFTER EXAMINATION OF THE SAME, IT HAS BEEN REJECTED BY GI VING DETAILED REASONS. FOR THE CLAIM OF DEDUCTION U/S 80 IC OF THE ACT, A CORRECT AND TRUE FORM NO. 10CCB IS REQUIRED TO BE FILED WITH RETURN OF INCOME. HOWEVER, THE ASSESSEE COMPAN Y HAS FAILED ON THIS ACCOUNT ALSO. 13.6 AS DISCUSSED ABOVE IN PRECEDING PARAGRAPHS OF THIS ORDER, THE ASSESSEE COMPANY HAS FAILED TO FULFILL M ANDATORY CONDITIONS LAID DOWN IN SECTION 80IC OF THE ACT. TH EREFORE, THE ASSESSEES CLAIM OF DEDUCTION U/S 80IC FOR THE ASSE SSMENT YEARS 2006-07, 07-08 AND AY 08-09, IF FOUND INCORRE CT AND IMPERMISSIBLE IN LAW. THEREFORE THE ENTIRE DEDUCTIO N U/S 80IC IS LIABLE TO BE TAXED. 9. ASSESSEE FILED APPEAL BEFORE THE CIT(A) AND ALSO MADE ALTERNATIVE PLEA THAT IN ANY CASE THE VALUE OF THE OLD MACHINERY AT BADDI UNIT BEING LESS THAN 20% OF THE TOTAL VALUE OF THE MACHINERY. 10. THE CIT(A) CALLED A REMAND REPORT FROM THE ASSE SSING OFFICER ON THE FOLLOWING SPECIFIC ISSUES :- THE APPELLANT HAS MADE A DETAILED SUBMISSION DATED 23.06.2011 WITH RESPECT TO THE ISSUE OF EXEMPTION D ISALLOWED IN HIS CASE U/S 80IC OF THE IT ACT. ON A PERUSAL OF THE ASSESSMENT ORDER AND FROM THE S UBMISSION MADE BY THE APPELLANT IT IS OBSERVED THE EXEMPTION U/S 80IC HAS BEEN DENIED ON THE GROUND THAT THE TOTAL VALUE OF OLD MACHINERY OR PLANT OR PARTS INSTALLED AT THE APPELL ANTS UNIT AT ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 17 BADDI (HIMACHAL PRADESH), DURING THE ABOVE REFERRED ASSESSMENT YEARS EXCEEDS 20% OF THE TOTAL VALUE OF MACHINERY OR PLANT USED IN SUCH NEW BUSINESS. THE SUBSTANCE O F THE FINDING IN THE ASSESSMENT ORDER IS THAT THE ASSESSE E HAS OBTAINED ACCOMMODATION BILLS FROM ONE M/S KRISHNA M ACHINES AND TOOLS, M/S SHRI KRISHNA MACHINES AND TOOLS AND CERTAIN OTHER PARTIES FOR PLANT & MACHINERY WHICH HAS NOT B EE ACTUALLY PURCHASED AND THAT SUCH MACHINERY AS SHOWN IN THESE ACCOMMODATION BILLS HAVE ACTUALLY BEEN SHIFTED FROM APPELLANTS ALREADY EXISTING UNIT LOCATED AT D-6, U DHYOG NAGAR INDUSTRIAL AREA, NEW ROHTAK ROAD, DELHI 110041, W HICH WAS NO LONGER USED FOR PRODUCTION ACTIVITIES. THE A BOVE FINDING OF THE AO IS BASED ON CERTAIN SEIZED MATERI AL IN FORM OF ACCOMMODATION BILLS WHERE THE WORDS BILL ONLY OR NO MATERIAL TRANSFER HAS BEEN WRITTEN. FURTHER, THE F ACT OF PHYSICAL TRANSFER OF MACHINERIES FROM D-6 UNIT AT D ELHI IS ALSO FOUND CORROBORATED FROM THE STATEMENTS RECORDED FRO M THE EMPLOYEES AT THE TIME OF SEARCH, WHICH HAS BEEN REF ERRED TO IN THE ASSESSMENT ORDER. RELIANCE HAS ALSO BEEN PLACED ON THE STATEMENT RECORDED OF SH. DINESH SHARMA, THE MAIN P ERSON CONTROLLING THE ACCOMMODATION BILL PROVIDING COMPAN IES/ CONCERNS. FURTHER TO THIS IS CASE OF SOME OTHER CON CERNS ALSO STATEMENTS WERE RECORDED DURING THE COURSE OF ASSES SMENT PROCEEDINGS WHEREBY THESE PERSONS HAVE ALSO ACCEPTE D GIVING ACCOMMODATION BILLS. FROM PARA 13.2 OF THE ASSESSME NT ORDER AT PAGE 134 IT IS NOTED THAT THE AO HAS THUS FOUND INCONTROVERTIBLE EVIDENCE OF ACCOMMODATION BILLS FO R MORE THAN RS. 54 LACS OF MACHINERY PURCHASE WHICH HAS BE EN SHIFTED FROM D-6 DELHI UNIT TO BADDI UNIT. THE AO HAS ALSO PLACED RELIANCE ON THE VALUATION RE PORT OF THE APPROVED VALUER WHICH WAS PREPARED ON THE BASIS OF VALUATION DONE AT THE TIME OF SURVEY CONDUCTED U/S 133A AT BA DDI UNIT OF THE ASSESSEE ON 03.03.08. PLACING RELIANCE ON TH E VALUATION REPORT WHEREIN THE SAID AFORESAID VALUER HAS REMARK ED THAT THE MACHINERIES INSTALLED AT BADDI UNIT ARE MORE THAN FIVE YEARS OLD, THE AO HAS HELD IN THE ASSESSMENT ORDERS THAT THE CONDITIONS SPECIFIED IN SECTION 80IC AS TO THE REQU IREMENT OF AT LEASE 80% OF PLANT AND MACHINERY INSTALLED IN A GIV EN YEAR BEING NEW HAS NOT BEEN FULFILLED. ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 18 THE ASSESSEE IN THE PRESENT SUBMISSION HAS CONTESTE D THE VALUATION REPORT OF THE VALUER ON SEVERAL GROUNDS W HICH INTER ALIA ARE AS UNDER:- I. THAT THE OBSERVATION THAT THE CONDITION OF THE MACH INERY IS MORE THAN FIVE YEARS OLD HAS BEEN MADE IN A MECH ANICAL MANNER. II. THAT THE INSPECTION HAS BEEN DONE BY THE VALUER WIT HIN TWO HOURS WITHOUT ALLOWING CROSS EXAMINATION AND VE RIFICATION. III. NO BASIS FOR TAKING PRESENT DAY VALUE AS SUGGESTED BY THE VALUER HAS BEEN INDICATED IN THE REPORT. NEITHER AN Y QUOTATION TAKEN BY THE VALUER FROM SUPPLIERS OF SUCH MACHINER Y HAS BEEN MADE PART OF THE REPORT. IV. TOTAL THE ASSESSEE IS HAVING RELEVANT BILLS WITH SU PPLIERS NAME AND SPECIFICATION WHICH CLEARLY ESTABLISHES TH E FACT THAT THE MACHINERIES ARE NEW. V. THE ASSESSEE HAS ALSO ADDUCED EVIDENCE RELATING TO THE TRANSPORTATION AND INSTALLATION EXPENSES OF SUCH NE W PLANT AND MACHINERY WHICH HAS NOT BEEN CONTROVERTED BY THE AO . VI. THAT THE ASSESSEE HAS SUBMITTED THE COMPLETE LIST O F MACHINERIES AND THE LIST OF SUPPLIERS ALONGWITH PHO TOCOPY OF THEIR BILLS AS WELL AS CONFIRMATION / AFFIDAVIT FRO M EACH OF THE SUPPLIER, SOME OF WHOM WERE ALSO EXAMINED BY THE AO AT THE TIME OF ASSESSMENT AND WHO HAVE CONFIRMED HAVING SU PPLIED NEW PLANT AND MACHINERY. ACCORDINGLY, THE ASSESSEE/ APPELLANT HAS IN HIS SUB MISSION CONCLUDED THAT THE DISPUTE RELATING TO ACCOMMODATIO N BILLS IN RESPECT OF THE PLANT AND MACHINERY WHICH IN FACT WA S OLD AND WAS BEING EARLIER USED AT D-6, DELHI UNIT COMES ONL Y TO RS. 54 LACS. THE ARGUMENT OF THE ASSESSEE IS THAT EVEN IF SUCH PLANT AND MACHINERY IS TREATED AS OLD IN NATURE IT IS THE DEPRECIATED VALUE OF SUCH MACHINERY, SHIFTED TO BADDI UNIT WHIC H SHOULD BE APPROPRIATELY TAKEN FOR WORKING OUT ELIGIBILITY U/S 80IC, AT RS. 20,57,421/-, AS SEEN FROM THE ENCLOSED CHART. I N SUPPORT OF THIS CLAIM THE APPELLANT IN THE CHART HAS GIVEN THE NAME OF THE ORIGINAL SUPPLIER OF SUCH MACHINERIES TOGETHER WITH THE ORIGINAL ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 19 VALUE AND THE DEPRECIATED VALUE OF SUCH MACHINE AS ON 31.03.2005 AND 31.03.2006 (PARTLY) AND THEREFORE TH E APPELLANT HAS SUBMITTED A REWORKING OF THE TOTAL VALUE OF NEW MACHINES AND OLD MACHINES AS ON THE END OF FINANCIAL YEAR31. 03.2006, 31.03.2007 AND 2008 AND HAS SUBMITTED THAT THE ELIG IBILITY FOR EXEMPTION U/S 80IC IS AVAILABLE TO THE ASSESSEE AS PER THE SAID REWORKING. YOU ARE REQUIRED TO GO THROUGH THE SUBMISSION AND T HE ENCLOSURES AS WELL AS THE COPY OF BILLS SUBMITTED B Y THE APPELLANT AND OFFER YOUR COMMENTS ON THE SAME. YOU MAY ALSO OFFER YOUR COMMENTS ON THE VALUATION ASPECT OF THE MACHINERIES BY THE ACCRUED VALUER AND THE CLAIM BEI NG MADE BY THE APPELLANT THAT MOST OF THE OTHER MACHINERIES INSTALLED AT BADDI ARE ACTUALLY NEW AND ARE SUPPORTED BY BILLS A ND OTHER EXPENSES INCURRED FOR TRANSPORTATION AND INSTALLATI ON. YOU MAY ALSO POINT OUT ANY OTHER EVIDENCE RELIED UPON THE A O IN THE ORDER TO THE EFFECT THAT THE PLANT AND MACHINERY (O THER THAN OF THE VALUE OF RS. 54 LACS) IS ESSENTIALLY OLD IN NAT URE. 11. THE ASSESSING OFFICER SUBMITTED ITS REMAND REPO RT ON 23.08.2011. 12. THE ASSESSEE FILED REJOINDER TO THE REMAND REPO RT WHICH READ AS UNDER :- 1. THAT THE APPELLANT IN ITS WRITTEN SUBMISSIONS H AS RAISED VARIOUS ISSUES WITH REFERENCE TO THE ASSESSMENT ORD ERS PASSED BY THE ASSESSING OFFICER FOR THE VARIOUS YEARS. 2. THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM O F THE ASSESSEE UNDER SECTION 80-IC OF THE ACT ON THE GROU ND THAT THE MACHINERY INSTALLED A THE NEW UNDERTAKING SET UP BY THE ASSESSEE AT BADDI (H.P.) HAS MORE THAN 20% AS OLD P LANT AND MACHINERY. IN THIS REGARD HE HAS REFERRED TO THE V ARIOUS STATEMENTS TAKEN DURING THE COURSE OF THE SEARCH/SU RVEY AND TO ALSO VARIOUS DOCUMENTS. 3. IN OUR WRITTEN SUBMISSIONS WE HAVE EXPLAINED EAC H AND EVERY ISSUE RAISED BY THE ASSESSING OFFICER AND ALS O AFTER ANALYZING ALL THE ALLEGATIONS OF THE ASSESSING OFFI CER IT WAS SUBMITTED THAT EVEN AS PER AOS OWN ALLEGATION IF T HE SAME IS TAKEN TO THE LOGICAL END THE ASSESSEE WILL STILL BE ELIGIBLE FOR EXEMPTION UNDER SECTION 80-IC OF THE ACT. IN THIS REGARD WE ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 20 HAVE MADE SUBMISSIONS BASED ON THE ALLEGATIONS MADE BY THE ASSESSING OFFICER. 4. THE ASSESSING OFFICER HAS NOW SUBMITTED THE REMA ND REPORT ON OUR WRITTEN SUBMISSIONS. AS PER THIS REM AND REPORT THE ASSESSING OFFICER HAS STATED THE FACTS STARTING FROM PAGE 2 TO PAGE 8 IN PARA 3.1 TO PARA 3.16. THESE FACTS ARE E XACTLY THE SAME AS STATED IN THE ASSESSMENT ORDER. IN FACT IT IS A VERBATIM COPY OF THE ASSESSMENT ORDER. 5. IN PARA 5, THE ASSESSING OFFICER HAS STATED THE CONTENTION RAISED BY US. IN PARA 5.1 HE HAS REFERRED TO THE A PPLICABILITY OF RULE 46A IN THE CASE OF THE ASSESSEE AND THEN REFER RED TO THE VARIOUS JUDGMENTS ON THIS ISSUE. IN THIS REGARD IT IS SUBMITTED THAT THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS HAS FILED ALL NECESSARY DETAILS AND EVIDENCES AS WERE CALLED BY THE ASSESSING OFFICER. THE ASSESSEE DURING THE APPELLA TE PROCEEDINGS HAS ANALYZED THE SAME FACTS AND HAS PUT THE SAME IN THE COLUMNAR FORM BASED ON THE RECORDS AVAILABLE WITH THE ASSESSING OFFICER. THE ASSESSING OFFICER IS WRONG LY ASSUMING THAT THE ASSESSEE HAS SUBMITTED ADDITIONAL EVIDENCE S. ON GOING THROUGH THE ANNEXURES WHICH HAVE BE ENCLOSED THEREI N YOUR HONOUR WILL NOTICE THAT THE ASSESSEE HAS SUBMITTED A CHART SHOWING YEARWISE DETAILS OF THE OLD MACHINES AS ALL EGED BY THE LEARNED ASSESSING OFFICER IN ANNEXURE A-2. IN ANNE XURE A-3 THE SAME MACHINES HAVE BEEN STATED AGAIN AS ALLEGED BY THE LEARNED ASSESSING OFFICER AND A WORKING OF THE WRIT TEN DOWN VALUE HAS BEEN DONE. THUS THIS IS AN ANALYSIS OF T HE ALLEGATIONS OF THE AO. FURTHER THE VALUE OF THESE MACHINES IS AS PER THE RECORDS FOR EACH OF THE ASSESSMENT YEARS AND ALSO R EFERRED TO IN THE SEARCH AND SEIZED RECORD AND THE STATEMENTS WHI CH HAVE BEEN CURLED OUT BY THE ASSESSEE AND PUT IN HERE. A CCORDINGLY THE ASSESSING OFFICER WAS NOT JUSTIFIED IN OBJECTIN G TO THIS ANALYSIS AS ADDITIONAL EVIDENCE. 6. FURTHER YOUR HONOUR WILL APPRECIATE THAT THE ASS ESSING OFFICER IN THE ASSESSMENT ORDER HAS MADE AN ALLEGAT ION THAT THE VALUE OF THE OLD MACHINES IS MORE THAN THE PRESCRIB ED PERCENTAGE FOR AVAILING EXEMPTION UNDER SECTION 80- IC OF THE ACT. IT IS NOT THE CASE OF THE AO THAT HE HAS CALL ED FOR CERTAIN EVIDENCES WHICH THE ASSESSEE HAS FAILED TO PRODUCE. IT IS A CASE WHETHER THIS ANALYSIS HAS BEEN PREPARED AS A MATTER OF ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 21 ALTERNATIVE SUBMISSION DESPITE CONTENTION THAT THE OLD MACHINERIES HAVING BEEN INSTALLED AT BADDI. THE AS SESSEE HAS TAKEN AN ALTERNATIVE GROUND BEFORE YOUR HONOUR THAT EVEN ASSUMING THAT THE ALLEGATION OF THE AO IS CORRECT S TILL THE VALUE OF THE OLD MACHINERY IS LESS THAN 20%. IT IS IN TH IS CONTEXT CLAUSE (C) OF RULE 46A(1) WILL BE APPLICABLE BECAUS E THIS EVIDENCE IS RELEVANT TO THE GROUNDS OF APPEAL TO BE DEDUCED BY YOUR HONOUR AND THIS WAS NEVER THE CONTENTION OF TH E ASSESSEE BEFORE THE ASSESSING OFFICER AND AS SUCH HE WAS PRE VENTED BY SUFFICIENT CAUSE BY PRODUCING THESE BEFORE THE ASSE SSING OFFICER. IT IS FURTHER SUBMITTED THAT AS PER RULE 46A THE ASSESSING OFFICER HAS TO BE GIVEN AN OPPORTUNITY FO R EXAMINATION OF THE PAPERS. HAVING GIVEN THE SAME T HE PROCESS HAS BEEN COMPLETED AND THE ENTIRE DISCRETION FOR AD MISSION OF ADDITIONAL EVIDENCE VESTS WITH THE CIT(A) WHO IS TH E DECIDING AUTHORITY. FURTHER THE POWER OF THE CIT(A) IS CO-T ERMINUS WITH THE AO AND HE IS WELL WITHIN HIS RIGHT TO CALL FOR ANY ADDITIONAL EVIDENCE OR INFORMATION WHICH IS NECESSARY TO DECID E THE ISSUE BEFORE HIM. IN THIS REGARD RULE 46A(4) IS RELEVANT WHICH SPECIFICALLY PROVIDES THAT THIS RULE SHALL NOT AFFE CT THE POWER OF THE COMMISSIONER (APPEALS) TO DIRECT THE PRODUCTION OF ANY DOCUMENT OR EXAMINATION OF ANY WITNESSES TO ENABLE HIM TO DISPOSE OF THE APPEAL. FURTHER UNDER SECTION 250(4 ) THE COMMISSIONER (APPEALS) HAS THE POWER TO MAKE SUCH F URTHER QUERY AS HE THINKS FIT OR MAY DIRECT THE AO TO MAKE FURTHER ENQUIRY AND REPORT THE RESULT OF THE SAME TO THE CO MMISSIONER (APPEALS) IN THIS REGARD RELEVANCE IS BEING PLACED ON THE FOLLOWING JUDGMENTS:- I. IN CASE OF ELECTRA JAIPUR P LTD. VS IAC (1998) 2 6 ITD 236 DEL IT WAS HELD THAT IF THE EVIDENCE IS GENUINE , RELIABLE AND PROVES THE ASSESSEES CASE ASSESSEE SHOULD NOT BE D ENIED THE OPPORTUNITY ADDUCE IT. II. THE SUPREME COURT IN THE CASE OF COLLECTOR, LAN D ACQUISITION VS MST. KATIJI & OTHERS (1987) 167 ITR 471 (SC) WHERE AN ISSUE OF LIMITATION HAS ARISEN, HAS OBSERV ED AS UNDER: IT MUST BE GRASPED THAT THE JUDICIARY IS RESPECTED NOT ON ACCOUNT OF ITS POWER TO LEGALIZE ON TECHNICAL GROUN DS BY BECAUSE IT IS CAPABLE OF REMOVING INJUSTICE AND I EXPECTED TO DO SO. ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 22 III. IF EVIDENCES GOES TO THE ROUTE OF THE MATTER A ND IS ESSENTIAL FOR RENDERING SUBSTANTIAL JUSTICE THEN TH E SAME IS REQUIRED TO BE ADMITTED.-BONANZA STOCK BROKERS VS. ITO (ITA NO. 1002/DEL/06)(ITAT) ABHAY TECHNOPLAST (HUF) VS. ITO (ITA NO. 565/DEL/07)(ITAT). IV. HONBLE SUPREME COURT IN THE CASE OF COLLECTOR LAND KATIJI, 167 ITR 471 (SC) ALSO HELD THAT WHEN TECHNI CAL CONSIDERATION ARE PITTED AGAINST THE CAUSE OF SUBST ANTIAL JUSTICE, THE LATTER MUST PREVAIL. V. ADDITIONAL EVIDENCE IF IN THE INTEREST OF JUSTIC E, AND RENDERS ASSISTANCE TO THE AUTHORITY IN PASSING ORDE R, MAY BE ADMITTED-HELD IN DWARKA PRASAD V/S ITO 63ITD. 7. THE ASSESSING OFFICER IN PARA 5.2 HAS REFERRED T O CERTAIN JUDGMENTS TO THE ACCEPTED PREPOSITION THAT IT IS AS SESSEE WHO HAS TO SUBSTANTIATE ITS RETURN AND CLAIM OF DEDUCTI ON. THE AO HAS STATED THAT BURDEN IS NOT DISCHARGED BY ANY FAN TASTIC EXPLANATION. HERE IS A CASE WHERE THE ASSESSEE HAS JUSTIFIED ITS CLAIM AND THE AO IS REJECTING THE SAME AS FANTASTIC WHICH IS BEING CONTESTED BY THE ASSESSEE. 8. IN PARA 5.3 THE ASSESSING OFFICER STATED THAT TH E WRITTEN DOWN VALUE IS NOT ACCEPTABLE FOR THE REASON THAT TH E SPECIFICATION STRIPS WERE NOT FOUND ON THE MACHINES AND IN THE ABSENCE OF THE SAME THE LIFE SPAN COULD NOT BE EXAC TLY DETERMINED. 9. FURTHER IN SUB-PARA (II) IT HAS BEEN STATED THAT IN THE ABSENCE OF THE SPECIFICATION STRIPS ON THE MACHINES IT IS NOW NOT VERIFIABLE AS COPIES OF THE BILLS SUBMITTED BEF ORE YOUR GOODSELF ARE FOR THE SAME MACHINES WHICH HAVE BEEN SHIFTED TO BADDI UNIT BY THE ASSESSEE. 10. THE ABOVE OBSERVATION OF THE AO IN THE REMAND R EPORT CONTRADICTS THE STAND TAKEN BY HIM IN THE ASSESSMEN T ORDER. YOUR HONOUR WILL APPRECIATE THAT AS PER THE ASSESSM ENT ORDER THE WHOLE OF THE ALLEGATION OF THE AO RIGHT FROM TH E START TILL END IS REVOLVING AROUND THE FACT THAT THE ASSESSEE HAS SHIFTED ITS OLD MACHINERIES FROM DELHI TO BADDI UNIT. IF THE C ONTENTION OF ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 23 THE AO IS THAT THESE OLD MACHINERIES HAVE NOT BEEN SHIFTED TO BADDI UNIT THEN THE WHOLE CASE OF THE AO FALLS FLAT . 11. FURTHER THE AO HAS STATED THAT THE LIFE SPAN CO ULD NOT BE EXACTLY DETERMINED. IF THAT HE THE CASE HOW COME T HE VALUATION HAS BEEN DONE BY THE VALUER AND ON WHAT BASIS HE HA S ASSUMED THE COST OF SUCH MACHINERIES. THE AO IN PARA (III) HAS FURTHER COMMENTED THAT THE BILLS OF THE MACHINERIES PERTAIN TO THE PERIOD 1989, 1990, 1994, 1997 AND 2003. IF THAT IS WHAT THE ALLEGATION IS AND THAT IS WHAT THE BASIS IN ASSESSM ENT ORDER ALL THESE DETAILS ARE PART OF THE ASSESSMENT RECORD WHE RE EACH ASSESSMENT YEARWISE ADDITIONS IN THE PLANT AND MACH INERIES ARE AVAILABLE. 12. FURTHER DURING THE COURSE OF THE SEARCH DOCUMEN TS HAVE BEEN SEIZED GIVING THE VALUE OF THESE MACHINERIES A S PER THE BOOKS OF ACCOUNT AND WHICH HAVE BEEN FURTHER EXAMIN ED AND CORROBORATED AND REFERRED TO BY THE ASSESSING OFFIC ER WITH THE STATEMENT OF THE PERSONS THERETO. EVEN FOR THE SAKE OF ARGUMENT THAT THE BILLS OF THESE MACHINERIES ARE IGNORED STI LL THE FACT REMAINS THAT THE DETAILS GIVEN IN ANNEXURE 2 AND ANNEXURE 3 ARE ON THE BASIS OF THE ASSESSMENT RECORD AND THE SEIZED RECORD AND ON THAT BASIS THIS ANALYSIS HAS BEEN PRE PARED TO PROVE THE ALTERNATIVE CONTENTION OF THE ASSESSEE. 13. IN SUB-PARA (IV) THE ASSESSING OFFICER HAS GIVE N JUSTIFICATION OF THE REJECTION OF THE BOOKS OF ACCO UNT. IN THIS REGARD THE AO HAS JUST REPEATED WHAT HE HAS STATED IN THE ASSESSMENT ORDER. HE HAS NOT REBUTTED ANY OF THE C ONTENTION RAISED BY US IN THE WRITTEN SUBMISSION. THIS CLEAR LY DEMONSTRATES THAT HE HAS NO MATERIAL WHATSOEVER TO REBUT THE SUBMISSIONS MADE BY THE ASSESSEE ON THIS ISSUE. 14. IN PARA (V) THE AO HAS REFERRED TO THE VALUATIO N DONE BY MR. UMESH JOHAR OF M/S JOHAR & ASSOCIATES AND ON TH IS BASIS HE HAS STATED THAT THE CORRECTNESS OF INSPECTION AN D VALUATION IS BEYOND DOUBT. IN THIS CONNECTION IN OUR WRITTEN SU BMISSION WE HAVE RAISED THE FOLLOWING ISSUES:- I) WHO IS THE APPROVED VALUER? MR. UMESH JOHAR OR M R. A.K. GOVIL. IN THIS REGARD THERE IS AN INSPECTION REPORT DATED 9 TH MAY, 2008 SIGNED BY MR. UMESH JOHAR AND ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 24 THERE IS A VALUATION REPORT DATED 23 RD JUNE, 2008 SIGNED BY MR. A.K. GOVIL. ON THE REPORT SIGNED BY MR. UME SH JOHAR THERE IS NO REGISTRATION NUMBER APPEARING OF AN APPROVED VALUER. IT IS A FACT ON RECORD THAT MR. A .K. GOVIL HAS NOT VISITED NOR INSPECTED THE BADDI UNIT. IF THAT BE THE CASE HOW COME MR. A.K. GOVIL HAS VALUED THE MACHINERY AS THERE IS NO ANSWER TO THIS IN THE REMAND REPORT. II) SECONDLY WHAT IS THE BASIS FOR PRESENT DAY REPL ACEMENT NOWHERE IS COMING IN THE REPORT. IS IT BASED ON TH E QUOTATIONS OBTAINED FROM THE SUPPLIERS OR IS IT AN ARBITRARY ESTIMATE? THERE IS NO ANSWER TO THIS. H OW CAN THE MACHINERY HAS BEEN VALUED AT A REPLACEMENT VALU E WHEN THE LAW IS CLEAR THAT THE MACHINERY HAS TO BE VALUED AT COST. III) ON GOING THROUGH THE INSPECTION REPORT THE LIF E SPAN OF THE MACHINERY HAS BEEN ESTIMATED AND IS BEING CLAIM ED THAT THIS IS THE CORRECT LIFE OF THE MACHINERY AND THAT IS WHY THIS VALUE IS BEING CLAIMED TO BE CORRECT. NOW IN THE REMAND REPORT THE ASSESSING OFFICER HIMSELF HAS STATED THAT IN THE ABSENCE OF STRIPS IT WAS NOT POSSIBLE T O DETERMINE THE LIFE OF THE MACHINERY. WHICH STATEME NT IS CORRECT AND WHAT IS THE BASIS, THE REMAND REPORT IS SILENT. IN THIS REGARD IT WILL BE IMPORTANT TO REFER TO THE FOLLOWING SPECIFIC ISSUES ON THE VALUATION REPORT OF THE VALU ER:- (A) WE HAVE RAISED THE ISSUE THAT THE OBSERVATION T HAT THE MACHINERY IS MORE THAN 5 YEARS OLD HAS BEEN MADE IN A MECHANICAL MANNER AS CAN BE SEEN FROM A CURSORY LOO K AT THE VALUATION REPORT. WHAT IS THE BASIS FOR ASSESS ING MACHINERIES IS MORE THAN 5 YEARS OLD NO WHERE HAS B EEN STATED NOR REPLIED IN THE REMAND REPORT? (B) WE HAVE ALSO RAISED THE ISSUE THAT THE INSPECTI ON HAS BEEN DONE WITHIN TWO HOURS WITHOUT ALLOWING CROSS EXAMINATION AND VERIFICATION. THE REMAND REPORT IS TOTALLY SILENT ON THIS ISSUE. ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 25 (C) THE VALUATION HAS BEEN DONE ON THE BASIS OF THE PRESENT DAY VALUE WHICH IS INCORRECT. (D) FURTHER THERE IS NO BASIS GIVEN FOR THE PRESENT DAY VALUE SUCH AS QUOTATION, ETC. (E) WE HAVE ALSO RAISED THE ISSUE THAT IN RESPECT OF THE NEW PLANT AND MACHINERY INSTALLED AT BADDI UNIT NO DISP UTE HAS BEEN RAISED BY THE AO. THE ASSESSEE HAS SUBMIT TED DOCUMENTARY EVIDENCES REGARDING THE BILLS, TRANSPORTATION, ETC. IN THE ABSENCE OF ANY REBUTTA L THERE CAN BE NO DENIAL THAT THE NEW MACHINERIES HAVE BEEN PURCHASED AND INSTALLED AT THE BADDI UNIT BY THE AS SESSEE. THE REMAND REPORT IS TOTALLY SILENT ON THIS ISSUE. (F) THIS IS IMPORTANT TO NOTE THAT THE ASSESSEE HAD SUBMITTED COMPLETE LIST OF MACHINERIES, LIST OF SUPPLIERS ALO NG WITH CONFIRMATIONS AND AFFIDAVITS FOR WHICH INDEPENDENT VERIFICATION WAS MADE BY THE AO FROM THESE SUPPLIER S AND EACH OF THESE SUPPLIERS HAVE CONFIRMED HAVING SUPPLIED THE NEW PLANT AND MACHINERY TO THE ASSESSE E. THE AO HAS NOT BEEN ABLE TO REBUT THIS CONTENTION O F THE ASSESSEE. (G) IT IS IMPORTANT TO NOTE THAT THE AO IN THE REMA ND REPORT HAS ACCEPTED THE FACT IN PARA 8 THAT THE LIST OF TH E MACHINERIES SUBMITTED BY THE ASSESSEE FOR CALCULATI NG THE WRITTEN DOWN VALUE REVEALS THAT THE DESCRIPTION OF THE MACHINES MENTIONED IS THE SAME AND IS IN ACCORDANCE WITH THE VALUATION REPORT. FURTHER THE AO IN PARA 8 HAS ALSO ADMITTED THE FACT THAT THE ARITHMETICAL CALCUL ATIONS OF WDV SUBMITTED IN THIS CHART APPEARS TO BE CORREC T. THIS STATEMENT OF THE AO IN THIS PARA 8 THAT THE DESCRIPTION AND THE CALCULATION IS CORRECT PROVES B EYOND DOUBT THAT OLD MACHINERIES ARE LIMITED TO THIS CHAR T ONLY AND FOR WHICH THE VALUATION AS WORKED OUT BY THE ASSESSEE IS CORRECT AND THE VALUATION DONE BY THE V ALUER ON THE BASIS OF WHICH THE AO HAS DENIED DEDUCTION U NDER SECTION 80 IC IS INCORRECT AND CANNOT BE RELIED UP ON. (H) IT IS IMPORTANT TO NOTE THAT THE DESCRIPTION OF THE MACHINERIES HAVING BEEN TALLIED THERE IS NO REASON TO ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 26 DOUBT ABOUT THE MACHINES PARTICULARLY ON THE BASIS THAT THE STRIPS WERE NOT AVAILABLE. IN VIEW OF THE ABOVE FACTS IT IS SUBMITTED THAT THE AO HAS NOT APPRECIATED THE ISSUE WHICH IS BEING CONTENDED BEFO RE YOUR HONOUR. YOUR HONOUR WILL APPRECIATE THE BASIS FOR DENYING DEDUCTION UNDER SECTION 80IC IS THAT ASSESSEE HAS S HIFTED ITS OLD PLANT AND MACHINERY FROM DELHI TO BADDI UNIT. THIS ALLEGATION IS BEING MADE ON THE BASIS OF CERTAIN DO CUMENTS FOUND DURING THE COURSE OF THE SEARCH AND THE STATE MENT RECORDED. FURTHER BASED ON THIS STATEMENT A SURVEY HAS BEEN CARRIED OUT ON THE BASIS OF WHICH AN INSPECTION WAS CARRIED OUT AND VALUATION REPORT HAS BEEN OBTAINED. ON READING THE ASSESSMENT ORDER THE AO HAS MADE OUT A CASE THAT OL D MACHINERIES OF DELHI UNIT HAVE BEEN SHIFTED TO BADD I AND THEN HE HAS GOT THESE MACHINERIES VALUED FROM A VALUER A ND ON THE BASIS OF THE VALUATION ADOPTED BY SUCH VALUER HE HA S WORKED OUT THE PERCENTAGE EVEN THOUGH OLD MACHINERIES ARE MORE THE PRESCRIBED PERCENTAGE FOR CLAIMING DEDUCTION UNDER SECTION 80IC. IN THIS REGARD THE STAND OF THE ASSESSEE HAS BEEN THAT THE CONTENTION OF THE AO IS WRONG. FURTHER EVEN IF IT IS ASSUMED THAT THE CONTENTION OF THE AO IS CORRECT THEN THE V ALUE OF THE PLANT AND MACHINERY SHIFTED TO BADDI UNIT IS LESS T HAN THE PRESCRIBED PERCENTAGE. IN THIS REGARD, FIRSTLY IT WAS SUBMITTED THAT THE VALUATION DONE BY THE VALUER IS INCORRECT ON THE FOLLOWING GROUNDS:- (A) IT IS NOT A VALUATION DONE BY AN APPROVED VALUER. (B) VALUATION HAS BEEN DONE BY A PERSON WHO HAS NOT VERIFIED THE MACHINERIES HIMSELF. (C) THE VALUATION HAS BEEN DONE ON THE BASIS OF REPLACE MENT COST ASSUMED AT THE CURRENT RATE WITHOUT FINDING OU T THE ACTUAL COST. (D) DISCOUNTED METHOD OF VALUATION CANNOT BE APPLIED. (E) THERE IS NO BASIS EVEN FOR ESTIMATING THE PRESENT M ARKET VALUE AS THERE IS NO QUOTATION, NO COMPARABLE INSTA NCES. ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 27 (F) THAT THE ALLEGATION THAT MACHINERIES ARE MORE THAN 5 YEARS OLD IS TOO GENERIC. THE ASSESSEES BADDI UNI T HAS BEEN WORKING FOR QUITE SOME TIME. ACCORDINGLY, THE VALUE ADOPTED BY THE AO ON THE BAS IS OF THIS VALUATION REPORT HAS TO BE TOTALLY DISREGARDED. TH E REMAND REPORT HAS NOWHERE BEEN ABLE TO REBUT THESE ISSUES RAISED BY US. NOW COMING TO THE ACTUAL VALUATION IT IS THE CASE O F THE AO THAT THE OLD MACHINERIES OF THE ASSESSEE AT DELHI U NIT HAVE BEEN SHIFTED TO BADDI UNIT. THE VALUE OF THESE OLD MACH INERIES HAVE BEEN COMPUTED AS PER THE ASSESSMENT RECORD AND THAT VALUATION HAS BEEN FOUND CORRECT IN THE REMAND REPORT. ACCOR DINGLY THIS VALUE HAS TO BE ADOPTED FOR THE PURPOSE OF FINDING OUT ELIGIBILITY FOR DEDUCTION UNDER SECTION 80IC. THAT THIS WORKING DONE BY THE ASSESSEE IN THIS REGARD IS CORR ECT MEANING THEREBY THAT THE VALUE OF THE OLD MACHINERIES COMES TO RS.20,57,421/-. THE THIRD ISSUE IS VALUE OF THE NEW MACHINERIES. T HE ASSESSEE HAS SUBMITTED A COMPLETE LIST OF THE NEW MACHINERIE S. THE ASSESSEE HAS SUBMITTED EVIDENCES, INCLUDING AFFIDAV ITS, CONFIRMATIONS. THESE CONFIRMATIONS HAVE BEEN CROSS -VERIFIED BY THE AO DURING ASSESSMENT STAGE AND NOTHING ADVER SE HAS BEEN POINTED OUT. ACCORDINGLY THERE CANNOT BE ANY DISPUTE TO THE EXTENT OF THESE NEW MACHINERIES AT BADDI UNIT. IN THESE CIRCUMSTANCES THE CASE OF THE ASSESSEE SQU ARELY FALLS WITHIN THE ELIGIBILITY PRESCRIBED UNDER SECTION 80I C AS HAS BEEN EXPLAINED IN THE WRITTEN SUBMISSION AS UNDER:- THE TOTAL VALUE OF THE MACHINERY FOR A.Y. 2006-07 W ILL BE AS UNDER:- TOTAL MACHINERIES AS PER BOOKS : RS.2,57,65,050/- LESS: MACHINERIES IN WHICH THERE IS AN ALLEGATION THAT THE BILLS ARE NOT GENUINE : RS. 53,23,540/ - NEW MACHINERIES FOR WHICH THERE IS NO DISPUTE : RS.2,04,41,510/- ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 28 OLD MACHINERIES AS PER LIST ENCLOSED : RS. 20,40, 750/- TOTAL VALUE OF MACHINERIES : RS.2,24,84,260/- % OF OLD MACHINERIES : 9.09% YOUR HONOUR WILL APPRECIATE THAT THE PERCENTAGE OF THE OLD MACHINERY IS MUCH LESS THAN 20% PRESCRIBED UNDER EXPLANATION 2 TO SECTION 80IC OF THE ACT. IN VIEW OF ABOVE FACTS THE ASSESSEE IS ELIGIBLE FOR EXEMPTION UNDER SECTION 80IC OF THE ACT. WE MAY FURTHER SUBMIT THAT THE ABOVE COMPUTATION IS FOR THE ASSESSMENT YEAR 2006-07. IN THE ASSESSMENT YEAR 20 07-08 THE ASSESSEE HAS MADE A FURTHER ADDITION OF NEW MACHINE RY OF RS.9693657/-. THERE IS NO DISPUTE AND NO ALLEGATIO N WHATSOEVER ABOUT THE PURCHASE OF THESE NEW MACHINER IES. COMPLETE LIST OF THESE PURCHASES ALONG WITH SUPPLIE RS BILLS WERE FILED BEFORE THE A.O. AND THE SAME HAVE BEEN P LACED IN THE PAPER BOOK. ON GOING THROUGH THE SAME YOUR HON OUR WILL NOTICE THAT IN THIS ASSESSMENT YEAR THERE IS NO ALL EGATION WHATSOEVER ABOUT THE PURCHASES OF THESE NEW MACHINE RIES EXCEPT ONE ALLEGATION OF OLD TABLET COMPRESSION MAC HINE HAVING INVOICE COST OF RS.83200/- AND W.D.V. OF RS. 14671/-. IN THE LIGHT OF THE ABOVE FACTS THE VALUE OF THE NE W MACHINERY WILL BE AS UNDER :- TOTAL MACHINERIES AS PER BOOKS : RS.3,54,58,707/- LESS: MACHINERIES IN WHICH THERE IS AN ALLEGATION THAT THE BILLS ARE NOT GENUINE : RS. 54,06,740/- NEW MACHINERIES FOR WHICH THERE IS NO DISPUTE : RS.3,00,51,967/- OLD MACHINERIES AS PER LIST ENCLOSED : RS. 20,57, 421/- TOTAL VALUE OF MACHINERIES : RS.3,21,09,388/- % OF OLD MACHINERIES : 6.41% ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 29 SIMILARLY FOR ASSESSMENT YEAR 2008-09 THE ASSESSEE HAS PURCHASED NEW MACHINERY OF RS.5366819/-. THE DETAI LS OF THE SAME ALONG WITH EVIDENCES IN THE FORM OF BILLS, SUP PLIERS AFFIDAVITS WERE ALSO FILED BEFORE THE A.O. THERE I S NO DISPUTE WHATSOEVER OR ANY ALLEGATION ABOUT THESE MACHINERIE S. THE TOTAL VALUE OF THE MACHINERY FOR THIS ASSESSMENT YE AR WILL BE AS UNDER :- TOTAL MACHINERIES AS PER BOOKS : RS.4,08,25,526/- LESS: MACHINERIES IN WHICH THERE IS AN ALLEGATION THAT THE BILLS ARE NOT GENUINE : RS. 54,06,740/- NEW MACHINERIES FOR WHICH THERE IS NO DISPUTE : RS.3,54,18,786/- OLD MACHINERIES AS PER LIST ENCLOSED : RS. 20,57 ,421/- TOTAL VALUE OF MACHINERIES : RS.3,74,76,227/- % OF OLD MACHINERIES : 5.49% ACCORDINGLY IT IS SUBMITTED THAT THE AO WAS NOT JUS TIFIED IN DENYING EXEMPTION UNDER SECTION 80IC OF THE ACT AS PER HIS OWN ALLEGATION AND IT IS PRAYED THAT THE AO BE DIRE CTED TO ALLOW DEDUCTION UNDER SECTION 80IC OF THE ACT. 13. AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE A ND PERUSING THE RECORD, CIT (A) GRANTED RELIEF TO THE ASSESSEE BY HOLDING A S UNDER : - ON A CONSIDERATION OF THE FINDINGS OF THE AO AND THE SUBMISSION OF THE APPELLANT, IT IS OBSERVED THAT TH E CONTENTION OF THE APPELLANT IS ESSENTIALLY TWO FOLD. WHILE TH E APPELLANTS PRIMARY SUBMISSION IS THAT THERE WAS NO TRANSFER OF OLD MACHINERY FROM THEIR DELHI UNIT TO BADDI UNIT AND A CCORDINGLY THE CLAIM FOR DEDUCTION U/S 80IC OF THE IT ACT IS A LLOWABLE IN TERMS OF THIS SECTION, THE ALTERNATE ARGUMENT OF TH E APPELLANT IS THAT EVEN IF PART OF THE MACHINERY INSTALLED AT BAD DI (WHICH AS PER THE ACCOMMODATION BILLS PURCHASED, IS FOR A TOT AL ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 30 CONSIDERATION OF RS.54 LACS) IS TAKEN AS OLD STILL THE APPELLANTS CLAIM IS ALLOWABLE IN TERMS OF THE PROVISIONS OF SE CTION 80IC, AS THE VALUE OF OLD PLANT AND MACHINERY INSTALLED A T BADDI VIS- -VIS THE NEWLY INSTALLED PLANT AND MACHINERY REMAI NS WITHIN 20%. A. FROM THE ASSESSMENT ORDER IT IS NOTED THAT THE M AIN POINTS ON BASIS OF WHICH THE AO HAS GIVEN HIS FINDI NG REGARDING SHIFTING OF OLD PLANT AND MACHINERY FROM DELHI UNIT TO BADDI UNIT ARE AS FOLLOWS:- I. STATEMENTS RECORDED OF SH. DINESH SHARMA, THE PROPRIETOR OF M/S KRISHNA MACHINE TOOLS AND M/S SHR I KRISHNA MACHINE TOOLS WHO DURING THE COURSE OF EARL IER SEARCHES CONDUCTED ON HIM BY CENTRAL EXCISE AUTHORI TIES AND INCOME TAX DEPARTMENT HAD ADMITTED TO HAVE PROVIDED ONLY ACCOMMODATION BILLS FOR PURCHASE OF CERTAIN PLANT AND MACHINERY WITHOUT HAVING ACTUALLY SUPPLIED ANY SUCH MACHINERY TO THE ASSESSEE COMPANY. THE COPY OF STA TEMENT OF SH. DINESH SHARMA HAS BEEN PROVIDED TO THE APPELLAN T, WHO HAS FAILED TO CONTROVERT THE SAME. II. DURING THE COURSE OF SEARCH AT THE APPELLANTS PREMISES LOCATED AT D-6, UDYOG NAGAR, NEW DELHI CERTAIN DOCU MENTS (INVENTORISED AS ANNEXURE A-29) HAVE BEEN SEIZED WH ICH CONTAINS ACCOMMODATIONS BILLS. THE REMARKS NOTED ON THESE SEIZED ACCOMMODATION BILLS BEARS RECORDING/NARRAT IVE TO THE EFFECT BILL ONLY OR NO MATERIAL TRANSFER. THE NAMES OF ALL SUCH PARTIES WHOSE ACCOMMODATION BILLS ARE INVENTOR ISED IN ANNEXURE A-29 HAVE BEEN RECORDED IN DETAIL IN PARA 7.11 OF THE ASSESSMENT ORDER. THE NOTINGS ON THESE BILLS ADDIT IONALLY SUBSTANTIATE THAT IN ACTUALITY NO SUCH PLANT OR MAC HINERY, AS MENTIONED ON THESE BILLS, HAS IN REALITY BEEN NEWL Y PURCHASED BY THE APPELLANT. THIS ALSO FURTHER GOE S ON TO SUBSTANTIATE THE STATEMENTS RECORDED OF SH. DINESH SHARMA. III. THE FACT THAT THERE HAS BEEN TRANSFER OF CERTA IN OLD MACHINERY FROM D-6, UDYOG NAGAR, DELHI TO BADDI UNI T IS ALSO PROVED FROM THE STATEMENTS OF THE THREE SENIOR EXEC UTIVES OF THE ASSESSEE COMPANY VIZ., SH. P. KUMUNDAN, DISTRIB UTION MANAGER, SH. DV SARDANA, ADMINISTRATION MANAGER AND SH. SS BANGA, GM (PRODUCTION). THOUGH THE ASSESSEE HAS TRIED TO ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 31 WRIGGLE OUT FROM THE IMPORT OF THE STATEMENTS GIVEN BY THESE SENIOR OFFICERS OF THE COMPANY, BY RELYING ON THEIR RETRACTION LETTERS BUT THE SAME FACT OF THE MATTER REINS THAT ALL THE THREE OFFICERS HAD IN THEIR STATEMENT, WHICH WAS RECORDED SEPARATELY FROM EACH OTHER, HAVE CONFIRMED THAT OLD PLANT AND MACHINERY FROM D-6, UDYOG NAGAR, DELHI WAS SHIFTED TO BADDI U NIT. THIS REFLECTS UPON THE CREDENCE AND EVIDENTIARY VAL UE TO BE ATTACHED TO THESE STATEMENTS. IN FACT THE RETRACTI ON MADE AT A LATER STAGE IS UNRELIABLE FOR THE POSSIBILITY OF TH ESE EMPLOYEES BEING TUTORED AND PRESSURIZED TO RETRACT THEIR EARL IER VOLUNTARY STATEMENT IS REAL. MOREOVER, THE RETRACTION IS ALS O UNBELIEVABLE WHEN WEIGHED AGAINST THE BACK DROP OF THE SEIZED DO CUMENTARY EVIDENCES AT ANNEXURE A-29 AND THE STATEMENTS OF SH RI DINESH SHARMA BOTH SEEN IN CONJUNCTION. IV. APART FROM THE ABOVE, SH. RAJENDER SINGH THE DI RECTOR OF M/S TABMAC TOOLS P. LTD. HAS IN HIS STATEMENT RE CORDED ON 18.12.09 UNDER OATH VIDE S. 131 OF THE ACT (MUCH AF TER THE DATE OF SEARCH AND DURING THE ASSESSMENT PROCEEDINGS) HA S CATEGORICALLY ADMITTED TO HAVE PROVIDED MERE BILLS AND NOT SUPPLIED ANY GOODS TO THE ASSESSEE FOR AN AMOUNT OF RS.68,900/-. THIS IS YET ANOTHER EVIDENCE WHICH CO NFIRMS THAT OLD MACHINERIES HAVE BEEN INDEED BEEN TRANSPORTED F ROM DELHI UNIT AND INSTALLED AT BADDI UNIT UNDER THE GARB/COV ER OF NEW MACHINERY. V. APART FROM THE ABOVE, THE AO HAS ALSO BROUGHT ON RECORD THE FACT THAT IN ALL SUCH CASES WHERE ACCOMMODATION BILL HAVE BEEN PURCHASED, THE PAYMENT PATTER CONSISTENTLY SHO WS THAT THERE HAS BEEN UNREASONABLE AND UNDUE TIME LAG IN M AKING PAYMENT, EXTENDING TO MORE THAN 2 YEARS, WHICH IS N OT A NORMAL FEATURE OF BUSINESS WHEN GENUINE PURCHASES A RE MADE. VI. THUS ON A COMBINED AND CUMULATIVE ANALYSIS OF T HE ABOVE FACTS, AS BROUGHT OUT IN DETAIL BY THE AO IN THE ASSESSMENT ORDER, I AM OF THE FIRM CONSIDERED VIEW AND IN ABSOLUTE AGREEMENT WITH THE AOS FINDING THAT CERTA IN OLD MACHINERIES FROM D-6, UDYOG VIHAR, DELHI HAVE BEEN PASSED OFF AS NEW MACHINERY INSTALLED AT BADDI BY PURCHASI NG ACCOMMODATION BILLS FROM VARIOUS PARTIES, AS REFERR ED TO IN THE ASSESSMENT ORDER. AS TO THE QUESTION OF THE VALUE OF SUCH OLD MACHINERIES PASSED OFF AS NEW, IT IS OBSERVED FROM PARA 13.2 OF ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 32 THE ASSESSMENT ORDER THAT THE AO HAS HIMSELF CATEGO RICALLY HELD THAT INCONTROVERTIBLE EVIDENCE OF ACCOMMODATIO N BILLS OF MORE THAN RS.54 LACS OF MACHINERY PURCHASES, AS INT RODUCED BY THE ASSESSEE, HAS BEEN FOUND BY THE DEPARTMENT DURI NG AY 2005-06 & 2006-07. B. HOWEVER, THE QUESTION AS TO WHETHER 88.72% OF TH E VALUES OF MACHINERY INSTALLED AT BADDI WAS OLD AS P ER THE VALUATION REPORT OF M/S JOHAR & ASSOCIATES AS WELL AS THE ESTIMATION OF THIS VERY VALUER FIRM THAT 70% OF THE MACHINERY AT BADDI WAS OLD STILL REQUIRES TO BE ANSWERED, AS IT IS THIS DETERMINATION WHICH WOULD DECIDE THE ISSUE OF ALLOW ABILITY OF DEDUCTION U/S 80IC. IN THIS CONNECTION IT IS OBSERVED THAT THE ASSESSEE COMPANY HAS OBJECTED TO THE LEGALITY OF THE INSPECTION AND ALSO POINTED OUT TO SEVERAL FACTUAL INACCURACIES. THE APPELLANT STA TES THAT A GENERAL OBSERVATION, IN A MECHANICAL WAY, HAS BEEN MADE BY THE VALUER THAT THE CONDITION OF THE MACHINES ARE M ORE THAN FIVE YEARS OLD. THAT FROM THE INSPECTION REPORT IT DOES NOT COME OUT CLEARLY AS TO ON WHAT SCIENTIFIC BASIS IT IS BE ING STATED THAT THE MACHINES ARE MORE THAN FIVE YEARS OLD. THAT TH IS INSPECTION WAS CARRIED OUT IN MARCH, 2008 AND APPARENTLY THE M ACHINES WERE NOT NEW BY THIS YEAR, AS PRODUCTION HAD STARTE D IN 2005 I.E. ALMOST 3 YEARS AGO. THERE IS NO PRECISE SCIEN TIFIC WAY TO DISTINGUISH BETWEEN THE AGE OF THE MACHINERY WHICH IS ENGAGED IN PRODUCTION ACTIVITIES. TO PUT IT DIFFERENTLY, T HE DIFFERENCE OF THE AGE OF INSTALLED MACHINERIES BEING 3 YEARS OLD OR 5 YEARS OLD IS THEREFORE A MATTER OF GUESS WORK. THAT THE ASSESSEE HIMSELF HAS ALSO GOT DONE AN INSPECTION BY AN APPRO VED CHARTERED ENGINEER WHICH WAS FILED BEFORE THE A.O. IN THIS REPORT THIS CHARTERED ENGINEER HAS ALSO EXAMINED EA CH MACHINERY BASED ON DOCUMENTARY EVIDENCE AND HAS GIV EN A REPORT. THE A.O. HAS NOT TAKEN COGNIZANCE OF THIS REPORT WHICH HAS BEEN IGNORED. IT HAS BEEN ALSO SUBMITTED THAT THE WHOLE INSPECTION HAS BEEN COMPLETED WITHIN TWO AND HALF H OURS (172 MINUTES) INVOLVING MORE THAN 200 MACHINES, WHICH DEMONSTRATES THE LACK OF FOCUS AND APPLICATION. IN VIEW OF THE ABOVE FACTS AS ARGUED BY THE APPELLA NT, IN MY CONSIDERED VIEW, THE VALUATION REPORT OF DEPARTMENT AL VALUER AS REGARDS THEIR VALUATION AND THE AGE OF THE MACHI NERIES HAS TO ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 33 BE TAKEN WITH A PINCH OF SALT AS THE SAME IS AT BES T ONLY AN APPROXIMATION OF THE AGE OF MACHINERY INSTALLED IN A RUNNING PLANT. IT IS ALSO IMPORTANT TO NOTE THAT THE A.O. IS CONSIDERING THE INSPECTION REPORT IN WHICH HAS BEEN COMPLETED W ITHIN TWO HOURS WHO HAS NOT BEEN SUBJECTED TO CROSS-EXAMINATI ON BY THE ASSESSEE. AS REGARDS THE OTHER FACTUAL INACCURACIES IN THE VA LUATION REPORT IT IS FIRSTLY OBSERVED THAT THE DEPARTMENTAL VALUER HAS RECORDED THE PRESENT DAY REPLACEMENT VALUE OF THE MACHINERY I.E. THE VALUE ON THE DATE OF INSPECTION I.E. 3.3.2008 AND T HEREAFTER A DISCOUNTED VALUE HAS BEEN WORKED OUT AS ON 31 ST MARCH, 2005. NO BASIS OF WORKING OF THIS DISCOUNTED VALUE HAS BE EN STATED. FURTHER PARA 9 OF THE VALUATION REPORT REFLECTS THA T THE VALUER HAS TAKEN QUOTATION/VERBAL CONFIRMATION FROM THE SU PPLIERS FOR ESTIMATING THE VALUATION AS ON 3.3.2008. NO SUCH Q UOTATION HAS BEEN MADE PART OF THE REPORT, NOR HAS IT BEEN STATE D THAT FROM WHICH SUPPLIER AND FOR WHICH BRAND THE VERBAL QUOTA TION FOR MACHINERY HAS BEEN TAKEN. THE SUBJECT VALUATION REPORT SUFFERS FROM YET ANOTH ER DEFECT. THE PURPOSE OF OBTAINING THIS VALUATION REPORT WAS TO VALUE THE OLD MACHINERIES WHICH ACCORDING TO A.O. HAD BEEN IN STALLED AT BADDI UNIT. THIS WOULD ENTAIL THAT SUCH FINDING HA S TO BE TAKEN TO ITS LOGICAL END I.E. THE COST OF THESE MACHINERI ES AS ON THE DATE OF ACQUISITION HAS TO BE ASCERTAINED AND THERE AFTER DEPRECIATION UPTO THE DATE ON WHICH THE MACHINERY H AS BEEN SHIFTED TO BADDI UNIT HAS TO PROVIDED FOR. HOWEVER , INSTEAD THE IMPUGNED VALUATION REPORT TAKES INTO ACCOUNT TH E COST OF NEW MACHINERY AS ON THE DATE OF VALUATION AND BY AP PLYING AN INDEX RATE OF RETURN THE DISCOUNTED VALUE OF THIS N EW MACHINERY AS ON 31 ST MARCH, 2005 HAS BEEN WORKED OUT. THIS METHOD ASSUMES THE VALUE OF THE NEW MACHINE AS ON 31 ST MARCH, 2005 AND NOT THE VALUE OF THE OLD MACHINES WHICH AS PER THE A.O.S FINDINGS HAD BEEN PREVIOUSLY PURCHASED AND WAS BEIN G USED AT D-6 UNIT AT UDYOG VIHAR, DELHI FROM A PRIOR DATE. THERE IS YET ANOTHER ASPECT TO THIS METHOD OF DISCOUNTING. THIS METHOD OF VALUATION FURTHER ASSUMES APPRECIATION TAKING PLACE FOR EACH ITEM THAT TOO IN TANDEM WITH THE RBI WHOLESALE PRIC E INDEX, WHILE THE FACT OF THE MATTER IS THAT RBI WHOLESALE PRICE INDEX TRACKS CHANGES IN AVERAGE PRICE OF GOODS TRADED IN A WHOLESALE MARKET. FURTHER WHILE RBI WHOLESALE PRICE INDEX IS THE MOST ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 34 COMMON MEASURE OF INFLATION BUT IT IS NOT NECESSARI LY THE RATE AT WHICH DIFFERENT ITEMS APPRECIATE OVER A PERIOD O F TIME AS MAY BE CERTAIN ITEMS/ GOODS WHICH MAY WITNESS SHARP INCREASE WHILE THERE COULD BE CERTAIN ITEMS, THE PRICES OF W HICH HAVE UNDERGONE DECLINE. IT IS FURTHER NOTICED THAT SHRI A.K. GOVIL, THE PER SON WHO HAS SIGNED THE VALUATION REPORT HAS HIMSELF NOT INSPECT ED THE MACHINERIES, AS IS EVIDENT FROM THE FACT THAT THE I NSPECTION WAS CARRIED OUT BY SHRI UMESH JOHAR. THIS FACT IS BASE D ON THE APPELLANT HAVING CONTENDED AND FILED THE COPY OF LI ST OF THE APPROVED VALUERS MAINTAINED IN OFFICE OF CCIT-DELH I WHEREIN THE NAME OF SH. UMESH JOHAR DOES NOT APPEAR , WHICH SHOWS THAT HE WAS NOT AN APPROVED VALUER FOR THE PU RPOSES OF PLANT & MACHINERY (INSPECTION & VALUATION). THE AP PELLANT HAS CONTENDED THAT AS PER CBDT INSTRUCTION NUMBER 1 858 DATED 20/09/1990, THE REPORT OF A VALUER, OTHER THA N THAT APPROVED BY CCIT, IS LIABLE TO BE REJECTED. ACCORDINGLY, FOR ALL REASONS CUMULATIVELY CONSIDERE D THE INSPECTION & VALUATION REPORT OF UMESH JOHAR OF M/S JOHAR & ASSOCIATES CANNOT BE ABSOLUTELY RELIED UPON, ON ITS FACE VALUE. AS THE CORRECTNESS INSPECTION REPORT OF THE VALUER REGARDING THE AGE OF MACHINERY INSTALLED AT BADDI UNIT CANNOT BE TREATED AS CONCLUSIVE PROOF OF THEIR AGE THEREFORE THE ANSWER TO THIS CONTENTIOUS QUESTION WOULD HAVE TO BE FOUND FROM TH E LIST OF PURCHASES OF THE MACHINERIES INSTALLED AT BADDI AND THE SUPPLIERS THEREOF. AS STATED ABOVE, THE A.O. HAS G IVEN ADVERSE FINDING OF FACT IN SPECIFIC CASES OF PURCHASES OF M ACHINERIES FROM KRISHNA MACHINE TOOLS, SRI KRISHNA MACHINE & T OOLS AND CERTAIN OTHER BILLS OF OTHER SUPPLIERS AND HELD THAT THESE BILLS ARE ACCOMMODATION BILLS. IN PARA 13 OF THE A SSESSMENT ORDER THE AO HAS GIVEN A CATEGORICAL FINDING THAT T HE ASSESSEE HAS TAKEN ACCOMMODATION BILLS OF RS.54 LACS. HOWEV ER THERE IS NO CATEGORICAL AND FIRM POSITIVE ADVERSE FINDING OF FACT AS REGARDS THE OTHER PURCHASES OF THE MACHINERIES, (AP ART FROM THE VALUATION REPORT OF THE DEPARTMENTAL VALUER WHICH F OR THE REASONS DISCUSSED ABOVE, CANNOT BE REGARDED AS CONC LUSIVE). ACCORDINGLY, AS REGARDS THE OTHER PURCHASES OF MACH INERIES A REASONABLE VIEW AS REGARDS THEIR AGE HAS TO BE TAKE N BASED ON OTHER EVIDENCES ON RECORD. IT IS SEEN FROM THE ASS ESSMENT ORDER ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 35 THAT DURING THE COURSE OF THE ASSESSMENT PROCEEDING S THE ASSESSEE HAD SUBMITTED COMPLETE LIST OF MACHINERIES AND THE LIST OF SUPPLIERS ALONG WITH THEIR NAME AND ADDRESS AND A PHOTOCOPY OF THEIR PURCHASE BILLS. THE ASSESSEE HA S SUBMITTED CONFIRMATION/AFFIDAVITS FROM EACH OF THESE SUPPLIER S. THE ASSESSEE ALSO SUBMITTED EVIDENCES IN SUPPORT OF THE FACT THAT THE MACHINERY HAD IN FACT MOVED FROM THE RESPECTIVE SUPPLIERS EITHER TO BADDI UNIT OR AFTER HAVING BEEN RECEIVED AT DELHI UNIT, TRANSPORTED BY THE ASSESSEE HIMSELF TO BADDI UNIT. IN SUPPORT OF THIS COPY OF G.R. (BUILTY); COPY OF FORM 26A ISSUED BY EXCISE & TAXATION DEPT., HIMACHAL PRADESH , DETAILS OF THEIR INSTALLATION, FOUNDATION/ERECTION CHARGES & TRANSPORTATION CHARGES HAVE BEEN FILED. THE APPELL ANT ALSO FILED AFFIDAVITS DULY NOTARIZED FROM THE SUPPLIERS OF THE MACHINERIES, IN WHICH THE SUPPLIERS HAVE CONFIRMED TO HAVE MADE THE SALE OF MACHINERIES AS PER THE BILLS ISSUE D BY THEM AS ALSO THE MODE AND THE LORRY NUMBER BY WHICH SUCH MA CHINERY WAS TRANSPORTED. IT HAS ALSO BEEN CONFIRMED IN THE AFFIDAVITS THAT THE PAYMENTS AS SHOWN IN THE BILLS HAS BEEN RE CEIVED BY THESE SUPPLIER PARTIES THROUGH ACCOUNT PAYEE CHEQUE S (THE CHEQUE NOS. AND DEBIT NOTES HAVE BEEN ALSO RECODED) . FURTHER STATEMENT OF ACCOUNT OF THESE SUPPLIERS WITH THE AS SESSEE COMPANY HAVE ALSO BEEN CONFIRMED AND FILED. IN THE SE AFFIDAVITS THE INCOME TAX PAN AND THE OFFICE WHERE THESE SUPPLIERS ARE ASSESSED TO TAX ARE ALSO STATED. I H AVE GONE THROUGH THE ABOVE DOCUMENTS SUBMITTED BY THE APPELL ANT (WHICH WERE ALSO FILED BEFORE THE AO) AND ALSO CHEC KED THE LEDGER ACCOUNT OF THE SUPPLIERS OF THE MACHINERY IN ORDER TO VERIFY UNUSUAL DELAY, IF ANY, IN PAYMENT. FROM THE VERIFICATION OF ABOVE IT IS PRIMA FACIE OBSERVED THAT THE PAYMEN TS IN THESE CASES HAVE EITHER BEEN MADE IN ADVANCE OR WITHIN A REASONABLE CREDIT PERIOD, WHICH SHOWS THAT THESE PURCHASES (AP ART FROM PURCHASES FOR RS.54 LACS) ARE PRIMA FACIE GENUINE I N NATURE. IT IS A MATTER OF RECORD THAT THE LIST OF TOTAL MACHIN ERY PURCHASED BY THE ASSESSEE UP TO 31/03/2008 COMES TO RS. 408 L ACS. THE ASSESSEE HAS SUBMITTED THAT EVEN IF THE FINDING OF THE A.O. REGARDING ACCOMMODATION BILLS OF MACHINERY OF RS.54 LACS IS TAKEN AS CORRECT THIS WOULD STILL LEAVE A SUM OF RS .354 LACS BEING VALUE OF THE NEW MACHINERY PURCHASED BY THE A SSESSEE. C. NOW THE NEXT ISSUE TO BE CONSIDERED IS THAT AS T O WHAT WOULD BE VALUE OF THE OLD MACHINERY WHICH HAVE BEEN SHIFTED ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 36 TO BADDI UNIT FROM DELHI BY WAY OF ACCOMMODATION BI LLS FROM D-6 UNIT. THE ASSESSEE HAS SUBMITTED A DETAILED LI ST OF MACHINERIES BASED ON A.O.S CONCLUSIVE FINDING REGA RDING THE MACHINERIES OF THE VALUE OF RS. 54 LACS (AS PER ACC OMMODATION BILLS) WHICH HAVE BEEN SO SHIFTED. THE APPELLANT H AS SUBMITTED THAT THE VALUE OF SUCH MACHINERIES ON WDV BASIS COM ES TO RS.20,57,421 AS PER THE INCOME TAX ACT AS IT IS THI S WDV WHICH SHOULD BE LOGICALLY SUBSTITUTED FOR THE PURPO SES OF CALCULATION OF THE PERCENTAGE OF OLD MACHINERY VIS- -VIS NEW MACHINERY. FOR THIS PURPOSE THE ASSESSEE HAS SUBMI TTED SIX ANNEXURES, WHICH AS UNDER:- I) ANNEXURE - A (I) STATEMENT SHOWING PARTY WISE DETAIL OF OLD MACHINES AS ALLEGED BY THE A.O. II) ANNEXURE - A (II) STATEMENT SHOWING MACHINE WIS E DETAIL OF THE OLD MACHINES AS ALLEGED BY THE A.O. III) ANNEXURE - A (III) STATEMENT SHOWING DETAILED YEAR WISE CALCULATION OF THE WDV OF OLD MACHINES AS ALLEGED B Y THE AO. IV) ANNEXURE A(IV) STATEMENT SHOWING MACHINE WISE ADDITION OF PLANT & MACHINERY AT BADDI UNIT IN COMPARISON WITH VALUATION MADE BY THE DEPARTMENT VALUER. V) ANNEXURE A(V) STATEMENT SHOWING YEAR WISE ADDITION TO PLANT & MACHINERY INSTALLED AT BADDI. VI) ANNEXURE A(VI) COPIES OF THE CORRESPONDING OLD BILLS OF THE OLD MACHINERIES AS ALLEGED BY THE AO. (I) ALL THE ABOVE SAID ANNEXURES ALONG WITH WRITTEN SUBMISSION OF THE ASSESSEE WAS FORWARDED TO THE AO FOR HIS COMMENTS VIDE LETTER DATED 07.07.2011. SUBSEQUENTL Y THE COPY OF THE AOS REMAND REPORT RECEIVED THEREON WAS PROV IDED TO THE APPELLANT FOR HIS COUNTER COMMENTS. THE APPELL ANTS REJOINDER IS SUMMARIZED AS UNDER:- IN THE REMAND REPORT THE AO HAS OBJECTED TO THE ADM ISSIBILITY OF ADDITIONAL EVIDENCES. IN THIS REGARD THE ASSESS EE HAS ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 37 CLARIFIED THAT THE DOCUMENTS SUBMITTED IN THE APPEL LATE PROCEEDINGS ARE ONLY ANALYSIS AND ALTERNATE SUBMISS IONS OF THE APPELLANT ON THE CONCLUSION ARRIVED BY THE AO AND A RE NOT IN NATURE OF FRESH EVIDENCES. MOREOVER, EVEN IF THESE SUBMISSIONS ARE CONSIDERED AS ADDITIONAL EVIDENCE T HE SAME MAY BE ADMITTED UNDER RULE 46A, FOR WHICH RELIANCE HAS BEEN PLACED ON VARIOUS JUDICIAL RULINGS WHICH ARE AS UND ER:- A) IN THE CASE OF ALLEN BRADLEY INDIA LIMITED VS DC IT (1993) 47 TTJ (DEL) 314 IT WAS HELD THAT APPELLANT NOT HAVING BEEN GIVEN SUFFICIENT TIME TO PRODUCE INFORM ATION SOUGHT FOR BY ASSESSING OFFICER, ADDITIONAL EVIDENC E WAS ADMITTED. B) IN THE CASE OF ELECTRA (JAIPUR) (P) LTD. VS. IAC (1998) 26 ITD 236 (DEL) IT WAS HELD THAT IF THE EVIDENCE IS GENUINE, RELIABLE AND PROVES THE ASSESSEES CASE THE ASSESSE E SHOULD NOT BE DENIED THE OPPORTUNITY TO ADDUCE IT. C) IF EVIDENCE GOES TO THE ROOT OF THE MATTER AND I S ESSENTIAL FOR RENDERING SUBSTANTIAL JUSTICE THEN THE SAME IS REQUIRED TO BE ADMITTED. BONANZA STOCK BROKERS VS. ITO (IT A NO. 1002IDEL106) (ITAT) ABHAY TECHNOPLAST (HUF) VS. ITO (ITA NO.5651DEL/07) (ITAT). D) HONBLE SUPREME COURT IN THE CASE OF COLLECTOR L AND KATJI, 167 ITR 471 (SC) HAS HELD THAT WHEN TECHNICAL CONSIDERATIONS ARE PITTED AGAINST THE CASE OF SUBST ANTIAL JUSTICE, THE LATTER MUST PREVAIL. E) THE HONBLE ITAT CALCUTTA IN THE CASE OF ITO (EXEMPTIONS) VS. BAJORIA FOUNDATION (254 ITR (AT) 6 5) HAS HELD THAT IF PRIMA FACIE INFORMATION IS NECESSA RY TO EXAMINE THE CLAIM OF THE ASSESSEE, THE COMMISSIONER OF INCOME TAX (APPEALS), SHOULD CONSIDER THE NECESSA RY EVIDENCE IN EXERCISE OF HIS POWERS U/S 250(4) AND I T IS SETTLED IN LAW THAT WHEN A STATUTORY AUTHORITY HAS THE POWER TO DO SOMETHING, THEN IT HAS A CORRESPONDING DUTY TO EXERCISE SUCH POWERS WHENEVER CIRCUMSTANCES WARRANTING EXERCISE OF SUCH POWERS EXIST. ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 38 IN VIEW OF THE FACT THAT NO NEW EVIDENCE HAS BEEN F ILED BY THE APPELLANT AND THESE ARE MERE ALTERNATE SUBMISSIONS THE OBJECTION OF THE AO WITH RESPECT TO THE ADMISSIBILI TY OF THE NEW DOCUMENTARY EVIDENCES, IN THE NATURE OF OLD & P REVIOUS PURCHASE BILLS FOR MACHINERY BASED ON WHICH THESE A LTERNATE ARGUMENTS ARE BEING MADE, IS NOT APPROPRIATE AND TH EREFORE THE COPY OF THESE EARLIER YEARS BILLS CORRESPONDING TO THE PURCHASES OF ACCOMMODATION BILLS FOR MACHINERIES FOR THE VALU E OF RS. 54 LACS AND THEIR COMPUTATION FOR CALCULATING THEIR WD V AS ON 31.03.05 AND STATEMENT SHOWING ADDITION TO PLANT AN D MACHINERY ALONG WITH OTHER DOCUMENTS SUBMITTED ARE ADMITTED FOR PURPOSES OF DECIDING THE ISSUE AT HAND. ADDITI ONALLY, THESE DOCUMENTS GO TO THE BASIC PREMISE OF THE ISSUE IN Q UESTION AND ARE OTHERWISE RELEVANT FOR DECIDING THE ALTERNATE G ROUND OF APPEAL NO.10-(IV), TAKEN BY THE APPELLANT. (II) WITH REGARD TO ADOPTION OF WDV OF THE MACHINER IES TRANSFERRED FROM D-6 DELHI UNIT TO BADDI UNIT, THE AO IN HIS REMAND REPORT HAS ON MERITS, MADE THE FOLLOWING COM MENTS:- IN PARA 5.3 OF THE REMAND REPORT THE AO HAS STATED THAT THE WRITTEN DOWN VALUE IS NOT ACCEPTABLE FOR THE REASON THAT THE SPECIFICATION STRIPS WERE NOT FOUND ON THE MACHINES AND IN THE ABSENCE OF THE SAME THE LIFE SPAN COULD NOT BE EXAC TLY DETERMINED. FURTHER IN SUB-PARA (II) IT HAS BEEN STATED THAT IN THE ABSENCE OF THE SPECIFICATION STRIPS ON THE MACHINES, IT IS NOW NOT VERIFIABLE AS COPIES OF THE BILLS SUBMITTED BEFORE YOUR GOODSE LF ARE FOR THE SAME MACHINES WHICH HAVE BEEN SHIFTED TO BADDI UNIT BY THE ASSESSEE. BECAUSE ON THE BILLS THE NUMBER AND THE NAME / MODEL HAS SPECIFICALLY BEEN MENTIONED BY THE SELLER WHEREAS THE SAME WAS NOT FOUND ON THE MACHINES BY THE REGIS TERED VALUER. THE AO IN PARA (III) HAS FURTHER COMMENTED THAT THE BILLS OF THE MACHINERIES PERTAIN TO THE PERIOD 19879, 1990, 1994 , 1997 AND 2003 AND THIS ASPECT WAS NEVER CONTENDED BY THE ASS ESSEE DURING THE ASSESSMENT PROCEEDING. IN SUB-PARA (IV) THE ASSESSING OFFICER HAS GIVEN JU STIFICATION FOR THE REJECTION OF THE BOOKS OF ACCOUNT. ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 39 IN PARA (V) THE AO HAS REFERRED TO THE VALUATION DO NE BY MR. UMESH JOHAR OF M/S JOHAR & ASSOCIATES AND ON THIS B ASIS HE HAS STATED THAT THE CORRECTNESS OF INSPECTION AND V ALUATION IS BEYOND DOUBT. WITH REGARD TO THE ABOVE COMMENTS OF THE AO, I HAVE EXAMINED THE SUBMISSIONS OF THE ASSESSEE AND IN MY CONSIDERED VIEW IN A SITUATION WHERE THE IDENTIFICA TION NUMBER ON THE MACHINES, THAT I.E. THE SPECIFICATION STRIPS WERE NOT FOUND, THE ONLY REASONABLE ALTERNATIVE LEFT IS TO I DENTIFY THE MACHINES ON THE BASIS OF DESCRIPTION OF THE ASSETS AS MENTIONED ON THE ACCOMMODATION BILLS OF RS.54 LACS, ON WHICH THE AO HAS BASED HIS FINDING. VIDE PARA NO.6 OF THE REMAND REPORT THE AO HAS ADMI TTED THAT THE BILLS AND THE DEPRECIATION CHART SUBMITTED BY T HE ASSESSEE IS AS PER THE DESCRIPTION OF THE MACHINES MENTIONED ON THE BILLS AND THE SAME IS ALSO IN ACCORDANCE WITH THE VALUER REPORT. THE AO HAS ALSO STATED THAT THE ARITHMETICAL CALCULATIO N OF THE WDV APPEARS TO BE CORRECT IN THE CHART. THESE OBSE RVATIONS OF THE AO IMPLICITLY SUPPORTS THE ANALYSIS SUBMITTED B Y THE ASSESSEE REGARDING CALCULATING THE WDV OF THE OLD & USED MACHINERY SHIFTED FROM D-6 UNIT FOR THE WDV OF RS.20,57,421/-, THAT IT IS CORRECT AND SHOULD BE TA KEN INTO ACCOUNT FOR COMPUTING ELIGIBILITY U/S 80IC. THE AO HAS IN PARA (III) COMMENTED THAT THE BILLS OF THE MACHINER IES PERTAIN TO THE PERIOD 1989, 1990, 1994, 1997 AND 2003, WHICH I S A STATEMENT OF FACT AS ALL THESE DETAILS ARE PART OF THE INCOME TAX RETURN OF EACH ASSESSMENT YEAR. IN SUB-PARA (IV) T HE ASSESSING OFFICER HAS GIVEN JUSTIFICATION FOR THE REJECTION O F THE BOOKS OF ACCOUNT. IN THIS REGARD THE AO HAS MERELY REPEATED WHAT HAS BEEN STATED IN THE ASSESSMENT ORDER. IN PARA (V) T HE AO HAS REFERRED TO THE VALUATION DONE BY MR. UMESH JOHAR O F M/S JOHAR & ASSOCIATES AND ON THIS BASIS HE HAS STATED THAT THE CORRECTNESS OF INSPECTION AND VALUATION IS BEYOND D OUBT. IN THIS CONNECTION I HAVE ALREADY SPELLED OUT THE REAS ONS IN THE PRECEDING PARAS AS TO WHY THE INSPECTION & VALUATIO N REPORT OF THE APPROVED VALUER CANNOT BE MADE THE BASIS FOR DE TERMINING THE AGE & VALUE OF THE MACHINERIES INSTALLED AT BAD DI FOR 80IC PURPOSES. ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 40 THE AO IN THE REMAND REPORT HAS ACCEPTED THE FACT I N PARA 8 OF HIS REMAND REPORT THAT THE LIST OF THE MACHINERIES SUBMITTED BY THE ASSESSEE FOR CALCULATING THE WRITTEN DOWN VALUE REVEALS THAT THE DESCRIPTION OF THE MACHINES MENTIONED IS THE SA ME AND IS IN ACCORDANCE WITH VALUATION REPORT. FURTHER THE AO I N PARA 8 HAS ALSO ADMITTED THE FACT THAT THE ARITHMETICAL CALCUL ATIONS OF WDV SUBMITTED IN THIS CHART APPEARS TO BE CORRECT. FROM THIS STATEMENT OF THE AO IT IS CONCLUDED THAT THE WDV OF THE OLD MACHINERIES AS COMPUTED & SUBMITTED BY THE APPELLAN T ARE CORRECT. AS REGARDS THE OTHER MACHINERIES INSTALLED AT BADDI UNIT, A FINDING HAS ALREADY BEEN GIVEN IN THE PROCEEDING PA RAS THAT N VIEW OF THE AFFIDAVITS & OTHER DOCUMENTS / COPY OF ACCOUNTS, CONFIRMATION OF SUPPLIERS / PAYMENT IN CHEQUES TO T HE SUPPLIERS/ TRANSPORTATION BILLS & THE FACT THAT THE DESCRIPTION OF MACHINES AS WRITTEN ON THE BILLS TALLIES WITH THE M ACHINERIES FOUND AT BADDI UNIT, DURING THE SURVEY, THE BALANCE MACHINERIES INSTALLED CAN FAIRLY AND REASONABLY BE ACCEPTED AS NEWLY PURCHASED AND INSTALLED AND NOT OLD MACHINES PASSED OFF AS NEW ONES. D. IN THE LIGHT OF THE ABOVE ANALYSIS AND FINDING, THE CORRECT VALUE OF OLD & NEW MACHINERY COMPUTED FOR AY 2006-0 7 WOULD BE AS UNDER:- A.Y. TOTAL VALUE OF MACHINE AS PER BOOKS BILLS OF MACHINERIES INCLUDED IN ABOVE NEED EXCLUSION VALUE OF NEW MACHINERIES VALUE OF OLD MACHINERIES TO BE INCLUDED TOTAL VALUE OF MACHINERIES % OF OLD MACHINERIES 2006-07 2,57,65,050 53,23,540 2,04,41,510 20,42,750 2,24,84,260 9.09 THE TOTAL VALUE OF MACHINERIES AS PER BOOKS FOR THE ASSESSMENT YEAR 2006-07 IS RS.2,57,65,050/- WHICH INCLUDES BIL LS FOR RS.53,23,540/- (AS ON 31.03.06) WHICH ARE NOT GENUI NE. IN PLACE OF THE VALUE AS PER THE ACCOMMODATION BILLS F OR RS.53,23,540/- THE WDV OF THE OLD MACHINERIES SHIFT ED TO BADDI UNIT IS TAKEN AT RS.20,42,750/- IN ORDER TO A SCERTAIN THE PERCENTAGE OF THE OLD MACHINERIES INSTALLED AT BADD I AS ON 31.03.06. ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 41 NEW MACHINERIES : RS.2,04,41,510 OLD MACHINERIES : RS.20,42,750 TOTAL VALUE OF MACHINERIES : RS.2,24,84,260 % OF OLD MACHINERIES : 9.09% IN MY CONSIDERED OPINION SINCE THE PERCENTAGE OF TH E OLD MACHINERY IS CONSIDERABLY LESS THAN 20% PRESCRIBED AS UNDER EXPLANATION 2 SECTION 80IC OF THE ACT, THE ASSESSEE IS FOUND ELIGIBLE FOR CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT. THE GROUND OF APPEAL NO.10 IS ACCORDINGLY ALLOWED. 14. NOW THE REVENUE IS BEFORE US BY CHALLENGING THE ORDER OF THE CIT(A) IN GIVING A RELIEF TO THE ASSESSEE AND FINDING THAT ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC AS THE VALUE OF THE OL D MACHINERY AT BADDI UNIT IS LESS THAN THE MAXIMUM LIMIT PRESCRIBED UNDER THE STATUTE. 15. THE LEARNED DR PLEADED THAT THE CIT(A) WAS NOT JUSTIFIED IN IGNORING THE VALUATION REPORT DONE BY AN EXPERT. THE VALUER HAS FOUND THAT THE TOTAL VALUE OF THE MACHINERY AT BADDI UNIT WAS RS.6,36,52 ,889/- AND OUT OF THAT THE VALUE OF THE OLD MACHINERY WAS RS.5,72,01,279/-. H E FURTHER SUBMITTED THAT THE ABOVE VALUATION REPORT IS CORROBORATED FROM THE SEIZED MATERIAL FOUND DURING THE COURSE OF THE SEARCH AS WELL AS WITH THE STATEMENT OF THE VARIOUS EMPLOYEES RECORDED DURING THE COURSE OF SEARCH. IN THIS REGARD, LEARNED DR FURTHER SUBMITTED THAT COMPUTATION OF THE VALUE OF THE ACCOMMODATION BILLS AT RS.54,00,000/- TAKEN BY THE CIT(A) IS NOT CORRECT. FINALLY, THE LEARNED DR RELIED ON THE ORDER OF THE ASSESSING OFFICER AND PL EADED THAT THE ORDER OF CIT (A) MAY BE SET ASIDE. ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 42 16. LEARNED AR SUBMITTED THAT THE ORDER PASSED BY T HE AO WAS ARBITRARY. IT HAS BEEN PASSED BY IGNORING THE FACTS AND THE CO NTENTION AS BROUGHT OUT BY ASSESSEE VIDE ITS SUBMISSIONS MADE ON 27.11.2009, 3 0.11.2009, 7.12.2009, 11.12.2009 AND 24.12.2009. IN THESE SUBMISSIONS, ASSESSEE HAS CLARIFIED EACH AND EVERY ISSUE RAISED BY ASSESSING OFFICER. 17. WITH REGARD TO THE VALUATION OF MACHINERY, THE LEARNED AR SUBMITTED THAT THE PROCESS FOLLOWED FOR INSPECTION AND VALUAT ION IS COMPLETELY FLAWED. OUR ATTENTION WAS DRAWN TO THE PHOTOGRAPHS TAKEN AT THE TIME OF THE INSPECTION TO HIGHLIGHT THE POINT THAT THE WHOLE PROCESS OF IN SPECTION HAS BEEN COMPLETED IN 2 HOURS, AS CAN BE SEEN FROM THE TIME RECORDED O N THE FIRST PHOTOGRAPH AND THE TIME RECORDED ON THE LAST PHOTOGRAPH. IT WAS S UBMITTED THAT THESE PHOTOGRAPHS WERE PROVIDED IN A CD BY THE DEPARTMENT ITSELF. IT WAS FURTHER CONTENDED THAT THE VALUER HAS SIMPLY TAKEN THE VALU E OF THE MACHINERY AS ON DATE AND THEN APPLIED THE DISCOUNTED CASH FLOW MET HOD TO WORK OUT THE VALUE AS ON 31 ST MARCH, 2006, INSTEAD OF FINDING OUT THE ORIGINAL C OST OF MACHINERY. THE BASIS ADOPTED FOR OBTAINING THE MARKET VALUE HA S ALSO NOT BEEN STATED NOR SUBSTANTIATED DESPITE SPECIFICALLY ASKING FOR THE S AME. 18. THE LEARNED AR FURTHER SUBMITTED THAT THE INSPE CTION WAS CARRIED OUT BY MR. UMESH JOHAR AS EVIDENT FROM INSPECTION REPORT D T. 9 TH MAY 2008 AND HE IS NOT AN AUTHORIZED VALUER AS EVIDENT FROM THE LIST O F THE APPROVED VALUERS ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 43 SUPPLIED BY THE CHIEF COMMISSIONER OF INCOME TAX. THE ASSESSEE SUBMITTED COMPLETE LIST OF MACHINERY ALONG WITH NAME AND ADDR ESS SUPPLIERS, INVOICE, ETC. AS IS EVIDENT FROM LETTER DATED 18 TH NOVEMBER, 2009 FILED WITH THE ASSESSING OFFICER. DETAILED INVESTIGATIONS WERE CA RRIED OUT BY THE ASSESSING OFFICER FROM EACH OF THESE SUPPLIERS DURING THE ASS ESSMENT PROCEEDINGS. NOTHING ADVERSE COULD BE FOUND ABOUT THE PURCHASE O F THESE MACHINERIES EXCEPT A FEW INSTANCES OF ACCOMMODATION BILLS WHICH HAS BEEN COMPUTED AT RS.54,00,000/- BY THE ASSESSING OFFICER. THERE IS NO MATERIAL AGAINST THE OTHER PURCHASES OF THE NEW MACHINERIES. IN THE ABS ENCE OF ANY ADVERSE MATERIAL, NO ADVERSE INFERENCE CAN BE DRAWN AGAINST THE ASSESSEE WITH REGARD TO PURCHASE OF MACHINERIES. 19. WITH REGARD TO THE SPECIFIC INSTANCES OF ACCOMM ODATION BILLS CITED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER IT WA S SUBMITTED THAT THE AO WAS NOT JUSTIFIED IN DRAWING ADVERSE INFERENCE ON T HE BASIS OF THE STATEMENT OF MR. DINESH SHARMA, THE SO-CALLED PROPRIETOR OF M/S KRISHNA MACHINE TOOLS. IN THIS REGARD ATTENTION WAS INVITED TO THE LETTER DATED 30 TH NOVEMBER, 2009 WHEREIN IN REPLY TO POINT NO. 30 ASSESSEE HAS SUBMI TTED COMPLETE DETAILS OF THE PURCHASES MADE FROM M/S KRISHNA MACHINE TOOLS A LONG WITH SALES TAX NUMBER AND THE EXCISE REGISTRATION NUMBER. A COPY OF THE STATEMENT OF ACCOUNT WAS ALSO SUBMITTED WHICH SHOWS THAT ALL PAY MENTS HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUES. ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 44 20. IT WAS FURTHER SUBMITTED THAT ASSESSEE HAD MADE REPEATED REQUESTS TO THE AO TO PROVIDE A COPY OF THE STATEMENT OF MR. DINESH SHARMA, SHRI SURENDER S. BAGGA, SHRI S.K. MEHNDIRATTA AND MR. D.V. SARDAN A AS IS EVIDENT FROM THE LETTER DATED 7.12.2009. THE ASSESSEE HAS ALSO ASKE D FOR CROSS-EXAMINATION OF MR. DINESH SHARMA IN SUPPORT OF ITS CONTENTION. THU S THE ADVERSE INFERENCE DRAWN BY ASSESSING OFFICER AND CONFIRMED BY CIT (A) ABOUT ACCOMMODATION BILLS OF RS.54 LAKHS IS NOT JUSTIFIED. 21. WITH REGARD TO THE OTHER NEW MACHINERY, THE ASS ESSEE VIDE LETTER DATED 7.12.2009 BROUGHT TO THE NOTICE OF THE ASSESSING OF FICER THAT IT HAS FILED A DETAILED CHART WITH REGARD TO THE INSTALLATION OF T HE MACHINERIES IN THE BADDI UNIT FOR ALL THE THREE YEARS INCORPORATING COMPLETE DESCRIPTION OF THE MACHINERIES, SUPPLIERS OF THE MACHINERIES, THEIR CO MPLETE NAME AND ADDRESS, DETAILS OF THE TRANSPORTATION (BUILTY/GR NUMBER AND DATE), DETAILS OF THE INSTALLATION, FOUNDATION/ERECTION CHARGES AND THE T RANSPORTATION CHARGES. THE ASSESSEE HAS ALSO SUBMITTED COPIES OF THE BILLS ALO NG WITH EXCISE DOCUMENTS IN FORM NO.26A ISSUED BY THE EXCISE AND TAXATION DEPAR TMENT, HIMACHAL PRADESH EVIDENCING CLEARANCE OF THE MACHINERIES FRO M THE BORDER. IT HAS ALSO FILED COPIES OF THE SALES TAX REGISTRATION CERTIFIC ATE, EXCISE REGISTRATION CERTIFICATE, CONFIRMATION AND AFFIDAVIT OF THE SUPP LIERS OF THE MACHINERIES. 22. IT WAS FURTHER CONTENDED THAT VIDE LETTER DATED 24.12.2009 THE ASSESSEE HAS PRODUCED THE MACHINERY SUPPLIERS VIZ. MR. RAHUL KHURANA OF M/S SAINATH ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 45 BOILERS & PNEUMATICS AND MR. ATUL SHARMA OF M/S PRE CISION GEARS (INDORE) LTD., AND THESE SUPPLIERS HAVE CLARIFIED THAT THE I NSTALLATION WAS CARRIED OUT BY DEPUTING THEIR OWN ENGINEERS AND INSTALLATION TEAM WHICH IS PART OF THE SYSTEM OF SUPPLY OF THE MACHINERY TO THE PHARMACEUTICAL IN DUSTRIES. IT WAS CLARIFIED THAT THIS IS A GENERAL TREND PREVAILING IN THIS TYP E OF INDUSTRY AND NOT ONLY THAT THEY ALSO PROVIDE TRAINING TO THE WORKERS FOR OPERA TING AND MAINTENANCE OF THE MACHINERY. 23. ON THE BASIS OF THESE SUBMISSIONS, THE LEARNED AR SUBMITTED THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DRAWING ADVE RSE INFERENCE AGAINST THE ASSESSEE BY MAKING A GENERAL OBSERVATION AND WITHOU T GOING INTO EACH PURCHASE OF THE MACHINERIES. IN THE ABSENCE OF ANY ADVERSE FINDING WITH REGARD TO THE PURCHASES OF THE MACHINERIES FROM SUP PLIERS OTHER THAN REFERRED TO IN THE ASSESSMENT ORDER, THE COMPLETE DETAILS AN D EVIDENCE WERE SUBMITTED TO ASSESSING OFFICER. NO ADVERSE MATERIAL WAS FOUN D DESPITE CARRYING OUT INTENSIVE VERIFICATION. THE ASSESSING OFFICER WAS NOT CORRECT TO IGNORE THESE PURCHASES. 24. FINALLY, THE LEARNED AR PLEADED THAT THE ADVERS E FINDING OF THE CIT(A) WITH REGARD TO SHIFTING OF THE OLD MACHINERIES NEED S TO BE DELETED. THE ACTION OF THE CIT(A) IN ALLOWING DEDUCTION UNDER SECTION 8 0IC IS TO BE UPHELD. 25. WE HAVE HEARD BOTH SIDES IN DETAIL AND HAVE CON SIDERED THE SUBMISSIONS. WE HAVE ALSO PERUSED THE RELEVANT MAT ERIAL FILED IN VOLUMINOUS ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 46 PAPER BOOKS AND RELIED UPON BY LEARNED AR. AFTER CO NSIDERATION OF ALL RELEVANT MATERIAL, WE FIND NO MERITS IN THE CONTENT ION OF LEARNED DR THAT THE ASSESSEE WAS NOT ELIGIBLE TO CLAIM DEDUCTION UNDER SECTION 80IC AS IT HAS FAILED TO FULFILL ALL THE CONDITIONS AS THE VALUE O F THE OLD MACHINERY EXCEEDS THE PRESCRIBED PERCENTAGE AS PROVIDED IN SECTION 80 IC OF THE ACT. IN OUR CONSIDERED VIEW, THE CIT(A) WAS JUSTIFIED IN NOT RE LYING ON THE VALUATION REPORT AND ALLOWING DEDUCTION UNDER SECTION 80IC. 26. NOW WE TAKE THE ISSUES ONE BY ONE ON WHICH THE ASSESSING OFFICER HAS DENIED THE DEDUCTION. THE MAIN ISSUES WERE WHETHER THE ASSESSEE HAS SHIFTED OLD MACHINERIES FROM ITS DELHI UNIT TO BADDI UNIT A ND OBTAINED ACCOMMODATION ENTRY FOR MACHINERY. IN SUPPORT OF T HIS ALLEGATION, THE ASSESSING OFFICER HAS RELIED UPON THE STATEMENT OF MR. DINESH SHARMA, PROPRIETOR OF M/S KRISHNA MACHINE TOOLS AND M/S SHR I KRISHNA MACHINE TOOLS. IN THIS STATEMENT MR. DINESH SHARMA HAS ADM ITTED THAT HE HAS ISSUED ACCOMMODATION BILLS FOR THE PURCHASE OF CERTAIN PLA NT AND MACHINERY WITHOUT MAKING ACTUAL SUPPLY OF SUCH PLANT AND MACHINERY TO THE ASSESSEE. THE ASSESSEE HAS CHALLENGED THE ACTION OF THE AO IN DRA WING ADVERSE INFERENCE ON THE GROUND THAT MR. DINESH SHARMA WAS NOT PROPRIETO R OF ONE OF THIS CONCERN AND FURTHER NO CROSS EXAMINATION WAS ALLOWED DESPIT E REPEATED REQUESTS. WE HAVE GONE THROUGH THE FACTS AND WE NOTICE THAT THOU GH OPPORTUNITY OF CROSS EXAMINATION WAS NOT ALLOWED BY THE AO DESPITE ASSES SEE REPEATEDLY ASKING ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 47 FOR THE SAME. BUT WE ARE OF THE VIEW THAT ASSESSEE HAS NOT BEEN ABLE TO CONTROVERT THE ALLEGATION ARISING THEREOF AS CAN BE SEEN FROM THE STATEMENT OF THE EMPLOYEES RECORDED DURING THE SEARCH AS WELL AS THE OTHER MATERIAL BROUGHT ON RECORD BY THE AO TO SUPPORT THIS ALLEGAT ION. 27. THE STATEMENT OF THE THREE SENIOR EXECUTIVES OF THE ASSESSEE COMPANY VIZ., MR.P. MUKUNDAN, DISTRIBUTION MANAGER, MR. D.B . SARDANA, ADMINISTRATION MANAGER AND MR. S.S. BANGA, G.M. (:P RODUCTION) WERE RECORDED DURING THE COURSE OF THE SEARCH. ALL THES E THREE OFFICIALS IN THE INITIAL STATEMENT HAVE CONFIRMED THAT SOME OF THE OLD PLANT AND MACHINERY FROM THE DELHI UNIT WAS SHIFTED TO THE BADDI UNIT. THOUGH T HESE PERSONS HAVE RETRACTED THESE STATEMENTS LATER ON BUT THE FACT REMAINS THAT IN THE INITIAL STATEMENT ALL THESE THREE PERSONS HAVE CONFIRMED THE FACT THAT TH E OLD MACHINERIES HAVE BEEN SHIFTED FROM DELHI UNIT TO THE BADDI UNIT. 28. FURTHER ONE OF THE SUPPLIERS, MR. RAJINDER SING H, DIRECTOR OF M/S TEBMAC TOOLS PVT. LTD. IN THE STATEMENT RECORDED BY THE AO, HAS ADMITTED TO HAVE PROVIDED ACCOMMODATION BILL FOR AN AMOUNT OF R S.68,900/-. THIS ALSO CONFIRMS THE ALLEGATION OF THE AO THAT ACCOMMODATIO N BILLS HAVE BEEN OBTAINED IN RESPECT OF THE OLD PLANT AND MACHINERY SHIFTED FROM DELHI UNIT TO BADDI UNIT. 29. WE FURTHER NOTICE THAT THE CIT(A) HAS ALSO EXAM INED THE STATEMENTS OF ACCOUNTS OF THESE SUPPLIERS AND HE COULD IDENTIFY S AME SUPPLIERS FROM WHOM ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 48 ACCOMMODATION BILLS HAVE BEEN TAKEN BY OBSERVING A PECULIAR PATTERN OF PAYMENT. THE PAYMENT FOR THESE SUPPLIERS WERE UNDU LY DELAYED EXTENDING TO MORE THAN TWO YEARS, WHICH CIT(A) HAS RIGHTLY HELD TO BE NOT NORMAL FEATURE OF THE BUSINESS. 30. ALL THE ABOVE FACTS TAKEN TOGETHER DO CONFIRM T HE FACT THAT SOME OF THE OLD PLANT AND MACHINERY FROM DELHI UNIT HAS BEEN SH IFTED TO THE BADDI UNIT AND IN LIEU THEREOF THE ASSESSEE HAS OBTAINED ACCOM MODATION BILLS. ACCORDINGLY THE CONTENTION OF THE ASSESSEE TO THE E XTENT THAT OLD PLANT AND MACHINERY HAS NOT BEEN SHIFTED AND THE AO HAS FAILE D TO ESTABLISH THE SAME IN THE ABSENCE OF PROVIDING OPPORTUNITY FOR CROSS-EXAM INATION CANNOT BE ACCEPTED AND WE UPHOLD THAT THE CIT(A) WAS JUSTIFIE D IN HOLDING THAT SOME OF THE PLANT AND MACHINERY HAS BEEN SHIFTED FROM DELHI UNIT TO THE BADDI UNIT. 31. HAVING HELD SO NOW THE SECOND ISSUE WHICH ARISE S FOR CONSIDERATION IS THE EXTENT AND VALUE OF SUCH OLD PLANT AND MACHINER Y WHICH HAS BEEN SHIFTED FROM THE DELHI UNIT TO THE BADDI UNIT. LINKED WITH THIS WILL BE ALSO THE ISSUE OF VALUE OF THE NEW PLANT AND MACHINERY PURCHASED A ND INSTALLED BY THE ASSESSEE AT BADDI UNIT. THIS WILL BE SO BECAUSE AS PER EXPLANATION 2 OF SECTION 80IC STATES THAT WHERE IN THE CASE OF AN UN DERTAKING ANY MACHINERY OR PLANT OR ANY PART THEREOF PREVIOUSLY USED FOR ANY P URPOSE IF TRANSFERRED TO ANY BUSINESS AND THE TOTAL VALUE OF THE MACHINERY OR PL ANT SO TRANSFERRED DOES NOT EXCEED 20% OF THE TOTAL VALUE OF THE MACHINERY OR P LANT USED IN BUSINESS, THEN ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 49 THE CONDITION SPECIFIED FOR CLAIMING EXEMPTION UNDE R SECTION 80IC SHALL BE DEEMED TO HAVE BEEN COMPLIED WITH. 32. THE IMPLICATION OF THE ABOVE EXPLANATION IS THA T THERE IS NO BAR ON USING OLD MACHINERIES IN AN ELIGIBLE UNIT BUT THE VALUE O F OLD PLANT AND MACHINERY SHOULD NOT EXCEED 20% OF THE TOTAL VALUE OF THE PLA NT AND MACHINERIES. ACCORDINGLY IT IS IMPORTANT TO FIND OUT THE VALUE O F THE NEW PLANT AND MACHINERY AS WELL AS THE VALUE OF THE OLD PLANT AND MACHINERY AND THEN TO WORKOUT THE EXACT PERCENTAGE OF THE OLD PLANT AND M ACHINERY. IN THIS REGARD WE NOTICE THAT THE AO HAS WORKED OUT THE PERCENTAGE OF THE OLD PLANT AND MACHINERY ON THE BASIS OF THE VALUATION REPORT WHER EBY THE VALUER HAS PLACED THE VALUE OF THE TOTAL MACHINERIES AT RS.7,63,15,00 0 /- AS ON THE VALUATION DATE I.E. 9 TH MAY 2008. AS PER THIS VALUATION REPORT WHICH HAS BEEN QUOTED EXTENSIVELY BY THE AO IN THE ASSESSMENT ORDER, THE ABOVE VALUATION HAS BEEN CARRIED OUT FOR THE PURPOSE OF DETERMINING THE CURR ENT DAY (9 TH MAY, 2008) MARKET VALUE OF THE PLANT AND MACHINERY BASED ON TH E VERBAL INFORMATION COLLECTED FROM THE MARKET AND THE VALUE AS ON 31 ST MARCH, 2005HAS BEEN DERIVED BY THE PROCESS OF DE-ESCALATION AS PER THE WHOLESALE PRICE INDEX OF RESERVE BANK OF INDIA. BY APPLYING THIS METHODOLOG Y THE TOTAL PRESENT MARKET VALUE OF THE PLANT AND MACHINERY INSTALLED A T BADDI UNIT HAS BEEN COMPUTED AT RS.7,63,15,000/- AND THE DISCOUNTED VAL UE AS ON 31 ST MARCH, 2005 HAS BEEN WORKED OUT AT RS.6,36,52,889/- OUT OF WHIC H DISCOUNTED VALUE OF THE ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 50 OLD PLANT AND MACHINERY WORKED OUT AT RS.5,72,01,27 9/- ONLY AND THE VALUE OF THE NEW MACHINERY COMES TO RS.64,51,610/-. NOW THE ISSUE WHICH ARISES FOR CONSIDERATION IS WHETHER THIS METHODOLOGY ADOPTED B Y THE VALUER IS CORRECT AND CAN THIS BE A BASIS FOR COMPUTING THE VALUE OF THE MACHINERIES. IN THIS REGARD WE NOTICE THAT THE ALLEGATION OF THE AO IS T HAT OLD MACHINERY HAS BEEN INSTALLED BY THE ASSESSEE AT BADDI UNIT AFTER SHIFT ING SOME OF THE OLD MACHINERY FROM THE DELHI UNIT. AS SUCH TO SUBSTANT IATE THIS ALLEGATION, IT WAS IMPORTANT TO FIND OUT THE VALUE OF THE OLD MACHINER Y AND ALSO TO CARRY OUT VERIFICATION WITH RESPECT TO THE NEW MACHINERY PURC HASED BY THE ASSESSEE AND THE VALUE THEREOF. THE ISSUE BEFORE THE AO WAS NOT THE PRESENT VALUE OF THE MACHINERY AS ON THE DATE OF THE INSPECTION BUT THE ACTUAL VALUE OF THE OLD AND NEW MACHINERIES IN EACH OF THE YEAR. IN OUR VIEW F INDING OUT THE PRESENT VALUE ON THE BASIS OF VERBAL ENQUIRIES AND THEN TO DISCOUNT IT BY THE RESERVE BANK OF INDIA WHOLESALE PRICE INDEX WILL NOT GIVE T HE CORRECT ACTUAL COST OF THE MACHINERY. THUS WE ARE OF THE VIEW THAT THE METHOD OLOGY ADOPTED BY THE AO ON THE BASIS OF THE VALUATION REPORT IS NOT CORRECT AND CANNOT BE A BASIS FOR COMPUTING THE VALUATION OF THE OLD MACHINES AND THE NEW MACHINERIES. 33. WE ARE IN AGREEMENT WITH THE FINDINGS GIVEN BY THE CIT(A) THAT A GENERAL OBSERVATION IN A MECHANICAL WAY HAS BEEN MA DE BY THE VALUER THAT THE CONDITION OF THE MACHINERIES ARE MORE THAN THREE TO FIVE YEARS OLD. FROM THE INSPECTION REPORT, IT DOES NOT COME OUT ON WHAT BAS IS THE VALUER HAS STATED THAT ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 51 THE MACHINES ARE MORE THAN THREE TO FIVE YEARS OLD. IN FACT, THIS INSPECTION WAS CARRIED OUT IN THE MONTH OF MARCH, 2008 I.E. AF TER A PERIOD OF ABOUT THREE YEARS WHEN THESE MACHINERIES WERE ACQUIRED. APPARE NTLY THESE MACHINERIES CANNOT BE SAID TO BE NEW AT THE TIME OF INSPECTION. THE PRODUCTION HAS STARTED IN THE YEAR 2005. THE FACT THAT SUCH LARGE NUMBERS OF MACHINES WERE INSPECTED WITHIN A SHORT PERIOD. THE TIME PERIOD O F INSPECTION HAS NOT BEEN CONTROVERTED NEITHER BY THE AO IN THE REMAND REPORT NOR BY LD. DR DURING THE COURSE OF THE HEARING BEFORE US. SUCH INSPECTION R EPORT CANNOT BE TAKEN AS PERFECT AND CANNOT BE RELIED UPON. WE FURTHER NOTI CE THAT THE CIT(A) HAS ALSO TAKEN NOTE OF THE FACT THAT THE VALUATION REPORT IS NOT SUPPORTED BY ANY MATERIAL, DOCUMENTS OR EVIDENCE FOR ESTIMATING THE VALUE AS ON THE DATE OF THE INSPECTION. NO REFERENCE HAS BEEN GIVEN TO ANY QUO TATION. SIMILARLY, NO REFERENCE HAS BEEN MADE ABOUT ANY SUPPLIERS FOR WHI CH ASSESSEE SUBMITTED FULL DETAILS. 34. IN OUR CONSIDERED VIEW, THE CORRECT APPROACH WO ULD HAVE BEEN TO FIND OUT THE VALUE OF THE MACHINERY, THE TIME OF PURCHAS E AND THE DATE WHEN ASSESSEE HAS ACQUIRED THESE MACHINERIES WAS RELEVAN T RATHER THAN VALUING ON A LATER DATE AND THEN DISCOUNTING BACK THE SAME WITH WHOLESALE PRICE INDEX. ASSESSEE HAS CARRIED OUT SUCH EXERCISE. THE CALCULA TION OF THE SAME HAS NOT BEEN DISPUTED BY THE ASSESSING OFFICER IN ITS REMAN D REPORT. THE CONTENTION OF THE LEARNED AR THAT THE WHOLE PROCESS OF INSPECT ION AND VALUATION IS ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 52 FLAWED, HENCE CANNOT BE RELIED IS JUSTIFIED. THE OT HER OBJECTIONS RAISED BY THE LEARNED AR ON THE CREDIBILITY OF THE INSPECTION AND THE VALUATION REPORT WHICH THE LEARNED DR HAS NOT BEEN ABLE TO REBUT. THE REV ENUE HAS FAILED TO CLARIFY THE SPECIFIC ISSUES RAISED WITH REGARD TO RELEVANCY OF THE VALUATION REPORT. IN VIEW OF THESE FACTS, WE UPHOLD THE ORDER OF THE CIT (A) ON THIS ISSUE. 35. THE NEXT ISSUE IS VALUE OF THE NEW MACHINERIES PURCHASED AND INSTALLED AT BADDI UNIT. THE ASSESSEE HAS SUBMITTED DETAILS OF THE MACHINERIES INSTALLED AT BADDI UNIT. AS PER THIS THE TOTAL VALUE OF MACH INERIES IN AY 2006-07 IS OF RS.2,57,65,050/-. THE ALLEGATION OF THE AO IS THAT ASSESSEE HAS OBTAINED ACCOMMODATION BILLS OF RS.54 LACS. THIS ALLEGATION OF THE AO WE HAVE HELD TO BE CORRECT. NOW THE ISSUE IS ABOUT THE REST OF THE MACHINERIES PURCHASED BY THE ASSESSEE. IN THIS REGARD WE NOTICE THAT DURING THE COURSE OF THE HEARING ASSESSEE HAS SUBMITTED COMPLETE DETAILS OF THE MACH INERIES PURCHASED BY IT ALONG WITH SUPPORTING EVIDENCES IN THE FORM OF BILL S, EXCISE RECORDS, GR, ETC. THE ASSESSEE HAS SUBMITTED COPY OF ACCOUNT OF EACH OF THE SUPPLIER GIVING ITS NAME, ADDRESS, SALES TAX NUMBER, EXCISE REGISTRATIO N NUMBER. ALL THESE DETAILS WERE BEFORE THE AO AND THE AO IN THE ASSESSMENT ORD ER HAS NOT BEEN ABLE TO POINT OUT ANY ERROR OR INACCURACIES IN THESE DETAIL S. AS REGARDS THE NEW MACHINERY PURCHASED BY THE ASSESSEE IN EACH OF THE YEAR WE NOTICE THAT THE CIT(A) HAS HELD AS UNDER:- IT IS SEEN FROM THE ASSESSMENT ORDER THAT DURING T HE COURSE OF THE ASSESSMENT PROCEEDINGS THE ASSESSEE HAD SUBMITTED C OMPLETE LIST OF ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 53 MACHINERIES AND THE LIST OF SUPPLIERS ALONG WITH TH EIR NAME AND ADDRESS AND PHOTOCOPY OF THEIR PURCHASE BILLS. THE ASSESSEE HAS SUBMITTED CONFIRMATION/AFFIDAVITS FROM EACH OF THES E SUPPLIERS. THE ASSESSEE ALSO SUBMITTED EVIDENCE IN SUPPORT OF THE FACT THAT THE MACHINERY HAD IN FACT MOVED FROM THE RESPECTIVE SUP PLIERS EITHER TO BADDI UNIT OR AFTER HAVING BEEN RECEIVED AT DELHI U NIT, TRANSPORTED BY THE ASSESSEE HIMSELF TO BADDI UNIT. IN SUPPORT O F THIS COPY OF G.R. (BUILTY); COPY OF FORM 26A ISSUED BY EXCISE & TAXATION DEPT., HIMACHAL PRADESH, DETAILS OF THEIR INSTALLAT ION FOUNDATION/ERECTION CHARGES & TRANSPORTATION CHARGE S HAVE BEEN FILED. THE APPELLANT ALSO FILED AFFIDAVITS DULY NOT ARIZED FROM THE SUPPLIERS OF THE MACHINERIES, IN WHICH THE SUPPLIER S HAVE CONFIRMED TO HAVE MADE THE SALES OF MACHINERIES AS PER THE BI LLS ISSUED BY THEM AS ALSO THE MODE AND THE LORRY NUMBER BY WHICH SUCH MACHINERY WAS TRANSPORTED. IT HAS ALSO BEEN CONFIRM ED IN THE AFFIDAVITS THAT THE PAYMENTS AS SHOWN IN THE BILLS HAS BEEN RECEIVED BY THESE SUPPLIER PARTIES THROUGH ACCOUNT PAYEE CHE QUES (THE CHEQUE NOS. AND DEBIT NOTES HAVE BEEN ALSO RECORDED .) FURTHER THE STATEMENT OF ACCOUNT OF THESE SUPPLIERS WITH THE AS SESSEE COMPANY HAVE ALSO BEEN CONFIRMED AND FILED. IN THESE AFFIDA VITS THE INCOME TAX PAN AND THE OFFICE WHERE THESE SUPPLIERS ARE AS SESSED TO TAX ARE ALSO STATED. I HAVE GONE THROUGH THE ABOVE DOCU MENTS SUBMITTED BY THE APPELLANT(WHICH WERE ALSO FILED BEFORE THE A O) AND ALSO CHECKED THE LEDGER ACCOUNT OF THE SUPPLIERS OF THE MACHINERY IN ORDER TO VERIFY UNUSUAL DELAY, IF ANY, IN PAYMENT. FROM THE VERIFICATION OF THE ABOVE IT IS PRIMA FACIE OBSERVE D THAT THE PAYMENTS IN THESE CASES HAVE EITHER BEEN MADE IN AD VANCE OR WITHIN A REASONABLE CREDIT PERIOD, WHICH SHOWS THAT THESE PURCHASES (APART FROM PURCHASES FOR RS. 54 LACS) ARE PRIMA FACIE GEN UINE IN NATURE. DURING THE COURSE OF THE HEARING THE LEARNED DR COU LD NOT CONTROVERT THE ABOVE FINDING OF THE CIT(A).VOLUMINOUS DETAILS IN T HIS REGARD WERE FILED BEFORE US IN THE FORM OF PAPER BOOK. WE HAVE PERUS ED THESE DOCUMENTS AS WELL AND WE NOTICE THAT THERE IS NOTHING IN THESE D OCUMENTS ON THE BASIS OF WHICH IT CAN BE DOUBTED THAT ASSESSEE HAS NOT PURCH ASED THESE MACHINERIES. DURING THE FINANCIAL YEAR 2005-06 I.E. ASSESSMENT Y EAR 2006-07, THE TOTAL VALUE OF THE MACHINERIES AT THE BADDI UNIT AS PER T HE BOOKS OF ACCOUNT IS ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 54 RS.2,57,65,050/-. OUT OF THESE PURCHASES, THE ALLE GATION IS LIMITED TO RS.53,23,540/-. THE ASSESSEE ON ITS PART HAS SUBMI TTED THESE DETAILS AND HAS ALSO SUBMITTED THE EVIDENCES IN SUPPORT THEREOF. I N THESE CIRCUMSTANCES NO ADVERSE INFERENCE CAN BE DRAWN SO FAR THESE PURCHAS ES ARE CONCERNED. 36. DURING THE COURSE OF THE HEARING THE LEARNED D R HAS RAISED THE ISSUE THAT THE CIT(A) WAS NOT CORRECT IN HOLDING THAT ACC OMMODATION BILLS TO THE EXTENT OF RS.54 LAKH HAVE BEEN TAKEN. HOWEVER, THE ABOVE CONTENTION OF THE LEARNED DR GOES AGAINST THE FINDINGS OF THE AO HIMS ELF IN THE ASSESSMENT ORDER. IN THIS REGARD WE NOTICE THAT AS PER AOS A LLEGATION OF ACCOMMODATION BILLS IS RS.54 LACS AS IS EVIDENT FROM THE FACT THA T THE AO HAS MADE ADDITION ON ACCOUNT OF THE ACCOMMODATION BILLS SPREAD OVER T HREE YEARS ON THE BASIS OF THE PAYMENT OF THESE RS.54 LAKH ACCOMMODATION BILLS MADE IN THREE YEARS AS UNDER:- A.Y. 2006-07 : RS.21.00 LAKH A.Y. 2007-08 : RS. 9.00 LAKH A.Y. 2008-09 : RS.24.00 LAKH TOTAL : RS.54.00 LAKH FURTHER AOP HAS DISALLOWED DEPRECIATION IN EACH OF THE THREE YEARS ON RS.54 LAKH AS UNDER:- A.Y. 2006-07 810000 15% OF RS.54,00,000 A.Y. 2007-08 688500 15% OF (RS.5400000 810000) A.Y. 2008-09 582225 15% OF WDV (5400000 810000 - 688500) ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 55 THE ABOVE FACTS ARE NOT DISPUTED BY THE LEARNED DR. 37. IN VIEW OF THE ABOVE IT IS CLEAR THAT THE ACCOM MODATION BILLS CONSIDERED BY THE AO IN TOTAL ARE RS.54 LAKH ONLY OUT OF WHICH RS.53,23,540/- HAVE BEEN ACCOUNTED FOR IN THE ASSESSMENT YEAR 2006-07 AND RS .83,200/- IN ASSESSMENT YEAR 2007-08 AND THE AGGREGATE OF THE SAME THUS COM ES TO RS.54,06,740/-. 38. ON THE BASIS OF THE ABOVE IT IS TO BE HELD THAT OUT OF THE TOTAL MACHINERY PURCHASES OF RS.2,57,65,050/- BILLS TO THE EXTENT O F RS.53,23,540/- ARE ACCOMMODATION BILLS AND REST OF THE MACHINERIES I.E . RS.2,04,41,510/- IS THE MACHINERY PURCHASED DURING THE YEAR BY THE ASSESSEE . 39. HAVING REACHED AT THE VALUE OF THE NEW MACHINER Y THE OTHER ISSUE REMAINS FOR CONSIDERATION IS VALUE OF THE OLD MACHI NERY SHIFTED FROM DELHI UNIT TO THE BADDI UNIT. 40. AS HELD ABOVE, SOME OF THE OLD PLANT AND MACHIN ERY FROM DELHI UNIT HAS BEEN SHIFTED FROM DELHI UNIT TO BADDI UNIT. IN THIS REGARD, IT IS NOTICED THAT THE CIT(A) DURING THE APPELLATE PROCEEDINGS HA S EXAMINED THE RECORD AND WORKED OUT THE VALUE OF THE OLD MACHINERY SHIFTED T O BADDI UNIT. THE CIT(A) FORWARDED THE DETAILED COMPUTATION TO THE AO FOR EX AMINATION. 41. THE CIT(A) CALLED FOR CLARIFICATION OF SPECIFIC POINTS AS UNDER:- THE APPELLANT HAS MADE A DETAILED SUBMISSION DATED 23.06.2011 WITH RESPECT TO THE ISSUE OF EXEMPTION D ISALLOWED IN HIS CASE U/S 80IC OF THE IT ACT. ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 56 ON A PERUSAL OF THE ASSESSMENT ORDER AND FROM THE S UBMISSION MADE BY THE APPELLANT IT IS OBSERVED THE EXEMPTION U/S 80IC HAS BEEN DENIED ON THE GROUND THAT THE TOTAL VALUE OF OLD MACHINERY OR PLANT OR PARTS INSTALLED AT THE APPELL ANTS UNIT AT BADDI (HIMACHAL PRADESH), DURING THE ABOVE REFERRED ASSESSMENT YEARS EXCEEDS 20% OF THE TOTAL VALUE OF MACHINERY OR PLANT USED IN SUCH NEW BUSINESS. THE SUBSTANCE O F THE FINDING IN THE ASSESSMENT ORDER IS THAT THE ASSESSE E HAS OBTAINED ACCOMMODATION BILLS FROM ONE M/S KRISHNA M ACHINES AND TOOLS, M/S SHRI KRISHNA MACHINES AND TOOLS AND CERTAIN OTHER PARTIES FOR PLANT & MACHINERY WHICH HAS NOT B EE ACTUALLY PURCHASED AND THAT SUCH MACHINERY AS SHOWN IN THESE ACCOMMODATION BILLS HAVE ACTUALLY BEEN SHIFTED FROM APPELLANTS ALREADY EXISTING UNIT LOCATED AT D-6, U DHYOG NAGAR INDUSTRIAL AREA, NEW ROHTAK ROAD, DELHI 110041, W HICH WAS NO LONGER USED FOR PRODUCTION ACTIVITIES. THE A BOVE FINDING OF THE AO IS BASED ON CERTAIN SEIZED MATERI AL IN FORM OF ACCOMMODATION BILLS WHERE THE WORDS BILL ONLY OR NO MATERIAL TRANSFER HAS BEEN WRITTEN. FURTHER, THE F ACT OF PHYSICAL TRANSFER OF MACHINERIES FROM D-6 UNIT AT D ELHI IS ALSO FOUND CORROBORATED FROM THE STATEMENTS RECORDED FRO M THE EMPLOYEES AT THE TIME OF SEARCH, WHICH HAS BEEN REF ERRED TO IN THE ASSESSMENT ORDER. RELIANCE HAS ALSO BEEN PLACED ON THE STATEMENT RECORDED OF SH. DINESH SHARMA, THE MAIN P ERSON CONTROLLING THE ACCOMMODATION BILL PROVIDING COMPAN IES/ CONCERNS. FURTHER TO THIS IS CASE OF SOME OTHER CON CERNS ALSO STATEMENTS WERE RECORDED DURING THE COURSE OF ASSES SMENT PROCEEDINGS WHEREBY THESE PERSONS HAVE ALSO ACCEPTE D GIVING ACCOMMODATION BILLS. FROM PARA 13.2 OF THE ASSESSME NT ORDER AT PAGE 134 IT IS NOTED THAT THE AO HAS THUS FOUND INCONTROVERTIBLE EVIDENCE OF ACCOMMODATION BILLS FO R MORE THAN RS. 54 LACS OF MACHINERY PURCHASE WHICH HAS BE EN SHIFTED FROM D-6 DELHI UNIT TO BADDI UNIT. THE AO HAS ALSO PLACED RELIANCE ON THE VALUATION RE PORT OF THE APPROVED VALUER WHICH WAS PREPARED ON THE BASIS OF VALUATION DONE AT THE TIME OF SURVEY CONDUCTED U/S 133A AT BA DDI UNIT OF THE ASSESSEE ON 03.03.08. PLACING RELIANCE ON TH E VALUATION REPORT WHEREIN THE SAID AFORESAID VALUER HAS REMARK ED THAT THE MACHINERIES INSTALLED AT BADDI UNIT ARE MORE THAN FIVE YEARS OLD, THE AO HAS HELD IN THE ASSESSMENT ORDERS THAT THE CONDITIONS SPECIFIED IN SECTION 80IC AS TO THE REQU IREMENT OF AT ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 57 LEASE 80% OF PLANT AND MACHINERY INSTALLED IN A GIV EN YEAR BEING NEW HAS NOT BEEN FULFILLED. THE ASSESSEE IN THE PRESENT SUBMISSION HAS CONTESTE D THE VALUATION REPORT OF THE VALUER ON SEVERAL GROUNDS W HICH INTER ALIA ARE AS UNDER:- VII. THAT THE OBSERVATION THAT THE CONDITION OF THE MACH INERY IS MORE THAN FIVE YEARS OLD HAS BEEN MADE IN A MECHANICAL MANNER. VIII. THAT THE INSPECTION HAS BEEN DONE BY THE VALUER WIT HIN TWO HOURS WITHOUT ALLOWING CROSS EXAMINATION AND VERIFICATION. IX. NO BASIS FOR TAKING PRESENT DAY VALUE AS SUGGESTED BY THE VALUER HAS BEEN INDICATED IN THE REPORT. NEITHER AN Y QUOTATION TAKEN BY THE VALUER FROM SUPPLIERS OF SUC H MACHINERY HAS BEEN MADE PART OF THE REPORT. X. TOTAL THE ASSESSEE IS HAVING RELEVANT BILLS WITH SU PPLIERS NAME AND SPECIFICATION WHICH CLEARLY ESTABLISHES TH E FACT THAT THE MACHINERIES ARE NEW. XI. THE ASSESSEE HAS ALSO ADDUCED EVIDENCE RELATING TO THE TRANSPORTATION AND INSTALLATION EXPENSES OF SUCH NE W PLANT AND MACHINERY WHICH HAS NOT BEEN CONTROVERTED BY THE AO. XII. THAT THE ASSESSEE HAS SUBMITTED THE COMPLETE LIST O F MACHINERIES AND THE LIST OF SUPPLIERS ALONGWITH PHOTOCOPY OF THEIR BILLS AS WELL AS CONFIRMATION / AFFIDAVIT FROM EACH OF THE SUPPLIER, SOME OF WHOM W ERE ALSO EXAMINED BY THE AO AT THE TIME OF ASSESSMENT A ND WHO HAVE CONFIRMED HAVING SUPPLIED NEW PLANT AND MACHINERY. ACCORDINGLY, THE ASSESSEE/ APPELLANT HAS IN HIS SUB MISSION CONCLUDED THAT THE DISPUTE RELATING TO ACCOMMODATIO N BILLS IN RESPECT OF THE PLANT AND MACHINERY WHICH IN FACT WA S OLD AND WAS BEING EARLIER USED AT D-6, DELHI UNIT COMES ONL Y TO RS. 54 LACS. THE ARGUMENT OF THE ASSESSEE IS THAT EVEN IF SUCH PLANT ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 58 AND MACHINERY IS TREATED AS OLD IN NATURE IT IS THE DEPRECIATED VALUE OF SUCH MACHINERY, SHIFTED TO BADDI UNIT WHIC H SHOULD BE APPROPRIATELY TAKEN FOR WORKING OUT ELIGIBILITY U/S 80IC, AT RS. 20,57,421/-, AS SEEN FROM THE ENCLOSED CHART. I N SUPPORT OF THIS CLAIM THE APPELLANT IN THE CHART HAS GIVEN THE NAME OF THE ORIGINAL SUPPLIER OF SUCH MACHINERIES TOGETHER WITH THE ORIGINAL VALUE AND THE DEPRECIATED VALUE OF SUCH MACHINE AS ON 31.03.2005 AND 31.03.2006 (PARTLY) AND THEREFORE TH E APPELLANT HAS SUBMITTED A REWORKING OF THE TOTAL VALUE OF NEW MACHINES AND OLD MACHINES AS ON THE END OF FINANCIAL YEAR31. 03.2006, 31.03.2007 AND 2008 AND HAS SUBMITTED THAT THE ELIG IBILITY FOR EXEMPTION U/S 80IC IS AVAILABLE TO THE ASSESSEE AS PER THE SAID REWORKING. YOU ARE REQUIRED TO GO THROUGH THE SUBMISSION AND T HE ENCLOSURES AS WELL AS THE COPY OF BILLS SUBMITTED B Y THE APPELLANT AND OFFER YOUR COMMENTS ON THE SAME. YOU MAY ALSO OFFER YOUR COMMENTS ON THE VALUATION ASPECT OF THE MACHINERIES BY THE ACCRUED VALUER AND THE CLAIM BEI NG MADE BY THE APPELLANT THAT MOST OF THE OTHER MACHINERIES INSTALLED AT BADDI ARE ACTUALLY NEW AND ARE SUPPORTED BY BILLS A ND OTHER EXPENSES INCURRED FOR TRANSPORTATION AND INSTALLATI ON. YOU MAY ALSO POINT OUT ANY OTHER EVIDENCE RELIED UPON THE A O IN THE ORDER TO THE EFFECT THAT THE PLANT AND MACHINERY (O THER THAN OF THE VALUE OF RS. 54 LACS) IS ESSENTIALLY OLD IN NAT URE. 42. IN RESPONSE THERETO IN PARA 6, THE ASSESSING OF FICER HAS STATED AS UNDER:- 8. THE DEPRECIATION CHART FOR THE MACHINES HAS NOW BEEN PUT UP BY THE ASSESSEE BEFORE YOUR GOODSELF, CALCUL ATING THEREIN THE WDV OF THE MACHINES WHICH HAVE BEEN SHIFTED FRO M D-6 TO THE BADDI BUIT OF THE ASSESSEE. A PERUSAL OF THE SAME REVEAL THAT THE SAME IS AS PER THE DESCRIPTION MENTIONED O N THE BILLS SUBMITTED AND THE SAME IS IN ACCORDANCE WITH THE VA LUATION REPORT. THE ARITHMETICAL CALCULATION OF THE WDV AP PEARS TO BE CORRECT IN THE CHART. ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 59 43. THE AO IN THE REMAND REPORT HAS VERIFIED THE DE SCRIPTION OF OLD MACHINERIES WITH THE VALUER REPORT AND ALSO CONFIRM ED THAT THE CALCULATION OF THE VALUE AT RS.20,42,750/- IS CORRECT. 44. THE LEARNED DR COULD NOT DISPUTE THESE FACTS BE FORE US. 45. IN VIEW OF THESE FACTS, THE CIT(A) WAS CORRECT IN HOLDING THAT THE VALUE OF OLD PLANT AND MACHINERIES IS RS.20,42,750. THUS THE VALUE OF THE NEW MACHINERY COMES TO RS.2,04,41,510/- AND THE VALUE O F THE OLD MACHINERIES SHIFTED FROM DELHI UNIT TO BADDI UNIT COMES TO RS.2 0,42,750/- AND TOTAL VALUE OF THE MACHINERY COMES TO RS.2,24,84,260/-. 46. SINCE THE VALUE OF THE OLD MACHINERY IS LESS TH AN 20% OF THE TOTAL VALUE OF THE MACHINERY, THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE HAS FAILED TO COMPLY WITH THE CONDITION LAID DOWN IN SECTION 80IC OF THE ACT. 47. IN VIEW OF THESE FACTUAL MATRIX, WE HOLD THAT T HE CIT(A) WAS JUSTIFIED IN HOLDING THAT THE VALUE OF THE OLD MACHINERY IS LESS THAN 20% AND ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC. 48. FOR ASSESSMENT YEAR 2007-08, A SIMILAR EXERCISE HAS BEEN CARRIED OUT BY THE CIT(A) AFTER TAKING INTO THE ADDITIONAL FACTS F OR THE YEAR. IN THE ASSESSMENT YEAR 2007-08, THE ASSESSEE HAS FURTHER M ADE AN ADDITION OF MACHINERY OF RS.96,93,657/-. THERE IS NO DISPUTE A BOUT THE ADDITION OF THESE MACHINERIES DURING THE PERIOD RELEVANT TO ASSESSMEN T YEAR 2007-08. THE TOTAL VALUE OF THE MACHINERIES AFTER EXCLUDING THE VALUE OF THE MACHINERY FOR ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 60 WHICH ACCOMMODATION BILLS WERE OBTAINED COMES AT RS .3,00,51,967/-. THE VALUE OF THE OLD MACHINERY SHIFTED FROM DELHI UNIT TO BADDI UNIT COMES TO RS.20,57,421/-. THUS THE VALUE OF THE OLD MACHINERY IS LESS THAN 20%. IN VIEW OF THESE FACTS, THE CIT(A) WAS JUSTIFIED IN HOLDING THAT THE ASSESSEE HAS COMPLIED WITH THE CONDITION LAID DOWN FOR DEDUCTION UNDER SECTION 80IC OF THE ACT. 49. SIMILARLY FOR THE ASSESSMENT YEAR 2008-09, THE ASSESSEE HAS FURTHER MADE ADDITION TO MACHINERY OF RS.53,66,819/-. THE V ALUE OF THE NEW MACHINERY COMES TO RS.3,54,18,786/- AFTER EXCLUDING RS.54,06,740/- FOR WHICH THE ASSESSEE HAS OBTAINED ACCOMMODATION BILLS . THE VALUE OF THE OLD MACHINERY IS RS.20,57,421/-. THUS THE TOTAL VALUE O F THE MACHINERY FOR ASSESSMENT YEAR 2008-09 WAS RS.3,74,76,207/-. THE VALUE OF THE OLD MACHINERY IS LESS THAN 20% OF THE TOTAL VALUE OF TH E MACHINERY. IN VIEW OF THESE FACTS, THE ASSESSEE WILL BE ELIGIBLE FOR EXEM PTION UNDER SECTION 80IC OF THE ACT. 50. THE ASSESSING OFFICER HAS ALSO DENIED DEDUCTION ON THE GROUND OF DISCREPANCIES IN FORM 10CCB, WHICH IS ONE OF THE CO NDITIONS FOR AVAILING THE DEDUCTION UNDER SECTION 80IC. THE ASSESSING OFFICER S OBJECTION WAS THAT THE FORM 10CCB WAS REVISED BY THE ASSESSEE. FURTHER TH E ASSESSEE HAS OBTAINED ACCOMMODATION BILLS AND ASSESSEE HAS NOT ACCOUNTED FOR SALE OF SCRAP, THE BOOK RESULT OF THE ASSESSEE HAS BEEN REJECTED AND A CCORDINGLY THE PARTICULARS ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 61 FILLED IN THE FORM 10CCB HAS TO BE REJECTED. ONCE FORM 10CCB IS REJECTED THEN THE ASSESSEE WILL NOT BE ELIGIBLE FOR EXEMPTIO N UNDER SECTION 80IC. IN THIS REGARD THE EXPLANATION OF THE ASSESSEE BEFORE ASSESSING OFFICER FOR REVISION OF THE CERTIFICATE WAS LIMITED TO NOT CONS IDERING DEPRECIATION WHILE COMPUTING ELIGIBLE INCOME. IT WAS FURTHER CLARIFIE D THAT IT DOES NOT RESULT IN ANY CHANGE IN THE TAXABLE INCOME. 51. THE LEARNED DR HAS SUPPORTED THE ORDER OF THE A O ON THIS ACCOUNT. HE HAS SUBMITTED THAT FORM 10CCB IS ONE OF THE CONDITI ONS AND SINCE FORM 10CCB WAS NOT CORRECT THE ASSESSEE WILL NOT BE ELIG IBLE FOR DEDUCTION UNDER SECTION 80IC. 52. ON THE OTHER HAND, THE LEARNED AR HAS SUBMITTED THAT THE ASSESSEE HAS GOT ITS ACCOUNT AUDITED AND OBTAINED THE 10CCB REPO RT AS PRESCRIBED UNDER THE LAW. THE REPORT HAS BEEN SUBMITTED ALONG WITH THE RETURN. THUS, THERE IS A COMPLETE COMPLIANCE OF THE PROVISIONS OF SECTION 80 IC. 53. WE HAVE CONSIDERED THE SUBMISSIONS AND WE NOTIC E THAT UNDER THE LAW FOR CLAIMING EXEMPTION UNDER SECTION 80IC ASSESSEE IS REQUIRED TO GET THE ACCOUNTS AUDITED AND SUBMIT THE REPORT IN THE PRESC RIBED FORM. THERE IS NO DISPUTE ABOUT THE FACT THAT THE ASSESSEE HAS GOT TH E ACCOUNTS AUDITED AND SUBMITTED THE REPORT IN THE PRESCRIBED FORM. HAVIN G COMPLIED WITH THE PROVISIONS OF THE ACT, THE DEDUCTION CANNOT BE DENI ED MERELY ON THE GROUND THAT DURING THE COURSE OF THE HEARING, ASSESSING OF FICER NOTICED CERTAIN ERRORS ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 62 OR DISCREPANCIES IN THE AUDIT REPORT. HAVING COMPL IED THE CONDITIONS OF OBTAINING REPORT AND SUBMITTING ALONG WITH RETURNS, THE DEDUCTION ON THIS REASONING CANNOT BE DENIED. 54. IN VIEW OF THE ABOVE FACTS, WE UPHOLD THE ORDER OF THE CIT(A) ALLOWING DEDUCTION UNDER SECTION 80IC TO THE ASSESSEE. 55. GROUND NO.1 OF ASSESSMENT YEAR 2006-07 AND GROU ND NO.5 OF ASSESSMENT YEARS 2007-08 AND 2008-09 ARE IN RESPECT OF THE ADDITIONS MADE BY THE AO ON ACCOUNT OF THE ACCOMMODATION BILLS WHI CH HAS BEEN RESTRICTED BY THE CIT(A) TO 2% OF THE TOTAL VALUE OF THE ACCOM MODATION BILLS. IN THIS REGARD THE AO HAS MADE ADDITION FOR THE VARIOUS ASS ESSMENT YEARS AS UNDER:- A.Y. 2006-07 : RS.21 LAKH A.Y. 2007-08 : RS. 9 LAKH A.Y. 2008-09 : RS.24 LAKH TOTAL : RS.54 LAKH IN THIS REGARD THE ASSESSING OFFICER HAS STATED AS UNDER :- 14.4 THERE ARE AMPLE INSTANCES OF PROCURING ACCOMM ODATIONS BILLS FOR MACHINERIES FOR WHICH CASH WAS RECEIVED B ACK AGAINST THE ISSUANCE OF CHEQUES. FEW OF SUCH EXAMPLES AS U NDER:- ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 63 S. NO. NAME OF THE PARTY A.Y. 1 M/S KRISHNA MACHINE & TOOLS/ SRI KRISHNA MACHINE & TOOLS 2005-06 & 2006-07 2 M/S MULTITECH INSTRUMENT COMPANY PVT. LTD. 2005-06 3 M/S MALHOTRA COMPRESSORS 2006-07 4 M/S TABMACH TOOLS PVT. LTD. 2006-07 5 M/S A.R. ENTERPRISES 2005-06 6 M/S ACCURA ENGG. 2005-06 THE DEPARTMENT CONDUCTED A SURVEY AT THE BUSINESS P REMISES OF THE ASSESSEES AND A QUALIFIED ENGINEER/ VALUER EXA MINED THE MACHINERY FOUND INSTALLED AT THE PREMISES. ON THE BASIS OF INQUIRIES CONDUCTED HE WAS OF THE OPINION THAT MORE THAN 88.72% MACHINERY INSTALLED WAS OLD. THE ASSESSEE C OMPANY OBTAINED ACCOMMODATION ENTRIES FOR MACHINES AND CAS H SO GENERATED HAS BEEN UTILIZED THE ASSESSEE FOR ITS UN ACCOUNTED TRANSACTIONS. THE ASSESSEE COMPANY AS A RESULT OF CAPITALIZATION OF BOGUS EXPENSES CLAIMED FOR PURCHA SE OF MACHINERY CLAIMED EXCESS DEPRECIATION ALSO. ON THE BASIS OF THE ABOVE, THE AO HAS HELD THAT THE ASSESSEE HAS OBTAINED ACCOMMODATION PURCHASE BILLS. THE ASSESSING OFFICER FURTHER HELD AS UNDER :- 15.19 WHENEVER PAYMENT FOR ACCOMMODATION BILLS USE TO MADE THROUGH CHEQUES, THEY ALWAYS COME BACK AS C ASH TO THE ASSESSEE COMPANY. PAYMENTS OF ACCOMMODATION BI LLS TO KRISHNA MACHINE & TOOLS WERE MADE DURING A.Y. 06-07 OF RS.15,00,000/- AND IN A.Y. 08-09 RS.20,55,560/- AND BALANCE AMOUNT OF RS.69,100/- WAS ADJUSTED BY WAY OF DEBIT NOTE. SRI ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 64 KRISHNA MACHINE & TOOL WAS PAID DURING A.Y. 06-07 A ND A.Y. 08-09 OF AMOUNTING RS.5,50,000/-, RS.2,88,775/ - RESPECTIVELY AND BALANCE AMOUNT OF RS.9,865/- WAS A DJUSTED BY WAY OF DEBIT NOTE. THE CONTROLLER OF THESE TWO COM PANIES MR. DINESH SHARMA HAS ALREADY STATED THAT HE USED TO RE TURN THE CASH AMOUNT IN LIEU OF THE CHEQUE RECEIVED BY HIM F OR HIS ACCOMMODATION BILLS. PURCHASE BILLS OF MACHINERY O F THE ASSESSEE CONTAINS LARGE NUMBER OF ACCOMMODATION BIL LS. HOWEVER DEPARTMENT HAS EVIDENCES IN RESPECT OF PROC UREMENT OF ACCOMMODATION BILL OF RS.54 LACS ONLY. THEREFOR E ADDITION OF CASH RECEIPT ON THIS ACCOUNT IS RESTRICTED TO TH IS LIMIT ONLY. AS PER FACTS OF THE CASE AND PAYMENT PATTERN BY THE ASSESSEE TO THE BILL PROVIDER CONCERNS OF MR. DINESH SHARMA, SU CH UNACCOUNTED CASH RECEIPT (IN LIEU OF THE CHEQUE ISS UED FOR ACCOMMODATION BILLS) OF THE ASSESSEE COMPANY IS EST IMATED AT RS.21 LACS, RS.9 LACS AND RS.24 LACS FOR THE PERIOD OF AY 06- 07, AY 07-08 AND AY 08-09 RESPECTIVELY. 15.20 THEREBY AN ADDITION OF RS.21,00,000/- IS MADE IN THE YEAR UNDER CONSIDERATION THAT IS A.Y. 2006-07 TO TH E TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF UNACCOUNTED CA SH RECEIPT AGAINST CHEQUE ISSUED FOR ACCOMMODATION BILLS. ON THE SAME GROUND, ADDITION OF RS.9 LAKH HAS BEEN MADE IN THE ASSESSMENT YEAR 2007-08 AND RS.24 LAKH IN THE ASSESSMENT YEAR 2008-09. 56. THE CIT(A) HAS DELETED THE ABOVE ADDITIONS BY G IVING FOLLOWING FINDING:- IN THIS REGARD I HAVE ALREADY CONSIDERED THE FINDI NGS OF THE AO AND SUBMISSIONS OF THE ASSESSEE COMPANY AND HELD FOR REASONS DISCUSSED IN FINDING GIVEN WITH RESPECT TO GROUND OF APPEAL NO.10 THAT ACCOMMODATION BILLS TO THE TUNE O F RS.54 LACS HAVE BEEN PURCHASED BY THE ASSESSEE FOR WHICH AS PER THE ESTABLISHED MARKET PRACTICE COMMISSION IS PAID. TH IS IS REASONABLY ESTIMATED AT 2% OF THE TOTAL BILLS OF RS .53 LACS HAVE BEEN PURCHASED DURING THE YEAR AND WORKS OUT AT RS. 1,06,000/-. SINCE THIS AMOUNT HAS BEEN NOT PAID FROM EXPLAINED SOURCES OF INCOME THEREFORE THE SAME IS ADDED TO INCOME U/S 69 OF THE I.T. ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 65 ACT. AS REGARDS THE ISSUE OF ADDITION TO INCOME FO R RS.21,00,000/- ON ACCOUNT OF ALLEGED CASH RECEIPT I N LIEU OF THE CHEQUES ISSUED FOR PURCHASE OF ACCOMMODATION BILLS OF MACHINERIES IS CONCERNED THE RECEIPT BACK OF CASH A GAINST THE CHEQUE ISSUED FROM BOOKS OF ACCOUNT CANNOT BE TREAT ED AS INCOME AS IT AMOUNTS TO CONVERSION OF ONE FORM OF A SSET TO OTHER. THUS THE APPELLANT PARTY SUCCEEDS ON THIS G ROUND AND AO IS ACCORDINGLY DIRECTED TO REWORK THE ADDITION M ADE ON THIS ACCOUNT IN ACCORDANCE WITH THE ABOVE FINDINGS. 57. IT HAS BEEN SUBMITTED BY THE LEARNED DR THAT TH E CIT(A) WAS NOT JUSTIFIED IN RESTRICTING THE ADDITION TO 2%. SINCE THE ASSESSEE HAS OBTAINED ACCOMMODATION BILLS FOR RS.54 LAKH IN THE THREE YEA RS, THE ENTIRE AMOUNT RECEIVED BY THE ASSESSEE AGAINST ACCOMMODATION BILL S NEEDS TO BE ADDED AS INCOME OF THE ASSESSEE. 58. THE LEARNED AR, ON THE OTHER HAND, HAS SUBMITTE D THAT UNDER THE PROVISIONS OF THE INCOME TAX ACT INCOME EARNED HAS TO BE COMPUTED. FIRSTLY THE ASSESSEE HAS NOT TAKEN ANY ACCOMMODATION BILLS AND EVEN FOR THE SAKE OF ARGUMENT IT IS ASSUMED THAT THE ASSESSEE HAS TAKEN ACCOMMODATION BILLS, THERE CANNOT BE ANY INCOME SINCE CHEQUE HAS BEEN ISSUED F ROM THE EXPLAINED SOURCE AND IT CANNOT BE SAID THAT ANY UNEXPLAINED INVESTME NT HAS BEEN MADE BY THE ASSESSEE. HE FURTHER CONTENDED THAT THE CIT(A) WAS NOT JUSTIFIED EVEN IN RESTRICTING THE ADDITION TO 2% AS THE ASSESSEE HAVI NG FIRST ISSUED THE CHEQUE EVEN IN THE CASE OF ACCOMMODATION, HE WOULD HAVE RE CEIVED BACK THE BALANCE AMOUNT AFTER DEDUCTION OF ANY AMOUNT, IF ANY PAID F OR SUCH SERVICES TO THE ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 66 ACCOMMODATION ENTRY PROVIDER AND HENCE ADDITION OF 2% BY THE CIT(A) PER YEAR IS UNTENABLE. 59. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE H AVE UPHELD THE FINDING OF THE CIT(A) THAT ASSESSEE HAD TAKEN ACCOMMODATION BILLS TO THE EXTENT OF RS.54 LAKH WHILE DECIDING ISSUE OF 80IC CLAIM IN PR ECEDING PARAS. FURTHER WE HOLD THAT WHILE TAKING ACCOMMODATION BILLS, THE ASS ESSEE HAS FIRST CREDITED THE BILLS IN THE BOOKS OF ACCOUNT AND THEREAFTER HE HAS MADE PAYMENT FROM THE BOOKS OF ACCOUNT TO THE ACCOMMODATION ENTRY PROVIDE RS. THERE IS NO DISPUTE REGARDING THE SOURCE OF PAYMENT FOR SUCH BILLS. SI NCE THESE WERE ACCOMMODATION BILLS, THE ASSESSEE WOULD NOT HAVE MA DE ANY ACTUAL PAYMENT AND HENCE THE AO WAS NOT RIGHT IN MAKING ADDITION O N ACCOUNT OF THE PAYMENT MADE FOR ACCOMMODATION BILLS AS THESE PAYMENTS HAVE BEEN MADE FROM THE REGULAR BOOKS OF ACCOUNT. HOWEVER, WE ARE IN AGREE MENT WITH THE CIT(A) THAT THE ASSESSEE WOULD HAVE DEFINITELY INCURRED CE RTAIN EXPENDITURE IN TAKING SUCH ACCOMMODATION BILLS. THE CIT (A) HAS ESTIMATE D THE SAME AT 2% AND WE FIND THIS ESTIMATION AS FAIR AND REASONABLE. WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT (A). THESE GRO UNDS OF THE REVENUES ARE DISMISSED IN ALL THREE YEARS. 60. IN GROUND NO.2 OF THE ASSESSMENT YEAR 2006-07 A ND GROUND NO.4 OF ASSESSMENT YEARS 2007-08 AND 2008-09 ARE IN RESPECT OF THE DELETION MADE BY ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 67 THE CIT(A) OF THE ADDITION MADE BY THE AO ON ACCOUN T OF SUPPRESSION OF WAGES AS UNDER:- A.Y. 2006-07 : RS.1,15,89,750/- A.Y. 2007-08 : RS. 62,26,820/- A.Y. 2008-09 : RS. 26,47,992/- IN THIS REGARD THE AO IN THE ASSESSMENT ORDER HAS S TATED AS UNDER :- 14.5 DURING THE COURSE OF SEARCH PROCEEDINGS VARIO US EVIDENCES HAVE BEEN FOUND WHICH INDICATE THAT ONE S HIFT OF APPROX. 108 WORKERS WAS NOT FULLY ENTERED IN THE BO OKS OF ACCOUNTS. ONLY 12 WORKERS WERE SHOWN IN THE REGISTE R, AS SUCH 96 WORKERS WERE NOT SHOWN IN THE REGISTER. IT IS AP PARENT THAT THE ASSESSEE WAS SUPPRESSING ITS WAGES EXPENSES AT BADDI UNIT. DURING THE COURSE OF SEARCH AT BADDI, STATEMENT OF SH. S.K. MENDIRATTA, GM WAS RECORDED ON OATH; RELEVANT EXTRA CT OF THE STATEMENT IS REPRODUCED AS UNDER : Q8. NOW I AM SHOWING YOU LIST OF WORKERS AS PER ANN EXURE 3 CONTAINING NINE PAGES PREPARED TODAY MORNING SHOW ING THE WORKERS HOME, TOKEN NO. OF SALARY DRAWN BY HIM/HER AND SIGNED BY THEM. PLEASE TELL AFTER SEEING YOUR SALAR Y REGISTER, PAGES 1 TO 68 OF ANNEXURE A-10 FOR DEC., 07 AND JAN ., 08 WHETHER THESE WORKERS ARE SHOWN IN THE SAME? ANS. I HAVE SEEN THE LIST OF WORKERS OF NIGHT DUTY PREPARED BY YOU AS ON 14/02/08, TOTAL NO 9 PAGES (NINE PAGES) A ND SHOWING 108 WORKERS. I WOULD SUBMIT THAT ONLY WORKERS/ STAF F MENTIONED AT SR. NO. 10, 73, 74, 87, 71, 88, 102, 1 03, 104, 105, 107 & 108 OF THE LIST ARE SHOWN IN THE SALARY REGISTER. THE OTHER WORKERS AS MENTIONED IN THE LIST ARE NOT ENRO LLED IN OUR FACTORY AND ARE NOT ENTERED IN THE SALARY REGISTER OF BOOKS OF ACCOUNTS. Q9. PLEASE TELL WHETHER THERE IS AY PARTICULAR CRIT ERION FOR OBLIGATION LEGAL OR OTHER FOR RECRUITING EMPLOYEES IN YOUR FACTORY? ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 68 ANS. THERE IS LEGAL OBLIGATION OF RECRUITING OF ABO UT 70% HIMACHALIES WORKFORCE AND REMAINING MAY BE NON- HIMACHALIES. Q10. PLEASE TELL HOW MANY HIMACHALIES WORKFORCE IS THERE IN YOUR FACTORY? ANS. OUT OF 199 WORK FORCE, 51 WORKERS/ STAFF ARE B ELONGING TO HIMACHAL, THE OTHER 148 ARE NON-HIMACHLIES WHICH COMES TO 26% ONLY. FURTHER ENQUIRIES IN THIS REGARD WERE MADE FROM SH. ASHUTOSH HUPARIKAR, WORKING AS MANAGER HR & ADMIN. AT BADDI UNIT, WHOSE STATEMENT WAS ALSO RECORDED. IN THIS STATEMEN T HE WAS ALSO NOT ABLE TO FURNISH ANY SATISFACTORY EXPLANATI ON. EXCEPTS OF RELEVANT PART OF HIS STATEMENT ARE AS UNDER:- Q. I AM SHOWING YOU LIST OF 108 PERSONS WHOSE NAME S, TOKEN NO. AND SIGNATURES WERE OBTAINED, WHO HAD COM PLETED THEIR NIGHT SHIFT IN YOUR COMPANY AND THE DETAILS W ERE OBTAINED AT THE TIME OF DEPARTURE IN THE MORNING OF THE DAY OF SEARCH. PLEASE EXPLAIN ABOUT THEIR EMPLOYMENT STATUS IN YOU COMPANY. ANS. THE SAID 108 PERSONS ARE EMPLOYED BY OUR COMPA NY ON TEMPORARY BASIS AS AND THEN REQUIRED IN YOUR COMPAN Y. Q. HOW YOU PAY THEM THEIR WAGES AND WHAT RECORDS AR E BEING MAINTAINED FOR THOSE EXPENSES BY YOUR COMPANY ? ANS. WE PLAY THEM I CASH FOR THEIR WORK DAYS, BUT I CANNOT EXPLAIN ABOUT THE MODE OF ACCOUNTANCY FOR THOSE EXP ENSES. Q. I AM SHOWING YOU ANNEXURE A-17 AND A-23 IN WHICH YOU HAVE KEPT PERSONAL PROFILES OF 80 PERSONS IN AN NEXURE A- 23 AND OF 160 PERSONS IN ANNEXURE A-17. PLEASE EXPL AIN FOR WHAT PURPOSE THESE HAVE BEEN KEPT BY YOUR COMPANY. ANS. THESE ARE THE PERSONS TO WHOM THE COMPANY HAD PROVIDED TEMPORARY EMPLOYMENT IN THE PAST AND THEIR PROFILES HAVE BEEN KEPT BY THE COMPANY FOR USE IN THE FUTURE . THEY HAVE BEEN PAID WAGES IN CASH AS PER THEIR DAYS OF W ORKINGS, BUT I AM NOT AWARE HOW THESE EXPENSES HAVE BEEN ACC OUNTED ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 69 FOR BY THE COMPANY. THE ACCOUNTANT WOULD BE ABLE TO EXPLAIN PROPERLY. HOWEVER, THESE PARSONS DO NOT FIND THEIR NAMES IN THE SALARY REGISTER OF THE COMPANY. Q. I AM SHOWING YOU ANNEXURE A-18 (PAGE 20-28) ON WHICH HEADING IS GIVEN AS EMPLOYEE SALARY REGISTER FOR THE MONTH OF JULY, 2006 AND CASH IS SHOWN TO HAVE BEEN PAID TO THE PERSONS DETAILED IN THIS LIST. PLEASE STATE WHE THER OR NOT THESE PERSONS FIND THEIR NAMES ON THE PAY ROLLS OF COMPANY? ANS. I CANNOT EXPLAIN ANYTHING ABOUT THIS. Q. YOU PLEASE SEE YOUR SALARY REGISTER/ PAY ROLL AN D THEN EXPLAIN ABOUT THE MATTER ASKED ABOVE? ANS. I HAVE SEEN THE SALARY REGISTER OF THE COMPANY AND ACCORDANCE TO THAT THE NAME OF SAID PERSONS DO NOT APPEAR IN SALARY REGISTER/ PAY ROLL OF THE COMPANY. Q. DO YOU WANT TO ANYTHING ELSE? ANS. NO. THE ASSESSEE WAS ACCORDED OPPORTUNITY TO EXPLAIN TH E SOURCE OF EXPENDITURE MADE ON WAGES IN RESPECT OF THE LABOUR WHICH WAS NOT FOUND TO BE ON SALARY REGISTER OF THE COMPANY. THE ASSESSEE HAS SUBMITTED THAT THESE WORKERS WERE NEWLY RECRUIT ED SO THESE WERE NOT ENTERED IN THE SALARY REGISTER. THE CONTEN TION OF THE ASSESSEE IS NOT TENABLE. THE ASSESSEE HAS TRIED TO FIND OUT WAYS AND MEANS TO COVER UP SUCH UNACCOUNTED EXPENDITURE MADE OUTSIDE THE BOOKS OF ACCOUNT BY DEPOSITING ESI/PF F OR THE MONTH OF FEB 2007, HOWEVER NO SUCH DEPOSITS WERE FO UND IN EARLIER MONTHS PRIOR TO SEARCH. IT WAS INFORMED THA T THERE IS LEGAL OBLIGATION OF RECRUITING OF ABOUT 70% HIMACHA LIES WORKFORCE AND REMAINING MAY BE NON-HIMACHALIES. THE N IT WAS ALSO INFORMED BY THE GM OF THE COMPANY THAT OUT OF 199 WORK FORCE, 51 WORKERS/STAFF BARE BELONGING TO HIMA CHAL, THE OTHER 148 ARE NON-HIMACHALIES WHICH COMES TO 26% ON LY. FURTHER, IT CLEARLY SHOWS THAT SUBSTANTIAL PORTION OF WAGES EXPENDITURE WAS BEING MADE OUTSIDE THE BOOKS OF ACC OUNTS. THIS CLEARLY SHOWS THAT THE ASSESSEE USED TO EMPLOY LARGE NUMBERS OF EMPLOYEES BUT THAT WOULD NOT BE RECORDED ON ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 70 BOOKS OF ACCOUNTS WITH THE OBVIOUS PURPOSE TO REDUC E ACCOUNTED EXPENDITURE SO. THE ASSESSING OFFICER HAS FURTHER OBSERVED AS UNDER :- 15.10 IT HAS BEEN OBSERVED THAT THERE IS HUGE VARI ATION IN THE WAGES TO TURNOVER RATION SHOWN BY THE ASSESSEE IN RESPECT OF ITS BADDI UNIT AND DELHI UNIT. RATIO OF WAGES IN BADDI UNIT HAS ALWAYS BEEN SIGNIFICANTLY LOWER. THE FOLLOWING CHART CLARIFIES THIS POSITIONS : DELHI UNIT PERIOD WAGES RS. TURNOVER RS. PERCENTAGE OF WAGES TO THE TURNOVER 2006-07 (D-6 & H-18) 56,30,548/- 14.14 CR 3.98% 2007-08 (H-18) 16,63,071/- 4.55CR 3.65% 2008-09(H-18) 29,05,596/- 3.93CR. 7.39% AVERAGE RATIO OF WAGES TO THE TURNOVER AT DELHI UNI T COMES TO AROUND 5%. IT HAS ALSO BEEN CONSIDERED THAT H-18 UN IT OF THE ASSESSEE IS MANUFACTURING AYURVEDIC MEDICINES. BADDI UNIT PERIOD WAGES RS. TURNOVER RS. PERCENTAGE OF WAGES TO THE TURNOVER 2006-07 RS. 49,94,250 RS. 38.52 CR & JOB WORK OF RS. 2.94 CR. 1.20% 2007-08 RS. 1,94,34,680 RS. 55.02 CR & JOB WORK OF RS. 5.36 CR. 3.20% 2008-09 RS. 12,41,75,258 RS. 53.69 CR. AND JOB WORK OF RS. 2.78 CR. 4.20% ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 71 AVERAGE RATION OF WAGES TO THE TURNOVER AT BADDI UN IT COMES TO AROUND 2.86% ONLY. THE SUPPRESSION OF WAGES EXPE NSES IS AT MUCH HIGHER SIDE DURING A.Y. 06-07 & 07-08. RELEVAN T EVIDENCES (A-20 & A-21 OF WB-5) AS DISCUSSED EARLIE R IN THE ORDER WERE FOUND DURING SEARCH ON 14/02/2008. 15.11 IN VIEW OF THE DETAILED DISCUSSION MADE IN EA RLIER PARAGRAPHS, IT IS CLEAR THAT THE ASSESSEE HAS NOT D ECLARED THE TRUE EXPENDITURE ON WAGES AND DEFLATED THE SAME TO ARRIV E AT HIGHER PROFITS AS THE INCOME WAS EXEMPT U/S 80IC OF THE AC T. THE ASSESSEE COMPANY WAS HAVING ONLY 26% HIMACHALI EMPL OYEES AND IT WAS REQUIRED TO SHOW 70% OF THE EMPLOYEES AS HIMACHALI AS PER DIRECTION OF STATE GOVT. ACCORDING LY PAYMENT TO NON HIMACHLI WORKERS WERE MADE OUT OF BOOKS AND WAS REASON OF SUPPRESSED WAGES. IN VIEW OF THE SAME AND KEEPING IN VIEW THE EXPENDITURE UNDER THIS HEAD CLAIMED IN OTHER (NON EXEMPT) UNITS, I ESTIMATE THE EXPENDITURE @ 4, 4.25 AND 4.75% IN THE YEAR 2006-07, 2007-08 AND 2008-09 RESPECTIVE LY. ON THE BASIS OF THE SAME, DIFFERENCE IN WAGES IS TREATED T O BE MADE OUT OF UNDISCLOSED SOURCES AND TREATED AS PART OF UNACC OUNTED INCOME OF THE ASSESSEE. THE WORKING OF ADDITION IS AS UNDER :- 15.12 ACCORDINGLY AN ADDITION OF RS. 1,15,89,750/- IS MADE IN THE YEAR UNDER CONSIDERATION THAT IS A.Y. 2006-07 O N ACCOUNT OF UNEXPLAINED EXPENDITURE INCURRED FOR SUPPRESSED WAGE EXPENSES. ON THE SIMILAR REASONINGS, ADDITION HAS BEEN MADE I N ASSESSMENT YEAR 2007- 08 AND 2008-09. PERIOD TURNOVER RS. PERCENTAGE OF WAGES TO THE TURNOVER PERCENTAGE OF WAGES TO THE TURNOVER 2006-07 RS. 38.52 CR & JOB WORK OF RS. 2.94 CR. 1.20% 49,94,250 4 1,65,84,000 2007-08 RS. 55.02 CR & JOB WORK OF RS. 5.36 CR. 3.20% 1,94,34,680 4.25 2,56,61,500 2008-09 RS. 53.69 CR. AND JOB WORK OF RS. 2.78 CR. 4.20% 2,41,75,258 4.75 2,68,23,250 ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 72 61. THE CIT(A) HAS DELETED THE ADDITION FOR THE ASS ESSMENT YEAR 2006-07 BY MAKING FOLLOWING FINDING:- I HAVE CONSIDERED THE FINDING OF THE AO AND THE SU BMISSIONS MADE BY THE ASSESSEE ON THIS ISSUE. IT IS A FACT ON RECORD THAT NO EVIDENCE WITH REGARD TO NONE ENTERING THE NAME OF A NY WORKER IN THE WAGES REGISTER FOR THIS YEAR HAS BEEN FOUND DURING THE COURSE OF SEARCH. ALSO NO EVIDENCE OF ANY UNACCOUNT ED PAYMENT MADE TO WORKERS DURING THE YEAR HAS BEEN FO UND. IN FACT THE ENTIRE ADDITION ON ACCOUNT OF SUPPRESSION OF WAGES IS BASED ON COMPARISON OF PERCENTAGE OF WAGES TO TURNO VER VIS-- VIS DELHI UNIT AND BADDI UNIT. TAKING INTO ACCOUNT THE PERCENTAGE OF WAGES TO TURNOVER FOR 3.9% AT DELHI U NIT IN AY 2006-07, THE AO HAS HELD THAT FOR BADDI UNIT THE PE RCENTAGE OF WAGES TO TURNOVER IS ESTIMATED TO BE 4% INSTEAD OF THE ACTUAL PERCENTAGE TO WAGES FOR BADDI UNIT AS PER BOOKS OF ACCOUNT OF THE ASSESSEE AT 1.2%. AS AGAINST THIS ESTIMATION MA DE BY THE AO, WHICH FORMS THE BASIS OF ADDITION, THE APPELLAN T HAS ARGUED THAT THE WAGES SCALE OF DELHI AND BADDI ARE NOT COMPARABLE FOR THE REASON THAT MINIMUM WAGES PER MO NTH AT DELHI IS FOR RS. 3,500/- WHILE MINIMUM WAGES PER MO NTH FOR BADDI IS RS. 2,100/-, WHICH IS ONLY 60% OF THE MINI MUM WAGES AT DELHI. MOREOVER AS ARGUED FOR THE YEAR UND ER CONSIDERATION ALTHOUGH IN DELHI UNITES EVEN WHILE T HERE WAS SUBSTANTIAL DECLINE IN THE SALES, THERE WAS NO SUCH DECLINE IN WAGES FOR THE REASON THAT THE PERMANENT WORKERS COU LD NOT BE REMOVED DUE TO LABOUR ISSUES. THUS IF THE ABOVE SAI D TWO FACTORS ARE TAKEN INTO ACCOUNT THE BASIS FOR ESTIMA TION MADE BY THE A.O. LOSES ITS RATIONALE. MOREOVER NO POSITIVE EVIDENCE OF PAYMENT OF UNACCOUNTED WAGES HAS BEEN FOUND DURING THE SEARCH. SO ON THIS ACCOUNT ALSO NO ADDITION TO INCO ME IS JUSTIFIED. IN VIEW OF THE ABOVE FACTS THE ADDITION TO INCOME FOR RS. 1,15,89,750/- AS UNEXPLAINED EXPENDITURE FOR SU PPRESSED WAGES, IS DIRECTED TO BE DELETED. SIMILAR FINDINGS HAVE BEEN GIVEN BY THE CIT(A) WHIL E DELETING THE ADDITION FOR ASSESSMENT YEAR 2007-08. ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 73 62. ADDITION FOR THE ASSESSMENT YEAR 2008-09 HAS BE EN DELETED BY THE CIT(A) ON THE FOLLOWING REASONING:- I HAVE CONSIDERED THE FINDING OF THE AO AND THE SU BMISSION MADE BY THE ASSESSEE ON THIS ISSUE. IT IS A FACT ON RECORD THAT THE ENTIRE ADDITION ON ACCOUNT OF SUPPRESSION OF WA GES IS BASED ON COMPARISON OF PERCENTAGE OF WAGES TO TURNOVER VI S--VIS DELHI UNIT AND BADDI UNIT. TAKING INTO ACCOUNT THE AVERAGE PERCENTAGE OF WAGES TO TURNOVER FOR A.Y. 2006-07, 2 007-08 & 2008-09 OF 5.00% AT DELHI UNIT, THE AO HAS HELD THA T FOR BADDI UNIT THE PERCENTAGE OF WAGES TO TURNOVER IS ESTIMAT ED TO BE 4.75% INSTEAD OF THE ACTUAL PERCENTAGE TO WAGES FOR BADDI UNIT AS PER BOOKS OF ACCOUNT OF THE ASSESSEE AT 4.2%. AS AGAINST THIS ESTIMATION MADE BY THE AO, WHICH FORMS THE BASIS OF ADDITION, THE APPELLANT HAS ARGUED THAT THE WAGES SCALE OF DE LHI AND BADDI ARE NOT COMPARABLE FOR THE REASON THAT MINIMU M WAGES PER MONTH AT DELHI IS FOR RS. 3633/- WHILE MINIMUM WAGES PER MONTH FOR BADDI IS RS. 3,000/-, WHICH IS ONLY 82% O F THE MINIMUM WAGES AT DELHI. THUS IF THE ABOVE SAID FACT OR IS TAKEN INTO ACCOUNT THE BASIS FOR ESTIMATION MADE BY THE A .O. LOSES ITS RATIONALE. WITH REGARD TO NON-ENTERING OF THE NAMES OF THE 96 WORKERS IN THE SHIFT OF 108 WORKERS THE ASSESSEE HAS SUBMITTED THAT THESE WORKERS WERE NEWLY RECRUITED I N THE MONTH OF FEBRUARY, 2008 ITSELF. IN SUPPORT OF IT, P F AND ESIC DOCUMENT HAVE BEEN FILED BEFORE THE AO, VIDE REPLY DATED 11.11.2009. I HAVE EXAMINED THE SAME AND IN MY CONS IDERED OPINION THAT THE WAGES ON ACCOUNT OF THE SHIFT IS D ULY ACCOUNTED FOR IN THE MONTH OF MARCH 2008, WHICH WAS THE FIRST MONTH WHEN WAGES BECAME DUE TO THESE NEWLY RECRUITE D WORKERS. IN VIEW OF ALL THESE FACTS TAKING INTO TOT ALITY, IN MY CONSIDERED VIEW, THE AOS FINDING THAT ADDITION OF RS. 26,47,992/- IS REQUIRED TO BE MADE IN THE YEAR UNDE R CONSIDERATION ON ACCOUNT OF UNEXPLAINED EXPENDITURE FOR SUPPRESSED WAGES EXPENSES IS DIRECTED TO BE DELETED . 63. THE LEARNED DR SUBMITTED THAT THE DELETION BY THE C IT(A) IS NOT JUSTIFIED. THE LD. DR HAS REFERRED TO THE STATEMEN T RECORDED DURING THE COURSE OF THE SURVEY AND RELIED ON THE REASONING GIVEN BY THE AO. ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 74 64. THE LEARNED AR, HOWEVER, SUPPORTED THE ORDER OF THE CIT(A). IT WAS SUBMITTED THAT THE AO HAS NOT APPRECIATED THE FACTS IN THE RIGHT PERSPECTIVE. IT IS NOT A QUESTION OF ANY UNACCOUNTED WAGES. THE IS SUE WAS ACCOUNTING TREATMENT OF THE WAGES WHICH HAS BEEN MISUNDERSTOOD BY THE AO. IT WAS FURTHER SUBMITTED THAT FOR THE ASSESSMENT YEAR 2006 -07 AND 2007-08 THERE IS NO ADVERSE MATERIAL WHATSOEVER. THE CIT(A) HAS GIV EN A CATEGORICAL FINDING THAT NO EVIDENCE WITH REGARD TO NON-ENTERING OF ANY NAME OF ANY WORKER IN THE WAGE REGISTER FOR THE ASSESSMENT YEAR 2006-07 AND 2 007-08 WERE FOUND. NO EVIDENCE OF ANY UNACCOUNTED PAYMENT MADE TO THE WOR KERS DURING THE YEAR HAS BEEN FOUND. 65. FOR THE ASSESSMENT YEAR 2008-09, THE CIT(A) HAS APPRECIATED THE FACTS IN THE RIGHT PERSPECTIVE AND HAS TAKEN COGNIZANCE O F THE FACT ABOUT THE VARIATION IN THE MINIMUM WAGES PAYABLE IN THE STATE OF HIMACHAL PRADESH AND IN THE STATE OF DELHI. THE CIT(A) HAS ALSO TAK EN COGNIZANCE OF THE PF AND ESIC DOCUMENTS FILED BEFORE THE AO IN SUPPORT O F THE CONTENTION THAT THE WAGES HAVE BEEN DULY ACCOUNTED FOR. 66. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. ON G OING THROUGH THE FACTS WE NOTICE THAT THE AO ASSUMED THAT THERE WERE WORKE RS, THE NAMES OF WHICH WERE NOT RECORDED IN THE WAGES REGISTER. ON THE BA SIS OF THIS, HE HAS ASSUMED THAT ASSESSEE HAS MADE PAYMENT OUTSIDE THE BOOKS OF ACCOUNT TO THESE ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 75 WORKERS. FIRSTLY WE HOLD THAT THE CIT(A) HAS RIGHT LY OBSERVED THAT THIS IS RELATED TO THE ASSESSMENT YEAR 2008-09 AND NOT TO E ARLIER ASSESSMENT YEARS I.E. 2006-07 AND 2007-08. DURING THE COURSE OF THE HEAR ING THE LEARNED DR WAS ASKED TO CLARIFY WHETHER THERE IS ANY MATERIAL OR E VIDENCE OF ANY UNACCOUNTED PAYMENT BEING MADE TO ANY WORKER ON ACCOUNT OF WAGE S DURING THE ASSESSMENT YEAR 2006-07 AND 2007-08. THE LEARNED D R CLARIFIED THAT THAT THERE IS NO EVIDENCE OTHER THAN SPOT VERIFICATION C ARRIED OUT DURING THE ASSESSMENT YEAR 2008-09. THE AO PROBABLY HAS EXTRA POLATED THE SAME TO THE PRECEDING TWO ASSESSMENT YEARS I.E. 2006-07 AND 20 07-08. IN THE ABSENCE OF ANY MATERIAL FOUND DURING THE COURSE OF THE SURVEY OR IN THE ABSENCE OF ANY EVIDENCE ON SUPPRESSION OF WAGES IN THE ASSESSMENT YEARS 2006-07 AND 2007- 08 WE ARE OF THE VIEW THAT THE CIT(A) WAS RIGHT IN DELETING THE ADDITION. 67. THE AO HAS MADE A TABULATED CHART OF THE WAGES PAID IN DELHI AND WAGES PAID AT BADDI IN ABSOLUTE TERMS BUT HE HAS IG NORED THE FACT THAT THE WAGES SCALE OF DELHI AND BADDI ARE NOT COMPARABLE. IF THESE FACTS ARE TAKEN INTO CONSIDERATION THE VERY BASIS FOR MAKING THE AD DITION BY THE AO BECOMES UNSUSTAINABLE. WE ARE ALSO IN AGREEMENT WITH THE F INDING GIVEN BY THE CIT(A) THAT THE ASSESSEE HAS SUBMITTED NECESSARY DO CUMENTS RELATING TO PF AND ESIC IN RESPECT OF THE 96 WORKERS WHO WERE FOUN D WORKING DURING THE COURSE OF THE SURVEY. THE EXPLANATION GIVEN BY THE ASSESSEE HAS NOT BEEN ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 76 UNDERSTOOD BY THE AO IN THE RIGHT PERSPECTIVE. IN VIEW OF THE ABOVE, WE UPHOLD THE ORDER OF THE CIT(A) AND THESE GROUNDS OF APPEALS ARE DISMISSED. 68. GROUND NO.3 IN ASSESSMENT YEAR 2006-07, 2007-08 AND 2008-09 IS RELATING TO THE DELETION OF THE ADDITION MADE BY TH E CIT(A) ON ACCOUNT OF SUPPRESSION OF PRODUCTION AS UNDER:- A.Y. 2006-07 : RS. 72,91,213 A.Y. 2007-08 : RS.1,02,40,635 A.Y. 2008-09 : RS. 4,44,86,782 THE ABOVE SAID ADDITIONS HAVE BEEN MADE BY THE AO B Y GIVING THE FOLLOWING FINDINGS:- THE ASSESSEE COMPANY MAINTAINS PRODUCTION DETAILS OF DIFFERENT PRODUCTS WHICH IS RECORDED IN PRODUCTION REGISTERS MAINTAINED ON DAY-TO-DAY BASIS FOR EACH YEAR SEPARA TELY. PHOTO COPIES OF PRODUCTION REGISTERS WERE MADE AVAI LABLE DURING THE COURSE OF SEARCH FOR FIN. YEARS 2005-06, 06-07 AND 07-08. DATE WISE MANUFACTURING CHART AND QUANTITY RELEASED WAS PREPARED. IN THE SUCCEEDING DATES AND MONTHS, IT HAS ALSO BEEN OBSERVED THAT FULL SIZE BATCHES ARE NOT SHOWN IN THE COLUMN OF QUANTITY OF MEDICINES RELEASED. A DETAIL ED WORKING OF BATCHES NOT INCLUDED IN THE QUANTITY OF MEDICINE S RELEASED FOR PACKING IS SEPARATELY ANNEXED WITH THE ORDER AL SO. THE YEAR WISE COMPLETE DETAIL OF SUCH SUPPRESSION OF PR ODUCTION ON TRANSFER PRICE COMES AS UNDER :- YEARWISE TOTAL MONTH 2005-06 2006-07 2007-08 APRIL 1955320 926718 MAY 462870 642600 465708 JUNE 683316 704462 8294346 JULY 932298 1264925 481580 AUGUST 482929 670330 1432498 SEPTEMBER 411979 339168 1278011 OCTOBER 939178 563027 788942 ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 77 NOVEMBER 978202 923725 894945 DECEMBER 781330 980484 631417 JANUARY 732327 1053115 435749 FEBRUARY 530392 475114 28856868 MARCH 650192 578365 TOTAL 72,91,213 10240635 44486782 GRAND TOTAL 6,21,18,630/- IN RESPONSE TO EXPLAIN THE SAID DISCREPANCY, THE AS SESSEE HAS SUBMITTED THAT THERE IS NO SUPPRESSION OF PRODU CTION IN ITS CASE. HOWEVER, THE ASSESSEE ADMITTED THE DISCREPAN CY BUT TERMED IT AS WASTAGE. ACCORDING TO THE ASSESSEE IT S TRANSFER VALUE WAS RS. 72,03,880/- ONLY. THE ASSESSEE HAS C LAIMED THAT IN ITS INDUSTRY THE SAME IS NOT SUPPRESSION OF PROD UCTION BUT NORMAL LOSS OF THE PRODUCTION PROCESS. IT IS MEREL Y WASTAGE GENERATED IN THE PRODUCTION PROCESS. EXPLANATION O F THE ASSESSEE CANNOT BE ACCEPTED AS DISCUSSED IN EARLIER PARA DURING THE DISCUSSION REJECTION OF BOOK RESULT OF THE ASSE SSEE. IN VIEW OF THE FACT THAT NO WASTAGE HAS BEEN CLAIMED IN THE AUDITORS REPORT, WHEREIN SPECIFIC DETAIL IS REQUIRED TO BE S UBMITTED. THE ASSESSEE HAS SUBMITTED ITS REPLY JUST BEFORE END OF THE ASSESSMENT PROCEEDING, AND NO MEANINGFUL VERIFICATION/INVESTIGATION IS POSSIBLE. HOWEVER, F ACT REMAINS THAT THE ASSESSEE IS NOT DISCLOSING ITS ACTUAL PROD UCTION AND MERELY TERMED AS WASTAGE. INCOME FROM SALE OF SUCH WASTAGE HAS NOT BEEN SHOWN. IT IS APPARENT THAT THE ASSESS EE HAS ALSO INCURRED UNACCOUNTED EXPENSES FOR WAGES IN ITS BADD I UNIT TO CIRCUMVENT THE STATE REGULATION OF EMPLOYMENT. FOR SUCH UNACCOUNT EXPENSE THE ASSESSEE HAS TO GENERATE INCO ME OUT OF BOOKS. CONTENTION OF THE ASSESSEE IS NOT ACCEPTED O N FOLLOWING GROUND: THE ASSESSEE COMPANY IS FLAGSHIP CONCERN OF THE GRO UP FOR REVENUE GENERATION. EVIDENCE OF SUPPRESSION OF WAGES FOR THE ASSESSEE COMPANY HAS BEEN FOUND AND WORKED OUT. EVIDENCES OF SUPPRESSION OF PRODUCTION WAS GATHERED BY THE DEPARTMENT IN SEARCH. REPLY OF THE ASSESSEE HA S REACHED THIS OFFICE ONLY THE DURING LAST WEEK OF ASSESSMENT PROCEEDING. THEREFORE, NO MEANING FULL ENQUIRY IS POSSIBLE AT T HIS STAGE. 15.14 THE ASSESSEE CLAIMED OF LOSS ON PRODUCTION IS NOT SUPPORTED BY DOCUMENTARY EVIDENCE, IN ITS CASE AND WAS NOT ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 78 PART OF AUDITORS REPORT SUBMITTED ALONG WITH RETURN S OF INCOME OF THE RESPECTIVE YEARS. IT IS ALSO FOUND THAT THE ASSESSEE COMPANY IS SUPPRESSING ITS WAGE EXPENSES AS DISCUSS ED ABOVE. THOUGH DEPARTMENT HAS GOT EVIDENCES OF SUPPRESSION OF PRODUCTION OF RS.72,91,213 IN ITS BADDI UNIT. IN T HE FACTS AND CIRCUMSTANCES, OF THIS AND AS PER FACTS OF SUPPRESS ED WAGES AND SUPPRESS PRODUCTION, I HOLD THAT THE ASSESSEE HAS S UPPRESSED ITS PRODUCTION BY AT LEAST AN AMOUNT OF RS.1,15,89,750/ -. ADDITION OF THE SAME IS REQUIRE TO BE MADE IN THE H ANDS OF THE ASSESSEE. HOWEVER IT IS ALSO FOUND THAT THE ASSESS EE HAS SUPPRESSED ITS WAGE EXPENSES. AN ADDITION OF RS.1, 15,89,750/- IS ALREADY MADE IN THIS YEAR UNDER CONSIDERATION TH AT IS A.Y. 2006-07 ON ACCOUNT OF UNEXPLAINED EXPENDITURE INCUR RED FOR SUPPRESSED WAGE EXPENSES. HENCE NO SEPARATE ADDITI ON IS MADE ON ACCOUNT OF SUPPRESSED PRODUCTION CONSIDERIN G THE SAME IS USED FOR SUPPRESSED WAGES. 69. THE CIT(A) HAS DELETED THE SAID ADDITION ON THE BASIS OF THE FOLLOWING FINDINGS:- ON A CAREFUL CONSIDERATION OF THE FINDING OF THE A O AND THE SUBMISSION MADE BY THE ASSESSEE IT IS SEEN THAT THE AOS CONCLUSION REGARDING SUPPRESSION OF PRODUCTION IS B ASED ON THE PREMISE THAT WHILE THE BATCH SIZE TAKEN FOR PRODUCT ION OF TABLETS IS FOR A HIGHER NUMBER OF TABLETS, THE QUAN TITY RELEASED PER BATCH RESULTS INTO A DIFFERENCE OF 4000 TABLETS , PER BATCH. THE AO HAS NOT ALLOWED FOR THIS WASTAGE OF 4000 TAB LETS PER BATCH AS CLAIMED BY THE ASSESSEE. THE REASON GIVEN IN THE ASSESSMENT ORDER IS THAT SUCH PRODUCTION WASTAGE IS NOT REPORTED AND DOES NOT FORM PART OF THE AUDITORS RE PORT. THE OTHER REASON IS THAT THE APPELLANTS REPLY ON THIS NORMAL PRODUCTION LOSS HAS BEEN SUBMITTED AT THE FAG END O F THE ASSESSMENT PROCEEDINGS AND NO MEANINGFUL VERIFICATI ON IS POSSIBLE AT THIS STAGE. ON A PERUSAL OF THE SUBMISSIONS MADE BY THE APPELLA NT IT IS SEEN THAT THE ASSESSEE HAS BEEN MAINTAINING PRODUCT ION REGISTER WHICH IS PRESCRIBE UNDER SCHEDULE-U OF DRUGS AND CO SMETICS ACT IN WHICH DAY TO DAY ENTRIES RELATING TO THE QUA NTITATIVE DETAILS OF RAW MATERIAL USED IN THE PRODUCTION PROC ESS AND THE FINAL PRODUCT IS MAINTAINED. APART FROM SOME CALCUL ATION ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 79 MISTAKES, WHICH HAVE BEEN EXPLAINED BY THE ASSESSEE , NOTHING HAS BEEN NOTED FROM THE SAID STATUTORY PRODUCTION/ MANUFACTURING RECORDS WHICH CAN LEAD TO THE INFEREN CE OF SUPPRESSION OF PRODUCTION IS SUCH RECORDS. THE APPE LLANT HAS ALSO DETAILED THE MANUFACTURING PROCESS FROM WHICH IT IS OBSERVED THAT CERTAIN AMOUNT OF WASTAGE/ PRODUCTION LOSS IS A NECESSARY FEATURE OF THE APPELLANTS PRODUCTION PRO CESS, WHICH CANNOT BE ENTIRELY RULED OUT. MOREOVER, EVEN UNDER THE DRUG PRICE CONTROL ORDER 1995 AND DRUGS AND COSMETICS AC T, 1940 AND RULES FRAMED THERE UNDER, A WASTAGE/PRODUCTION LOSS WHICH IS LESS THAN 4%, IS WITHIN PERMISSIBLE LIMITS. IN T HE FACTS OF THE INSTANT CASE THE PERCENTAGE PRODUCTION LOSS COMES T O LESS THAN 1% WHICH IS WELL WITHIN THE LIMIT PRESCRIBED BY THE DRUGS CONTROL ACT. MOREOVER, NO EVIDENCE HAS BEEN FOUND D URING THE COURSE OF SEARCH WHICH SHOWS THAT THE ASSESSEE HAS BEEN MANUFACTURING UNACCOUNTED TABLETS RESULTING IN UNAC COUNTED SALES THEREOF AND THAT THESE UNACCOUNTED TABLETS AR E PRODUCED AS A RESULT OF BOGUS CLAIM OF WASTAGE BY THE ASSESS EE(ALREADY OBSERVED ABOVE AS WELL WITHIN THE REASONABLE LIMITS ). IN VIEW OF ALL THESE FACTS TAKING INTO TOTALITY IN MY CONSI DERED VIEW THE AOS FINDING RELATING TO UNACCOUNTED SALES ARISING OUT OF SUPPRESSED PRODUCTION CALCULATED FOR RS. 72,91,213/ -, IS DIRECTED TO BE DELETED. 70. THE LEARNED DR HAS SUPPORTED THE ORDER OF THE A O. HE SUBMITTED THAT CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION M ADE BY THE AO. ON THE OTHER HAND, THE LEARNED AR SUBMITTED THAT THE ADDIT ION MADE BY THE AO WAS IN TOTAL DISREGARD TO THE FACTS OF THE CASE. LD. A R INVITED OUR ATTENTION TO THE DETAILED EXPLANATION SUBMITTED BY THE ASSESSEE ON T HIS ISSUE BEFORE AO VIDE LETTER DATED 30 TH NOVEMBER, 2009 WHEREBY THE WHOLE PROCESS OF A BATC H SIZE TAKEN AT 4.8 LAKH OF FINISHED PRODUCT RELEASE OF 4. 76 LAKH WAS EXPLAINED. IT WAS FURTHER EXPLAINED THAT THE LOSS OF 40000 TABLET S IN THE PROCESS IS LESS THAN 0.83%. IT WAS ALSO SUBMITTED THAT THE MAKING OF TA BLETS CONSISTS OF MANY ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 80 STEPS FROM CONVERSION OF RAW MATERIAL AND PACKING I NTO FINISHED GOODS PRODUCT. THE LOSS IN EACH STEP STARTING FROM THE R AW MATERIAL DISPENSING AND SIEVING WHILE TRANSFERRING FROM PP BAG OR DRUMS, LO SS ARISING IN DRY MIXING, WET MIXING, SIZING OF WET MASS, DRYING OF WET GRANU LES, SIZING OF DRY GRANULES, LIBERATION OF THE SIZED DRY GRANULES, WA STAGE ARISING ON ACCOUNT OF ANY PROCESS CHECKING WHICH IS MANDATORY AS PER THE DRUGS & COSMETIC ACT AND THE REQUIREMENT OF TAKING OUT SAMPLES FOR QUALI TY CONTROL, TESTING AND CONTROL SAMPLES FOR FUTURE REFERENCE AS PER RELEVAN T NOTIFICATION ISSUED UNDER THE DRUG (PRICES) CONTROL ORDER, 1995. IT WAS FURT HER SUBMITTED THAT DURING THE COURSE OF THE SEARCH AND THE SURVEY NO INCRIMIN ATING MATERIAL WAS FOUND THAT ASSESSEE HAS ACTUALLY PRODUCED MORE OR HAS SOL D OUT ANY MATERIAL OUTSIDE THE BOOKS OF ACCOUNT. 71. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH SIDES. THE ASSESSEE HAS EXPLAINED ITS PRODUCTION PROCESS IN DETAIL AND THE WASTAGE/LOSS ARISING IN THE PROCESS HAS BEEN QUANTIFIED AT EACH LEVEL. DUR ING THE COURSE OF THE HEARING, REVENUE COULD NOT POINT OUT ANY ERROR OR D EFECT IN THE EXPLANATION GIVEN BY THE ASSESSEE. FURTHER IT IS ALSO A MATTER OF FACT THAT NO ADVERSE MATERIAL OR EVIDENCE WAS FOUND DURING THE COURSE OF SEARCH OR SURVEY THAT THE ASSESSEE HAS SUPPRESSED ANY PRODUCTION NOR ANY MATE RIAL WAS FOUND WITH REGARD TO ANY SALE OF SUCH PRODUCTION OUTSIDE THE B OOKS OF ACCOUNT. IN VIEW ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 81 OF THE ABOVE FACTS, WE UPHOLD THE FINDING OF THE CI T (A) FOR DELETING THE ADDITION. 72. GROUND NO.5 OF ASSESSMENT YEAR 2006-07 AND GROU ND NO.2 OF ASSESSMENT YEARS 2007-08 AND 2008-09 IS RELATING TO DENIAL OF THE BENEFIT OF DEDUCTION UNDER SECTION 80IC IN RESPECT OF THE JOB WORK INCOME FROM MANUFACTURING ACTIVITY CARRIED OUT AT BADDI UNIT. IN THIS REGARD THE AO HAS STATED THAT JOB WORK INCOME CANNOT BE TREATED AS IN COME DERIVED FROM MANUFACTURING ACTIVITY AND ACCORDINGLY HE HAS DENIE D THE BENEFIT OF DEDUCTION IN RESPECT OF THE JOB WORK CHARGES. THE CIT(A) HAS REJECTED THE ABOVE CONTENTION OF THE AO BY GIVING THE FOLLOWING FINDIN GS:- I HAVE CONSIDERED THE SUBMISSION OF THE ASSESSEE W ITH REGARD TO ABOVE OBSERVATION MADE BY THE AO. COMPLETE DETA ILS OF THE JOB WORK CHARGES WITH NAMES & ADDRESS OF THE PARTIE S WERE FILED BEFORE THE AO. DURING THE YEAR UNDER CONSIDE RATION JOB WORK CHARGES FOR RS.2,93,84,240/- WAS RECEIVED FROM THREE PARTIES INCLUDING LARGELY FROM CIPLA LTD. THE ASSE SSEE HAS SUBMITTED THAT COMPLETE WORK STARTING FROM THE CONV ERSION OF POWDER TO TABLET / CAPSULES WAS UNDERTAKEN. ALL T HIS WORK WAS DONE ON LOAN LICENSE BASIS. THUS COMPLETE MANUFACT URING PROCESS HAS BEEN UNDERTAKEN. ONLY THE RAW MATERIAL WAS SUPPLIED BY THE RESPECTIVE PARTY. WITH REGARD TO A DMISSIBILITY OF DEDUCTION U/S 80IC ON JOB WORK THE ASSESSEE FURT HER SUBMITTED AS UNDER :- - THE ABOVE SAID NATURE OF JOB WORK VERY MUCH INVOL VED PRODUCTION OF ARTICLE OR THING AS REQUIRED U/S 80IC OF THE ACT. - THAT SECTION 80IC NOWHERE STIPULATES THAT THE MANUFACTURING WORK SHOULD BE LIMITED ONLY FOR SELF. THE APPELLANT ALSO PLACED RELIANCE ON THE CASE OF C IT VS. TAJ FIRE WORKS INDUSTRIES 288 ITR 92 WHEREIN IT HAS BEE N HELD BY THE HONBLE MADRAS HIGH COURT THAT IN THE CASE OF J OB WORK ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 82 RECEIPTS TOO THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 80HH AND 80I. IN VIEW OF THE ABOVE DISCUSSION, IN MY CONSIDERED V IEW THERE IS NO JUSTIFICATION FOR DISALLOWING THE CLAIM OF DEDUCTION U/S 80IC ON THE INCOME FROM JOB WORK. THE AO IS AC CORDINGLY DIRECTED NOT TO ALTERNATELY AND SEPARATELY DISALLOW ANY DEDUCTION U/S 80IC ON THE JOB WORK INCOME FROM MANUFACTURING ACTIVITY CARRIED OUT AT BADDI UNIT. 73. THE LEARNED DR HAS RELIED UPON THE ORDER OF THE AO. THE LEARNED AR HAS SUPPORTED THE ORDER OF THE CIT(A). THIS ISSUE I S SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE FOLLOWING JUDGMENTS W HEREBY IT HAS BEEN HELD THAT INCOME ARISING FROM THE JOB WORK CARRIED BY EL IGIBLE UNIT IS ELIGIBLE FOR DEDUCTION:- (I) CIT VS. SADHU FORGING LTD. 336 ITR 444 (DEL) (II) CIT VS. NORTHERN AROMATICS LTD. 196 CTR (DEL) 479 (III) NU-LOOK (P) LTD. VS. CIT 157 ITR 253 (DEL) (IV) CIT VS. TAJ FIRE WORKS INDUSTRIES 288 ITR 92 (MAD) 74. WE HAVE GONE THROUGH THE FACTS OF THE CASE. WE NOTICE THAT THE ASSESSEE IS ENGAGED IN THE IN THE MANUFACTURING ACT IVITY AT THE BADDI UNIT AND THERE IS NO DISPUTE ABOUT THIS FACT. FURTHER ASSES SEE HAS CARRIED OUT JOB WORK AND NECESSARY DETAILS ABOUT THE SAME INCLUDING NAME AND ADDRESS OF THE PARTIES FOR WHOM THESE JOB WORKS HAVE BEEN DONE WER E FILED BEFORE THE AO. THE MAJOR WORK HAS BEEN DONE BY THE ASSESSEE FOR A PHARMACEUTICAL COMPANY, CIPLA LTD. THE ASSESSEE HAS ALSO SUBMITTED COMPLET E DETAILS OF THE PROCESS AND THE WORK STARTING FROM THE CONVERSION OF POWER TO TABLETS AND CAPSULES. THUS THE ASSESSEE HAS DONE COMPLETE MANUFACTURING P ROCESS. ONLY RAW ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 83 MATERIAL WAS SUPPLIED BY THE RESPECTIVE PARTIES. T HIS NATURE OF JOB WORK IS AS GOOD AS MANUFACTURING. HENCE WE UPHOLD THE ORDER OF THE CIT (A) ON THIS ISSUE. 75. GROUND NO.6 OF EACH OF THE ASSESSMENT YEAR IS R EGARDING DELETION OF ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT O F UNEXPLAINED INVESTMENT IN PLANT AND MACHINERY AS UNDER:- A.Y. 2006-07 : RS.47,97,439 A.Y. 2007-08 : RS.47,97,439 A.Y. 2008-09 : RS.47,97,439 THE ABOVE SAID ADDITION HAS BEEN MADE BY THE AO ON THE BASIS OF FOLLOWING FINDING:- APPROVED GOVERNMENT VALUER, MR. UMESH JOHAR OF JOHAR & ASSOCIATES HAS VALUED THE PLANT AND MACHINE RY INSTALLED AT BADDI UNIT AND SUBMITTED HIS REPORT TO THE DEPARTMENT. AS PER HIS REPORT OUT OF TOTAL MACHINE RY INSTALLED AT THE BADDI PREMISES OF THE ASSESSEE COMPANY COMPO NENT OF OLD MACHINERY WAS FOUND AT 88.72% AND REST WERE TRE ATED AS NEW. AS PER THIS REPORT TOTAL VALUE OF PLANT AND M ACHINERY AT THE BADDI UNIT WAS AS ON 31-03-2005 WAS ESTIMATED A T RS.5,72,01,279/- OUT OF WHICH VALUE OF NEW PLANT A ND MACHINERY WAS ESTIMATED AT RS.64,51,610/-. AS SUCH THE VALUE OF OLD PLANT & MACHINERY AS PER VALUATION REPORT CO MES TO RS.5,07,49,669/- AS ON 31-03-2005. FURTHER VALUE OF THE SAME PLANT AND MACHINERY FOUND INSTALLED AT BADDI AS IN MARCH 2008 WAS REPORTED BY THE APPROVED GOVERNMENT VALUER RS.6,85,87,500. THE ASSESSEE COMPANY HAS SHOWN ALL ITS PLANT & MACHINERY, EQUIPMENTS ETC. AS ON 31-03-2008 GROSS VALUE AS PER BOOKS WAS RS. 4,06,95,182/-. THE DIFFERENCE OF THE RS.2,78,92,318/- WAS POINTED OUT TO THE AR AND THIS ISSUE WAS CONFRONTED TO THE ASSESSEE COMPANY. 15.22 ACCORDING TO THE ASSESSEE COMPANY, IT DID NOT ACCEPT THE FINDINGS OF THE REPORT OF MR. UMESH JOHAR. ACCORDI NG TO THE ASSESSEE VALUE OF PLANT & MACHINERY AS ON 31-03-200 6 WAS ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 84 RS.2,54,85,590/- AND AS ON 31-03-2007 IT WAS RS.3,5 3,28,358/- AND AS ON 31-03-2008 IT WAS RS.4,06,95,182/-. THE ASSESSEE HAS FURTHER SUBMITTED THAT THE COMPAN Y HAS PURCHASED THE MACHINERIES IN DIFFERENT YEARS STARTI NG FROM A.Y. 2005-06 TO A.Y. 2008-09. DETAILS OF ADDITION TO TH E PLANT & MACHINERY IS AS UNDER: A.Y. OPENING VALUE ADDITION DURING THE YEAR TOTAL VALUE 2005-06 0 42,67,690/- 42,67,690/- 2006-07 42,67,690/- 2,12,17,905/- 2,54,85,590/- 2007-08 2,54,85,590/- 98,42,768/- 3,53,28,358/- 2008-09 3,53,28,358/- 53,66,819/- 4,06,95,182/- I HAVE CONSIDERED THE REPLY OF THE ASSESSEE CAREFU LLY. HOWEVER, CONTENTIONS OF THE ASSESSEE IS NOT ACCEPTA BLE ON FOLLOWING GROUNDS: 15.33 THE VALUATION HAS BEEN DONE BY AN APPROVED AN D QUALIFIED TECHNICAL VALUER WHO IS HAVING AN EXPERTI SE IN HIS FIELD AND HAS FOLLOWED THE LOGICAL/ CORRECT PROCEDU RE DETERMINING THE VALUE AS ON 31-03-2005. THE INSPEC TION HAS BEEN MADE IN THE PRESENCE OF GENERAL MANAGER OF THE COMPANY SH. S.K. MENDIRATTA AND ALSO IN THE PRESENCE OF OTH ER EMPLOYEES OF THE COMPANY. THE ASSESSEE COMPANY HAS NOT CLAIMED ERECTION CHARGES IN ITS BALANCE SHEET FOR M ACHINES DURING ITS FORMATION PERIOD. (II) DURING THE COURSE OF SEARCH PROCEEDINGS EVIDEN CES HAVE BEEN FOUND WHICH PROVED THAT THE ASSESSEE HAS ARRAN GED ACCOMMODATION BILLS FROM VARIOUS PERSONS IN THE GAR B OF PURCHASE BILLS OF MACHINERIES WHICH FURTHER SUBSTAN TIATE THAT THE CAPITALIZATION OF THE ASSESSEE COMPANY WITH REG ARD TO PLANT & MACHINERY IS NOT CORRECT. (III) IT IS ALSO ESTABLISHED THAT THE ASSESSEE COMP ANY HAS SHIFTED ITS PLANT & MACHINERY FROM ITS D-6/ J-13 UN IT OF DELHI TO ITS BADDI UNIT DURING THE LATER PART OF THE A.Y. 05-06. FINALLY DELHI UNIT OF D-6 WAS ALSO CLOSED IN MAY, 2 006 AS PER ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 85 STATEMENT OF D.V. SARDANA OF THE ASSESSEE COMPANY. THE ASSESSEE COMPANY HAS CLAIMED ITS PRODUCTION FOR THE FIRST TIME AT ITS BADDI UNIT DURING MAY, 2005 ONLY. WHEN DOWN VALUE OF PLANT & MACHINERY AT D-6 UNIT OF DELHI WAS RS. 1,60 ,50,810/- AS ON 01-04-2005 AS PER THE COMPANIES ACT. THE ASS ESSEE HAS SHIFTED SIZEABLE PART OF PLANT & MACHINERY OF THE A SSESSEE COMPANY FROM ITS D-6 UNIT TO ITS BADDI UNIT DURING A.Y. 05- 06 AND A.Y. 06-07. FEW OF THE MACHINERIES COULD NO T BE SHIFTED AS FOUND DURING COURSE OF SEARCH ON 14-02-2 008 BECAUSE OF NON AVAILABILITY OF SPACE AT ITS BADDI U NIT. IN THE CIRCUMSTANCES, I HAVE ESTIMATED IN ALL FAIRNESS AND ACCORDING TO THE FACT OF THE CASE THAT PLANT & MACHINERY OF WDV OF RS.1,35,00,000/- WAS TRANSFERRED FROM D-6 UNIT AND THEN INSTALLED AT BADDI UNIT. AS SUCH THE ASSESSEE COMP ANY WAS NOT REQUIRED TO MAKE ANY INVESTMENT AGAINST THESE PLANT & MACHINERY. 15.24 ACCORDINGLY THE CONTENTION OF THE ASSESSEE IN RESPECT OF THE VALUATION REPORT AND ITS INVESTMENT IN VALUE OF THE PLANT & MACHINERY DO NOT HAVE ANY MERIT AND IS REJECTED. I T HAS BEEN ESTABLISHED THAT ASSESSEE HAS OBTAINED ACCOMMODATIO N BILLS FOR WHICH IT HAS ISSUED THE CHEQUE AND RECEIVED CASH AG AINST THE SAME. SUCH CAPITALIZATION N THE BOOKS OF ASSESSEE IS UNRELIABLE, INCORRECT AND FALSE. IN THE CIRCUMSTAN CES INVESTMENT OF THE ASSESSEE COMPANY IN PLANT & MACHI NERY IS REQUIRED TO BE DETERMINED ON THE BASIS OF FACTS AVA ILABLE ON THE RECORD. TOTAL VALUE OF PLANT & MACHINERY AT BADDI UNIT IN MARCH 2008 WAS VALUED AT RS. 6,85,87,500. THE ASSE SSEE COMPANY HAS SHOWN ALL ITS PLANT & MACHINERY, EQUIPM ENTS ETC. AS ON 31-03-2008 GROSS VALUE AS PER BOOKS WAS RS.4,06,95,182/-. THE DIFFERENCE IN BOTH OF THEM I S RS.2,78,92,318/-. IT IS FURTHER FOUND THAT THE ASS ESSEE COMPANY HAS SHIFTED ITS PLANT AND MACHINERY OF DELHI UNIT T O BADDI UNIT AND ITS VALUE IS ESTIMATED IS AT RS. 1,35,00,000/-. IN ALL FAIRNESS THE AMOUNT OF UNACCOUNTED INVESTMENT IN PLANT AND M ACHINERY SHOULD BE REDUCED BY THIS AMOUNT FOR WHICH THE ASSE SSEE COMPANY WAS NOT REQUIRED TO MAKE ANY INVESTMENT. A S SUCH THE EXCESS INVESTMENT IN PLANT AND MACHINERY OF THE ASSESSEE COMPANY COMES TO RS. 1,43,318/- (RS. 2,78,92,318 RS.1,35,00,000) THE CIT(A) HAS DELETED THIS ADDITION BY GIVING THE FOLLOWING FINDING:- ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 86 ON A CONSIDERATION OF THE AOS FINDING AND THE SUB MISSION OF THE APPELLANT IT IS NOTED THAT THE ADDITION MADE WI TH RESPECT TO THIS GROUND OF APPEAL IS ESSENTIALLY ARISING OUT OF THE DIFFERENCE BETWEEN THE VALUATION OF PLANT AND MACHI NERY MADE BY SH. UMESH JOHAR, THE DEPARTMENTAL VALUER AS ON 3 1.03.08 AND THE VALUE OF SUCH PLANT AND MACHINERY AS ON 31. 03.08 ITSELF, BASED ON THE VALUE RECORDED IN BOOKS OF ACC OUNTS OF THE ASSESSEE. IN THIS CONNECTION, IT HAS ALREADY BEEN H ELD IN THE DETAILED FINDING GIVEN WITH RESPECT TO GROUND OF AP PEAL NO. 10 THAT THERE ARE SEVERAL DEFICIENCIES IN THE VALUA TION MADE BY THE DEPARTMENTAL VALUER AND THEREFORE THE SAME CANN OT BE TAKEN AS CORRECT, ON FACE VALUE AND THAT TOO WHEN T HE BILLS FOR PURCHASE OF PLANT AND MACHINERY INSTALLED AT BADDI UNIT HAS BEEN PLACED ON RECORD BY THE ASSESSEE, IN WHICH THE PURCHASE PRICE OF SUCH PLANT AND MACHINERY HAS BEEN RECORD B Y THE ASSESSEE, IN WHICH THE PURCHASE PRICE OF SUCH PLANT AND MACHINERY INVENTORISED DURING THE COURSE OF SURVEY AT BADDI UNIT WAS FOUND AS UNRECORDED IN THE BOOKS MAINTAINE D BY THE ASSESSEE. FURTHER TO THIS IT HAS ALSO BEEN HELD IN THE FINDING GIVEN IN GROUND OF APPEAL NO. 10 THAT SH. UMESH JOH AR WAS NOT A GOVT. APPROVED VALUER AS SEEN FROM THE LIST O F APPROVED VALUERS, AS OBTAINED FROM THE OFFICE OF CCIT, DELHI -1 AND FILED BY THE ASSESSEE. FOR THIS REASON TOO, THE VALUATION REPORT CANNOT BE RELIED UPON. IN VIEW OF ABOVE DISCUSSION ADDITION OF RS. 47,97,4 39/- ON ACCOUNT OF ESTIMATED UNEXPLAINED INVESTMENT IN P LANT AND MACHINERY AT BADDI IS UNJUSTIFIED, AS THE SAME IS B ASED ON SURMISE, CONJECTURE AND ESTIMATION OF VALUE OF A PLANT/MACHINERY. ACCORDINGLY, THIS GROUND OF APPEAL IS ALLOWED AND THE A.O. IS DIRECTED TO DELETE THE ADDITION. 76. BEFORE US IT WAS SUBMITTED BY THE LEARNED DR TH AT THE CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION. THE AO HAS ADO PTED SCIENTIFIC BASIS FOR MAKING THE ABOVE ADDITION. THE LEARNED AR ON THE O THER HAND HAS SUBMITTED THAT THE ADDITION MADE BY THE AO IS ABSOLUTELY ARBI TRARY AND UNJUSTIFIED AND ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 87 AGAINST THE FACTS. IT WAS SUBMITTED THAT THE VALUA TION DONE BY THE APPROVED VALUER IS BASED ON THE CURRENT MARKET PRICE AND THA T TOO WITHOUT ANY BASIS. ADDITION IN RESPECT OF ANY UNEXPLAINED INVESTMENT I S TO BE MADE ON THE BASIS OF ACTUAL INVESTMENT MADE IN THE PLANT AND MACHINER Y. IT IS NOT THE CASE OF THE REVENUE THAT ASSESSEE HAS PURCHASED ANY MACHINERY O UTSIDE THE BOOKS OF ACCOUNTS AND HAS NOT ACCOUNTED FOR IN THE BOOKS OF ACCOUNT. IT WAS ALSO SUBMITTED THAT THE STAND OF THE REVENUE IS IN FACT CONTRARY. THE REVENUE ON THE ONE HAND IS MAKING AN ALLEGATION THAT THE ASSES SEE HAS SHIFTED OLD PLANT AND MACHINERY FROM DELHI UNIT TO BADDI UNIT AND NOT PURCHASED THE NEW MACHINERY AND ON THE OTHER HAND THE AO IS MAKING AN ALLEGATION THAT THE ASSESSEE HAS PURCHASED MACHINERY FROM UNACCOUNTED S OURCES AND MADE AN UNEXPLAINED EXPENDITURE OF RS.1,43,92,318/-. IT WA S FURTHER SUBMITTED THAT DURING THE COURSE OF THE SEARCH AND SURVEY NOTHING WAS FOUND EVEN TO RAISE A DOUBT THAT ASSESSEE HAS MADE ANY INVESTMENT IN PLAN T AND MACHINERY FROM ANY UNEXPLAINED SOURCE. 77. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND WE ARE IN AGREEMENT WITH THE CONTENTION OF THE LEARNED AR. IN FACT THI S ADDITION OF THE AO CONTRADICTS HIS OWN STAND WHICH HE HAS TAKEN WHILE DENYING THE BENEFIT OF DEDUCTION UNDER SECTION 80IC ON THE GROUND THAT THE MACHINERY INSTALLED AT THE BADDI UNIT ARE OLD MACHINERIES. FURTHER AS HE LD HEREINABOVE THAT THE VALUATION METHODOLOGY ADOPTED BY THE VALUER IS NOT A CORRECT METHOD. WE ARE ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 88 IN AGREEMENT WITH THE FINDING GIVEN BY THE CIT(A) T HAT THERE ARE SEVERAL DEFICIENCIES IN THE VALUATION MADE BY THE DEPARTMEN T VALUER. THEREFORE, THE SAME CANNOT BE TAKEN AS CORRECT AND RELIABLE FOR AN Y ADDITION THAT TOO WHEN THE BILLS FOR THE PURCHASE OF PLANT AND MACHINERY I NSTALLED AT BADDI UNIT HAS BEEN PLACED ON RECORD WITH EVIDENCES IN SUPPORT THE REOF. IN EACH OF THESE BILLS THE VALUE OF THE MACHINERY, DESCRIPTION HAS B EEN MENTIONED. IN VIEW OF THE ABOVE WE UPHOLD THE FINDING OF THE CIT(A) AND T HIS GROUND OF APPEAL IS DISMISSED. 78. IN GROUND NO.7 FOR THE THREE ASSESSMENT YEARS, THE REVENUE IS CONTESTING THE RELIEF GIVEN BY THE CIT(A) IN RESPEC T OF THE DEPRECIATION CLAIMED IN THE BADDI UNIT:- ASSESSMENT YEAR DISALLOWANCE MADE BY AO (RS.) RELIEF GIVEN BY CIT(A) (RS.) 2006-07 8,10,000 3,06,413 2007-08 6,88,500 2,62,321 2008-09 8,85,225 2,24,384 THE AO HAS MADE THIS ADDITION BY GIVING THE FOLLOWI NG FINDINGS:- 15.26 DURING THE COURSE OF SEARCH EVIDENCE OF ACCOMMODATION BILLS WERE FOUND IN THE CASE OF THE A SSESSEE. IT HAS BEEN INFORMED BY SH. DINESH SHARMA THE CONTROLL ER OF M/S SRI KRISHNA MACHINE & TOOLS AND ITS SISTER CONCERNE D THAT HE MERELY PROVIDES BILLS AND DOES NOT SUPPLY ANY GOODS . THERE IS AMPLE EVIDENCE SHOWING THAT THE MACHINERY WAS NOT INSTALLED AND BILLS WERE IN THE FORM OF ACCOMMO DATION ENTRY ONLY. IT IS ALSO FOUND THAT THE ASSESSEE WAS USING OLD ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 89 MACHINES INSTEAD OF NEW. IT HAS BEEN PROVED BEYOND DOUBT THAT THE ASSESSEE HAS ACQUIRED BILLS ONLY, FROM VAR IOUS PARTIES. FROM THE DISCUSSION MADE ABOVE IT IS FOUND THAT THE ASSESSEE HAS ACQUIRED BILLS FOR AMOUNT OF RS. 54,00,000/- AC CORDINGLY DEPRECIATION AS CLAIMED BY THE ASSESSEE IS REDUCED TO THE EXTENT OF DEPRECIATION CLAIMED IS REQUIRED TO BE REDUCED. VALUE DEPRECIATION WDV 2006-07 54,00,000/- 8,10,000/- 45,90,000/- 2007-08 45,90,000/- 6,88,500/- 39,01,500/- 2008-09 39,01,500/- 5,85,225/- 33,16,275/- 15.27 ACCORDINGLY AN ADDITION OF RS.8,10,000/- IS M ADE TO THE INCOME OF THE ASSESSEE ON ACCOUNT OF WRONG CLAIM OF EXCESS DEPRECIATION. THE CIT(A), HOWEVER, HAS GIVEN RELIEF ON THE GROUND THAT MACHINERY TO THE EXTENT OF RS.20,42,750/- WERE SHIFTED FROM THE DELH I UNIT TO BADDI UNIT. ACCORDINGLY, THE DISALLOWANCE OF DEPRECIATION HAS T O BE LIMITED TO THE NET OF ACCOMMODATION BILLS OF MACHINERY RS.54 LAKH 20,42 ,750/- AND ACCORDINGLY THE CIT(A) HAS COMPUTED THE DISALLOWANCE ON THE NET AMOUNT OF RS.53,57,250. IN THIS REGARD THE FINDINGS OF THE C IT(A) ARE AS UNDER:- THE IMPORT OF THE DETAILED FINDING IN GROUNDS OF A PPEAL NO. 10 IS THAT MACHINERY HAVING WDV OF RS. 20,42,750 WA S SHIFTED FROM D-6 DELHI UNIT TO BADDI UNIT 31/03/200 6. THEREFORE IN MY CONSIDERED VIEW THE ASSESSEE COMPAN Y IS ENTITLED TO CLAIM DEPRECIATION ON THIS WDV FOR RS. 20,42,750 INSTEAD OF DEPRECIATION OF RS. 8,10,000 ON PLANT AN D MACHINERY HAVING ACCOMMODATION BILLS OF RS. 54 LACKS. THE AO IS ACCORDINGLY DIRECTED TO RECOMPUTE THE DEPRECIATION, IN TERMS OF THE ABOVE FINDING. THE GROUND OF APPEAL IS ACCORDIN GLY PARTLY ALLOWED. 79. THE LD. DR PLACED RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND, THE LEARNED AR SUBMITTED THAT THE D ISALLOWANCE SUSTAINED BY ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 90 THE CIT(A) ITSELF IS NOT JUSTIFIED IN VIEW OF THE C ONTENTION THAT THE ALLEGATION OF THE ACCOMMODATION BILLS PER SE HAS NOT BEEN SUBS TANTIATED BY THE REVENUE. IN THIS REGARD HE REFERRED TO VARIOUS DOCUMENTS SUB MITTED BY THE ASSESSEE IN RESPECT OF THE SO-CALLED ACCOMMODATION PARTIES WHIC H CLEARLY ESTABLISHES THAT THE ASSESSEE IN FACT HAS PURCHASED THE MACHINERY. HE ALSO REFERRED TO THE FACT THAT IN THE ABSENCE OF ANY CROSS-EXAMINATION OF THE PERSON WHOSE STATEMENT HAS BEEN USED AGAINST THE ASSESSEE NO ADVERSE INFER ENCE NEEDS TO BE DRAWN. IN THE ALTERNATIVE THE LEARNED AR SUBMITTED THAT THE C OMPUTATION DONE BY THE CIT(A) IS THE CORRECT COMPUTATION. IT IS THE ALLEG ATION OF THE REVENUE THAT OLD MACHINERY HAVE BEEN SHIFTED FROM DELHI UNIT TO BADD I UNIT AND THE VALUE OF SUCH MACHINERY AT RS.20,42,750/- HAVE BEEN VERIFIED AND CONFIRMED BY THE AO IN THE REMAND PROCEEDINGS AND ACCORDINGLY THE DI SALLOWANCE HAS TO BE RESTRICTED TO BALANCE AMOUNT OF THE MACHINERY. WE HAVE CONSIDERED THE RIVAL SUBMISSION. AS PER THE AO THE ASSESSEE HAS TAKEN A CCOMMODATION BILLS OF RS.54 LAKH. IT IS ALSO THE ALLEGATION OF THE AO TH AT THE OLD MACHINERIES FROM DELHI UNIT HAVE BEEN SHIFTED TO BADDI UNIT. THIS A LLEGATION HAS TO BE TAKEN TO THE LOGICAL END. THE ASSESSEE HAVING SHIFTED THE M ACHINERY FROM DELHI UNIT TO BADDI UNIT, SUCH MACHINERY WILL BE ELIGIBLE FOR DEP RECIATION. THE VALUE OF SUCH MACHINERY AT RS.20,42,750/- OBVIOUSLY NEEDS TO BE DEDUCTED WHILE MAKING DISALLOWANCE. ACCORDINGLY WE HOLD THAT THE CIT(A) WAS JUSTIFIED IN RESTRICTING THE DISALLOWANCE TO THE NET OF THE AMOU NT OF ACCOMMODATION BILLS ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 91 I.E. RS.54 LAKH VALUE OF THE MACHINERY SHIFTED TO THE BADDI UNIT. ACCORDINGLY THIS GROUND OF APPEAL IS DISMISSED. 80. GROUND NO.8 OF ASSESSMENT YEAR 2006-07 IS RELAT ING TO THE RELIEF OF RS.23,93,587/- GIVEN BY THE CIT(A) IN RESPECT OF TH E DISALLOWANCE OF DEPRECIATION MADE BY THE AO ON DELHI UNIT. IN THIS REGARD THE AO HAS STATED AS UNDER :- 15.28 AS DISCUSSED ABOVE INCONTROVERTIBLE EVIDENCE OF ACCOMMODATION BILLS OF MORE THAN RS 54 LACS OF MACH INERY PURCHASE AS INTRODUCED BY THE ASSESSEE HAS BEEN FOU ND BY THE DEPARTMENT DURING AY 2005-06 AND 2006-07 FOR BADDI UNIT. FURTHER UNASSAILABLE EVIDENCE OF SHIFTING OF MACHIN ERY FROM D- 6, DELHI UNIT OF BADDI UNIT IS IN THE POSSESSION OF THE DEPARTMENT. MR. S. BANGA HAS STATED THAT FOUR SECT ION OF PRODUCTION SYSTEM WERE SHIFTED TO BADDI UNIT FROM D ELHI UNIT. AS PER STATEMENTS ON OATH RECORDED (MR D.V. SARDANA ) D-6, DELHI UNIT WAS CLOSED IN MAY, 2006. AS SUCH CORRES PONDING DEPRECIATION ON PLANT AND MACHINERY AND ON OTHER AS SETS IS REQUIRED TO BE DISALLOWED FOR AY 2005-06 AND AY 200 6-07. THE ASSESSEE ITSELF CLAIMS THAT THE BADDI UNIT WAS STARTED IN MAY, 2006. THE WDV OF PLANT & MACHINERY AS ON 31.0 3.2005 OF D-6 UNIT AS PER COMPANIES ACT WAS RS. 1,60,50,81 0/-. MAJORITY OF THESE MACHINERIES HAD BEEN SHIFTED TO T HE BADDI UNIT. CORRESPONDING DEPRECIATION FOR THE PERIOD (F OR SIX MONTH) WAS DISALLOWED FROM THE BOOKS OF DELHI UNIT FOR AY 2005-06. DURING AY 2006-07 IN DELHI UNIT TOTAL DEP RECIATION CLAIMED BY THE ASSESSEE COMPANY WAS RS. 44,17,953/- . IT INCLUDES FOR MACHINERY & PLANT OF DELHI-6 & H-18 BO TH ALONG WITH OTHER ASSETS. THE ASSESSEE COULD NOT SUBMITTE D ITS CLAIM OF DEPRECIATION FOR ITS D-6 UNIT SEPARATELY, DESPIT E REPEATED REQUEST. IN THE CIRCUMSTANCES DEPRECIATION OF D-6 AS PER INCOME TAX IS ESTIMATED IN THE RATIO OF VALUE OF PL ANT & MACHINERY AS PER COMPANY ACT. VALUE OF PLANT & MAC HINERY AS PER COMPANY ACT FOR D-6 UNIT AND H-18 UNIT WAS S HOWN AT TOTAL OF RS.1.41 CRORE. DURING AY 2005-06 DEPRECIA TION COMPONENT OF D-6 WAS ESTIMATED AT 77.66% OF TOTAL DEPRECIATION. AS SUCH DEPRECIATION OF UNIT D-6 IS ESTIMATED AT ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 92 77.66% OF THE TOTAL DEPRECIATION. ACCORDINGLY DEPR ECIATION AMOUNT OF D-6 COMES TO RS. 44,17,953X 77.66% = RS. 34,28,331. ACCORDINGLY DEPRECIATION OF RS 27,00,00 0 CLAIMED FOR D-6 UNIT BY THE ASSESSEE IS HEREBY DISALLOWED A ND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF MAJOR PART OF MACHINES OF D-6 UNIT WERE SHIFTED TO THE BA DDI UNIT. PENALTY PROCEEDING U/S 271 (1) (C) OF THE ACT INITI ATED FOR FILING INACCURATE PARTICULARS OF INCOME. THE CIT(A) HAS DELETED THE ADDITION ON THE GROUND T HAT MACHINERY TO THE EXTENT OF RS.20,42,750/- HAVE BEEN SHIFTED FROM DEL HI UNIT TO BADDI UNIT AND THE DISALLOWANCE IN RESPECT OF DELHI UNIT HAS TO BE LIMITED TO THIS MACHINERY OF RS.20,42,750/-. WE NOTE THAT THIS ISSUE IS DIRECTL Y LINKED TO THE GROUND NO. 7 IN RESPECT OF WHICH WE HAVE HELD THAT THE CREDIT OF THE MACHINES SHIFTED FROM DELHI UNIT TO BADDI UNIT OF RS.20,42,750/- NEEDS TO BE ALLOWED. SINCE CREDIT IN BADDI UNIT IS BEING ALLOWED FOR RS.20.,42,750/- AS A NECESSARY CO-RELATION TO THAT THE DISALLOWANCE IN DELHI UNIT HAS TO BE LI MITED TO RS.20,42,750/-. 81. GROUND NO.9 OF ASSESSMENT YEAR 2006-07 IS REGAR DING DELETION OF ADDITION OF RS.24,98,104/- MADE BY THE AO ON ACCOUN T OF UNEXPLAINED INVESTMENT AND EXPENSES. IN THIS REGARD THE AO HAS STATED AS UNDER:- AS DISCUSSED IN BEGINNING PREPARATION OF A BUILDI NG FOR PHARMA PRODUCTION NORMALLY TAKES MUCH LONGER TIME A ND MORE INVESTMENT THAN ORDINARY FACTORY BUILDING DUE TO REGULATION/INSPECTION OF THE DRUG AUTHORITIES. BUT THE ASSESSEE COULD NOT SUBSTANTIATE THIS ASPECT IN ITS CASE THAT THE PERSONS WHO HAVE PERFORMED THE EJECTION WORK OF MACHINES FR OM D-6 UNIT AND THE PERSONS WHO HAVE INSTALLED THESE MACHI NES AT BADDI. BUILDING IMPROVEMENT RS.35,01,896, SHOWN WA S NOT FOUND SUFFICIENT ENOUGH FOR PREPARATION OF BUILDING FOR PHARMA PRODUCTION. NO EXPENSE FOR ERECTION OF MACHINE WAS SHOWN IN THE BALANCE SHEET. DURING THE ASSESSMENT PROCEEDIN G PART OF ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 93 THE BUILDING IMPROVEMENT WAS CLAIMED AS EXPENSE FOR ERECTION OF MACHINES AMOUNTING RS.22,27,301. THE ASSESSEE C OMPANY WAS FOUND DOING CONSTRUCTION WORK AND MAKING INVEST MENT IN PLOT NO. 43 AND 44 HPSIDC INDL. AREA BADDI. INVEST MENT FOR THE PERIOD WAS SHOWN AT RS.45,62,763. THE SAID PRO PERTY WAS REFERRED FOR VALUATION TO THE DISTT. VALUATION OFFI CER CHANDIGARH. AS PER DVO OF INCOME TAX DEPARTMENT IT S INVESTMENT WAS REPORTED AT RS.48,75,092 IN THE PLOT NO. 43 & 44 OF HPSIDC BADDI. AS SUCH THE EXCESS AND OUT OF BOOKS INVESTMENT OF THE ASSESSEE FOR THE PERIOD COMES TO RS.3,12,329 (RS.48,75,092 RS.45,62,763/-). IN RESPONSE TO TH E SAME IT WAS SUBMITTED BY THE ASSESSEE COMPANY THAT IT HAS N OT MADE ANY INVESTMENT OUT OF BOOKS. 15.30 THE CLAIM OF THE ASSESSEE IN THIS RESPECT IS GROSSLY SUPPRESSED. WHEN ASSESSEE WAS ASKED ABOUT DETAIL O F ERECTION WORK IT HAS DIVIDED ITS BUILDING IMPROVEMENT EXPENS E IN TWO PARTS. THE ASSESSEE WAS DOING THE BUILDING IMPROVE MENT AND ERECTION WORK SIMULTANEOUSLY. IT CAN BE FAIRLY EST IMATED ON THE BASIS THAT MAJOR PART OF THE MACHINES OF D-6 UNIT W ERE SHIFTED TO THE BADDI UNIT. IT NEED FAIR AMOUNT OF EXPENSES FOR THERE EJECTION FROM D-6 UNIT, INSTALLATION AT BADDI AND P REPARATIONS OF FACTORY BUILDING AT BADDI FOR PHARMA PRODUCTION AND RELATED EXPENSES/INVESTMENTS. IN THE CIRCUMSTANCES AND FAC TS OF THE CASE INVESTMENT MADE AND EXPENSES INCURRED IN THIS PROCESS INCLUDING EXCESS INVESTMENT IN PLOT NO 43 AND 44 AS DISCUSSED ABOVE IS ESTIMATED AT RS.60,00,000 DURING THE PERIO D UNDER CONSIDERATION. AS THE ASSESSEE HAS SHOWN BUILDING IMPROVEMENT RS.35,01,896, HENCE THE DIFFERENCE OF T HE BOTH RS.24,98,104 (RS.60,00,000 RS.35,01,896) IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF UNACCOUN TED EXPENSE INCURRED DURING THE PERIOD. THE CIT(A) HAS DELETED THIS ADDITION ON THE FOLLOWI NG REASONING:- IT IS OBSERVED THAT NO EVIDENCE/ SEIZED MATERIAL H AS BEEN FOUND DURING THE SEARCH WHICH INDICATES THAT THE AP PELLANT HAS MADE INVESTMENT IN EXCESS OF THE AMOUNT DISCLOSED I N THE BOOKS OF ACCOUNTS. THE AO IS NOT MANDATED UNDER ANY LEGAL PROVISION TO THE INCOME TAX ACT TO ESTIMATE THE VAL UATION OF THE CONSTRUCTION OR OTHER EXPENSES INCURRED IN THIS REGARD, AS HE ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 94 HIMSELF IS NOT A TECHNICAL PERSON. IN THIS CONNECTI ON THE APPELLANT HAS PLACED RELIANCE ON THE RATION OF DECI SIONS, IN THE FOLLOWING CASES: A) CIT VS MANOJ JAIN (2007) 163 TAXMAN 223 (DELHI) B) SARASWATI INDUSTRIAL SYNDICATE LTD. V. CIT [1999] 2 37 ITR 1 C) CIT VS JUPITER BUILDERS PVT. LTD 156 TAXMAN 361 IT IS FURTHER OBSERVED THAT THE AO HAS ALSO IGNORED THE FACT THAT THE DVO, CHANDIGARH HAS VALUED THE CONSTRUCTION COS T OF PROPERTY NO. 35 HPSIDC, BADDI AT RS. 23,79,000/- ON ACCOUNT OF BUILDING IMPROVEMENT FOR THE AYS. 2005-0 6 TO 2007-08 TAKEN TOGETHER AS AGAINST THE EXPENSES OF R S. 22,37,694/- RECORDED IN THE BOOKS OF ACCOUNTS WHICH INDICATES THAT THE ACTUAL EXPENSES INCURRED ARE LARGELY IN CO NSONANCE WITH THE REPORT OF THE DVO. EVEN THIS DIFFERENCE AS VALUED BY THE DVO IS LESS THAN 6% WHICH IS NOT SIGNIFICANT EN OUGH AS THIS REPORT IS ALSO AT BEST AN ESTIMATE. LIKEWISE, THE DVO, CHANDIGARH HAS VALUE THE CONSTRUCTION COST AT PLOT NO. 43 & 44 HPSIDC, BADDI AT RS. 48,75,092/- ON ACCOUNT OF BUIL DING IMPROVEMENT FOR THE AYS. 2005-06 TO 2007-08 TAKEN T OGETHER AS AGAINST THE EXPENSES OF RS. 45,62,763/- RECORDED IN THE BOOKS OF ACCOUNTS WHICH INDICATES THAT THE ACTUAL E XPENSES INCURRED ARE LARGELY IN CONSONANCE WITH THE REPORT OF THE DVO. THIS DIFFERENCE AS VALUED BY THE DVO IS AROUND 6% W HICH IS NOT SIGNIFICANT ENOUGH AS THIS REPORT IS ALSO AT BE ST AN ESTIMATE. THUS IN MY CONSIDERED OPINION THERE IS NO JUSTIFICA TION FOR MAKING AN ADDITION OF RS. 24,98,104/- ON ACCOUNT OF ESTIMATED BUILDING IMPROVEMENT / ERECTION CHARGES CARRIED OUT AT PROPERTY NO. 43/44 & 35 HPSIDC, BADDI. ACCORDINGLY, THE AO IS DIRECTED TO DELETE THE ADDITION OF RS. 24,98, 104/- MADE ON THIS ACCOUNT. 82. THE LEARNED DR RELIED ON THE ORDER OF THE ASSES SING OFFICER. ON THE OTHER HAND, THE LEARNED AR HAS SUPPORTED THE ORDER OF THE CIT(A). IN THIS ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 95 REGARD IT WAS SUBMITTED THAT THERE IS NO BASIS WHAT SOEVER FOR ESTIMATING THE INVESTMENT AT RS.60 LAKH. 83. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND WE NOTICE THAT THE ASSESSING OFFICER HAS REFERRED THE MATTER TO THE DI STRICT VALUATION OFFICER, WHO HAS VALUED THE INVESTMENT AT RS.48,75,092/- AS AGAINST RS.45,62,763/- AS PER THE BOOKS OF ACCOUNT. THE DIFFERENCE IN THE VA LUE AS PER VALUERS REPORT AND THE VALUE AS PER BOOKS OF ACCOUNT IS LESS THAN 6%. VALUATION AFTER ALL IS NOT A SCIENCE AND THIS DIFFERENCE BEING LESS THAN 1 0% WE ARE OF THE VIEW THAT THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION. THIS GROUND OF APPEAL IS ACCORDINGLY REJECTED. 84. GROUND NO.10 IS REGARDING DELETION OF ADDITION OF RS.30,48,737/- MADE BY THE AO ON ACCOUNT OF INCOME OF DELHI UNIT. THE ADDITION HAS BEEN MADE BY THE AO ON THE FOLLOWING REASONING:- 15.32 DURING THE PERIOD UNDER CONSIDERATION THE AS SESSEE COMPANY HAS CLAIMED LOSS OF RS.51,64,292, ON ITS D- 6 UNIT OF DELHI. AS DISCUSSED ABOVE IN PRECEDING PARAS THAT INCONTROVERTIBLE EVIDENCE OF ACCOMMODATION BILLS OF MORE THAN RS. 54 LACS OF MACHINERY PURCHASE AS INTRODUCED BY THE ASSESSEE HAS BEEN FOUND BY THE DEPARTMENT DURING AY 2005- 06 AND 2006-07. FURTHER UNASSAILABLE EVIDENCE OF S HIFTING OF MACHINERY FROM D-6, DELHI UNIT TO BADDI UNIT IS IN THE POSSESSION OF THE DEPARTMENT. AS PER STATEMENTS ON OATH RECORDED (MR D.V. SARDANA) D-6, DELHI UNIT WAS CLOS ED IN MAY, 2006. MR. S. BANGA GM OF THE ASSESSEE COMPANY HAS STATED ON OATH THAT FOUR SECTION OF PRODUCTION SYST EM OF D-6 UNIT WAS SHIFTED TO BADDI UNIT. THE ASSESSEE HAS C LAIMED TOTAL TURN OVER OF RS. 12,19,49,514, AND CLAIM LOSS OF RS .51,64,292 FOR AY 2006-07 ON THIS UNIT. ASSESSEE COMPANY HAS CREATED VEIL OF BUSINESS IN THIS UNIT ONLY TO COVER ITS SHI FTING OF ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 96 MACHINERY FROM THIS UNIT TO BADDI. THE ASSESSEE HA S CLAIMED THAT ITS BUSINESS WAS NORMAL AND IT NEVER TRANSFERR ED ITS PLANT AND MACHINERY OF D-6 UNIT TO THE BADDI UNIT. 15.33 HOWEVER THE ASSESSEE COULD NOT SUBSTANTIATE T HE REASON OF DISTRESS SALE OF MACHINES AS DISCUSSED IN PARA 1 5.31. LOGICAL REASON OF BUSINESS OF A RUNNING UNIT D-6 AT DELHI WAS REDUCED TO ONE THIRD IN ONE YEAR WAS ALSO REMAIN UN EXPLAINED TILL THE END OF ASSESSMENT PROCEEDING. AS SUCH CLA IM THE ASSESSEE IN RESPECT OF LOSS IS FOUND UNRELIABLE AND AS SUCH REJECTED. BOOK RESULT OF THE ASSESSEE COMPANY IS F OUND UNRELIABLE AND REJECTED IN THE PRECEDING PARA. DEP RECIATION CLAIMED BY THE ASSESSEE ON THIS UNIT AMOUNTING RS.2 7,00,000 HAS ALREADY BEEN DISALLOWED IN THE PRECEDING PARA. LOSS ON SALE OF PLANT AND MACHINERY AMOUNTING RS. 39,42,380 WAS DISALLOWED IN PRECEDING PARA. IT IS NOT REVENUE LO SS. IT WAS ALSO DISALLOWED BY THE ASSESSEE IN ITS COMPUTATION OF INCOME. TOTAL TURNOVER SHOWN BY THE ASSESSEE DURING THIS PE RIOD IN D-6 UNIT OF DELHI WAS AT RS. 12,19,49,514. IT ALSO REF LECT ABSENCE OF MAJORITY OF MACHINES AND PLANT AT DELHI UNIT. T HE ASSESSEE HAS NOT SUBMITTED DETAIL OF MACHINES USED BY IT DUR ING THIS PERIOD. IN THE GIVEN CIRCUMSTANCES IT HAS BEEN CON CLUDED THAT THE BOOK RESULT OF THE D-6 UNIT IS UNRELIABLE AND I NCOME OF THIS UNIT IS NEEDS TO BE ESTIMATED. ON THE BASIS OF FAC TS AND CIRCUMSTANCES OF THE CASE I HEREBY ESTIMATE THE INC OME OF THE ASSESSEE REPRESENTING ITS D-6 UNIT, IN ABSENCE OF I TS MAJOR PLANT AND MACHINERY, AT RS. 30,48,737 AT THE NET PROFIT R ATE OF 2.5% OF THE TURNOVER DECLARED. AN ADDITION OF RS.27,00, 000, HAS ALREADY BEEN MADE ON ACCOUNT OF EXCESS DEPRECIATION CLAIMED BY THE ASSESSEE COMPANY IN THIS UNIT WHICH IS OVER AND ABOVE OF THIS ESTIMATION. ACCORDINGLY I HEREBY MADE AN A DDITION OF RS. 30,48,737 TO THE TOTAL INCOME OF THE ASSESSEE F OR THE PERIOD UNDER CONSIDERATION. THE CIT(A) HAS DELETED THE ABOVE ADDITION BY GIVING FOLLOWING FINDING:- I HAVE CONSIDERED THE OBSERVATION OF THE AO AND TH E SUBMISSION OF THE ASSESSEE. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE COMPANY HAS CLAIMED LOSS OF RS. 51,64,292 ON ITS D-6 UNIT ON A TURNOVER OF RS. 12, 19,49,514 FOR THIS UNIT. IT IS OBSERVED THAT THERE IS NO BASI S FOR ESTIMATING ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 97 THE ABOVE SAID INCOME AND REJECTION OF BOOKS OF ACC OUNTS, WITHOUT POINTING OUT ANY POSITIVE EVIDENCE THAT THE ASSESSEE COMPANY HAS SUPPRESSED RECEIPT FROM THIS UNIT OR IN FLATED THE EXPENDITURE. IN MY CONSIDERED VIEW THERE IS NO JUST IFICATION FOR ESTIMATING THE INCOME OF RS. 30,48,777 BEING 2.5% O F TURNOVER. THUS THE GROUND OF APPEAL IS ALLOWED AND THE AO IS DIRECTED TO DELETE THE ADDITION MADE UNDER THIS HEA D. 85. THE LEARNED DR RELIED ON THE ORDER OF THE AO WH ILE THE LEARNED AR HAS PLACED RELIANCE ON THE ORDER OF THE CIT(A). IT WAS SUBMITTED THAT THE AO HAS ARBITRARILY APPLIED A NET PROFIT RATE OF 2.5% AND T HERE IS NO BASIS FOR REJECTING THE BOOKS OF ACCOUNT AND NO EVIDENCE WAS FOUND OF A NY SALE OR PURCHASES BEING MADE OUTSIDE THE BOOKS OF ACCOUNT. 86. WE HAVE CONSIDERED THE RIVAL SUBMISSION. WE AR E IN AGREEMENT WITH THE CONTENTION OF THE AR THAT THE AO HAS MADE THE A DDITION WITHOUT BRINGING ANY MATERIAL OR EVIDENCE TO SUBSTANTIATE THE NET PR OFIT RATE OF 2.5%. ON GOING THROUGH THE ASSESSMENT ORDER WE ALSO NOTE THAT EXCE PT THE ALLEGATION OF SHIFT OF SOME OF THE MACHINERIES FROM DELHI UNIT TO BADDI UN IT THERE IS NO OTHER ALLEGATION SO FAR AS DELHI UNIT IS CONCERNED. THER E IS NO MATERIAL AND EVIDENCE AGAINST ASSESSEE FOR INFLATING THE PURCHASES OR SUP PRESSING THE SALES. ACCORDINGLY WE ARE OF THE VIEW THAT THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION. ACCORDINGLY THIS GROUND OF APPEAL IS DIS MISSED. 87. GROUND NO.11 IN ASSESSMENT YEAR 2006-07 AND GRO UND NO.9 IN ASSESSMENT YEARS 2007-08 & 2008-09 ARE REGARDING DE LETION OF ADDITION MADE BY THE AO ON ACCOUNT OF SCRAP SALES AND GROUND NO.3 IN CROSS OBJECTION ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 98 NO.418/DEL/2012 IS AGAINST SUSTAINING PART ADDITION IN ASSESSMENT YEAR 2008- 09. THE DETAILS ARE AS UNDER:- ASSESSMENT YEAR ADDITION MADE BY ASSESSING OFFICER (RS.) ADDITION SUSTAINED BY CIT(A) (RS.) 2006-07 12,00,000 NIL 2007-08 12,00,000 NIL 2008-09 10,00,000 7,30,335 THE ABOVE SAID ADDITION HAS BEEN MADE BY THE AO ON THE FOLLOWING GROUNDS:- IT HAS BEEN OBSERVED THAT THE SALE OF SCRAP OF BAD DI IS NOT BEING FULLY ACCOUNTED FOR BY THE ASSESSEE. THE DOC UMENTS SEIZED DURING THE COURSE OF SEARCH REVEALS THAT SUC H SCRAP SALES WAS BEING MADE ON REGULAR BASIS AND AS THE ASSESSEE HAS BEEN CARRYING OUT THE SAME BUSINESS ACTIVITY AND NO SCRA P SALES HAVE BEEN DECLARED IN EARLIER YEARS IN THIS UNIT, IT GOE S ON TO SHOW THAT THE ASSESSEE HAS BEEN UTILIZING THIS MODUS OPE RANDI TO GENERATE UNACCOUNTED CASH. THE DETAIL OF THE DOCUM ENT SEIZED AS PER ANNEXURE A-20 & A-21 OF PARTY WB-5 PERTAININ G TO SALE OF SCRAP OF AY 2007-08 AND AY 2008-09, IS AS U NDER: (I) A-20 RS. 3,61,433/- (II) A-21 RS. 3,68,922/- TOTAL RS. 7,30,355/- ON BEING CONFRONTED, THE ASSESSEE CLAIMED THAT THE SCRAP SALE IS USED FOR THE WELFARE OF THE LABOR. 15.16 REPLY OF THE ASSESSEE IS EVASIVE. IT HAS NOT EXPLAINED WHY SCRAP SALE WAS NOT INCLUDED IN SALE RECEIPT OF THE ASSESSEE. THE ASSESSEE HAS ALSO NOT SUBMITTED TOTAL DETAIL OF SCRAP SALE OF THE PERIOD. IN ABSENCE OF DETAIL SUPPLIED BY TH E ASSESSEE COMPANY, ITS SCRAP SALE IS ESTIMATED AS PER FACT & PERIOD OF THE CASE. THE ASSESSEE COMPANY WAS DOING CONSTRUCTION & INSTALLATION WORK DURING A.Y. 06-07 AND A.Y. 07-08 HENCE SCRAP SALE WOULD BE ON HIGHER SIDE DURING THE PERIO D. ACCORDINGLY, I HEREBY ESTIMATE THAT THE SALE FROM S CRAP A.Y. ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 99 06-07, A.Y. 07-08 AND A.Y. 08-09 IS RS.12 LACS, RS. 12 LACS AND RS.10 LACS RESPECTIVELY. THEREBY AN ADDITION O F RS.12,00,000/- IS BEING MADE IN THE YEAR UNDER CONS IDERATION THAT IS A.Y. 2006-07, TO THE TOTAL INCOME OF THE AS SESSEE ON ACCOUNT OF SUPPRESSED RECEIPT FROM SALE OF SCRAP. THE CIT(A) HAS DELETED THE ADDITION. IN THE ASSESS MENT YEAR 2006-07 AND 2007-08 ON THE GROUND THAT THESE ADDITIONS ARE BASE D ON ESTIMATION AS NO INCRIMINATING MATERIAL WAS FOUND IN THE YEAR UNDER CONSIDERATION. THE CIT(A) HAS FURTHER HELD THAT IN THE CASE OF A SEARC H ADDITION TO INCOME ARE CONFINED TO THE EVIDENCE FOUND DURING THE SEARCH AN D OTHER INFORMATION GATHERED DURING THE INVESTIGATION. IN ASSESSMENT Y EAR 2008-09 THE CIT(A) SUSTAINED PART ADDITION TO THE EXTENT OF RS.7,30,33 5/- ON THE GROUND THAT THE SEIZED DOCUMENT SHOWS THAT THERE WAS SCRAP INCOME T O THE EXTENT OF RS.7,30,355/-. 88. THE LEARNED DR HAS SUBMITTED THAT THE CIT(A) WA S NOT JUSTIFIED IN DELETING THE ADDITION IN THE ASSESSMENT YEAR 2006-0 7, 2007-08 AND RESTRICTING THE ADDITION TO RS.7,30,355/- FOR ASSESSMENT YEAR 2 008-09. HE SUBMITTED THAT SINCE EVIDENCE HAS BEEN FOUND FOR ASSESSMENT YEAR 2 008-09 REGARDING THE INCOME FROM SCRAP, THE AO WAS JUSTIFIED IN ESTIMATI NG THE INCOME IN THE PRECEDING YEARS ON ACCOUNT OF SUCH SCRAP SALES. ON THE OTHER HAND, THE LEARNED AR SUBMITTED THAT NO ADDITION CAN BE MADE M ERELY ON ESTIMATION BASIS. FURTHER IT HAS BEEN CLARIFIED BEFORE THE AO THAT THE SCRAP GENERATED IS BEING USED FOR STAFF WELFARE ACTIVITIES. THE ASSES SEE IS HAVING ONE UNIT AT ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 100 BADDI WHICH IS BEING MANAGED BY THE STAFF AND ANY P ROCEEDS FROM THE SALE OF SUCH SCRAP IS BEING USED BY THE STAFF FOR THEIR DAY TO DAY WELFARE ACTIVITIES AND HENCE NO ADDITION COULD BE MADE. IT IS NOT A CASE WHERE THE ASSESSEE HAS RECEIVED ANY MONEY ON ACCOUNT OF THE SCRAP SALE AND WHICH HAS NOT BEEN ACCOUNTED FOR. IT IS A CASE WHERE THE SCRAP HAS BE EN REALIZED BY THE EMPLOYEES ITSELF AND USED BY THEM FOR THEIR WELFARE ACTIVITIE S. IN THIS REGARD HE SUBMITTED THAT IN VARIOUS OFFICE SCRAP IN THE FORM OF NEWSPAP ER, EMPTY BOXES, BOTTLES, ETC. ARE NORMALLY USED BY THE LOWER STAFF FOR THEIR WELFARE ACTIVITIES AND THAT BEING THE PRACTICE THERE WAS NOTHING WRONG IN THE C ASE OF THE ASSESSEE WHERE THE STAFF HAS USED THE SCRAP REALIZED FOR THEIR WEL FARE ACTIVITIES. 89. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FROM THE FACTS IT IS APPARENT THAT SOME SCRAP IS BEING GENERATED. EVIDENCES WERE FOUND DURING THE ASSESSMENT YEAR 2008-09 TO THE EXTENT OF RS.7,30,35 5/-. ACCORDINGLY IT CANNOT BE ASSUMED THAT THERE WAS NO SCRAP IN THE PR ECEDING TWO YEARS I.E. 2006-07 AND 2007-08. THE CONTENTION OF THE LEARNED AR THOUGH APPEARS TO BE ATTRACTIVE BUT WE ARE NOT INCLINED TO ACCEPT THE SA ME. THE SCRAP HAVING BEEN GENERATED, THE ASSESSEE WAS DUTY BOUND TO ACCOUNT F OR THE SAME IN THE BOOKS OF ACCOUNT. HOWEVER, AS REGARDS ESTIMATION AT RS.1 2 LAKH EACH IN THE PRECEDING TWO YEARS WE ARE OF THE VIEW THAT WHEN TH E SCRAP VALUE IN THE ASSESSMENT YEAR 2008-09 WAS RS.7,30,355/- IT SHALL NOT BE APPROPRIATE TO ESTIMATE THE VALUE IN PRECEDING YEARS AT RS.12 LAKH EACH. ACCORDINGLY WE ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 101 ESTIMATE THE SAME AT RS.7 LAKH EACH. ACCORDINGLY T HESE GROUNDS IN ASSESSMENT YEARS 2006-07 AND 2007-08 IN THE REVENUE APPEAL IS ALLOWED PARTLY. THE GROUND OF REVENUES APPEAL IN ASSESSMEN T IN ASSESSMENT YEAR 2008-09 IS DISMISSED AND GROUND NO.3 IN ASSESSEES CO NO.418/DEL/2012 IS ALSO DISMISSED. 90. GROUND NO.12 IN REVENUES APPEAL AND GROUND NO. 4 IN CO NO.353/DEL/2012 FOR ASSESSMENT YEAR 2006-07, GROUND NO.10 OF REVENUES APPEAL AND GROUND NO.4 IN CO NO.417/DEL/2012 FOR AY 2007-08 AND GROUND NO.1 IN CO NO.418/DEL/2012 FOR ASSESSMENT YEAR 2008 -09 ARE REGARDING DISALLOWANCE UNDER SECTION 14A OF THE ACT. IN ASSE SSMENT YEAR 2006-07, THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF RS.10,11 ,000/- AND THE CIT(A) HAS RESTRICTED THE SAME TO RS.1,36,000/-. IN ASSES SMENT YEAR 2007-08, THE AO MADE A DISALLOWANCE OF RS.13,21,000/- AND THE CIT(A ) HAS RESTRICTED THE SAME TO RS.3,16,096/-. THE ASSESSEE HAS ALSO FILED CROS S OBJECTIONS REGARDING SUSTAINING OF DISALLOWANCE OF RS.1,36,000/- FOR ASS ESSMENT YEAR 2006-07 AND RS.3,16,096/- FOR ASSESSMENT YEAR 2007-08. IN BOTH THESE ASSESSMENT YEARS, THE AO HAS MADE THE DISALLOWANCE APPLYING THE RULE 8D. THE CIT(A) HAS REDUCED THE SAME BY HOLDING THAT RULE 8D IS NOT APP LICABLE FOR BOTH THESE ASSESSMENT YEARS. IN THIS REGARD THE FINDINGS OF T HE CIT(A) ARE AS UNDER:- AS REGARDS THE ADDITION MADE BY WAY OF DISALLOWANC E U/S 14A FOR RS. 10,11,000/- IS CONCERNED THE APPELLANT SUBM ITTED THAT AS PER THE DECISION OF GODREJ & BOYCE MANUFACTURING CO LTD 328 ITR 81 (BOMBAY HC) AND CERTAIN OTHER DECISIONS AS C ITED IN ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 102 THE SUBMISSION, RULE 8D HAS BEEN HELD AS PROSPECTIV E IN OPERATION AND IS THEREFORE APPLICABLE FOR AY 2008-0 9 ONWARDS AND THAT FOR EARLIER YEARS IT HAS BEEN HELD THAT TH E AO WOULD HAVE TO ESTABLISH THE NEXUS BETWEEN THE ACTUAL EXPE NDITURE INCURRED FOR EARNING THE EXEMPT INCOME. ACCORDINGLY , THE DISALLOWANCE MADE BY AO AS PER RULE 8D IS HELD NOT TO BE IN ACCORDANCE WITH LAW. FURTHER TO THAT WHILE INVESTMENTS DURING THE YEAR U NDER CONSIDERATION HAS INCREASED FROM RS. 2.11 CR. TO RS . 10.36CR, THE SAME COULD BE TAKEN TO HAVE BEEN MADE OUT OF IN TERNAL ACCRUALS, AS DURING THE YEAR THERE HAS BEEN NET PRO FIT (BEFORE TAX) FOR RS. 17.81 CRORE. IN ADDITION TO THIS THE U NSECURED LOAN HAS ALSO DECREASED FROM RS. 5.16 CR TO RS. 3.75 CR. IN VIEW OF THE ABOVE FACTS AND PLACING RELIANCE ON THE RATION OF THE DECISION IN RELIANCE UTILITIES (313 ITR 340 BOM.) AS RELIED UPON BY THE APPELLANT, IT IS HELD THAT NO FINANCIAL EXPENSE CAN BE ATTRIBUTABLE TO THE INVESTMENT MADE FOR EARNING OF EXEMPT INCOME. 91. THE LEARNED DR HAS PLACED RELIANCE ON THE ORDER OF THE AO AND LEARNED AR HAS PLACED RELIANCE ON THE ORDER OF THE CIT(A). THE LEARNED AR INVITED OUR ATTENTION TO THE FINANCIALS OF EACH OF THESE YE ARS IN SUPPORT OF ITS CONTENTION THAT THE ASSESSEE HAS GOT ITS OWN FUNDS WHICH ARE FAR MORE THAN THE INVESTMENT MADE BY THE ASSESSEE COMPANY. 92. WE HAVE CONSIDERED THE SUBMISSION MADE BY THE L EARNED DR AS WELL AS AR AND WE HAVE ALSO GONE THROUGH THE ASSESSMENT ORD ER AND THE ORDER PASSED BY THE CIT(A). IT IS A SETTLED LAW THAT RULE 8D IS PROSPECTIVE AND IS NOT APPLICABLE FOR THE ASSESSMENT YEARS 2006-07 AND 200 7-08. ON GOING THROUGH THE FINANCIALS OF THE ASSESSEE IT IS ALSO A FACT TH AT THE ASSESSEE COMPANY HAS GOT ITS SUBSTANTIAL OWN FUNDS WHICH ARE FAR MORE THAN T HE INVESTMENT MADE BY IT. ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 103 ACCORDINGLY WE ARE IN AGREEMENT WITH THE CIT(A) THA T NO INTEREST EXPENSES CAN BE ATTRIBUTABLE TO THE INVESTMENT MADE FOR EARN ING EXEMPT INCOME. AS REGARDS THE ESTIMATION OF ADMINISTRATIVE EXPENSES W E FIND THAT THE CIT(A) HAS ADOPTED A REASONABLE BASIS. ACCORDINGLY WE UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE. 93. IN GROUND NO.1 IN CROSS OBJECTION NO.418/DEL/20 12 FOR ASSESSMENT YEAR 2008-09, THE ISSUE IS REGARDING DISALLOWANCE S USTAINED BY THE CIT(A) OF RS.26,26,000/- UNDER THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT. THE SAID DISALLOWANCE HAS BEEN MADE BY THE AO BY IN VOKING THE PROVISIONS OF RULE 8D AS UNDER:- 15.32 FROM THE TAX AUDIT REPORT IT IS SEEN THAT TH E ASSESSEE HAS MADE INVESTMENT OF RS.236447559/- FOR EARNING E XEMPTED INCOME. THE ASSESSEE HAS SHOWN FINANCIAL EXPENSE OF RS.5291529/-. THE TOTAL INVESTMENT FOR EARNING EXEM PTED INCOME IS RS.236447559/- AND PROPORTIONATE INTEREST IS TO BE DISALLOWED U/S 14A. THE DISALLOWANCE U/S 14A IS COM PUTED AS UNDER AS PER RULE 8D WHICH IS COMPUTED AS UNDER : DISALLOWANCE UNDER RULE 8D (I): NIL DISALLOWANCE UNDER RULE 8D (2)(II). AS COMPUTED BELOW: PARTICULARS 31-03-2008 31-03-2007 FIXED ASSETS RS. 11.27 CRS RS. 9.39 CRS INVESTMENTS RS. 23.64 CRS RS.17.90 CRS CURRENT ASSETS RS. 39.73 CRS RS.36.52 CRS RS. 74.64 CRS RS.63.81 CRS TOTAL AVERAGE ASSETS: (74.64 CRS. + 63.81 CRS)/2 = RS. 69.22 CRS. A. TOTAL AVERAGE INVESTMENT: RS. 20.77 CRS. B. TOTAL FINANCE CHARGES: RS. 52.92 LACS ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 104 C. TOTAL AVERAGE ASSETS: RS. 69.22 CRS. DISALLOWANCE UNDER RULE 8D (2)(II) : A X B / C = RS. 15.88 LAC. DISALLOWANCE UNDER RULE 8D (2)(III): TOTAL AVERAGE INVESTMENT: RS. 20.77 CRS. DISALLOWANCE EXPENSES @ 0.5% OF AVERAGE INVESTMENT: RS. 10.38 LAC. 15.33 TOTAL DISALLOWANCE U/S 14A. (A+B+C) (NIL + RS . 15.88 LAC + RS. 10.38 LAC) I.E. RS. 26,26,000/-. THE CIT(A) HAS CONFIRMED THE SAID DISALLOWANCE BY G IVING THE FOLLOWING FINDINGS:- IT IS OBSERVED THAT FROM AY 2008-09 ONWARDS DISALL OWANCE OF EXPENSES INCURRED FOR EARNING OF EXEMPT INCOME IS R EQUIRED TO BE MADE UPON APPLICATION OF RULE 8D. IN THE CASE OF GODREJ & BOYCE (SUPRA) THE HONBLE BOMBAY HIGH COURT HAS HEL D THAT RULE 8D IS APPLICABLE FOR AY 2008-09 ONWARDS AND TH EREFORE THE AO HAS CORRECTLY DISALLOWED THE EXPENDITURE INC URRED IN RELATION TO INCOME NOT INCLUDABLE IN TOTAL INCOME A ND ACCORDINGLY THE ADDITION OF RS. 26,26,000 IS HEREWI TH CONFIRMED AND THE GROUND OF APPEAL NO. 12 IS DISMIS SED. 94. THE LEARNED AR SUBMITTED THAT THE DISALLOWANCE MADE BY THE AO AND CONFIRMED THE CIT(A) IS IN TOTAL DISREGARD TO THE F ACTS OF THE CASE. IT WAS SUBMITTED THAT THE ASSESSEE HAS ITS OWN FUNDS OF RS .60.95 CRORE AS IS EVIDENT FROM ITS BALANCE SHEET AS ON 31 ST MARCH, 2008. FURTHER IT HAS OWN FUNDS OF RS.49.60 CRORE AS ON 31 ST MARCH, 2007. THE TOTAL INTEREST PAID DURING THE Y EAR WAS RS.52.91 LAKH OUT OF WHICH ONLY RS.12,47,329/- WAS ON ACCOUNT OF UNSECURED LOAN. THIS UNSECURED LOAN HAS BEEN OBTAI NED LONG TIME BACK. ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 105 FURTHER THE AO HAS IGNORED THE FACT THAT THE FINANC IAL CHARGES OF RS.52.91 LAKH INCLUDES BANK CHARGES OF RS.14.12 LAKH, INTERE ST ON CAR LOANS OF RS.73,846/-, DELAYED PAYMENT CHARGES OF RS.22,58,03 8/-. IT WAS FURTHER SUBMITTED THAT THE INVESTMENT TAKEN BY THE AO AT RS .23.64 CRORE INCLUDED CERTAIN INVESTMENTS ON WHICH INCOME WERE NOT EXEMPT UNDER THE PROVISIONS OF CHAPTER III OF THE ACT. ON THIS BASIS IT WAS SUBMI TTED THAT THE DISALLOWANCE SUSTAINED BY THE CIT(A) IS IGNORING THE FACTS OF TH E CASE. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDER OF THE CIT(A). IT WAS SUBMITTED THAT RULE 8D IS APPLICABLE FOR ASSESSMENT YEAR 2008-09. 95. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE A RE IN AGREEMENT WITH THE CONTENTION OF THE LEARNED DR THAT THE PROVISION S OF RULE 8D ARE APPLICABLE FROM ASSESSMENT YEAR 2008-09. HOWEVER WE ARE OF TH E VIEW THAT THE ASSESSEE HAS GOT ITS OWN FUNDS WHICH ARE QUITE SUBSTANTIAL A S COMPARED TO THE INVESTMENT MADE. THIS FACT HAS BEEN RECOGNIZED BY THE CIT(A) IN THE PRECEDING ASSESSMENT YEAR WHERE HE HAS HELD THAT NO DISALLOWANCE IS CALLED FOR ON ACCOUNT OF INTEREST. THE FACTS OF THIS YEAR ARE NOT DIFFERENT AND ACCORDINGLY SO FAR AS INTEREST IS CONCERNED WE HOLD THAT NO DISALLOWANCE IS CALLED FOR. AS REGARDS ADMINISTRATIVE EXPENSES THE LEARNED AR RAISED THE ISSUE THAT THE COMPUTATION OF THE INVESTMENT NEEDS TO BE DONE BY EXCLUDING THOSE INVESTMENTS WHOSE INCOME OR LOSS SHALL BE CHARGEABL E TO TAX. ACCORDINGLY WE DIRECT THE AO TO VERIFY THIS CONTENTION OF THE ASSE SSEE AND TO EXCLUDE SUCH ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 106 INVESTMENT WHILE COMPUTING DISALLOWANCES ON ACCOUNT OF ADMINISTRATIVE EXPENSES UNDER RULE 8D. THIS GROUND OF APPEAL IS A LLOWED FOR STATISTICAL PURPOSE. 96. GROUND NO.8 OF ASSESSMENT YEAR 2007-08 IN REVEN UE APPEAL IS REGARDING DELETION OF ADDITION OF RS.4,71,000/- MADE BY THE A O ON ACCOUNT OF SHORT TERM GAIN ON THE BASIS OF DVO REPORT. THE ABOVE ADDITION HAS BEEN MADE BY THE AO ON ACCOUNT OF THE FOLLOWING REASONING:- 15.30 DURING THE PERIOD UNDER CONSIDERATION IT IS FOUND THAT THE ASSESSEE COMPANY HAS SOLD ITS TWO PROPERTIES NA MELY (I) 25 BIGHA LAND SITUATE AT VILLAGE PANGA NEAR EPIP, PHAS E-I, JHARMAJRI, BADDI, (II) 21 BIGHA LAND SITUATE AT VIL LAGE KUNJAR NEAR EPIP PHASE-I, JHARMAJRI, BADDI. THESE TWO PROP ERTIES WERE SOLD FOR A SALE CONSIDERATION OF RS. 62,50,000 /- AND RS. 46,00,000/- RESPECTIVELY ON 06-11-2006 AND 14-02-20 07. THESE PROPERTIES WERE PURCHASED BY THE ASSESSEE COMPANY I N THE ASSESSMENT YEAR 2005-06 IN THE SAME AMOUNT. TO VERI FY THE GENUINENESS OF THE SALE CONSIDERATION THESE PROPERT IES WERE REFERRED TO DISTT. VALUATION OFFICER, CHANDIGARH. A S PER THE REPORT OF THE DVO CHANDIGARH SUBMITTED IN THIS RESP ECT. FAIR MARKET VALUE OF THE LAND AT THE TIME OF THE SALE HA S BEEN DETERMINED AS RS. 64,77,000/- AND RS. 48,44,000/- RESPECTIVELY. ACCORDINGLY THE DIFFERENCE OF RS. 2,2 7,000/- (RS.48,44,000- RS. 46,00,000) FOR THE SECOND PROPER TY IS REQUIRED TO BE TREATED AS UNDISCLOSED SALE CONSIDER ATION WHICH IS CHARGEABLE TO TAX AS SHORT TERM CAPITAL GAIN. 15.31 IN RESPONSE TO THE SAID DIFFERENCE OF CONSIDE RATION SHOWN BY THE ASSESSEE AND FAIR MARKET VALUE OF THE PROPER TY AS REPORTED BY DVO, THE ASSESSEE COMPANY HAS SUBMITTED THAT IT AHS RECEIVED THE CONSIDERATION WHICH HAS BEEN SHOWN IN THE BOOKS OF ACCOUNTS. IT IS ALSO POINTED OUT BY THE AR THAT THE VARIATION IN THE REPORTED VALUE AND CONSIDERATIONS INSIGNIFICANT AND WITHIN PERMISSIBLE LIMIT. I HAVE CONSIDERED THE REPLY OF THE ASSESSEE BUT I DO NOT FOUND ANY MERIT IN ITS. THE A SSESSEE HAS CLAIMED THAT ITS PURCHASE COST AND SALE CONSIDERATI ON IS REMAIN ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 107 SAME, WHICH IS NOT POSSIBLE. ANY ASSESSEE WOULD NOT MAKE INVESTMENT WITHOUT EARNING ANY GAIN. REPORT OF THE DVO HAS EVALUATED THE FAIR MARKET VALUE OF THE SOLD PROPERT Y. THERE IS NO REASON TO BELIEVE THAT THE ASSESSEE WOULD SALE I TS PROPERTY BELOW THE MARKET RATE. AS SEARCH IT HAS BEEN CONCLU DED THAT THE ASSESSEE COMPANY HAS SUPPRESSED IT SHORT TERM CAPITAL GAIN BY RS. 4,71,000/- (RS. 2,27,000 + RS. 2,44,000 ). ACCORDINGLY I HEREBY MAKE AN ADDITION OF RS. 4,71,0 00/- TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF SUPPRESS ED SHORT- TERM CAPITAL GAIN. THE CIT(A) HAS DELETED THE SAID ADDITION BY GIVING THE FOLLOWING FINDINGS:- THE ESTIMATED VALUE AT THE TIME OF THE SALE ON 06/ 11/06 OF 25 BIGHA LAND SITUATE AT VILLAGE PANAGA NEAR EPIP PAHS E-1 JHARMAJRI BADDI ASSESSED BY THE VALUER IS RS. 64,77 ,000/- AS AGAINST THE ACTUAL SALE PRICE OF RS. 62,50,000/-. T HE DIFFERENCE IS OF 3.63% IS NOT SIGNIFICANT. SIMILARLY, ESTIMATE D VALUE OF THE 21 BIGHA LAND SITUATE AT VILLAGE KUNJHAL NEAR EPIP PHASE-I, JHARMAJHRI, BADDI AT THE TIME OF SALE ON 14/02/07 A SSESSEE BY THE VALUER IS RS. 48,44,000/- AS AGAINST ACTUAL SAL E PRICE OF RS. 46,00,000/-. THIS DIFFERENCE IS OF 5.3% WHICH IS AL SO NOT SIGNIFICANT. THUS IS MY CONSIDERATION OPINION THE A DDITION OF RS. 471000/-(227000+244000) AS SUPPRESSED SHORT TER M CAPITAL GAIN ON THE SALE OF 25 BIGHA LAND SITUATED AT VILLA GE PANGA NEAR EPIP PHASE-I, JHARMAJHRI, BADDI AND 21 BIGHA LAND S ITUATED AT VILLAGE KUNJHAL NEAR EPIP PHASE-I, JHARMAJHRI, BADD I IS NOT ONLY BASED ON INSIGNIFICANT DIFFERENCE IN VALUATION / ESTIMATION OF SALE PRICE BUT ALSO RELATES TO SALE OF LAND AND IS NOT RELATED TO COST OF CONSTRUCTION AS IN THE CASE OF PLOT NO. 43 & 44 HPSIDC, BADDI. ACCORDINGLY, THE AO IS DIRECTED TO D ELETE THE ADDITION OF RS. 471000/- (RS. 227000+244000) MA DE ON THESE TWO TRANSACTIONS. 97. ON GOING THROUGH THE ABOVE WE NOTICE THAT THE A SSESSING OFFICER HAS REFERRED THE MATTER TO THE VALUATION OFFICER. THE DIFFERENCE IN THE VALUE AS PER THE VALUATION REPORT AND THE ACTUAL SALE CONSID ERATION WAS AROUND 5.3%. FURTHER THERE IS NO MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE HAS RECEIVED ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 108 ANY AMOUNT OVER AND ABOVE THE ACTUAL SALE CONSIDERA TION. THIS ISSUE STAND SETTLED BY THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE FOLLOWING CASES WHEREBY IT HAS BEEN HELD THAT IN THE ABSENCE OF ANY MATERIAL TO THE EFFECT THAT THE ASSESSEE IN FACT HAS RECEIVED ANY AMOUNT OVER A ND ABOVE THE SALE DEED, NO ADDITION CAN BE MADE MERELY ON THE BASIS OF VALUATI ON REPORT. (I) CIT VS. MAHESH KUMAR 196 TAXMAN 415 (DEL) (II) CIT VS SMT SHAKUNTALA DEVI 316 ITR 46 (DEL) (III) CIT VS SURAJ DEVI 328 ITR 604 (DEL) (IV) CIT VS JAIPUR GOLDEN TRANSPORT CO (DEL) (V) CIT VS BAJRANG LAL BANSAL 335 ITR 572 (DEL) (VI) CIT VS. PUNEET SABHARWAL 338 ITR 485 (DEL) (VII) DEVINDER KUMAR VS DCIT (ITAT, DELHI) ITA NO. 1141, 1142/DEL/08 DATED 28.1.2011 ACCORDINGLY WE UPHOLD THE ORDER OF THE CIT(A) AND D ISMISS THIS GROUND. 98. IN ASSESSMENT YEAR 2008-09 A SIMILAR GROUND NO. 8 OF DELETION OF ADDITION OF RS.4,71,000/- HAS BEEN RAISED BY THE RE VENUE. IT WAS FAIRLY CONCEDED BY THE LEARNED DR THAT THERE IS TYPOGRAPHI CAL ERROR WHILE DRAFTING GROUNDS OF APPEAL AS NO SUCH ADDITION HAS BEEN MADE IN THE ASSESSMENT YEAR 2008-09 ON THIS ACCOUNT BY THE AO. ACCORDINGLY THI S GROUND OF APPEAL IS DISMISSED. 99. GROUND NO.11 OF ASSESSMENT YEAR 2007-08 IS REGA RDING ADDITION OF RS.3,90,00,000/- AND GROUND NO.10 OF ASSESSMENT YEA R 2008-09 IS REGARDING DELETION OF ADDITION OF RS.2,50,00,000/- MADE BY TH E AO ON ACCOUNT OF INFLATED INCOME. THE ABOVE ADDITION HAS BEEN MADE BY THE AO ON THE GROUND ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 109 THAT THE PROFITS AT THE BADDI UNIT HAVE BEEN INFLAT ED. THE ABOVE SAID ADDITION HAS BEEN MADE ON THE GROUND THAT THE PROFITS OF THE BADDI UNIT ARE AS NORMALLY HIGH. 100. THE CIT(A) HAS DELETED THE SAID ADDITION BY GI VING THE FOLLOWING FINDINGS:- I HAVE CAREFULLY CONSIDERED THE OBSERVATION OF THE AO AND SUBMISSIONS OF THE ASSESSEE. IN MY CONSIDERED OPINI ON THE AO HAS NO BASIS FOR PRESUMING THAT IN THE INITIAL YEAR S OF SETTING OF BADDI UNIT, THE EXPENSE ON ACCOUNT OF LABOUR, PROFE SSIONAL CHARGES, SALARY AND TRANSPORTATION OF MATERIAL WOUL D BE ON HIGHER SIDE. NO EVIDENCE TO THIS EFFECT HAS BEEN FO UND DURING THE SEARCH/SURVEY PROCEEDINGS. MOREOVER IF ONE TAKE S IN TO ACCOUNT THE EFFECT OF SAVING IN EXCISE DUTY OF RS. 17,19,68,201, THE REDUCTION IN ADVERTISEMENT EXPENSES OF RS. 5,47 ,83,874 AND INCREASE IN JOB WORK INCOME OF RS. 5.36 CRORE, THER E WILL BE NO BASIS TO HOLD INFLATING OF INCOME ON THE PART OF TH E ASSESSEE COMPANY, IN ORDER TO AVAIL SECTION 80IC BENEFIT. TH US IN MY CONSIDERED VIEW THE ABOVE SAID OBSERVATION OF THE A O IS HELD AS BASED ON SURMISE, CONJECTURE AND GUESS WORK AND ACCORDINGLY IS DIRECTED TO BE DELETED. HOWEVER, AS NO ADDITION TO INCOME HAS BEEN MADE WITH RESPECT TO THIS GROUND OF APPEAL, THEREFORE NO SPECIFIC DELETION FROM ASSESSED INCOME IS REQUIRED TO BE MADE. 101. THE LEARNED DR HAS RELIED UPON THE ORDER OF TH E AO. ON THE OTHER HAND, THE LEARNED AR HAS RELIED UPON THE ORDER OF T HE CIT(A). IT WAS FURTHER SUBMITTED BY THE AR THAT THE ABOVE ADDITION HAS BEE N MADE MOST ARBITRARILY. IT WAS SUBMITTED THAT THE ASSESSEE HAS MADE PURCHAS ES AND SALES FROM REPUTED PARTIES, THERE IS NO EVIDENCE WHATSOEVER OF INFLATI NG THE SALE. IN THIS REGARD THE ASSESSEE HAS SUBMITTED DETAILED EXPLANATION ABO UT THE PROFITABILITY AT THE ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 110 BADDI UNIT AND THE ASSESSEE HAS BEEN MAKING SALES T O REPUTED PHARMACEUTICAL COMPANIES. THE LEARNED AR FURTHER SUBMITTED THAT THE ADDITIONS MADE BY THE AO ARE CONTRADICTORY. THIS ADDITION MADE BY THE AO CONTRADICTS HIS OWN STAND WHEREBY IN THE ASSESSMENT ORDER AT ONE PLACE HE IS MAKING AN ALLEGATION OF SUPPRESSING OF PRODUCTION AND CONSEQUENT SUPPRES SION OF PROFIT AND AT THE OTHER HAND HE IS MAKING AN ALLEGATION OF INFLATING THE INCOME AND THAT TOO WITHOUT BRINGING ANY MATERIAL OR EVIDENCE IN SUPPOR T THEREOF. 102. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE NOTICE THAT THIS ADDITION HAS BEEN MADE BY THE AO BY INDULGING INTO SURMISES AND WITHOUT BRINGING ANY MATERIAL OR EVIDENCE IN SUPPORT OF SAID ADDITIO N. IT IS A MATTER OF FACT THAT THE ASSESSEE HAS MADE SALES TO VARIOUS PARTIES. AL L THESE SALES ARE FULLY VOUCHED AND ACCOUNTED FOR. DURING INVESTIGATION NO THING HAS BEEN FOUND TO INDICATE THAT ASSESSEE HAS INFLATED ITS SALES. FUR THER WE NOTICE THAT THE ASSESSEE HAS GIVEN DETAILED EXPLANATION REGARDING I TS PROFITABILITY AT BADDI UNIT AND AO HAS NOT BEEN ABLE TO POINT OUT ANY ERRO R OR DISCREPANCY IN SUCH EXPLANATION. THE LEARNED DR DURING HEARING ALSO CO ULD NOT POINT OUT ANY MATERIAL OR DISCREPANCY TO SUPPORT SUCH ADDITION. IN VIEW OF THE ABOVE FACTS, WE ARE OF THE VIEW THAT THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION AND WE UPHOLD THE ORDER OF THE CIT(A). 103. IN GROUNDS NO.1 TO 3 IN CROSS OBJECTION NO.353 /DEL/2012 FOR ASSESSMENT YEAR 2006-07 AND CROSS OBJECTION NO.417/DEL/2012 FO R ASSESSMENT YEAR ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 111 2007-08, THE ASSESSEE HAS CHALLENGED THE ASSESSMENT FRAMED UNDER SECTION 153A. IT HAS BEEN CONTENDED THAT THE ASSESSMENT OR DER HAVING BEEN FRAMED UNDER SECTION 153A/143(3) IS WITHOUT JURISDICTION. IT HAS BEEN FURTHER CONTENDED THAT IN THE ABSENCE OF A VALID SEARCH THE PROCEEDINGS INITIATED UNDER SECTION 153A ARE LIABLE TO BE QUASHED. IT HAS BEEN FURTHER CONTENDED THAT IN THE ABSENCE OF ANY INCRIMINATING MATERIAL BELONGING TO THE ASSESSEE BEING FOUND DURING THE COURSE OF THE SEARCH, THE REASSESS MENT PROCEEDINGS ARE IN FACT INVALID. 104. WE HAVE GONE THROUGH THE FACTS AND WE NOTICE T HAT THERE IS NO DISPUTE TO THE FACT THAT A SEARCH WAS CARRIED ON THE ASSESS EE UNDER SECTION 132(1) AND INCRIMINATING MATERIAL WAS FOUND DURING THE COURSE OF THE SEARCH. THE AO THEREFORE HAS ISSUED NOTICE UNDER SECTION 153A AND THE ASSESSEE HAS FILED RETURN IN RESPONSE THERETO. THE ASSESSMENT HAS BEE N FRAMED AS PER THE PROCEDURE PRESCRIBED UNDER THE LAW. WE DO NOT FIND ANY FAULT IN ASSUMPTION OF JURISDICTION BY THE AO AND THE CONSEQUENT ORDER AND THE PROCEDURE FOLLOWED THEREAFTER. ACCORDINGLY THESE GROUNDS OF CROSS OBJECTION ARE REJECTED. 105. IN ASSESSMENT YEAR 2007-08, IN GROUND NO.5 THE ASSESSEE HAS CHALLENGED THE ADDITION OF RS.10,00,171/- CONFIRMED BY THE CIT (A). THE AO HAS MADE THE SAID ADDITION ON THE BASIS OF THE FOLLOWING REA SONING:- 15.32 THE ASSESSEE COMPANY WAS FOUND DOING CONSTRU CTION WORK IN PLOT NO. 43 AND 44 HPSIDC INDL AREA BADDI. ITS ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 112 INVESTMENT IN THIS YEAR WAS SHOWN AT RS. 1,46,11,40 3/-. THE SAID PROPERTY WAS REFERRED FOR VALUATION TO THE DIS ST. VALUATION OFFICER CHANDIGARH. AS PER DVO OF INCOME TAX DEPART MENT ITS INVESTMENT WAS REPORTED AT RS. 1,56,11,574/- IN THE PLOT NO.43 & 44 OF HPSIDC BADDI DURING THE PERIOD UNDER CONSIDERATION. AS SUCH THE EXCESS AND OUT OF BOOKS INVESTMENT OF THE ASSESSEE FOR THE PERIOD COMES TO RS.10,00,17 1/- (RS.1,56,11,574 RS. 1,46,11,403/-). IN RESPONSE T O THE SAME IT WAS SUBMITTED BY THE ASSESSEE COMPANY THAT IT HAS N OT MADE BY INVESTMENT OUT OF BOOKS. THE CIT(A) HAS CONFIRMED THE SAME BY GIVING THE FOL LOWING FINDINGS :- IT IS OBSERVED THAT THE DVO, CHANDIGARH HAS VALUED THE CONSTRUCTION COST AT PLOT NO. 43 & 44 HPSIDC, BADDI AT RS. 15611574/- AS AGAINST THE EXPENSES OF RS. 14611403/ - RECORDED IN THE BOOKS OF ACCOUNTS WHICH INDICATED THAT THE E XPENSES INCURRED ON COST OF CONSTRUCTION ARE MORE THAT WHAT IS DISCLOSED BY THE ASSESSEE IN HIS BOOKS OF ACCOUNT. ACCORDINGL Y THIS DIFFERENCE IN INVESTMENT FOR RS. 10,00,171/- IS UPH ELD AS UNEXPLAINED INVESTMENT U/S 69 B OF THE I.T.ACT. 106. IT WAS SUBMITTED BY THE LEARNED AR THAT NO ADD ITION CAN BE MADE MERELY ON THE BASIS OF THE ALLEGATION. THE ASSESSE E HAS INVESTED RS.1,46,11,403/- AS AGAINST WHICH THE VALUATION HAS BEEN DONE BY THE VALUER AT RS.1,56,11,574/-. THE DIFFERENCE OF RS.10,00,171/- IS LESS THAN 10%. FURTHER VALUATION IS NOT A PERFECT SCIENCE. IT IS ONLY EST IMATION. IN THE ABSENCE OF ANY INCRIMINATING MATERIAL OR ANY SPECIFIC INSTANCE, TH E CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION. THE CIT(A) HAS IGNORED THE FACTS OF THE CASE. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDER OF THE CIT(A). 107. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE NOTICE THAT THE ADDITION HAS BEEN MADE MERELY ON THE BASIS OF A DIFFERENCE I N VALUATION AND THAT THIS ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 113 DIFFERENCE IS LESS THAN 10%. WE FURTHER NOTICE THA T ON A SIMILAR ADDITION IN ASSESSMENT YEAR 2006-07 WHERE THE DIFFERENCE WAS AL MOST SAME, THE CIT(A) HAS DELETED THE ADDITION. HOWEVER, HE HAS CONFIRME D THE SIMILAR ADDITION IN THIS ASSESSMENT YEAR 2007-08. WE DO NOT SEE ANY RE ASONING WHY THIS ADDITION SHOULD BE CONFIRMED. THOUGH THE AO HAS STATED THAT EVIDENCE OF UNACCOUNTED INVESTMENTS WERE FOUND DURING THE COURSE OF SEARCH BUT TO A POINTED QUERY FROM THE LEARNED DR, HE COULD NOT POINT OUT WHICH E VIDENCE WAS FOUND WHICH CAN SUPPORT THE CASE OF THE ASSESSEE FOR THIS ADDIT ION. THE ISSUE OF VALUATION OF THE MACHINERY WAS A DIFFERENT ISSUE AS COMPARED TO THE ISSUE OF INVESTMENT IN THE PROPERTY AND AFTER GOING THROUGH THE ASSESSM ENT ORDER WE COULD NOT FIND OUT ANY EVIDENCE FOUND DURING THE COURSE OF THE SEA RCH INDICATING ANY UNEXPLAINED INVESTMENT IN THIS PROPERTY. WE NOTICE THAT THE DIFFERENCE IN THE VALUATION AS PER THE DVO AND AS PER THE BOOKS OF AC COUNT IS LESS THAN 10% AND ACCORDINGLY WE ARE OF THE VIEW THAT THIS ADDITI ON NEEDS TO BE DELETED. WE ORDER ACCORDINGLY AND THIS GROUND OF APPEAL IS UPHE LD. 108. IN GROUND NO.4 OF CROSS OBJECTION FOR ASSESSME NT YEAR 2008-09 IS REGARDING ADDITION OF RS.13,33,033/- SUSTAINED BY T HE CIT(A) ON ACCOUNT OF UNEXPLAINED INVESTMENT IN THE CONSTRUCTION COST OF FLAT NO. 43-44, HPSIDC, BADDI. THIS ADDITION HAS BEEN MADE BY THE AO ON TH E BASIS OF THE DVO REPORT. SIMILAR ADDITION WAS MADE BY THE AO IN THE ASSESSMENT YEAR 2007-08. WE HAVE DELETED THE ADDITION MADE ON SIMILAR GROUND IN THE ASSESSMENT YEAR ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 114 2007-08. FOR THE SAME REASON WE NOTICE THAT THIS A DDITION HAS BEEN MADE ON THE GROUND THAT AS PER THE VALUATION REPORT THE TOT AL CONSTRUCTION COST HAS BEEN ESTIMATED AT RS.2,08,07,178/- AS AGAINST TOTAL COST OF CONSTRUCTION SHOWN IN THE BOOKS RS.1,94,74,145/-. THE DIFFERENCE AS PER VALUATION REPORT AND AS PER THE BOOKS OF ACCOUNT IS LESS THAN 10% AND FOR THE R EASONING GIVEN IN THE ASSESSMENT YEAR 2007-08, WE DIRECT THAT THIS ADDITI ON NEEDS TO BE DELETED. 109. GROUND NOS.13 & 14 OF REVENUES APPEAL AND GRO UND NO.6 OF ASSESSEES CROSS OBJECTION FOR ASSESSMENT YEAR 2006-07, GROUND S NO.12 AND 13 OF REVENUES APPEAL AND GROUND NO.7 OF ASSESSEES CROS S OBJECTION FOR ASSESSMENT YEAR 2007-08 AND GROUNDS NO.11 AND 12 OF REVENUES APPEAL AND GROUND NO.4 OF ASSESSEES CROSS OBJECTION FOR ASSESSMENT YEAR 2 008-09 ARE GENERAL IN NATURE AND HENCE NEEDS NO ADJUDICATION. THE SAME A RE DISMISSED. 110. IN THE RESULT, ALL THE APPEALS FILED BY THE RE VENUE AND ALL THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISPOSED OFF O N THE ABOVE TERMS. ORDER PRONOUNCED IN OPEN COURT ON THIS 7 TH DAY OF FEBRUARY, 2014. SD/- SD/- (DIVA SINGH) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 7 TH DAY OF FEBRUARY, 2014 TS ITA NOS.3287, 4072 & 4073/DEL./2012 CO NOS.353, 417 & 418/DEL/2012 115 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-III, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.