JT. CIT(OSD), CC-7(1), MUMBAI V. MANEESH PHARMACEUTICALS LTD, MUMBAI

ITA 36/MUM/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 2821 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 03-01-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus Share capital; Transfer pricing; Loose papers; Additional evidence; Bad and doubtful debts
• Section: 143(3); 133A; 153A; 10B; 201; 143(2); 13; 68; 132; 28

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI SHRI SHAMIM YAHYA (AM) & SHRI PAVANKUMAR GADALE ( JM) I.T.A. NO. 81/MUM/2017 (ASSESSMENT YEAR 2007-08) I.T.A. NO. 4590/MUM/2018 (ASSESSMENT YEAR 2008-09) I.T.A. NO. 4591/MUM/2018 (ASSESSMENT YEAR 2009-10) I.T.A. NO. 36/MUM/2019 (ASSESSMENT YEAR 2010-11) DCIT, CC-7(1)/ JCIT(OSD),CC-7(1) ROOM NO. 653 6 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. VS. M/S. MANEESH PHARMACEUTICALS PVT. LTD. 2 ND FLOOR, BLOCK NO. 21/24 KALPATARU COURT DR.CHOTIRAM GIDWANI MARG, CHEMBUR MUMBAI-400074. PAN : AAACM3635Q ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI J.P. BAIRAGRA DEPARTMENT BY SHRI AJAY KUMAR DATE OF HEARING 23.08.2021 DATE OF PRONOUNCEMENT 25 . 1 0.2021 O R D E R PER SHAMIM YAHYA (AM) :- THESE ARE APPEALS BY THE REVENUE AGAINST THE RESPEC TIVE ORDERS OF LEARNED CIT APPEALS. SINCE SOME OF THE ISSUES ARE C OMMON IN THE PEACEFUL HEARD TOGETHER THESE ARE CONSOLIDATED AND DISPOSED OFF TOGETHER BY THIS, COMMON ORDER. ASSESSMENT YEAR 2007-08, 2008-09 & 2009-10 2. IN THESE YEARS A COMMON GROUND RAISED BY REVENUE LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION BY RELYING UPON BOMBAY HIGH COURT DECISION IN THE CASE OF ALL CARGO GLOBAL LOGISTICS LTD. (374 ITR 645). 3. IT MAY BE GAINFUL TO REFER TO THE RELEVANT PART OF LEARNED CIT(APPEALS) ORDER WHEREIN HE HAS DELETED THE ADDITION HOLDING T HAT THESE ADDITIONS ARE M/S. MANEESH PHARMACEUTICALS PVT. LTD. 2 MADE DEHORSE ANY INCRIMINATING MATERIAL AS THESE AR E NON-ABATED ASSESSMENTS. A.Y. 2007-08 THE A.O., WHILE MAKING THE ASSESSMENT ORDER U/S.153 A, HAS DISCUSSED THE VARIOUS ADDITIONS MADE IN PARA 4, 5, 6 AND 7 OF THE ASSESSMENT ORDER. FROM THE PERUSAL OF THE ABOVE SAID PARAS, IT IS OBSERVED AS UNDER :- (I) IN PARA 4, ADDITION OF RS.22,80,195/- HAS BEEN M ADE ON THE BASIS OF THE ORDER OF ADDL. CIT (TP)-I(2), MUMBAI DATED 24.12 .2014 MAKING ALP ADJUSTMENT OF THE SAID AMOUNT ON INTEREST CHARGED ON LO ANS GIVEN TO A.ES. ON THIS ISSUE, AN ADDITION OF RS. 28, 65,408/- WAS MADE TO THE TOTAL INCOME OF THE APPELLANT IN LIGHT OF THE ORDER OF TH E TPO-II(2), MUMBAI DATED 31.05.2010. IN THE SECOND ORDER DATED 2 4.12.2014, THE TPO HAS WORKED OUT TOTAL ADJUSTMENT ON ACCOUNT OF INTERE ST TO BE CHARGED FROM ASSOCIATED ENTERPRISES AT RS.51,48,603/ - AND HAS COMPUTED THE ADDITIONAL ADJUSTMENT OF RS.22,80,195/- AF TER CONSIDERING THE ADJUSTMENT OF RS. 28,68,408/- ON THE BASIS OF FIRST TPO ORDER DATED 31.05.2010. THE TPO AND THE A.O. HAV E NOT REFERRED TO ANY INCRIMINATING MATERIAL ON THE BASIS OF WHICH A HIGHER ADJUSTMENT ON ACCOUNT OF INTEREST TO BE CHARGED FROM AS SOCIATED ENTERPRISES AT RS,51,48,603/-HAS BEEN WORKED OUT, A S AGAINST THE ADJUSTMENT OF RS. 28,68,408/- ON THE BASIS OF FIRST T PO ORDER DATED 31.05.2010. IN THIS REGARD, IT IS OBSERVED FROM THE AS SESSMENT RECORD THAT A REPORT HAS BEEN SENT BY THE ASSESSING OFFICER TO THE ADDL. CIT, TP-I(3) ON 21.1.2014 STATING THAT THERE WERE NO SEARCH DOCUMENTS WHICH HAVE BEARING ON TRANSFER PRICING PROCEEDINGS P ENDING FOR A.Y. 2007-08 TO A.Y. 2012-13. THUS, IT IS APPARENT THAT THE A BOVE SAID ADDITION OF RS.22,80,195/- IS NOT BASED ON ANY INCRIM INATING MATERIAL FOUND AS A RESULT OF SEARCH. (II) THE ADDITION ON ACCOUNT OF DISALLOWANCE OF DEDU CTION U/S.10B OF RS.3,07,34,644/-HAS BEEN DISCUSSED IN PARA 5 TO 5.6 OF THE ASSESSMENT ORDER. THE DISALLOWANCE HAS BEEN MADE ON THE GROUND THAT THE APPELLANT HAS NOT ALLOCATED ALL THE EXPENSES REL ATING TO THE EOU UNIT AND HAS CLAIMED HIGHER DEPLETION U/S.10B OF THE ACT. I FIND THAT AN ADDITION OF RS.70,13,776/- WAS MADE BY THE A.O . BY DISALLOWING DEDUCTION U/S.10B IN THE FIRST ASSESSMENT ORDER U/S.143(3) DATED 08.02.2011 BY REALLOCATING A PART OF EXPENSES UNDER CERTAIN HEADS LIKE DIRECTORS REMUNERATION, R&D CLINIC AL EXPENSES, EXPENSES IN FOREIGN CURRENCY. IN THE ASSESSMENT ORDE R U/S.153A, THE A.O. HAS CONSIDERED CERTAIN MORE HEADS OF EXPENSES F OR MAKING REALLOCATION AND DISALLOWANCE U/S.10B BUT THE SAME I S BASED ON THE ANALYSIS OF PROFIT AND LOSS ACCOUNT OF VARIOUS UNITS AND NOT ON ANY INCRIMINATING MATERIAL FOUND IN THE COURSE OF SEARCH . (III) THE ADDITION OF RS.4,76,210/- ON ACCOUNT OF S ALE OF SCRAP HAS BEEN DISCUSSED IN PARA 6 TO 6.4 OF THE ASSESSMENT ORDER. A LTHOUGH, THE M/S. MANEESH PHARMACEUTICALS PVT. LTD. 3 SAME IS WORKED OUT ON THE BASIS OF LOOSE PAPERS AS PE R ANNEXURE A-L TO A-5, FOUND IN THE COURSE OF SURVEY U/S 133A AT THE P UNE UNIT OF APPELLANT COMPANY, THE SAME WAS CONDUCTED AS PART OF THE SEARCH OPERATION AND THERE IS ADMISSION/CONFIRMATION OF UND ISCLOSED INCOME ON THIS ISSUE IN THE COURSE OF SEARCH. ACCORDINGLY, THE CONTENTION OF THE APPELLANT THAT THIS ADDITION IS NOT BASED ON INCRIMI NATING MATERIAL IS REJECTED AND THE MERITS OF THIS ADDITION WOULD BE CON SIDERED WHILE DECIDING GROUND NO.4 RAISED BY THE APPELLANT AGAINST THIS ADDITION. (IV) THE ADDITION OF RS.1,07,11,33,200/- UNDER SECTIO N 68 OF THE ACT ON ACCOUNT OF UNEXPLAINED SHARE CAPITAL AND PREMIUM AMO UNT RECEIVED HAS BEEN DISCUSSED IN PARA 7 TO 7.5 OF THE ASSESSMEN T ORDER FROM WHICH IT IS NOTED THAT THE SAME IS BASED ON THE DETAIL S GIVEN IN THE BALANCE SHEET AND NOT ON ANY INCRIMINATING MATERIAL F OUND IN THE COURSE OF SEARCH. FROM ABOVE DISCUSSION, I AM OF THE CONSIDERED OPINIO N THAT EXCEPT FOR THE ADDITION ON ACCOUNT OF SCRAP SALE, THE OTHER THREE ADDI TIONS DISCUSSED ABOVE ARE NOT BASED ON ANY INCRIMINATING MATERIAL FOUND IN THE COURSE OF SEARCH. THEREFORE, RELYING ON THE DECISION OF THE ITAT MUMB AI SPECIAL BENCH AND THE JURISDICTIONAL HIGH COURT IN THE CASE OF ALL CARGO GLO BAL LOGISTICS LTD. (SUPRA), IT IS HELD THAT THE FOLLOWING ADDITIONS, MADE IN THE ORDER U/S.153A OF THE ACT, ARE WITHOUT JURISDICTION AND THE SAME ARE DELET ED. 2008-09 THE SUBMISSIONS OF THE LEARNED COUNSEL HAVE BEEN CAR EFULLY CONSIDERED. AS ALREADY DISCUSSED THE ORIGINAL RETURN OF INCOME FOR AY 2008-09 WAS FILED BY THE ASSESSEE ON 25.06.2009 DECLARING TOTAL INCOME OF R S.6,37,28,944/- AND BOOK PROFIT OF RS.36,03,03,386/-. A SEARCH AND SEIZU RE ACTION U/S 132 OF THE IT ACT WAS CONDUCTED ON THE GROUP ON 29.08.2011. CON SEQUENT TO THE SEARCH, NOTICE U/S 153A WAS ISSUED TO THE ASSESSEE ON 30.04.2013. ASSESSMENT U/S 143(3) R.W.S. 153A OF THE IT ACT WAS C OMPLETED ON 31.03.2016. THE AO HAS CONFIRMED THAT THIS IS NOT AN A BATED ASSESSMENT. IN CASE OF AN UNABATED ASSESSMENT THE HON'BLE ITAT SPECIA L BENCH, MUMBAI IN THE CASE OF ALL CARGO GLOBAL LOGISTICS LTD. VS. DCIT 33 CHH 0294 (MUM) HELD 'IN RESPECT OF NON-ABATED ASSESSMENT THE ASSESSMENT WILL BE MADE ON THE BASIS OF BOOKS OF ACCOUNTS OR OTHER DOCUMENTS NOT P RODUCED IN THE CASE OF ORIGINAL ASSESSMENT BUT FOUND IN THE COURSE OF SEAR CH, AND UNDISCLOSED INCOME OR UNDISCLOSED PROPERTY DISCOVERED IN THE COURSE OF SEARCH. IN AFFECT IT MEANS THE ADDITIONS HAVE TO BE BASED ON THE INCRIMINATING MATERIAL FOUND DURING THE SEARCH''. THIS VIEW WAS CONFIRMED BY THE HON'BLE BOMBAY HIGH C OURT IN THE CASE OF CIT VS. CONTINENTAL WAREHOUSING LTD. 279 CTR 0389. 7.4 IN VIEW OF THE ABOVE JUDGMENTS AND JUDGMENTS REL IED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE IT IS CLEAR THAT IN CA SE OF AN UNABATED ASSESSMENT THE ADDITIONS MADE WITHOUT ANY INCRIMINATIN G MATERIAL CANNOT BE SUSTAINED. M/S. MANEESH PHARMACEUTICALS PVT. LTD. 4 (1) IN THIS CASE THE ADDITION OF RS.19,53,522/- HAS B EEN MADE ON THE BASIS OF ALP ADJUSTMENTS MADE BY THE ADDL. CIT(TP), NO REFEREN CE OF ANY INCRIMINATING MATERIAL HAS BEEN MADE BY THE AO IN TH E ASSESSMENT ORDER. FURTHER IN THE REMAND REPORT SUBMITTED BY THE AO HE HA S CLEARLY MENTIONED THAT THE SEIZED MATERIAL DOES NOT HAVE ANY INCRIMINATI NG MATERIAL PERTAINING TO AY 2008-09. (2) ADDITION ON ACCOUNT OF DISALLOWANCE OF DEDUCTION U /S 10B TO THE TUNE OF RS.10,69,98,599/- BY RE-ALLOCATION OF EXPENSES. IT IS APPARENT THAT THE AO MADE THIS DISALLOWANCE ON THE BASIS OF THE RETURN OF INCOME AND THE FINANCIALS OF THE ASSESSEE AND NOT ON THE BASIS OF A NY INCRIMINATING MATERIAL FOUND DURING THE SEARCH. THE AO OBSERVED IN THE ASSE SSMENT ORDER THAT HE WAS DOING THE ALLOCATION IN VIEW OF THE FACTS THAT THE ASSESSEE HAD SHOWN EXORBITANT PROFIT MARGIN IN THE EOU UNIT AND HAS NOT DEBI TED SOME OF THE COMMON EXPENSES. NO REFERENCE, WHATSOEVER, TO ANY INC RIMINATING MATERIAL IS SEEN EITHER IN THE ASSESSMENT ORDER OR IN THE REMAND REPORT. (3) DISALLOWANCE OF EXCEPTIONAL ITEMS OF RS.33,27,6 8,000/- ALSO HAS NO BEARING TO THE SEARCH CONDUCTED OR TO ANY INCRIMINATING MATERIAL FOUND DURING THE SEARCH. AS COULD BE SEEN FROM THE ASSESSME NT ORDER THIS IS BASED ON THE VERIFICATION OF THE P&.L ACCOUNT FILED BY THE ASSESSEE. (4) THE ONLY ITEM EMANATING FROM SEARCH IS INCOME FR OM SALE OF UNACCOUNTED SCRAP TO THE TUNE OF RS.14,64,092/-. HOWEVER, THE AO DI D NOT MAKE ADDITION ON THIS ACCOUNT AS THE ASSESSEE HAD OFFERED THE SAME I N THE RETURN OF INCOME FILED U/S 153A. AS THE OTHER THREE ADDITIONS WHICH A RE ADDITIONS ON ACCOUNT OF ALP ADJUSTMENT, DISALLOWANCE OF DEDUCTION U/S. 1 0B AND DISALLOWANCE OF EXCEPTIONAL ITEMS WRITTEN OFF, ARE NOT BASED ON ANY INCRIMINATING MATERIAL FOUND DURING THE SEARCH, IN VIEW OF THE JUDGMENTS OF THE JURISDICTIONAL ITAT AND JURISDICTIONAL HIGH COURT REFERRED TO SUPRA, THE A DDITIONS MADE BY THE AO CANNOT BE SUSTAINED. THE AO HAS DIRECTED TO DELETE THESE ADDITIONS. 2009-10 THE SUBMISSIONS OF THE LEARNED COUNSEL HAVE BEEN CAR EFULLY CONSIDERED. AS ALREADY DISCUSSED THE ORIGINAL RETURN OF INCOME FOR AY 2009-10 WAS FILED BY THE ASSESSEE ON 30.09.2009 DECLARING TOTAL INCOME OF R S.9,13,41,226/- AND BOOK PROFIT OF RS.30,28,01,935/-. A SEARCH AND SEIZU RE ACTION U/S 132 OF THE IT ACT WAS CONDUCTED ON THE GROUP ON 29.08.2011. CON SEQUENT TO THE SEARCH, NOTICE U/S 153A WAS ISSUED TO THE ASSESSEE ON 30.04.2013. ASSESSMENT U/S. 143(3) R.W.S. 153A OF THE IT ACT WAS C OMPLETED ON 31.03.2016. THE AO HAS CONFIRMED THAT THIS IS NOT AN A BATED ASSESSMENT. IN CASE OF AN UNABATED ASSESSMENT THE HON'BLE ITAT SPECIA L BENCH, MUMBAI IN THE CASE OF ALL CARGO GLOBAL LOGISTICS LTD. VS DCIT 33 CHH 0294 (MUM) HELD 'IN RESPECT OF NON-ABATED ASSESSMENT THE ASSESSMENT WILL BE MADE ON THE BASIS OF BOOKS OF ACCOUNTS OR OTHER DOCUMENTS NOT P RODUCED IN THE CASE OF ORIGINAL ASSESSMENT BUT FOUND IN THE COURSE OF SEAR CH, AND UNDISCLOSED INCOME OR UNDISCLOSED PROPERTY DISCOVERED IN THE COURSE OF SEARCH. IN AFFECT IT MEANS THE ADDITIONS HAVE TO BE BASED ON THE INCRIMINATING MATERIAL FOUND DURING THE M/S. MANEESH PHARMACEUTICALS PVT. LTD. 5 SEARCH'. THIS VIEW WAS CONFIRMED BY THE HON'BLE BOMBAY HIGH C OURT IN THE CASE OF CIT VS. CONTINENTAL WAREHOUSING LTD. 279 CTR 0389. 7.4 IN VIEW OF THE ABOVE JUDGMENTS AND JUDGMENTS REL IED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE IT IS CLEAR THAT IN CA SE OF AN UNABATED ASSESSMENT THE ADDITIONS MADE WITHOUT ANY INCRIMINATIN G MATERIAL CANNOT BE SUSTAINED. (1) IN THIS CASE THE ADDITION OF RS.5,60,427/- HAS BEE N MADE ON THE BASIS OF ALP ADJUSTMENTS MADE BY THE ADDL. CIT(TP), NO REFEREN CE OF ANY INCRIMINATING MATERIAL HAS BEEN MADE BY THE AO IN TH E ASSESSMENT ORDER, FURTHER IN THE REMAND REPORT SUBMITTED BY THE AO HE HA S CLEARLY MENTIONED THAT THE SEIZED MATERIAL DOES NOT HAVE ANY INCRIMINATIN G MATERIAL PERTAINING TO AY 2009-10. (2) ADDITION ON ACCOUNT OF DISALLOWANCE OF DEDUCTION U /S 10B TO THE TUNE OF RS.9,63,06,839/- BY RE-ALLOCATION OF EXPENSES. IT IS APPARENT THAT THE AO MADE THIS DISALLOWANCE ON THE BASIS OF THE RETURN OF INCOME AND THE FINANCIALS OF THE ASSESSEE AND NOT ON THE BASIS OF A NY INCRIMINATING MATERIAL FOUND DURING THE SEARCH. THE AO OBSERVED IN THE ASSE SSMENT ORDER THAT HE WAS DOING THE ALLOCATION IN VIEW OF THE FACTS THAT THE ASSESSEE HAD SHOWN EXORBITANT PROFIT MARGIN IN THE EOU UNIT AND HAS NOT DEBI TED SOME OF THE COMMON EXPENSES. NO REFERENCE, WHATSOEVER, TO ANY INC RIMINATING MATERIAL IS SEEN EITHER IN THE ASSESSMENT ORDER OR IN THE REMAND REPORT. (3) THE AO OBSERVED IN THE ASSESSMENT ORDER THAT A PE RUSAL OF THE BALANCE SHEET DURING THE ASSESSMENT PROCEEDINGS SHOWED INCRE ASE IN SHARE CAPITAL FROM RS. 10, 10,47,000/- TO RS. 11,57,42,000/-. THE AO CALLED FOR THE DETAILS FROM THE ASSESSEE WHICH WAS PROVIDED BY THE ASSESSEE . WITH REGARD TO THE SHARE CAPITAL CONTRIBUTION MADE BY RBC TRUSTEES, THE A SSESSEE HAD FURNISHED TO THE AO THE CERTIFICATE OF INCORPORATION OF THE COMPANY, ANNUAL RETURN FILED BY THE COMPANY, CORRESPONDENCE MADE BY THE CITY BANK WITH THE ASSESSEE CONFIRMING THE MONEYS RECEIVED FROM THE SA ID ENTITY. HOWEVER, THIS WAS NOT ACCEPTABLE TO THE AO WHO HELD THAT THE IDENTITY AND THE CREDITWORTHINESS OF THE COMPANY WAS NOT PROVED BY THE ASSESSEE AND MADE AN ADDITION OF RS. 8,97,50,000/- U/S. 68 OF THE IT AC T. IT IS SEEN THAT THIS ADDITION HAS BEEN MADE ON THE BASIS OF THE RETURN FI LED BY THE ASSESSEE AND HAS NO RELEVANCE/CONNECTION TO THE SEARCH CONDUCTED OR ANY INCRIMINATING MATERIAL FOUND DURING THE SEARCH. 7.5 AS ALL THE THREE ADDITIONS WHICH ARE ADDITION ON ACCOUNT OF ALP ADJUSTMENT, DISALLOWANCE OF DEDUCTION U/S. 10B AND DI SALLOWANCE OF SHARE CAPITAL WRITTEN OFF, ARE NOT BASED ON ANY INCRIMINATIN G MATERIAL FOUND DURING THE SEARCH, IN VIEW OF THE JUDGMENTS OF THE JURISDICTIO NAL ITAT AND JURISDICTIONAL HIGH COURT REFERRED TO SUPRA, THE ADDITIO NS MADE BY THE AO CANNOT BE SUSTAINED. THE AO IS DIRECTED TO DELETE THES E ADDITIONS. 4. AGAINST THE ABOVE ORDER THE REVENUE HAS FILED AP PEAL BEFORE US. M/S. MANEESH PHARMACEUTICALS PVT. LTD. 6 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORDS. IT IS NOT DISPUTED BY THE REVENUE THAT ON THE AFORESAID ITEMS OF ADDITION, NO INCRIMINATING MATERIAL WAS FOUND DURING SEARCH. ASS ESSMENT ORDER UNDER SECTION 143(3) WAS ALREADY PASSED FOR ASSESSMENT YE AR 2007-08 PRIOR TO THE SEARCH AND NOTICE. THE PERIOD FOR ISSUING NOTICE UN DER SECTION 143(2) WAS ALSO OVER FOR ASSESSMENT YEAR 2008-09 AND 2009-10 BY THE TIME OF SEARCH AND NOTICE. IN SUCH CIRCUMSTANCES IT IS EVIDENT THAT TH ESE ARE NOT ABATED ASSESSMENTS. IN SUCH CIRCUMSTANCES THE DECISION OF HONOURABLE BOMBAY HIGH COURT IN THE CASE OF ALL CARGO GLOBAL LOGISTICS LTD . (SUPRA) AND CONTINENTAL WAREHOUSING LTD. (SUPRA) CLEARLY MANDATE THAT THE A DDITION CANNOT BE DONE UNDER SECTION 153A WITHOUT ANY INCREMENTING MATERIA L FOUND DURING SEARCH. THE REVENUE SUBMITS IN GROUNDS OF APPEAL THAT THEY HAVE NOT ACCEPTED THE HON'BLE BOMBAY HIGH COURT DECISION AND SLP HAS BEEN FILED BEFORE HON'BLE SUPREME COURT. THIS IS NO REASON FOR US TO NOT FOLL OW HON'BLE JURISDICTIONAL HIGH COURT EXPOSITION. HENCE IN OUR CONSIDERED OPIN ION THERE IS NO INFIRMITY IN THE ORDER OF LEARNED CIT(APPEALS). 6. THE REVENUE HAS CHALLENGED OTHER ASPECTS OF THE MERITS OF THE CASE. THESE HAVE NOT BEEN ADJUDICATED BY THE LEARNED CIT( A) AS HE HAS DELETED THE ADDITION ON THE REASONING THAT NO INCRIMINATING MAT ERIAL WAS FOUND DURING SEARCH. IN OUR CONSIDERED OPINION ADJUDICATION ON M ERITS OF THESE ADDITIONS IS ONLY OF ACADEMIC INTEREST HENCE WE ARE NOT DEALING WITH THE SAME. ASSESSMENT YEAR 2010-11 7. THE GROUNDS RAISED BY THE REVENUE READ AS UNDER :- (I) 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING THE ASSESSEE TO DEDUCT AS SUM ACTIVITY TO RS. 37,41,29,000/- AS FINISHED GOODS WRITTEN OFF.' (II) 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION ON ACCOUNT OF DEBTORS WRITTEN OFF AMOUNTING TO RS. 11,20,50,000/-, WITHOUT APPRECIATING THE FACT THAT, THE ASSESSEE, DURING THE ASSESSMENT PROCEEDINGS, FAILED TO DEMONSTRATE WITH EVIDENCE BEFORE THE AO AS WELL AS CIT(A) THAT THE AMOU NTS WRITTEN OFF AS BAD M/S. MANEESH PHARMACEUTICALS PVT. LTD. 7 DEBTS HAVE BEEN TAKEN INTO ACCOUNT IN COMPUTING INCOME O F THE ASSESSEE OF A PREVIOUS YEAR.' 8. THE ASSESSING OFFICER HAS MADE ADDITION IN THIS CASE BY OBSERVING AS UNDER :- I) FINISHED GOODS WRITTEN OFF : THE ASSESSEE HAS SUBMITTED THAT THE COMPANY HAS STARTE D VALUING THE FINISHED GOODS AS PER AS-2 FROM F.Y, 2009-10. TILL 31.03.2009 THE COMPANY WAS VALUING ITS INVENTORY OF FINISHED GOODS LYING AT MARKETING UNITS AT TRADE PRICE (I.E. TRANSFER PRICE) MINUS ESTIMATED MARGINS. DURING THE YEAR THE COMPANY CHANGED THE METHOD OF VALUATION OF PRODUCTS L YING AT MARKETING UNITS AND HAS VALUED THE SAME AT COST SO AS TO INCLUDE C OST IN ACCORDANCE WITH AS-2. AS THE OPENING BALANCE OF INVENTORY VALUA TION AS ON 1 ST APRIL, 2009 WAS AT TRADE PRICE LESS ESTIMATED MARGINS, THE IM PACT THEREOF WAS IN THE CURRENT YEAR'S PROFIT & LOSS A/C. HOWEVER DUE TO TH IS CHANGE THE COMPANY WANTED TO SHOW THIS AMOUNT OF EXTRA ORDINARY EXP ENSE IN PROFIT & LOSS ACCOUNT SEPARATELY AND THE SAME WAS NOT RECURRING IN NATURE, THE COMPANY REDUCED THE VALUE OF EXCESS OF COST AND ITS T RADE PRICE LESS MARGIN VALUATION FROM THE OPENING BALANCE OF INVENTORY AND THE SAME WAS SHOWN AS EXCEPTIONAL ITEM IN THE FINANCIAL STATEMENTS. THERE IS NO IMPACT ON PROFITABILITY DURING THE YEAR AS RS. 3741.29 LACS WER E REDUCED FROM THE CURRENT YEAR'S CONSUMPTION AND THE SAME WAS SHOWN AS AN EXCEPTIONAL ITEM IN THE FINANCIAL STATEMENTS. ASSESSEE HAS SUBMITTED THE STOCK VALUATION STATEMENT AS ON 31.03.2009 IN SUPPORT OF ITS CLAIM. ASSESSEE'S SUBMISSION IS CONSIDERED BUT FOUND TO BE NOT ACCEPTABLE BECAUSE THERE IS NO CLARITY IN THE EXPLANATION REGARDING THE I MPACT ON REVENUE OR PROFITABILITY. IT IS INFERRED FROM THE ASSESSEE'S SU BMISSION THAT DUE TO THE CHANGE OF VALUATION OF STOCK DURING THE YEAR THE VAL UE OF OPENING STOCK HAD INCREASED BY RS. 3741.29 LACS AND THE SAME WAS REDUC ED FROM THE CURRENT YEAR'S CONSUMPTION. FURTHER DEBITING THE SAME AMOUNT I N THE P & L ACCOUNT UNDER EXCEPTIONAL ITEM HAS RESULTED IN EXCESS CLAIM OF EXPENSES, THEREBY REDUCING THE TAXABLE PROFIT TO THAT EXTENT. MOREOVER, EXCEPT FOR THE ABOVE EXPLANATION AND STATEMENT, THE ASSESSEE HAS SUBMITTED THE ITEM WISE/QUANTITY WISE LIST, THE YEAR OF PURCHASE, THE BAS IS OF VALUING THE STOCK OF RAW MATERIAL AND FINISHED GOODS ALONG WITH FACTS AND FIGURES TO PROVE THE OVER VALUATION OF THE OPENING STOCK IN THE EARLIER YE ARS. THE ADJUSTMENTS MADE IN THE CONSUMPTION DURING THE YEAR UNDER CONSIDE RATION HAS ALSO NOT BEEN EXPLAINED. THE CONTENTION OF THE ASSESSEE THAT T HE CHANGE IN THE METHOD OF ACCOUNTING DOES NOT AFFECT THE PROFIT OF THE YEAR IS NOT AT ALL CLEAR AS DISCUSSED ABOVE. IN VIEW OF THE ABOVE, ASSESSEE'S CLAIM OF WRITE OFF CANNOT BE ALLOWED. THEREFORE, THE AMOUNT OF RS. 3741.29 L ACS IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. II) DEBTORS WRITTEN OFF : IN THIS REGARD ASSESSEE HAS SUBMITTED THAT DURING THE F.Y. 2007-08 THE COMPANY HAD STARTED A MARKETING DIVISION VIZ. SVIZERA HEALTH REMEDIES M/S. MANEESH PHARMACEUTICALS PVT. LTD. 8 (SHR). THE COMPANY APPOINTED MANY C&F AGENTS WHO WER E SELLING THE PRODUCTS TO VARIOUS STOCKIEST ACROSS THE WHOLE INDIA. T HE C&F WERE DELIVERING THE GOODS TO VARIOUS STOCKIEST ON THE BASIS OF ORDERS PLACED FROM THE FIELD STAFF OF THE COMPANY. THE SALES WERE BOOKED BY THE COMPANY WHEN THE STOCK WERE SOLD TO VARIOUS STOCKIEST. THESE DEBTORS A CCOUNT WERE MAINTAINED IN AN ONLINE ERP SYSTEM. DUE TO VARIOUS PR OBLEM IN THIS MARKETING DIVISION THE DEBTORS REALIZATION WAS VERY SL OW AND THE AUDITORS HAD COMMENTED ON THE SAME. THEREFORE, THE DEBTORS WERE OUTSTANDING FOR A LONG PERIOD WHICH IN THE OPINION OF THE MANAGEMENT WE RE NOT RECOVERABLE AND HENCE, WRITTEN OFF. THE ASSESSEE HAS SUBMITTED A LIST OF THE DEBTORS WRITTEN OFF DURING THE YEAR UNDER CONSIDERATION. FUR THER IT IS ALSO TO BE MENTIONED HERE THAT DURING THE COURSE OF ASSESSMENT PRO CEEDINGS ASSESSEE HAS SUBMITTED DETAILS OF INVESTMENTS MADE BY THE ASSESS EE IN VARIOUS COMPANIES IN THE F.Y. 2005-06 & 2006-07. THE LIST AL SO CONTAINS THE INFORMATION REGARDING THE INVESTMENTS WRITTEN OFF IN SU BSEQUENT YEARS. IT IS OBSERVED THAT THE ASSESSEE HAD WRITTEN OFF INVESTMENT OF RS. 12,00,000/- MADE IN M/S LYKA LABS LTD. DURING THE YEAR UNDER CON SIDERATION. ASSESSEE'S A.R. WAS ASKED TO EXPLAIN THE SAME. ASSESSEE IN ITS S UBMISSION DATED 08.03.2016 HAS STATED THAT M/S LYKA LABS WAS THE DEBTOR OF THE ASSESSEE. AS THEY WERE NOT IN A POSITION TO PAY THE AMOUNT DUE TO THE ASSESSEE, THE DEBTORS AMOUNT WAS CONVERTED INTO DEBENTURES. FINALLY THE COMPANY DID NOT PAY ANY AMOUNT TO THE ASSESSEE AS IT BECAME DEFUNCT. DUE TO THIS REASON THE ASSESSEE WROTE OFF THIS INVESTMENT FROM THE BOOKS OF A CCOUNTS. ASSESSEE HAS INCLUDED THE INVESTMENT WRITE OFF UNDER THE HEAD DEB TORS WRITTEN OFF AND DEBITED IT TO THE P & L ACCOUNT AS EXCEPTIONAL ITEM. ASSESSEE HAS NOT FURNISHED ANY DETAILS REGARDING THE NAMES AND ADDRESSES OF THE C&FS AND C&AS, NO DETAILS REGARDING WHEN THE MATER IALS WERE SENT TO THEM ON CONSIGNMENT AND IN WHICH YEAR THESE SALES WE RE INCLUDED IN THE INCOME BY THE ASSESSEE. ASSESSEE HAS ALSO NOT FURNISH ED ANY DETAILS ON WHAT EFFORTS WERE MADE TO COLLECT THE AMOUNTS OUTSTANDING AGAI NST THESE DEBTORS. IN ABSENCE OF THESE BASIC DETAILS THE ASSESSEE'S CLAI M OF BAD DEBT IS NOT ALLOWABLE AS PER SECTION 36(L)(VII) SUBJECT TO SECTIO N 36(2) OF THE I.T. ACT. THE RELEVANT PORTION OF THE SECTION IS AS UNDER: 'THE DEDUCTION PROVIDED FOR IN THE FOLLOWING CLAUSE S SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREIN, IN COMPU TING THE INCOME REFERRED TO IN SECTION 28 - SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), THE AMOUNT OF [ANY BAD DEBT OR PART THEREOF WHICH IS WR ITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR T HE PREVIOUS YEAR] SECTION 36(2)(I) SAYS : IN MAKING ANY DEDUCTION FOR A BAD DEBT OR PART THER EOF, THE FOLLOWING PROVISIONS SHALL APPLY - NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS SUCH DEB T OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIER PREVIOUS YEAR, OR REPR ESENTS MONEY LENT IN THE M/S. MANEESH PHARMACEUTICALS PVT. LTD. 9 ORDINARY COURSE OF THE BUSINESS OF BANKING OR MONEY LENDING WHICH IS CARRIED ON BY THE ASSESSEE. ' THE EXPLANATION GIVEN BY THE ASSESSEE IS CONSIDERED B UT IS NOT ACCEPTABLE. THE DEBENTURES ALLOTTED TO THE ASSESSEE WERE AGAINST THE OUTSTANDING AMOUNT RECEIVABLE FROM M/S LYKA LABS LTD. ONCE THE DEBENTUR E WAS ALLOTTED TO THE ASSESSEE, M/S LYKA LABS LTD. WERE NO MORE A BUSINESS DEBTOR OF THE ASSESSEE. THE DEBENTURE BECAME A CAPITAL INVESTMENT O F THE ASSESSEE AND HENCE THE SAME IS NOT ALLOWED TO BE WRITTEN OFF IN THE P&L ACCOUNT. IT IS NECESSARY THAT THE ASSESSEE SHOULD HAVE TAKEN INTO ACCO UNT THESE DEBTS IN COMPUTING THE TOTAL INCOME OF AN EARLIER PREVIOUS YEAR. AS THE ASSESSEE HAS NOT FURNISHED ANY DETAILS IN THIS REGARD, ASSESSEE'S C LAIM OF WRITE OFF OF BAD DEBTS OF RS. 1120.50 LAKHS IS DISALLOWED AND ADDED TO THE TOTAL INCOME. HENCE, EXCEPTIONAL ITEMS OF RS. 4861.79 LACS WRITTEN OFF IS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. PENALTY PROCE EDINGS U/S 271(L)(C) OF THE ACT ARE INITIATED SEPARATELY FOR FURNISHING INACCU RATE PARTICULARS OF INCOME. [ADDITION: RS. 48,61,79,000/-]. 9. THE LEARNED CIT(APPEALS) HAS DELETED THE ADDITIO N BY OBSERVING AS UNDER:- THE ASSESSMENT ORDER, SUBMISSIONS OF THE LEARNED COU NSEL, REMAND REPORT AND THE ASSESSEE'S REJOINDER HAVE ALL BEEN CAREFULLY CONSIDERED. THE AO SEEMS TO HAVE MADE THE ADDITION MERELY FOR THE REASO N THAT THE NAMES AND ADDRESSES OF THE C&FS AND C&AS WERE NOT FURNISHED AND THE DETAILS OF THE CONSIGNMENTS SENT TO THEM WERE NOT GIVEN. ALSO THE EFFO RTS THAT WERE MADE TO RECOVER THE DEBTS HAVE ALSO NOT BEEN ESTABLISHED. HOW EVER, DURING THE APPELLATE PROCEEDINGS, THE LEARNED COUNSEL FOR THE AP PELLANT SUBMITTED ALL THESE DETAILS BY WAY OF ADDITIONAL EVIDENCES. HE HAD G IVEN THE NAMES AND ADDRESSES OF THE DEBTORS ALONG WITH THE DETAILS OF THE INVOICES RAISED DATE WISE AND COPIES OF THE LEDGER ACCOUNTS OF ALL THE DEB TORS. IN SPITE OF ALL THIS, IN THE REMAND REPORT THE AO STATED THAT THE ASSESSEE HA S NOT SUBMITTED LEDGER ACCOUNTS OF THE ENTITIES AND ALSO THAT THE ASSESSE E FAILED TO DEMONSTRATE HOW THE DEDUCTION CLAIMED AS BAD DEBTS HAS ACTUALLY BECOME BAD. IT IS CLEAR THAT THE LEDGER ACCOUNTS AND SALES IN VOICES ALONG WITH A DETAILED CHART HAS BEEN FURNISHED BY THE ASSESSEE WHIC H DEMONSTRATES THAT HE DEBTS HAVE BEEN OFFERED AS INCOME IN THE EARLIER YEARS. AS FOR THE AO'S CONTENTION THAT THE ASSESSEE HAS NOT DEMONSTRATED HOW THE DEBTS HAVE BECOME BAD OR EFFORTS TAKEN FOR RECOVERY, IT IS CLARI FIED THAT THE INCOME TAX ACT DOES NOT MANDATE ANY SUCH DEMONSTRATION. IT IS FOR THE ASSESSEE TO DECIDE WHETHER THAT DEBT HAS BECOME BAD OR NOT. THE ONL Y CONDITION IS THAT THE DEBT WHICH WAS BEING WRITTEN OFF SHOULD HAVE BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE FOR ANY PREVIOUS YEAR. THE CBDT CIRCULAR NO. 12/2016 DATED 30.05.2016 STATES THAT 'THE LEGISLATIVE INTENTION BEHIND THE AMENDMENT WAS TO ELIMINATE LITIGATION ON THE ISSUE OF THE ALLOW ABILITY OF THE BAD DEBTS BY DOING AWAY WITH THE REQ UIREMENT FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, HAS IN FACT, BECOME IRR ECOVERABLE. HOWEVER, DESPITE THE AMENDMENT, DISPUTES ON THE ISSUE OF ALLOWABILIT Y CONTINUOUSLY FOR THE REASON THAT THE DEBT HAS NOT BEEN ESTABLISHED TO BE IRRECOVERABLE. THE HON'BLE SUPREME COURT IN THE CASE OF TRF LTD. IN CA NOS. 52 92 TO 5294 OF 2003 VIDE M/S. MANEESH PHARMACEUTICALS PVT. LTD. 10 JUDGMENT DATED 9.2.2010, HAS STATED THAT THE POSITI ON OF LAW IS WELL SETTLED, 'AFTER 1.4.1989, FOR ALLOWING DEDUCTION FOR THE AMOUNT OF ANY BAD DE BT OR PART THEREOF UNDER SECTION 36(1)(VII) OF THE ACT, IT IS NOT NECESSARY FOR ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT HAS BECOME IRRECOV ERABLE; IT IS ENOUGH IF BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS O F ACCOUNTS OF ASSESSEE.' FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE NEED NOT PROVE OR ESTABLIS H THAT THE DEBT HAS IN FACT BECOME IRRECOVERABLE. IT IS ENOUGH I F BAD DEBTS ARE WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS OF ACCOUNTS OF THE ASSE SSEE. THE ASSESSEE HAS WRITTEN OFF AN AMOUNT OF RS. 11,20,50,004/- IN THE BOOKS OF ACCOUNTS AND THESE SUMS WERE ALREADY OFFERED AS SALES IN THE RELEV ANT FINANCIAL YEARS. THE AO, INSTEAD OF VERIFYING AND COMMENTING ON THE EVIDEN CES FILED BY THE ASSESSEE, HAS WRONGLY MENTIONED THAT THE ASSESSEE HAS NOT SUBMITTED THE LEDGER ACCOUNTS OF THE ENTITIES. THE AO, IN THE ASSES SMENT ORDER, HAS MENTIONED THAT THE NAMES AND ADDRESSES OF THE C&FS AND C&AS HAVE NOT BEEN FURNISHED BUT THIS IS OF NO RELEVANCE TO THE BAD DEBTS WRITTEN OFF AS THE C&FS HAVE GOT NOTHING TO DO WITH THE DEBTORS. THEREFOR E, THE ADDITION OF RS. 11,20,50,004/- MADE BY THE AO CANNOT BE UPHELD. 11.6 WITH REGARD TO THE DISALLOWANCE OF RS.37.41 CROR ES, THE AO SEEMS TO HAVE MADE THE ADDITION BECAUSE HE WAS NOT CLEAR ABOUT THE EXPLANATION GIVEN BY THE ASSESSEE. THE ASSESSEE COMPANY, TILL AY 2009-10 WAS VALUING ITS INVENTORY OF FINISHED GOODS LYING ON MARKETING UNITS AT TRADE PRICE(-) ESTIMATED MARGINS. DURING THE RELEVANT AY I.E. AY 201 0-11, THE ASSESSEE HAS CHANGED TO AS-2 VALUATION OF INVENTORIES ISSUED BY ICA I WHICH PRESCRIBES THAT THE INVENTORIES OF FINISHED GOODS SHOULD BE VALUE D AT LOWER OF COST OR MARKET VALUE WHERE THE COST SHOULD COMPRISE OF COST OF PURCHASE, COST OF COMPLETION AND THE OTHER COSTS INCURRED IN BRINGING THE INVENTORIES TO THEIR PRESENT LOCATION AND CONDITION. ACCORDINGLY, FOR AY 2 010-11, THE ASSESSEE HAS VALUED ITS INVENTORIES AS PER AS-2. DUE TO THIS C HANGE, THE VALUATION OF CLOSING STOCK AS ON 31.03,2010 WAS NOT ON THE SAME AN D COMPARABLE WITH THE VALUE OF OPENING STOCK AS ON 01.04.2009; THE CONCE PT OF MATCHING PRINCIPLE WAS VIOLATED. IN ORDER TO BRING OUT THE EFFE CT OF THIS CHANGE IN THE METHOD OF ACCOUNTING, THE ASSESSEE HAD REDUCED THE EF FECT WHICH IS RS.37.41 CRORES FROM THE CONSUMPTION WHICH WOULD DECREASE VALU ATION OF OPENING STOCK AND INCREASE THE PROFIT. IN ORDER TO NEGATE THIS EFFECT THE ASSESSEE HAD DEBITED THE SAME AMOUNT I.E. RS.37.41 CRORES TO THE P& L ACCOUNT AS EXCEPTIONAL ITEMS WRITTEN OFF. THUS THERE IS NO EFFE CT ON THE P&L ACCOUNT. THE ASSESSEE HAD NOT TINKERED WITH THE OPENING STOCK. THE A SSESSEE HAS REDUCED THE VALUE OF OPENING STOCK BY A SUM OF RS.3741.29 LAK HS (WHICH IS A CREDIT EFFECT INCREASING THE INCOME) AND HAS SIMULTANEOUSLY D EBITED THE P&L ACCOUNT BY THE SAME AMOUNT AS EXCEPTIONAL ITEMS WRITT EN OFF TO NEUTRALIZE THE EFFECT. THEREFORE, THERE IS NO EFFECT TO THE P&L AC COUNT AS COULD BE SEEN FROM THE NOTE NO.4 GIVEN BY THE AUDITORS IN THE NOTES TO ACCOUNTS. THE AO HAS NOT UNDERSTOOD THIS WORKING AND FOR THE REASON TH AT THERE IS NO CLARITY IN THE EXPLANATION, MADE THE ADDITION OF RS.37.41 CRORES WHICH CANNOT BE SUSTAINED. THE EXCEPTIONAL ITEMS WRITTEN OFF TO THE TUNE OF RS.37.41 CRS HAS NOT AFFECTED THE P&L ACCOUNT OF THE ASSESSEE IN ANY WA Y. THE AO IS DIRECTED TO DELETE THE ADDITION OF RS.48,61,79,000/-. M/S. MANEESH PHARMACEUTICALS PVT. LTD. 11 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. LEARNED COUNSEL OF THE ASSESSEE HAS MADE A FURTHER WRITTEN SUBMISSION AS UNDER :- 1. THE ASSESSEE WAS FOLLOWING METHOD OF VALUATION O F INVENTORY OF FINISHED GOODS LYING AT MARKETING UNIT AT TRADE PRICE I.E. TRANS FER PRICE LESS ESTIMATED MARGIN AND NOT AT COST IN ACCORDANCE WITH AS-2 ISSUED B Y THE ICAI TILL ASSESSMENT YEAR 2009-10. 2. DURING THE YEAR THE ASSESSEE DECIDED TO VALUE THE CLOSING STOCK OF FINISHED GOODS AT COST AS PER AS-2 ISSUED BY THE ICAI. THE ONLY CHANGE EARLIER WAS THAT THERE WAS ESTIMATION WHILE ARRIVING AT VALUATION OF INVENTORY OF FINISHED GOODS AS ESTIMATED MARGIN WERE REDUCED FROM TRANSFER PRICE WHEREAS IN THE REVISED METHOD OF VALUATION, THE INVENTORY WAS VALUE D AT COST IN ACCORDANCE WITH AS 2 ISSUED BY THE ICAI AND THE IMPACT OF THE SA ME WAS REMOVED FROM THE STOCK VALUATION AND SHOWN UNDER EXCEPTIONAL ITEMS HAVING NO IMPACT ON PROFIT FOR THE YEAR. 3. DURING THE YEAR SUCH CLOSING STOCK OF PREVIOUS YEA R BECAME OPENING STOCK OF THE CURRENT YEAR AND THE ASSESSEE CORRECTED THE VAL UATION OF STOCK AS PER AS-2 ISSUED BY THE ICAI I.E. VALUATION AT COST WHICH W AS INCLUDED IN THE OPENING STOCK OF CURRENT YEAR WAS REMOVED FROM THE VA LUE AND WAS SHOWN SEPARATELY AS EXCEPTIONAL ITEM IN THE BOOKS. 4. THERE WAS NO IMPACT ON THE PROFIT FOR THE YEAR AS THE REDUCTION IN OPENING STOCK WOULD INCREASE THE PROFIT FOR THE YEAR AND DEBIT TO EXCEPTIONAL ITEM WOULD HAVE THE EFFECT OF REDUCTION IN PROFIT OF EQUIVA LENT AMOUNT. 5. THE ENTRY PASSED IS AS PER SCHEDULE 16: COST OF M ATERIALS. THE SAME IS AS UNDER: DECREASE /(INCREASE) IN INVENTORIES FOR THE YEAR ENDING 31 - 03 - 2010 31 - 03 - 2009 OPENING STOCK - STOCK IN PROGRESS 158.64 945.92 - FINISHED GOODS 9521. 96 3884.47 LESS: VALUATION DIFFERENCE AS PER AS - 2 3741.29 - 6. NOTE NO. 4 TO NOTES TO ACCOUNTS AS PER PAGE NO. 31 O F THE PAPER BOOK IS AS UNDER: 'DURING THE YEAR THE COMPANY HAS CHANGED ITS ACCOUNTING POLICY IN RESPECT OF THE FOLLOWING ITEMS: A. CHANGED THE METHOD OF VALUATION OF FINISHED GOOD S LYING AT MARKETING UNITS: M/S. MANEESH PHARMACEUTICALS PVT. LTD. 12 I. HITHERTO THE COMPANY WAS VALUING ITS INVENTORY OF FINISHED GOODS LYING AT MARKETING UNITS AT TRADE PRICE I.E. (TRANSFER PRICE) M INUS ESTIMATED MARGINS. II. DURING THE YEAR THE COMPANY HAS CHANGED THE ME THOD OF VALUATION OF PRODUCTS LYING AT MARKETING UNITS AND HAS VALUED THE SAM E AT COST SO AS TO INCLUDE COST IN ACCORDANCE WITH AS-2 ISSUED BY THE I CAI. THE IMPACT OF THE CHANGE OF METHOD OF VALUATION OF STOC K AS PER AS-2 OF RS.3741.29 LAKHS HAS BEEN SHOWN UNDER THE HEAD OF E XCEPTIONAL ITEMS. 11. WE HAVE CAREFULLY HEARD BOTH THE PARTIES AND PE RUSED THE RECORDS. APROPOS ISSUE OF SUNDRY DEBTORS WRITTEN OFF :- 12. WE NOTE THAT LEARNED CIT(A) HAS GIVEN A FINDING THAT THE ASSESSEE HAS SUBMITTED ADDITIONAL EVIDENCE FOR WHICH LEARNED CIT (A) HAS DULY ASKED FOR THE REMAND REPORT FROM ASSESSING OFFICER AND ASSESSEE R EJOINDER ALSO. LEARNED CIT(A) HAS NOTED THAT THE NAMES AND ADDRESSES OF TH E SUNDRY DEBTORS ALONG WITH THE DETAILS OF THE INVOICES RAISED, DATE WISE, AND COPIES OF THE LEDGER ACCOUNTS OF ALL THE DEBTORS WERE SUBMITTED. THAT DE SPITE ALL THESE SUBMISSION IN THE REMAND REPORT THE AO STATED THAT THE ASSESSE E HAS NOT SUBMITTED LEDGER ACCOUNTS OF THE ENTITIES AND ALSO THAT THE ASSESSEE FAILED TO DEMONSTRATE HOW THE DEDUCTION CLAIMED AS BAD DEBTS HAS ACTUALLY BEC OME BAD. LEARNED CIT(A) HAS GIVEN FINDING THAT IT IS CLEAR THAT THE LEDGER ACCOUNTS AND SALES INVOICES ALONG WITH A DETAILED CHART HAS BEEN FURNISHED BY T HE ASSESSEE WHICH DEMONSTRATES THAT THE AMOUNT INVOLVED IN THE DEBTS HAVE BEEN OFFERED AS INCOME IN THE EARLIER YEARS. FURTHER LEARNED CIT(A) HAS RIGHTLY REJECTED THE ASSESSING OFFICERS PLEA THAT THE ASSESSEE HAS NOT DEMONSTRATED HOW THE DEBTS HAVE BECOME BAD OR WHAT EFFORTS HAVE BEEN TAKEN FOR RECOVERY. AS THE SAID ISSUE IS DULY COVERED BY THE DECISION OF HON'BLE SU PREME COURT IN THE CASE OF TRF LTD. (SUPRA) WHEREIN IT WAS HELD THAT AFTER AME NDMENT IN THE ACT WRITE OFF IN THE ACCOUNT IS SUFFICIENT FOR THE CLAIM OF DEBTS WRITTEN OFF. HENCE, IN OUR CONSIDERED OPINION THERE IS NO INFIRMITY IN THE ORD ER OF LEARNED CIT(A). MOREOVER, THIS ITAT IN ASSESSEES OWN CASE FOR A.Y. 2011-12 & 2012-13 IN ITA NO. 4024 & 4027/MUM/2019 ON THE ISSUE OF BAD DEBTS SIMILARLY RAISED, HAS M/S. MANEESH PHARMACEUTICALS PVT. LTD. 13 ALLOWED THE SAME IN FAVOUR OF THE ASSESSEE VIDE OR DER DATED 17.6.2021 BY CONCLUDING AS UNDER :- WE FIND THAT THIS ISSUE HAS BEEN CLINCHED IN CORRECT P ERSPECTIVE IN THE IMPUGNED ORDER. THE ASSESSEE HAD FILED COMPLETE LIS T OF DEBTORS ALONG WITH THE COPIES OF SALES INVOICES WHICH ESTABLISHED THAT THE CONDITIONS OF SEC.36(2) WERE DULY FULFILLED BY THE ASSESSEE TO MAKE A VALID C LAIM U/S 36(1)(VII). UNDISPUTEDLY, THE DEBTS HAVE BEEN WRITTEN-OFF BY THE AS SESSEE IN THE BOOKS OF ACCOUNTS. THEREFORE, THE CONDITIONS OF SEC. 36(1)(V II) R.W.S. 36(2) WERE DULY FULFILLED AND THE CLAIM WAS ALLOWABLE IN TERMS OF CB DT CIRCULAR NO.12/2016 DATED 30/05/2016 WHICH HAS BEEN ISSUED AFTER CONSID ERING HON'BLE APEX COURT'S DECISION IN TRF LIMITED (323 ITR 397; 09/02 /2010). THEREFORE FINDING NO INFIRMITY IN IMPUGNED ORDER ON THIS ISSU E, WE DISMISS THIS GROUND OF REVENUE'S APPEAL. 13. ACCORDINGLY IN THE BACKGROUND OF THE AFORESAID DECISION AND PRECEDENT, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LEARNE D CIT(A). APROPOS ISSUE OF FINISHED GOODS WRITTEN OFF :- 14. AS DETAILED ABOVE IN THE ORDER OF LEARNED CIT(A ) AS WELL AS SUBMISSION OF THE ASSESSEE THERE IS AN ERROR ON THE PART OF THE A SSESSING OFFICER IN APPRECIATING THE FACTS. THE ASSESSEE IN ORDER TO BR ING OUT THE OPENING STOCK VALUATION IN ACCORDANCE WITH CHANGE IN THE METHOD F OR CLOSING STOCK VALUATION HAS ARRIVED AT A FIGURE RS. 3741.29 CRORES. BUT THE ENTRY PASSED IN THIS REGARD HAS NOT AFFECTED THE PROFIT COMPUTED BY THE ASSESSE E. HENCE, THE ASSESSING OFFICER HAS ERRED IN TINKERING WITH THE FIGURES HER E. THE ASSESSING OFFICER HAS OBSERVED THAT HE HAS NOT ABLE TO COMPREHEND THE ASS ESSEES EXPLANATION. ACCORDING TO HIS UNDERSTANDING DUE TO CHANGE OF VAL UATION OF STOCK DURING THE YEAR, THE VALUE OF OPENING STOCK HAD INCREASED BY R S. 3741.29 LAKHS AND THE SAME WAS REDUCED FROM THE CURRENT YEARS CONSUMPTIO N. HENCE, AS PER THE ASSESSING OFFICER FURTHER DEBITING THE SAME AMOUNT IN THE PROFIT AND LOSS ACCOUNT UNDER EXCEPTIONAL ITEM HAS RESULTED IN EXCE SS CLAIM OF EXPENSES THEREBY REDUCING THE TAXABLE PROFIT TO THAT EXTENT. FURTHER ASSESSING OFFICER STATED THAT THE ADJUSTMENT MADE IN THE CONSUMPTION HAS ALSO NOT BEEN EXPLAINED. HOWEVER, AS PER THE FACTS NARRATED BY LE ARNED CIT(A) AND EXPLANATION GIVEN BY THE ASSESSEE, THE CHANGE IN TH E METHOD OF ACCOUNTING M/S. MANEESH PHARMACEUTICALS PVT. LTD. 14 DOES NOT AFFECT THE PROFIT BY THE AMOUNT OF RS. 374 1.29 LACKS. IN ORDER TO BRING OUT THE EFFECT OF THE CHANGE IN THE METHOD OF ACCOU NTING THE ASSESSEE HAD REDUCED THE EFFECT WHICH IS RS.37.41 CORES FROM THE CONSUMPTION WHICH WOULD DECREASE VALUATION OF OPENING STOCK AND INCREASE TH E PROFIT. FURTHER IN ORDER TO NEGATE THIS EFFECT THE ASSESSEE HAD DEBITED THE SAM E AMOUNT OF RS. 37.41 CRORES TO THE PROFIT AND LOSS ACCOUNT AS EXCEPTIONA L ITEMS WRITTEN OFF. THUS THERE IS NO EFFECT ON THE PROFIT AND LOSS ACCOUNT A ND THE ASSESSEE HAS NOT TINKERED WITH THE OPENING STOCK. TO RECAPITULATE, T HE ASSESSEE HAS REDUCED THE VALUE OF OPENING STOCK BY A SUM OF RS. 37.41 CRORES WHICH IS A CREDIT EFFECT INCREASING THE INCOME AND HAS SIMULTANEOUSLY DEBITE D THE PROFIT AND LOSS ACCOUNT BY THE SAME AMOUNT AS EXCEPTIONAL ITEMS WRI TTEN OFF TO NUTRALIZE THE EFFECT. THUS ACTUALLY THERE IS NO EFFECT AND THIS H AS ALSO BEEN DETAILED IN NOTE NO. 4 GIVEN BY THE AUDITORS IN THE NOTES TO ACCOUNT S. IN THIS VIEW OF THE MATTER IN OUR CONSIDERED OPINION, WE DO NOT FIND ANY INFIR MITY IN THE ORDER OF LEARNED CIT(A). MOREOVER, WE NOTE THAT IN THE AFORESAID ORD ER OF THE ITAT IN ASSESSEES OWN CASE AS ABOVE, ADVERSE OBSERVATION AND ADDITION ON ACCOUNT OF STOCK VALUATION WAS DELETED BY THE ITAT AS UNDER :- UPON CAREFUL CONSIDERATION OF IMPUGNED ORDER, IT IS QUITE EVIDENT THAT THE ASSESSEE HAS FURNISHED COMPLETE ITEM-WISE DETAILS OF S TOCK WRITTEN-OFF ALONG WITH QUANTITY, RATE AND VALUE. THE WRITE-OFF WAS DU LY SUPPORTED BY REPORT OF M/S GRANT THORNTON WHO HAD PHYSICALLY VERIFIED THE EX PIRED GOODS. THE FACT OF EXPIRY OF GOODS WAS NOT UNDER DISPUTE. THE WASTE DISPOSAL ENTITY CONFIRMED COLLECTION AND DISPOSAL OF WASTE GOODS FRO M THE ASSESSEE. THEREFORE, THE CLAIM, IN OUR OPINION, WAS WELL SUBS TANTIATED AND THERE WOULD BE NO REASON TO DENY THE DEDUCTION OF THE SAME TO THE AS SESSEE. HENCE, FINDING NO INFIRMITY IN THE IMPUGNED ORDER, WE DISMI SS THE REVENUE'S APPEAL FOR AY 2011-12. 15. WE FIND THAT THOUGH THE ABOVE OBSERVATION OF TH E ITAT IS WITH REGARD TO THE MERITS OF THE ADDITION, WE NOTE THAT IN THE PRE SENT CASE BEFORE US AFORESAID AMOUNT ADDED BY THE ASSESSING OFFICER IS ERRONEOUS AS ASSESSEES ADJUSTMENT HAS NOT AFFECTED TO THE PROFIT AND LOSS ACCOUNT. IN THIS VIEW OF THE MATTER WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LEARNED CIT( A). HENCE, WE UPHOLD THE SAME. M/S. MANEESH PHARMACEUTICALS PVT. LTD. 15 16. IN THE RESULT, THESE APPEALS BY THE REVENUE STA ND DISMISSED. PRONOUNCED IN THE OPEN COURT ON 25.10.2021. SD/- SD/- (PAVANKUMAR GADALE) (SHAMIM Y AHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 25/10/2021 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR) PS ITAT, MUMBAI