DCIT CEN CIR 7(1), MUMBAI V. PHAARMASIA LTD, HYDERABAD

ITA 446/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7392 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2006-2007
• Appeal Filed On: 29-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H N SINGH
• Assessee Lawyers: KIRAN KAPADIA MS POOJA SHETH
• Keywords: Business income; Search and seizure; Loose papers; Document seized; Block assessment; Documents seized
• Section: 142(1); 153A; 260A; 133(6)

Judgement Text

1 PHARMASIA LTD IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI AMARJIT SINGH(JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NOS.446 TO 451/MUM/2016 (ASSESSMENT YEARS: 2006-07 TO 2011-12) DY.CIT, CENT.CIR.7(1), MUMBAI VS M/S PHARMASIA LTD PLOT NO.16, PHASE-III, IDA, JEEDIMETIA, HYDERABAD-500 055 PAN : AABCP2286M APPELLANT RESPONDENT ITA 5167/MUM/2016 (ASSESSMENT YEAR : 2012-13) M/S PHARMASIA LTD PLOT NO.16, PHASE-III, IDA, JEEDIMETIA, HYDERABAD-500 055 PAN : AABCP2286M VS DY.CIT, CENT.CIR.7(1), MUMBAI APPELLANT RESPONDENT ASSESSEE BY SHRI KIRAN KAPADIA / MS POOJA SHETH REVENUE BY SHRI H.N. SINGH DATE OF HEARING 16-04-2018 DATE OF PRONOUNCEMENT 18-05-2018 O R D E R PER G MANJUNATHA, AM : THIS BUNCH OF SIX APPEALS FILED BY THE REVENUE FOR AYS 2006-07 TO 2011-12 AND ONE APPEAL FILED BY THE ASSESSEE FOR TH E ASSESSMENT YEAR 2012-13 ARE DIRECTED AGAINST SEPARATE, BUT IDENTICA L ORDERS OF THE 2 PHARMASIA LTD CIT(A)-49, MUMBAI FOR THE ASSESSMENT YEARS 2006-07 TO 2011-12 AND SEPARATE ORDER FOR AY 2012-13. SINCE FACTS ARE IDE NTICAL ISSUES ARE COMMON, FOR THE SAKE OF CONVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER. 2. THE REVENUE HAS RAISED MORE OR LESS COMMON GROUN DS OF APPEAL FOR ALL ASSESSMENT YEARS. FOR THE SAKE OF BREVITY, THE GROUNDS OF APPEAL RAISED FOR THE ASSESSMENT YEARS 2006-07 ARE EXTRACT ED BELOW:- 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO AMOUN TING TO RS.3,42,38,462/- ON ACCOUNT OF SUPPRESSION OF PROFIT BY EXTRAPOLATIN G THE FIGURES OF SALES AND BOGUS EXPENDITURE EMERGING OUT OF THE SEIZED LOOSE PAPER PERTAINING TO A.Y.2012-13 AND APPLYING THE GROSS PROFIT MARGIN ON THE PROPORTIONATE BASIS AS THAT OF A.Y.2012-13 WITHOUT APPRECIATING THE FAC T THAT THE ASSESSEE HAS BEEN DOING THE SAME BUSINESS DURING THE PREVIOUS YEAR'S RELEVANT TO A.Y.2006-07 AND THE MATERIAL FOUND IN THE SEIZED DOCUMENTS IS I NDICATIVE OF THE TREND OR MODUS OPERANDI BEING FOLLOWED BY THE ASSESSEE FOR I NFLATING EXPENDITURE BY ACQUIRING BOGUS BILLS AND SUPPRESSING THE PROFIT IN THE EARLIER YEARS ALSO.' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO AMOUN TING TO RS.3,42,38,462/- ON ACCOUNT OF SUPPRESSION OF PROFIT BY EXTRAPOLATIN G THE FIGURES OF SALES AND BOGUS EXPENDITURE EMERGING OUT OF THE SEIZED LOOSE PAPER PERTAINING TO A.Y.2012-13 AND APPLYING THE GROSS PROFIT MARGIN ON THE PROPORTIONATE BASIS AS THAT OF A.Y.2012-13 WITHOUT APPRECIATING THE FAC T THAT THE AO HAS CORRECTLY APPLIED THE RATIO OF HON. SUPREME COURT DECISION IN THE CASE OF H.M. ESUFALI H.M. ABDULALI (90 ITR271) IN EXTRAPOLATING THE ASSE SSEE'S INCOME IN EARLIER YEARS,' 3. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO AMOUN TING TO RS.3,42,38,462/-- ON ACCOUNT OF SUPPRESSION OF PROFIT BY EXTRAPOLATIN G THE FIGURES OF SALES AND BOGUS EXPENDITURE EMERGING OUT OF THE SEIZED LOOSE PAPER PERTAINING TO A.Y.2012-13 AND APPLYING THE GROSS PROFIT MARGIN ON THE PROPORTIONATE BASIS AS THAT OF A.Y.2012-13 RELYING ON THE DECISION OF T HE ITAT MURNBAI BENCH IN THE CASE OF M/S. THAKKAR POPATLAL VELJI SALES LTD. WITHOUT APPRECIATING THE FACT THAT THE ABOVE SAID DECISION HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND APPEAL U/S. 260A HAS BEEN FILED AND THE SAME IS PEN DING.' 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A LIMITED 3 PHARMASIA LTD COMPANY, ENGAGED IN THE BUSINESS OF PHARMACEUTICAL PRODUCTS AND CONTRACEPTIVES. THE ASSESSEES MAIN ACTIVITY IS TO MANUFACTURE PHARMACEUTICAL PRODUCTS AND CONTRACEPTIVES ON ITS O WN AND ALSO DERIVED CONVERSION CHARGES FOR MANUFACTURING GOODS FOR OTHE R COMPANIES. THE ASSESSEES MAIN PRODUCT IS PRODUCTION OF CONTRACEPT IVE PHARMACEUTICAL PRODUCT AND SALES, THAT TOO, MAINLY TO GOVERNMENT B ODIES IN INDIA AND NEIGHBOURING COUNTRIES LIKE NEPAL. A SEARCH AND SE IZURE ACTION U/S.132 OF THE IT ACT, 1961 WAS CONDUCTED IN THE GROUP CASE S OF M/S MANEESH PHARMACEUTICALS ON 29-08-2011 AND THE ASSESSEE BEIN G ONE OF THE ASSOCIATES OF THE ABOVE GROUP WAS ALSO COVERED UNDE R SEARCH AND SEIZURE ACTION. DURING THE COURSE OF SEARCH, CERTA IN INCRIMINATING MATERIAL FOUND AND SEIZED FROM THE ASSESSEES OFFIC E AT HYDERABAD WHICH ARE MARKED AS ANNEXURE A-1 PAGES 23 & 41. TH ESE TWO DOCUMENTS CONTAINED INFORMATION OF AN ORDER FOR SUP PLY OF ORAL CONTRACEPTIVE PILLS FOR MINISTRY OF HEALTH & FAMILY WELFARE, GOVERNMENT OF INDIA, NEW DELHI FOR SUPPLY OF 248 LAKHS CYCLES OF PILLS. AS PER THE SAID DOCUMENT, THE ORDER FOR SUPPLY HAS BEEN RECEIVED VI DE ORDER NO.S.14013/4/2010/OP/PHARMA/DCP/107 DATED 15-07-201 1. DURING THE COURSE OF SEARCH, SEIZED DOCUMENTS WERE CONFRONTED TO SHRI YN BHASKAR RAO, EXECUTIVE DIRECTOR OF THE COMPANY. DURING THE COURSE OF SEARCH CERTAIN E-MAIL CONVERSATION BETWEEN SHRI YN BHASKAR RAO AND HOSPITEC 4 PHARMASIA LTD PHARMA, NEPAL WERE FOUND. THE SEIZED PAPER ANNEXUR E A-1 PAGES 23 & 41 CONTAINED DETAILS OF ORDER VALUE, COST OF DIFFER ENT COMPONENT OF PRODUCT, MARGIN, OTHER EXPENSES AND THE BASIS OF AR RANGEMENT TO OFFSET THE MARGIN AND OTHER EXPENSES. THE DETAILS OF SEIZ ED DOCUMENT ANNEXURE A-1 PAGES 23 & 41 ARE REPRODUCED BY THE AO IN HIS ASSESSMENT ORDER ON PAGE 3 TO 5. ON THE BASIS OF S EIZED DOCUMENTS, IT WAS OBSERVED THAT THE ASSESSEE WAS INFLATING COST O F PACKING MATERTIALS TO OFF-SET DELHI EXPENSES AND ALSO MARGIN DERIVED F ROM SALE OF ORAL CONTRACEPTIVE BILLS. 4. CONSEQUENT TO SEARCH, NOTICE U/S 153A OF THE ACT WAS ISSUED. IN RESPONSE TO THE NOTICE, THE ASSESSEE HAS FILED RETU RN OF INCOME ON 17-05- 2013. SUBSEQUENTLY, THE CASE HAS BEEN SELECTED FOR SCRUTINY AND NOTICES U/S 143(2) AND 142(1) OF THE ACT, ALONGWITH DETAILED QUESTIONNAIRE WERE ISSUED. IN RESPONSE TO NOTICE, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME T O TIME AND FILED RELEVANT DETAILS, AS CALLED FOR. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO CALLED UPON THE ASSESSEE TO EXP LAIN CONTENTS OF SEIZED MATERIAL ANNEXURE A1 PAGE 23 & 41. IN REPLY , THE ASSESSEE SUBMITTED THAT IT HAS RECEIVED ORDER FOR SUPPLY OF 248 LAKHS CYCLES OF ORAL CONTRACEPTIVE PILLS @ ` .3.18 PER PILL TO MINISTRY OF HEALTH & FAMILY WELFARE, GOVERNMENT OF INDIA, NEW DELHI AND SUCH OR DER HAS BEEN 5 PHARMASIA LTD RECEIVED ON 15-07-2011. THE ASSESSEE FURTHER SUBMI TTED THAT IT HAS TO EXECUTE ORDER IN THE NEXT 3 FINANCIAL YEARS STARTIN G FROM THE FINANCIAL YEAR 2011-12 RELEVANT TO AY 2012-13 FOR WHICH IT HAS MAD E NECESSARY WORKING TO ASCERTAIN VIABILITY OF SUPPLY TO BE MADE TO MINISTRY OF HEALTH & FAMILY WELFARE, GOVERNMENT OF INDIA, NEW DELHI IN T HE LIGHT OF ITS EXISTING BUSINESS AND ALSO SPECIFICATION PROVIDED BY THE PAR TY. THE ASSESSEE FURTHER SUBMITTED THAT IT HAS ANALYSED THE ORDER WI TH REFERENCE TO COST OF BASIC RAW MATERIALS, OTHER RAW MATERIALS, OTHER FRE IGHT, CONVERSION AND GMSD AND ALSO QC EXPENSES. THE DETAILS CONTAINED I N THE SEIZED PAPER IS ONLY ESTIMATE MADE FOR THE PURPOSE OF IDEN TIFYING THE SOURCE OF RAW MATERIALS AND ALSO COST OF RAW MATERIALS TO BE INCURRED FOR EXECUTING THE ORDER. THE ASSESSEE HAS FILED DETAILED EXPLANA TIONS WITH REGARD TO THE CONTENTS OF EACH AND EVERY AMOUNT APPEARING IN THE INCRIMINATING MATERIAL, PAGES 23 & 41. 5. THE AO, AFTER CONSIDERING RELEVANT DETAILS, HAS WORKED OUT TOTAL COST PER CYCLE OF ORAL CONTRACEPTIVE PILLS AS PER THE NO TING MADE IN THE SEIZED PAPER AS PER WHICH THE COST PER PILL IS WORKED OUT TO RS.2.21 PER CYCLE WHICH HAS BEEN REPRODUCED IN ASSESSMENT ORDER ON PA GE 11. THE AO FURTHER OBSERVED THAT AS AGAINST THE COST OF RS.2.2 1 PER CYCLE, ASSESSEE COMPANY HAS RECEIVED THE ORDER FOR SUPPLY OF 248 LA KHS CYCLES @ ` 3.18 PER CYCLE, THEREBY DERIVED A NET MARGIN OF RS.0.97 PER CYCLE ON THE ORDER 6 PHARMASIA LTD OF 248 LAKHS CYCLES WHICH WORKED OUT TO 30.5% NET P ROFIT. WHILE DOING SO, THE AO HAS EXCLUDED DELHI EXPENSES AT 10% OF TH E ORDER AND ALSO BILLS TO BE OBTAINED ON THE GROUND THAT THE ASSESSE E HAS OBTAINED BILLS TO COVER UP DELHI EXPENSES AND ALSO TO REDUCE PROFIT. THE AO FURTHER OBSERVED THAT ON ANALYSIS OF PAGES 23 & 41 OF ANNEX URE A-1, IT WAS CLEAR THAT THE ASSESSEE HAS INFLATED COST OF PACKING MATE RIAL OF RS,.0.97% PER CYCLE AND THEREBY OFFSETTING UNEXPLAINED DELHI EXPE NSES AND PROFIT EARNED FROM THE SAID ORDER. SIMILARLY, THE AO HAS ANALYSED PAGES 44 & 45 OF ANNEXURE A-1 WHICH CONTAINED DETAILS OF EXPOR T SALES MADE TO HOSPITEC PHARMA, NEPAL, AS PER WHICH THE ASSESSEE H AS SOLD ORAL CONTRACEPTIVE PILLS @6.85 PER PILL, WHEREAS THE COS T PER PILL WORKED OUT TO RS.2.21. THE AO ALSO ANALYSED THE CONTENTS OF E-MA IL MESSAGES EXCHANGED BETWEEN THE PARTIES AND ALSO HAS TAKEN IN TO ACCOUNT THE STATEMENT RECORDED FROM THE EXECUTIVE DIRECTOR OF T HE COMPANY TO COME TO THE CONCLUSION THAT THE ASSESSEE WAS SIPHONING O FF THE FUNDS BY ARRANGING BOGUS BILLS TO REDUCE HUGE PROFIT MARGINS . THEREFORE, HE OPINED THAT WHATEVER DOCUMENTS FOUND AND SEIZED DUR ING THE COURSE OF SEARCH INCLUDING STATEMENT RECORDED FROM THE EXECUT IVE DIRECTOR WERE CONSIDERED TO BE TRUE AND CORRECT AND ACCORDINGLY A RRIVED AT A NET PROFIT MARGIN OF 50% ON THE SALE OF ORAL CONTRACEPTIVE PIL LS BY INTERPOLATING THE FIGURES CONTAINED ON PAGES 23 & 41 OF ANNEXURE A-1 AND EXTRAPOLATING 7 PHARMASIA LTD SUCH ESTIMATED NET PROFIT MARGIN FOR THE ASSESSMENT YEAR 2006-07 TO 2012-13 AND ARRIVED AT A NET PROFIT OF 50% ON TOTAL SALES MADE BY THE ASSESSEE FROM ORAL CONTRACEPTIVE PILLS WHICH HAS BE EN REPRODUCED BY THE AO IN A TABULAR FORM IN HIS ASSESSMENT ORDER ON PAG E 18. THE AO, AFTER REDUCING NET PROFIT ALREADY ADMITTED BY THE ASSESSE E FROM SALES OF ORAL CONTRACPTIVE PILLS DETERMINED UNDISCLOSED NET PROFI T DERIVED FROM SALE OF OCP FOR EACH YEAR AND MADE ADDITIONS. 6. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE HAS REITERATED ITS SUBMISSIONS MADE BEFORE THE AO AND ALSO FILED ELABO RATE WRITTEN SUBMISSIONS ON THE ISSUE WHICH HAS BEEN REPRODUCED BY THE CIT(A) IN HIS ORDER AT PARA 6.2 ON PAGES 16 TO 34. THE ASSES SEE ALSO RELIED UPON A PLETHORA OF JUDGEMENTS IN ITS SUPPORT AND ALSO FI LED VARIOUS DECISIONS TO DISTINGUISH THE CASE LAWS HEAVILY RELIED UPON BY TH E AO IN THE CASE OF COMMISSIONER OF SALES-TAX VS HM ESAFALI HM ABDULALI ,REPORTED IN 90 ITR 271 (SC). THE SUM AND SUBSTANCE OF THE ARGUMEN TS OF THE ASSESSEE BEFORE THE LD.CIT(A) ARE THAT THE INCRIMIN ATING MATERIAL FOUND DURING THE COURSE OF SEARCH, MARKED AS ANNEXURE A-1 , PAGE 23 & 41 IS A MERE MIS REPORT PREPARED BY THE MANAGEMENT FOR THE PURPOSE OF ASCERTAINING THE VIABILITY OF ORDER RECEIVED FROM M INISTRY OF HEALTH & FAMILY WELFARE, GOVERNMENT OF INDIA, NEW DELHI IN T HE LIGHT OF ITS EXISTING 8 PHARMASIA LTD BUSINESS. THE CONTENTS OF THE SAID DOCUMENTS ARE O NLY AN ESTIMATE TO ASCERTAIN THE COST OF BASIC RAW MATERIALS, COST OF PACKING MATERIALS AND OTHER OVERHEADS INCLUDING ASSESSEES MARGIN. IT IS CLEARLY EVIDENT FROM THE NOTINGS IN THE SAID PAPERS AND ALSO DATE OF ORD ER. THE ASSESSEE HAS RECEIVED ORDER FROM THE MINISTRY OF HEALTH & FAMILY WELFARE, GOVERNMENT OF INDIA IN THE FINANCIAL YEAR 2011-12 RELEVANT TO AY 2012-13 AND THE SAID ORDER HAS BEEN EXECUTED BY THE ASSESSEE FROM THE AS SESSMENT YEAR 2012-13 ONWARDS. THE ASSESSEE FURTHER SUBMITTED TH AT IT HAS EXPLAINED EACH AND EVERY LINE APPEARED IN THE SAID DOCUMENT A ND ALSO FILED NECESSARY EVIDENCES IN SUPPORT OF ITS BOOKS OF ACCO UNT INCLUDING COPIES OF PURCHASE BILLS IN RESPECT OF PACKING MATERIALS, LEDGER EXTRACT OF THE PARTIES IN RESPECT OF MATERIAL PURCHASES, DETAILS O F MALA D, SUPPLIED TO GOVERNMENT AUTHORITIES, COST INCURRED ON MALA D AS PER CYCLE MANUFACTURED AND OTHER DETAILS. THE ASSESSEE ALSO FILED FURTHER EVIDENCE IN THE FORM OF AUDIT REPORTS ISSUED BY THE STATUTORY AUDITORS UNDER THE COMPANIES ACT, TAX AUDIT REPORT ISSUED U /S 44AB OF THE INCOME-TAX ACT, 1961 AND COST AUDIT REPORT ISSUED B Y THE COST AUDITORS, AS PER WHICH NONE OF THE AUDITORS HAS POINTED OUT A NY INCONSISTENCY OR IRREGULARITY IN THE BOOKS OF ACCOUNT OF THE ASSESSE E. THE ASSESSEE FURTHER SUBMITTED THAT THE AO HAS EXAMINED THE BOOK S OF ACCOUNT WITH REFERENCE TO BILLS AND OTHER DETAILS AND COULD NOT FIND OUT ANY DISCREPANCY 9 PHARMASIA LTD WITH REGARD TO THE PURCHASES. THEREFORE, IT IS HIG HLY INCORRECT ON THE PART OF THE AO TO ASCERTAIN NET PROFIT MARGIN @50% ON SA LES OF OCP BY INTERPOLATING THE FIGURES APPEARING IN THE TWO DOCU MENTS AND ALSO EXTRAPOLATING SUCH ESTIMATED NET PROFIT ON TOTAL SA LES MADE FOR EARLIER YEARS WITHOUT REFERENCE TO ANY MATERIAL IN HIS POSS ESSION FOUND DURING THE COURSE OF SEARCH. 7. IN SO FAR AS THE AOS RELIANCE ON HONBLE APEX CO URT DECISION IN THE CASE OF CST VS HM ESAFALI HM ABDULALI (SUPRA), THE ASSESSEE SUBMITTED THAT THE AOS RELIANCE ON THE SAID JUDGEMENT IS HIGH LY MISPLACED IN THE LIGHT OF FACTS OF ITS CASE, AS THE FACTS OF THE CAS E BEFORE THE HONBLE SUPREME COURT WAS THAT THE ASSESSEE WAS REGISTERED DEALER WHEREIN HE WAS NOT REPORTED SALES MADE FOR A PERIOD OF 19 DAYS IN A YEAR IN ITS BOOKS OF ACCOUNT. THE AO ESTIMATED THE TURNOVER FO R THE ENTIRE PERIOD OF ONE YEAR ON THE BASIS OF UNREPORTED SALES FOR THE P ERIOD OF 19 DAYS. THE QUESTION THAT AROSE BEFORE THE HONBLE SUPREME COUR T IS AS TO WHETHER THE AO WAS RIGHT IN ESTIMATING TURNOVER BY EXTRAPOL ATING THE FIGURES AVAILABLE FOR 19 DAYS FOR THE WHOLE YEAR. UNDER TH OSE FACTS, THE HONBLE SUPREME COURT HELD THAT IN A MATTER INVOLVING UNREP ORTED SALES, THE AO HAS TO PROCEED ON THE BASIS OF ESTIMATION WHICH INV OLVED SOME AMOUNT OF GUESS WORK. IN THE CASE OF THE ASSESSEE, THERE IS NO FINDING FROM THE AO THAT THE ASSESSEE HAS NOT ACCOUNTED SALES IN ITS BOOKS OF ACCOUNT. IT 10 PHARMASIA LTD IS ALSO AN ADMITTED FACT THAT THE AO HAS NOT POINTE D OUT ANY DISCREPANCY IN BOOKS OF ACCOUNT EITHER WITH REFERENCE TO PURCHA SE BILLS OR EXPENSES. THEREFORE, MERELY ON THE BASIS OF A LOOSE PAPER FOU ND DURING THE COURSE OF SEARCH, WHICH IS AN ESTIMATE MADE BY THE MANAGEM ENT FOR THE PURPOSE OF ITS SALES, ESTIMATING NET PROFIT OF 50% BY INTERPOLATING CERTAIN FIGURES AND EXTRAPOLATING SUCH ESTIMATED NET PROFIT FOR SIX ASSESSMENT YEARS IS HIGHLY A GUESS WORK WHICH IS FULLY ON THE BASIS OF SURMISES AND SUSPICION. 8. THE CIT(A), AFTER CONSIDERING RELEVANT SUBMISSIO NS OF THE ASSESSEE AND ALSO RELYING UPON THE DECISION OF HONBLE SUPRE ME COURT IN THE CASE OF CST VS VS HM ESAFALI, HM ABDULALI (SUPRA) OBSERV ED THAT THE DETAILS CONTAINED ON PAGES 23 & 41 OF ANNEXURE A-1 IS CLEAR LY IN THE NATURE OF PROJECTIONS OR PLANNING FOR EXECUTING THE ORDER FOR SUPPLY OF 248 LAKHS OCP WHICH HAS BEEN EXECUTED IN THE FINANCIAL YEAR R ELEVANT TO AY 2012- 13. SIMILARLY, THE PROPOSAL RELATING TO SUPPLY OF OCP TO NEPAL ALSO PERTAINS TO AY 2012-13. THEREFORE, THE INFERENCE D RAWN BY THE AO FOR REJECTION OF BOOKS OF ACCOUNT AND ESTIMATION OF NET PROFIT FOR AY 2012-13 MAY BE VALID, BUT THE ACTION OF THE AO REGARDING ES TIMATION OF NET PROFIT FOR AYS 2006-07 TO 2011-12 IS MERELY BASED ON PRESU MPTION AND NOT ON ANY EVIDENCE FOUND DURING THE COURSE OF SEARCH. TH E CIT(A) FURTHER OBSERVED THAT THE AO HAS NOT BROUGHT ANY MATERIAL O N RECORD WITH 11 PHARMASIA LTD RESPECT TO AYS 2006-07 TO 2011-12 TO HOLD THAT THE FINANCIAL INFORMATION APPEARING IN THE BOOKS OF ACCOUNT CANNOT BE RELIED UPON AND THE SUPPRESSED GROSS MARGIN AS DETERMINED ON THE BASIS OF ANNEXURE A-1 CAN BE APPLIED TO THE EARLIER YEARS. THESE ASSESSM ENTS HAVE BEEN MADE U/S 153A PURSUANT TO SEARCH PROCEEDINGS AND HE NCE, THE REQUIREMENT OF HAVING INCRIMINATING MATERIALS FROM SEARCH FOR MAKING ADDITIONS IS VERY MUCH RELEVANT. IN THE ABSENCE OF THE SAME, IT IS HELD THAT THE INFERENCE DRAWN BY THE AO THAT BOOKS OF AC COUNT FOR AYS 2006- 07 TO 2011-12 WERE UNRELIABLE IS FOUND TO BE INCORR ECT. CONSEQUENTLY, THE EXTRAPOLATIONS MADE TO THE NET PROFIT AND ADDIT ION OF SUPPRESSED PROFITS FOR AYS 2006-07 TO 2011-12 IS FOUND TO BE W ITHOUT MERIT AND PROPER JUSTIFICATION. 9. THE CIT(A) ALSO ANALYSED THE CASE LAWS RELIED UP ON BY THE AO AND HELD THAT THE HONBLE SUPREME COURT IN THE CASE OF CST VS HM ESAFALI HM ABDULALI (SUPRA) IS HIGHLY MISPLACED AS THE FACT S OF THAT CASE IS ONLY FOR ESTIMATION OF NET PROFIT WHEN THE MATERIALS IS AVAILABLE FOR PART OF THE FINANCIAL YEAR. IN THIS CASE, THERE IS NO FINDING FROM THE AO WITH REGARD TO THE INCORRECTNESS OF BOOKS OF ACCOUNT OR SALES MADE OUTSIDE THE BOOKS TO BRING THE RATIO OF JUDGEMENT OF HONBLE SUPREME COU RT. THE AO HAS ESTIMATED NET PROFIT ONLY ON THE BASIS OF JOTTINGS OF 2 PAGES FOR WHICH THE ASSESSEE HAS FILED NECESSARY EXPLANATIONS. FROM TH IS, IT IS CLEAR THAT THE 12 PHARMASIA LTD INCRIMINATING MATERIAL FOUND DURING THE COURSE OF S EARCH IS ONLY A DUMB PAPER WHICH IS NOTHING BUT MIS REPORT FOR THE PURPO SE OF THE MANAGEMENT WHICH HAS NOTHING TO DO WITH SALES MADE BY THE ASSESSEE. THEREFORE, IT IS INCORRECT ON THE PART OF THE AO TO INTERPOLATE CERTAIN FIGURES TO ARRIVE AT NET PROFIT MARGIN OF 50% ON OC P SALES AND EXTRAPOLATING SUCH ESTIMATED NET PROFIT MARGIN FOR PREVIOUS SIX YEARS. THE RELEVANT PORTION OF THE ORDER OF CIT(A) IS EXTR ACTED BELOW:- 6.3 I HAVE CONSIDERED THE ASSESSMENT ORDER, THE SUBMISSIO NS MADE BY THE APPELLANT AND THE CASES RELIED UPON. I FIND THAT THE SEIZED DOCUMENTS REFERRED TO BY THE A.O. RELATE TO THE SUP PLY ORDER DATED 15/3/2011 OF MINISTRY OF HEALTH AND FAMILY WELFARE WHEREBY THE APPELLANT COMPANY WAS TO SUPPLY OCR OF 248 LAKHS CYCLES FOR A CONSIDERATION OF RS.788.64 LACS. FROM THE NOTINGS MADE AT PAGE 23 AN D PAGE 41 OF ANNEXURE A-1, THE A.O. HAS INFERRED THAT COST PER C YCLE WAS RS.2.21 WHEREAS THE COMPANY HAS RECEIVED THE ORDER FOR SUPP LY OF 248 LAC CYCLES @ RS 3.18 PER CYCLE AND THE NET MARGIN IS RS.0.97 P ER CYCLE. THE A.O. HAS ALSO INFERRED FROM THE NOTINGS IN THE LOOSE PAP ERS THAT THE ASSESSEE I ; COMPANY HAS RAISED BILL OF RS.240.56 LACS TO COVER THE DELHI EXPENSES AND ITS OWN MARGIN AND SUPPRESSED THE PROFIT. THE A.O. REFERRED TO PAGE 44 & 45 OF SEIZED DOCUMENTS ACCORDING TO WHICH SALE PRIC E PER TABLET SUPPLIED TO NEPAL WAS RS.6.85 WHEREAS COST WAS RS.2.21 AS PE R PAGE 41. THE A.O. HAS CONTENDED THAT THE ASSESSEE COMPANY WA S EARNING HUGE PROFIT , MARGIN, BUT NOT OFFERING THE SAME FOR TAX ATION BY ARRANGING BOGUS BILLS TO CLAIM EXPENDITURE WHICH IS NOT INCURRED I N REALITY AND HAS THEREFORE CONSIDERED THE BOOKS OF ACCOUNTS FOR A.Y.2012-13 AS UNRELIABLE SINCE THE SUPPLY ORDER OF RS.788.64 LACS WAS EXECUTED IN A.Y. 2012-13. FURTHER THE A.O. HAS PROCEEDED TO ESTIMATE PROFIT ON OCR SALES @50% ON SUCH SALES TO WORK OUT THE ADDITION OF UNACCOUNTED PROFIT FOR A.Y. 2012-13 AT RS.49985576/-. THE A.O. HAS MADE APPLICATION OF EXT RAPOLATION TO THE PROFIT RATES FOR A.Y. 2006-07 TO 2011-12 BY APPLYIN G THE SAME PROFIT RATIO ON THE PRESUMPTION THAT THE ASSESSEE COMPANY WOULD HAVE SUPPRESSED ITS REAL TAXABLE INCOME IN THE SAME MANNER IN EARLI ER ASSESSMENT YEARS AS WELL. I FIND THAT THE ENTRIES, IN DOCUMENTS SEIZED AND RE LIED UPON BY THE A.O. AS PRIMARILY RELATING TO SUPPLY ORDER DATED 15/3/20 11 WITH RESPECT TO WHICH NOTINGS HAVE BEEN MADE ON 29/3/2011 ( PAGE 41) GIVI NG A BREAK-UP OF VARIOUS COSTS TO BE INCURRED IN THE EXECUTION OF THE SAID ORDER. THE ABOVE 13 PHARMASIA LTD SAID ORDER HAS BEEN EXECUTED IN F.Y. 2011-12. HENC E, THE NOTINGS MADE ON 29/3/2011 IS CLEARLY IN THE NATURE OF PROJECTION S OR PLANNING FOR EXECUTING THE SAID SUPPLY ORDER. SIMILARLY, THE E-M AIL TRANSCRIPTS RELATING TO THE SUPPLY OF OCP TO NEPAL ALSO PERTAINING TO F.Y. 2011-12. THEREFORE THE INFERENCE REGARDING REJECTION OF BOOKS OF ACCOUNT A ND ESTIMATION OF NET PROFIT FOR A.Y.2012-13 MAY BE VALID, BUT THE ACTION OF THE A.O. REGARDING SIMILARLY ESTIMATING NET PROFIT @ 50% ON OCP SALES FOR A.Y. 2006-07 TO 2011-12 ON THE GROUND THAT THE APPELLANT COMPANY WO ULD HAVE SIMILARLY SUPPRESSED ITS INCOME IN THESE ASSESSMENT YEARS IS FOUND TO BE MERELY BASED ON PRESUMPTION AND NOT ON ANY SEIZED MATERIAL OR EVIDENCE OF UNDISCLOSED INCOME EMANATING FROM SEARCH AND; PERTA INING TO THESE ASSESSMENT YEARS. THE AO HAS RELIED UPON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CST VS. H.M. ESUFALI H.M. ABDULALI 1973 CTR (SC) 31 7 : (1973) 90 ITR 271 (SC). THAT WAS A CASE IN WHICH UNREPORTED SALES WERE DETECTED FOR A PERIOD OF 19 DAYS IN A YEAR. THE AO ESTIMATED THE T URNOVER FOR THE ENTIRE PERIOD OF ONE YEAR ON THE BASIS OF THE UNREPORTED S ALES FOR THE PERIOD OF 19 DAYS. THE QUESTION THAT AROSE BEFORE THE SUPREME CO URT IS AS TO WHETHER THE AO WAS RIGHT IN DOING SO. IT WAS HELD BY THE A PEX COURT THAT IN A MATTER INVOLVING UNREPORTED SALES, THE HAS TO PROCE ED ON THE BASIS OF ESTIMATION WHICH INVOLVES SOME AMOUNT OF GUESS WORK . THE APEX COURT, ACCORDINGLY, UPHELD THE ORDER OF THE AO IN ESTIMATI NG THE TURNOVER ON THE BASIS OF THE UNREPORTED SALES FOR A SHORTER PERIOD. LN THIS DECISION THE HON'BLE APEX COURT HAS OBSERVED AS UNDER: 'IN THE CASE OF' BEST JUDGMENT' ASSESSMENTS, THE CO URTS WILL HAVE TO FIRST SEE WHETHER THE ACCOUNTS MAINTAINED BY THE AS SESSEE WERE RIGHTLY REJECTED AS UNRELIABLE. IF THEY COME TO THE CONCLUSION THAT THEY WERE RIGHTLY REJECTED, THE NEXT QUESTION THAT ARISE S FOR CONSIDERATION IS WHETHER THE BASIS ADOPTED IN ESTIMATING THE TURNOVE R HAS REASONABLE NEXUS WITH THE ESTIMATE MADE.' HOWEVER, IN THE PRESENT CASE, THE AO HAS NOT MADE A N ESTIMATE OF THE SUPPRESSED TURNOVER. IN THE PRESENT CASE, THE AO HA S ESTIMATED THE SUPPRESSED PROFITS FOR AYS 2006-07 TO 2011-12, ON T HE BASIS OF NOTINGS MADE ON29/32011 (PAGE 41OF ANNEX A-1) WHICH ARE IN THE NATURE OF PROJECTED EXPENSES TO EXECUTE THE SUPPLY ORDER RECE IVED ON 15.3.2011. ON THE PRESUMPTION THAT THE APPELLANT COMPANY HAD INCU RRED BOGUS EXPENSES TO SUPPRESS ITS PROFITS DURING EXECUTION OF THE SAI D ORDER IN FY 2011-12 AND THAT THE APPELLANT COMPANY WOULD HAVE SIMILARLY SUP PRESSED ITS INCOME IN THESE EARLIER ASSESSMENT YEARS. I FIND THAT THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD, WITH RESPECT TO AYS 2006-07 TO 2011-12, TO HOLD THAT THE FINANCIAL INFORMATION APPEARING IN THE BOOKS OF ACCOUNTS CANNOT BE RELIED UPON AND THE SUPPRESSED GROSS MARGIN AS DETERMINED (FROM SEIZED DOCUMENTS AS PER ANNEX A-1) CAN BE APPLIED TO THE TURNOVER VALUES OF EARLIER ASSESSMEN T YEARS ALSO. AS NOTED ABOVE, THE ENTRIES IN SEIZED DOCUMENTS PERTAIN TO F Y 2011-12 RELEVANT TO AY 2012-13 AND THESE BY THEMSELVES CANNOT LEAD TO T HE CONCLUSION THAT THE BOOKS OF ACCOUNTS FOR AYS 2006-07 TO 2011-12 WE RE INCORRECT OR 14 PHARMASIA LTD INCOMPLETE. THESE ASSESSMENTS HAVE BEEN FRAM ED UNDER SECTION 153A PURSUANT TO SEARCH PROCEEDINGS, THE REQUIRE MENT OF HAVING INCRIMINATING EVIDENCE EMANATING FROM SEARCH FOR TH E FINANCIAL YEARS RELEVANT TO AYS 2006-07 TO 2011-12 BECOMES ALL THE MORE RELEVANT. IN THE ABSENCE OF THE SAME, IT IS HELD JHAT THE INFERENCE DRAWN BY THE AO, THAT BOOKS OF ACCOUNTS FOR AYS 2006-07 TO 2011-12 WERE UNRELIABLE, IS FOUND TO BE INCORRECT. CONSEQUENTLY, THE EXTRAPOLATIONS M ADE TO THE NET PROFITS AND ADDITION OF SUPPRESSED PROFITS IN AYS 2006-07 T O 2011-12 IS FOUND TO BE WITHOUT MERIT AND PROPER JUSTIFICATION. FURTHER, REFERENCE IS ALSO MADE TO THE DECISION OF THE ITAT, MUMBAI F BENCH IN THE CASE OF THAKKAR POPATLAL VELJI SALES L TD VS. DEPARTMENT OF INCOME TAX , CITED BY THE APPELLANT, WHEREIN IT WAS HELD THAT BACKWARD EXTRAPOLATION OF THE TURNOVER, WHICH WAS NOT BASED UPON OR SUPPORTED BY ANY INCRIMINATING MATERIAL FOR THE YEARS UNDER CONS IDERATION, COULD NOT BE UPHELD. IN VIEW OF ABOVE DISCUSSION, I AM OF THE CONSIDERE D OPINION THAT THE ADDITIONS OF RS.342,38,462/- FOR A.Y 2006-07, RS,35 2,49,724/- FOR A.Y.2007-08, RS.92,10,624/- FOR A.Y. 2008-09, RS.60 ,21,750/- FOR A.Y 2009-10, RS.217,45,758/- FOR A.Y.2010-11 AND RS.85, 76,186/- FOR A.Y 2011-12, ARE WITHOUT MERIT AND PROPER JUSTIFICATION AND ARE DIRECTED TO BE DELETED. ACCORDINGLY, GROUND NO.3 FOR A.YRS. 2006-0 7, 2008-09, 2009-10, 2010-11, 2011-12 AND GROUND NO.2 FOR A.Y 2007-08 IS ALLOWED. 10. INSOFAR AS AY 2012-13, THE CIT(A) HAS ANALYSED THE CONTENTS ON PAGES 23 & 41 AND ALSO CONVERSATIONS OF E-MAIL MESS AGES EXCHANGED BETWEEN THE PARTIES HAD COME TO THE CONCLUSION THAT THERE IS MERIT IN THE FINDINGS OF THE AO WITH REGARD TO THE REJECTION OF ASSESSEES BOOKS OF ACCOUNT AS THE AO HAS GIVEN CATEGORICAL FINDING IN RESPECT OF DIFFERENCE IN RATES OF CERTAIN RAW MATERIALS PROCURED FROM ONE PARTY AS PER WHICH THERE IS A VARIATION OF 10% IN PRICE DURING THE SAM E FINANCIAL YEAR, THEREFORE, OPINED THAT BOTH THE DOCUMENTS SEIZED AT ANNEXURE A-1 PAGES 23 & 41 ARE IN THE NATURE OF ESTIMATE AND NOT ACTUAL FIGURES OF BUSINESS TRANSACTION. THESE FIGURES ARE ILLUSTRATI ON / PLAN OF THE ASSESSEE COMPANY TO EXECUTE THE SAID ORDER. THE CI T(A) FURTHER 15 PHARMASIA LTD OBSERVED THAT ALTHOUGH SPECIFIC EVIDENCES OF BOGUS BILLING HAS NOT BEEN FOUND DURING THE COURSE OF SEARCH ARE BROUGHT ON RE CORD IN THE ASSESSMENT PROCEEDINGS; HOWEVER, NOTINGS IN THE SEI ZED DOCUMENTS ARE INDICATIVE OF SUPPRESSION OF PROFITS BY TAKING BILL S TO COVER UP EXPENSES RELATING TO EXECUTING SUPPLY ORDER OF MINISTRY OF H EALTH & FAMILY WELFARE, GOVERNMENT OF INDIA TO SETTING OFF OF OVER PAYMENTS RECEIVED ON OVER INVOICING TO EXPORTS TO NEPAL. THIS IS EVIDENT FRO M THE FALL IN THE NET PROFIT RATE OF TOTAL OCP SALES FROM 3.34% FOR AY 2006-07 T O 0.8% FOR A.Y. 2012-13. SUCH SHARP FALL IN THE PROFIT RATE CANNOT BE EXPLAINED ONLY BY THE INCREASE IN THE PACKING MATERIAL RELATING TO OC P SALES OR THE EXPORT SALES. THE CIT(A) ALSO ANALYSED THE CONTENTS OF E- MAIL BETWEEN THE PARTIES AND ALSO RATES APPLIED BY THE ASSESSEE FOR EXPORT SALES TO ARRIVE AT A CONCLUSION THAT THE AO WAS RIGHT IN REJECTION OF BOOKS OF ACCOUNT U/S 145(3) OF THE ACT. THE CIT(A) FURTHER OBSERVED THA T IN THE ABSENCE OF SPECIFIC EVIDENCE REGARDING THE QUANTUM OF OVERBILL ING OR SUPPRESSION OF PROFITS, THE COMPUTATION OF UNACCOUNTED PROFITS BY TAKING NET PROFIT MARGIN OF 50% IS NOT FOUND TO BE JUSTIFIED. THERE IS A REFERENCE OF MARGIN OF RS.0.578 IN SEIZED DOCUMENT AT PAGE 41, B UT THE SAME IS A ROUGH ESTIMATE AND IT IS NOT CLEAR IF REFERENCE TO GROSS OR NET PROFIT. THEREFORE, HE OPINED THAT THE SUPPRESSION OF PROFIT CAN BE BETTER ESTIMATED BY CONSIDERING THE NET PROFIT DISCLOSED B Y THE ASSESSEE FROM 16 PHARMASIA LTD SALE OF OCP FOR AY 2006-07 AND AY 2007-08 IN WHICH YEARS IT HAS ALSO EXECUTED SUPPLY ORDER OF OCP SALES TO GOVERNMENT OF INDIA IN THE RANGE OF RS.7.31 CRORES TO RS.7.73 CRORES, RESPECTIVELY, WHICH IS COMPARABLE TO OCP SALES MADE DURING THE IMPUGNED YEAR OF RS.7.88 CRORES. THE AVERAGE NET PROFI6T OF OCP SALES FOR AY 2006-07 AND AY 2007-08 COMES TO RS.3.97%. ALLOWING THE MARGIN FOR INCREASE IN COST OVER THE YEARS, IT WAS CONSIDERED REASONABLE TO COMPUTE NET PROFIT RATE FROM OCP SALES FOR AY 2012-13 @3.6% WHICH COMES TO NET PROFI T ATTRIBUTABLE TO OCP SALES AT RS.36,57,914. SINCE THE ASSESSEE HAS DISCLOSED NET PROFIT OF RS.8,18,788 ATTRIBUTABLE TO OCP SALES, THE DIFFE RENCE AMOUNT OF RS.28,39,126 COULD BE CONSIDERED AS SUPPRESSION OF PROFITS FROM OCP SALES. ACCORDINGLY, HE SUSTAINED ADDITION TO THE E XTENT OF RS.28,39,126 AND THE BALANCE ADDITION OF RS.4,71,46,540 HAS BEEN DELETED. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE AS WE LL AS THE ASSESSEE ARE IN APPEAL BEFORE US. 11. THE SOLITARY ISSUE THAT CAME UP FOR OUR CONSIDE RATION FROM ALL THESE APPEALS IS ESTIMATION OF SUPPRESSION OF PROFIT BY I NTERPOLATING NET PROFIT MARGIN ON SALES OF OCP AND EXTRAPOLATING SUCH ESTIM ATED NET PROFIT ON OCP SALES FOR PREVIOUS SIX FINANCIAL YEARS. THE LD .DR SUBMITTED THAT THE LD.CIT(A) WAS ERRED IN DELETING THE ADDITION MA DE BY THE AO TOWARDS SUPPRESSION OF PROFIT FROM OCP SALES BY EXT RAPOLATING THE 17 PHARMASIA LTD FIGURES OF SALES AND BOGUS EXPENDITURE EMERGING OUT OF THE SEIZED LOOSE PAPER PERTAINING TO AY 2012-13 AND APPLYING THE GRO SS PROFIT MARGIN ON PROPORTIONATE BASIS WITHOUT APPRECIATING THE FACT T HAT THE ASSESSEE HAS BEEN DOING THE SAME BUSINESS DURING THE PREVIOUS FI NANCIAL YEARS AND THE MATERIAL FOUND IN THE SEIZED DOCUMENT IS INDICA TIVE OF THE TREND AND MODUS OPERANDI BEING FOLLOWED BY THE ASSESSEE FOR I NFLATING EXPENDITURE BY ACQUIRING BOGUS BILLS AND SUPPRESSING THE NET PR OFIT IN EARLIER YEARS ALSO. THE LD.DR FURTHER SUBMITTED THAT THE CIT(A) FAILED TO APPRECIATE THE FACTS BROUGHT OUT BY THE AO IN HIS ASSESSMENT O RDER AND ALSO APPLICATION OF THE RATIO OF SUPREME COURT JUDGEMENT IN THE CASE OF H.M ESUFALI H.M.ABDULALI (SUPRA) IN EXTRAPOLATING THE A SSESSEES INCOME FOR EARLIER YEARS AS THE SEIZED MATERIAL GIVES CLEAR IN DICATION OF ASSESSEES MODUS OPERANDI BY ENHANCING SALE PRICE AND BOOKING BOGUS EXPENDITURE TO OFFSET SUCH INCREASE IN SALE PRICE TO SIPHON OFF PROFIT WHICH IS EVIDENT FROM THE CONTENTS OF SEIZED MATERIAL PAGES 23 & 41 AND ALSO E-MAIL EXCHANGES BETWEEN THE PARTIES IN NEPAL AND THE ASSE SSEE. THE LD.DR FURTHER SUBMITTED THAT THE LD.CIT(A) WAS ERRED IN R ELYING UPON THE DECISION OF ITAT, MUMBAI BENCH IN THE CASE OF THAKK AR POPATLAL VELJI SALES LTD WITHOUT APPRECIATING THE FACT THAT THE AB OVE SAID DECISION HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND APPEAL U/S 260A HAS BEEN FILED AND THE SAME IS PENDING. THE LD.DR FURTHER S UBMITTED THAT SHRI YH 18 PHARMASIA LTD BHASKAR RAO, EXECUTIVE DIRECTOR OF THE ASSESSEE HAS CATEGORICALLY STATED THAT CERTAIN JOTTINGS IN THE SEIZED PAPER IS INDICATIVE OF HAWALA PAYMENTS WITH REFERENCE TO SALES MADE TO MINISTRY O F HEALTH & FAMILY WELFARE, GOVERNMENT OF INDIA WHICH IS THE PRIMARY B ASIS FOR INTERPOLATING SUCH MARGIN FOR EARLIER YEARS. THE CIT(A), WITHOUT APPRECIATING THE FACTS HAS DELETED ADDITION MADE BY THE AO TOWARDS SUPPRES SION OF NET PROFIT FROM OCP SALES FROM AY 2006-07 TO AY 2011-12 AND AL SO RESTRICTED NET PROFIT ESTIMATION TO 3.6%TO AY 2012-13 BASED ON AS SESSEES OWN NET PROFIT MARGIN OF EARLIER YEARS. THE CIT(A) FAILED TO APPRECIATE THE FACT WHEN ASSESSEE IS IN THE HABIT OF INFLATING PURCHASE S BY TAKING BOGUS ENTRIES, ITS OWN BOOK RESULTS AND CONSEQUENT PROFIT MARGIN CANNOT BE RELIED UPON TO ESTIMATE NET PROFIT. THE AO HAS BRO UGHT OUT CLEAR FACTS TO ARRIVE AT A NET PROFIT MARGIN OF 50% WHICH IS BASED ON SEIZED MATERIALS AND ALSO EVIDENCE IN THE FORM OF E-MAILS BETWEEN TH E PARTIES, WHICH CLEARLY ESTABLISHES A MARGIN OF MORE THAN 50% FROM SALES OF OCP TO NEPAL. THE AO HAS RIGHTLY ESTIMATED NET PROFIT BY INTERPOLATING PROFIT PERCENTAGE AND ALSO EXTRAPOLATING SUCH NET PROFIT F OR EARLIER YEARS AND HIS ORDER SHOULD BE UPHELD. 12. ON THE OTHER HAND, THE LD.AR FOR THE ASSESSEE S UBMITTED THAT THE LD.CIT(A) HAS RIGHTLY DELETED ADDITION MADE BY THE AO TOWARDS ADDITION MADE ON ACCOUNT OF SUPPRESSION OF PROFIT FROM OCP S ALES MADE BY THE 19 PHARMASIA LTD AO ON THE BASIS OF INTERPOLATION OF NET PROFIT MARG IN AND EXTRAPOLATING SUCH MARGIN FOR EARLIER YEARS BY RIGHTLY APPRECIATI NG THE FACT THAT THE AO DID NOT HAVE ANY MATERIAL EVIDENCE TO JUSTIFY HIS A CTION OF ESTIMATION OF NET PROFIT. THE LD.AR FURTHER SUBMITTED THAT THE A O HAS MERELY RELIED UPON TWO LOOSE PAPERS FOUND DURING THE COURSE OF SE ARCH WHICH ARE NOTHING BUT AN ESTIMATION MADE BY THE ASSESSEE WITH REFERENCE TO ORDER RECEIVED FROM DIRECTOR OF HEALTH & FAMILY WELFARE, GOVERNMENT OF INDIA FOR SUPPLY OF 248 LAKHS CYCLES OF OCP WITH REFERENC E TO ITS EXISTING BUSINESS AND COST FACTOR TO ASCERTAIN WHETHER THE O RDER IS ECONOMICALLY VIABLE OR NOT. THE CONTENTS OF THE SEIZED PAPER CL EARLY INDICATE THAT THE ASSESSEE HAS WORKED OUT THE ORDER FOR SUPPLY ON THE BASIS OF RATE QUOTED BY THE PARTY WITH REFERENCE TO BASIC COST OF RAW MATERIALS AND OTHER RAW MATERIALS AND PACKING MATERIALS. THE SAI D ORDER HAS BEEN RECEIVED IN THE FINANCIAL YEAR 2011-12 AND HAS BEEN EXECUTED BY THE ASSESSEE FROM AY 2012-13 ONWARDS. THE AO WITHOUT APPRECIATING THIS MINIMUM FACTS HAS INFERRED THAT THE ASSESSEE IS INF LATING PURCHASES AND OTHER EXPENSES TO COVER UP ITS MARGIN AND OTHER EXP ENSES. THE LD.AR FURTHER SUBMITTED THAT THE ASSESSEE HAS FURNISHED C OMPLETE DETAILS OF COST OF OCP ALONGWITH BILLS TO JUSTIFY ITS BOOKS OF ACCOUNT AND THE AO HAS NOT POINTED OUT ANY INCORRECTNESS OR DISCREPANCY IN BOOKS OF ACCOUNT WHICH IS EVIDENT FROM THE FACT THAT EXCEPT RELYING ON TWO LOOSE PAPERS, 20 PHARMASIA LTD THE AO HAS NOT BROUGHT OUT ANY OTHER EVIDENCE TO JU STIFY ADDITION MADE FOR ESTIMATION OF SUPPRESSED NET PROFIT FROM OCP SA LES. ON THE OTHER HAND, THE ASSESSEE HAS FURNISHED COMPLETE DETAILS A LONG WITH BILLS AND VOUCHERS EVEN DURING ASSESSMENT PROCEEDINGS AND ALS O DURING REMAND PROCEEDINGS WHEREIN THE AO HAS ISSUED NOTICES TO SU PPLIERS, WHO SUPPLIED PACKING MATERIALS AND RAW MATERIALS U/S 13 3(6) FOR WHICH ALL THE SUPPLIERS HAVE FURNISHED NECESSARY DETAILS. THE AO ONLY ON THE BASIS OF RATE DIFFERENCE IN ONE OF THE RAW MATERIALS PURCHAS ED FROM ONE PARTY HAS INFERRED THAT THE PURCHASE OF THE ASSESSEE CANNOT B E RELIED UPON. BUT FACT REMAINS THAT THE RATE DIFFERENCE WORKED OUT B Y THE AO ON THE BASIS OF TWO BILLS OBTAINED FROM ONE PARTY PERTAINED FOR THE MONTH OF JULY, 2011 AND MARCH, 2012 WHEREIN THERE IS A DIFFERENCE OF 10 % WHICH IS QUITE COMMON BECAUSE THERE IS A GAP OF ALMOST SIX MONTHS BETWEEN TWO BILLS. THE ASSESSEE FURTHER SUBMITTED THAT THESE PURCHASES WERE MADE FROM UNRELATED PARTIES AND THE RATES WERE SUBJECT TO FLU CTUATION DEPENDING UPON CHANGES IN IMPORT DUTY, ETC. THEREFORE, THE A O WAS INCORRECT TO COME TO THE CONCLUSION THAT THE ASSESSEES BOOKS OF ACCOUNT ARE NOT RELIABLE ONLY ON THE BASIS OF RATE DIFFERENCE IN ON E RAW MATERIAL, THAT TOO, A MEAGER AMOUNT OF 10%. THE ASSESSEE HAS FURNISHED COMPLETE DETAILS WITH RESPECT TO YEAR OF SUPPLY OF 248 LAKHS CYCLE O F OCP ALONG WITH BILLS OF RAW MATERIALS AND PACKING MATERIALS AND THE AO H AS NOT POINTED OUT A 21 PHARMASIA LTD SINGLE MISTAKE IN THE BOOKS OF ACCOUNT. THEREFORE, MERELY ON THE BASIS OF TWO LOOSE PAPERS FOUND DURING THE COURSE OF SEAR CH ARRIVING AT A NET PROFIT MARGIN OF 50% BY INTERPOLATING FIGURES APPEA RING IN THE LOOSE PAPERS AND EXTRAPOLATING SUCH ESTIMATED NET PROFIT FOR PREVIOUS SIX ASSESSMENT YEARS WITHOUT THERE BEING ANY EVIDENCES IS A TOTAL GUESS WORK WHICH CANNOT BE ACCEPTED. 13. THE LD.AR REFERRING TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CST VS H.M ESUFALI H.M.ABDULALI (SUPRA) SUB MITTED THAT THE AOS RELIANCE ON THE DECISION OF HONBLE SUPREME COURT I S HIGHLY MISPLACED IN THE LIGHT OF FACTS OF THE ASSESSEES CASE, AS THE C ASE BEFORE THE HONBLE SUPREME COURT IS ON ESTIMATION OF TURNOVER FOR REMA INING PERIOD WHEN THE DEPARTMENT HAS FOUND UNACCOUNTED TURNOVER FOR P ART OF THE FINANCIAL YEAR. IN THAT CASE, THE ASSESSEE HAS NOT REPORTED 19 DAYS SALES AND ON THAT BASIS, THE AO HAS ESTIMATED TURNOVER FOR THE R EMAINING PERIOD OF THE FINANCIAL YEAR. UNDER THOSE CIRCUMSTANCES, THE HON BLE SUPREME COURT HELD THAT WHEN THERE IS MATERIAL WITH THE AO FOR PA RT OF THE PERIOD, THE REMAINING PERIODS SALES CAN BE ESTIMATED WHEN SUCH ESTIMATION IS NOT UNREASONABLE OR ARBITRARY. IN THE PRESENT CASE, IT IS NOT THE CASE OF THE AO THAT SALES ARE NOT UNACOUNTED.. THE AO HAS NOT BROUGHT OUT ANY INSTANCE OF UNACCOUNTED TURNOVER OF THE ASSESSEE. THE AO NEITHER BROUGHT OUT ANY INSTANCE OF INFLATION OF PURCHASES AND EXPENSES NOR 22 PHARMASIA LTD SALES MADE OUTSIDE THE BOOKS OF ACCOUNT TO RELY UPO N THE DECISION OF HONBLE SUPREME COURT TO ESTIMATE NET PROFIT. THE AO ONLY ON THE BASIS OF TWO LOOSE PAPERS HAS COME TO THE CONCLUSION THAT THE ASSESSEE HAS INFLATED PURCHASES TO COVER UP CERTAIN EXPENSES AND MARGIN FROM SALES OF OCP. THEREFORE, THERE IS NO MERIT IN THE FINDIN GS OF THE AO THAT THE ASSESSEE HAS SIPHONED OFF PROFITS BY INFLATING THE PURCHASES AND EXPENSES. THE LD.CIT(A), ALTHOUGH RIGHTLY DELETED ADDITION MADE BY THE AO FOR EARLIER YEARS, ERRED IN EVEN ESTIMATING 3.6% NET PROFIT FOR THE ASSESSMENT YEAR 2012-13 HAVING BEEN ACCEPTED THE FA CT THAT THE LOOSE PAPERS FOUND DURING THE COURSE OF SEARCH IS ONLY AN ESTIMATE, BUT NOT ACTUAL FINANCIAL TRANSACTION AND ALSO FACT THAT THE AO HAS NOT BROUGHT OUT ANY EVIDENCE OF INFLATION OF PURCHASE OR EXPENSES. THEREFORE, REQUESTED TO UPHOLD THE ORDER OF THE CIT(A) INSOFAR AS ASSESS MENT YEARS 2006-07 TO 2011-12 AND DELETE ADDITIONS SUSTAINED BY THE CI T(A) TOWARDS ESTIMATION OF 3.6% NET PROFIT ON OCP SALES MADE FOR AY 2012-13. 14. WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATER IAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW. WE HAVE CAREFULLY CONSIDERED THE CASE LAWS RELIED UPON BY T HE LD.AR AND ALSO RELIED UPON BY THE ASSESSEE. THE SOLITARY ISSUE TH AT CAME UP FOR OUR CONSIDERATION FROM THESE APPEALS IS ESTIMATION OF S UPPRESSION OF NET PROFIT FROM SALES OF ORAL CONTRACEPTIVE PILLS BY IN TERPOLATION OF NET PROFIT 23 PHARMASIA LTD AND EXTRAPOLATING SUCH NET PROFIT RATE TO EARLIER S IX FINANCIAL YEARS. THE FACTS RELATING TO THE IMPUGNED DISPUTE ARE THAT A S EARCH ACTION U/S 132(1) OF THE INCOME-TAX ACT, 1961 WAS CONDUCTED IN THE AS SESSEES CASE AND DURING THE COURSE OF SEARCH INCRIMINATING MATERIAL IN THE FORM OF TWO LOOSE PAPERS MARKED AS ANNEXURE A-1 PAGES 23 & 41 W ERE FOUND AND SEIZED. THE SAID DOCUMENTS CONTAINS INFORMATION AB OUT THE ORDER RECEIVED FROM MINISTRY OF HEALTH AND FAMILY WELFARE , GOVERNMENT OF INDIA, NEW DELHI DATED 15-07-2011 FOR SUPPLY OF 248 LAKHS CYCLES OF OCP @RS.3.18 PER PILLS. THIS FACT IS NOT DISPUTED BY EITHER PARTY. THE SAID PAPERS FURTHER CONTAINED THE DETAILS OF RAW MA TERIALS INCLUDING BASIC AND OTHER INFORMATION REQUIRED FOR PRODUCTION OF EA CH UNIT OF OCP, PACKING MATERIALS, OTHER DIRECT AND INDIRECT EXPENS ES AND MARGIN OF THE ASSESSEE PER PILL. IN THE SAID DOCUMENT, THE ASSES SEE HAS TAKEN COST OF EACH RAW MATERIALS INCLUDING PACKING MATERIALS AND ALSO TAKEN DELHI EXPENSES @10% OF TOTAL SALE PRICE. IN THE SAID DOC UMENT, THE ASSESSEE RECORDED CERTAIN INFORMATION ABOUT THE BILLS REQUIR ED TO BE TAKEN FOR PACKING MATERIALS. DURING THE COURSE OF SEARCH, FU RTHER DOCUMENT IN THE FORM OF E-MAIL EXCHANGES BETWEEN THE ASSESSEE COMPA NY AND ONE OF THE PARTIES HOSPETIC PHARMA, NEPAL IN RELATION TO S ALE OF OCP WAS FOUND. AS PER THE CONTENTS OF E-MAIL CONVERSATION BETWEEN THE PARTIES, IT WAS NOTICED THAT THE ASSESSEE HAS INVOICED EXPORT S ALES @6.85% PER 24 PHARMASIA LTD OCP, WHEREAS THE COST OF PRODUCTION OF SUCH OCP REM AINS RAS.2.21 AS WORKED OUT BY THE AO. DURING THE COURSE OF SEARCH, THE STATEMENT FROM SHRI YN BHASKAR RAO, EXECUTIVE DIRECTOR OF THE ASSE SSEE COMPANY WAS ALSO RECORDED U/S 132(1) WHEREIN, IN RESPONSE TO A QUESTION, HE HAS EXPLAINED THE CONTENTS OF INCRIMINATING MATERIAL FO UND DURING THE COURSE OF SEARCH; HOWEVER, FAILED TO EXPLAIN FURTHER QUEST ION POSED BY THE DEPARTMENT WITH REGARD TO THE PAYMENT OF HAWALA MON EY, ETC. THE AO BASED ON THESE DOCUMENTS, CAME TO THE CONCLUSION TH AT THE ASSESSEE IS SIPHONING OFF THE FUNDS BY ARRANGING BOGUS BILLS TO REDUCE HUGE PROFIT MARGIN FROM SALE OF OCP AND ALSO TO COVER UP CERTAI N EXPENSES PAYABLE AT DELHI. THE AO FURTHER RELIED ON THE PROVISIONS OF SECTION 290C AND INFERRED THAT THE DOCUMENTS FOUND DURING THE COURSE OF SEARCH IN THE PREMISES OF THE ASSESSEE COMPANY CONTAINING DETAILS OF ORDER, COSTING OF THE ORDER AND OTHER DETAILS ARE CONSIDERED TO BE TRUE, ACCORDINGLY PROCEEDED TO DETERMINATION OF NET PROFIT MARGIN FRO M SALE OF OCP ON THE BASIS OF INCRIMINATING DOCUMENT PAGE 23 & 41 AND AR RIVED AT A TOTAL PRODUCTION COST PER CYCLE AT RS.2.21 PER CYCLE AND NET PROFIT OF 0.97 PER CYCLE WHICH WORKS OUT TO 30.5% IN TERMS OF PERCENTA GE. THE AO, ON THE BASIS OF INFORMATION CONTAINED IN E-MAIL DOCUMENTS OBSERVED THAT THE ASSESSEE HAS BILLED EXPORT SALES @6.85% WHEREAS THE COST PER PILL WORKED OUT TO LESS THAN RS.3 AND ACCORDINGLY INFERR ED THAT THE ASSESSEE 25 PHARMASIA LTD IS HAVING HUGE MARGIN FROM SALE OF OCP AND HENCE, A RRIVED AT A NET PROFIT OF 50% BY INTERPROLATING FIGURES. FURTHER, ON THE BASIS OF ESTIMATED NET PROFIT OF 50%, THE AO HAS DETERMINED NET PROFIT DERIVED BY THE ASSESSEE FROM SALE OF OCP FOR AY 2006-07 TO AY 2012 -13 BY EXTRAPOLATING THE ESTIMATED NET PROFIT FROM SALE OF OCP AND ARRIVED AT UNDISCLOSED NET PROFIT ATTRIBUTABLE TO OCP SALES FO R EACH OF THE YEAR AND MADE ADDITION. THE RELEVANT DETAILS HAS BEEN REPRO DUCED BY THE AO IN A TABULAR FORM WHICH HAS BEEN EXTRACTED HEREUNDER:- OOP SALES 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 GOVT. OF INDIA 73145001 77645000 14325000 0 0 0 78861933 ASSAM 0 0 0 0 16507500 8640000 0 HOSPITEC PHARMA, NEPAL 0 0 0 12774000 11260000 0 22746795 OTHERS 229465 0 3788727 0 16507500 8640000 0 TOTAL OCP SALES 73374466 77645000 18113727 12774000 44275000 17280000 101608728 N.P 50% (OCP SALES) 36687233 38822500 9056864 6387000 22137500 8640000 50804364 TOTAL NET PROFIT 3763995 4607858 -932495 3930021 1009946 1863605 2820321 TOTAL TURNOVER 112783569 100139825 109852730 137445963 114144826 504642561 349992053 PROFIT DISCLOSED ATTRIBUTAB LE TO OCP SALES 2448771 3572776 -153760 365250 391742 63814 818788 ADDITION 34238462 35249724 9210624 6021750 21745758 8576186 49985576 26 PHARMASIA LTD 15. THE AO HAS DETERMINED NET PROFIT MARGIN FROM SA LE OF OCP BY INTERPOLATING THE FIGURES APPEARED IN THE INCRIMINA TING DOCUMENT PAGE 23 41 AND EXTRAPOLATED SUCH NET PROFIT FOR SIX PREVIOU S FINANCIAL YEARS ON TOTAL SALES FROM OCP TO DETERMINE UNDISCLOSED PROFI T ATTRIBUTABLE TO SUCH SALES. THE AO HAS HEAVILY RELIED UPON PAGE 23 & 41 OF ANNEXURE A-1. THE AO ALSO RELIED UPON THE DECISION OF HONBLE SUP REME COURT IN THE CASE OF COMMISSIONER OF SALES-TAX VS H.M ESUFALI H. M.ABDULALI (SUPRA) AND OPINED THAT ONCE PART OF INFORMATION IS RECORDE D FROM THE ASSESSEES PREMISES WHICH THROWS LIGHT ON THE UNDISCLOSED INCO ME OF THE ASSESSEE, BASED ON SUCH PART INFORMATION, ESTIMATION IS POSS IBLE FOR THE REMAINING PERIOD OF THE FINANCIAL YEAR. ACCORDING TO THE AO, THE INCRIMINATING MATERIAL INDICATES THE MODUS OPERANDI OF THE ASSESS EE TO REDUCE PROFIT FROM SALE OF OCP AND ALSO TO COVER UP CERTAIN EXPEN SES PAYABLE AT DELHI. 16. IT IS THE CONTENTION OF THE ASSESSEE THAT INCRI MINATING MATERIAL FOUND DURING THE COURSE OF SEARCH PERTAINS TO A MIS REPOR T PREPARED TO ASCERTAIN FEASIBILITY OF SUPPLY ORDER RECEIVED FROM MINISTRY OF HEALTH & FAMILY WELFARE, GOVERNMENT OF INDIA, NEW DELHI AND TO FIND OUT WHETHER THE SAID ORDER IS FINANCIALLY VIABLE OR NOT IN THE GIVEN CIRCUMSTANCES CONSIDERING THE COST OF RAW MATERIALS AND PRODUCTIO N EXPENSES OF OCP. THE ASSESSEE FURTHER CONTENDED THAT THE SAID ORDER HAS BEEN RECEIVED IN 27 PHARMASIA LTD THE FINANCIAL YEAR 2011-12 RELEVANT TO AY 2012-13 A ND HAS BEEN EXECUTED FROM THE AY 2012-13 ONWARDS WHICH IS CLEAR LY EVIDENT FROM THE DATE OF ORDER AND INFORMATION CONTAINED ON PAGE 23 & 41. THE ASSESSEE FURTHER EXPLAINED THE CONTENT OF PAGE 23 & 41 AND S UBMITTED THAT IT IS ONLY A MIS REPORT PREPARED FOR THE PURPOSE OF MANAG EMENT TO ASCERTAIN COST OF PRODUCTION OF OCP AS WELL AS PROFIT MARGIN. THEREFORE, IT CANNOT BE CONSIDERED AS A DOCUMENT WHICH SHOWS LIGHT ON TH E MODUS OPERANDI OF THE ASSESSEE TO ARRANGE BOGUS BILLS FOR SIPHONIN G OFF PROFIT AND ALSO TO COVER EXPENSES. THE ASSESSEE ALSO EXPLAINED THE CA SE LAWS HEAVILY RELIED UPON BY THE AO IN THE CASE OF CST VS H.M ESU FALI H.M.ABDULALI (SUPRA) AND SUBMITTED THAT THE AOS RELIANCE ON HON BLE SUPREME COURT DECISION IS HIGHLY MISPLACED IN THE GIVEN CIRCUMSTA NCES OF THE ASSESSEES CASE AS IN THAT CASE, THE ASSESSEE, A RE GISTERED DEALER DID NOT INCLUDE 19 DAYS SALES IN ITS BOOKS OF ACCOUNT A ND ON THE BASIS OF SALES OF 19 DAYS, THE AO HAS ESTIMATED SALES FOR TH E REMAINING PERIOD OF THE FINANCIAL YEAR. UNDER THESE CIRCUMSTANCES, THE HONBLE SUPREME COURT HAS OBSERVED THAT AS LONG AS ESTIMATION MADE BY THE AO IS NOT UNREASONABLE OR ARBITRARY, THERE IS SCOPE FOR ESTIM ATION OF TURNOVER THOUGH IT INVOLVES CERTAIN AMOUNT OF GUESS WORK. I N THE PRESENT CASE, THE AOS CASE IS THAT THE ASSESSEE IS SIPHONING OFF THE PROFIT BY ARRANGING BOGUS BILLS AND ALSO TO COVER UP CERTAIN EXPENSES, THAT TOO, WITHOUT ANY 28 PHARMASIA LTD EVIDENCE TO SUGGEST THAT THE ASSESSEE HAS ARRANGED BOGUS BILLS FOR PACKING MATERIALS AND OTHER EXPENSES WHICH IS EVIDE NT FROM THE FACT THAT THE AO NEVER POINTED OUT A SINGLE DISCREPANCY IN BO OKS OF ACCOUNT OR BILLS AND VOUCHERS PRODUCED BY THE ASSESSEE. ON TH E OTHER HAND, THE ASSESSEE HAS FILED COMPLETE DETAILS OF BOOKS OF ACC OUNT ALONGWITH BILLS AND VOUCHERS AND ALSO DETAILS OF COST OF PRODUCTION OF OCP WHICH IS FURTHER SUPPORTED BY 3 AUDIT REPORTS UNDER VARIOUS LAWS INCLUDING COMPANIES ACT, INCOME-TAX ACT AND COST AUDIT REPORT WHICH IS APPLICABLE IN THIS CASE WHEREIN NONE OF THE AUDITOR S HAS POINTED OUT ANY ADVERSE COMMENTS ON BOOKS OF ACCOUNT OF THE ASSESSE E OR ITS FINANCIAL STATEMENTS. THEREFORE, THE AO WAS HIGHLY INCORRECT IN INTERPOLATING NET PROFIT MARGIN AND EXTRAPOLATING SUCH NET PROFIT MAR GIN TO EARLIER YEARS. 17. THE AO HAS ESTIMATED NET PROFIT ONLY ON THE BAS IS OF TWO LOOSE PAPERS FOUND DURING THE COURSE OF SEARCH. IF WE LO OK INTO THE DOCUMENTS FOUND DURING THE COURSE OF SEARCH WHICH CLEARLY GIV E INFORMATION ABOUT ORDER RECEIVED FROM MINISTRY OF HEALTH & FAMILY WEL FARE, GOVERNMENT OF INDIA FOR SUPPLY OF ORAL CONTRACEPTIVE PILLS. ON T HE BASIS OF SAID DOCUMENT, THE AO HAS ARRIVED AT A NET PROFIT MARGIN OF 50% FROM SALES OF OCP AND EXTRAPOLATED SUCH NET PROFIT MARGIN TO EARL IER YEARS. EXCEPT THESE TWO LOOSE PAPERS, THERE IS NO OTHER EVIDENCES WITH THE AO TO SUPPORT HIS ESTIMATION OF NET PROFIT FOR THE YEAR F OR WHICH SUCH DOCUMENTS 29 PHARMASIA LTD PERTAIN AND ALSO FOR THE EARLIER YEARS. UNDER THES E FACTS AND CIRCUMSTANCES, ONE HAS TO EXAMINE WHETHER THE AO WA S RIGHT IN INTERPOLATING NET PROFIT MARGIN AND EXTRAPOLATING S UCH ESTIMATED NET PROFIT FOR EARLIER YEARS. WE FIND THAT THE ASSESSEE HAS E XPLAINED THE CONTENTS OF THE SEIZED DOCUMENTS PAGES 23 & 41. AS PER THE EXPLANATIONS GIVEN BY THE ASSESSEE, IT IS ONLY AN ESTIMATE PREPARED BY THE MANAGEMENT FOR THE INITIAL PURPOSE OF ASCERTAINING THE FINANCIAL V IABILITY OF ORDER RECEIVED FOR SUPPLY OF ORAL CONTRACEPTIVE PILLS. THE ASSESS EE HAS FILED COMPLETE DETAILS OF BOOKS OF ACCOUNT ALONGWITH BILLS AND VOU CHERS IN RESPECT OF ALL FINANCIAL YEARS. THE ASSESSEE ALSO FURNISHED COMPL ETE SET OF AUDIT REPORTS FOR ALL THE YEARS. THE AO HAS NEVER POINTE D OUT ANY IRREGULARITIES OR INCONSISTENCY IN BOOKS OF ACCOUNT OR BILLS OR VO UCHERS SUBMITTED BY THE ASSESSEE WHICH IS CLEARLY EVIDENT FROM THE FIND INGS OF THE AO IN HIS ORDER. NOWHERE HE HAS COMMENTED ON BOOKS OF ACCOUN T AND BILLS AND VOUCHERS. EVEN DURING REMAND PROCEEDINGS, THE AO HAS CALLED FOR FURTHER EVIDENCE IN THE FORM OF CONFIRMATION FROM T HE PARTIES FROM WHOM THE ASSESSEE HAS PURCHASED PACKING MATERIALS. THE AO ALSO ISSUED NOTICES U/S 133(6) TO ALL THE PARTIES FOR WHICH THE Y HAVE FILED COMPLETE DETAILS WHICH HAS BEEN ACCEPTED BY THE AO IN HIS RE MAND REPORT. THE ONLY OBSERVATION MADE BY THE AO IN THE REMAND PROCE EDINGS IS ABOUT THE RATE DIFFERENCE IN ONE RAW MATERIAL PURCHASED F ROM A PARTICULAR PARTY. 30 PHARMASIA LTD THE AO OBSERVED THAT THERE IS A RATE DIFFERENCE OF 10% IN PURCHASE OF A SINGLE RAW MATERIAL FROM ONE SOURCE. ACCORDINGLY, HE OPINED THAT THE BOOKS OF ACCOUNT ALONGWITH BILLS AND VOUCHERS PRODU CED BY THE ASSESSEE DOES NOT GIVE TRUE AND CORRECT PICTURE OF FINANCIAL RESULTS. EXCEPT THIS, THERE IS NO OTHER ADVERSE OBSERVATIONS ON THE BOOKS OF ACCOUNT OF THE ASSESSEE OR BILLS AND VOUCHERS. WE FURTHER NOTICE THAT NONE OF THE AUDITORS HAS MADE ANY ADVERSE COMMENTS ON FINANCIAL RESULTS OF THE ASSESSEE. IN FACT, IT IS NOT THE CA SE OF THE AO. THE AO HAS ACCEPTED THE FACT THAT THERE IS NO ADVERSE COMM ENTS ON BOOKS OF ACCOUNT OR FINANCIAL RESULTS DECLARED BY THE ASSESS EE FOR ALL THE YEARS. WE FURTHER NOTICE THAT THE AO HAS NOT REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE U/S 145(3) OF THE INCOME-TAX ACT, 1961 FOR ANY OF THE REASONS. FROM THIS, IT IS ABUNDANTLY CLEAR THAT TH E AO HAS FAILED TO POINT OUT ANY ADVERSE COMMENTS ON BOOKS OF ACCOUNT OF THE ASSESSEE AND BILLS AND VOUCHERS SUBMITTED IN SUPPORT OF SUCH BOO KS OF ACCOUNT. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE A O WAS ERRED IN INTERPOLATING NET PROFIT FROM SALES OF OCP ONLY ON THE BASIS OF TWO LOOSE PAPERS FOUND DURING THE COURSE OF SEARCH AND ESTIMA TION OF NET PROFIT ON THE BASIS OF SUCH NET PROFIT MARGIN FOR EARLIER YEA RS WITHOUT ANY REFERENCE TO INCRIMINATING MATERIAL FOR EARLIER FINANCIAL YEA RS. 18. COMING TO THE CASE LAWS RELIED UPON BY THE LD.A O IN THE CASE OF 31 PHARMASIA LTD CST VS H.M ESUFALI H.M.ABDULALI (SUPRA). THE LD.AO HEAVILY RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE S AID CASE TO ARRIVE AT A CONCLUSION THAT ESTIMATION OF NET PROFIT IS POSSI BLE ON THE BASIS OF EVIDENCE FOUND DURING THE COURSE OF SEARCH FOR THE IMPUGNED YEAR INCLUDING EARLIER PREVIOUS YEARS. WE HAVE GONE THR OUGH THE CASE LAWS RELIED UPON BY THE AO IN THE LIGHT OF THE FACTS OF THE PRESENT CASE. IN THE CASE BEFORE THE HONBLE SUPREME COURT, THE ASSESSEE WAS A REGISTERED DEALER UNDER THE SALES-TAX ACT DEALING IN IRON & ST EEL. THE FLYING SQUAD INSPECTED THE BUSINESS PREMISES OF THE ASSESSEE AND FOUND A BILL BOOK FOR THE PERIOD 01-09-1962 TO 19-09-1962. THE BILL BOOK SHOWED THAT THE ASSESSEE HAD EFFECTED SALES OF IRON & STEEL FOR RS. 31,171.28, AND SUCH SALES HAD NOT BEEN ENTERED IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. BASED ON THE UNACCOUNTED TURNOVER OF 19 DAYS, THE AO ESTIMATED TURNOVER FOR THE REMAINING PERIOD OF THE FINANCIAL YEAR AND MADE ADHOC ADDITION. UNDER THESE FACTS, THE HONBL E SUPREME COURT CONFIRMED THE ESTIMATE MADE BY THE AO BY OBSERVING THAT THE AO COULD MAKE AN ESTIMATE OF THE SUPPRESSED TURNOVER ON THE BASIS OF THE MATERIAL BEFORE HIM. SO LONG AS THE ESTIMATE MADE BY HIM IS NOT ARBITRARY AND HAS NEXUS WITH THE FACTS DISCOVERED, THE SAME CANNOT BE QUESTIONED. IN THE VERY NATURE OF THINGS, AN ESTIM ATE MADE MAY BE AN OVER ESTIMATE OR AN UNDER ESTIMATE, BUT THAT IS NOT A GROUND FOR 32 PHARMASIA LTD INTERFERING WITH HIS BEST JUDGEMENT. 19. IN THESE FACTS AND CIRCUMSTANCES OF THE CASE AN D ALSO RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF CS T VS H.M ESUFALI H.M.ABDULALI (SUPRA), ONE HAS TO LOOK INTO THE FACT S OF THE ASSESSEES CASE. WHETHER THE AO WAS RIGHT IN INTERPOLATING NE T PROFIT MARGIN FROM SALE OF OCPS ON THE BASIS OF TWO LOOSE PAPERS FOUND DURING THE COURSE OF SEARCH AND EXTRAPOLATING SUCH ESTIMATED NET PROF IT MARGIN FOR EARLIER SIX YEARS? THE ANSWER IS OBVIOUSLY NO. FIRST AND FOREMOST, THE AO IS INCORRECT IN ESTIMATING THE NET PROFIT MARGIN ON TH E BASIS OF TWO LOOSE PAPERS FOR EARLIER SIX FINANCIAL YEARS FROM AY 2006 -07 TO 2011-12 FOR THE REASON THAT THE SAID DOCUMENT PERTAINS TO AY 2012-1 3 ONWARDS. THIS FACT HAS NOT BEEN DISPUTED BY THE REVENUE. THE SEC OND POINT IS THAT THE CONTENTS OF THE SEIZED MATERIAL HAS BEEN SATISFACTO RILY EXPLAINED BY THE ASSESSEE WITH ITS BOOKS OF ACCOUNT. THE INFORMATIO N CONTAINED IN THE INCRIMINATING MATERIAL HAS BEEN RECORDED IN THE BOO KS OF ACCOUNT OF THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR. THIS FA CT ALSO NOT DISPUTED BY THE AO. THE SALES AS WELL AS EXPENDITU RE RECORDED IN THE INCRIMINATING MATERIAL ARE FULLY FOUND RECORDED IN THE BOOKS OF ACCOUNT. THE AO HAS DOUBTED THE PURCHASES OF PACKING MATERIA LS AND DAILY EXPENSES ONLY ON THE GROUND THAT THE ASSESSEE HAS F AILED TO EXPLAIN THE BILLS TO BE OBTAINED FOR PACKING MATERIALS AND DELH I EXPENSES @10% ON 33 PHARMASIA LTD SALE VALUE. THE ASSESSEE HAS EXPLAINED THE BILLS T O BE OBTAINED IN RESPECT OF PACKING MATERIALS AND SUBMITTED THAT IN THE NORMAL COURSE OF TRADE, IT HAS MADE SALES OF ITS PRODUCT WITH ONE LA YER OF PACKING. IN RESPECT OF ORDER RECEIVED FROM MINISTRY OF HEALTH A ND FAMILY WELFARE, GOVERNMENT OF INDIA, THE ASSESSEE NEEDED TO MAKE TW O LAYER OF PACKING FOR WHICH ADDITIONAL PACKING MATERIAL WAS REQUIRED. THE ASSESSEE HAS ESTIMATED THE ADDITIONAL REQUIREMENT OF PACKING MAT ERIAL FOR THE SAID ORDER. THE ASSESSEE ALSO EXPLAINED THE EXPENSES PA YABLE AT DELHI AND SUBMITTED THAT THOSE EXPENSES INCLUDED DIRECT AND I NDIRECT EXPENSES IN RELATION TO ORDER RECEIVED FROM MINISTRY OF HEALTH AND FAMILY WELFARE, GOVERNMENT OF INDIA. THEREFORE, WE ARE OF THE CONS IDERED VIEW THAT THE AO WAS COMPLETELY ERRED IN INFERRING SIPHONING OFF FUNDS BY INFLATING DELHI EXPENSES WITHOUT ANY EVIDENCES IN HIS POSSESS ION TO JUSTIFY HIS ACTION. WE FURTHER ARE OF THE OPINION THAT THE AO WAS ERRED IN INTERPOLATING NET PROFIT MARGIN ON THE BASIS OF TWO LOOSE PAPERS AND EXTRAPOLATING SUCH NET PROFIT MARGIN FOR EARLIER SI X FINANCIAL YEARS WITHOUT ANY IOTA OF EVIDENCES TO JUSTIFY THAT THE ASSESSEE HAS INFLATED PURCHASES AND OTHER EXPENSES TO REDUCE PROFIT FOR THE EARLIER YEARS ALSO. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE FIRST APPELL ATE AUTHORITY ON DUE APPLICATION OF FACTS AND CIRCUMSTANCES OF THE CASE HAS ARRIVED AT THE CONCLUSION THAT THERE WAS NO BASIS FOR THE IMPUGNED BACKWARD 34 PHARMASIA LTD EXTRAPOLATION OF THE SUPPRESSED PROFIT ESPECIALLY W HEN NO INCRIMINATING EVIDENCES OR MATERIAL WAS FOUND CONSEQUENT TO SEARC H TO DEMONSTRATE THAT IN THE PAST YEARS AS WELL, THE ASSESSEE WAS IN DULGING IN SUPPRESSION OF PROFIT. 20. COMING TO THE ASSESSMENT YEAR 2012-13. THERE I S NO DISPUTE WITH THE FACT THAT FOR THE IMPUGNED ASSESSMENT YEAR 2012 -13, THERE IS AN EVIDENCE IN THE FORM OF INCRIMINATING MATERIAL PAGE 23 & 41 OF ANNEXURE A-1. THE SAID INCRIMINATING MATERIAL CONTAINS CERT AIN INFORMATION ABOUT ORDER RECEIVED FROM MINISTRY OF HEALTH AND FAMILY W ELFARE, GOVERNMENT OF INDIA. THOUGH THE LD.CIT(A) HAS ACCEPTED THE FA CT THAT THERE IS NO SPECIFIC EVIDENCE OF BOGUS BILLING FOUND IN THE COU RSE OF SEARCH ARE BROUGHT ON RECORD IN THE ASSESSMENT PROCEEDINGS, TH E NOTINGS IN THE SEIZED DOCUMENTS ARE INDICATIVE OF SUPPRESSION OF P ROFITS BY TAKING BILLS TO COVER EXPENSES RELATING TO EXECUTING THE SUPPLY ORDER OF MINISTRY OF HEALTH AND FAMILY WELFARE, GOVERNMENT OF INDIA. TH E LD.CIT(A) ALSO HAS TAKEN A CLUE FROM THE REMAND REPORT OF THE AO W HEREIN THE AO HAS POINTED OUT 10% RATE DIFFERENCE IN ONE SOLITARY INS TANCE OF PURCHASE OF RAW MATERIAL FROM A SINGLE PARTY. THEREFORE, CONCU RRED WITH THE FINDINGS OF THE AO FOR THE ASSESSMENT YEAR 2012-13 INSOFAR A S THE FINDING OF SUPPRESSION OF PROFIT FROM SALE OF OCP; HOWEVER, DE CLINED TO ACCEPT THE NET PROFIT PERCENTAGE ADOPTED BY THE AO ON THE GROU ND THAT THE PROFIT 35 PHARMASIA LTD PERCENTAGE DETERMINED BY THE AO IS UNREASONABLE AND ARBITRARY. THE LD.CIT(A) FURTHER PROCEEDED TO ESTIMATE THE NET PRO FIT ON THE BASIS OF ASSESSEES OWN FINANCIAL RESULTS FOR AYS 2006-07 & 2007-08 IN WHICH YEARS SALES OF OCP ARE ALMOST EQUAL AND COMPARABLE TO THE OCP SALES MADE DURING THE ASSESSMENT YEAR 2012-13. ACCORDING LY, BY TAKING AVERAGE NET PROFIT OF OCP SALE OF AYS 2006-07 AND 2 007-08 WHICH WORKED OUT TO 3.97%, DETERMINED THE NET PROFIT AT 3 .6%, AFTER ALLOWING THE PROBABLE INCREASE IN COST OF RAW MATERIALS OVER THE YEARS AND ESTIMATED NET PROFIT OF 3.6% ON TOTAL OCP SALES AND DETERMINED PROFIT OF RS.3,65,57,914 IN RESPECT OF OCP SALES. THE CIT(A) , AFTER ALLOWING SET OFF OF PROFIT ALREADY DECLARED FROM SALE OF SUCH OC P SALES SUSTAINED ADDITION OF RS.28,39,126 IN RESPECT OF SUPPRESSION OF NET PROFIT FROM OCP SALES. IN THIS FACTUAL BACKGROUND, IF WE LOOK INTO THE ADDITION SUSTAINED BY THE LD.CIT(A), WHICH IS ONCE AGAIN NOT BASED ON A SINGLE SOLITARY INSTANCE OF 10% RATE DIFFERENCE IN ONE RAW MATERIAL, BUT NOT ON THE BASIS OF LOOSE DOCUMENTS FOUND DURING THE COURS E OF SEARCH. THE ASSESSEE HAS ALREADY CATEGORICALLY PROVED THAT THE CONTENTS RECORDED IN TWO LOOSE PAPERS ARE FOUND RECORDED IN THE BOOKS OF ACCOUNT. INSOFAR AS THE OBSERVATIONS OF THE LD.AO WITH REGARD TO THE RA TE DIFFERENCE OF RAW MATERIAL, THE ASSESSEE HAS EXPLAINED THE DETAILS AN D CLARIFIED THAT THE TWO PURCHASE BILLS PERTAINED TO TWO DIFFERENT MONTH S, ONE IN THE MONTH OF 36 PHARMASIA LTD NOVEMBER, 2011 AND THE OTHER IN THE MONTH OF MARCH, 2012. THE ASSESSEE FURTHER EXPLAINED THAT IT IS QUITE POSSIBL E THAT THERE WOULD BE A RATE DIFFERENCE IN MATERIALS BASED ON THE DEMAND AN D SUPPLY AND ALSO ON VARIOUS PARAMETERS INCLUDING IMPORT DUTY, ETC., THAT TOO, IN A PERIOD OF SIX MONTHS GAP. THEREFORE, THE AO AS WELL AS THE LD.CIT(A) WAS COMPLETELY ERRED IN ARRIVING AT A CONCLUSION THAT T HERE IS A DIFFERENCE IN RAW MATERIAL PROCUREMENT PRICE WHICH LEADS TO AN IN FERENCE THAT THE ASSESSEE HAS INFLATED COST OF RAW MATERIAL SO AS TO REDUCE NET PROFIT. WE FIND MERIT IN THE ARGUMENT OF THE ASSESSEE FOR THE REASON THAT ON THE BASIS OF LOOSE PAPERS AND ONE SOLITARY INSTANCE OF RATE DIFFERENCE IN RAW MATERIALS, ADDITION CANNOT BE MADE ON SUPPRESSION O F NET PROFIT, MORE PARTICULARLY WHEN THE ASSESSEE HAS CATEGORICALLY EX PLAINED THE DEFECTS POINTED OUT BY THE AO IN RESPECT OF LOOSE PAPERS AS WELL AS RATE DIFFERENCE. THEREFORE, WE ARE OF THE CONSIDERED VI EW THAT THE LD.CIT(A) WAS ALSO INCORRECT IN SUSTAINING ESTIMATED NET PROF IT OF 3.67% ON SALES FROM OCP. 21. COMING TO THE CASE LAWS RELIED UPON BY THE ASSE SSEE. THE ASSESSEE HAS RELIED UPON THE DECISION OF HONBLE BO MBAY HIGH COURT IN THE CASE OF CIT VS MKE MEMON 248 ITR 310 (BOM). TH E HONBLE BOMBAY HIGH COURT WHILE DISTINGUISHING THE JUDGEMEN T OF HONBLE SUPREME COURT IN THE CASE OF CST VS H.M ESUFALI H.M .ABDULALI (SUPRA) 37 PHARMASIA LTD HAS OBSERVED AS UNDER:- IN CASE OF CIT VS. DR. M K E MENON, THE HON'BLE BOM BAY HIGH COURT, WHILE DISTINGUISHING THE JUDGMENT OF HON'BLE SUPREM E COURT IN CASE OF COMMISSIONER OF SALES TAX V/S. H.M ESUFAIL H.M ABDU LALI REPORTED IN 90 ITR 271, IN PARA 7 OF THE ORDER OBSERVED AS UNDER; QUOTE '7. BEFORE CONCLUDING WE MAY MENTION THAT IN AIL MATTERS OF BL OCK ASSESSMENT, THE DEPARTMENT HEAVILY RELIES UPON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CST VS. H.M. ESUFALI H .M. ABDULALI 1973 CTR (SC) 317 : (1973) 90 ITR 271 (SC). THAT WAS A CASE IN WHICH UNREPORTED SALES WERE DETE CTED FOR A PERIOD OF 19 DAYS IN A YEAR. THE AO ESTIMATED THE TURNOVER FO R THE ENTIRE PERIOD OF ONE YEAR ON THE BASIS OF THE UNREPORTED SALES FOR T HE PERIOD OF 19 DAYS. THE QUESTION THAT AROSE BEFORE THE SUPREME COURT IS AS TO WHETHER THE AO WAS RIGHT IN DOING SO. IT WAS HELD BY THE APEX COUR T THAT IN A MATTER INVOLVING UNREPORTED SALES, THE AO HAS TO PROCEED O N THE BASIS OF ESTIMATION WHICH INVOLVES SOME AMOUNT OF GUESS WORK . THE APEX COURT, ACCORDINGLY, UPHELD THE ORDER OF THE AO IN ESTIMATI NG THE TURNOVER ON THE BASIS OF THE UNREPORTED SALES FOR A SHORTER PERIOD. HOWEVER, IN THE PRESENT MATTER, WE ARE CONCERNED WITH THE BLOCK ASSESSMENT OF TEN YEARS. ULTIMATELY, THE SAID JUDGMENT OF THE SUPREME COURT MUST BE SEEN IN THE CONTEXT OF THE FACTS OF EACH CASE. IN THE PRESENT M ATTER, THE ASSESSES IS A PROFESSIONAL. IT IS HIGHLY IMPROBABLE THAT THE RATE OF THE FEES CHARGED BY A PROFESSIONAL IN 1983 WOULD REMAIN STATIC FOR THE EN TIRE BLOCK PERIOD OF 10 YEARS. THE PROPORTIONATE AMOUNT OF REFUND ALSO COUL D NOT HAVE REMAINED STATIC FOR THE ENTIRE PERIOD OF TEN YEARS. THE ASSE SSEE FURTHER POINTED OUT THAT DURING THE GULF WAR THE NUMBER OF PERSONS WHO WENT TO THE GULF COUNTRIES STOOD SUBSTANTIALLY REDUCED. THESE FACTS SHOULD HAVE BEEN CONSIDERED BY THE DEPARTMENT ON THE OTHER HAND, IN THE PRESENT MATTER, THE DEPARTMENT HAS APPLIED THE PEAK INCOME RATE OF POST-1993 PERIOD TO THE ENTIRE BLOCK PERIOD COMMENCING FROM 1 ST APRIL, 1986 UP TO 11TH DEC., 1996. HENCE, THE TRIBUNAL WAS RIGHT IN COMING TO TH E CONCLUSION THAT AN ARBITRARY METHOD HAS BEEN ADOPTED BY THE AO IN ESTI MATING THE INCOME OF THE ASSESSEE UNDER CHAPTER XIV-B.' 22. THE ASSESSEE HAS RELIED UPON THE DECISION OF HO NBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS RML MEHROTRA 320 I TR 403 (ALL). THE HONBLE ALLAHABAD HIGH COURT WHILE DISTINGUISHING T HE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF CST VS H.M ESU FALI H.M.ABDULALI (SUPRA), HAS OBSERVED AS UNDER:- 38 PHARMASIA LTD IN CASE OF CIT VS. R.M L MEHROTRA, THE HON'BLE BOMB AY HIGH COURT, WHILE DISTINGUISHING THE JUDGMENT OF HON'BLE SUPREME COUR T IN CASE OF COMMISSIONER OF SALES TAX V/S. H.M ESUFAIL H.M ABDU LALI REPORTED IN 90 ITR 271, IN PARA 26 OF THE ORDER OBSERVED AS UNDER; QUOTE '26. NOW PASSING ON TO THE MULTIPLICATION FORMULA A DOPTED BY THE AO, WE FIND OURSELVES UNABLE TO ACCORD OUR NOD TO IT. IN T HE FIRST PLACE, ONE SHOULD NOT FORGET THAT IT IS A SEARCH CASE IN WHICH A SEARCH PARTY IS SUPPOSED AND EXPECTED TO FIND OUT ALL THE INCRIMINATING DOCUMENT S, MATERIAL AS ALSO UNDISCLOSED ASSETS. A SEARCH ASSESSMENT, MUCH LESS A BLOCK ASSESSMENT, THEREFORE, STANDS ON A FOOTING DIFFERENT THAN A NOR MAL ASSESSMENT MUCH LESS AN ASSESSMENT BASED ON THE BEST JUDGMENT OF AN AO. IT IS FOR THIS REASON THAT THE RATIO OF THE APEX COURT DECISION RE PORTED IN THE CASE OF H.M. ESUFALI H.M. ABDULALI (SUPRA) WOULD NOT COME T O THE RESCUE OF THE DEPARTMENT, AS IT WAS A SALES-TAX MATTER AND A BEST JUDGMENT ASSESSMENT WAS REQUIRED TO BE MADE. THE MATERIAL THAT THE SALE S TAX OFFICER HAD POSSESSED WAS THE FIGURE OF 19 DAYS SALE BY THE ASS ESSEE NOT ENTERED IN THEIR BOOKS OF ACCOUNTING. THE SUPREME COURT HELD T HAT IN SUCH A SITUATION, IT WAS NOT POSSIBLE FOR THE AO TO FIND O UT PRECISELY THE TURNOVER SUPPRESSED AND HE COULD ONLY QUOTE 'NO DOUBT IT IS TRUE THAT WHEN THE RETURNS AND THE BOOKS OF ACCOUNT ARE REJECTED, THE AO MUST MAKE AN ESTIMATE, AND TO THAT EXTENT HE MUST MAKE A GUESS ; BUT THE ESTIMATE MUST BE RELATED TO SOME EVIDENCE OR MATERIAL AND IT MUST BE SOMETHING MORE THAN MERE SU SPICION.' UNQUOTE 23. IN THIS VIEW OF THE MATTER AND CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO BY RELYING UPON THE CASE LAWS DISCUSSED ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS ERRED IN INTERPOLATING NET PROFIT MARGIN FROM SALE OF OCP AND EXTRAPOLATING SUCH NET PROFIT MARGIN FOR EARLIER SIX YEARS WITHOU T ANY EVIDENCE. THE LD.CIT(A) ON DUE APPRECIATION OF FACTS AND CIRCUMST ANCES OF THE CASE HAS ARRIVED AT THE RIGHT CONCLUSION THAT THERE WAS NO BASIS FOR THE IMPUGNED BACKWARD EXTRAPOLATION OF THE PROFIT ESPEC IALLY WHEN NO INCRIMINATING EVIDENCE OR MATERIAL WAS FOUND CONSEQ UENT UPON THE SEARCH TO DEMONSTRATE THAT IN THE PAST YEARS AS WEL L THE ASSESSEE WAS 39 PHARMASIA LTD INDULGING IN SUPPRESSION OF SALES. THEREFORE, WE A FFIRM THE FINDINGS OF THE LD.CIT(A) AND DISMISS THE APPEAL FILED BY THE R EVENUE FOR AYS 2006- 07 TO 2011-12. INSOFAR AS AY 2012-13 IS CONCERNED, THOUGH THE CIT(A) HAS ACCEPTED THE FACT THAT THERE IS NO SPECIFIC EVI DENCE OF BOGUS BILLING OR INFLATION OF PURCHASES, ERRED IN SUSTAINING NET PROFIT OF 3.6% ON OCP SALES. THEREFORE, WE REVERSE THE FINDINGS OF THE L D.CIT(A) FOR AY 2012- 13 AND DISMISS REVENUES APPEAL AND ALLOW THE APPEA L FILED BY THE ASSESSEE. 24. IN THE RESULT, APPEALS FILED BY THE REVENUE ARE DISMISSED AND APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH MAY, 2018. SD/- SD/- (AMARJIT SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : MAY, 2018 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER SR.PS, ITAT, MUMBAI