DCIT, New Delhi V. M/s. Himachal Futuristic Communications Ltd., New Delhi

ITA 6225/DEL/2013

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 2974 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 25-04-2017
• Assessment Year: 2003-2004
• Appeal Filed On: 21-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NAJANI
• Keywords: Bogus purchase; Business income; Search and seizure; Deemed to accrue or arise in india; Additional evidence; Question of law; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 143(3); 133A; 153A; 80IB; 133(6); 37(1); 208; 13; 22; 37

Judgement Text

PAGE | 1 IN THE INCOME TAX APPELLATE TRIBUNAL [DELHI BENCH C: NEW DELHI] BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER (THROUGH VIDEO CONFERENCING) ITA NO. 5741/DEL/2013 (ASSESSMENT YEAR: 2002 - 03) ITA NO. 6225/DEL/2013 (ASSESSMENT YEAR: 2003 - 04) ITA NO. 6226/DEL/2013 (ASSESSMENT YEAR: 2004 - 05) ITA NO. 765/DEL/2014 (ASSESSMENT YEAR: 2005 - 06) ITA NO. 766/DEL/2014 (ASSESSMENT YEAR: 2006 - 07) DCIT, CENTRAL CIRCLE-1, NEW DELHI. VS. HIMACHAL FUTURISTIC COMMUNICATIONS LTD, 8, COMMERCIAL COMPLEX, MASJID MOTH, GREATER KAILASH-II, NEW DELHI PAN: AAACH4041D (APPELLANT) (RESPONDENT) ITA NO. 816/DEL/2014 (ASSESSMENT YEAR: 2005 - 06) ITA NO. 817/DEL/2014 (ASSESSMENT YEAR: 2006 - 07) ITA NO. 2252/DEL/2014 (ASSESSMENT YEAR: 2007 - 08) ITA NO. 2253/DEL/2014 (ASSESSMENT YEAR: 2008 - 09) HIMACHAL FUTURISTIC COMMUNICATIONS LTD, 8, COMMERCIAL COMPLEX, MASJID MOTH, GREATER KAILASH-II, NEW DELHI PAN: AAACH4041D VS. DCIT, CENTRAL CIRCLE-1, NEW DELHI. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI NAJANI [CIT] D.R.; ASSESSEE BY: SHRI RAKESH JOSHI, C. A.; DATE OF HEARING : 05/08/2021 DATE OF PRONOUNCEMENT : 2 6 / 1 0/2021 O R D E R PER PRASHANT MAHARISHI, A. M. 1. THESE ARE THE BUNCH OF SEVERAL APPEALS FILED BY THE REVENUE AND CERTAIN CROSS APPEALS BY THE ASSESSEE FOR SEVERAL YEARS INVOLVING COMMON ISSUES AND, THEREFORE, BOTH THE PARTIES ARGUED THEM TOGETHER. AFTER HEARING THE PAGE | 2 ARGUMENTS OF THE PARTIES, THESE APPEALS ARE DISPOSED OF, BY THIS COMMON ORDER. ITA NO. 5741(DEL)/2013 ASSESSMENT YEAR 2002-03 2. I. T. APPEAL NO. 5741(DEL)/2013 IS FILED BY THE LD. DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLEI, NEW DELHI, AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)3, NEW DELHI, DATED 21.08.2013 FOR ASSESSMENT YEAR 2002-03. 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.8,28,506/- MADE ON ACCOUNT OF PROFIT OF CIRCULAR TRANSACTION. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.4,97,18,139/- MADE ON ACCOUNT OF DISALLOWANCE OF DEDUCTION CLAIMED U/S 80IB OF THE I.T. ACT 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT (A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.6,30,75,938/- MADE ON ACCOUNT OF DISALLOWANCE OF EXPENDITURE ON RESEARCH & DEVELOPMENT. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.5,00,000/- MADE ON ACCOUNT OF TRAVELLING EXPENSES INCURRED ON THE FAMILY MEMBERS OF THE DIRECTORS OF THE COMPANY. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.8,61,90,935/- MADE ON ACCOUNT OF ADVANCES GIVEN TO GROUP COMPANY WRITTEN OFF. 6. THE ORDER OF THE CIT (A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 4. THE BRIEF FACTS OF THE CASE SHOW THAT ASSESSEE IS A COMPANY ENGAGED IN MANUFACTURING INDIGENOUS TELECOM EQUIPMENT IN INDIA. IT HAS SEVERAL GROUP COMPANIES. INITIALLY THE COMPANY STARTED MANUFACTURING TELECOMMUNICATION EQUIPMENTS AND OTHER ACCESS EQUIPMENT, FIBER CABLE ACCESSORIES AND TERMINAL EQUIPMENT. IT IS ALSO OFFERING BASIC TELEPHONY INTER-NET SERVICES, V- SET SERVICES AND PAGING SERVICES. THE COMPANY HAS UNIT AT SOLAN AND CHAMBA WITH WIRE-LESS DIVISION AND WIRE-LINE DIVISION. IT HAS ALSO SET UP A FIBER PACK PLANT AT GOA TO CATER TO THE TURNKEY DIVISION FOR RADIO NETWORK SERVICE TRANSMISSION NETWORK AND OUTSIDE PLANT SYSTEMS. THESE PROJECTS PAGE | 3 HAVE BEEN UNDERTAKEN FOR PRIVATE AND PUBLIC TELECOM NETWORK OPERATORS, SUCH AS BSNL, MTNL, RELIANCE, BHARTI, GAIL & VSNL. 5. ASSESSEE FILED ITS RETURN ON 30.10.2010 DECLARING NIL INCOME. SUBSEQUENTLY, ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) WAS PASSED ON 30.03.2005 AT RS.62,71,450/-. 6. SUBSEQUENTLY, ON 10.05.2007 SEARCH TOOK PLACE ON THE GROUP OF COMPANIES ALONG WITH SURVEY UNDER SECTION 133A OF THE ACT AT VARIOUS BUSINESS PREMISES IN DIFFERENT CITIES. 7. CONSEQUENT TO THE ABOVE SEARCH NOTICE UNDER SECTION 153A OF THE ACT WAS ISSUED ON 12.08.2008. THE ASSESSEE FILED RETURN ON 25.02.2009 DECLARING NIL INCOME. THE ASSESSMENT ORDER UNDER SECTION 153A READ WITH SECTION 143(3) OF THE ACT WAS PASSED BY THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 1, NEW DELHI, ON 29 TH DECEMBER, 2009 WHEREIN THE ASSESSED INCOME WAS DETERMINED AT RS.20,03,518/-. THE LD. ASSESSING OFFICER MADE THE FOLLOWING DISALLOWANCES:- (I) RS.8,28,506/- BEING PROFIT DETERMINED @ 1.5% ON TOTAL SALES OF RS.5,52,33,750/-. THE ABOVE SALES TURNOVER RS.5,52,78,782/- DETERMINED BY THE LD. ASSESSING OFFICER ON ACCOUNT OF CIRCULATING PURCHASES AND SALES; (II) A DISALLOWANCE OF RS.4,97,18,139/- ON ACCOUNT OF CLAIM OF DEDUCTION UNDER SECTION 80IB OF THE ACT; (III) DISALLOWANCE OF RESEARCH AND DEVELOPMENT EXPENDITURE OF RS.6,30,75,938/-; (IV) DISALLOWANCE OF TRAVELLING EXPENDITURE OF RS.5,00,000/-; (V) ADVANCES GIVEN TO GROUP COMPANIES WRITTEN OFF AMOUNTING TO RS.8,61,90,935/-. 8. THE ASSESSEE AGGRIEVED WITH THE ORDER OF THE LD. ASSESSING OFFICER PREFERRED AN APPEAL BEFORE THE LD. CIT (APPEALS)3, NEW DELHI. I. WITH RESPECT TO THE PROFIT DETERMINED BY THE ASSESSING OFFICER OF 1.5% ON CIRCULAR TRADING, THE LD. CIT (APPEALS) HELD THAT OUT OF THE TOTAL TRADING TURNOVER OF RS.141.19 CRORES THE APPELLANT HAS EARNED PROFIT OF RS.16.25 CRORES, WHICH IS 11.52%. HE FURTHER NOTED THAT ASSESSEE HAS PURCHASED GOODS WORTH RS.5.39 CRORES AND MADE A SALE OF RS.5.52 CRORES TO BALAJI ELECTRONICS PVT. LTD., WHICH HAS BEEN DULY CONFIRMED PAGE | 4 BY THE OTHER PARTY UNDER SECTION 133(6) OF THE ACT. THUS, ASSESSEE HAS EARNED A PROFIT OF RS.12,64,500/- FROM THE TRANSACTIONS WITH BALAJI ELECTRONICS PVT. LTD., WHICH IS MORE THAN THE AMOUNT OF ADDITION MADE BY THE ASSESSING OFFICER OF RS.8,28,506/-. HE FURTHER HELD THAT APPELLANT HAS DISCLOSED THE PROFIT OF 11.52% ON TRADING ACTIVITY, THE CIRCULAR TRADING ACTIVITY HAS NOT BEEN HELD TO BE BOGUS AND FURTHER THE PROFIT EARNED BY THE ASSESSEE ON SUCH CIRCULAR TRADING IS 2.8% WHICH IS MORE THAN THE ESTIMATE OF 1.5% ESTIMATED BY THE ASSESSING OFFICER. THUS, HE DELETED THE ABOVE ADDITION. II. WITH RESPECT TO THE DISALLOWANCE OF DEDUCTION UNDER SECTION 80IB OF THE ACT IN THE RETURN OF INCOME FILED IN RESPONSE TO NOTICE UNDER SECTION 153A OF THE ACT HE HELD THAT THE DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SEARCH WHERE THE SEARCH PARTY FOUND THAT THERE ARE NO MANUFACTURING ACTIVITIES CARRIED OUT AT UNITS LOCATED AT SOLAN AND GOA. THE STATEMENTS OF TWO EMPLOYEES WERE RECORDED, WHO COMMENTED ADVERSELY ON THE EXISTENCE OF MANUFACTURING ACTIVITIES AND, THEREFORE, ASSESSING OFFICER DISALLOWED THE CLAIM. ASSESSING OFFICER FURTHER WAS GUIDED BY THE SURVEY TEAM, WHO DID NOT FIND ANY INFRASTRUCTURE ACTIVITY FOR DEVELOP OF SOFTWARE AT THE FACTORY PREMISES AND DID NOT COME ACROSS ANY TECHNICAL WORK FORCE RELATING TO THE WORK OF SOFTWARE. THE ASSESSING OFFICER ALSO DISALLOWED THE CLAIM OF DEDUCTION UNDER SECTION 80IB OF THE ACT FOR FIBER CABLE UNIT AT GOA FOR WHICH ASSESSING OFFICER DID NOT GIVE ANY REASON IN THE ASSESSMENT ORDER. THE LD. CIT (APPEALS) HELD THAT APPELLANTS MANUFACTURING ACTIVITIES WERE SUBJECT TO EXCISE AUDIT. THE ASSESSEE PRODUCED BEFORE HIM SUCH EXCISE RECORDS AS ADDITIONAL EVIDENCE. THE ASSESSING OFFICER WAS GIVEN AN OPPORTUNITY TO EXAMINE THE SAME VIDE LETTER DATED 7.02.2013. THE ASSESSING OFFICER VIDE LETTER DATED 9.05.2013 OBJECTED TO THE ADMISSION OF THE ADDITIONAL EVIDENCE. THE ASSESSING OFFICER DID NOT COMMENT ON WHETHER THE GOODS HAVE BEEN PRODUCED OR NOT AT THE PLACE, ASSESSING OFFICER SUBMITTED A FURTHER REMAND REPORT DATED 8.07.2013. THE ASSESSEE SUBMITTED ITS REJOINDER ON 9.05.2013. BASED ON THESE FACTS THE LD. CIT (APPEALS) HELD THAT THE ASSESSING OFFICER IGNORING THE EXCISE REGISTER RG23A, RG 23 C, PLA PAGE | 5 REGISTERS, COPIES OF RETURN FILED WITH THE EXCISE DEPARTMENT AND SALES RECORDS SOLELY RELIED ON THE STATEMENT OF THE EMPLOYEES RECORDED DURING SURVEY PROCEEDINGS AND IGNORED THE SUBMISSIONS. HE FURTHER HELD THAT THE STATEMENT OF EMPLOYEES DO NOT HAVE ANY EVIDENTIARY VALUE UNLESS CORROBORATED BY OTHER EVIDENCE. HE HELD THAT AGAINST THE STATEMENT OF THE EMPLOYEES, THE ASSESSEE HAS PRODUCED EXCISE RECORDS AND THE DETAILS OF PAYMENT OF EXCISE DUTY, WHICH IS ALSO APPEARING IN THE AUDITED ACCOUNTS, AND IN THE REMAND REPORT THE LD. ASSESSING OFFICER HAS CONFIRMED THE ITEMS OF GOODS MANUFACTURED WITH THE BOOKS OF ACCOUNTS. THE ADDITION / DISALLOWANCE IS NOT SUSTAINABLE. HE FURTHER HELD THAT EXCISE RECORDS ARE ALSO PERIODICALLY VERIFIED BY THE EXCISE AUTHORITIES. THE LD. CIT (APPEALS) ALSO HELD THAT THERE WAS AN EXISTENCE OF PLANT AND MACHINERY AND MANUFACTURING ACTIVITIES WERE CARRIED OUT CONSEQUENT TO WHICH THE ASSESSEE HAS MADE SALES TO VARIOUS PUBLIC SECTOR UNDERTAKINGS. IT WAS FURTHER HELD BY HIM THAT THE SEARCH TOOK PLACE IN 2007 AND THE MANUFACTURING ACTIVITIES WERE CLOSED IN THE YEAR 2006. THEREFORE, IT WAS NOT POSSIBLE FOR THE ASSESSEE TO SHOW THE WORK FORCE FOR DEVELOPMENT OF SOFTWARE AND OTHER RELEVANT EVIDENCES AT THE TIME OF SURVEY IN MAY 2007. THUS, HE CATEGORICALLY HELD THAT THE SURVEY TEAM VISITED THE PLACE AFTER ONE YEAR OF THE CLOSER OF THE UNIT. HE FURTHER HELD THAT THE CASE OF THE ASSESSEE WAS ASSESSED UNDER SECTION 143(3) WHEREIN THE ASSESSING OFFICER AFTER DULY EXAMINED THE CLAIM UNDER SECTION 80IB OF THE ACT WAS ALLOWED. HE FURTHER HELD THAT ONE OF THE EMPLOYEES WHOSE STATEMENT HAS BEEN USED IS ALSO SIGNATORY TO THE EXCISE RECORDS. HE, THEREFORE, ALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 80IB OF THE ACT. III. WITH RESPECT TO THE DISALLOWANCE OF RESEARCH AND DEVELOPMENT EXPENDITURE AMOUNTING TO RS. 6,30,75,938/- OUT OF THE TOTAL CLAIM OF RS. 11,10,77,015/- HE NOTED THAT THE SURVEY TEAM DID NOT FIND ANY INFRASTRUCTURE FOR R & D ACTIVITIES OF THE ASSESSEE. THE LD. CIT (APPEALS) NOTED THAT RESEARCH AND DEVELOPMENT CENTER WAS OPERATING FROM 286, UDYOG VIHARII, GURGAON, WHICH WAS NOT COVERED DURING SURVEY OR SEARCH. THE LD. CIT (APPEALS) ALSO PERUSED THE TELEPHONE BILLS, BANK STATEMENTS, AND CORRESPONDENCE BETWEEN ASSESSEE AND PAGE | 6 DEPARTMENT OF SCIENCE & TECHNOLOGY. HE FURTHER EXAMINED THE EVIDENCE OF THE DISCUSSION WITH OFFICIALS OF MINISTRY OF SCIENCE, GOVERNMENT OF INDIA, ON PROJECTS UNDERTAKEN BY THE APPELLANT AND THE MINUTES OF THE MEETINGS. HE FURTHER NOTED THAT THE UNIT WAS HAVING ISO REGISTRATION AND RECOGNITION LETTER FROM MINISTRY OF SCIENCE, WHICH INDICATE THE FACT THAT RESEARCH AND DEVELOPMENT ACTIVITY WAS CARRIED OUT. IT WAS NOTED THAT THE ASSESSING OFFICER DISALLOWED PART OF THE EXPENDITURE ONLY BECAUSE OF THE REASON THAT ASSESSEE HAS DEDUCTED TAX DEDUCTION AT SOURCE ON SUCH PAYMENT. HE FURTHER NOTED THAT THE ASSESSING OFFICER DISALLOWED THE RESEARCH AND DEVELOPMENT EXPENDITURE HOLDING THEM TO BE NON-PRODUCTIVE AND NOT PRODUCING POSITIVE RESULTS. HE DELETED THE DISALLOWANCE THAT THE RESEARCH AND DEVELOPMENT EXPENDITURE ALLOWABILITY IS NOT DEPENDENT, SAME BEING FRUITFUL OR OTHERWISE. HE FURTHER NOTED THAT IN ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) OF THE ACT AFTER EXAMINING THE COMPLETE DETAILS THE R & D EXPENDITURE WAS ALLOWED IN FULL. HENCE, HE DELETED THE DISALLOWANCE. IV. WITH RESPECT TO THE DISALLOWANCE OF FOREIGN TRAVEL EXPENDITURE OF RS. 5,00,000/- FOR THE REASON THAT SOME FAMILY MEMBERS OF THE DIRECTORS HAD TRAVELLED ABROAD WITH THE DIRECTORS AND, THEREFORE, ASSESSING OFFICER DISALLOWED RS. 5,00,000/- ON AD-HOC BASIS. THE LD. CIT (APPEALS) DELETED THE ABOVE DISALLOWANCE FOR THE REASON THAT THE LD. ASSESSING OFFICER HAS NOT BROUGHT ON RECORD ANY SPECIFIC INSTANCES OF COMPANYS FUND USE FOR THE TRAVEL OF THE FAMILY MEMBERS. FURTHER, THE DISALLOWANCE WAS MADE ONLY BASED ON ASSUMPTIONS AND PRESUMPTIONS. THIS DISALLOWANCE WAS FULLY ALLOWED IN ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) OF THE ACT. THEREFORE, HE DELETED THE AD-HOC DISALLOWANCE OF RS. 5,00,000/-. V. WITH RESPECT TO THE DISALLOWANCE OF RS. 8,61,90,935/- ON ACCOUNT OF WRITE OFF OF THE ADVANCES TO THE GROUP COMPANIES MICROWAVE COMPANY LIMITED. THE ASSESSING OFFICER NOTED THAT ASSESSEE HAS GIVEN ADVANCE TO ITS SUBSIDIARY, WHICH WAS NOT RECOVERABLE AND, THEREFORE, THE ASSESSEE HAS WRITTEN OFF THE SAME TREATED IT AS A BUSINESS LOSS. THE LD. ASSESSING OFFICER DISALLOWED THE SAME FOR THE REASON THAT THE PAGE | 7 SUBSIDIARY COMPANY HAS NOT TREATED THE SAME AS CESSATION OF LIABILITY AND, THEREFORE, SUCH UNILATERAL ACTION OF THE ASSESSEE WITH NO CORRESPONDING ENTRY BY THE SUBSIDIARY RESULTS INTO AN ABNORMAL CLAIM NOT ALLOWABLE UNDER SECTION 37(1) OF THE ACT. THE LD. CIT (APPEALS) DELETED THE ABOVE ADDITION STATING THAT NO INCRIMINATING MATERIAL IS FOUND DURING THE SEARCH WITH RELATING TO THE ABOVE DISALLOWANCE AND, THEREFORE, THE ABOVE ADDITION CANNOT BE MADE. ON THE MERITS OF THE ADDITION, HE HELD THAT GIVING FINANCIAL SUPPORT FOR NURTURING AND DEVELOPING A SUBSIDIARY FALL IN THE CATEGORIES OF ACTIVITIES CARRIED OUT DURING THE COURSE OF BUSINESS. HE FURTHER NOTED THAT THE SUBSIDIARY COMPANY WAS FORMED FOR PROVIDING TELECOMMUNICATION SERVICES WITH RESPECT TO THE PAGING SERVICES. HE FURTHER HELD THAT MERELY BECAUSE THE SUBSIDIARY COMPANY HAS NOT SHOWN IT AS A CESSATION OF LIABILITY IT COULD NOT BECOME AN ITEM OF DISALLOWANCE IN THE HANDS OF THE ASSESSEE. THEREAFTER HE EXAMINED THE FINANCIAL STRENGTH OF THE SUBSIDIARY AND NOTED THAT THE SUBSIDIARY COMPANY HAS ACCUMULATED LOSSES MANY TIMES HIGHER THAN THE AMOUNT OF SHARE CAPITAL, WHICH SHOWS THAT THE NET-WORTH OF THE SUBSIDIARY HAS ERODED AND THERE IS NO CHANCE OF ITS RECOVERY. THEREFORE, ON THE MERITS ALSO, HE ALLOWED THE CLAIM. 9. THE LD. ASSESSING OFFICER AGGRIEVED BY THE ABOVE ORDER HAS PREFERRED AN APPEAL BEFORE US. 10. THE LEARNED [CIT]DR, RELIED ON THE ORDERS OF THE LD. ASSESSING OFFICER. LEARNED DR ALSO REFERRED TO THE PAPER BOOK FILED IN ALL THESE APPEALS ON 4 DECEMBER 2019. SPECIFIC SUBMISSIONS WERE MADE WITH RESPECT TO THE SPECIFIC ISSUES AS UNDER:- I. WITH RESPECT TO THE FIRST ADDITION MADE BY THE LEARNED ASSESSING OFFICER ON ACCOUNT OF ESTIMATING OF THE PROFIT ON CIRCULAR TRADING MADE BY THE ASSESSEE, IT WAS SUBMITTED THAT ASSESSEE HAS ENTERED INTO A CIRCULAR TRADING WITH BALAJI ELECTRONICS PVT. LTD., WHEREIN ASSESSEE HAS SHOWN PURCHASES OF RS. 5,39,00,000/- AND ALSO SHOWN SALE OF RS. 5.52 CRORES WITHOUT ANY REASONS. IT WAS SUBMITTED THAT THIS WAS THE CIRCULAR PURCHASE AND SALE OF GOODS FROM ONE PARTY WITHOUT ANY REASON. PAGE | 8 THEREFORE, SHE SUBMITTED THAT THE LD. CIT (APPEALS) ERRED IN DELETING THE ABOVE ADDITION. II. WITH RESPECT TO THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80 IB OF THE ACT SPECIFIC REFERENCE WAS MADE TO PARAGRAPH NUMBER 6.3 OF THE ASSESSMENT ORDER WHERE THE STATEMENT OF MR. RAO WHO WAS POSTED AT SOLAN UNIT WAS RECORDED IT WAS STATED THAT IN THAT STATEMENT MR. RAO HAS CONFIRMED THAT THERE IS HARDLY ANY PRODUCTION ACTIVITY IN THIS UNIT OF THE COMPANY AND ONLY REPAIR AND ANNUAL MAINTENANCE WORK IS UNDERTAKEN AT THAT UNIT. FURTHER PARAGRAPH NUMBER 6.4 OF THE ASSESSMENT ORDER WAS REFERRED STATING THAT THE ONLY ACTIVITY, WHICH IS CARRIED OUT BY THE ASSESSEE, IS TO STAMP THE COMPONENTS IMPORTED INTO DISPATCH IT TO VARIOUS UNITS OF BSNL AND MTNL AS PER TENDER. THEREFORE THERE IS NO MANUFACTURING ACTIVITY WAS CARRIED OUT. AS SPECIFIC REFERENCE WAS MADE TO THE OUTCOME OF SURVEY PROCEEDINGS IN PARAGRAPH NUMBER 6.5 OF THE ORDER. THE LEARNED DR FURTHER REFERRED TO THE PARAGRAPH NUMBER 6.9 OF THE ASSESSMENT ORDER TO SHOW THAT MR. GULERIA ALSO CONFIRMED THAT THERE IS NO MANUFACTURING ACTIVITY CARRIED OUT AT THOSE UNITS. THEREFORE, THE LEARNED ASSESSING OFFICER HAS HEAVILY RELIED UPON THE STATEMENT OF THE SENIOR OFFICERS AND PHYSICAL EXAMINATION OF THE ACTIVITIES OF THE FACTORY DURING SURVEY AND HELD THAT THERE IS NO MANUFACTURING ACTIVITY CARRIED OUT AT SOLAN UNIT. WITH RESPECT TO THE MANUFACTURING ACTIVITY AT GOA THE LEARNED HERE REFERRED PARAGRAPH NUMBER 6.12 OF THE ASSESSMENT ORDER WHEREIN THE LEARNED ASSESSING OFFICER HAS SPECIFICALLY STATED THAT ASSESSEE HAS NEVER BEEN ENGAGED IN THE BUSINESS OF MANUFACTURING OF CABLE OR DEVELOPMENT OF SOFTWARE AT GOA UNIT. IT WAS FURTHER ARGUED THAT THE LEARNED ASSESSING OFFICER HAS RECORDED A CATEGORICAL FINDING THAT DURING THE FINANCIAL YEAR 2003 04 ASSESSEE COMPANY PURCHASED THE SOFTWARE OF 19 CRORES FROM VARIOUS PARTIES AND SIMILARLY FOR FINANCIAL YEAR 2004 058 PURCHASED THE SOFTWARE OF 18.23 CRORES AND AGAINST WHICH THE SALE OF 40 CRORES WAS DISCLOSED. THE LEARNED DR FURTHER REFERRED PARAGRAPH NUMBER 6.19 OF THE ASSESSMENT ORDER STATING THAT THE LEARNED ASSESSING OFFICER HAS GIVEN A CATEGORICAL FINDING THAT NO MANUFACTURING ACTIVITY OF SOFTWARE DEVELOPMENT WAS CARRIED OUT AT PAGE | 9 GOA UNIT, WHICH WAS CONFIRMED BY THE OFFICERS OF THE COMPANY. FURTHER, THE ASSESSEE DID NOT HAVE ANY INFRASTRUCTURAL TECHNICAL WORK FORCE THAT COULD HAVE DEVELOPED SOPHISTICATED SOFTWARE AT ITS MANUFACTURING UNIT. THE ASSESSEE HAS ALSO FAILED TO FURNISH THE DETAILS OF THE WORK FORCE AND PURPOSE OF THE SOFTWARE DEVELOPMENT AND PARTICULARS OF THE END-USER. THEREFORE, THE DEDUCTION U/S 80 IB OF THE ACT WAS DENIED. III. WITH RESPECT TO THE EXPENDITURE ON RESEARCH AND DEVELOPMENT DISALLOWED BY THE LEARNED ASSESSING OFFICER, IT WAS STATED THAT ASSESSEE HAS SUBMITTED A GENERAL NATURE REPORT OF THE ACTIVITIES CARRIED OUT BY THE ASSESSEE. IT WAS SUBMITTED THAT ASSESSEE HAS INCURRED A TOTAL EXPENDITURE OF 11.10 CRORES AND OUT OF WHICH THE DEDUCTION IS ALLOWED BY THE LEARNED ASSESSING OFFICER OF 4.80 CRORES AND THE NET DISALLOWANCE OF 6.30 CRORES HAS BEEN MADE CORRECTLY BY THE LEARNED ASSESSING OFFICER. IV. WITH RESPECT TO THE DISALLOWANCE DELETED BY THE LEARNED CIT A OUT OF THE FOREIGN TRAVEL EXPENDITURE OF 5 LAKHS IT WAS STATED THAT IN MANY CASES THE FAMILY MEMBERS OF THE DIRECTORS HAVE GONE ABROAD FOR THE PURPOSES WHICH CANNOT BE ATTRIBUTED BULLION EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS AND THEREFORE THE DISALLOWANCE ON AD HOC BASIS IS CORRECTLY MADE BY THE LEARNED AO. V. WITH RESPECT TO THE DISALLOWANCE OF THE SUM WRITTEN OFF BY THE ASSESSEE AND CLAIMED AS DEDUCTION U/S 37 OF THE ACT IT WAS SPECIFICALLY NOTED THAT THIS IS A UNILATERAL ACTION OF THE ASSESSEE AND THE SUBSIDIARY COMPANY HAS NOT SHOWN THAT THE LIABILITY TOWARDS THE ASSESSEE COMPANY HAS CEASED TO EXIST AND THEREFORE THE LEARNED ASSESSING OFFICER HAS CORRECTLY MADE THE DISALLOWANCE U/S 37 OF THE ACT. 11. THE LEARNED AUTHORISED REPRESENTATIVE ALSO SUBMITTED A WRITTEN NOTE AND A PAPER BOOK ON ALL THE ISSUES INVOLVED IN THE APPEAL. THE MAIN CRUX OF THE ISSUE ARGUED BY THE LEARNED AUTHORISED REPRESENTATIVE ARE AS UNDER:- I. WITH RESPECT TO THE ISSUE OF PROFIT ON CIRCULAR TRADING TRANSACTION, IT WAS SUBMITTED THAT THERE IS NO LEGAL BAR ON MAKING BOTH PURCHASE AND SALES FROM THE SAME PARTY. IT WAS PAGE | 10 FURTHER STATED THAT THE SALE TRANSACTION AND THE PURCHASE TRANSACTION WITH THE BALAJI ELECTRONICS PRIVATE LIMITED DULY CONFIRMED U/S 133 (6) OF THE INCOME TAX ACT. FURTHER IN THE ASSESSMENT YEAR 98 99 THE ASSESSEE HAS ACCEPTED THE PROFIT AT THE RATE OF 1.09% BECAUSE IN THAT PARTICULAR CASE THE RESULTANT PROFIT ARRIVING FROM THOSE PARTIES WITH WHOM THE CIRCULAR TRADING TRANSACTIONS WERE ENTERED INTO WAS ONLY 0.53%. HOWEVER, IN THE PRESENT CASE THE GROSS PROFIT SHOWN BY THE ASSESSEE IS HIGHER THAN THE NORMAL GROSS PROFIT DETERMINED BY THE LEARNED ASSESSING OFFICER. IT WAS FURTHER STATED THAT THE PROFIT OF 2.28% IS EARNED ON SALES MADE TO BALAJI ELECTRONICS AND THE LEARNED ASSESSING OFFICER IS DETERMINED PROFIT OF ONLY 1.5%, WHICH IS LESS THAN THE PROFIT ALREADY DISCLOSED BY THE ASSESSEE THEREFORE THE ADDITION DESERVES TO BE DELETED. HE FURTHER REFERRED TO THE ORDER OF THE LEARNED CIT A AND STATED THAT IT IS CATEGORICALLY HELD THAT THE CIRCULAR TRADING WAS NOT CONSIDERED TO BE A BOGUS TRANSACTION BY THE ASSESSING OFFICER. II. WITH RESPECT TO THE CLAIM OF DEDUCTION U/S 80 IB OF THE ACT IT WAS STATED THAT THE ISSUE HAS ALREADY BEEN EXAMINED BY THE LEARNED ASSESSING OFFICER WHILE MAKING AN ORIGINAL ASSESSMENT U/S 143 (3) OF THE INCOME TAX ACT WHEREIN THE ASSESSING OFFICER AFTER DETAILED EXAMINATION IS ALLOWED THE CLAIM OF THE ASSESSEE UNDER THAT SECTION. FURTHER, THE EXCISE RECORDS, COPIES OF THE RETURNS WERE ALSO VERIFIED WHEREIN EXISTENCE OF PLANT AND MACHINERY AT THE FACTORY PREMISES AT SOLAN AND GOA ARE CLEARLY DEPICTED. FURTHER, IT WAS STATED THAT THE SALES HAVE BEEN MADE TO THE PUBLIC SECTOR UNDERTAKING SUCH AS BSNL AND MTNL AND GAIL. IT WAS THEREFORE STATED THAT IT CANNOT BE SAID THAT THERE IS NO MONEY FEATURING ACTIVITY CARRIED ON BY THE ASSESSEE. WITH RESPECT TO THE SOFTWARE MANUFACTURED/DEVELOPED IT WAS STATED THAT THE SOFTWARE DEVELOPMENT WAS CLOSE FROM THE YEAR 2006 EIGHT WAS NOT POSSIBLE FOR THE ASSESSEE TO SHOW ANY WORK FORCE FOR THE DEVELOPMENT OF SOFTWARE AT THE TIME OF SURVEY IN 2007. THEREFORE, THE STATEMENTS USED BY THE AO ARE NOT CORRECT. HE PAGE | 11 FURTHER STATED THAT WHERE IN THE EXCISE RECORDS THE PROPER PRODUCTION HAS BEEN SHOWN BY THE ASSESSEE AND SAME HAS ALSO BEEN DEMONSTRATED BY THE EXISTENCE OF THE MACHINERY AND THE LOCATION OF THE FACTORIES ALONG WITH THE VARIOUS APPROVALS FROM THE STATE AUTHORITIES FOR THE OPERATION OF THE UNITS, CONSUMPTION OF LABOUR AND SALE AND PURCHASE OF THE MATERIAL IS ALSO SHOWN TO THE LEARNED ASSESSING OFFICER THERE IS NO REASON THAT SUCH DEDUCTION IS TO BE DISALLOWED TO THE ASSESSEE. III. WITH RESPECT TO THE DISALLOWANCE OF EXPENDITURE ON RESEARCH AND DEVELOPMENT IT WAS SUBMITTED THAT THIS ISSUE HAS BEEN EXAMINED BY THE LEARNED ASSESSING OFFICER U/S 143 (3) OF THE INCOME TAX ACT WHEREIN THE AO HAS ALLOWED THE CLAIM OF THE RESEARCH AND DEVELOPMENT EXPENDITURE AS PER THE INCOME TAX ACT TO THE ASSESSEE. IT WAS FURTHER STATED THAT THE RESEARCH AND DEVELOPMENT CENTRE WAS OPERATING FROM GURGAON, WHICH WAS NOT COVERED DURING THE COURSE OF SURVEY OR SEARCH OPERATION IN 2007. THE ASSESSEE HAS ALSO PRODUCED BEFORE THE LEARNED ASSESSING OFFICER THE DETAILS OF THE VARIOUS MINUTES OF THE MEETING OF THE ASSESSEE WITH RESPECT TO THE MINISTRY OF SCIENCE AND TECHNOLOGY, WHICH SHOWS THAT THE RESEARCH AND DEVELOPMENT UNIT EXIST. IT WAS FURTHER STATED THAT THE LEARNED ASSESSING OFFICER HAS MERELY BRUSHED ASIDE THE REPORTS OF THE RESEARCH AND DEVELOPMENT BY THE ASSESSEE STATING THAT THESE ARE MERELY GENERAL REPORTS. HE SUBMITTED THAT IF NO RESEARCH AND DEVELOPMENT ACTIVITIES ARE CARRIED OUT THE LEARNED ASSESSING OFFICER SHOULD NOT HAVE ALLOWED THE SUBSTANTIAL PORTION OF THE RESEARCH AND DEVELOPMENT EXPENDITURE. IV. WITH RESPECT TO THE TRAVELLING EXPENDITURE DISALLOWED BY THE LEARNED ASSESSING OFFICER IT WAS SUBMITTED THAT THIS DISALLOWANCE HAS BEEN MADE BY THE LEARNED ASSESSING OFFICER MERELY ON CONJECTURES AND SURMISES. THERE IS NOTHING LIKE PERSONAL EXPENDITURE INCURRED BY THE COMPANY, AS IT IS A CASE OF THE LIMITED COMPANY. THE ASSESSEE PLACED RELIANCE ON THE CASE OF FRIENDS CLEARING AGENCY PRIVATE LIMITED 332 ITR 269 AND WIDEX PAGE | 12 INDIA PRIVATE LIMITED VERSUS DCIT 66 DTR. IT WAS FURTHER STATED THAT THERE IS NO INSTANCES AVAILABLE WITH THE ASSESSING OFFICER THAT ANY EXPENDITURE IS INCURRED BY THE ASSESSEE, WHICH IS NOT WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSES OF THE BUSINESS. HE THEREFORE SUBMITTED THAT THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER DESERVES TO BE DELETED AND THE LEARNED CIT CAPITAL HAS CORRECTLY DELETED THE SAME. V. WITH RESPECT TO THE ADVANCE TO A SUBSIDIARY COMPANY WHICH HAS BEEN WRITTEN OFF BY THE ASSESSEE HE PLACED RELIANCE ON THE DECISION OF THE HONOURABLE SUPREME COURT IN CASE OF S A BUILDERS VERSUS CIT 208 ITR 1 AND STATED THAT ASSESSEE HAS INFUSED FUNDS INTO THE SUBSIDIARY COMPANY AND SIMON TENUOUSLY ARRANGED TERM LOAN FROM IDBI FOR THAT COMPANY BY GIVING ITS CORPORATE GUARANTEE. IT WAS THEREFORE STATED THAT THERE WAS A DRASTIC CHANGE IN THE MOBILE INDUSTRY WHEN THE TARIFFS WERE REDUCED WHICH BECAME A DISASTER FOR THE PAGING INDUSTRY AND THEREFORE THE SUBSIDIARY COMPANY COULD NOT PROSPER AS A BUSINESS AND WAS IN NO POSITION TO PAY BACK THE ASSESSEE AS WELL AS THE GUARANTEE OBLIGATION AND THEREFORE THE ASSESSEE HAS INCURRED THIS LOSS WHICH WAS REQUIRED TO BE RETURN OF ON PRUDENTIAL BASIS. HE FURTHER REFERRED TO THE MEMORANDUM OF ARTICLES OF THE ASSESSEE COMPANY AND STATED THAT THE ABOVE SUBSIDIARY COMPANY WAS FORMED FOR THE PURPOSE OF PROVIDING TELECOMMUNICATION SERVICES I.E. PAGING SERVICES AND THE LONGS FOR EXTENDED DUE TO COMMERCIAL EXPEDIENCY. WHEN SUCH LOANS HAVE GONE BAD THE SAME SHOULD BE TREATED AS A BUSINESS LOSS. IT WAS FURTHER STATED THAT THE MERELY BECAUSE THE SUBSIDIARY COMPANY HAS NOT WRITTEN BACK SUCH AN AMOUNT IT CANNOT BE DISALLOWED IN THE HENCE OF THE ASSESSEE COMPANY. THUS, THE LD. AR SUPPORTED THE ORDER OF THE LD. CIT (APPEALS). 12. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS, PERUSED THE ORDERS OF THE LOWER AUTHORITIES, REFERRED TO THE SEVERAL JUDICIAL PRECEDENTS CITED BY THE PARTIES. PAGE | 13 13. THE FIRST GROUND OF APPEAL IS WITH RESPECT TO THE PROFITS OF RS. 8,28,506/- ADDED BY THE LD. ASSESSING OFFICER ON ACCOUNT OF CIRCULAR TRANSACTION. THE ASSESSING OFFICER NOTED THAT ASSESSEE HAS MADE PURCHASES AND SALES FROM ONE M/S. BALAJI ELECTRONICS PVT. LTD. AND AT THE END OF THE YEAR THE AMOUNTS OF PURCHASES AND THE AMOUNTS OF SALES MADE FROM THIS PARTY IS ALMOST EQUAL. THEREFORE, THE ASSESSING OFFICER NOTED THAT ASSESSEE HAS NOT PAID ANY SUM TO BALAJI ELECTRONICS PVT. LTD. FOR PURCHASE OF MATERIAL, BUT HAS SQUARED OF OUTSTANDING OF PURCHASES BY SHOWING SALES TO THIS PARTY. THEREFORE, NATURALLY THERE IS NEITHER RECEIPT OF SALE CONSIDERATION FROM THE ABOVE PARTY AND NOR PAYMENT OF PURCHASE CONSIDERATION TO THAT PARTY. THEREFORE, THE ASSESSING OFFICER ISSUED NOTICE UNDER SECTION 133(6) OF THE ACT TO THE ABOVE PARTY, WHO CONFIRMED THE TRANSACTIONS. ASSESSING OFFICER WAS OF THE VIEW THAT IN THE SALE AND PURCHASE BILL SHOWN THE DESCRIPTION OF THE MATERIAL ONLY AS ELECTRONIC GOODS AND THE MANNER OF THE CREATION OF THE CIRCULAR ACTIVITY IS ALSO DOUBTFUL. HE ALSO REJECTED THE CLAIM OF THE ASSESSEE THAT IT HAS EARNED THE PROFITS. ASSESSING OFFICER WAS ALSO GUIDED BY THE FACT THAT IN ASSESSMENT YEARS 1998-99 AND 1999-2000, ASSESSEE HAS CREATED SUCH A CIRCULAR TRADING AND HAS AN ACCEPTED PROFIT RATE OF 1.09% ON THE SAME. THE LD. CIT (APPEALS) DELETED THE ABOVE ADDITION THAT ASSESSEE HAS DISCLOSED PROFIT OF 11.52% ON THE TRADING ACTIVITY AND FURTHER THE PURCHASE AND SALE FROM BALAJI ENTERPRISES HAS ALSO NOT HELD TO BE BOGUS. HE FURTHER NOTED THAT ASSESSEE ITSELF HAS SHOWN A PROFIT OF 2.28% ON TOTAL SALES TO BALAJI ENTERPRISES, WHICH IS MORE THAN 1.5% ESTIMATED BY THE ASSESSING OFFICER. WE FIND THAT AS SUCH THE ASSESSING OFFICER COULD NOT SHOW ANY LEGAL BAR OF MAKING PURCHASES AND SALES FROM THE SAME PARTY. FURTHER BALAJI ELECTRONICS PVT. LTD. IN RESPONSE TO NOTICE UNDER SECTION 133(6) OF THE ACT HAS CONFIRMED THE TRANSACTIONS. FURTHER, FOR ASSESSMENT YEAR 1998-99 IT IS SHOWN THAT THE ASSESSEE ACCEPTED THE GP RATIO OF 1.09% ONLY FOR THE REASON THAT IN THAT CASE THE TRANSACTION WITH THE CIRCULAR TRADING PARTIES RESULTED INTO PROFIT OF JUST 0.53%. IN THE PRESENT CASE, THE ASSESSING OFFICER HAS MADE A PROFIT OF 1.5% WHEREAS THE ASSESSEE HAS ITSELF SHOWN THE PROFIT OF 2.28%. THEREFORE, THE ESTIMATE OF THE PROFIT MADE BY THE ASSESSING OFFICER IS FAR LESS THAN THE INCOME OF SUCH CIRCULAR INCOME DISCLOSED BY THE ASSESSEE. IN VIEW OF THIS, WE DO NOT FIND ANY REASON TO DISTURB THE ORDER OF THE LD. CIT PAGE | 14 (APPEALS). ACCORDINGLY, THE ORDER OF THE LD. CIT (APPEALS) DELETING THE ADDITION OF RS. 8,28,506/- IS CONFIRMED AND GROUND NO. 1 OF THE APPEAL IS DISMISSED. 14. THE SECOND GROUND IS WITH RESPECT TO DISALLOWANCE OF DEDUCTION UNDER SECTION 80IB OF THE ACT OF RS. 4,97,18,139/-. WE FIND THAT ASSESSEE HAS CLAIMED THE ABOVE DEDUCTION WITH RESPECT TO ITS SOFTWARE UNIT AT GOA. THOUGH THE TOTAL DEDUCTION AVAILABLE DURING THE YEAR 2001-02 WAS RS. 8,89,258/-, BUT IT WAS RESTRICTED IT TO THE GROSS TOTAL INCOME. THE FACT SHOWS THAT THE SURVEY TOOK PLACE ON 10 MAY 2007 ALONG WITH THE SEARCH AND SEIZURE OPERATION AND THE INCOME TAX DEPARTMENT FOUND THAT THERE ARE NO ACTIVITIES CARRIED OUT BY THE ASSESSEE AT UNITS AT SOLAN AND GOA, WHICH ARE ENTITLED FOR DEDUCTION U/S 80 IB OF THE ACT. THERE WERE ALSO STATEMENTS RECORDED OF THE PERSONS WERE EMPLOYED AT THE TIME SURVEY TOOK PLACE WHO COULD NOT EXPLAIN THE EXISTENCE OF THE MANUFACTURING ACTIVITIES AT THE FACTORY WHEN THE DEDUCTION WAS CLAIMED. THE SURVEY TEAM ALSO DID NOT FIND ANY INFRASTRUCTURE IN THE FORM OF WORK FORCE THAT WAS CAPABLE OF PRODUCING THE SOFTWARE AND THEREFORE THE DEDUCTION WAS DENIED. IT IS THE CLAIM OF THE ASSESSEE THAT MANUFACTURING ACTIVITIES AT SOLAN IS BEING CARRIED OUT SINCE 1990 AND A COMPANY IS ONE OF THE LEADING MANUFACTURERS AND SUPPLIERS OF TELECOMMUNICATION EQUIPMENTS IN INDIA SUPPLYING TO THE PUBLIC SECTOR UNDERTAKING SUCH AS BSNL AND MTNL. THE DEDUCTION U/S 80 IB/80 IA IS BEING CLAIMED SINCE ASSESSMENT YEAR 2000 01. HOWEVER, THE DEDUCTION WAS NOT CLAIMED IN ONE OF THE YEAR FOR THE NEGATIVE INCOME. THE ASSESSMENT IN THE CASE OF THE ASSESSEE WAS ALL COMPLETED AND SUBSEQUENTLY THE DEDUCTIONS ARE ALLOWED UNDER THIS SECTION BY THE LEARNED ASSESSING OFFICER. THE GOA UNIT WAS SET UP IN 1995-96 FOR MANUFACTURING OF OPTICAL FIBER CABLE. IT WAS STATED THAT WHEREVER THE MANUFACTURING ACTIVITIES ARE CARRIED OUT THE RELEVANT EXCISE RECORDS OF THE APPELLANT, WHICH WERE DULY CHECKED BY THE ACT AUTHORITIES REGULARLY AND THEREFORE THERE CANNOT BE ANY DOUBT ABOUT THE EXISTENCE OF THE MANUFACTURING ACTIVITIES. SO FAR AS THE WORK FORCE IS CONCERNED IT WAS STATED BY THE ASSESSEE THAT IT HAS OF COURSE OF 511 EMPLOYEES THEREFORE THERE CANNOT BE A QUESTION THAT ASSESSEE DID NOT HAVE THE ENOUGH WORK FORCE TO MANUFACTURE THE GOODS. FURTHER DURING THE COURSE OF SURVEY ON 10 MAY 2007 THE INVENTORY OF STOCK OF THE CABLE UNIT WAS ALSO PAGE | 15 TAKEN ALONG WITH THE VARIOUS TYPE OF RAW MATERIALS FOR MANUFACTURING OF THE CABLE THEREFORE THE EXISTENCE OF MANUFACTURING ACTIVITY COULD NOT HAVE BEEN DENIED. WITH RESPECT TO THE STATEMENT OF EMPLOYEES, THE CLAIM OF THE ASSESSEE WAS THAT SUCH STATEMENT COULD NOT BE RELIED UPON IN VIEW OF OVERWHELMING EVIDENCE REGARDING THE OPERATIONS OF THE UNIT AND THE PRODUCTS MANUFACTURED WHICH WERE SUPPLIED TO THE PUBLIC SECTOR UNDERTAKING. IT WAS FURTHER STATED THAT ORDERS OF THE PUBLIC SECTOR UNDERTAKING FORCE VARIOUS SUPPLY OF GOODS OR THE MANUFACTURED GOODS OF THE ASSESSEE AND THEREFORE IT CANNOT BE THE CASE AS SUGGESTED BY THE LEARNED ASSESSING OFFICER THAT THESE ARE MERELY STAMPED AFTER IMPORTING IT FROM THE VARIOUS COUNTRIES. DURING THE COURSE OF REMAND PROCEEDINGS BEFORE THE LEARNED CIT APPEAL THE EXCISE REGISTER 23A AND EXCISE REGISTER 23C, THE CHALLAN FOR PAYMENT OF EXCISE DUTY AND ACKNOWLEDGEMENT OF EXCISE RETURN FILED WITH THE EXCISE AUTHORITIES WERE ALSO VERIFIED AND NO ADVERSE COMMENT WAS MADE THESE RECORDS CONTAIN THE DETAILS OF THE PRODUCTION OF THE GOODS AND THE DISPATCHES FROM FACTORY PREMISES. IT HAS RESULTED INTO SALES THE ASSESSEE HAS ALSO SUBMITTED THE PARTY WAS DETAILS OF THE SALES TO WOMB GOODS MANUFACTURED AT THOSE UNITS WERE ALSO SOLD. THE LEARNED ASSESSING OFFICER IN REMAND PROCEEDINGS IS ALSO ACCEPTED THAT THESE ARE SOLD TO THE PUBLIC SECTOR UNDERTAKINGS AND TWO OTHER REPUTED CUSTOMERS. IN THE REMAND REPORT ASSESSING OFFICER HAS CATEGORICALLY HELD THAT THE ASSESSEE HAS ALSO FILED THE UNIT -WISE PROFIT AND LOSS ACCOUNT, THE DETAILS OF THE ITEMS ON WHICH EXCISE DUTY HAS BEEN CHARGED, THE ENTRIES IN THE EXCISE REGISTERS HAVE BEEN CHECKED WITH THE SALES REGISTERS OF THE ASSESSEE WHICH WERE FOUND IN AGREEMENT WITH EACH OTHER. THE LEARNED CIT A HAS WITH RESPECT TO THE STATEMENT OF THE EMPLOYEES HAS CATEGORICALLY HELD THAT THE LEARNED ASSESSING OFFICER HAS CONVENIENTLY IGNORED THE OTHER EVIDENTIARY MATERIAL PLACED BEFORE HIM. IT WAS FURTHER FACT THAT THE SURVEY TEAM TOOK THE ACTION ONE YEAR AFTER THE OPERATIONS STOPPED AT THOSE UNITS WHERE THE SOFTWARE WAS MANUFACTURED/DEVELOPED. THE SIGNATORY TO THE EXCISE RECORD OF THE ASSESSEE WAS THE SAME EMPLOYEE WHOSE STATEMENT WAS USED BY THE ASSESSING OFFICER. IT IS ALSO A FACT THAT THE DEDUCTION UNDER THOSE SECTIONS WERE ALREADY ALLOWED TO THE ASSESSEE U/S 143 (3) OF THE INCOME TAX ACT BY THE LEARNED ASSESSING OFFICER AFTER COMPLETELY EXAMINING ALL THESE DETAILS. IN PAGE | 16 VIEW OF THIS, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LEARNED CIT A DELETING DISALLOWANCE MADE BY LD AO U/S 80IB OF THE ACT. NO EVIDENCES WERE PRODUCED BEFORE US THAT THERE WAS NO MANUFACTURING FACILITY AVAILABLE AT THOSE PLANTS, THE DETAILS SUBMITTED BY THE ASSESSEE WITH RESPECT TO THE MANPOWER AVAILABLE AT THOSE UNITS WAS ALSO NOT DENIED, THE LEARNED ASSESSING OFFICER HAS ALSO CATEGORICALLY ACCEPTED AFTER VERIFICATION OF THE EXCISE RECORDS THAT IT MATCHED WITH THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND THERE IS A PRODUCTION ACCORDING TO THOSE RECORDS. IN VIEW OF THESE OVERWHELMING EVIDENCES, WE CONFIRM THE ORDER OF THE LEARNED CIT APPEAL AND DISMISS GROUND NUMBER 2 OF THE APPEAL OF THE AO. 15. COMING TO THE GROUND NUMBER 3 WITH RESPECT TO THE DELETION OF THE DISALLOWANCE OF 63,075,938 MADE ON ACCOUNT OF EXPENDITURE ON RESEARCH AND ELEMENT EXPENDITURE, THE LEARNED ASSESSING OFFICER HAS MADE THE DISALLOWANCE FOR THE REASON THAT ACCORDING TO HIM THERE WAS NO RESEARCH AND DEVELOPMENT FACILITY EXISTING AT SOLAN. IN FACT THE ASSESSEE HAS CLAIMED DEDUCTION OF EXPENDITURE WITH RESPECT TO RESEARCH AND DEVELOPMENT UNIT AT GURGAON. THE LD. ASSESSING OFFICER EXAMINED THE RESEARCH AND DEVELOPMENT ACTIVITY OF THE ASSESSEE WHERE THE REVENUE AND CAPITAL EXPENDITURE BOTH HAVE BEEN CLAIMED AS DEDUCTION UNDER SECTION 35(I) AND 35(IV) OF THE ACT. THE FACT SHOWS THAT ASSESSEE HAS INCURRED THE TOTAL RESEARCH AND DEVELOPMENT EXPENDITURE OF 111,077,050/ OUT OF WHICH THE CAPITAL EXPENDITURE OF RS 497,81,944 AND REVENUE EXPENDITURE OF 61,295,106 WAS CLAIMED. THE LEARNED AO OUT OF THE ABOVE EXPENDITURE ALLOWED THE CLAIM OF THE ASSESSEE TO THE EXTENT OF 48,001,112/ AND DISALLOWED 6,30,75,938. THE LEARNED CIT APPEAL DELETED THE SAME. THE FACTS SHOW THAT THE RESEARCH AND DEVELOPMENT CENTRE WAS OPERATING FROM GURGAON AND WHICH WAS NOT COVERED EITHER UNDER SURVEY OR IN SEARCH. THEREFORE, IT CANNOT BE SAID THAT THERE WAS EVIDENCE AVAILABLE WITH THE REVENUE THAT NO ACTIVITIES WERE CARRIED OUT AT THAT PARTICULAR PLACE. WHEREAS THE ASSESSEE HAS SHOWN THE CORRESPONDENCE EXCHANGED BETWEEN THE APPELLANT AND DEPARTMENT OF SCIENCE AND TECHNOLOGY GOVERNMENT OF INDIA AND FURTHER THERE IS AN EVIDENCE IN THE FORM OF MEETING WITH THE MINISTRY OF SCIENCE ON THE PROJECTS UNDERTAKEN BY THE APPELLANT IN THE MINUTES OF THE MEETINGS CANNOT BE SAID TO BE MERELY A PAPERWORK AND GENERAL RESEARCH. IN FACT THE ASSESSEE IS ALSO PAGE | 17 HAVING RECOGNITION LETTER FROM THE MINISTRY OF SCIENCE WITH RESPECT TO THE RESEARCH AND DEVELOPMENT ACTIVITY OF THE ASSESSEE. IN FACT HIMSELF HAS ALLOWED PART OF THE EXPENDITURE THEREFORE IT CANNOT BE SAID THAT THERE IS NO RESEARCH AND ACTIVITIES CARRIED OUT BY THE ASSESSEE IT MAY NOT BE FRUITFUL. HOWEVER, FOR THIS REASON DISALLOWANCE OF EXPENDITURE CANNOT BE MADE. FURTHER IN THE ORIGINAL ASSESSMENT PROCEEDINGS U/S 143 (3) OF THE ACT THE LEARNED ASSESSING OFFICER AFTER PROPER EXAMINATION HAS ALLOWED THE COMPLETE CLAIM OF THESE EXPENDITURE. IT IS NOT ALSO THE CLAIM OF THE AO THAT THESE EXPENDITURE ARE FOUND TO BE BOGUS AND HAVE NOT BEEN AT ALL INCURRED BY THE ASSESSEE. IN VIEW OF THIS, WE CONFIRM THE ORDER OF THE LEARNED CIT APPEAL IN DELETING THE ABOVE DISALLOWANCE. ACCORDINGLY, GROUND NUMBER 3 OF THE APPEAL OF THE AO IS DISMISSED. 16. COMING TO GROUND NUMBER 4, THE LEARNED ASSESSING OFFICER HAS DISALLOWED ON AD HOC BASIS 5 LAKHS OUT OF THE TRAVELLING EXPENDITURE STATING THAT FAMILY MEMBERS OF THE DIRECTORS HAVE TRAVELLED ABROAD WITH THEM AND THEREFORE ALL THE VISITS OF THE FAMILY MEMBERS CANNOT BE ATTRIBUTED BULLION EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THEREFORE DISALLOWED A SUM OF 5 LAKHS OUT OF FOREIGN EXPENDITURE. IN FACT, THE LEARNED ASSESSING OFFICER HAS FAILED TO BRING ON RECORD ANY SPECIFIC INSTANCE OF THE COMPANYS FUND BEING USED IN FUNDING THE TOUR OF THE FAMILY MEMBERS OF THE DIRECTORS. THE DISALLOWANCES ALSO MADE ON AD HOC BASIS. IN THE ORIGINAL ASSESSMENT PROCEEDINGS U/S 143 (3) OF THE ACT NO SUCH DISALLOWANCES WERE MADE DESPITE VERIFICATION OF THE COMPLETE DETAILS AT THE TIME. IN ABSENCE OF ANY DEFINITE FINDING BY THE LEARNED ASSESSING OFFICER, NATURALLY THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER IS MERELY ON CONJECTURES AND SURMISES WHICH CANNOT BE UPHELD AND RIGHTLY DELETED BY THE LEARNED CIT A. WE CONFIRM THE ORDER OF THE LEARNED CIT A AND DISMISS GROUND NUMBER 4 OF THE APPEAL. 17. GROUND NUMBER 5 IS WITH RESPECT TO THE DELETION OF THE DISALLOWANCE OF 86,190,935/ MADE ON ACCOUNT OF ADVANCES GIVEN TO THE SUBSIDIARY COMPANY, WHICH HAS BEEN WRITTEN OFF BY THE ASSESSEE DURING THE YEAR. THE FACT SHOWS THAT ASSESSEE HAS GIVEN CERTAIN ADVANCES TO A GROUP COMPANY MICROWAVE COMMUNICATION LTD WHICH HAVE BEEN WRITTEN OFF BY THE ASSESSEE. THIS DEDUCTION WAS ALREADY ALLOWED TO THE ASSESSEE IN ASSESSMENT PROCEEDINGS U/S 143 (3) OF THE ACT. NO INCRIMINATING EVIDENCES WERE FOUND PAGE | 18 DURING THE COURSE OF SEARCH WITH RESPECT TO THE ABOVE ISSUE. THE LEARNED ASSESSING OFFICER ON APPRAISAL OF THE ANNUAL ACCOUNTS OF THE ASSESSEE MADE THIS DISALLOWANCE. ASSESSEE HAS CLAIMED THE SAME AS A BUSINESS LOSS. THE LEARNED ASSESSING OFFICER DISALLOWED FOR THE REASON THAT SINCE THE SUBSIDIARY COMPANY HAS NOT TREATED THE SAME AS ASSESSEE SHALL OF LIABILITY AND THEREFORE SUCH A UNILATERAL ACTION BY THE ASSESSEE COMPANY WITH NO CORRESPONDING ENTRY IN THE SUBSIDIARY COMPANY OF WRITING IT BACK THIS BECOMES AN ABNORMAL CLAIM AND CANNOT BE ALLOWED U/S 37 (1) OF THE ACT. THE LEARNED CIT A DELETED THE ABOUT DISALLOWANCE FOR TWO REASONS. FIRSTLY, THERE IS NO INCRIMINATING EVIDENCE FOUND DURING THE COURSE OF SEARCH WITH RESPECT TO THE ABOVE ISSUE AND THEREFORE IT COULD NOT HAVE BEEN DISALLOWED IN FRAMING ASSESSMENT ORDER U/S 153A OF THE ACT. SECONDLY, IT WAS NOTED BY THE LEARNED CIT A THAT ASSESSEE HAS FOUR DIFFERENT SOURCES OF THE BUSINESS INCOME SUCH AS MANUFACTURING, TURNKEY ACTIVITIES, TRADING BUSINESSES AND FINANCE BUSINESSES. THE ASSESSEE HAS GRANTED FINANCIAL SUPPORT TO ITS SUBSIDIARY, WHICH FALLS INTO THE BUSINESS OF THE FINANCE BUSINESS SEGMENT OF THE ASSESSEE. THE FACT ALSO SHOWS THAT THE SUBSIDIARY COMPANY WAS ENGAGED IN THE BUSINESS OF PAGING SERVICES AND THE LOAN AND ADVANCES GIVEN TO THAT COMPANY BECOME NOT RECOVERABLE BECAUSE OF THE USUAL LOSSES SUFFERED BY THAT PARTICULAR COMPANY. THE FACT WAS ALSO NOTED THAT THE ENTIRE CAPITAL OF THAT PARTICULAR SUBSIDIARY COMPANY WAS ERODED BY THE ACCUMULATED LOSSES BY MORE THAN 2.5 TIMES OF ITSELF CAPITAL. THUS, IT WAS A BONA FIDE DECISION OF THE ASSESSEE COMPANY TO WRITE OF THE ABOVE AMOUNT UNDER THE HEAD OF ITS FINANCE BUSINESS AND CLAIM IT AS A BUSINESS LOSS. MERELY BECAUSE THE SUBSIDIARY COMPANY HAS NOT SHOWN THE CESSATION OF THE LIABILITY, THE CLAIM OF THE ASSESSEE CANNOT BE DISALLOWED. THE LEARNED CIT A AFTER CONSIDERING THE VARIOUS JUDICIAL PRONOUNCEMENTS HAS ALLOWED THE CLAIM OF THE ASSESSEE ON BOTH THE ABOVE ACCOUNT. BEFORE US, THE REVENUE COULD NOT SHOW THAT THERE WERE AN INCRIMINATING EVIDENCES AVAILABLE WITH THE REVENUE DURING THE COURSE OF SEARCH WITH RESPECT TO THE ABOVE CLAIM OF THE ASSESSEE OR THE LOSS INCURRED BY THE ASSESSEE HAS NOT ARISE AND DURING THE COURSE OF THE FINANCE BUSINESS OF THE ASSESSEE. IN VIEW OF THIS, WE DO NOT FIND ANY REASON TO DISTURB THE ORDER OF THE LEARNED CIT A ON THIS COUNT AND SO WE CONFIRM IT AND DISMISS GROUND NUMBER 5 OF THE APPEAL OF THE AO. PAGE | 19 18. IN THE RESULT ITA NUMBER 5741/DEL/2013 FOR ASSESSMENT YEAR 2002 03 FILED BY THE LEARNED ASSESSING OFFICER IS DISMISSED. ITA NUMBER 6225/ DEL/ 2013 ASSESSMENT YEAR 2003 04 19. ITA NUMBER 6225/DEL/2013 IS FILED BY THE LEARNED ASSESSING OFFICER FOR ASSESSMENT YEAR 2003 04 AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) III, NEW DELHI DATED 10 SEPTEMBER 2013 RAISING FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,07,68,795/- MADE ON ACCOUNT OF PROFIT OF CIRCULAR TRANSACTION. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 2,86,68,390/- MADE ON ACCOUNT OF DISALLOWANCE OF DEDUCTION CLAIMED U/S 80IB OF THE I.T. ACT 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 3,67,36,076/- MADE ON ACCOUNT OF DISALLOWANCE OF EXPENDITURE ON RESEARCH & DEVELOPMENT. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 5,00,000/- MADE ON ACCOUNT OF TRAVELLING EXPENSES INCURRED ON THE FAMILY MEMBERS OF THE DIRECTORS OF THE COMPANY. 5. THE ORDER OF THE CIT(A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 20. BOTH THE PARTIES CONFIRMED THAT IDENTICAL ISSUE IS WHEREIN THE APPEAL OF THE LEARNED ASSESSING OFFICER FOR ASSESSMENT YEAR 2002 03, THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THEIR ARGUMENTS ARE SIMILAR. 21. THE FACTS CLEARLY SHOW THAT ASSESSEE FILED ITS RETURN OF INCOME AT RUPEES NIL ONTO/12/2003 CLAIMING DEDUCTION U/S 80 IB OF RS 142,79,914. THE ASSESSMENT U/S 143 (3) WAS PASSED ON 24/3/2006 AT THE TAXABLE INCOME OF RS 278,72,558 AND DEDUCTION U/S 80 IB WAS ALLOWED AND THE TOTAL INCOME OF THE ASSESSEE WAS ASSESSED AT RUPEES NIL. SUBSEQUENTLY A SEARCH TOOK PLACE ON 10 MAY 2007 AND THEREAFTER AN ASSESSMENT ORDER U/S 153A READ WITH SECTION 143 (3) OF THE ACT WAS PASSED ON 29 DECEMBER 2009 DETERMINING THE PAGE | 20 TOTAL INCOME OF THE ASSESSEE AT 76,673,261 WHEREIN THE SIMILAR ADDITION/DISALLOWANCE HAS WERE MADE AS MADE IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2002 03. THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE ISSUES. 22. THE FIRST GROUND OF APPEAL IS WITH RESPECT TO THE DELETION OF THE ADDITION OF RS. 107,68,795/ MADE ON ACCOUNT OF THE PROFITS OF CIRCULAR TRANSACTIONS. THIS GROUND IS IDENTICAL TO GROUND NUMBER ONE OF THE APPEAL OF THE LEARNED ASSESSING OFFICER FOR ASSESSMENT YEAR 2002 03. THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE LEARNED CIT A HAS CATEGORICALLY HELD THAT ASSESSEE HAS DISCLOSED THE HIGHER PROFIT IN THE TRANSACTION OF THE CIRCULAR TRADING THEN WHAT WAS ESTIMATED BY THE LEARNED ASSESSING OFFICER AND THEREFORE THE ADDITION MADE OF RS 107,68,795 DOES NOT SURVIVE. WE HAVE ALSO DECIDED THIS ISSUE WHILE ADJUDICATING GROUND NUMBER ONE OF THE APPEAL OF THE LEARNED ASSESSING OFFICER FOR ASSESSMENT YEAR 2002 03. FOR THE SIMILAR REASONS, WE UPHOLD THE ORDER OF THE LEARNED CIT CAPITAL AND DELETING THE ABOVE DISALLOWANCE/ADDITION OF RS 107,68,795/ AND ACCORDINGLY GROUND NUMBER 1 OF THE APPEAL OF THE LEARNED AO IS DISMISSED. 23. GROUND NUMBER 2 IS WITH RESPECT TO THE DELETING THE DISALLOWANCE OF 28,668,390/ OF DEDUCTION CLAIMED BY THE ASSESSEE U/S 80 IB OF THE ACT. BOTH THE PARTIES CONFIRM THAT THIS ISSUE IS IDENTICAL TO THE GROUND NUMBER TWO OF THE APPEAL OF THE LEARNED ASSESSING OFFICER FOR ASSESSMENT YEAR 2002 03. WE HAVE ALREADY DECIDED THIS ISSUE IN DECIDING THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2002 03 WHEREIN WHILE ADJUDICATING ON GROUND NUMBER TWO WE HAVE CONFIRMED THE ORDER OF THE LEARNED CIT A IN THE ABOVE DISALLOWANCE. FOR THE SIMILAR REASONS WE CONFIRM THE ORDER OF THE LEARNED CIT A DELETING THE DISALLOWANCE OF DEDUCTION CLAIMED U/S 80 IB OF THE INCOME TAX ACT OF 28,668,394 THIS YEAR. ACCORDINGLY, GROUND NUMBER TWO OF THE APPEAL OF THE AO IS DISMISSED. 24. GROUND NUMBER 3 OF THE APPEAL OF THE AO IS WITH RESPECT TO THE DELETION OF THE DISALLOWANCE OF 36,736,076/ OUT OF THE RESEARCH AND DEVELOPMENT EXPENDITURE INCURRED BY THE ASSESSEE. THIS GROUND IS IDENTICAL TO THE GROUND NUMBER 3 OF THE APPEAL OF THE LEARNED ASSESSING OFFICER FOR ASSESSMENT YEAR 2002 03 WHEREIN WE HAVE CONFIRMED THE ORDER OF THE LEARNED CIT A IN DELETING THE ABOVE DISALLOWANCE. FOR THE SIMILAR REASONS PAGE | 21 WE ALSO, UPHOLD THE ORDER OF THE LEARNED CIT A IN DELETING THE DISALLOWANCE OF 36,736,076/ ON ACCOUNT OF RESEARCH AND ELEMENT EXPENDITURE. THUS, GROUND NUMBER 3 OF THE APPEAL IS DISMISSED. 25. GROUND NUMBER 4 OF THE APPEAL OF THE LEARNED ASSESSING OFFICER IS WITH RESPECT TO THE DISALLOWANCE OF 5 LAKHS OUT OF THE FOREIGN TRAVEL EXPENDITURE INCURRED ON THE FAMILY MEMBERS OF THE DIRECTORS OF THE COMPANY. THIS GROUND OF APPEAL IS IDENTICAL TO THE GROUND NUMBER 4 OF THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2002 03. WHILE ADJUDICATING THE GROUND, WE HAVE CONFIRMED THE ORDER OF THE LEARNED CIT A IN DELETING THE ABOVE DISALLOWANCE. FOR SIMILAR REASONS ALSO WE UPHOLD THE ORDER OF THE LEARNED CIT A FOR THIS YEAR AND CONFIRM HIS ORDER OF DELETING THE DISALLOWANCE OF 5 LAKHS OUT OF THE TRAVELLING EXPENDITURE. ACCORDINGLY, GROUND NUMBER 4 OF THE APPEAL OF THE LEARNED ASSESSING OFFICER IS DISMISSED. 26. ACCORDINGLY, ITA NUMBER 6225/DEL/2013 FILED BY THE LEARNED ASSESSING OFFICER FOR ASSESSMENT YEAR 2003 04 IS DISMISSED. ITA NUMBER 6226/DEL/2013 ASSESSMENT YEAR 2004 05 27. ITA NUMBER 6226/DEL/2013 IS FILED BY THE LEARNED ASSESSING OFFICER FOR ASSESSMENT YEAR 2004 05 AGAINST THE ORDER OF THE LEARNED CIT A III, NEW DELHI DATED 23/9/2013. 28. THE LEARNED ASSESSING OFFICER HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 42,94,272/- MADE ON ACCOUNT OF PROFIT OF CIRCULAR TRANSACTION. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 31,45,95,564/- MADE ON ACCOUNT OF DISALLOWANCE OF EXPENDITURE ON RESEARCH DEVELOPMENT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 5,00,000/- MADE ON ACCOUNT OF TRAVELLING EXPENSES INCURRED ON THE FAMILY MEMBERS OF THE DIRECTORS OF THE COMPANY. , 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 15,00,10,660/- MADE ON ACCOUNT OF ADVANCES GIVEN TO GROUP COMPANY WRITTEN OFF. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 1,50,00,000/- MADE ON ACCOUNT OF UNVERIFIED EXPENDITURE. PAGE | 22 6. THE ORDER OF THE CIT(A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 29. THE FACT OF THE CASE SHOWS THAT ASSESSEE FILED ITS RETURN OF INCOME ON 31/10/2000 FOR DECLARING A TOTAL LOSS OF 1,888,938,039. THE ASSESSMENT U/S 143 (3) OF THE ACT WAS PASSED ON 27/12/2006 THE LOSS OF THE ASSESSEE WAS DETERMINED AT 1,785,917,887. SUBSEQUENTLY THE SEARCH TOOK PLACE ON 10/FILE/2007 AND CONSEQUENT TO THAT THE ASSESSMENT ORDER U/S 153A READ WITH SECTION 143 (3) OF THE ACT WAS PASSED ON 29 TH OF DECEMBER 2009 WHEREIN THE TOTAL LOSS OF THE ASSESSEE WAS DETERMINED AT 1,301,517,361. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LEARNED CIT A WHO ALLOWED THE APPEAL OF THE ASSESSEE AND DELETED THE DISALLOWANCES MADE BY THE LEARNED ASSESSING OFFICER. THEREFORE, REVENUE IS IN APPEAL. 30. BOTH THE PARTIES AGREED THAT THE IDENTICAL ISSUES HAVE BEEN COVERED IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2002 03 AND THEREFORE THEY ALSO MADE THE SAME ARGUMENTS AS WERE ADVANCED IN THOSE YEARS. IT WAS ALSO CONFIRMED THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 31. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. 32. THE FIRST GROUND OF APPEAL IS WITH RESPECT TO THE DELETION OF THE ADDITION OF 4,294,272/ MADE ON ACCOUNT OF THE PROFITS OF CIRCULAR TRANSACTIONS. THIS GROUND IS IDENTICAL TO GROUND NUMBER ONE OF THE APPEAL OF THE LEARNED ASSESSING OFFICER FOR ASSESSMENT YEAR 2002 03. THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE LEARNED CIT A HAS CATEGORICALLY HELD THAT ASSESSEE HAS DISCLOSED THE HIGHER PROFIT IN THE TRANSACTION OF THE CIRCULAR TRADING THEN WHAT WAS ESTIMATED BY THE LEARNED ASSESSING OFFICER AND THEREFORE THE ADDITION MADE OF RS 42,94,272 DOES NOT SURVIVE. WE HAVE ALSO DECIDED THIS ISSUE WHILE ADJUDICATING GROUND NUMBER ONE OF THE APPEAL OF THE LEARNED ASSESSING OFFICER FOR ASSESSMENT YEAR 2002 03. FOR THE SIMILAR REASONS, WE UPHOLD THE ORDER OF THE LEARNED CIT CAPITAL AND DELETING THE ABOVE DISALLOWANCE/ADDITION OF 4,294,272 AND ACCORDINGLY GROUND NUMBER 1 OF THE APPEAL OF THE LEARNED AO IS DISMISSED. PAGE | 23 33. GROUND NUMBER 2 OF THE APPEAL OF THE AO IS WITH RESPECT TO THE DELETION OF THE DISALLOWANCE OF 31,45,95,564/ OUT OF THE RESEARCH AND DEVELOPMENT EXPENDITURE INCURRED BY THE ASSESSEE. THIS GROUND IS IDENTICAL TO THE GROUND NUMBER 3 OF THE APPEAL OF THE LEARNED ASSESSING OFFICER FOR ASSESSMENT YEAR 2002 03 WHEREIN WE HAVE CONFIRMED THE ORDER OF THE LEARNED CIT A IN DELETING THE ABOVE DISALLOWANCE. FOR THE SIMILAR REASONS WE ALSO, UPHOLD THE ORDER OF THE LEARNED CIT A IN DELETING THE DISALLOWANCE OF 31,45,95,564/ ON ACCOUNT OF RESEARCH AND DEVELOPMENT EXPENDITURE. THUS, GROUND NUMBER 2 OF THE APPEAL IS DISMISSED. 34. GROUND NUMBER 3 OF THE APPEAL OF THE LEARNED ASSESSING OFFICER IS WITH RESPECT TO THE DISALLOWANCE OF 5 LAKHS OUT OF THE FOREIGN TRAVEL EXPENDITURE INCURRED ON THE FAMILY MEMBERS OF THE DIRECTORS OF THE COMPANY. THIS GROUND OF APPEAL IS IDENTICAL TO THE GROUND NUMBER 4 OF THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2002 03. WHILE ADJUDICATING THE GROUND, WE HAVE CONFIRMED THE ORDER OF THE LEARNED CIT A IN DELETING THE ABOVE DISALLOWANCE. FOR SIMILAR REASONS ALSO WE UPHOLD THE ORDER OF THE LEARNED CIT A FOR THIS YEAR AND CONFIRM HIS ORDER OF DELETING THE DISALLOWANCE OF 5 LAKHS OUT OF THE TRAVELLING EXPENDITURE. ACCORDINGLY, GROUND NUMBER 3 OF THE APPEAL OF THE LEARNED ASSESSING OFFICER IS DISMISSED. 35. GROUND NUMBER 4 OF THE APPEAL IS WITH RESPECT TO THE DELETION OF THE DISALLOWANCE OF 150,010,660 MADE ON ACCOUNT OF THE ADVANCES GIVEN TO THE GROUP COMPANIES WRITTEN OFF BY THE ASSESSEE. THIS GROUND IS IDENTICAL TO GROUND NUMBER 5 OF THE APPEAL OF THE LEARNED ASSESSING OFFICER FOR ASSESSMENT YEAR 2002 03. WHILE ADJUDICATING THE GROUND WE HAVE CONFIRMED THE ORDER OF THE LEARNED CIT A IN DELETING THE ABOVE DISALLOWANCES. THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND THEREFORE FOR THE SIMILAR REASONS WE ALSO CONFIRMED THE ORDER OF THE LEARNED CIT CAPITAL AND DELETING THE DISALLOWANCE OF 150,010,660/. ACCORDINGLY, GROUND NUMBER 4 OF THE APPEAL OF THE LEARNED ASSESSING OFFICER IS DISMISSED. 36. GROUND NUMBER 5 IS WITH RESPECT TO THE DISALLOWANCE OF RS 1.50 CRORES MADE ON ACCOUNT OF UNVERIFIED EXPENDITURE DELETED BY THE LEARNED CIT A. THE LEARNED ASSESSING OFFICER HAS MADE THE ABOVE DISALLOWANCES OUT OF EXPENSES ON AD HOC BASIS DUE TO THE NONPRODUCTION OF THE BOOKS OF PAGE | 24 ACCOUNTS. THE LEARNED CIT A IS ALSO NOTED THAT FOR ASSESSMENT YEAR 2002 03 AND 2003 04 THE LEARNED ASSESSING OFFICER HAS NOT MADE ANY SUCH DISALLOWANCE ON THE SIMILAR SET OF FACTS AND CIRCUMSTANCES. THE LEARNED CIT A ALSO NOTED THAT NO SUCH DISALLOWANCES WERE MADE IN THE ASSESSMENT PROCEEDINGS U/S 143 (3) OF THE ACT. IT WAS ALSO FOUND THAT THERE IS NO INCRIMINATING EVIDENCE FOUND DURING THE COURSE OF SEARCH WITH RESPECT TO THE EXPENDITURE INCURRED BY THE ASSESSEE. THE LEARNED CIT CAPITAL HAS ALSO NOTED THAT THE BOOKS OF ACCOUNTS ARE DULY AUDITED AND THERE IS NO QUALIFICATION BY THE AUDITOR WITH RESPECT TO NON-AVAILABILITY OF ANY VOUCHERS OR THE DETAILS OF THE EXPENSES. AS THE LEARNED ASSESSING OFFICER HAS MADE THE ABOVE DISALLOWANCES ON AD HOC BASIS WITHOUT POINTING OUT ANY DEFECT IN THE DETAILS SUBMITTED BEFORE HIM WHICH WAS ALSO VERIFIED BY HIM DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS U/S 143 (3) OF THE ACT, THE LEARNED CIT A DELETED THE ABOUT DISALLOWANCE. BEFORE US, THE LEARNED DR COULD NOT PRODUCE ANY MATERIAL TO SHOW THAT THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER WAS BASED ON ANY PARTICULAR INCIDENT OF OR INSTANCES OF EXPENDITURE DEBITED BY THE ASSESSEE THAT ARE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS. IN VIEW OF THIS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT A THE ABOVE DISALLOWANCE. THE ORDER OF THE LEARNED CIT CAPITAL IS CONFIRMED AND GROUND NUMBER 5 OF THE APPEAL OF THE LEARNED ASSESSING OFFICER IS DISMISSED. 37. ACCORDINGLY, ITA NUMBER 6226/DEL/2013 FILED BY THE LEARNED ASSESSING OFFICER FOR ASSESSMENT YEAR 2004 05 IS DISMISSED. ITA NUMBER 765/DEL/2014 ASSESSMENT YEAR 2005 06 38. ITA NUMBER 765/DEL/2014 IS FILED BY THE LEARNED ASSESSING OFFICER AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (A) III, NEW DELHI DATED 26/12/2013 FOR ASSESSMENT YEAR 2005 06, 39. THE LEARNED ASSESSING OFFICER HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 58,02,210/- MADE ON ACCOUNT OF PROFIT OF CIRCULAR TRANSACTION. PAGE | 25 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 28,18,12,226/- MADE ON ACCOUNT OF DISALLOWANCE OF EXPENDITURE ON RESEARCH & DEVELOPMENT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 1,43,69,167/- AND RS. 1,57,660/- MADE BY THE A.O. ON ACCOUNT OF LATE DEPOSIT OF EMPLOYEES CONTRIBUTION TOWARDS RESPECTIVELY PF AND ESI IN VIEW OF THE PROVISIONS OF SEC. 2(24)(X), READ WITH SEC. 36(L)(V)(A) OF THE INCOME TAX ACT, 1961. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 5,00,000/- MADE ON ACCOUNT OF TRAVELLING EXPENSES INCURRED ON THE FAMILY MEMBERS OF THE DIRECTORS OF THE COMPANY. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 1,50,00,000/- MADE ON ACCOUNT OF UNVERIFIED EXPENDITURE. 6. THE ORDER OF THE CIT(A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 40. THE BRIEF FACTS OF THE CASE SHOWS THAT ASSESSEE FILED ITS RETURN OF INCOME DECLARING LOSS OF 2,402,187,478/. THE ASSESSMENT ORDER WAS ALSO PASSED U/S 143 (3) OF THE ACT DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT THE SAME AMOUNT. SUBSEQUENTLY SEARCH TOOK PLACE ON 10 MAY 2017 AND THEREFORE THE ASSESSMENT ORDER U/S 153A READ WITH SECTION 143 (3) OF THE ACT WAS PASSED ON 29 TH OF DECEMBER 2009 WHEREIN THE TOTAL TAXABLE INCOME OF THE ASSESSEE WAS DETERMINED AT A LOSS OF 130,15,17,361/-BY MAKING THE SEVERAL DISALLOWANCES/ADDITION. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LEARNED CIT A ALLOWED THE APPEAL OF THE ASSESSEE AND THEREFORE REVENUE IS IN APPEAL BEFORE US. 41. BOTH THE PARTIES CONFIRMED THAT THE IDENTICAL ISSUES HAVE BEEN RAISED IN THIS APPEAL OF THE LEARNED ASSESSING OFFICER, WHICH WERE ALREADY PART OF THE APPEAL FOR THE ASSESSMENT YEAR 2002 03, 2003 04, AND 2004 05. IT WAS ALSO CONFIRMED BY BOTH THE PARTIES THAT THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THEY ALSO CONFIRMED THAT THEIR ARGUMENTS ARE ALSO SIMILAR. 42. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDER OF THE LOWER AUTHORITIES. PAGE | 26 43. GROUND NUMBER 1 OF APPEAL IS WITH RESPECT TO THE DELETION OF THE ADDITION OF 58,02,210 / MADE ON ACCOUNT OF THE PROFITS OF CIRCULAR TRANSACTIONS. THIS GROUND IS IDENTICAL TO GROUND NUMBER ONE OF THE APPEAL OF THE LEARNED ASSESSING OFFICER FOR ASSESSMENT YEAR 2002 03. HOWEVER, IN THIS CASE THE FINDING GIVEN BY THE LEARNED CIT A IS THAT THE ASSESSEE HAS DISCLOSED LOSS ON ACCOUNT OF THE CIRCULAR TRANSACTIONS AND THEREFORE HE HAS UPHELD THE GROSS PROFIT RATE OF 1.09% IS DECIDED IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 98-99 AND 1999 2000. THERE IS NO OTHER CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO DECIDED THIS ISSUE WHILE ADJUDICATING GROUND NUMBER 1 OF THE APPEAL OF THE LEARNED ASSESSING OFFICER FOR ASSESSMENT YEAR 2002 03. HOWEVER, IN THE PRESENT CASE BEFORE US AS ASSESSEE HAS DISCLOSED CLAUSE IN THE CIRCULAR TRANSACTION, THE LEARNED CIT CAPITAL HAS CORRECTLY ESTIMATED THE PROFIT AT 1.09%. FOR THE SIMILAR REASONS, WE UPHOLD THE ORDER OF THE LEARNED CIT A AND DELETING THE ABOVE DISALLOWANCE/ADDITION OF 58,02,210 AND ACCORDINGLY GROUND NUMBER 1 OF THE APPEAL OF THE LEARNED AO IS DISMISSED. 44. GROUND NUMBER 2 OF THE APPEAL OF THE AO IS WITH RESPECT TO THE DELETION OF THE DISALLOWANCE OF 28,18,12,226/ OUT OF THE RESEARCH AND DEVELOPMENT EXPENDITURE INCURRED BY THE ASSESSEE. THIS GROUND IS IDENTICAL TO THE GROUND NUMBER 3 OF THE APPEAL OF THE LEARNED ASSESSING OFFICER FOR ASSESSMENT YEAR 2002 03 WHEREIN WE HAVE CONFIRMED THE ORDER OF THE LEARNED CIT A IN DELETING THE ABOVE DISALLOWANCE. FOR THE SIMILAR REASONS WE ALSO, UPHOLD THE ORDER OF THE LEARNED CIT A IN DELETING THE DISALLOWANCE OF 28,18,12,226/ ON ACCOUNT OF RESEARCH AND DEVELOPMENT EXPENDITURE. THUS GROUND NUMBER 2 OF THE APPEAL OF THE LEARNED ASSESSING OFFICER IS DISMISSED. 45. GROUND NUMBER 3 IS WITH RESPECT TO THE DELETION OF THE DISALLOWANCE OF RS 1 43,69,167 AND 157,660/ MADE BY THE LEARNED ASSESSING OFFICER ON ACCOUNT OF LATE DEPOSIT OF EMPLOYEES CONTRIBUTION TOWARDS THE RESPECTIVELY PROVIDENT FUND AND ESIC ACCOUNT IN VIEW OF THE PROVISIONS OF SECTION 2 (24) (X) READ WITH SECTION 36 (1) (V) (A) OF THE ACT. THE LEARNED CIT A HAS DELETED THE ABOVE DISALLOWANCES RESPECTFULLY FOLLOWING THE DECISION OF THE HONOURABLE SUPREME COURT IN CASE OF VINAY CEMENTS AND HONOURABLE DELHI HIGH COURT IN CASE OF AIMIL LTD AND DIRECTED THE LEARNED ASSESSING OFFICER TO VERIFY WITH EVIDENCE IF THE PAYMENTS ARE MADE BEFORE THE DUE DATE OF FILING OF PAGE | 27 THE RETURN THEN ALLOW THE EXPENDITURE TO THAT EXTENT. WE FIND THAT THE LEARNED ASSESSING OFFICER HAS BEEN DIRECTED BY THE LEARNED ASSESSING OFFICER TO VERIFY WHETHER THE ABOVE PAYMENT HAVE BEEN MADE BEFORE THE DUE DATES OF THE FILING OF THE RETURN OF INCOME BY THE ASSESSEE OR NOT AND IF THE SAME IS PAID BEFORE THAT DATE, THE SAME IS REQUIRED TO BE ALLOWED AND OTHERWISE THE DISALLOWANCE WAS CONFIRMED. 46. WE FIND THAT THE ISSUE SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONOURABLE DELHI HIGH COURT IN CASE OF PRINCIPAL COMMISSIONER OF INCOME TAX 7, NEW DELHI VERSUS PRO INTERACTIVE SERVICES PRIVATE LIMITED ITA 983/2018 DATED 10 SEPTEMBER 2018 WHEREIN THE HONOURABLE HIGH COURT HAS HELD AS UNDER IN VIEW OF THE JUDGEMENT OF THE DIVISION BENCH OF DELHI HIGH COURT IN COMMISSIONER OF INCOME-TAX VERSUS AIMIL LIMITED, (2010) 321 ITR 508 (DEL) THE ISSUE IS COVERED AGAINST THE REVENUE AND, THEREFORE, NO SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERATION IN THIS APPEAL. THE LEGISLATIVE INTENT WAS/IS TO ENSURE THAT THE AMOUNT PAID IS ALLOWED AS AN EXPENDITURE ONLY WHEN PAYMENT IS ACTUALLY MADE. WE DO NOT THINK THAT THE LEGISLATIVE INTENT AND OBJECTIVE IS TO TREAT BELATED PAYMENT OF EMPLOYEE'S PROVIDENT FUND (EPD) AND EMPLOYEE'S STATE INSURANCE SCHEME (ESI) AS DEEMED INCOME OF THE EMPLOYER UNDER SECTION 2(24)(X) OF THE ACT. APPEAL IS DISMISSED. 47. THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE HONOURABLE DELHI HIGH COURT, WE UPHOLD THE ORDER OF THE LEARNED CIT A IN DELETING THE DISALLOWANCE OF LATE PAYMENT OF EMPLOYEES CONTRIBUTION OF PROVIDENT FUND ACCORDING TO THE RESPECTIVE DUE DATES PRESCRIBED UNDER THE RESPECTIVE LAW BUT PAID BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCOME. IN THE RESULT GROUND NUMBER 3 OF THE APPEAL OF THE LEARNED ASSESSING OFFICER IS DISMISSED. 48. GROUND NUMBER 4 OF THE APPEAL OF THE LEARNED ASSESSING OFFICER IS WITH RESPECT TO THE DISALLOWANCE OF 5 LAKHS OUT OF THE FOREIGN TRAVEL EXPENDITURE INCURRED ON THE FAMILY MEMBERS OF THE DIRECTORS OF THE COMPANY. THIS GROUND OF APPEAL IS IDENTICAL TO THE GROUND NUMBER 4 OF THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2002 03. WHILE ADJUDICATING THE GROUND, WE HAVE CONFIRMED THE ORDER OF THE LEARNED CIT A IN DELETING THE ABOVE PAGE | 28 DISALLOWANCE. FOR SIMILAR REASONS ALSO WE UPHOLD THE ORDER OF THE LEARNED CIT A FOR THIS YEAR AND CONFIRM HIS ORDER OF DELETING THE DISALLOWANCE OF 5 LAKHS OUT OF THE TRAVELLING EXPENDITURE. ACCORDINGLY, GROUND NUMBER 4 OF THE APPEAL OF THE LEARNED ASSESSING OFFICER IS DISMISSED. 49. GROUND NUMBER 5 IS WITH RESPECT TO THE DISALLOWANCE OF RS 1. 50 CRORES MADE BECAUSE OF UNVERIFIED EXPENDITURE DELETED BY THE LEARNED CIT A. THE LEARNED ASSESSING OFFICER HAS MADE THE ABOVE DISALLOWANCES OUT OF EXPENSES ON AD HOC BASIS DUE TO THE NONPRODUCTION OF THE BOOKS OF ACCOUNTS. THE LEARNED CIT A IS ALSO NOTED THAT FOR ASSESSMENT YEAR 2002 03 AND 2003 04 THE LEARNED ASSESSING OFFICER HAS NOT MADE ANY SUCH DISALLOWANCE ON THE SIMILAR SET OF FACTS AND CIRCUMSTANCES. THE LEARNED CIT A ALSO NOTED THAT NO SUCH DISALLOWANCES WERE MADE IN THE ASSESSMENT PROCEEDINGS U/S 143 (3) OF THE ACT. IT WAS ALSO FOUND THAT THERE IS NO INCRIMINATING EVIDENCE FOUND DURING THE COURSE OF SEARCH WITH RESPECT TO THE EXPENDITURE INCURRED BY THE ASSESSEE. THE LEARNED CIT CAPITAL HAS ALSO NOTED THAT THE BOOKS OF ACCOUNTS ARE DULY AUDITED AND THERE IS NO QUALIFICATION BY THE AUDITOR WITH RESPECT TO NON-AVAILABILITY OF ANY VOUCHERS OR THE DETAILS OF THE EXPENSES. AS THE LEARNED ASSESSING OFFICER HAS MADE THE ABOVE DISALLOWANCES ON AD HOC BASIS WITHOUT POINTING OUT ANY DEFECT IN THE DETAILS SUBMITTED BEFORE HIM WHICH WAS ALSO VERIFIED BY HIM DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS U/S 143 (3) OF THE ACT, THE LEARNED CIT A DELETED THE ABOUT DISALLOWANCE. BEFORE US, THE LEARNED DR COULD NOT PRODUCE ANY MATERIAL TO SHOW THAT THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER WAS BASED ON ANY PARTICULAR INCIDENT OF OR INSTANCES OF EXPENDITURE DEBITED BY THE ASSESSEE THAT ARE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS. APPEAL OF THE LEARNED ASSESSING OFFICER FOR ASSESSMENT YEAR 2004 05 WHEREIN SIMILAR DISALLOWANCES WERE MADE OUT OF THE TOTAL EXPENDITURE INCURRED BY THE ASSESSEE IS DELETED BY US CONFIRMING THE ORDER OF THE LEARNED CIT A. THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE FACTS IN THIS YEAR ALSO. IN VIEW OF THIS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT A THE ABOVE DISALLOWANCE. THE ORDER OF THE LEARNED CIT CAPITAL IS CONFIRMED AND GROUND NUMBER 5 OF THE APPEAL OF THE LEARNED ASSESSING OFFICER IS DISMISSED. PAGE | 29 50. IN THE RESULT ITA NUMBER 765/DEL/2014 FOR ASSESSMENT YEAR 2005 06 FILED BY THE LEARNED ASSESSING OFFICER IS DISMISSED. ITA NO 816/DEL/2014 ASSESSMENT YEAR 2005 06 (BY ASSESSEE) 51. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER PASSED BY THE LEARNED CIT A FOR THE ABOVE ASSESSMENT YEAR WHEREIN THE LEARNED CIT A NOTED CATEGORICALLY THAT IN THE CIRCULAR TURNED TRADING TRANSACTIONS ASSESSEE HAS DISCLOSED THE NET LOSS AND THEREFORE BY FOLLOWING THE ORDER FOR ASSESSMENT YEAR 1998 1999 AND 1999 2000, HE UPHELD THE PROFIT RATIO OF 1.09% WHICH HAS NOT BEEN AGITATED BY THE ASSESSEE BEFORE THE HIGHER FORUM. THEREFORE ASSESSEE IS AGGRIEVED WITH THE ADOPTION OF THE PROFIT RATE OF 1.09% BY THE LEARNED CIT A. 52. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL IN ITA NO. 816/DEL/2014 FOR ASSESSMENT YEAR 2005-06:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT (A) ERRED IN PARTLY CONFIRMING THE ADDITION TO THE EXTENT OF 1.09%, WHICH WAS MADE BY THE A.O. @ 1.5% ON ACCOUNT OF G.P. RATE ON ALLEGED CIRCULAR TRADING TRANSACTIONS, IGNORING THE FACT THAT THE ASSESSEE HAD ALREADY DECLARED PROFIT ON SUCH ALLEGED CIRCULAR TRADING TRANSACTIONS AT THE G.P. RATE OF 7.29%. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT (A) ERRED IN PARTLY CONFIRMING THE ADDITION MADE ON THE BASIS OF G.P. RATE ON ALLEGED CIRCULAR TRADING TRANSACTIONS HOLDING INCORRECTLY THAT WITH CERTAIN PARTIES THERE IS PROFIT AND ON SOME TRANSACTIONS THERE IS LOSS BUT THE OVERALL EFFECT OF THESE CIRCULAR TRANSACTIONS HAS RESULTED INTO LOSS SINCE HIS CONCLUSION REGARDING OVERALL LOSS IN THESE TRANSACTIONS WAS BASED ON HIS TAKING INTO CONSIDERATION THE TRADING RESULTS OF TRANSACTIONS WITH ONLY A FEW PARTIES ON SELECTIVE BASIS IGNORING THE FACT THAT IF ALL SUCH ALLEGED CIRCULAR TRADING TRANSACTIONS UNDERTAKEN WITH ALL THE PARTIES ARE CONSIDERED, THERE IS A PROFIT EARNED AT G.P. RATE OF 7.29% AND THERE IS NO TRUTH IN THERE BEING AN OVERALL LOSS IN THE ALLEGED CIRCULAR TRADING TRANSACTIONS. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT (A) ERRED IN PARTLY CONFIRMING THE ADDITION TO THE EXTENT OF 1.09% OF THE TRANSACTIONS, STATING THAT IN THE A.Y. 1998-99 AND 1999-00, PROFIT HAD BEEN ADDED @ 1.09% BY THE A.O. U/S 147/143(3) OF THE ACT, AGAINST WHICH NO APPEAL WAS FILED BY THE ASSESSEE, WHEREAS THE FACTS ARE THAT THE A.O. HAD MADE ADDITION FOR THE A.Y. 1998-99 @ 0.54% GIVING BENEFIT OF PROFIT ALREADY DISCLOSED AT G.P. RATE OF 0.55% AND HE DID NOT MAKE ANY ADDITION FOR THE A.Y. 1999-00, FULLY CONSIDERING THE FACT THAT THE PROFIT DISCLOSED BY THE ASSESSEE AT G.P. RATE OF 0.53% ON THE ALLEGED CIRCULAR TRADING TRANSACTIONS WAS MORE THAN THE PROFIT RATIO OF THE TRADING BUSINESS OF THE COMPANY ON THE TRANSACTIONS OTHER THAN THE PAGE | 30 TRADING TRANSACTIONS OF CIRCULAR NATURE, WHICH WAS OF 0.39% ONLY. SIMILARLY FOR THE YEAR UNDER CONSIDERATION, THE PROFIT HAS BEEN SHOWN ON ALLEGED AGGREGATE CIRCULAR TRADING TRANSACTIONS AT THE G.P. RATE OF 7.29%, WHICH IS FAR MORE THAN THE G.P. RATE OF 1.09% HELD BY THE CIT (A) TO BE FAIR, JUST AND REASONABLE. 4. BY CONFIRMING ADDITION @ 1.09%, THE LD. CIT (A) IGNORED THE FACT THAT IT IS NOT NECESSARY THAT EVERY TRANSACTION WOULD GENERATE PROFIT AT UNIFORM RATE. IN THIS WAY, THE ADDITION CONFIRMED TO THE EXTENT OF 1.09% OF THE TRANSACTIONS IS OVER AND ABOVE THE PROFIT ALREADY DISCLOSED ON THE SAID TRANSACTIONS I.E. @ 7.29%. THEREFORE, THERE IS NO CASE FOR ADDITION ON THIS ACCOUNT. 53. IN VIEW OF OUR DECISION IN GROUND NUMBER 1 OF THE APPEAL OF THE LEARNED ASSESSING OFFICER FOR THIS ASSESSMENT YEAR, WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE ASSESSEE AND THEREFORE ALL THE GROUNDS OF APPEAL ARE DISMISSED. 54. ACCORDINGLY, ITA NUMBER 816/DEL/2014 FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2005 06 IS DISMISSED. ITA 766/DEL/2014 (BY AO) AND ITA 817/DEL/2014 (BY ASSESSEE) ASSESSMENT YEAR 2006 07 55. THESE ARE THE CROSS APPEALS FILED BY BOTH THE PARTIES AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) III, NEW DELHI DATED 26/12/2013 FOR ASSESSMENT YEAR 2006 07. THE BRIEFLY STATED FACT SHOWS THAT ASSESSEE FILED ITS RETURN OF INCOME ON 29/11/2006 DECLARING LOSS OF 4,585,086,012/. THE INCOME TAX RETURN WAS PROCESSED U/S 143 (1) OF THE ACT ON 28/2/2008. SUBSEQUENTLY THERE WAS A SEARCH ON 10/05/2007 AND THEREFORE THE NOTICE U/S 153A WAS ISSUED TO THE ASSESSEE ON 12/8/2008. ASSESSEE FILED RETURN IN RESPONSE TO THAT NOTICE ON 25/2/2009 DECLARING NIL INCOME. CONSEQUENTLY THE ASSESSMENT ORDER U/S 153A READ WITH SECTION 143 (3) OF THE INCOME TAX ACT 1961 WAS PASSED ON 29 DECEMBER 2009 WHEREIN THE TOTAL LOSS OF THE ASSESSEE WAS DETERMINED AT RS 440,37,13,323 AGAINST THE RETURNED LOSS OF 4,585,086,012/ . ONLY ADDITION, WHICH WAS MADE TO THE TOTAL INCOME OF THE ASSESSEE, WAS WITH RESPECT TO THE SIMILAR PAGE | 31 ADDITIONS THAT WERE MADE IN THE CASE OF THE ASSESSEE FROM ASSESSMENT YEAR 2002 03 TO 2005 06. THEREFORE, FOR THE ADDITIONS DELETED BY THE LEARNED CIT A BY THE ORDER DATED 26/12/2013 THE REVENUE IS IN APPEAL AND TO THE EXTENT OF ADDITION, SUSTAINED ASSESSEE IS IN APPEAL. 56. THE LEARNED ASSESSING OFFICER RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 60,86,146/- MADE ON ACCOUNT OF PROFIT OF CIRCULAR TRANSACTION. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 4,14,66,543/- MADE ON ACCOUNT OF DISALLOWANCE OF EXPENDITURE ON RESEARCH & DEVELOPMENT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 5,00,000/- MADE ON ACCOUNT OF TRAVELLING EXPENSES INCURRED ON THE FAMILY MEMBERS OF THE DIRECTORS OF THE COMPANY. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 11,83,20,000/- MADE ON ACCOUNT OF ADVANCES GIVEN TO GROUP COMPANY WRITTEN OFF. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 1,50,00,000/- MADE ON ACCOUNT OF UNVERIFIED EXPENDITURE. 6. THE ORDER OF THE CIT(A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 57. ASSESSEE AGGRIEVED WITH THE ORDER OF THE LEARNED CIT A HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT (A) ERRED IN PARTLY CONFIRMING THE ADDITION TO THE EXTENT OF 1.09%, WHICH WAS MADE BY A.O. @ 1.5% ON ACCOUNT OF G.P. RATE ON ALLEGED CIRCULAR TRADING TRANSACTIONS, IGNORING THE FACT THAT THE ASSESSEE HAD ALREADY DECLARED PROFIT ON SUCH ALLEGED CIRCULAR TRADING TRANSACTIONS AT THE G.P. RATE OF 0.24%. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT (A) ERRED IN PARTLY CONFIRMING THE ADDITION MADE ON THE BASIS OF G.P. RATE ON ALLEGED CIRCULAR TRADING TRANSACTIONS HOLDING INCORRECTLY THAT WITH CERTAIN PARTIES THERE IS PROFIT AND ON SOME TRANSACTIONS THERE IS LOSS BUT THE OVERALL EFFECT OF THESE CIRCULAR TRANSACTIONS HAS RESULTED INTO LOSS SINCE HIS CONCLUSION REGARDING OVERALL LOSS IN THESE TRANSACTIONS WAS BASED ON HIS TAKING INTO CONSIDERATION THE TRADING RESULTS OF TRANSACTIONS WITH ONLY A FEW PARTIES ON SELECTIVE BASIS IGNORING THE FACT THAT IF ALL SUCH ALLEGED CIRCULAR TRADING TRANSACTIONS UNDERTAKEN WITH ALL THE PARTIES ARE CONSIDERED, THERE IS A PROFIT EARNED AT G.P. RATE OF 0.24% AND THERE IS NO TRUTH IN THERE BEING AN OVERALL LOSS IN THE ALLEGED CIRCULAR TRADING TRANSACTIONS. PAGE | 32 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT (A) ERRED IN PARTLY CONFIRMING THE ADDITION TO THE EXTENT OF 1.09% OF THE TRANSACTIONS, STATING THAT IN THE A.Y. 1998-99 AND 1999-00, PROFIT HAD BEEN ADDED @ 1.09% BY THE A.O. U/S 147/143(3) OF THE ACT, AGAINST WHICH NO APPEAL WAS FILED BY THE ASSESSEE, WHEREAS THE FACTS ARE THAT THE A.O. HAD MADE ADDITION FOR THE A.Y. 1998-99 @ 0.54% GIVING BENEFIT OF PROFIT ALREADY DISCLOSED AT G.P. RATE OF 0.55% AND HE DID NOT MAKE ANY ADDITION FOR THE A.Y. 1999-00, FULLY CONSIDERING THE FACT THAT THE PROFIT DISCLOSED BY THE ASSESSEE AT G.P. RATE OF 0.53% ON THE ALLEGED CIRCULAR TRADING TRANSACTIONS WAS MORE THAN THE PROFIT RATIO OF THE TRADING BUSINESS OF THE COMPANY ON THE TRANSACTIONS OTHER THAN THE TRADING TRANSACTIONS OF CIRCULAR NATURE, WHICH WAS OF 0.39% ONLY. SIMILARLY FOR THE YEAR UNDER CONSIDERATION, THE PROFIT HAS BEEN SHOWN ON ALLEGED AGGREGATE CIRCULAR TRADING TRANSACTIONS AT THE G.P. RATE OF 0.24%, WHICH IS IN ADDITION TO THE G.P. RATE OF 1.09% HELD BY THE CIT (A) TO BE FAIR, JUST AND REASONABLE, WHICH IS CONTRARY TO THE FACT THAT FOR THE A.Y. 1999-00, THE THEN AO HAD FULLY ACCEPTED THE G.P. RATE OF 0.53% AS DISCLOSED BY THE ASSESSEE COMPANY ON THE ALLEGED CIRCULAR TRADING TRANSACTIONS. 4. BY CONFIRMING ADDITION @ 1.09%, THE LD. CIT (A) IGNORED THE FACT THAT IT IS NOT NECESSARY THAT EVERY TRANSACTION WOULD GENERATE PROFIT AT UNIFORM RATE. IN THIS WAY, THE ADDITION CONFIRMED TO THE EXTENT OF 1.09% OF THE TRANSACTIONS IS OVER AND ABOVE THE PROFIT ALREADY DISCLOSED ON THE SAID TRANSACTIONS I.E. @ 0.24%. THEREFORE, THERE IS NO CASE FOR ADDITION ON THIS ACCOUNT. 58. BOTH THE PARTIES CONFIRMED THAT THE ISSUE INVOLVED IN THIS APPEAL ARE SIMILAR TO THE ISSUE IS ALREADY ARISING AND DECIDED IN THE APPEALS OF THE ASSESSEE FOR THE EARLIER YEARS. THEY SUBMITTED THAT THEIR ARGUMENTS ARE ALSO SIMILAR. IT WAS ALSO CLAIMED THAT THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 59. WE FIRST TAKE UP THE APPEAL OF THE LEARNED ASSESSING OFFICER IN ITA NUMBER 766/DEL/2014 WHEREIN FOLLOWING GROUNDS OF APPEAL ARE TAKEN:- 60. THE FIRST GROUND OF APPEAL RELATES TO THE DELETION OF THE ADDITION OF 6,086,146 MADE ON ACCOUNT OF PROFIT OF CIRCULAR TRADING TRANSACTIONS. THE LEARNED ASSESSING OFFICER MADE THE ADDITION AT THE RATE OF 1.5% OF THE PROFIT ON THE CIRCULAR TRADING AMOUNTING TO 6,086,146. THE LEARNED CIT A RELYING ON THE ORDER IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1998 1999 AND 1999 2000 REDUCED THE ABOVE PROFIT FROM 1.5% TO 1.09%. THEREFORE, BOTH THE PARTIES ARE IN APPEAL BEFORE US. THIS IS THE SOLITARY ISSUE IN THE APPEAL OF THE ASSESSEE. WE FIND THAT IDENTICAL ISSUE HAS BEEN DECIDED BY US FOR ASSESSMENT YEAR 2005 06 WHEREIN WE HAVE UPHELD THE ACTION OF PAGE | 33 THE LEARNED CIT A OF UPHOLDING THE ADDITION TO THE EXTENT OF 1.09% OF THE TURNOVER AGAINST THE INCOME ESTIMATED BY THE ASSESSEE AT 1.5% OF THE TURNOVER. IN VIEW OF THIS, WE DISMISS GROUND NUMBER 1 OF THE APPEAL OF THE AO AS WELL AS THE APPEAL OF THE ASSESSEE ON THIS ISSUE IN ITA NUMBER 817/DEL/2014. 61. GROUND NUMBER 2 OF THE APPEAL OF THE AO IS WITH RESPECT TO THE DELETION OF THE DISALLOWANCE OF. 41,466,543 OUT OF THE RESEARCH AND DEVELOPMENT EXPENDITURE INCURRED BY THE ASSESSEE. THIS GROUND IS IDENTICAL TO THE GROUND NUMBER 3 OF THE APPEAL OF THE LEARNED ASSESSING OFFICER FOR ASSESSMENT YEAR 2002 03 WHEREIN WE HAVE CONFIRMED THE ORDER OF THE LEARNED CIT A IN DELETING THE ABOVE DISALLOWANCE. FOR THE SIMILAR REASONS WE ALSO, UPHOLD THE ORDER OF THE LEARNED CIT A IN DELETING THE DISALLOWANCE OF. 41,466,543 ON ACCOUNT OF RESEARCH AND DEVELOPMENT EXPENDITURE. THUS, GROUND NUMBER 2 OF THE APPEAL OF THE LEARNED ASSESSING OFFICER IS DISMISSED. 41,466,543 MADE ON ACCOUNT OF EXPENDITURE ON RESEARCH AND DEVELOPMENT EXPENDITURE. 62. GROUND NUMBER 3 IS WITH RESPECT TO THE DELETION OF THE DISALLOWANCE OF 5 LAKHS MADE ON ACCOUNT OF TRAVELLING EXPENSES INCURRED ON THE FAMILY MEMBERS OF THE DIRECTORS OF THE COMPANY. THIS GROUND OF APPEAL IS IDENTICAL TO THE GROUND NUMBER 4 OF THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2002 03. WHILE ADJUDICATING THE GROUND, WE HAVE CONFIRMED THE ORDER OF THE LEARNED CIT A IN DELETING THE ABOVE DISALLOWANCE. FOR SIMILAR REASONS ALSO WE UPHOLD THE ORDER OF THE LEARNED CIT A FOR THIS YEAR AND CONFIRM HIS ORDER OF DELETING THE DISALLOWANCE OF 5 LAKHS OUT OF THE TRAVELLING EXPENDITURE. ACCORDINGLY, GROUND NUMBER 3 OF THE APPEAL OF THE LEARNED ASSESSING OFFICER IS DISMISSED. 63. GROUND NUMBER 4 IS WITH RESPECT TO DELETION OF THE DISALLOWANCE OF 118,320,000 MADE ON ACCOUNT OF ADVANCES GIVEN TO GROUP COMPANIES WHICH HAVE BEEN WRITTEN OFF BY THE ASSESSEE. THIS ISSUE IS IDENTICAL TO GROUND NUMBER 5 OF THE APPEAL OF THE LEARNED ASSESSING OFFICER FOR ASSESSMENT YEAR 2002 03 WHEREIN THE LEARNED CIT A HAS DELETED THE ABOUT ADDITION MADE INTO THE HANDS OF THE ASSESSEE AND WHICH IS BEEN CONFIRMED BY IS FILED ADJUDICATING FOR THE APPEAL OF THE LEARNED ASSESSING OFFICER FOR THAT ASSESSMENT YEAR. THE PARTIES HAVE STATED THAT THERE IS NO CHANGE IN THE PAGE | 34 FACTS AND CIRCUMSTANCES OF THE CASE. THEREFORE FOR THE SIMILAR REASONS WE UPHOLD THE ORDER OF THE LEARNED CIT A FOR THIS YEAR ALSO ON THIS ISSUE AND THEREFORE GROUND NUMBER 4 OF THE APPEAL OF THE LEARNED ASSESSING OFFICER IS DISMISSED. 64. THE GROUND NUMBER 5 OF THE APPEAL IS WITH RESPECT TO THE DELETION OF THE DISALLOWANCE OF 1.5 CRORES MADE BY THE LEARNED ASSESSING OFFICER ON AD HOC BASIS OUT OF VARIOUS EXPENDITURE. BOTH THE PARTIES CONFIRM THAT THIS ISSUE IS IDENTICAL TO GROUND NUMBER 5 OF THE APPEAL OF THE AO FOR ASSESSMENT YEAR 2005 06 WHEREIN IDENTICAL DISALLOWANCE WAS MADE OUT OF THE TOTAL EXPENDITURE INCURRED BY THE ASSESSEE. FOR THAT ASSESSMENT YEAR, WE HAVE UPHELD THE ORDER OF THE LEARNED CIT A DELETING THE AD HOC DISALLOWANCE IS OUT OF THE TOTAL EXPENDITURE INCURRED BY THE ASSESSEE GIVING DETAILED REASONS. FOR THE SIMILAR REASONS WE ALSO CONFIRM THE ORDER OF THE LEARNED CIT A IN DELETING THE AD HOC DISALLOWANCE OF 1.5 CRORES OUT OF THE TOTAL EXPENDITURE. ACCORDINGLY, GROUND NUMBER 5 OF THE APPEAL OF THE LEARNED ASSESSING OFFICER IS DISMISSED. 65. IN THE RESULT ITA NUMBER 766/DEL/2014 FILED BY THE LEARNED ASSESSING OFFICER FOR ASSESSMENT YEAR 2006 07 IS DISMISSED. 66. NOW WE COME TO THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2006 07 IN ITA NUMBER 817/DEL/2014. THE ONLY GRIEVANCE OF THE ASSESSEE IS THAT THAT IN THE CIRCULAR TRADING TRANSACTIONS THE LEARNED CIT A REDUCE THE ADDITION MADE BY THE LEARNED ASSESSING OFFICER AT THE RATE OF 1.5% OF NET PROFIT TO 1.09% OF THE NET PROFIT. THE ASSESSEE IS AGGRIEVED BY THE ORDER OF THE LEARNED CIT A WHEREIN HE HAS UPHELD THE ADDITION TO THE EXTENT OF ONE POINT TO 09% OF THE PROFIT. WE FIND THAT IDENTICAL ISSUE IS INVOLVED IN THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2005 06 WHEREIN WE HAVE CONFIRMED THE ORDER OF THE LEARNED AND CIT A BECAUSE OF THE REASON THAT OVERALL PROFIT IN CIRCULAR TRADING TRANSACTION ENTERED INTO BY THE ASSESSEE HAS RESULTED INTO LOSS. IN EARLIER YEARS IN ASSESSEES OWN CASE I.E. AYS 98 99 AND 99 2000 THE GROSS PROFIT RATE OF ONE POINT TO 09% ON CIRCULAR TRADING HAS BEEN UPHELD BY THE LEARNED CIT A NOT BEEN CHALLENGED BY THE ASSESSEE BEFORE THE HIGHER FORUM. THEREFORE WE FIND NO REASON TO DEVIATE FROM THAT ORDER AND ACCORDINGLY WE CONFIRM THE ORDER OF THE LEARNED AND CIT A UPHOLDING THE ADDITION TO THE EXTENT OF PROFIT AT THE RATE OF 1.09% ON CIRCULAR PAGE | 35 TRADING TRANSACTIONS ENTERED INTO BY THE ASSESSEE. THUS, THE APPEAL OF THE ASSESSEE IS DISMISSED. 67. ACCORDINGLY THE APPEAL OF THE LEARNED ASSESSING OFFICER AS WELL AS OF THE ASSESSEE FOR ASSESSMENT YEAR 2006 07 IS DISMISSED. ITA NUMBER 2252/DEL/2014 FOR ASSESSMENT YEAR 2007 08 AND ITA NUMBER 2253/DEL/2014 FOR ASSESSMENT YEAR 2008 09 [BOTH BY ASSESSEE] 68. FACTS FOR ASSESSMENT YEAR 2007 08 SHOWS THAT ASSESSEE HAS FILED RETURN OF INCOME ON 23/9/2008 DECLARING INCOME OF 3,114,472/ THIS RETURN WAS PROCESSED U/S 13 (1) OF THE ACT ON 27/7/2009. THE ASSESSMENT ORDER U/S 13 (3) OF THE ACT READ WITH SECTION 153A OF THE ACT WAS PASSED ON 29 TH OF DECEMBER 2009 WHEREIN THE LEARNED ASSESSING OFFICER ON TOTAL CIRCULAR TRADING TRANSACTIONS OF 1,522,798,170/ ESTIMATED PROFIT AT THE RATE OF 1.5% OF 22,841,973/ WHICH WAS REDUCED BY THE LEARNED CIT A BY THE APPELLATE ORDER DATED 03/03/2014 AT THE RATE OF 1.09%. 69. ASSESSEE AGGRIEVED WITH THAT ORDER HAS RAISED THE FOLLOWING GROUNDS OF APPEAL 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS.60,16,369/-, MADE BY THE A.O. HOLDING THE PURCHASES FROM OPM TRADING PVT. LTD. (OPM) TO BE BOGUS PURCHASES BY NOT APPRECIATING THE FACT THAT THE A.O. HAD NOT PROVIDED OPPORTUNITY TO THE ASSESSEE TO CROSS EXAMINE SH. ASHISH MADAN, DIRECTOR OF OPM, WHOSE STATEMENT WAS RELIED UPON BY HIM TO MAKE THE EDITION. 2. THE LD. CIT (A) ERRED IN LAW AND THE CIRCUMSTANCES OF THE CASE BY CONFIRMING THE ADDITION MADE BY TREATING PURCHASES FROM ,0PM AS BOGUS WHEN COMPLETE DETAILS OF PURCHASES ALONGWITH CONFIRMATION OF ACCOUNT WERE MADE AVAILABLE TO THE A.O. PURCHASE CONSIDERATION WAS DULY PAID THROUGH THE BANKING CHANNEL AND SH. ASHISH MADAN, DIRECTOR OF OPM DID NOT SPECIFICALLY DENIED THE TRANSACTIONS OF PURCHASES AND RATHER CONFIRMED THE TRANSACTIONS. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT (A) ERRED IN PARTLY CONFIRMING THE ADDITION TO THE EXTENT OF 1.09%, WHICH WAS MADE BY THE A.O. @ 1.5% ON ACCOUNT OF G.P. RATE ON ALLEGED CIRCULAR TRADING TRANSACTIONS, IGNORING THE FACT THAT THE ASSESSEE HAD ALREADY DECLARED PROFIT ON SUCH ALLEGED CIRCULAR TRADING TRANSACTIONS AT THE G.P. RATE OF 0.45%. PAGE | 36 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT (A) ERRED IN PARTLY CONFIRMING THE ADDITION MADE ON THE BASIS OF G.P. RATE ON ALLEGED CIRCULAR TRADING TRANSACTIONS HOLDING INCORRECTLY THAT WITH CERTAIN PARTIES THERE IS PROFIT AND ON SOME TRANSACTIONS THERE IS LOSS BUT THE OVERALL EFFECT OF THESE CIRCULAR TRANSACTIONS HAS RESULTED INTO LOSS . SINCE HIS CONCLUSION REGARDING OVERALL LOSS IN THESE TRANSACTIONS WAS BASED ON HIS TAKING INTO CONSIDERATION THE TRADING RESULTS OF TRANSACTIONS WITH ONLY A FEW PARTIES ON SELECTIVE BASIS IGNORING THE FACT THAT IF ALL SUCH ALLEGED CIRCULAR TRADING TRANSACTIONS UNDERTAKEN WITH ALL THE PARTIES ARE CONSIDERED, THERE IS A PROFIT EARNED AT G.P. RATE OF 0.45% AND THERE IS NO TRUTH IN THERE BEING AN OVERALL LOSS IN THE ALLEGED CIRCULAR TRADING TRANSACTIONS. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT (A) ERRED IN PARTLY CONFIRMING THE ADDITION TO THE EXTENT OF 1.09% OF THE TRANSACTIONS, STATING THAT IN THE A.Y. 1998-99 AND 1999-00, PROFIT HAD BEEN ADDED @ 1.09% BY THE A.O. U/S 147/143(3) OF THE ACT, AGAINST WHICH NO APPEAL WAS FILED BY THE ASSESSEE, WHEREAS THE FACTS ARE THAT THE A.O. HAD MADE ADDITION FOR THE A.Y. 1998-99 @ 0.54% GIVING BENEFIT OF PROFIT ALREADY DISCLOSED AT G.P. RATE OF 0.55% AND HE DID NOT MAKE ANY ADDITION FOR THE A.Y. 1999-00, FULLY CONSIDERING THE FACT THAT THE PROFIT DISCLOSED BY THE ASSESSEE AT G.P. RATE OF 0.53% ON THE ALLEGED CIRCULAR TRADING TRANSACTIONS WAS MORE THAN THE PROFIT RATIO OF THE TRADING BUSINESS OF THE COMPANY ON THE TRANSACTIONS OTHER THAN THE TRADING TRANSACTIONS OF CIRCULAR NATURE, WHICH WAS OF 0.39% ONLY. SIMILARLY FOR THE YEAR UNDER CONSIDERATION, THE PROFIT HAS BEEN SHOWN ON ALLEGED AGGREGATE CIRCULAR TRADING TRANSACTIONS AT THE G.P. RATE OF 0.45%, WHICH IS IN ADDITION TO THE G.P. RATE OF 1.09% HELD BY THE CIT (A) TO BE FAIR, JUST AND REASONABLE, WHICH IS CONTRARY TO THE FACT THAT FOR THE A.Y. 1999-00, THE THEN AO HAD FULLY ACCEPTED THE G.P. RATE OF 0.53% AS DISCLOSED BY THE ASSESSEE COMPANY ON THE ALLEGED CIRCULAR TRADING TRANSACTIONS. 6. BY CONFIRMING ADDITION @ 1.09%, THE LD. CIT (A) IGNORED THE FACT THAT IT IS NOT NECESSARY THAT EVERY TRANSACTION WOULD GENERATE PROFIT AT UNIFORM RATE. IN THIS WAY, THE ADDITION CONFIRMED TO THE EXTENT OF 1.09% OF THE TRANSACTIONS IS OVER AND ABOVE THE PROFIT ALREADY DISCLOSED ON THE SAID TRANSACTIONS I.E. @ 0.45%. THEREFORE, THERE IS NO CASE FOR ADDITION ON THIS ACCOUNT. 70. IDENTICAL ISSUE HAS BEEN DECIDED BY US IN THE APPEAL OF ASSESSEE FOR ASSESSMENT YEAR 2005 06 AND 2006 07 WHEREIN WE HAVE UPHELD THE ORDER OF THE LEARNED CIT A ESTIMATING THE PROFIT AT THE RATE OF 1.09%. WE FIND NO REASON FROM DEVIATE FROM THE SAME. ACCORDINGLY WE UPHOLD THE ORDER OF THE LEARNED CIT A ESTIMATING THE PROFIT AT THE RATE OF 1.09% ON CIRCULAR TRADING TRANSACTIONS ENTERED INTO BY THE ASSESSEE. ACCORDINGLY APPEAL FILED BY ASSESSEE IS DISMISSED. PAGE | 37 71. FOR ASSESSMENT YEAR 2008 09 THE FACT SHOWS THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 28/9/2008 DECLARING A TOTAL LOSS OF 713,444,037 WHICH WAS ASSESSED U/S 143 (3) OF THE ACT ON 29 TH OF DECEMBER 2009 WHEREIN THE LEARNED ASSESSING OFFICER HAS MADE AN ADDITION AT THE RATE OF 1.5% OF THE CIRCULAR TRADING TRANSACTIONS WHICH WAS DELETED BY THE LEARNED CIT A AND RETAINED THE ADDITION TO THE EXTENT OF 1.09% OF THE CIRCULAR TRADING. THEREFORE THE ASSESSEE IS AGGRIEVED WITH THAT ORDER OF THE LEARNED CIT A AND HAS PREFERRED THIS APPEAL. 72. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL IN ITA NO. 2253/DEL/2014 FOR ASSESSMENT YEAR 2008-09:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS.2,91,05,752/-, MADE BY THE A.O. HOLDING THE PURCHASES FROM OPM TRADING PVT. LTD. (OPM) TO BE BOGUS PURCHASES BY NOT APPRECIATING THE FACT THAT THE A.O. HAD NOT PROVIDED OPPORTUNITY TO THE ASSESSEE TO CROSS EXAMINE SH. ASHISH MADAN, DIRECTOR OF OPM, WHOSE STATEMENT WAS RELIED UPON BY HIM TO MAKE THE ADDITION. 2. THE LD. CIT (A) ERRED IN LAW AND THE CIRCUMSTANCES OF THE CASE BY CONFIRMING THE ADDITION MADE BY TREATING PURCHASES FROM OPM AS BOGUS WHEN COMPLETE DETAILS OF PURCHASES ALONGWITH CONFIRMATION OF ACCOUNT WERE MADE AVAILABLE TO THE A.O. PURCHASE CONSIDERATION WAS DULY PAID THROUGH THE BANKING CHANNEL AND SH. ASHISH MADAN, DIRECTOR OF OPM DID NOT SPECIFICALLY DENIED THE TRANSACTIONS OF PURCHASES AND RATHER CONFIRMED THE TRANSACTIONS. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT (A) ERRED IN PARTLY CONFIRMING THE ADDITION TO THE EXTENT OF 1.09%, WHICH WAS MADE BY THE A.O. @ 1.5% ON ACCOUNT OF G.P. RATE ON ALLEGED CIRCULAR TRADING TRANSACTIONS, IGNORING THE FACT THAT THE ASSESSEE HAD ALREADY DECLARED PROFIT ON SUCH ALLEGED CIRCULAR TRADING TRANSACTIONS AT THE G.P. RATE OF 0.47%. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT (A) ERRED IN PARTLY CONFIRMING THE ADDITION MADE ON THE BASIS OF G.P. RATE ON ALLEGED CIRCULAR TRADING TRANSACTIONS HOLDING INCORRECTLY THAT WITH CERTAIN PARTIES THERE IS PROFIT AND ON SOME TRANSACTIONS THERE IS LOSS BUT THE OVERALL EFFECT OF THESE CIRCULAR TRANSACTIONS HAS RESULTED INTO LOSS. SINCE HIS CONCLUSION REGARDING OVERALL LOSS IN THESE TRANSACTIONS WAS BASED ON HIS TAKING INTO CONSIDERATION THE TRADING RESULTS OF TRANSACTIONS WITH ONLY A FEW PARTIES ON SELECTIVE BASIS IGNORING THE FACT THAT IF ALL SUCH ALLEGED CIRCULAR TRADING TRANSACTIONS UNDERTAKEN WITH ALL THE PARTIES ARE CONSIDERED, THERE IS A PROFIT EARNED AT G.P. RATE OF 0.47% AND THERE IS NO TRUTH IN THERE BEING AN OVERALL LOSS IN THE ALLEGED CIRCULAR TRADING TRANSACTIONS. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT (A) ERRED IN PARTLY CONFIRMING THE ADDITION TO THE EXTENT OF 1.09% OF THE PAGE | 38 TRANSACTIONS, STATING THAT IN THE A.Y. 1998-99 AND 1999-00, PROFIT HAD BEEN ADDED @ 1.09% BY THE A.O. U/S 147/143(3) OF THE ACT, AGAINST WHICH NO APPEAL WAS FILED BY THE ASSESSEE, WHEREAS THE FACTS ARE THAT THE A.O. HAD MADE ADDITION FOR THE A.Y. 1998-99 @ 0.54% GIVING BENEFIT OF PROFIT ALREADY DISCLOSED AT G.P. RATE OF 0.55% AND HE DID NOT MAKE ANY ADDITION FOR THE A.Y. 1999-00, FULLY CONSIDERING THE FACT THAT THE PROFIT DISCLOSED BY THE ASSESSEE AT G.P. RATE OF 0.53% ON THE ALLEGED CIRCULAR TRADING TRANSACTIONS WAS MORE THAN THE PROFIT RATIO OF THE TRADING BUSINESS OF THE COMPANY ON THE TRANSACTIONS OTHER THAN THE TRADING TRANSACTIONS OF CIRCULAR NATURE, WHICH WAS OF 0.39% ONLY. SIMILARLY FOR THE YEAR UNDER CONSIDERATION, THE PROFIT HAS BEEN SHOWN ON ALLEGED AGGREGATE CIRCULAR TRADING TRANSACTIONS AT THE G.P. RATE OF 0.47%, WHICH IS IN ADDITION TO THE G.P. RATE OF 1.09% HELD BY THE CIT (A) TO BE FAIR, JUST AND REASONABLE, WHICH IS CONTRARY TO THE FACT THAT FOR THE A.Y. 1999-00, THE THEN AO HAD FULLY ACCEPTED THE G.P. RATE OF 0.53% AS DISCLOSED BY THE ASSESSEE COMPANY ON THE ALLEGED CIRCULAR TRADING TRANSACTIONS. 6. BY CONFIRMING ADDITION @ 1.09%, THE LD. CIT (A) IGNORED THE FACT THAT IT IS NOT NECESSARY THAT EVERY TRANSACTION WOULD GENERATE PROFIT AT UNIFORM RATE. IN THIS WAY, THE ADDITION CONFIRMED TO THE EXTENT OF 1.09% OF THE TRANSACTIONS IS OVER AND ABOVE THE PROFIT ALREADY DISCLOSED ON THE SAID TRANSACTIONS I.E. @ 0.47%. THEREFORE, THERE IS NO CASE FOR ADDITION ON THIS ACCOUNT. 73. THIS ISSUE IS IDENTICAL TO THE ISSUE DECIDED IN CASE OF THE ASSESSEE FOR EARLIER ASSESSMENT YEARS I.E. ASSESSMENT YEAR 2005 06 TO ASSESSMENT YEAR 2007 08 WHEREIN WE HAVE UPHELD THE ORDER OF THE LEARNED AND CIT A UPHOLDING THE ADDITION TO THE EXTENT OF 1.09% OF THE CIRCULAR TRADING ADOPTED BY THE ASSESSEE. THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND THEREFORE WE UPHOLD THE ORDER OF THE LEARNED CIT A FOR THIS YEAR TOO FOR THE SIMILAR REASONS AND DISMISS ALL THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE. 74. ACCORDINGLY, APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2008 09 IS DISMISSED. 75. ACCORDINGLY, ALL THESE NINE APPEALS ARE DISPOSED OF BY THIS COMMON ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON : 26/10/2021. S SD/- SD/- ( KUL BHARAT ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 26/10/2021 PAGE | 39 *MEHTA* COPY FORWARDED TO 1. APPELLANT; 2. RESPONDENT 3. CIT 4. CIT (APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI. DATE OF DICTATION 2 6 . 1 0 . 2 0 2 1 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 2 6 . 1 0 . 2 0 2 1 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER 2 6 . 1 0 . 2 0 2 1 DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/ PS 2 6 . 1 0 . 2 0 2 1 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 2 6 . 1 0 . 2 0 2 1 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/ PS 2 6 . 1 0 . 2 0 2 1 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 2 6 . 1 0 . 2 0 2 1 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 2 6 . 1 0 . 2 0 2 1 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER PAGE | 40