MEDLEY PHARMACEUTICALS LTD, MUMBAI V. DCIT CEN CIR 44, MUMBAI

ITA 1709/MUM/2014

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6688 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 12-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRAKASH JOTHWANI
• Keywords: Block assessment; Benefit of exemption
• Section: 143(3); 153A; 80IB; 43; 13; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO. 1709 /MUM/201 4 : A.Y : 20 06 - 07 M/S. MEDLEY PHARMACEUTICALS LTD., D - 2, MEDLEY, 16 TH ROAD, MIDC AREA, ANDHERI (E), MUMBAI 400 093. PAN : AAACM2764J (APPELLANT) VS. DCIT, CENTRAL CIRCLE 44, MUMBAI. (RESPONDENT) APPELLANT BY : SHRI PRAKASH JOTHWANI RESPONDENT BY : MS. KAVITA KAUSHIK DATE OF HEARING : 03 / 01 /2020 DATE OF PRONOUNCEMENT: 06 /0 8 /2020 O R D E R PER RAJESH KUMAR, AM : TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 38 , MUMBAI (IN SHORT CIT(A) ) DATED 27 . 12 .201 3 PERTAINING TO ASSESSMENT YEAR 20 06 - 07 . 2. THE VARIOUS GROUNDS RAISED BY THE ASSESSEE ARE REPRODUCED BELOW : - ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW: 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DEDUCTION U/S. 80 - IB AT RS.5,90,33,441/ - (ON ADHOC BASIS), AS AGAINST RS. 8,88,99,369/ - AS CLAI MED BY THE ASSESSEE, IN ITS RETURN. 2 ITA NO. 1709/MUM/2014 M/S. MEDLEY PHARMACEUTICALS LTD. 2. THE LEARNED CIT(A) ERRED IN PRESUMING THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE REJECTED, MERELY ON ACCOUNT OF SHOW CAUSE NOTICE THAT WAS ISSUED BY THE AO, HOWEVER THERE WAS NO CLEAR FINDING MADE IN THE ASSESS MENT ORDER IN THAT RESPECT. 3. A) THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO WHICH WAS MADE ON A BASELESS ALLEGATIONS THAT THE ASSESSEE WAS MANIPULATING THE RAW MATERIAL DATA (WHICH WAS ALLEGED TO BE FOUND DURING THE SEARCH PROCEEDINGS), ALTHOUGH NO SUCH THING WAS FOUND, INFERRED OR HELD OTHERWISE, DURING THE BLOCK ASSESSMENT U/S. 153A FOR AY: 99 - 00 TO 05 - 06. B) WITHOUT PREJUDICE TO THE ABOVE, THE DISALLOWANCE, IF ANY, ON THIS GROUND SHOULD HAVE BEEN RESTRICTED TO THE AMOUNTS WHICH WER E DIVERTED OR MANIPULATED AND NOT THE ENTIRE DEDUCTION U/S. 80 IB SHOULD HAVE BEEN DENIED. 4. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE AO, ON THE GROUND THAT TRADING PROFITS HAD BEEN SHIFTED TO TAX FREE UNITS WHEN IN PARA 8.1, T HE CIT(A), GAVE A FINDING THAT THERE WAS NO REASON TO ALLOCATE PROFITS BETWEEN TAXABLE AND NON - TAXABLE UNITS. 3. THE ONLY EFFECTIVE GROUND RAISED IN THE GROUNDS OF APPEAL IS AGAINST THE ORDER OF CIT(A) CONFIRMING THE RESTRICTION OF DEDUCTION UNDER SECTION 80IB OF THE ACT TO RS.5,90,33,441/ - AS AGAINST RS.8,88, 9 9,36 9 / - CLAIMED BY THE ASSESSEE. 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME ON 22.11.2006 DECLARING AN INCOME OF RS.45,92, 803 / - , WHICH WAS PROCESSED UNDER SECTION 143( 1 ) OF THE ACT ACCEPTING THE RETURN OF INCOME. THEREAFTER, THE CASE OF ASSESSEE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES WERE DULY ISSUED AND SERVED ON THE ASSESSEE. IT IS PERTINENT TO STATE THAT ASSESSEE IS IN THE BUSINESS OF MANUFACTU RING OF PHARMACEUTICALS PRODUCTS FOR THE LAST MORE THAN 30 YEARS. ORIGINALLY, IT HAD A MANUFACTURING UNIT AT AURANGABAD, WHICH WAS TOTALLY CLOSED DOWN IN 1997. THEREAFTER, ASSESSEE HAS SET - UP FIVE 3 ITA NO. 1709/MUM/2014 M/S. MEDLEY PHARMACEUTICALS LTD. MANUFACTURING UNITS CONSISTING OF FOUR MANUFACTURING UNIT S AT DAMAN AND ONE AT JAMMU . UNIT NO. 1 WAS STARTED IN 1994, UNIT NO. 2 IN 1999, UNIT NO. 3 IN 2001, UNIT NO. 4 IN 2003 AND JAMMU UNIT WAS STARTED IN 2005. THE A SSESSEE HAS BEEN CLAIMING DEDUCTION UNDER SECTION 80IB OF THE ACT FOR ALL THESE UNITS. DURI NG THE YEAR THE UNIT NO. 1 IS HAVING NO TAX EXEMPTION AVAILABLE WHILE FOR UNIT NOS. 2 & 3, EXEMPTION WAS AVAILABLE EQUAL TO 30% OF THE TAX AND IN RESPECT OF UNIT NO. 4 AND JAMMU UNIT, 100% OF THE PROFITS WERE EXEMPT DURING THE YEAR. THE ASSESSEE IS ALSO E NGAGED IN PURCHASING OF FINISHED GOODS OR GETTING FINISHED GOODS MANUFACTURED FOR SALE PURPOSE S , FOR TRADING ACTIVITY OR CONSIGNMENT SALES, ETC. ACCORDING TO THE ASSESSING OFFICER, THE ALLEGED TRADING ACTIVITY ( QUA GOODS MANUFACTURED BY OTHERS ) IS DELIBE RATELY SHOWN AS AT LOSS TO SET - OFF THE PROFITS ARISING FROM UNIT NOS. 1, 2 & 3 HAVING EITHER NO EXEMPTION OR LESS EXEMPTION OF TAX. THE ASSESSING OFFICER FURTHER HELD THAT SINCE A PORTION OF THE TRADING ACTIVITY HAS BEEN TRANSFERRED TO UNIT NO. 4 AND JAMM U UNIT, LOSS TO THAT EXTENT IS REQUIRED TO BE DISALLOWED. BESIDES, THE ASSESSING OFFICER HAS WORKED OUT A FORMULA, AS STATED AT PAGES 12 AND 13 OF THE ASSESSMENT ORDER, BY WHICH DEDUCTION UNDER SECTION 80IB OF THE ACT HAS BEEN REDUCED AND DISALLOWED TO TH E EXTENT OF RS.3,21, 43 , 725 / - . THE ASSESSING OFFICER HAS CITED FOLLOWING REASONS FOR DENYING THE DEDUCTION NAMELY : - I) APPELLANT HAS NO REASONABLE EXPLANATION AS TO HOW EXEMPT UNITS WERE SHOWING A LOSS TO SET OFF THE TRADING PROFITS IN THE EARLIER YEARS. II) NO EFFORT MADE TO EXPLAIN WHY ITS TRADING ACTIVITY HAS RECORDED A FALL IN G.P. OF MORE THAN 30% AND FOR THE FIRST TIME SHOWN A HUGE LOSS OF RS.2.94 CRORES. III) THE CHANGE IN EXCISE DUTY WAS BY 7.5% ONLY AND NOT BY 30% AS CLAIMED BY THE APPELLANT. 4 ITA NO. 1709/MUM/2014 M/S. MEDLEY PHARMACEUTICALS LTD. 5 . THE ASSESSING OFFICER AFTER DRAWING THE AFORESAID INFERENCE MADE A CHART AT PAGE 12 OF THE ASSESSMENT ORDER AND STATED THAT IF THE NET PROFIT OF UNIT NO. 4 AND JAMMU UNIT IS 15.23%, THE SAME PROFIT RATE SHOULD BE APPLIED TO OTHER UNITS, VIZ. UNIT NOS. 1 , 2 AND 3 AND ESTIMATED PROFIT WHICH HAS BEEN DIVERTED TO UNIT NO. 4 AND JAMMU UNIT AND DENIED DEDUCTION UNDER SECTION 80IB OF THE ACT TO THE EXTENT OF RS.1,65,02,509/ - . THE AO F URTHER ESTIMATED THE TRADING PROFIT AT RS.1,56,41,216/ - IN PLACE OF LOSS OF RS .2.94 CRORES FROM THE TRADING SECTION. THE ABOVE FINDING OF THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS WERE STRONGLY OPPOSED BY THE ASSESSEE BY SUBMITTING AS UNDER : - 3(A). AT PG.2 OF THE ORDER, THE AO HAS REPRODUCED A CHART OF RAW MATERIAL CONSUMPTION. THE APPELLANT IS NOT AWARE HOW THE CHART HAS BEEN MADE NOR THE DETAILS WERE CALLED FOR FROM THE APPELLANT TO PREPARE SUCH CHART. THE AO HAD ASKED FOR UNIT WISE GROSS MARGIN COMPARISONS & NOT YEAR WISE TO WHICH THE APPELLANT HAD EX PLAINED BY LETTER DATED 8.12.08 WHICH IS AT PG. 130 OF THE PB (II). THE AO HOWEVER STATED THAT RAW MATERIAL COST VARIES FROM 1.18% TO 81.26% FOR DIFFERENT PRODUCTS. DETAILS OF RAW MATERIAL COSTS HAVE BEEN FILED IN THE PAPER BOOK II AT PG. 187, 296, AND 167 , 178, 193, 203, 225, WHICH DO NOT REFLECT THAT THE VARIATION WAS SO HIGH. THE APPELLANT IS NOT AWARE HOW THE AO ARRIVED AT THE SAID FIGURES. FURTHER THE AO NEVER ASKED ABOUT THE RAW MATERIAL COST FOR YEAR TO YEAR & HENCE APPELLANT IS UNAWARES HOW THE AO C AME TO SUCH A CONCLUSION. THE AO FURTHER GOES ON TO CONCLUDE THAT SINCE THERE IS A HUGE DIFFERENCE OF RAW MATERIAL COST IN SEVERAL UNITS, THE APPELLANT IS MANIPULATING THE CONSUMPTION FIGURES, TO WHICH THE AO RELIES ON THE FINDINGS OF THE SEARCH. THE APPEL LANT TO THIS SUSPICION & CONJECTURE OF THE AO HAS TO SUBMIT AS UNDER: A) SEARCH TOOK PLACE IN NOVEMBER 2004 B) WITHOUT PREJUDICE IF PAPERS WERE FOUND, THEY COULD NOT PERTAIN TO A.Y. 2006 - 07. C) IN ASSESSMENTS FROM A.Y. 1999 - 00 TO 2005 - 06, U/S. 153A THE AO HAS NOT RAISED A DOUBT ON RAW MATERIAL CONSUMPTION NOR HAS HE DELIBERATED ON 5 ITA NO. 1709/MUM/2014 M/S. MEDLEY PHARMACEUTICALS LTD. ANY EVIDENCE FOUND DURING SEARCH. HENCE THE RELIANCE ON FINDINGS OF SEARCH IS NOT JUSTIFIABLE. D) EACH UNIT IS MANUFACTURING A PRODUCT WHICH IS NOT DUPLICATED BY THE OTHER UNIT. HENCE MATERIAL CONSUMPTION OF EACH UNIT CANNOT BE COMPARED WITH THE OTHER. FURTHER YEAR WISE RAW MATERIAL CONSUMPTION CANNOT BE COMPARED, AS A PRODUCT IN ONE PARTICULAR YEAR MAY HAVE BEEN DISCONTINUED IN THE NEXT YEAR OR MAY BE A NEW PRODUCT IS SUBSTITUTED WHICH WOULD YIELD A HIGHER OR LOWER CONSUMPTION RATIO. HENCE THE COMPARISON MADE BY THE AO IS UNFOUNDED. ENCLOSED HEREWITH IS CHART OF RAW MATERIAL TO SALES RATIO. 3(B). FURTHER AT PAGE 3, TOP PARA OF THE ASSESSMENT ORDER THE AU HAS MADE A HARD HITTING A LLEGATION THAT NEARLY 100% OF THE RAW MATERIAL ITEMS FOUND TO HAVE BEEN MANIPULATED AT THE TIME OF SEARCH, WHICH WERE ALL EXCIPIENTS. TO THIS WE REPEAT THAT NO MATERIAL HAS BEEN FOUND DURING SEARCH LEADING TO PROVE THAT THE APPELLANT MANIPULATED ON THE E XCIPIENTS. FURTHER EXCIPIENTS ARE USED IN ALL PRODUCTS BUT THE PERCENTAGE VARIES DEPENDENT UPON THE PHARMA PRODUCT THAT IS BEING MANUFACTURED. EXCIPIENTS USAGE IS HIGH IN MFG. LIQUID PRODUCTS AND NOT SOLIDS. ENCLOSED IS A NOTE ON EXCIPIENTS TOGETHER WITH C HART OF USAGE OF EXCIPIENTS UNIT WISE. 3(C). FURTHER AT PARA 6 THE AO HAS ALLEGED THAT A SYSTEMATIC WAY OF CLAIMING LOSS VIS - - VIS INCOME WAS DONE BY THE APPELLANT SO THAT LESS INCOME COULD BE SHOWN. THE APPELLANT STATES THAT THERE IS NO PROOF OF EVIDENCE TO SUBSTANTIATE THE SAME. THIS STATEMENT IS A CONJECTURE BASED ON SUSPICION. IN THE SAME PARA, THE AO HAS MADE A CHART OF 9 PARTIES TO WHOM SUMMONS WERE ISSUED. OUT OF THESE 9 PARTIES, 4 RESPONDED TO THE AO & FOR THE OTHER 5 EITHER THERE WAS NO RESPON SE OR THE NOTICES WERE RETURNED. THE APPELLANT WAS NEVER INFORMED THAT NOTICES WERE BEING SENT TO THE PARTIES FOR THE APPELLANT COULD HAVE PROVIDED THE PARTIES NEW ADDRESS. IN THE 4 PARTIES WHO RESPONDED, THE FIGURES TALLIED EXCEPT FOR SOME DISCREPANCY WHI CH ALSO COULD HAVE BEEN EXPLAINED HAD THE AO INFORMED THE APPELLANT. ENCLOSED IN THE PB IS A SHORT NOTE RECONCILING THE FIGURES. PB III - PG.256. THE AO THEN FURTHER ALLEGES THAT THESE PARTIES HAVE ACCOMMODATED THE APPELLANT TO KEEP 6 ITA NO. 1709/MUM/2014 M/S. MEDLEY PHARMACEUTICALS LTD. IT IN GOOD HUMOR. THE AP PELLANT SUBMITS THAT ON EACH PURCHASE, THE APPELLANT HAS THE FOLLOWING: 1) PURCHASE ORDER 2) GOODS RECEIVED NOTE ISSUED BY PLANT STORES OF THE APPELLANT. 3) LORRY RECEIPT WHICH PROVES DELIVERY OF GOODS. 4) PAYMENTS MADE BY CHEQUES 5) PARTIES INVOICES 6) C - FORMS TOWARDS THE PURCHASE FOR SALES TAX PURPOSE. 7) SALES - TAX RETURNS DECLARES THE PURCHASES THUS DESPITE ALL THE EVIDENCES ABOVE, THE AO HAS ALLEGED THAT THE BILLS WERE OVER INVOICED WHILE THE COMPARISON CHART ENCLOSED WOULD EVIDENCE THAT THE PAYMENT FOR PURCHASES WERE MADE AT MARKET PRICE & THE VALUES WERE NOT OVER INVOICED. FURTHER THE AO HAS ALSO NOT PROVED THAT THE VALUES SHOWN WERE HIGHER THAN NORMAL. THUS WAS NO REASON FOR THE AO TO INFER THAT THE APPELLANT HAS BEEN FUDGING WITH THE FIGURES OR TH E SUPPLIERS HAVE BEEN A ACCOMMODATING THE APPELLANT. THIS CONJECTURE IS UNFOUNDED AND SHOULD NOT BE A BASIS TO NOT ACCEPT THE APPELLANT STATE OF AFFAIRS. 3(D). AT PARA 8.2 OF THE ORDER, THE AO HAS ALLEGED THAT THE RAW MATERIAL ISSUE WAS NOT MADE BY THE AO IN THE EARLIER ASSESSMENT YEARS AS HE WAS DENYING 80 - IB IN ENTIRETY ON A/C OF OLD MACHINERY BEEN INSTALLED. THE APPELLANT REFUSES THIS ALLEGATION. IN THE EARLIER YEARS, THE AO MADE INQUIRY BUT STILL DID NOT MAKE ANY ADDITION NOR DID HE DISCUSS ON THE ISSU E. THE ASSESSMENTS WAS THEN LOOKED INTO BY CIT(A) WHO DID NOT TOUCH THIS ISSUE. FURTHER THESE SEARCH ASSESSMENTS WERE ALSO LOOKED INTO IN 263 PROCEEDINGS ON THE BASIS OF SEIZED MATERIAL & NO PROCEEDINGS WERE TAKEN UP ON THIS ISSUE OF RAW MATERIAL OR OVER I NVOICING. THUS THE AO &THE HIGHER AUTHORITIES WERE CONVINCED ON THE EXPLANATION GIVEN ON RAW MATERIAL & OVER INVOICING HENCE NO ADDITION WAS MADE ON THIS ISSUE. 3(E). AT PARA 9 AT PAGE 10, THE AO HAS STATED THAT THE APPELLANT HAS NOT BEEN RECORDED PURCHA SES SEPARATELY FOR EACH UNIT. THE APPELLANT HAS A PURCHASE REGISTER WITH A COST CENTRE BASED ACCOUNTING FOR ALL THE UNITS. EACH PURCHASE IS RECORDED TO THE RESPECTIVE COST CENTRE UNIT & IS AGGREGATED AS ONE PURCHASE OF THE COMPANY. THUS THE APPELLANT CAN IDENTIFY COSTS PER UNIT AS IT IS SEPARATELY RECORDED. WITH REGARD TO THE JAMMU UNIT, THE PURCHASE BILLS 7 ITA NO. 1709/MUM/2014 M/S. MEDLEY PHARMACEUTICALS LTD. CLEARLY SHOW AS MEDLEY JAMMU, THOUGH THE SAME IS TAKEN IN ONE COMMON PURCHASE REGISTER. HENCE THIS SUSPICION ALSO HAS NO LEGS TO STAND ON. 6 . HOWEVER, THE SUBMISSION S AND CONTENTIONS OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE ASSESSING OFFICER AND THE ASSESSING OFFICER EVENTUALLY REDUCED THE DEDUCTION CLAIMED UNDER SECTION 80IB OF THE ACT BY THE ASSESSEE . IN OTHER WORDS, DEDUCTION UNDER SECTION 80IB OF THE ACT HAS BEEN RESTRICTED TO RS.5, 90 ,3 3 ,441/ - AS AGAINST THE ACTUAL CLAIM OF ASSESSEE OF RS.8,88,99,369/ - IN THE RETURN OF INCOME BY FRAMING ASSESSMENT UNDER SECTION 143(3) OF THE ACT VIDE ORDER DATED 18.12.2008. 7 . IN THE APPELLATE PROCEEDINGS, THE C IT(A) CONFIRMED THE ORDER OF ASSESSING OFFICER AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE AND AFTER CALLING FOR REMAND REPORT FROM THE ASSESSING OFFICER AND OBSERVING AND HOLDING AS UNDER : - 8.0 THE FACTS OF THE CASE, THE STAND TAKEN BY THE A.O IN THE ASSESSMENT ORDER, THE GROUNDS OF APPEAL AND THE WRITTEN SUBMISSIONS FILED BY THE APPELLANT DURING THE APPEAL PROCEEDINGS HAVE BEEN CAREFULLY CONSIDERED. 8.1 THE SUBMISSION OF THE APPELLANT IN PARA 6.0 ABOVE IS GENERAL IN NATURE AND IS NOT SPECIFIC TO T HE VARIOUS DISCREPANCIES DISCUSSED BY THE A.O. IN THE ASSESSMENT ORDER. THE APPELLANT SUBMITS THAT THE BOOKS OF ACCOUNT HAVE NOT BEEN REJECTED BY THE A.O WHEREAS THE DISCUSSION IN PARA NO. 7 OF THE ASSESSMENT ORDER REFERS TO SHOW CAUSE NOTICE ISSUED BY TH E A.O ASKING THE APPELLANT TO SHOW CAUSE AS TO WHY THE BOOKS OF ACCOUNT SHOULD NOT BE REJECTED U/S. 145 OF THE ACT CLEARLY SUGGESTING THAT THE A.O EXAMINED THE BOOKS OF ACCOUNT AND REJECTED THE BOOKS OF ACCOUNT ON THE BASIS OF VARIOUS DISCREPANCIES NOTICED IN SUCH BOOKS OF ACCOUNT AND ACCORDINGLY ESTIMATED THE INCOME. THE APPELLANTS SUBMISSION THAT THE A.O HAD ACCEPTED THE PROFITS OR LOSSES OF THE UNITS IN EARLIER YEAR YEARS AND THERE IS NO REASON FOR THE A.O TO ESTIMATE THE PROFITS IN THIS YEAR IS ALSO N OT ACCEPTABLE IN VIEW OF THE FACT THAT THE A.O WHILE COMPLETING THE SEARCH ASSESSMENTS U/S 153A OF THE ACT 8 ITA NO. 1709/MUM/2014 M/S. MEDLEY PHARMACEUTICALS LTD. CONCLUDED THAT THE OLD MACHINERY USED WAS MORE THAN THE PRESCRIBED LIMIT AND ACCORDINGLY REJECTED THE CLAIM OF DEDUCTION U/S 80IB OF THE ACT. THE A. O POINTED THAT SINCE THE CLAIM OF DEDUCTION U/S 80IB OF THE ACT MADE BY THE APPELLANT WAS REJECTED, THE A.O DID NOT CONSIDER IT NECESSARY TO INVESTIGATE THE INTRA - UNIT MANIPULATION. I AM IN AGREEMENT WITH THE VIEWS OF THE A.O THAT WHILE THE ENTIRE DEDUCTI ON WAS DENIED, THERE WAS NO REASON FOR THE A.O TO ALLOCATE THE PROFITS BETWEEN TAXABLE AND NON - TAXABLE UNITS. THE SUBMISSION OF THE APPELLANT IN PARA NOS. C, D, E AND F OF PARA NO. 6 ABOVE, CANNOT BE ACCEPTED FOR THE REASON THAT THE SUBMISSIONS HAVE NOT BE EN PROVED BY THE APPELLANT AND SUCH SUBMISSIONS WITHOUT ANY EVIDENCES CANNOT BE ACCEPTED. 8 .2 SINCE THE A.O HAD CITED VARIOUS REASONS FOR ESTIMATING THE PROFITS SUCH AS THE RAW MATERIAL TO SALE PRICE RATIO, ABNORMAL VARIATION IN RAW MATERIAL COST TO SALE PRICE, GENUINENESS OF THE PURCHASES HAVING NOT BEEN PROVED, LACK OF PURCHASE BILLS FOR RAW MATERIALS AS WELL AS PACKING MATERIALS, LACK OF STOCK OF PACKING MATERIAL AT BHIWANDI ETC. DISCUSSED IN PARAGRAPH 5.1 TO 5.5 ABOVE SUGGEST THAT THE PROFITS HAVE BEEN MANIPULATED BETWEEN THE UNITS. THE APPELLANT FAILED TO SUBMIT SPECIFIC DENIALS WITH SUPPORTING DOCUMENTS AS AGAINST THE ISSUES DISCUSSED IN THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT ARE VERY GENERAL IN NATURE. IN VIEW OF THE ABOVE, THE A DDITION MADE BY THE A.O IS HEREBY CONFIRMED. 8 . THE LEARNED AR VEHEMENTLY SUBMITTED BEFORE US THAT THE ORDER PASSED BY THE CIT(A) IS PATENTLY WRONG AND IS AGAINST THE PROVISION S OF LAW. THE LEARNED AR SUBMITTED THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE NOT REJECTED BY THE ASSESSING OFFICER UNDER SECTION 145 OF THE ACT AND WITHOUT REJECTION OF THE BOOKS OF ACCOUNT, THE APPLICATION OF PROVISIONS OF SECTION 145 OF THE ACT ARE INVALID AND AGAINST THE PROVISION S OF LAW . T HE CONSEQUENT ESTIMATION OF PROFIT AND RESULTANT ADDITION IS ALSO NOT SUSTAINABLE . THE LEARNED AR SUBMITTED THAT IN THE EARLIER YEARS WHICH HAVE GONE THROUGH APPELLATE AS WELL AS 263 PROCEEDINGS, THE AO HAS ACCE PTED THE PROFITS AND LOSSES OF THE UNITS AND HAS NOT MADE OUT A NY CASE THAT THE LOSS/PROFIT SHOWN ARE NON GENUINE, MANIPULATED OR ERRONEOUS . THUS WHEN IN EARLIER YEARS THE SYSTEM 9 ITA NO. 1709/MUM/2014 M/S. MEDLEY PHARMACEUTICALS LTD. HAS BEEN ACCEPTED, THERE IS NO REASON S FOR THE AO TO ESTIMATE PROFIT IN THI S YEAR ON THE BASIS OF THE EARLIER YEARS. THE LEARNED AR SUBMITTED THAT T HE APPELLANT HAD PUT UP SEVERAL UNITS SO AS TO START MANUFACTURING PRODUCTS ON ITS OWN AND EARN HIGHER PROFITS. A MAJOR PORTION OF PRODUCTS HAVING HIGHER GROSS MARGIN WHICH WERE BEI NG MANUFACTURED EARLIER BY OTHERS WERE NO W BEING MANUFACTURED BY THE APPELLANT S UNIT AT JAMMU AND ONLY WHERE THE MARGINS WERE LOWER . IN THE EVENT , THE APPELLANTS G.P FROM GOODS M ANU F ACTURED FROM OTHERS CAME DOWN FROM 48.9% IN THE EARLIER YEAR TO 23.6% I N THIS YEAR THE DETAILS WHEREOF IS FILED AT PG. 275 PB III . CONSEQUENTLY THE G.P OF JAMMU FOR THE YEAR WAS APP ROX . 45.8 0 %. THUS , IT IS NOT A CASE OF DIVERSION BUT COMMERCIAL SENSE TO GET THE PRODUCTS SELF MANUFACTURED INSTEAD OF FROM OTHERS. THIS EXPLA NATION WAS GIVEN TO THE ASSESSING OFFICER AND CIT(A) WHO DID NOT CARE TO COMMENT ON THIS ASPECT AT ALL . HE FURTHER SUBMITTED THAT I N THE CHART SHOWING GROSS PROFIT AND NET PROFIT OF GOODS M ANU F ACTURED FROM OTHERS IN EARLIER YEARS VIS A VIS THIS YEAR AT P G. 275 OF P APER B OOK III H A S EVIDENCED THEREIN TH AT THE TURNOVER OF GOODS HAVING HIGHER MARGIN HAS REDUCED WHILE THE PRODUCTS WHERE THERE IS LOWER MARGIN HAS CONSIDERABLY INCREASED. FINALLY THERE IS NOT A GROSS LOSS BUT A GROSS PROFIT ONLY DUE TO FALL IN PERCENTAGE MARGIN. FURTHER THE ASSESSING OFFICER DID NOT AGREE WITH THE APPELLANT EXPLANATION THAT THE EXCISE DUTY HAS INCREASED AND HENCE MARGINS HAVE REDUCED. THE APPELLANT IN HIS SUBMISSIONS HAD ENCLOSED A CHART SHOWING AN EXAMPLE HOW THE EXCISE DUT Y HAS GONE UP. THE LD. AR EXPLAINED THE IMPACT OF INCREASE IN EXCISE DUTY ON THE MARGIN OF THE ASSESSEE. THUS THE INCREASE IN EXCISE DUTY IS APP ROX . 355%. IN ANOTHER PRODUCT, THE PERCENTAGE OF INCREASE IN EXCISE DUTY IS OVER 600%. HENCE ASSESSING OFFICE R HAS ERRED IN APPLYING 7.5% REBATE ONLY WHILE WORKING OUT THE TRADING PROFIT IN PLACE OF LOS SES SHOWN BY THE APPELLANT. THE LEARNED AR F URTHER SUBMITTED THAT THE ASSESSING OFFICER DID NOT CONSIDER THAT PRODUCTS 10 ITA NO. 1709/MUM/2014 M/S. MEDLEY PHARMACEUTICALS LTD. HAVE BEEN SHIFTED FROM MANUFACTURING FROM O THERS TO SELF MANUFACTURING AT JAMMU UNIT . THUS WHEN THE ASSESSING OFFICER MA D E A WORKING OF ESTIMAT ED PROFIT FROM TRADING, THE ASSESSING OFFICER HAS TAKEN 12% AS THE BASIS (NET PROFIT OF THE EARLIER YEAR) REDUCED IT BY 7.5% AND THEN ESTIMATED 4.5% OF TOT AL TRADING RECEIPTS/INC OME. IF THE ASSESSING OFFICER GIVES CREDIT FOR GOODS M ANU F ACTURED AT JAMMU, WHERE THERE IS A NET MARGIN OF 12%. IF 4.5% IS REDUCED BY 12% (NET MARGIN OF JAMMU) THEN THERE IS A LOSS WHICH HAS BEEN DECLARED BY THE APPELLANT. THUS TH E ASSESSING OFFICER S OMISSION TO APPLY THE JAMMU PROFITS TO THE TRADING INCOME HAS CREATED AN ARTIFICIAL PROFIT ON WHICH SECTION 80IB HAS BEEN DENIED. HE FURTHER SUBMITTED THAT THE PRODUCTS MANUFACTURED IN EACH UNIT ARE SEPARATE AND DISTINCT. THUS A MARGIN OF ONE UNIT CANNOT BE SUBSTITUTED FOR MARGIN OF ANOTHER UNIT. IF A PRODUCT HAD A GOOD GROSS PROFIT AND WAS MANUFACTURED BY A ON A SELF BASIS, THAT DOES NOT MEAN THAT THE PRO FIT HAS BEEN REMOVED FROM ONE UNIT TO ANOTHER. THE LD AR FINALLY PRAYED THAT THE ORDER OF CIT(A) UPHOLDING THE ORDER OF AO IS ERRONEOUS AND AGAINST THE FACTS OF THE CASE. 9 . THE LEARNED DR, ON THE OTHER HAND, RELIED ON THE ORDERS OF THE AUTHORITIES BELOW BY SUBMITTING THAT THE ASSESSEE HAS DIVERTED THE PROFIT FROM ONE SECTION TO ANOTHER SECTION IN ORDER TO CLAIM HIGHER BENEFIT OF EXEMPTION UNDER SECTION 80IB OF THE ACT. THE LEARNED DR TOOK US THROUGH THE VARIOUS OBSERVATIONS OF ASSESSING OFFICER AS GIVEN IN THE ASSESSMENT ORDER TO JUSTIFY THE SAID RESTRICTION OF EXEMPTION UNDER SECTION 80IB OF THE ACT. DEFENDING THE ORDER OF CIT(A), THE LEARNED DR SUBMITTED THAT THE CIT(A) HAS GIVEN A VERY DETAILED FINDING S AFTER DEALING WITH ALL THE FACTUAL ASPECTS OF TH E MATTER AND, THEREFORE, THE ORDER OF CIT(A) MAY KINDLY BE CONFIRMED BY DISMISSING THE APPEAL OF THE ASSESSEE. 11 ITA NO. 1709/MUM/2014 M/S. MEDLEY PHARMACEUTICALS LTD. 10 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE NOTE THAT THE DEDUCTION UNDER SECTION 80IB OF THE ACT WAS REDUCED TO RS.5,90,33,441/ - ON AD HOC BASIS AS AGAINST ACTUAL CLAIMED BY ASSESSEE OF RS.8,88,99,369/ - . WE FIND THAT THE ASSESSING OFFICER HAS GIVEN VARIOUS REASONS IN THE ASSESSMENT ORDER FOR REDUCING THE CLAIM OF ASSESSEE, HOWEVER, BEFORE RESORTING TO MAKING THE SAID DISALLOWANCE UNDER SECTION 80IB OF THE ACT BY RESTRICTING THE DEDUCTION, THE ASSESSING OFFICER HAS NOT REJECTED THE BOOKS OF ACCOUNT UNDER SECTION 145 OF THE ACT AND MADE THE ESTIMATION OF PROFIT/DI SALLOWANCE OF DEDUCTION UNDER SECTION 80IB OF THE ACT WHICH APPEARS TO BE INCORRECT AND AGAINST THE PROVISION OF LAW. WE ALSO FIND THAT IN THE EARLIER YEARS, UNDER SIMILAR FACTS, REVENUE HAS ACCEPTED THE PROFIT AND LOSS OF THE UNITS AND HAS NOT GIVEN A FI NDING THAT THE PROFIT/LOSS SHOWN IN THE BOOKS OF ACCOUNT OF THE ASSESSEE WA S MANIPULATED OR NON - GENUINE OR EXCESSIVE. THUS, W E FIND MERIT S IN THE CONTENTION S OF THE LEARNED AR THAT WHEN THE CASE OF ASSESSEE IN EARLIER YEAR HAS BEEN ACCEPTED UNDER SIMILAR FACTS, THERE IS NO REASON FOR THE ASSESSING OFFICER TO VARY FROM THE SETTLED POSITION BY ESTIMATING THE PROFIT IN THIS YEAR. WE ALSO FIND THAT THE ASSESSEE HAS GIVEN COGENT AND CONVINCING REPLY BEFORE BOTH THE LOWER AUTHORITIES QUA THE REDUCTION OF GROSS PROFIT IN THE CURRENT YEAR VIS - A - VIS THE EARLIER YEARS. IN OUR CONSIDERED OPINION, THIS IS NOT A CASE OF DIVERSION OF PROFIT FROM ONE UNIT TO ANOTHER OR ONCE DIVISION TO ANOTHER , BUT WAS DONE OUT OF BUSINESS EXPEDIENCY AND COMMERCIAL CONSIDERATION. WE AL SO NOTE THAT THE ASSESSEE HAS SUFFICIENTLY PROVED THAT THE TURNOVER OF ASSESSEE HAVING HIGHER MARGIN IN THE EARLIER YEARS HAVE REDUCED WHILE THE PRODUCTS WHERE THERE IS LOWER MARGIN HAVE INCREASED SUBSTANTIALLY. WE FURTHER FIND THAT THERE IS NOT GROSS LOS S, BUT A FALL IN GROSS PROFIT OF THE ASSESSEE WHICH HAS ALSO BEEN EXPLAINED BY STATING THAT WITH THE INCREASE IN 12 ITA NO. 1709/MUM/2014 M/S. MEDLEY PHARMACEUTICALS LTD. EXCISE DUTY, MARGIN OF ASSESSEE HAS COME DOWN. THE RATE OF EXCISE DUTY EARLIER WAS 16.23% ON MRP WHILE AFTER AMENDMENT, THE SAID RATE WAS APPL IED ON MRP LESS ABATEMENT AND THUS THE EFFECTIVE INCREASE IN DUTY IS APPROXIMATELY 355% WHILE ON SOME OTHER PRODUCTS, PERCENTAGE INCREASE IN EXCISE DUTY WAS OVER 600%. THUS, WE DO NOT FIND ANY REASON TO CONCUR WITH THE OBSERVATION S OF THE ASSESSING OFFICER. BESIDES, THE ASSESSING OFFICER DID NOT CONSIDER THE FACT THAT ASSESSEE HAS SHIFTED PRODUCT MANUFACTUR ED THROUGH OTHER IN EARLIER YEARS TO SELF - MANUFACTURING UNIT AT JAMMU AND THIS HAS ALSO CREATED THE FALLACIOUS AND MISLEADING FI NDING S BY THE AO AS TO THE JAMMU PROFIT ON WHICH DEDUCTION UNDER SECTION 80IB OF THE ACT HAS BEEN DENIED. FINALLY, WE NOTE THAT BOTH THE AUTHORITIES BELOW HAVE FAILED TO GIVE A COGENT AND CONVINCING REASON S FOR REDUCING THE CLAIM OF ASSESSEE UNDER SECTION 80IB OF THE ACT AS VARIOUS DOUBTS AND SUSPICION OF THE AUTHORITIES BELOW WERE DULY ADDRESSED BY THE ASSESSEE BY FURNISHING VARIOUS DETAILS AND INFORMATION QUA THE VARIOUS UNITS. UNDER THESE CIRCUMSTANCES, WE ARE NOT IN A POSITION TO SUSTAIN THE ORDER OF CIT(A) WHEREIN THE ORDER OF ASSESSING OFFICER HAS BEEN CONFIRMED. ACCORDINGLY, WE SET - ASIDE THE ORDER OF CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION UNDER SECTION 80IB OF THE ACT AS CLAIMED BY THE ASSESSEE. 11. HOWEVER, BEFORE WE PAR T WITH THE MATTER, WE WOULD LIKE TO DEAL WITH ONE PROCEDURAL ISSUE AS WELL. WHILE HEARING OF THIS APPEAL WAS CONCLUDED ON 3RD JANUARY, 2020, THE ORDER IS BEING PRONOUNCED TODAY ON 6TH DAY OF AUGUST, 2020, MUCH AFTER THE EXPIRY OF 90 DAYS FROM THE DATE O F CONCLUSION OF HEARING. WE ARE ALSO ALIVE TO THE FACT THAT RULE 34(5) OF THE INCOME TAX APPELLATE TRIBUNAL RULES 1963, WHICH DEALS WITH PRONOUNCEMENT OF ORDERS, PROVIDES FOR THE SAME WITHIN A PERIOD OF 90 DAYS OF THE CONCLUSION OF THE HEARING. 13 ITA NO. 1709/MUM/2014 M/S. MEDLEY PHARMACEUTICALS LTD. 12. IT IS QUITE CLEAR THAT ORDINARILY THE ORDER ON AN APPEAL SHOULD BE PRONOUNCED BY THE BENCH WITHIN NO MORE THAN 90 DAYS FROM THE DATE OF CONCLUDING THE HEARING AS THE EXPRESSION ORDINARILY HAS BEEN USED IN THE SAID RULE ITSELF. THIS RULE WAS INSERTED AS A RESU LT OF DIRECTIONS OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SHIVSAGAR VEG RESTAURANT VS ACIT [(2009) 317 ITR 433 (BOM)] AND HAS BEEN DULY CONSIDERED BY THE COORDINATE BENCH IN THE CASE OF JOINT COMMISSIONER OF INCOME TAX VS M/S. KANSAI NEROLAC PAI NTS LTD. ITA NO.3743/MUM/2016 ASSESSMENT YEAR: 2010 - 11 WHEREIN IT HAS DECIDED THAT FOR THE EXTRAORDINARY PERIOD THE PERIOD OF 90 DAYS SHALL STAND EXTENDED. 13. ACCORDINGLY WE EXCLUDE THE PERIOD OF COVID - 19 BEING EXTRAORDINARY PERIOD FROM THE PERIOD OF 90 DAYS IN TERMS OF RULE 34(5) OF THE ITAT RULES. 1 4 . IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 T H AUGUST, 2020. SD/ - SD/ - (C.N. PRASAD) JUDICIAL MEMBER (RAJESH KUMAR) ACCOUNTANT MEMBER MUMBAI, DATE : 6 T H AUGUST, 2020 *SSL* 14 ITA NO. 1709/MUM/2014 M/S. MEDLEY PHARMACEUTICALS LTD. COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, B BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI