DCIT, Ghaziabad V. M/s. Mankind Pharma Ltd., New Delhi

ITA 2139/DEL/2013

• Counselvise Citation: 213920114 RSA 2013
• Duration Of Justice: 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 05-02-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 11-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMIT GOEL CAS
• Assessee Lawyers: GUNJON PARS HAD
• Keywords: Unexplained investment; Sale consideration of property below Jantri Value; Valuation report; Non compliance
• Section: 50C; 153A; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E NEW DELHI) BEFORE SHRI G.D. AGRAWAL, HONBLE VICE-PRESIDENT AND SHRI RAJPAL YADAV, HONBLE JUDICIAL MEMBER ITA NOS. 2139 & 2140/DEL/2013 ASSESSMENT YEARS: 2007-08 & 2004-05 DEPUTY CIT, VS. MANKIND PHARMA LTD., CENTRAL CIRCLE, 236, OKHLA INDUSTRIAL ESTATE, NEW DELHI. NEW DELHI. (PAN: AAACM9410C) (APPELLANT) (RESPONDENT) REVENUE BY: S/SHRI RAJ KUMAR GUPTA & SUMIT GOEL, CAS ASSESSEE BY: SHRI GUNJON PARS HAD, CIT(DR( ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE PRESENT TWO APPEALS ARE DIRECTED AT THE INSTAN CE OF THE REVENUE AGAINST SEPARATE ORDERS OF EVEN DATE I.E. 07.01.201 3 PASSED BY THE LEARNED CIT(APPEALS) IN ASSESSMENT YEARS 2004-05 AND 2007-0 8. THE ISSUES INVOLVED IN BOTH THE APPEALS ARE COMMON, THEREFORE, WE HEARD THEM TOGETHER AND DEEM IT APPROPRIATE TO DISPOSE OF THEM BY THIS COMMON ORDER. THE GROUNDS OF APPEAL TAKEN BY THE REVENUE IN BOTH THE ASSESSMENT YEARS ARE NOT IN CONSONANCE WITH RULE 8 OF THE ITAT RULES, 1962, THEY ARE DESCRIPTIVE AND ARGUMENTATIVE IN NATURE. IN BRIEF, THE FIRST COMMON ISSUE IS WHETHER ADDITION ON ACCOUNT OF UNEXPLAINED INVESTMENT UNDER SEC. 69B OF THE ACT CAN BE MADE ON THE BASIS OF ESTIMATED VALUE DETERMINED BY THE DVO? 2 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE CO MPANY IS ENGAGED IN THE MANUFACTURING OF PHARMACEUTICALS. A SEARCH UNDER SE CTION 132 OF THE INCOME-TAX ACT, 1961 WAS CONDUCTED AT THE PREMISES OF THE ASSESSEE ON 09.10.2009. IN ORDER TO GIVE LOGICAL END TO THE PRO CEEDINGS, LEARNED ASSESSING OFFICER HAD ISSUED NOTICE UNDER SEC. 153A OF THE ACT QUA SIX PRECEDING ASSESSMENT YEARS FROM THE YEAR OF SEARCH. SUCH NOTICE WAS SERVED UPON THE ASSESSEE AND IT HAS FILED RETURNS OF INCOM E ON 29.11.2010 SHOWING TOTAL INCOME AT RS.11,27,23,856 AND RS.67,78,81,868 IN ASSESSMENT YEARS 2004-05 AND 2007-08 RESPECTIVELY. ON SCRUTINY OF TH E ACCOUNTS, LEARNED ASSESSING OFFICER HAS OBSERVED THAT IN THE ACCOUNTI NG PERIOD RELEVANT TO ASSESSMENT YEAR 2004-05, ASSESSEE HAS PURCHASED A P ROPERTY COMPRISED AT E- 32, OKHLA INDUSTRIAL AREA, PHASE-II, NEW DELHI FOR A CONSIDERATION OF RS.2,50,00,000. SIMILARLY, IN THE ACCOUNTING PERIOD RELEVANT TO ASSESSMENT YEAR 2007-08, ASSESSEE HAD PURCHASED A PROPERTY COM PRISED AT CC-24, KALKAJI, NEW DELHI. THIS PROPERTY WAS PURCHASED FOR A CONSIDERATION OF RS.3,50,00,000. ASSESSEE HAD INCURRED AN EXPENDITUR E OF RS.1.46 CRORES ON FURNISHING AND RENOVATION. THIS PROPERTY WAS LEASED OUT TO M/S. RASHI APPARELS PVT. LTD. THIS CONCERN HAD FURTHER INCURRE D A SUM OF RS. 52 LACS ON FURNISHING. ASSESSING OFFICER HAD REFERRED THE MATT ER TO THE DVO WHO VALUED THE PROPERTY E-32, OKHLA INDUSTRIAL AREA AT RS.14,24,66,112 AND THE 3 PROPERTY AT KALKAJI AT RS.5,90,34,000. LEARNED ASSE SSING OFFICER HAS MADE THE ADDITION OF THE DIFFERENCE. LEARNED ASSESSING O FFICER HAS MADE A VERY BRIEF DISCUSSION ON THIS ISSUE. THE FINDINGS RECORD ED BY HIM IN BOTH THE ASSESSMENT YEARS EXCLUDING THE EXPLANATION GIVEN BY THE ASSESSEE READ AS UNDER: A.Y. 2004-05 : ADDITION IN RESPECT OF INVESTMENT IN PROPERTIES : 5. DURING THE UNDER CONSIDERATION THE ASSESSEE HAS PURCHASED PROPERTY AT E-32, OKHLA, INDUSTRIAL AREA, PHASE-II, NEW DELHI FOR WHICH THE ASSESSEE HAS SHOWN CONSIDERATION OF RS.2, 50,00,000. THE MATTER WAS REFERRED TO THE DISTRICT VALUATION OFFIC ER U/S. 142A FOR ESTIMATING THE VALUE OF INVESTMENT ON PURCHASE OF P ROPERTY AT E-32, OKHLA, INDUSTRIAL AREA, PHASE-II, NEW DELHI VIDE TH IS OFFICE LETTER F.NO.ACIT/CC-142A/GZB/2011-12/ DATED 03.11.2011. TH E DVO HAS SENT HIS VALUATION REPORT VIDE LETTER DVO/ND/I.T10/ 142A/2011- 12/131 DATED 21.12.2011. IN THIS REPORT, THE DVO HA S VALUED THE ABOVE PROPERTY AT RS.14,24,66,112 AS AGAINST RS.2,5 0,00,000 SHOWN BY THE ASSESSEE. THE ASSESSEE WAS REQUESTED TO GIVE ITS COMMENTS ON THE VALUATION WHO VIDE LETTER DATED HAS SUBMITTED A S UNDER: X X X X X 6. THE ABOVE CONTENTION OF THE ASSESSEE IS NOT ACCE PTED BECAUSE VIDE LETTER DATED 27.04.2011 THE ASSESSEE WAS SPECI FICALLY ASKED EXPLAIN THE INVESTMENT MADE IN THE PROPERTIES. HOWE VER, TILL THE 4 REFERENCE TO THE DVO ON 03.11.2011 THE ASSESSEE DID NOT PRODUCE ANY DETAILS OF INVESTMENT EVEN AFTER LAPSE OF CONSIDERA BLE TIME. THEREFORE, IT WAS DUE TO THE NON-COMPLIANCE OF THE ASSESSEE WH ICH ON THOSE FULL DETAILS OF INVESTMENT WAS NOT AVAILABLE ALONG WITH BOOKS OF ACCOUNT AND THE TIME FOR REFERRING AND GETTING REPORT WAS R UNNING OUT AS THE MATTER WAS GOING TO BE BARRED BY LIMITATION ON 31.1 2.2011. THEREFORE, NON-FURNISHING OF INFORMATION TANTAMOUNT TO FULFILL ING THE CONDITIONS OF POSSESSION OF MATERIAL/EVIDENCE AND REJECTION OF BOOKS OF ACCOUNT. THE ASSESSEE HAS RELIED ON THE VALUE ACCEPTED BY TH E REGISTRAR FOR STAMP DUTY PURPOSES AND SEC. 50C WHICH IS NOT APPRO PRIATE BECAUSE IT IS FOR THE PURPOSES OF CALCULATING CAPITAL GAINS IN THE HANDS OF THE SELLER AND NOT IN THE CASE OF THE PURCHASER I.E. TH E ASSESSEE. THE ASSESSEE HAS STATED THAT THE PROPERTY LOCATED AT OK HLA IND. AREA, PHASE-II CANNOT BE COMPARED WITH THE PROPERTY LOCAT ED IN OKHLA IND. ESTATE-III AS THE RATES ARE DIFFERENT. HOWEVER, THE ASSESSEE HAS NOT SUBSTANTIATED AS TO HOW THE RATES ARE SIGNIFICANTLY DIFFERENT. 7. KEEPING IN VIEW OF THE ABOVE THE CONTENTION OF T HE ASSESSEE IS REJECTED AND THE DIFFERENCE BETWEEN THE VALUE ESTIM ATED BY THE DVO AND THAT SHOWN BY THE ASSESSEE I.E. RS.14,24,66,112 RS.2,50,00,000 = 11,74,66,112 IS ADDED TO THE INCOME OF THE ASSESS EE AS UNEXPLAINED INVESTMENT U/S. 69B OF THE INCOME-TAX ACT, 1961. ADDITION RS.11,74,66,112/- A.Y. 2007-08 : ADDITION IN RESPECT OF INVESTMENT IN PROPERTIES : 5 5. DURING THE YEAR UNDER CONSIDERATION THE ASSESSE E HAS MADE AN INVESTMENT IN CC-24, KALKAJI, NEW DELHI. THE MATTER WAS REFERRED TO THE DVO FOE ESTIMATING THE VALUE OF INVESTMENT IN T HE PROPERTY NAMELOY HOTEL BLUE STONE, CC-24, KALKAJI, NEW DELHI VIDE THIS OFFICE LETTER F.NO.ACIT/CC/142A/GZB/2011-12/388 DAT ED 03.11.2011. THE DVO HAS GIVEN HIS REPORT VIDE LETTE R F. NO. DVO/ND/I.T11/2011-12/134 DATED 23.12.2011. THE DVO HAS VALUED THE INVESTMENT OF RS.5,90,34,000 AS AGAINST RS.3,50 ,00,000 SHOWN BY THE ASSESSEE. THE ASSESSEE WAS REQUESTED TO EXPLAIN THE DIFFERENCE WHO VIDE ITS LETTER HAS STATED AS UNDER: X X X X X X 6. THE ABOVE CONTENTION OF THE ASSESSEE IS NOT ACCE PTED BECAUSE VIDE LETTER DATED 27.04.2011 THE ASSESSEE WAS SPECI ALLY ASKED EXPLAIN THE INVESTMENT MADE IN THE PROPERTIES. HOWEVER, TIL L THE REFERENCE TO THE DVO ON 03.11.2011 THE ASSESSEE DID NOT PRODUCE ANY DETAILS OF INVESTMENT EVEN AFTER LAPSE OF CONSIDERABLE TIME. T HEREFORE, IT WAS DUE TO THE NON COMPLIANCE OF THE ASSESSEE WHICH ON THOSE FULL DETAILS OF INVESTMENT WERE NOT AVAILABLE ALONG WITH BOOKS O F ACCOUNT AND THE TIME FOR REFERRING AND GETTING REPORT WAS RUNNING O UT AS THE MATTER WAS GOING TO BE BARRED BY LIMITATION ON 31.12.2011. THE REFORE, NON FURNISHING OF INFORMATION TANTAMOUNT TO FULFILLING THE CONDITIONS OF POSSESSION OF MATERIAL/EVIDENCE AND REJECTION OF BO OKS OF ACCOUNT. THE ASSESSEE HAS RELIED ON THE VALUE ACCEPTED BY TH E REGISTRAR FOR STAMP DUTY PURPOSES AND SEC. 50C WHICH IS NOT APPRO PRIATE BECAUSE IT IS FOR THE PURPOSES OF CAL CALCULATING CAPITAL GAIN S IN THE HANDS OF SELLER AND NOT IN THE CASE OF THE PURCHASER I.E. TH E ASSESSEE. THE 6 ASSESSEE HAS STATED THAT THE PROPERTY LOCATED AT KA LKAJI CANNOT BE COMPARED WITH THE PROPERTY LOCATED IN GR. KAILASH A ND EAST OF KAILASH AS THE RATES ARE DIFFERENT. HOWEVER, THE ASSESSEE H AS NOT SUBSTANTIATED AS TO HOW THE RATES ARE SIGNIFICANTLY DIFFERENT. 7. KEEPING IN VIEW OF THE ABOVE THE CONTENTION OF T HE ASSESSEE IS REJECTED AND THE DIFFERENCE BETWEEN THE VALUE ESTIM ATED BY THE DVO AND THAT SHOWN BY THE ASSESSEE I.E. RS.5,90,34,000, RS.3,50,00,000 = RS.2,40,34,000 IS ADDED TO THE INCOME OF THE ASSESS EE AS UNEXPLAINED INVESTMENT U/S. 69B OF THE INCOME-TAX ACT, 1961. ADDITION RS.2,40,34,000 4. ON APPEAL, LEARNED CIT(APPEALS) HAS DELETED THE ADDITION. 5. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET SUBMITTED THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F SARGAM CINEMA VS. CIT REPORTED IN 328 ITR 513. LEARNED CIT(APPEALS) H AS FOLLOWED THIS DECISION. HE EMPHASIZED THAT DURING THE COURSE OF S EARCH, NO MATERIAL WAS FOUND WHICH INDICATES THAT ASSESSEE HAS MADE UNEXPL AINED INVESTMENT IN THE PURCHASE OF THE PROPERTY. THE ASSESSING OFFICER HAS NOT REFERRED ANY EVIDENCE EITHER FOUND DURING THE COURSE OF SEARCH O R ANY DEFECT FOUND IN THE BOOKS OF ACCOUNT. HE IS SIMPLY HARPING UPON THE EST IMATED VALUE DETERMINED BY THE DVO. HE FURTHER TOOK US THROUGH HIS SUBMISSI ONS MADE BEFORE THE 7 ASSESSING OFFICER WHICH ARE NOTICED ON PAGE NOS. 2 TO 5 OF THE ASSESSMENT ORDERS. ON THE OTHER HAND, LEARNED DR WAS UNABLE TO CONTROVERT THE CONTENTIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE . 6. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. THE PROPERTY AT E-32, OKHLA INDUS TRIAL AREA WAS PURCHASED BY THE ASSESSEE IN DECEMBER 2003 FOR A CONSIDERATIO N OF RS.2.5 CORES. IT WAS SOLD TO RASHMI EXPORTS PVT. LTD. IN MAY 2007 FOR A CONSIDERATION OF RS.4 CRORES. THE ASSESSEE HAD FILED THE RETURN OF INCOME -TAX FOR THIS YEAR AND THE DEPARTMENT DID NOT INQUIRE THE ALLEGED UNEXPLAINED INVESTMENT DURING THE REGULAR ASSESSMENT PROCEEDINGS. ASSESSING OFFICER DID NOT POINT OUT ANY DEFECTS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. HE SIMPLY OBSERVED THAT ASSESSEE WAS ASKED TO EXPLAINED THE INVESTMENT MADE IN THE PROPERTIES. THE ASSESSEE HAS PRODUCED THE BOOKS OF ACCOUNT AND OTHE R DETAILS. WHAT EXPLANATION ASSESSING OFFICER WAS EXPECTING? HE OBS ERVED THAT SINCE ASSESSEE FAILED TO GIVE EXPLANATION ABOUT THE INVES TMENT, THEREFORE, IT WAS REFERRED TO THE DVO. WE COULD APPRECIATE THE CASE O F THE ASSESSING OFFICER, HAD HE MADE REFERENCE TO ANY DOCUMENTS INDICATING T HE ALLEGED UNEXPLAINED INVESTMENT AND THEREAFTER CONFRONTED THE ASSESSEE, BUT HE HAS SIMPLY OBSERVED THAT ASSESSEE FAILED TO EXPLAIN THE INVEST MENT, THEREFORE, HE MADE A REFERENCE TO THE DVO. HE HAS NOT REJECTED THE BOOK RESULTS OF THE ASSESSEE BY 8 POINTING OUT DEFECTS. HON'BLE SUPREME COURT IN THE CASE OF SAGAM CINEMA, HAS CONSIDERED THIS ASPECT. IT IS A VERY SHORT JUDG MENT AND DIRECT ON THE ISSUE IN HANDS. IT READS AS UNDER: 1. DELAY CONDONED. 2. LEAVE GRANTED. 3. BY CONSENT, THE MATTER IS TAKEN UP FOR FINAL HE ARING. 4. IN THE PRESENT CASE, WE FIND THAT THE TRIBUNAL DECIDED THE MATTER RIGHTLY IN FAVOUR OF THE ASSESSEE INASMUCH AS THE T RIBUNAL CAME TO THE CONCLUSION THAT THE ASSESSING AUTHORITY COULD NOT H AVE REFERRED THE MATTER TO THE DEPARTMENTAL VALUATION OFFICER (DVO) WITHOUT THE BOOKS OF ACCOUNT BEING REJECTED. IN THE PRESENT CAS E, A CATEGORICAL FINDING IS RECORDED BY THE TRIBUNAL THAT THE BOOKS WERE NEVER REJECTED. THIS ASPECT HAS NOT BEEN CONSIDERED BY THE HIGH COU RT. IN THE CIRCUMSTANCES, RELIANCE PLACED ON THE REPORT OF THE DVO WAS MISCONCEIVED. 5. FOR THE ABOVE REASONS, THE IMPUGNED JUDGMENT OF THE HIGH COURT IS SET ASIDE AND THE ORDER PASSED BY THE TRIB UNAL STANDS RESTORED TO THE FILE. ACCORDINGLY, THE ASSESSEE SUCCEEDS. 6. CIVIL APPEAL IS ALLOWED. NO ORDER AS TO COSTS. 7. THE FACTS IN ASSESSMENT YEAR 2007-08 ARE ALSO SI MILAR. IN THIS YEAR, ASSESSEE HAS NOT SOLD THE PROPERTY BUT MADE FURTHER INVESTMENT OF RS.1.46 CRORES ON RENOVATION AND LEASED OUT THE PROPERTY. T HE ASSESSING OFFICER DID NOT REJECT THE BOOKS BY SPECIFICALLY POINTING OUT T HE DEFECTS. THEREFORE, RESPECTFULLY FOLLOWING THE ORDER OF THE HON'BLE SUP REME COURT, WE ARE OF THE VIEW THAT LEARNED CIT(APPEALS) HAS APPRECIATED THE FACTS AND CIRCUMSTANCES IN RIGHT PERSPECTIVE AND NO INTERFERENCE IS CALLED FOR IN THE ORDERS OF THE LEARNED CIT(APPEALS) ON THIS ISSUE IN BOTH THE YEAR S. 9 8. THE NEXT COMMON ISSUE IS, WHETHER ANY ADDITION I N TOTAL INCOME OF ASSESSEE ON ACCOUNT OF NOTIONAL ROYALTY INCOME FROM M/S. RELAX PHARMACEUTICALS IS TO BE MADE? THE CASE OF THE ASSE SSING OFFICER IS THAT M/S. RELAX PHARMACEUTICALS PVT. LTD. IS A RELATED C ONCERN WHO HAS BEEN MANUFACTURING PHARMACEUTICAL PRODUCTS FOR THE ASSES SEE COMPANY UNDER ASSESSEES TRADE MARK. RELAX IS ELIGIBLE FOR DEDUCT ION UNDER SEC. 80IC OF THE ACT AND WHILE FRAMING THE ASSESSMENT ORDER IN THE C ASE OF RELAX PHARMACEUTICALS PVT. LTD., ASSESSING OFFICER HELD T HAT RELAX PHARMACEUTICALS PVT. LTD. SHOULD PAY ROYALTY @ 1% O F NET PROFIT TO THE ASSESSEE FOR USING ITS TRADE MARK. THUS, THE PROFIT OF RELAX PHARMACEUTICALS PVT. LTD. ON WHICH SEC. 80IC WAS TO BE GRANTED, HAS BEEN REDUCED BY A SUM OF RS.2,16,789 AND RS.1,87,927 IN ASSESSMENT YEARS 2003-04 AND 2007-08 RESPECTIVELY. IN THE CASE OF ASSESSEE, LD ASSESSING OFFICER HAS ADDED THESE AMOUNTS ON PROTECTIVE BASIS ON THE GROUND THAT THE ASSESSEE OUGHT TO HAVE RECEIVED ROYALTY. IN THE CASE OF RELAX PHARMACEUTIC ALS PVT. LTD., LEARNED CIT(APPEALS) HAS DELETED THIS ADDITION IN ASSESSMEN T YEAR 2003-04, AND ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, DEPARTMENT HAS ACCEPTED THE ORDER OF THE LEARNED CIT(APPEALS). 9. IN THE PRESENT CASE, LEARNED CIT(APPEALS) HAS HE LD THAT ASSESSEE HAS NOT RECEIVED ANY ROYALTY NOR THERE WAS ANY AGREEMEN T TO RECEIVE SUCH 10 ROYALTY, THEREFORE, THERE IS NO BASIS FOR ASSUMING THAT NOTIONAL ROYALTY INCOME IS TO BE ASSESSED IN THE HANDS OF THE ASSESSEE. ACC ORDING TO THE LEARNED CIT(APPEALS), ASSESSING OFFICER FAILED TO BRING ANY EVIDENCE ON RECORD IN SUPPORT OF HIS CONCLUSION. 10. WITH THE ASSISTANCE OF LEARNED REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORDS CAREFULLY. WE FIND THAT THERE IS NO BAS IS TO ASSUME RECEIPT OF ROYALTY INCOME, MORE SO, IN ASSESSMENT YEAR 2003-04 , IN THE CASE OF RELAX PHARMACEUTICAL PVT. LTD., LEARNED CIT(APPEALS) HAS DELETED THE EXCLUSION OF 1% OF THE NET PROFIT ON ACCOUNT OF ALLEGED ROYALTY PAYMENT. IN THE CASE OF ASSESSEE, THERE IS NO SUCH EVIDENCE ON THE RECORD, THEREFORE, THIS ADDITION IS NOT SUSTAINABLE. LEARNED CIT(APPEALS) HAS RIGHTLY D ELETED THE ADDITION IN BOTH THE YEARS. 11. IN VIEW OF THE ABOVE DISCUSSION, BOTH THE APPEA LS ARE DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 14.02.201 4 SD/- SD/- ( G.D. AGRAWAL ) ( RAJPAL YADAV ) VICE-PRESIDENT JUDICIAL MEMBER DATED: 14/02/2014 MOHAN LAL 11 COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR