DCIT 10(2), MUMBAI V. UNIVERSAL MEDICARE P.LTD ( SUCCESSOR TO BANNER PHARMACAPS INDIA P.LTD ), MUMBAI

ITA 5259/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75754 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 18-02-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 11-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K SAHU
• Assessee Lawyers: D V LAKHANI
• Keywords: Depreciation; Bonafide belief; Wrong claim
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F B ENCH, MUMBAI . , !'# , $% &'() , $* +, $ # BEFORE SHRI D.MANMOHAN, VP AND SHRI N.K. BILLAIY A, AM ./ I.T.A. NOS.5259 & 5260/MUM2011 ( - - - - / ASSESSMENT YEARS :2003-04 & 2004-05 THE ACIT, CENTRAL CIRCLE-20, AAYAKAR BHAVAN, MUMBAI-400020 / VS. M/S. UNIVERSAL MEDICARE PVT. LTD., (SUCCESSOR TO BANNER PHARMACAPS INDIA PVT. LTD,) CAPSULATION PREMISES, 1 ST FLOOR, SION TROMBAY ROAD, DEONAR, MUMBAI-400 088 ,. $* ./ /0 ./ PAN/GIR NO. : AAACU 0717B ( .1 / APPELLANT ) .. ( 23.1 / RESPONDENT ) .1 4 $ / APPELLANT BY: SHRI R.K. SAHU 23.1 5 4 $ / RESPONDENT BY: SHRI D.V. LAKHANI 5 6* / DATE OF HEARING :26.02.2014 7- 5 6* / DATE OF PRONOUNCEMENT :28.02.2014 +$8 / O R D E R PER N.K. BILLAIYA, AM: THESE TWO APPEALS BY THE REVENUE ARE PREFERRED AGA INST TWO SEPARATE ORDERS OF THE LD. CIT(A)-21, MUMBAI PERTAI NING TO A.YRS. 2003- 04 AND 2004-05. AS COMMON ISSUE IS INVOLVED IN BOT H THESE APPEALS, THEY WERE HEARD TOGETHER AND DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. M/S. UNIVERSAL MEDICARE PVT. LTD. 2 2. IN BOTH THESE YEARS, THE ONLY GRIEVANCE OF THE R EVENUE RELATES TO THE DELETION OF THE PENALTY LEVIED U/S. 271(1)(C) OF TH E ACT , THOUGH QUANTUM OF PENALTY DEFER. ITA NO. 5260/MUM/2011 A.Y 2003-04 3. THE ASSESSMENT IN THIS CASE WAS COMPLETED U/S. 1 43(3) R.W. SECTION 142(2A) OF THE ACT VIDE ORDER DT. 29.11.2006. THE ASSESSMENT WAS COMPLETED AFTER MAKING FOLLOWING DISALLOWANCES: 1. PURCHASES OF AW MATERIAL TREATED NON-GENUINE RS. 33,40,362 2. SUNDRY CREDITORS RS.1,84,54,124 3. PURCHASES OF PACKING MATERIAL TREATED AS NON- GENUINE RS. 25,62,992 4. RESEARCH & DEVELOPMENT EXPENSES RS. 27,30,000 5. ADDITION U/S. 28(IV) OF THE I.T. ACT, 1961 RS. 43,97,601 6. DISALLOWANCE OF DEPRECIATION RS. 5,47,813 7. FOREIGN TRAVELLING EXPENSES RS. 3,96,284 8. VARIOUS NON-GENUINE EXPENSES RS. 14,04,711 9. STOCK WRITTEN OFF RS. 3,16,483 RS.3,41,50,370 TOTAL INCOME RS. 6,20,60,411 M/S. UNIVERSAL MEDICARE PVT. LTD. 3 3. THE ASSESSEE GOT PART RELIEF FROM THE LD. CIT(A) AND THE FINAL POSITION STOOD AS UNDER: DETAILS OF DISALLWOANCES U/S 271 (1)(C) DISALLOWANCE HEAD 143(3) R.W.S. 142(2A) DATED 29.09.2006 RELIEF ALLOWED BY CIT(A) ORDER DTD. 3/6/2008 DISALLOWANCE ACCEPTED BY US. PURCHASE OF RAW MATERIAL NON GENUINE 3,340,362 2,161,544 1,178,818 PURCHASE OF PACKING MATERIAL NON GENUINE 2,562,992 2,486,124 76,868 SUNDRY CREDITORS 18,454,124 17,198,230 1,255,894 VARIOUS NON-GENUINE EXPENSES 1,404,711 763,24 7 641,464 FOREIGN TRAVELLING EXPENDITURE 396,284 217,9 23 178,361 DISALLOWANCE OF DEPRECIATION ON FIXED ASSETS 547,813 - 547,813 26,706,286 22,827,068 38,79,218 THUS THE FINAL DISALLOWANCES STOOD AT RS. 38,79,218 /-. THE PENALTY HAS BEEN LEVIED ON THESE DISALLOWANCES. 4. DURING THE COURSE OF THE PENALTY PROCEEDINGS, TH E ASSESSEE CLAIMED THAT IT HAS PROVED ITS BONAFIDE FOR CLAIMING DEDUC TIONS, THE DEPARTMENT HAS NOT POINTED OUT THAT FACTS WERE HIDDEN AND THE ASSESSEE HAS DISCHARGED ITS ONUS OF NOT FURNISHING INACCURATE PA RTICULARS. THE CONTENTIONS OF THE ASSESSEE WERE REJECTED BY THE AO WHO WAS OF THE FIRM BELIEF THAT ASSESSEES BOOKS OF ACCOUNTS WERE SUBJE CTED TO SPECIAL AUDITS AND ADDITIONS WERE MADE ON SPECIAL AUDITORS REPORT AND THE ASSESSEE M/S. UNIVERSAL MEDICARE PVT. LTD. 4 COULD NOT SUBSTANTIATE ITS CLAIM BY PROPER EVIDENCE S AND DOCUMENTS. IN THE OPINION OF THE AO, HAD THE RETURN NOT COME UNDE R SCRUTINY, THESE FACTS WOULD NEVER BEEN REVEALED. DRAWING SUPPORT FROM TH E DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF UNION OF INDIA VS DHARMENDRA TEXTILE PROCESSORS AND ORS 306 ITR 277 THE AO WENT ON TO LEVY PENALTY BEING 100% OF TAX SOUGHT TO BE EVADED AT R S. 14,25,593/-. 5. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A) AND REITERATED WHAT HAS BEEN SUBMITTED DURING THE ASSES SMENT PROCEEDINGS. IT WAS CLAIMED THAT DURING THE ASSESSMENT PROCEEDINGS ITSELF ONE OF THE DIRECTORS INFORMED THE REVENUE THAT ONE MR. S.G. TE REDESAI, VICE PRESIDENT (FINANCE) HAD COMMITTED CERTAIN SERIOUS I RREGULARITIES. IT WAS ALSO BROUGHT TO THE NOTICE OF THE LD. CIT(A) THAT T HE MATTER WAS REPORTED TO THE POLICE DEPARTMENT AND ALSO TO ECONOMIC OFFIC E WING. THE ECONOMIC OFFICE WING FILED PETITION TO SESSION COUR T, FOR TAKING CRIMINAL ACTION AGAINST SHRI S.G. TEREDESAI. THE A LLEGED FRAUD WAS BEING THOROUGHLY INVESTIGATED BY THE SPECIAL PERSON APPOI NTED BY THE COMPANY FOR IDENTIFICATION AND QUANTIFICATION OF DEFALCATIO N. BECAUSE OF THE FRAUD COMMITTED BY THE VICE PRESIDENT, THE ASSESSEE COULD NOT SUBSTANTIATE ITS CLAIM WITH RESPECT TO SOME EXPENSES EVEN DURING THE COURSE OF THE SPECIAL AUDIT CONDUCTED U/S. 142(2A) OF THE ACT. THE ASSES SEE COULD NOT BRING ANY MATERIAL EVIDENCES IN SUPPORT OF ITS CLAIM OF E XPENDITURE. THE REASONS FOR NON PRODUCTION WERE EXPLAINED TO THE SP ECIAL AUDITOR ALSO. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS AN D THE SURROUNDING CIRCUMSTANCES, THE LD. CIT(A) OBSERVED THAT THOUGH CERTAIN BILLS/VOUCHERS COULD NOT BE PRODUCED BEFORE THE SPE CIAL AUDITORS BUT THE ASSESSEE DID PRODUCE THEM BEFORE THE AO BUT THE AO DID NOT ADMIT SUCH BILLS/VOUCHERS ON THE GROUND THAT THE SAME WERE NOT PRODUCED BEFORE THE SPECIAL AUDITORS. THE LD. CIT(A) WAS OF THE FIRM B ELIEF THAT THERE IS NO M/S. UNIVERSAL MEDICARE PVT. LTD. 5 BAR IN THE ACT THAT IF AN EVIDENCE HAS NOT BEEN PR ODUCED BEFORE SPECIAL AUDITOR, THE ASSESSEE WILL BE DEBARRED FROM PRODUCI NG THE SAME BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS. THE LD. CIT (A) FURTHER OBSERVED THAT ON THE DIRECTIONS OF HIS PROCESSOR IN QUANTUM PROCEEDINGS, THE AO DID VERIFY THE BILLS AND VOUCHERS SUBMITTED BY THE ASSESSEE AND ON THAT VERY BASIS THE LD. CIT(A) GAVE PART RELIEF FR OM THE DISALLOWANCES MADE BY THE AO. 5.1. THE LD. CIT(A) WAS CONVINCED THAT THE ASSESSEE WAS MAKING EFFORTS IN COLLECTING THE EVIDENCES AND WAS SUCCESS FUL IN ITS EFFORTS THOUGH FINALLY IT COULD NOT LOCATE SOME OF THE BILLS/VOUCH ERS. THE LD. CIT(A) ALSO OBSERVED THAT THE TOTAL DEFALCATION IN THE GROUP CO MPANIES WAS AT RS. 19.04 CRORES AND THE SAME HAS BEEN ACCEPTED IN THE CASE OF GROUP COMPANIES IN A.Y. 2006-07 AND SUBSEQUENT ASSESSMENT YEARS. IN THE CASE OF M/S. UNIVERSAL MEDICARE LTD. FOR A.Y. 2006-07 OUT OF THE TOTAL LOSS OF RS. 19.04 CRORES CLAIM OF LOSS AT RS. 14.04 CRORES HAS BEEN ALLOWED AND SINCE THE ASSETS OF SHRI S.G. TEREDESAI ATTACHED B Y POLICE TO THE EXTENT OF RS. 5 CRORES , THE LOSS WAS NOT ALLOWED SINCE IT C OULD BE RECOUPED FROM THE ASSETS ATTACHED. THE LD. CIT(A) FURTHER OBSERV ED THAT SHRI S.G. TEREDESAI WAS IN SERVICE OF THE ASSESSEE TILL 2006 WHEREAS THE RETURN FOR THE IMPUGNED ASSESSMENT YEAR WAS FILED ON 27.11.200 3. ACCORDING TO THE LD. CIT(A) TILL THE DATE OF FILING OF RETURN ALONG WITH TAX AUDIT REPORT, VOUCHERS/BILLS WERE IN EXISTENCE BECAUSE THE SAME H AVE BEEN VERIFIED BY THE TAX AUDITOR. THEREFORE, THE CLAIM OF EXPENSES MADE IN THE RETURN WAS CORRECTLY MADE UNDER A BONAFIDE BELIEF. THE DEFALC ATION HAD TAKEN PLACE BETWEEN 2001-02 AND 2006-07 AND THE ASSESSEE CAME TO KNOW ABOUT THE SAID DEFALCATION WHEN SHRI S.G. TEREDESAI WAS ON LE AVE IN THE MONTH OF JUNE, 2005. DRAWING SUPPORT FROM THE DECISION OF T HE HONBLE SUPREME COURT IN THE CASE OF CIT VS RELIANCE PETRO PRODUCTS PVT. LTD. 322 ITR M/S. UNIVERSAL MEDICARE PVT. LTD. 6 158, THE LD. CIT(A) WAS OF THE FIRM BELIEF THAT MER ELY BECAUSE THE ASSESSEE HAD CLAIMED THE EXPENDITURE WHICH CLAIM WA S NOT ACCEPTED OR WAS NOT ACCEPTABLE TO THE REVENUE THAT BY ITSELF WO ULD NOT ATTRACT THE PENALTY U/S. 271(1)(C) OF THE ACT. THE LD. CIT(A) F URTHER NOTICED THAT IN THE CASE OF ASSESSEES GROUP COMPANY M/S. UNIVERSAL MEDICARE IN A.Y. 2003-04 AND 2004-05 ON SIMILAR SET OF FACTS THE LD. CIT(A) HAS CANCELLED THE PENALTY LEVIED BY THE AO U/S. 271(1)(C) OF THE ACT. AFTER CONSIDERING THE ENTIRE FACTUAL MATRIX, THE LD. CIT(A) DELETED T HE PENALTY LEVIED. 6. AGGRIEVED BY THIS, REVENUE IS BEFORE US. THE LD . DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE ASSESSMENT ORDER AND THE ORDER OF THE LEVY OF PENALTY U/S. 271(1)(C) OF THE ACT. 7. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE REI TERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. 8. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOWE R AUTHORITIES. WE HAVE ALSO PERUSED THE ASSESSMENT ORDER WHEREIN THE ROOTS FOR THE LEVY OF PENALTY LIE. IT IS AN UNDISPUTED FACT THAT A FRAUD /DEFALCATION HAS BEEN COMMITTED BY ONE OF THE EMPLOYEES OF THE ASSESSEE W HICH CAME TO THE NOTICE OF THE ASSESSEE IN 2005. IT IS ALSO AN UNDI SPUTED FACT THAT THE RETURN OF INCOME ALONGWITH TAX AUDIT REPORT WERE FILED MUC H EARLIER TO THE DATE OF DETECTION OF DEFALCATION. IT IS ALSO NOT IN DIS PUTE THAT THE RETURNS OF INCOME WERE ACCOMPANIED BY TAX AUDIT REPORT AND NO ADVERSE FINDING RELATING TO THE CLAIM OF EXPENDITURE WERE GIVEN BY TAX AUDIT REPORT. IT IS ONLY IN THE COURSE OF SPECIAL AUDIT CONDUCTED U/S. 142(2A) OF THE ACT. THE ASSESSEE COULD NOT PRODUCE BILLS AND VOUCHERS B ECAUSE THE SAME HAS BEEN DESTROYED BY THE EMPLOYEE OF THE ASSESSEE. T HESE FACTS CLEARLY M/S. UNIVERSAL MEDICARE PVT. LTD. 7 SHOW THAT THE CLAIM OF EXPENDITURE WAS BONAFIDE AT THE TIME OF FILING OF THE RETURN OF INCOME. MERELY BECAUSE OF SUBSEQUENT EVENTS, THE ASSESSEE COULD NOT PRODUCE BILLS/VOUCHERS TO SUBSTANTIATE IT S CLAIM OF EXPENDITURE CANNOT IPSO FACTO LEAD TO THE CONCLUSION THAT THE A SSESSEE HAS FILED INACCURATE PARTICULARS. THERE IS A DISTINCTION BE TWEEN WRONG CLAIM AND FALSE CLAIM. CONSIDERING THE ENTIRE FACTUAL MATR IX, IT CANNOT BE SAID THAT ASSESSEE HAD MADE FALSE CLAIM. THE LD. CIT(A) HAS DISCUSSED THE FACT OF THE CASE AS THEY WERE DURING THE COURSE OF THE ASSE SSMENT PROCEEDINGS, SPECIAL AUDIT PROCEEDINGS AND IN QUANTUM APPEAL PRO CEEDINGS. ORDERS OF THE TRIBUNAL IN THE CASE OF GROUP COMPANIES HAVE BE EN PLACED BEFORE US BEARING ITA NOS. 5258 AND 5257/M/2011 IN THE CASE O F GELTEC PVT. LTD. , ITA NO. 6078/M/2010 IN THE CASE OF UNIVERSAL MEDICA RE PVT. LTD. WHEREIN THE TRIBUNAL HAVE DELETED THE PENALTY LEVIE D U/S. 271(1)(C) OF THE ACT ON SIMILAR FACTS AND CIRCUMSTANCES. AS NO DIST INGUISHING FACT HAS BEEN BROUGHT BEFORE US, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN GROUP CASES AND ALSO AFTER CONSIDERING THE ENTIRE FACTUAL MATRIX IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS (SUPRA), WE HAVE NO HESITATION IN CONFIRMING THE ORDERS OF THE LD. CIT(A). APPEALS FILED BY THE REVENUE ARE ACCORDINGLY DISMISSED. 9. BEFORE CLOSING, THE REVENUE HAS RELIED UPON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF ZOOM COMMUN ICATION PVT. LTDE. 327 ITR 510. THE FACTS ARE CLEARLY DISTINGUISHABLE AND ARE MORE SUPPORTED BY THE DECISION OF THE HONBLE SUPREME C OURT IN THE CASE OF RELIANCE PETRO PRODUCTS. M/S. UNIVERSAL MEDICARE PVT. LTD. 8 10. IN THE RESULT, BOTH THE APPEALS FILED BY THE RE VENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/02/2014 . +$8 5 - * $ 9 :+ ; 28.2.2014 5 < SD/- SD/- (D.MANMOHAN ) (N.K. BILLAIYA) !'# / VICE PRESIDENT $* +, / ACCOUNTANT MEMBER MUMBAI; :+ DATED 28.2.2014 . . ./ RJ , SR. PS +$8 +$8 +$8 +$8 5 55 5 26& 26& 26& 26& =$&-6 =$&-6 =$&-6 =$&-6 / COPY OF THE ORDER FORWARDED TO : 1. .1 / THE APPELLANT 2. 23.1 / THE RESPONDENT. 3. > ( ) / THE CIT(A)- 4. > / CIT 5. &?< 26 , , / DR, ITAT, MUMBAI 6. < / GUARD FILE. +$8 +$8 +$8 +$8 / BY ORDER, 3&6 26 //TRUE COPY// ! !! ! / / / / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI