Dy. Commissioner of Income Tax , Circle-1(2) Hyderabad, Hyderabad V. Covalent Laboratories Private Limited, Hyderabad

ITA 1042/Hyd/2018

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 0890 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2021
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 23-02-2021
• Assessment Year: 2015-2016
• Appeal Filed On: 22-05-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Income from undisclosed sources; Additional evidence; Set aside
• Section: 147; 148; 133A; 14A; 115JB; 20

Judgement Text

ITA NOS 1040 TO 1042 OF 2018 COVALENT LAB P LTD H YDERABAD PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD (THROUGH VIDEO CONFERENCING) BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NOS.1040 TO 1042/HYD/2018 ASSESSMENT YEARS: 2012-13, 2014-15 & 2015-16 DY. COMMISSIONER OF INCOME TAX CIRCLE 1(2) HYDERABAD VS. COVALENT LABORATORIES (P) LTD, HYDERABAD PAN: AABCC9544R (APPELLANT) (RESPONDENT) REVENUE BY: SMT. D. KOMALI KRISHNA, CIT(DR) ASSESSEE BY : SRI S. RAMA RAO DATE OF HEARING: 23/02/2021 DATE OF PRONOUNCEMENT: 24/02/2021 ORDER PER SMT. P. MADHAVI DEVI, J.M. ALL THE THREE ARE ASSESSEES APPEALS FOR THE A.Y 20 12- 13, 2014-15 & 2015-16 RESPECTIVELY AGAINST THE ORDE R OF THE CIT (A)-1, HYDERABAD, DATED 19.12.2017. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY ENGAGED IN THE MANUFACTURING OF BULK DRUGS AND API, E-FILED ITS RETURN OF INCOME ON 23.09.2012 DECLARING A TOTAL IN COME OF RS.26,95,31,744/- UNDER NORMAL PROVISIONS AND RS.31,52,46,457/- U/S 115JB OF THE ACT. THERE WAS A SURVEY U/S 133A O F THE ACT ON THE ASSESSEE COMPANY ON 29.09.2015 AND THE SURVEY P ARTY FOUND DISCREPANCIES IN THE A/CS OF THE ASSESSEE COMPANY. THEREFORE, THE RETURN OF INCOME WAS TAKEN UP FOR SCRUTINY U/S 147 AFTER ISSUANCE OF A NOTICE U/S 148 OF THE ACT. DURING THE ASSESSME NT ITA NOS 1040 TO 1042 OF 2018 COVALENT LAB P LTD H YDERABAD PAGE 2 OF 4 PROCEEDINGS, THE AO OBSERVED THAT ACCORDING TO THE BOOKS OF ACCOUNT OF THE ASSESSEE, THE ASSESSEE HAS MADE CONS IGNMENT SALE OF RS.62,11,54,349/- THROUGH ABS MERCANTILE PVT LTD , WHEREAS ACCORDING TO THE CONSIGNEE, THE GOODS SOLD WERE WOR TH RS.91,73,58,265/-. THE ASSESSEE WAS ASKED TO EXPLAI N THE DISCREPANCY. THE ASSESSEE FILED A RECONCILIATION ST ATEMENT, BUT THE AO WAS NOT CONVINCED. THEREAFTER, HE TREATED THE DI FFERENCE OF RS.29,62,03,916/- AS UNACCOUNTED INCOME OF THE ASSE SSEE. THE AO ALSO MADE DISALLOWANCES OF R&D EXPENSES, COMMISS ION EXPENSES AND ALSO OF EXPENDITURE U/S 14A. AGGRIEVED , THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) WHO GRANTED PARTIAL RELIEF TO THE ASSESSEE AND THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL BY RAISING THE FOLLOWING GROUND S: (I) THE ORDER OF THE LD. CIT(A) IS ERRONEOUS ON FAC TS AS WELL AS IN LAW. (II) THE LD. CIT(APPEALS) ERRED IN DELETING THE ADD ITION MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF R&D EXPENDI TURE OF RS 1,59,08,943/- BY ACCEPTING THE ADDITIONAL EVI DENCE IN THE FORM OF BILLS FOR CONSUMABLES SUBMITTED BY THE ASSESSEE FOR THE FIRST TIME BEFORE THE CIT(A). (III) THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT SR. EXECUTIVES IN R&D DEPARTMENT OF THE COMPANY HAD CLE ARLY STATED IN THE STATEMENT RECORDED DURING THE SURVEY OPERATION U/S 133A THAT ALL RAW MATERIALS REQUIRED FOR R&D WERE PROCURED FROM THE REGULAR RAW MATERIAL PURCHAS ED FOR PRODUCTION AND NO SEPARATE EXPENDITURE WAS INCURRED FOR ACQUIRING MATERIAL FOR R&D. (IV) THE LD. CIT(A) OUGHT TO HAVE PROVIDED AN OPPOR TUNITY TO THE ASSESSING OFFICER AS REQUIRED UNDER RULE 46A OF I T RULES BEFORE ADMITTING ADDITIONAL EVIDENCE PARTICUL ARLY WHEN THESE EVIDENCES WERE NOT FOUND AT THE CORPORAT E OFFICE OR THE FACTORY PREMISES OF THE ASSESSEE DURING THE SURVEY. (V) THE LD. CIT(A) ERRED IN DELETING THE ENTIRE ADD ITION MADE BY THE ASSESSING OFFICER OF RS 29,62,03,916/- ON AC COUNT OF UNDER REPORTING OF CONSIGNMENT SALES MADE BY THE AS SESSEE DURING THE YEAR THROUGH A CONSIGNMENT AGENT. (VI) THE LD. CIT(A) OUGHT TO HAVE FURTHER CONSIDERE D THAT THE SALES MADE TO THE SAID ENTITY THROUGH THE CONSIGNME NT AGENT GOT CRYSTALLIZED DURING THE YEAR AND THE SAME SHOULD ITA NOS 1040 TO 1042 OF 2018 COVALENT LAB P LTD H YDERABAD PAGE 3 OF 4 HAVE BEEN INCLUDED IN THE TURNOVER FOR THE YEAR AS THE ASSESSEE HAS BEEN FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. (VII) THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS 8,32,182/- MADE BY THE AO ON ACCOUNT OF DISALLOWANC E OF EXPENDITURE U/S 14AOF THE IT ACT IN RELATION TO INV ESTMENT MADE. (VIII) THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THA T SECTION 14A DOES NOT MAKE ANY DISTINCTION BETWEEN THE STRAT EGIC INVESTMENT OR OTHER INVESTMENT AND ONCE THE INCOME FROM SUCH INVESTMENT DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE, EXPENDITURE IN RELATION TO SUCH INVESTMENT HAS TO BE DISALLOWED UNDER SECTION 14A R EAD WITH RULE 80. (IX) THE APPEAL CRAVES LEAVE TO ADD, DELETE, SUBSTI TUTE AND AMEND ANY GROUNDS OF APPEAL AT THE TIME OF HEARING . 3. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE VERY SAME ISSUE HAD ARI SEN IN THE A.Y 2012-13 TO 2015-16 AND SIMILAR DISALLOWANCES WERE M ADE BY THE AO IN ALL THE YEARS AND CONFIRMED BY THE CIT (A). H E SUBMITTED THAT THE ISSUE HAD COME UP BEFORE THE TRIBUNAL FOR THE A.Y 2013- 14 AND VIDE ORDERS DATED 11.09.2020, THE TRIBUNAL H AS SET ASIDE ALL THE ISSUES TO THE FILE OF THE AO FOR DENOVO CON SIDERATION IN ACCORDANCE WITH LAW. HE HAS FILED A COPY OF THE SAI D ORDER BEFORE US. 4. THE LEARNED DR HAS CONFIRMED THE SAID FACTS AND SUBMITTED THAT WITHOUT PREJUDICE TO THE RELIANCE MA DE BY HIM UPON, THE ORDERS OF THE AUTHORITIES BELOW, FOLLOWIN G THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL, THE MATTER MA Y BE SET ASIDE TO THE FILE OF THE AO WITH SIMILAR DIRECTIONS AS GI VEN FOR THE A.Y 2013-14. TAKING THE SAME INTO CONSIDERATION, ALL TH ESE THREE APPEALS ARE ALSO SET ASIDE TO THE FILE OF THE AO FO R DENOVO CONSIDERATION IN ACCORDANCE WITH LAW AND IN ACCORDA NCE WITH THE ITA NOS 1040 TO 1042 OF 2018 COVALENT LAB P LTD H YDERABAD PAGE 4 OF 4 DIRECTIONS GIVEN BY THE TRIBUNAL FOR THE A.Y 2013-1 4. A COPY OF THE ORDER OF THE TRIBUNAL IN THE ASSESSEES APPEAL DAT ED 11.09.2020 MAY BE ANNEXED TO THIS ORDER AND SHALL BE TREATED AS PART OF THIS ORDER. 5. IN THE RESULT, APPEALS OF THE REVENUE ARE TREATE D AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH FEBRUARY, 2021. SD/- SD/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 24 TH FEBRUARY, 2021. VINODAN/SPS COPY TO: 1 DY CIT, CIRCLE 1(2) B BLOCK, 7 TH FLOOR, IT TOWERS, AC GUARDS, MASAB TANK, HYDERABAD 2 COVALENT LABORATORIES (P) LTD 8-3-677/18, SKD NAG AR, YELLAREDDYGUDA, HYDERABAD 500073 3 CIT (A)-1 HYDERABAD 4 PR. CIT 1, HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER