Appeal details
Counselvise Citation
78622514 RSA 2012
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 4 month(s) 23 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
15-10-2014
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
B
Assessment Year
2003-2004
Appeal Filed On
22-05-2012
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA. NO. A. Y. APPELLANT RESPONDENT 786/HYD/2012 2003-04 ACIT, CENTRAL CIRCLE-4, HYDERABAD. M/S. CIREX PHARMACEUTICALS LTD., HYDERABAD PANAAACC9554A 787/HYD/2012 2004-05 788/HYD/2012 2005-06 789/HYD/2012 2006-07 DATE OF HEARING : 07.08.2014 DATE OF PRONOUNCEMENT : 15.10.2014 ORDER PER BENCH : THESE APPEALS ARE FILED BY REVENUE AGAINST T HE ORDERS OF THE CIT(A)-VII, HYDERABAD DATED 16.02.201 2 FOR THE A.YS 2003-04 TO 2006-07. SINCE, COMMON ISSUES ARE I NVOLVED IN ALL THESE APPEALS, THEY ARE CLUBBED AND HEARD TO GETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER. 2. WE HAVE HEARD LD COUNSEL FOR ASSESSEE AND LD. CIT DR AND PERUSED THE PAPER BOOKS FILED . BRIEFLY STATED, ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF BULK DRUGS AND FORMULATIONS AND OPERATING ITS MANUFACTUR ING ACTIVITIES THROUGH ITS MANUFACTURING UNITS, LOCATED AT GUNDLA FOR REVENUE : MR. P. SOMASEKHAR REDDY FOR ASSESSEE : MR. S. RAMA RAO 2 ITA.NO.786, 787, 788 & 789/HYD/2012 M/S. CIREX PHARMACEUTICALS P. LTD., HYDERABAD. MANCHNOOR VILLAGE, MAHABUBNAGAR DISTRICT, WITH ITS CORPORATE OFFICE LOCATED AT 8-3-166/7/1, ERRAGADDA, HYDERABAD . THE SEARCH & SEIZURE PROCEEDINGS HAVE TAKEN PLACE ON THE GROUP, CONSISTING OF THE FOLLOWING GROUP CONCERNS, ON 10.11.2006; (I) CIREX PHARMACEUTICALS P. LTD., (II) HETERO DRUGS LIITED (III) HETERO LABS LIMITED (IV) SYMED LABS LIMITED THE HETERO GROUP OF CONCERNS AS REFERRED ABOVE, ARE INTO THE BUSINESS OF MANUFACTURING AND SALE OF BULK DRUGS AN D PHARMACEUTICAL FORMULATIONS. CONSEQUENT TO THE NOTI CES ISSUED ASSESSEE FILED REVISED RETURNS NOT ADMITTING ADDITIONAL INCOMES. 2.1. THE REVENUE HAS RAISED COMMON GROUNDS IN ALL THE ASSESSMENT YEARS AS UNDER : 2. THE LD. CIT(A) OUGHT TO HAVE UPHELD THE TOTAL DISALLOWANCE MADE ON FICTITIOUS/BOGUS PURCHASES CLAIM OF ASSESSEE, AS THE SAME IS LOGICALLY AND ARITHMETICALLY ESTIMATED IN ASSESSMENT ORDER AS PER IN PRINCIPLE CONFESSION OF ASSESSEE TO HAVE MADE UNVERIFIABLE PURCHASES FROM THE SAID PARTIES OF MUMBAI FOR HIS CONCERNS. 3. THE LD. CIT(A) OUGHT NOT HAVE GIVEN CREDENCE TO THE SEARCH SUBSEQUENT STATEMENT OF ASSESSEE AND RELATED PERSONS AS IT IS AN AFTERTHOUGHT TO NEGATE THE FACT OF ASSESSEES UNVERIFIABLE PURCHASES CLAIM THAT TOO WITHOUT ANY VERIFIABLE PROOFS/JUSTIFICATION FOR THE CONTRADICTION OF SEARCH DAY CONFESSION. 2.2. IN ITA.NO.787/HYD/2012 AND 788/HYD/2012 FOR THE A.YS. 2004-05 AND 2005-06 THE REVENUE HAS 3 ITA.NO.786, 787, 788 & 789/HYD/2012 M/S. CIREX PHARMACEUTICALS P. LTD., HYDERABAD. RAISED ANOTHER GROUND NO.4 ON R & D EXPENDITURE AS UNDER : 4. THE LD. CIT(A) OUGHT TO HAVE UPHELD THE DISALLOWANCE MADE ON ACCOUNT OF ASSESSEES WRONG CLAIM OF R & D CAPITAL EXPENDITURE AS THE SAME IS NOT INCURRED FOR R & D ACTIVITIES OF THE ASSESSEE ONLY AT ITS APPROVED LABORATORY. 3. COMING TO GROUNDS NO. 2 AND 3 IN ALL THE YEARS THE FACTS ARE AS UNDER : 3.1 BRIEFLY STATED, HETERO GROUP OF CONCERNS ARE INTO THE BUSINESS OF MANUFACTURING AND SALE OF BULK DRUG S AND PHARMACEUTICAL FORMULATIONS. AS FAR AS PROCUREMENT OF RAW MATERIALS ARE CONCERNED, A CENTRALIZED MECHANISM WA S SHOWN TO HAVE BEEN ADOPTED BY THE GROUP CONCERNS, WITH TH E PROCUREMENT OF RAW MATERIALS MADE FROM VARIOUS SOUR CES INCLUDING THE GROUP OF CONCERNS LOCATED AT MUMBAI. THE MAIN RAW MATERIALS THAT WERE SHOWN TO HAVE PURCHASED FRO M THE BOMBAY BASED FIRMS ARE (A) METHANOL (B) CAUSTIC SOD A FLAKES (C) TOLUENE (D) ETHYL ACETATE (E) ACETIC ACID (F) M.BUT ANOL (G) CYELO HEXANONE ETC. THE DETAILS OF THE TOTAL PURCHASES AN D THE PURCHASES FROM THE BOMBAY BASED CONCERNS ARE INDICA TED AS UNDER, TO GAUGE THE VOLUMES OF THE BUSINESSES ACHIE VED BY THE GROUP COMPANIES FOR VARIOUS ASSESSMENT YEARS RELATE D TO THE SEARCH PROCEEDINGS. PURCHASES FROM MUMBAI CONCERNS A.Y. TOTAL PURCHASES SHREE GROUP POOJA GROUP TOTAL (3+4) 2002-03 2201650390 -- 13701566 13701566 2003-04 1896852370 31628717 52770523 84399240 2004 - 05 3133018520 41328562 143539030 184867592 2005-06 4093073397 62614788 124308602 186923390 4 ITA.NO.786, 787, 788 & 789/HYD/2012 M/S. CIREX PHARMACEUTICALS P. LTD., HYDERABAD. 2006-07 6626050454 151419013 145744355 297163368 2007-08 7995503539 26087710 2563878 28651588 TOTAL 27850987818 313078790 482627954 795706744 3.2. DURING THE COURSE OF THE SEARCH/SURVEY PROCEEDINGS CONDUCTED AT THE GROUP CONCERNS, IT WAS ALLEGED TO HAVE FOUND SOME EVIDENCE, THAT THE ASSESSEE COMPANY ALONG WITH THE OTHER GROUP CONCERNS WERE INDULGING IN INF LATION OF PURCHASES OF THE RAW MATERIAL, SPECIALLY THROUGH TW O GROUPS OF CONCERNS VIZ. SHREE GROUP AND POOJA GROUP LOCATED A T MUMBAI. IN ARRIVING AT THE SAID CONCLUSION, THE ASS ESSING OFFICER HAS RELIED ON THE STATEMENTS RECORDED FROM THE SENIOR EMPLOYEES OF THE GROUP CONCERNS ON THE DAY OF SEARC H, WHEREIN IT WAS STATED BY THEM THAT A PORTION OF PURCHASES O F RAW MATERIAL WERE INFLATED AND ENTRIES WERE MADE IN THE REGISTER WITHOUT RECEIVING THE MATERIAL WHILE INDICATING THE SOURCES OF SUCH PURCHASES FROM MUMBAI. STATEMENTS WERE ALSO RE CORDED FROM THE TWO ASSOCIATED PERSONS OF THE GROUPS MENTI ONED ABOVE LOCATED AT MUMBAI ON TWO DIFFERENT DATES, DUR ING THE COURSE OF SURVEY/SEARCH CONDUCTED IN THEIR RESPECTI VE BUSINESS PREMISES, WHEREIN IT WAS SHOWN TO HAVE INDICATED TH AT THE SAID PARTIES WERE ISSUING CERTAIN BOGUS SALE BILLS TO TH E HETERO GROUP COMPANIES. DURING THE COURSE OF SEARCH & SEIZ URE PROCEEDINGS, THE CMD OF THE GROUP CONCERNS WAS EXAM INED ON OATH WHO HAVE MADE A DISCLOSURE OF ADDITIONAL INCOM E OF RS.25.00 CRORES FOR THE GROUP CONCERNS, BY TAKING C ERTAIN OMISSIONS COMMITTED BY THE PAID EMPLOYEES/MANAGERS OF THE COMPANIES INTO CONSIDERATION. HOWEVER, IN THE CASE OF M/S. CIREX PHARMACEUTICALS P. LTD., NO DISCLOSURES WERE MADE. 5 ITA.NO.786, 787, 788 & 789/HYD/2012 M/S. CIREX PHARMACEUTICALS P. LTD., HYDERABAD. 3.3. THE ASSESSEE COMPANY IS INVOLVED IN MANUFACTURING AND SALE OF BULK DRUGS AND PHARMACEUT ICAL FORMULATIONS AND WHILE PROCURING THE RAW MATERIAL F ROM VARIOUS SOURCES INCLUDING THE TWO CONCERNS VIZ. SHR EE GROUP AND POOJA GROUP LOCATED AT MUMBAI, FOR LAST SEVERAL YEARS ALLEGATION WAS THAT ASSESSEE OBTAINED BOGUS PURCHAS ES BILLS. DETAILS OF THE TOTAL PURCHASES AND THE PURCHASES MA DE BY THE ASSESSEE FROM THE TWO GROUP CONCERNS AT MUMBAI, FRO M WHOM THE ALLEGED FICTITIOUS PURCHASES WERE SHOWN TO HAVE BEEN MADE, ARE AS UNDER : CIREX PHARMACEUTICALS P. LTD., A.Y. TOTAL PURCHASES PURCHASES FROM SHREE GROUP PURCHASES FROM POOJA GROUP 2001-02 29321231 N.A. N.A. 2002-03 48478627 -- 353647 2003-04 120015902 604258 2696318 2004-05 166117677 - 4243012 2005-06 218693884 1716865 2006-07 333647159 1745633 2810913 2007 - 08 3 81426369 459015 849711 TOTAL 1297700849 2349891 11820755 3.4. WHILE COMPUTING THE TAXABLE INCOME AND FINALIZING THE ASSESSMENT ORDER, THE ASSESSING OFFI CER HAS MADE CERTAIN ADDITIONS AND DISALLOWANCES AND THE NO TABLE 6 ITA.NO.786, 787, 788 & 789/HYD/2012 M/S. CIREX PHARMACEUTICALS P. LTD., HYDERABAD. AMONG THEM BEING THE ADDITION OF RS.25,80,577 IN AL L YEARS TREATING A PORTION OF PURCHASES MADE FROM BOMBAY GR OUP CONCERNS, AS FICTITIOUS PURCHASES. 3.5. ASSESSING OFFICER HAS MADE ADDITIONS ON ACCOUNT OF FICTITIOUS/UNAUTHENTIC PURCHASES AND WHI LE TAXING THE SAME DECLARED INCOMES HAVE NOT BEEN CONSIDERED. LD. CIT(A) ON THE CONTENTIONS OF THE ASSESSEE ANALYSED THE ISSUE, EXAMINED THE DETAILED SUBMISSIONS PLACED ON RECORD AND CONTENTIONS OF THE ASSESSEE AND HELD THAT DISALLOWANCE ON ESTIMATE BAS IS AND DISALLOWANCE ON PERCENTAGE BASIS CANNOT BE UPHELD. SO, WHILE CANCELLING THE DISALLOWANCE MADE BY A.O. ON THE PURCHASES, THE DIRECTION WAS GIVEN TO T AX ADDITIONALLY DECLARED INCOME OF ASSESSEE IN RESPECT IVE ASSESSMENT YEARS. HIS DETAILED ORDERS IN PARA 5.13 TO 5.25 ARE AS UNDER( FOR AY 2003-04) : 5.13. THE FINDINGS OF THE ASSESSING OFFICER AND THE WRITTEN SUBMISSIONS OF THE APPELLANT WITH REFERENCE TO THE NOTE GIVEN ON FICTITIOUS PURCHASES, ARE PERUSED. AS COULD BE SEEN FROM THE FACTS OF THE CASE, THE APPELLANT COMP ANY IS INTO THE BUSINESS OF MANUFACTURING AND SALE OF BULK DRUGS AND PHARMACEUTICAL FORMULATIONS SINCE 1990, WITH HI GH VOLUMES OF TURNOVERS, AS INDICATED IN THE FOREGOING PARAGRAPHS OF THIS ORDER. IT HAS BEEN OBSERVED THAT THE GROUP COMPANIES WERE PROCURING THE RAW MATERIAL, TH ROUGH A COMMON MECHANISM AND THE CENTRALIZED PROCESS, FOR GROUP AS A WHOLE. THE APPELLANT COMPANY WAS PROCURI NG THE RAW MATERIALS FROM VARIOUS SOURCES INCLUDING TH E TWO GROUP OF COMPANIES/CONCERNS VIZ. SHREE GROUP AND PO OJA GROUP, LOCATED AT MUMBAI, WHERE SURVEY/SEARCH PROCEEDINGS WERE CONDUCTED AT THEIR PLACES, WHEREIN IT WAS STATED BY THE REPRESENTATIVES OF THE SAID CONCERNS VIZ. MR.NISHIT J. DOSHI AND MR.RAJESH K.PUNAMIA THAT BILLS WERE ORGANIZED BY THEM TO THE FOUR HETERO GROUP OF COMPA NIES VIZ. M/S SYMED LABS LTD. M/S HETERO DRUGS LTD. M/S HETERO LABS LTD AND M/S CIREX PHARMACEUTICALS PVT L TD. DURING THE PERIOD OF FINANCIAL YEAR 2002-03 TO 2006 -07, 7 ITA.NO.786, 787, 788 & 789/HYD/2012 M/S. CIREX PHARMACEUTICALS P. LTD., HYDERABAD. WITHOUT SUPPLYING THE RAW MATERIAL. MEANWHILE, SEAR CH & SEIZURE PROCEEDINGS HAVE TAKEN PLACE IN THE CASE OF HETERO GROUP OF COMPANIES WITH PROCEEDINGS INITIATED ON 10.11.2006 AND CONCLUDED ON 8.1.2007, DURING WHICH STATEMENTS WERE RECORDED FROM THE SENIOR EMPLOYEES OF THE GROUP CONCERNS, A SECURITY GUARD AT FACTORY PREMISE S OF M/S HETERO LABS LTD. THE STATEMENTS OF SRI B. PARTHASARATHY REDDY, CHAIRMAN OF THE GROUP COMPANIE S, WAS ALSO RECORDED ON 8.1.2007. IN THE INITIAL STATE MENT RECORDED FROM SRI B.RAMACHANDRA REDDY, VICE-PRESIDE NT (MATERIALS), WORKING FOR M/S HETERO LABS LTD, ON 10.11.2006, IT WAS STATED BY HIM ON ENQUIRY THAT TH ERE ARE CERTAIN BILLS WHICH WERE ACCOMMODATED BY THE TWO BO MBAY BASED CONCERNS WHILE INDICATING THE PERIOD OF SUCH SUPPLIES, THE PROCEDURE ADOPTED IN MAKINGTHE ENTRY OF SUCH PURCHASES IN THE STOCK REGISTER ETC.. SIMILARLY, ST ATEMENT WAS ALSO RECORDED FROM SRI SRIHARI REDDY, MANAGER (WAREHOUSE), WORKING WITH M/S HETERO DRUGS LIMITED ON 10.11.2006, WHEREIN HE HAS INDICATED THAT THERE ARE CERTAIN BILLS WHICH WERE RECEIVED WITHOUT THE MATER IAL AND WERE ENTERED INTO THE STOCK REGISTER WITHOUT VERIFY ING THE QUANTITIES OF THE RAW MATERIAL RECEIVED. IN THE PRO CESS, MR. SRIHARI REDDY ALSO CONFIRMED THE CORRECTNESS OF THE STATEMENT RECORDED FROM SRI A. SUDHAKAR, A SECURITY GUARD, POSTED AT HETERO LABS LTD, AS REGARDS TO THE PROCED URE ADOPTED IN ENTERING THE BILLS THAT WERE NOT ACCOMPA NIED BY THE MATERIAL. IT IS ALSO A FACT THAT WHILE GIVING T HE STATEMENT MR. RAMACHANDRA REDDY AND SRI SRIHARI REDDY WERE REFERRING TO NAME OF SRI K.V. BHASKER REDDY, GENERA L MANAGER (FINANCE), STATING THAT MR. BHASKER REDDY I S THE IN-CHARGE OF THE ACCOUNTS AND AS SUCH HE IS AWARE A BOUT ALL SUCH TRANSACTIONS. HOWEVER, IT IS NOTICED THAT NO S TATEMENT FROM SRI K.V. BHASKER REDDY WAS RECORDED DURING THE COURSE OF SEARCH & SEIZURE PROCEEDINGS EXCEPT ON 26.12.2008 JUST BEFORE CONCLUSION OF THE ASSESSMENT PROCEEDINGS AND IN THE STATEMENT RECORDED, MR. BHAS KER REDDY HAS DENIED THE INITIAL STATEMENTS GIVEN BY MR . RAMCHANDRA REDDY AS WELL AS MR. SRIHARI REDDY ON 10.11.2006. MR. RAMCHANDRA REDDY AND MR. SRIHARI REDDY HAVE DENIED THE STATEMENTS GIVEN BY THEM EARL IER AND AFFIDAVITS WERE FILED BY THE APPELLANT/DEPONENT S INDICATING THE DETAILS AND REASONS FOR DENIALS OF T HEIR STATEMENT DT.10.11.2006. SIMILARLY, MR. A. SUDHAKAR ALSO FILED AFFIDAVIT DENYING THE STATEMENT GIVEN BY HIM ON 10.11.2006. 8 ITA.NO.786, 787, 788 & 789/HYD/2012 M/S. CIREX PHARMACEUTICALS P. LTD., HYDERABAD. 5.14 AS COULD BE SEEN FROM THE INFORMATION BROUGHT ON THE RECORD, THE APPELLANT GROUP MADE PUR CHASES OF RAW MATERIAL FROM SHREE GROUP, AND POOJA GROUP, DURING THE AY 2002-03 TO AY 2007-08 AND SUCH PURCHASES ARE QUANTIFIED AT RS.31,30,78,790 AND RS.48,26,27,954, RESPECTIVELY, AS AGAINST THE TOTAL PURCHASES OF RS.2785,09,87,818, WHICH CONSTITUTE AROUND 2.85%, PURCHASES FROM THE TWO MUMBAI CONCERNS PUT TOGETHER . SIMILARLY, THE TOTAL PURCHASES OF THE RAW MATERIAL MADE BY M/S CPPL, FROM THE SHREE GROUP AND POOJA GROUP ARE QUANTIFIED AT RS.23,49,891 AND RS.1,18,20,755 RESPECTIVELY, AS AGAINST THE TOTAL PURCHASES OF RS.129,77,00,849 BY THE APPELLANT COMPANY, FOR THE AY 2001-02 TO AY 2007-08, WHICH CONSTITUTE AROUND 1.09 % OF THE TOTAL PURCHASES. A PORTION OF SUCH PURCHASES FR OM BOTH THE GROUPS WERE TREATED AS FICTITIOUS PURCHASES BY THE ASSESSING OFFICER AND THE BASIS FOR SUCH TREATMENT/CONCLUSION IS THE STATEMENTS RECORDED FRO M THE SENIOR EMPLOYEES/MANAGERS OF THE HETERO GROUP COMPA NIES APART FROM THE STATEMENTS OF MR. RAJESH K.PUNAMIA, THE REPRESENTATIVE OF POOJA GROUP AND MR.NISHIT J. DOSH I, THE REPRESENTATIVE OF SHREE GROUP. IN QUANTIFICATION OF SUCH FICTITIOUS PURCHASES, FROM POOJA GROUP, THE ASSESSI NG OFFICER RELIED UPON THE STATEMENT OF MR. RAJESH K. PUNAMIA AND THE ASSESSMENT ORDER PASSED BY DCLT CC-46, MUMB AI, IN THE CASE OF TWO GROUP CONCERNS. IN THE CASE OF S HREE GROUP, THE BASIS ADOPTED IS THE STATEMENT OF MR. NI SHIT J. DOSHI APART FROM THE FEW ENQUIRIES MADE WITH REFERE NCE TO THE VARIATIONS, AS REGARD TO QUANTITY AND AMOUNTS I N THE BILLS ISSUED BY SHREE GROUP. 5.15. COMING TO THE FACTS FOR THE YEAR UNDER REFERENCE, THE TOTAL FICTITIOUS PURCHASES WERE QUAN TIFIED AT RS.6,38,913 WHICH INCLUDE THE FICTITIOUS PURCHASES ATTRIBUTABLE TO THE PURCHASES MADE FROM SHREE GROUP AND POOJA GROUP (RS.3,06,571) AND SHREE GROUP (RS.3,32, 342), AS PER THE ASSESSMENT ORDER. AS INDICATED, THE QUANTIFICATION OF FICTITIOUS PURCHASES ATTRIBUTABLE TO SHREE GROUP, WERE BASED ON THE THEORY THAT FEW PURCHASES WERE 'DIRECT PURCHASES' WITH PURCHASES MADE FROM THE MANUFACTURERS/IMPORTERS DIRECTLY AND BALANCE ORDERE D BY THE TRADERS FROM THE IMPORTERS/MANUFACTURES WITH GO ODS DELIVERED DIRECTLY TO THE CLIENTS, WHEREIN 55% OF S UCH PURCHASES WERE TREATED AS UNVERIFIABLE BY THE ASSES SING OFFICER OBSERVING THAT CERTAIN BILLS WERE NOT FULLY VERIFIABLE AND IN CASE OF DIRECT PURCHASES, ENTIRE PURCHASES W ERE TREATED AS FICTITIOUS, ON THE BASIS THAT THE ASSESS EE HAS NOT 9 ITA.NO.786, 787, 788 & 789/HYD/2012 M/S. CIREX PHARMACEUTICALS P. LTD., HYDERABAD. OBJECTED TO SUCH TREATMENT OR COULD DISPROVE THE CONCLUSIONS DRAWN BY THE ASSESSING OFFICER. HOWEVER , THIS ASPECT APPEARS NOT CORRECT AS VERIFIABLE FROM THE R ECORD AND WAS DISPUTED BY THE APPELLANT SAYING THAT THEY HAVE FILED THEIR OBJECTIONS TO THE SHOW CAUSE NOTICE WHERE SUC H TREATMENT WAS OPPOSED BUT WAS NOT TAKEN INTO CONSIDERATION BY THE ASSESSING OFFICER. IT WAS ALSO OBSERVED THAT SUCH PURCHASES WERE MADE FROM REPUTED SUPPLIERS WITH SOME OF THEM BEING STATE GOVERNMENT UNDERTAKINGS BUT NO ENQUIRIES WERE MADE WITH SUCH SUPPLIERS AS REGARDS TO THE GENUINENESS OF THE SUPP LIES MADE. IN CASE OF THE QUANTIFICATION OF FICTITIOUS P URCHASES FROM POOJA GROUP, THE ASSESSING OFFICER HAS GONE BY THE STATEMENT OF MR. PUNAMIA AND THE OBSERVATIONS MADE BY THE ASSESSING OFFICER (DCLT CC-46, MUMBAI), AS REGA RDS TO THE QUANTIFICATION/BASIS FOR ARRIVING AT THE FIGURE OF FICTITIOUS PURCHASES, WITHOUT ANY EVIDENCE, OR THE SEIZED MATERIAL IN THIS REGARD. 5.16. THE FINDINGS AND OBSERVATIONS OF THE ASSESSING OFFICER AS PER THE ASSESSMENT ORDER AS WE LL AS THE SUBMISSIONS OF THE APPELLANT, WITH REFERENCE TO THE ANALYSES OF THE STATEMENTS RECORDED FROM SENIOR EMP LOYEES OF GROUP COMPANIES INDICATE THAT FEW OF THEM DO ASS OCIATED WITH THE APPELLANT COMPANY, THOUGH ALL OF THEM WORK ING FOR THE GROUP COMPANIES AND THE ASSESSING OFFICER HAS G ONE BY THEIR INITIAL STATEMENTS WITHOUT ANY DISCUSSION ON THE STATEMENTS RECORDED FROM THEM IN LATER PERIODS AND THE AFFIDAVITS FILED IN THAT CONNECTION. IT IS ALSO A F ACT THAT THE STATEMENT OF THE MAIN PERSON IN-CHARGE OF THE ACCOU NTS FOR THE GROUP CONCERNS, MR. K.V. BHASKAR REDDY, COULD B E OBTAINED ONLY AT THE FAG END OF THE ASSESSMENT PROC EEDINGS WHEREIN HE CATEGORICALLY DENIED THE EXISTENCE OF FI CTITIOUS PURCHASES AND THE SUBMISSIONS MADE BY THE SAID SENI OR EMPLOYEES, IN THEIR INITIAL STATEMENTS. AS ARGUED B Y THE APPELLANT, WHICH ARE SUPPORTED BY THE ESTABLISHED J UDICIAL DECISIONS AS REFERRED IN THEIR SUBMISSIONS, THE AFF IDAVITS FILED BY THE EMPLOYEES AS WELL AS THE APPELLANT SHO ULD NOT HAVE BEEN REJECTED BY THE ASSESSING OFFICER WITHOUT CONTROVERTING THE CONTENTS OF THE AFFIDAVITS AND WI THOUT BRINGING ANY ADDITIONAL EVIDENCE ON THE RECORD. HEN CE, IT CAN BE HELD THAT THE RELIANCE OF THE ASSESSING OFFI CER ON THE MERE STATEMENTS AND COMING TO THE CONCLUSION THAT C ERTAIN PORTION OF PURCHASES MADE FROM SHREE GROUP AS FICTI TIOUS IS NOT SUSTAINABLE. FURTHER, NO EVIDENCE WAS SHOWN TO HAVE BEEN FOUND DURING THE COURSE OF SEARCH & SEIZURE PROCEEDINGS OR BROUGHT ON RECORD TO PROVE THAT THE RECORDS 10 ITA.NO.786, 787, 788 & 789/HYD/2012 M/S. CIREX PHARMACEUTICALS P. LTD., HYDERABAD. MAINTAINED BY THE APPELLANT ARE NOT RELIABLE OR VER IFIABLE. AS COULD BE SEEN FROM THE COPY OF THE STOCK REGISTE R FILED DURING THE COURSE OF APPEAL PROCEEDINGS, WHEREIN TH E QUANTITATIVE DETAILS OF VARIOUS RAW MATERIAL RECEIV ED AND ISSUED UNDER VARIOUS CODES GIVEN TO THEM, ARE RECOR DED IN THE COMPUTERIZED FORMAT, WHICH APPEARS NOT EXAMINED BY THE ASSESSING OFFICER. BASED ON THE DEFICIT ON ACC OUNT OF FICTITIOUS PURCHASES QUANTIFIED, THE ASSESSING OFFI CER DID NOT ANALYSE THE QUANTITATIVE DETAILS OF PRODUCTION, WITH REFERENCE TO BOOKS OF ACCOUNTS AND BOOKS OF ACCOUNT S WERE NOT DISTURBED. 5.17 REGARDING THE RELIANCE PLACED BY THE ASSESSING OFFICER ON THE STATEMENTS OF MR. RAJESH K . PUNAMIA OF POOJA GROUP AND MR.NISHIT J. DOSHI OF SHREE GROUP AT MUMBAI, THE BASIC FACT REMAINS THAT THE ST ATEMENT FROM MR. PUNAMIA WAS RECORDED ON 12.4.2006 AND MR. NISHIT DOSHI ON 2.3.2007, BOTH WITH A GAP OF FEW MO NTHS FROM THE DATE OF SEARCH, IN APPELLANT'S CASE I.E. 8 .11.2006, WHICH MAY MAKE THE THINGS LOOK LITTLE INCOHERENT AS FAR AS COLLATING THE EVIDENCES ARE CONCERNED. FURTHER, AS ARGUED BY THE APPELLANT, THE STATEMENTS RECORDED FROM SUCH PERSONS WERE ON THE BACK OF THE APPELLANT AND IT AP PEARS THAT THERE WAS NO OCCASION OR OPPORTUNITY PROVIDED FOR THE CROSS EXAMINATION OF THE SAID PARTIES. UNDER THE CIRCUMSTANCES, IT CAN BE HELD THAT SUCH STATEMENTS ARE NOT FULLY RELIABLE FOR DRAWING CONCLUSION ON THE NATURE OF BOGUS/FICTITIOUS PURCHASES APART FROM QUANTIFYING S UCH PURCHASES FURTHER, AS PER MR. PUNAMIA, THE SALES WE RE MADE TO HETERO GROUP AND THE UNACCOUNTED INCOME ADMITTED BY HIM, WAS ON ACCOUNT OF UNAVAILABILITY O F CERTAIN TRANSPORT RECEIPTS FOR PURCHASES FROM M/S R .R. ENTERPRISES, APART FROM MAKING THE PEACE WITH THE DEPARTMENT, WHICH CAN NOT BE THE BASIS FOR QUANTIFY ING THE UNACCOUNTED INCOME IN THE CASE OF CLIENTS CONNECTED TO SUCH TRANSACTIONS, BY ANY STRETCH OF IMAGINATION. 5.18 THE OTHER INFORMATION RELIED UPON BY THE ASSESSING OFFICER WAS THE ASSESSMENT ORDERS PASSED BY THE DCIT, CC-46, MUMBAI, IN THE CASE OF POOJA PETROCHEMICALS AND SHREE VALLABH PHARMACHEM PVT. LT D. WHEREIN THE CONCLUSIONS DRAWN BY THE ASSESSING OFFI CER WERE ABRUPT AND LEADING IN NATURE, WITH NO RELIABLE EVIDENCE BROUGHT ON THE RECORD TO INDICATE THAT THE FICTITIOUS SALES MADE BY POOJA GROUP CAN BE DIRECTLY ATTRIBUTA BLE TO ANY PARTICULAR CLIENTS. THE ASSESSING OFFICER OF PO OJA GROUP CONCERNS STRAIGHT AWAY CONCLUDED THAT SUCH AMOUNTS OF 11 ITA.NO.786, 787, 788 & 789/HYD/2012 M/S. CIREX PHARMACEUTICALS P. LTD., HYDERABAD. SALES MADE BY POOJA GROUP REPRESENT THE UNACCOUNTED PURCHASES MADE BY HETERO GROUP AND THE AMOUNTS WERE QUANTIFIED AT RS.2.48 CRORES AS AGAINST RS.2.59 CRO RES QUANTIFIED IN THE ASSESSMENT ORDER. IN THIS CONTEXT , IT IS RELEVANT TO MENTION THAT AT EVERY STAGE THE PRESUMP TIONS AND SURMISES HAVE PLAYED A BIGGER ROLE THAN THE FAC TS. 5.19. FURTHER, IN CASE OF POOJA GROUP, THE UNVERIFIABLE PURCHASES WERE QUANTIFIED AT RS.2.48 C RORES AS AGAINST THE TOTAL PURCHASES MADE FROM THE GROUP QUANTIFIED AT RS.48.37 CRORES. WHILE QUANTIFYING TH E UNVERIFIABLE SALES IN THE HANDS OF POOJA PETROCHEMI CALS AND SHREE VALLABH PHARMACHEM PVT LTD. THE ASSESSING OFF ICER OF THE GROUP HAS DRAWN THE GIST OF SUCH AMOUNTS AS ATTRIBUTABLE TO AY 2003-04 TO 2006-07, AT RS.2.48 C RORES AGAINST WHICH THE ASSESSING OFFICER OF THE HETERO G ROUP HAS ADOPTED DIFFERENT SET OF FIGURES AND PARAMETERS AS INDICATED IN A CHART AT PARA 5.6 OF THIS ORDER IN D ISTRIBUTING SUCH PURCHASES AMONG THE HETERO GROUP COMPANIES, WH ICH ALSO INDICATES THE PRESUMPTIVE METHODS ADOPTED IN QUANTIFICATION OF FICTITIOUS PURCHASES. WHILE QUANT IFYING SUCH UNVERIFIABLE PURCHASES AMONG THE GROUP COMPANI ES, THE ASSESSING OFFICER HAS ADOPTED THE PRORATA BASIS AND THE BASIS ADOPTED IS QUANTUM OF PURCHASES MADE BY T HE GROUP COMPANIES FROM POOJA GROUP. 5.20. ON SIMILAR LINES, THE PURCHASES MADE FROM SHREE GROUP WERE CATEGORIZED AS 'DIRECT PURCHASES' AND 'TRANSIT PURCHASES', AS INDICATED IN THE EARLIER PA RT OF THIS ORDER, WITH 55% OF THE 'TRANSIT PURCHASES', ARE EST IMATED AND QUANTIFIED AS FICTITIOUS PURCHASES, WHILE 100% OF THE 'DIRECT PURCHASES' WERE TREATED AS FICTITIOUS. WHIL E TREATING A PORTION OF 'TRANSIT PURCHASES' AS FICTITIOUS, FOR THE AY 2003-04 TO 2006-07, THE ASSESSING OFFICER HAS OBSER VED AND CONCLUDED THAT 'ON ENQUIRY, IT REVEALS THAT ALL TRANSIT PURCHASES ARE NOT GENUINE AND THERE IS VARIATION AS REGARDS TO THE RATES AND QUANTITY TO THE EXTENT OF 50-55% OF THE BILLS' AND QUANTIFIED SUCH BILLS THROUGH A COMM ON ANNEXURE MARKED AS 'ANNEXURE A' ATTACHED TO THE ASSESSMENT ORDER, WHICH CONTAIN THE DETAILS OF PURC HASES BY THE ENTIRE GROUP, FOR THE CORRESPONDING YEAR UND ER REFERENCE, WHICH DOES NOT INDICATE THE PURCHASES BY THE INDIVIDUAL COMPANY/CONCERN. FURTHER, IN THE COURSE OF THE STATEMENT DT. 2.3.2007 RECORDED FROM MR. NISHIT J. DOSHI THE QUANTIFICATION OF THE PURCHASES WHICH WERE STATED T O BE BOGUS/UNVERIFIABLE WERE PUT AT RS.29.48 CRORES, AS AGAINST RS.31.30 CRORES FOR AY 2003-04 TO RS.2007-08 AND TH E 12 ITA.NO.786, 787, 788 & 789/HYD/2012 M/S. CIREX PHARMACEUTICALS P. LTD., HYDERABAD. AMOUNTS WRE STATED TO BE ACCOMMODATED BY FOUR CONCE RNS OF SHREE GROUP. AS COULD BE SEEN, DETAILS OF THE AM OUNTS BY EACH CONCERN, FOR EACH ASSESSMENT YEAR WERE NEITHER QUANTIFIED BY MR. DOSHI NOR BY THE ASSESSING OFFICE R. UNDER THE CIRCUMSTANCES, IT MAY BE DIFFICULT TO PROVE THA T THE APPELLANT COMPANY MADE THE SAID FICTITIOUS PURCHASE S FROM PARTICULAR CONCERNS AND PARTICULAR QUANTUMS, FOR EA CH OF THE ASSESSMENT YEAR. 5.21. FURTHER, THE INCONSISTENCY OR THE INCIDENCE OF ESTIMATIONS INVOLVED IN QUANTIFICATION OF THE FICTI TIOUS PURCHASES ARE ILLUSTRATED IN DISTRIBUTION OF SUCH F ICTITIOUS PURCHASES AMONG THE GROUP CONCERNS WITH THEIR PERCENTAGES AS REGARDS TO THE TOTAL PURCHASES MADE FROM THE TWO GROUPS I.E. POOJA GROUP AND SHREE GROUP. NAME OF THE CONCERN TOTAL PURCHASES FROM SHREE GROUP FICTITIOUS PURCHASES FROM SHREE GROUP & % TOTAL PURCHASES FROM POOJA GROUP FICTITIOUS PURCHASES FROM POOJA GROUP & % 1 2 3 4 5 CIREX PHARMACEUTICALS PVT. LTD., 2350161 1860304/79.15% 11820755 720273/6.09% HETERO DRUGS LTD., 146272953 120203092/82.17% 153954819 7509150/4.87% HETERO LABS LTD., 99794004 77637913/77.80% 156290013 9370444/6.00% SYMED LABS LTD., 64661942 42736292/66.09% 161657958 8717195/5.39% TOTAL 313079060 242437601/77.43% 483723545 26317062/5.44% AS COULD BE SEEN FROM THE ABOVE, THOUGH THE PURCHASES ARE MADE FROM THE SAME/COMMON SOURCES, TH E QUANTIFICATION OF FICTITIOUS PURCHASES WITHOUT REFE RENCE TO SPECIFIC BILL OR INFORMATION IS VARYING FROM CASE T O CASE IN THE SAME GROUP, WHICH IS ON ACCOUNT OF THE ELEMENT OF ESTIMATION INVOLVED IN THE PROCESS OF QUANTIFICATIO N. 13 ITA.NO.786, 787, 788 & 789/HYD/2012 M/S. CIREX PHARMACEUTICALS P. LTD., HYDERABAD. UNDER THE CIRCUMSTANCES, I AM OF THE OPINION THAT T HE STATEMENTS FROM SENIOR EMPLOYEES OF THE GROUP, WHIC H WERE SUPPORTED BY AFFIDAVITS, THAT WERE NOT CONTROV ERTED BY THE ASSESSING OFFICER AND THE STATEMENTS FROM MR . RAJESH PUNAMIA AND MR. NISHIT DOSHI, WHICH WERE NOT SUPPORTED BY THE SEIZED MATERIAL OR FURTHER ENQUIRI ES MADE IN THE REGARD, ARE NOT FULLY RELIABLE TO TREAT FEW PURCHASES AS BOGUS. THE METHOD/PROCEDURES ADOPTED I N QUANTIFICATION OF FICTITIOUS PURCHASES IN THE CASES OF THE APPELLANT COMPANY AS WELL AS THE GROUP CONCERNS ARE NOT ON SOUND BASIS, SO AS TO BE USED FOR QUANTIFICATION OF UNACCOUNTED INCOME, IN A SEARCH RELATED ASSESSMENTS . ACCORDINGLY, THE ADDITION OF RS.6,38,913 ON ACCOUNT OF FICTITIOUS PURCHASES QUANTIFIED AGAINST THE PURCHAS ES MADE FROM SHREE GROUP AND POOJA GROUP, IN THE CASE OF APPELLANT COMPANY, FOR THE YEAR UNDER REFERENCE, DO NOT APPEAR SUSTAINABLE. 5.22. AS COULD BE SEEN FROM THE ASSESSMENT ORDER , IN THIS METHOD OF QUANTIFICATION, THERE IS NO SPECI FIC INFORMATION OR BASIS AND AS SUCH IT HAS ASSUMED THE ANGLE OF ESTIMATION. IT APPEARS THAT IN SEARCH ASSESSMENTS OF ALL THE GROUP OF CONCERNS INCLUDING THE APPELLANT'S CASE FOR THE YEAR UNDER REFERENCE, ESTI MATION HAS PLAYED VITAL ROLE IN QUANTIFICATION OF UNACCOUN TED INCOME IN THE FORM OF 'FICTITIOUS PURCHASES', AND N O CONCRETE EVIDENCES WERE BROUGHT ON THE RECORD. ESTIMATIONS SHOULD BE THE LAST RESORT IN ASSESSMENT S OF INCOME, MORE SO IN THE CASES OF SEARCH ASSESSMENTS, UNLESS THE ASSESSEE RUNS AWAY FROM THE RESPONSIBILI TY IN CARRYING OUT THE NEEDED INVESTIGATIONS/ENQUIRIES OR FORCES THE ASSESSING OFFICER TO RESORT TO ESTIMATION. EVEN IN CASES OF INEVITABLE/ UNAVOIDABLE CIRCUMSTANCES, THE ESTIM ATION SHOULD BE GUIDED BY RELEVANT FACTS OF THE CASE AS AVAILABLE ON RECORD AND IN THIS CASE, NO SUCH INSTA NCES OF FALTERING ON THE PART OF THE APPELLANT COULD BE SEE N FROM THE ASSESSMENT PROCEEDINGS. THE FACTORS THAT DECIDE D THE ASSESSMENT OF UNACCOUNTED INCOME FROM THE PERCEIVED FICTITIOUS PURCHASES, ARE NONE BUT THE STATEMENTS R ECORDED FROM THE SENIOR EMPLOYEES AND THE PROMOTERS OF TWO GROUPS OF SUPPLIERS AT MUMBAI, WHICH WERE NOT SUPPO RTED BY RELIABLE EVIDENCES. FURTHER, SUCH STATEMENTS WER E NOT TAKEN TO LOGICAL CONCLUSIONS, EITHER WITH THE HELP OF EVIDENCES AS AVAILABLE WITH THE ASSESSING OFFICER O R BY CROSS EXAMINATIONS OF THE PARTIES CONCERNED. 14 ITA.NO.786, 787, 788 & 789/HYD/2012 M/S. CIREX PHARMACEUTICALS P. LTD., HYDERABAD. 5.23. FURTHER, THE ARGUMENTS AND THE OBSERVATIONS, THAT GO AGAINST THE FICTITIOUS PURCHASES ON ESTIMATED BA SIS, RUN AS UNDER ; (A) THE APPELLANT COMPANY IS AN ESTABLISHED MANUFAC TURER OF BULK DRUGS AND FORMULATIONS, WHEREIN THE RECORDS ARE COMPUTERIZED, STOCK REGISTERS ARE MAINTAINED AND NO VERIFICATION WHATSOEVER WAS MADE BY THE ASSESSING AUTHORITIES TO POINT OUT THE INFLATION OF THE PURCH ASES AND THE RESULTANT DEFECTS IN THE ACCOUNTS ACCORDINGLY. (B) THE ACTUAL SUPPLIERS/MANUFACTURERS/IMPORTERS SU CH AS M/S GUJARAT ALKALIES & CHEMICALS ARE NOT ONLY WELL KNOWN COMPANIES BUT FEW ALSO THE GOVERNMENT UNDERTAKINGS AND THEIR ACCOUNTS WERE NOT EXAMINED T O VERIFY WHETHER THE SUPPLIES MADE BY THEM WERE GENUI NE OR BOGUS. (C) THE SUPPLIES WERE SUPPORTED BY INVOICES OF SUPPLIERS/MANUFACTURER/IMPORTERS WHEREAS THE ASSESS ING OFFICER HAS RELIED UPON THE STATEMENTS RECORDED ON EXAMINATION OF THE AGENTS INVOLVED. (D) MATERIAL RECEIVED WERE ENTERED INTO THE BOOKS O F ACCOUNTS AND WERE ISSUED TO THE PRODUCTION OF DRUGS WHICH WAS NOT DISPUTED BY THE ASSESSING OFFICER AND BOOKS OF ACCOUNTS WERE NOT DISTURBED. (E) THE AMOUNTS FOR PURCHASE OF THE MATERIAL WERE P AID BY CHEQUES AND NO EVIDENCE WHATSOEVER WAS FOUND/ UNEARTHED TO SHOW THAT THE AMOUNTS WERE RETURNED T O THE APPELLANT DESPITE SUCH CLAIM MADE BY MR. NISHIT J. DOSHI IN HIS STATEMENT AND DURING THE COURSE OF SEARCH & SEIZURE PROCEEDINGS, NO FINDINGS WERE MADE AS REGAR DS TO THE ASSETS OR CASH RECEIVED, AS RELATABLE TO SUCH F ICTITIOUS PURCHASES. (F) SRI RAJESH PUNAMIA OF POOJA GROUP HAS NEVER STA TED THAT HE HAS NOT SUPPLIED GOODS BUT HE HAS ONLY ACCE PTED CERTAIN ADDITION ON ACCOUNT OF ABSENCE OF AVAILABIL ITY OF THE TRANSPORT RECEIPTS AND TO SAVE HIMSELF FROM THE LITIGATION TO THE DEPARTMENT. (G) THE ASSESSING OFFICER OF THE POOJA GROUP HAS MENTIONED IN ASSESSMENT ORDER THAT BOTH PURCHASES A ND SALES MADE BY THE GROUP ARE REFLECTED BY THE BOOKS ON WHICH PROFIT WAS SHOWN AT 5% AND AS SUCH NO FURTHER 15 ITA.NO.786, 787, 788 & 789/HYD/2012 M/S. CIREX PHARMACEUTICALS P. LTD., HYDERABAD. INFERENCE CAN BE DRAWN, AND SUCH OBSERVATION INDICA TES THAT PROFIT OF 5% ON SALES WAS ACCEPTABLE, AND IN N O MANNER IT INDICATES THE SALES BY THE GROUP TO BE BO GUS. (H) THE METHODOLOGY AND QUANTUMS OF ACCOMMODATED PURCHASE BILLS AND FICTITIOUS PURCHASES AS QUANTIFI ED AND ADOPTED BY MR. NISHIT J. DOSHI FOR SHREE GROUP AND MR. RAJESH K. PUNAMIA FOR POOJA GROUP ARE AT VARIANCE, WITH THE METHODS AND FIGURES ADOPTED BY THE ASSESSING OFFICER. 5.24. IN THIS CONTEXT, IT IS PERTINENT TO MENTION THAT AN AMOUNT OF RS.25.00 CRORES WAS DISCLOSED AS UNACCOUNTED. INCOME OF THE APPELLANT GROUP CONCERNS VIZ. M/S SYMED LABS LTD, M/S HETERO DRUGS LTD & M/S HETERO LABS LTD. FOR ASSESSMENT YEARS 2003-04 TO 20 06- 07, AS INDICATED AT PARA 3.2 OF THIS ORDER. DISCLOS URE WAS MADE BY THE CHAIRMAN OF THE GROUP ON THE CONCLUDING DAY OF SEARCH VIDE HIS STATEMENT DT.8.1.2007 AND THE DISCLOSURE WAS REQUESTED TO COVER THE OMISSIONS AND MISTAKES COMMITTED BY THE APPELLANT GROUP COMPANIES RUN BY PAID MANAGERS. HOWEVER, IN THE CASE OF THE T HREE APPELLANT COMPANIES FOR ASSESSMENT YEAR 2007-08 AND IN CASE OF M/S. CIREX PHARMACEUTICALS P. LTD., THERE W ERE NO DISCLOSURES MADE BY THE APPELLANT GROUP, WHERE QUANTIFICATIONS WERE CARRIED OUT BY THE ASSESSING O FFICER ON THE BASIS/METHODOLOGY, AS DISCUSSED ABOVE. 5.25. AS COULD BE CONCLUDED FROM THE ABOVE FACTS AND DISCUSSIONS, BOTH QUANTIFICATIONS OF FICTITIOUS PURCHASES OF RAW MATERIALS BY THE ASSESSING OFFICER AND THE ADMITTANCE OF THE INCOME BY THE APPELLANT WERE BASED ON ESTIMATION AND PRESUMPTION, AS SUCH ONLY ONE OF SUCH BASIS SURVIVES. THE STATEMENTS WITHOUT ANY CORROBOR ATIVE EVIDENCES, AS RELIED UPON BY THE ASSESSING OFFICER, WHICH WERE FURTHER SUPPORTED BY THE AFFIDAVITS THAT WERE NOT CONTROVERTED BY THE ASSESSING OFFICER DO NOT SURVIV E. HENCE, SUCH STATEMENTS ARE NOT FULLY RELIABLE. FURT HER, AS DISCUSSED IN THE EARLIER PARAGRAPHS OF THIS ORDER, THERE ARE MANY INCONSISTENCIES IN THE QUANTIFICATION OF F ICTITIOUS PURCHASES AS REGARDS TO THE EVIDENCE RELIED UPON AN D THE METHODOLOGIES ADOPTED BY THE ASSESSING OFFICER. HEN CE, I AM OF THE CONSIDERED OPINION THAT THE QUANTIFICATIO NS OF FICTITIOUS PURCHASES DONE ON ESTIMATION BASIS DO NO T SURVIVE. BASED ON THE DISCUSSION AND FINDINGS GIVEN AND ALSO KEEPING THE OVERALL PICTURE OF SEARCH RELATED ASSESSMENTS (A.YS. 2003-04 TO 2007-08) WHERE THE 16 ITA.NO.786, 787, 788 & 789/HYD/2012 M/S. CIREX PHARMACEUTICALS P. LTD., HYDERABAD. FICTITIOUS PURCHASES IS MAJOR ISSUE, WHERE SOME PUR CHASES WERE ASSESSED AS UNACCOUNTED INCOME OF THE APPELLAN T WITHOUT RELIABLE EVIDENCE ARE TO BE DELETED. ACCORD INGLY, THE QUANTIFICATION OF THE FICTITIOUS PURCHASES TO T HE TUNE OF RS.6,38,913, WHICH WERE TREATED AS UNACCOUNTED INCO ME FOR THE YEAR UNDER REFERENCE, HELD TO BE UNSUSTAINA BLE FOR THE REASONS DISCUSSED ABOVE. ACCORDINGLY, THIS GROU ND OF APPEAL IS TREATED AS ALLOWED, FOR THE YEAR UNDER RE FERENCE. 4. AFTER CONSIDERING THE DETAILED SUBMISSIONS OF LEARNED D.R. AND LD. COUNSEL, WE DO NOT SEE ANY REA SON TO INTERFERE WITH THE ORDERS OF LD. CIT(A) AS HE HA S CONSIDERED NOT ONLY THE FACTS BUT ALSO STATEMENTS O N THE BASIS OF WHICH A.O. MADE DISALLOWANCE. SINCE ASSESSEE HAS NOT DISCLOSED ANY INCOME AND AO COULD NOT ESTABLISH ANY BOGUS PURCHASES, ESTIMATION OF BO GUS PURCHASES AS A PERCENTAGE CAN NOT BE APPROVED. MOREOVER THERE IS NO CONSISTENCY ALSO ON THIS ESTIMATION AS POINTED OUT BY LD.CIT(A). THERE IS AL SO NO SEIZED MATERIAL TO SUGGEST THAT THIS COMPANY ALSO RESORTED TO BOGUS PURCHASES. ACCORDINGLY, HIS ORDE RS ARE UPHELD. REVENUE GROUNDS 2 AND 3 ON THIS ISSUE I N ALL THE ASSESSMENT YEARS ARE DISMISSED. 5. GROUND NO.4 RAISED IN ITA.NO.787/HYD/ 2012 AND ITA.NO.788/HYD/2012 FOR THE A.Y. 2004-05 AND 2005-06 IS WITH REFERENCE TO CLAIM OF R & D EXPENDITURE DISALLOWED BY AO. IT WAS THE SUBMISSION THAT WHILE COMPUTING THE TAXABLE INCOME OF THE ASSESSEE, THE A.O. HAS DISALLOWED THE CLAIM OF THE ASSESSEE U/S. 35(1)(IV) OF THE I.T. ACT, 1961, BEIN G THE CAPITAL EXPENDITURE INCURRED BY ASSESSEE ON R & D T O THE EXTENT OF RS.34,87,968 AND RS. 29,83,420 IN RESPECTIVE YEARS UNDER REFERENCE. WHILE MAKING THE DISALLOWANCE, THE A.O. HAS ARRIVED AT A CONCLUSION THAT 17 ITA.NO.786, 787, 788 & 789/HYD/2012 M/S. CIREX PHARMACEUTICALS P. LTD., HYDERABAD. THE CLAIM MADE BY ASSESSEE IS A WRONG CLAIM, FOR TH E REASON THAT (I) ASSESSEE FILED THE LETTER BEFORE DCIT, CIRCLE 2(3), HYDERABAD WITHDRAWING THE CLAIM MADE IN THE CASE OF HETERO DRUGS LTD., AS EVIDENCE BY THE SWORN STATEMENT OF MR. B. PARTHASARATHY REDDY DT.08.01.2007. (II) NO CLAIMS ARE MADE FOR THE A.Y. 2006-07 ONWARDS IN THE HANDS OF M/S. HETERO DRUGS LTD., SYMED LABS LTD., AND M/S. CIREX PHARMACEUTICALS P. LTD., (III) SINCE THE EXPENDITURE NOT INCURRED FOR R & D AT ITS LABORATORY, CLAIM IS NOT ALLOWABLE. A.O. HAS ALLOWED THE DEPRECIATION ON SUCH CAPITAL EXPENDITURE BRINGING THE NET DISALLOWANCE FOR THE Y EAR UNDER REFERENCE. 5.1. ON ASSESSEES OBJECTIONS, THE LD. CIT(A) ALLOWED THE GROUND NOT ONLY ON THE REASON THAT THER E IS NO WITHDRAWAL OF THE CLAIM UNDER SECTION 35(1)(IV) BY ASSESSEE COMPANY BUT ALSO ON THE REASON THAT SIMILA R ISSUE WAS ALLOWED IN ASSESSEES OWN APPEAL BY ITAT IN ITA.NO.398/HYD/2011 DATED 14.10.2011. THE FINDINGS OF LD. CIT(A) IN PARA 6.4 OF THE ORDER ( FOR AY 200 4-05) ARE AS UNDER : 6.4. AS COULD BE SEEN FROM THE SUBMISSIONS OF THE APPELLANT AND PERUSAL OF THE SWORN STATEMENT OF SRI B.P.S.REDDY, THE FACTS RELIED UPON BY THE ASSESSING OFFICER APPEARS TO BE BASED ON WRONG PREMISES, SINCE IT HAS BEEN CATEGORICALLY STATED AND PROVED BY THE APPELLANT TH AT THE WITHDRAWAL OF CLAIM U/S 35(L)(IV) ARE CONFINED TO M /S HETERO DRUGS LTD AND HETERO LABS LTD BUT NOT SYMED LABS LT D, THE APPELLANT COMPANY. FURTHER, THERE WERE NO ENQUIRIES MADE BY THE ASSESSING OFFICER AS REGARDS TO THE USE OF T HE EQUIPMENT FOR QUALITY CONTROL PURPOSE APART FROM TH E R&D. 18 ITA.NO.786, 787, 788 & 789/HYD/2012 M/S. CIREX PHARMACEUTICALS P. LTD., HYDERABAD. ON LEGAL BASIS ALSO, THE APPELLANT'S CASE SUPPORTED BY THE RATIO OF THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS SANDOZ INDIA LTD. SUPRA. EVEN ON THE FRONT OF FACTS, THE CLAIM OF THE APPELLANT FOR ASSESSMENT YE ARS 2002- 03, 2003-04 & 2004-05 IN THE ORDERS U/S 143(3) WERE ALLOWED BY THE ASSESSING OFFICER AND NO CASE WAS MA DE FOR THE DISALLOWANCES OF CAPITAL EXPENSES ON R & D, IN SUCH ORDERS. FURTHER, IN THE CASE OF APPELLANT'S OWN APP EAL, THE HON'BLE ITAT, HYDERABAD IN ITA NO.398/HYD/2011 DT.14.10.2011 HAS ALLOWED THE APPEAL OF THE APPELLA NT ON SIMILAR FACTS AND GROUNDS. UNDER THE CIRCUMSTANCES, I AM INCLINED TO ACCEPT THE SUBMISSIONS OF THE APPELLANT AND HOLD THAT THE APPELLANT IS ELIGIBLE FOR DEDUCTION U/S 35 (1)(IV) AND ASSESSING OFFICER IS ACCORDINGLY DIRECTED TO ALLOW THE CLAIM. WHILE ALLOWING THE CLAIM, DEPRECIATION ALLOWED BY T HE ASSESSING OFFICER TO TH E TUNE OF RS.8,51,764 FOR THE YEAR UNDER REFERENCE AND THE SAME MAY BE WITHDRAWN ACCORDINGLY. THEREFORE, THIS GROUND OF APPEAL IS TR EATED AS ALLOWED. 5.2. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE D O NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF L D. CIT(A). HE HAS FOLLOWED THE DECISION IN ASSESSEES GROUP CASE OF M/S SYMED LABS LTD IN ITA.NO.398/HYD/2011 DATED 14.10.2011 IN WHICH THIS ISSUE WAS CONSIDERED BY THE ITAT AND HELD AS UNDER : 6. WITH REGARD TO THE MERITS OF THE CLAIM OF THE ASSESSEE REGARDING DEDUCTION ON ACCOUNT OF R & D EXPENDITURE CLAIMED UNDER SECTION 35(1)(IV) OF THE ACT, WE FIND THAT THE ASSESSEE IN ITS WRITTEN EXPLANATIO N FILED BEFORE THE A.O. DURING THE COURSE OF ASSESSME NT PROCEEDINGS HAS CLAIMED THAT THE ASSESSEE COMPANY AS CARRYING ON THE R&D ACTIVITY AT THE FACTORY PREMISE S ITSELF AND THIS WAS EVIDENT FROM THE REVENUE AS WELL AS CA PITAL EXPENDITURE ON SCIENTIFIC RESEARCH INCURRED BY THE ASSESSEE COMPANY YEAR AFTER YEAR. ASSESSEE FURTHER, CLAIMED THAT FOR SURVIVAL OF DRUG AND PHARMACEUTICA L BUSINESS, IT WAS NECESSARY TO CARRY OUT SUCH DEVELOPMENTAL ACTIVITY IN RELATION TO PROCESS DEVEL OPMENT AND COST AMBIT AND THIS EXPENDITURE INCURRED BY THE ASSESSEE FALLS WITHIN THE SCOPE OF 5.35(1)(IV) OF T HE ACT. THE ASSESSEE HAS RELIED ON THE DECISION OF THE HON' BLE 19 ITA.NO.786, 787, 788 & 789/HYD/2012 M/S. CIREX PHARMACEUTICALS P. LTD., HYDERABAD. BOMBAY HIGH COURT IN CIT VS. SANDOZ (INDIA) LTD. (SUPRA). THE CLAIM OF THE ASSESSEE COMPANY WAS THAT THE NATURE OF THE ASSESSEE'S BUSINESS REQUIRES CONTINUO US PROCESS RESEARCH TO SUSTAIN ITSELF IN BUSINESS. WE FIND THAT THIS EXPLANATION OF THE ASSESSEE COULD NOT BE CONTROVERTED BY THE ASSESSING OFFICER. WE FIND THAT THERE WAS NO BASIS FOR THE ASSESSING OFFICER TO OBSERVE T HAT THE EXPENDITURE WAS NOT INCURRED FOR R & D AT ITS LABOR ATORY BY THE ASSESSEE. WE FIND THAT THE ASSESSEE HAS CLAI MED THAT IT WAS CARRYING ON R & D ACTIVITY AT ITS FACTO RY PREMISES ITSELF. THE SAID CLAIM OF THE ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER IN A SUMMARY MANN ER, WITHOUT ASSIGNING ANY VALID REASON FOR THE SAME AND HAD NOT MADE FURTHER ENQUIRIES IN THAT REGARD. WE FIND THAT THE NATURE OF THE ASSESSEE REQUIRES UNDERTAKING OF CONTINUOUS RESEARCH AND DEVELOPMENT ACTIVITY TO SUS TAIN ITSELF IN THE MARKET. WE FIND THAT SIMILAR CLAIM WA S MADE BY THE ASSESSEE IN THE SUBSEQUENT YEARS AND THE ASSESSMENT WAS FRAMED IN SCRUTINY ASSESSMENTS UNDER 5.143(3) ACCEPTING SUCH CLAIMS OF THE ASSESSEE. IN THAT PROCESS, SIMILAR CLAIMS OF THE ASSESSEE WERE ACCEPT ED BY THE ASSESSING OFFICER IN THE ASSESSMENTS FRAMED UND ER 5.143(3) OF THE ACT FOR ASSESSMENT YEARS 2002-03, 2 003- 04 AND 2004-05. IN THE FACTS OF THE CASE, WE HOLD T HAT NO CASE FOR DISALLOWANCE OF THE CLAIM OF DEDUCTION UND ER 5.35(1)(IV) COULD BE MADE OUT BY THE REVENUE. ACCORDINGLY, ORDER OF THE CIT(A) IN DECIDING THE IS SUE IN FAVOUR OF THE ASSESSEE IS CONFIRMED AND THE GROUNDS OF APPEAL OF THE REVENUE ARE REJECTED. IN VIEW OF THIS, SINCE THE ISSUE WAS ALREADY DECIDE D IN A GROUP COMPANY CASE FOR A.Y. 2001-02, THERE IS NO ME RIT IN REVENUES CONTENTION. ACCORDINGLY, GROUND NO.4 O F REVENUE IN ITA. NO.787 & 788/HYD/2012 STANDS DISMISSED. 6. IN THE RESULT, ITA. NO.786/HYD/2012, ITA. NO. 787/HYD/2012, ITA.NO. 788/HYD/2012 AND ITA.NO.789/HYD/ 2012 OF THE REVENUE ARE DISMISSED. 20 ITA.NO.786, 787, 788 & 789/HYD/2012 M/S. CIREX PHARMACEUTICALS P. LTD., HYDERABAD. ORDER PRONOUNCED IN THE OPEN COURT ON 15.10.20 14. SD/- SD/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 15 TH OCTOBER, 2014 VBP/- COPY TO 1. THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRA L CIRCLE-4, 8 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD 500 004. 2. M/S. CIREX PHARMACEUTICALS P. LTD., HETERO CORPO RATE INDUSTRIAL ESTATE, SANATHNAGAR, HYDERABAD. C/O. MR. S. RAMA RAO, ADVOCATE, FLAT NO.102, SHRIYA S ELEGANCE, H.NO.3-6-643, STREET NO.9, HIMAYATNAGAR, HYDERABAD 500 029. 3. CIT(A)-VII, HYDERABAD. 4. CIT-(CENTRAL), HYDERABAD. 5. D.R. ITAT A BENCH, HYDERABAD.
