ACIT, Central Circle-4, Hyderabad V. M/s.Hetero Labs Ltd., Hyderabad

ITA 805/HYD/2012

• Counselvise Citation: 80522514 RSA 2012
• Duration Of Justice: 2 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 22-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: S RAMA RAO
• Keywords: Bogus purchase; Business income; Depreciation; Income from undisclosed sources; Search and seizure; Additional evidence; Revised return; Capital expenditure
• Section: 80HHC; 80IB

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 731/HYD/2012 2003-04 M/S. HETERO LABS LTD., HYDERABAD 500 018. AAACH5506R THE DCIT, CENTRAL CIRCLE-4, HYDERABAD. 732/HYD/2012 ITA.NO. A.Y. APPELLANT RESPONDENT 802/HYD/2012 2003-04 ACIT, CENTRAL CIRCLE-4, HYDERABAD. M/S. HETERO LABS LIMITED HYDERABAD 018. PAN AAACH5506R 803/HYD/2012 2004-05 804/HYD/2012 2005-06 805/HYD/2012 2006-07 806/HYD/2012 2007-08 C.O.NO. ARISING OUT OF ITA.NO. A.Y. CROSS OBJECTOR RESPONDENT 110/H/12 802/H/12 2003-04 M/S. HETERO LABS LIMITED, HYDERABAD-18 PANAAACH5506R THE DCIT, CENTRAL CIRCLE-4, HYDERABAD. 111/H/12 803/H/12 2004-05 112/H/12 804/H/12 2005-06 113/H/12 805/H/12 2006-07 2 ITA.NO.732, 733, 802 TO 806/H/2012 & C.OS. 110 TO 113/H/2012 M/S. HETERO LABS LIMITED, HYDERABAD. FOR ASSESSEE : MR. S. RAMA RAO FOR REVENUE : MR. P. SOMASEKHAR REDDY DATE OF HEARING : 07.08.2014 DATE OF PRONOUNCEMENT : 15.10.2014 ORDER PER BENCH: APPEALS ARE FILED BY ASSESSEE AGAINST THE ORD ERS OF THE CIT(A)-VII, HYDERABAD DATED 17.2.2012 FOR TH E ASSESSMENT YEARS 2003-2004 AND 2004-2005. REVENUE H AS ALSO FILED APPEALS AGAINST ORDERS OF THE CIT(A)-VI I, HYDERABAD FOR THE A.YS 2003-04 TO 2007-08 AGAINST WHICH THE A SSESSEE TOO FILED CROSS OBJECTIONS. SINCE, COMMON ISSUES AR E INVOLVED IN ALL THESE APPEALS, THEY ARE CLUBBED AND HEARD TOGET HER 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 KAJAPALLY, MEDAK DIST, TELANGANA AND KALYANPUR IN SOLAN DIST, HIMACHAL PRADESH, WITH ITS CORPORATE OFFICE L OCATED AT 8- 3-166/7/1, ERRAGADDA, HYDERABAD. THE SEARCH & SEIZURE PROCEEDINGS HAVE TAKEN PLACE ON THE GROUP, CONSISTI NG OF THE FOLLOWING GROUP CONCERNS, ON 10.11.2006; (I) HETERO DRUGS LIMITED. (II) HETERO LABS LIMITED. (III) SYMED LABS LIMITED. (IV) CIREX PHARMACEUTICALS PVT LTD. 3 ITA.NO.732, 733, 802 TO 806/H/2012 & C.OS. 110 TO 113/H/2012 M/S. HETERO LABS LIMITED, HYDERABAD. 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 ADMITTING ADD ITIONAL INCOMES. A.O. COMPLETED ASSESSMENTS ESTIMATING BOGU S PURCHASES AND MAKING OTHER ADDITIONS. DEDUCTIONS U/ S 80HHC AND 80IB WERE RECOMPUTED. MANY OF THE ISSUES ON DEDUCTIONS AROSE IN ASSESSMENTS COMPLETED EARLIER U /S 143(3). LD CIT(A) GAVE PARTIAL RELIEF. THEREFORE ASSESSEE A ND REVENUE ARE IN APPEAL. IN BOTH THE ASSESSEES APPEALS THE MAJOR GROUNDS ARE WITH REFERENCE TO NON-ALLOWANCE OF 80IB DEDUCTION ON OTHER INCOMES EARNED BY ASSESSEE. THE OTHER CO NTENTION GENERALLY IN ALL THE YEARS IS THAT A.O. HAS EXCLUDE D THE 80IB DEDUCTION WHILE CALCULATING THE DEDUCTION UNDER SEC TION 80HHC. THERE ARE OTHER GROUNDS WHICH ARE DEALT WITH SEPARATELY. ISSUE NO.1 : ALLOWANCE OF DEDUCTION UNDER SECTIO N 80IB ON OTHER INCOMES. 3. ASSESSEE HAS EARNED INCOMES, SHOWN IN THE P & L ACCOUNT AS THE OTHER INCOME, WHICH WERE EXCLUDED BY THE A.O. FROM THE COMPUTATION OF 80IB. MANY OF THE ISSUES WE RE CONTESTED IN THE ORIGINAL ASSESSMENT AND IN THE CON SEQUENTIAL PROCEEDINGS AFTER SEARCH AND SEIZURE OPERATIONS, MO ST OF THE ISSUES WERE REPEATED BY A.O. AS WAS DONE IN THE ORI GINAL ASSESSMENT. SINCE MANY OF THE ISSUES ARE CRYSTALLIZ ED BY THE ORDERS OF LD. CIT(A)/ITAT, LD. CIT(A) FOLLOWING THE SAME HAS NOT ALLOWED THE DEDUCTIONS. FOR THE RECORD, THE INC OMES EARNED IN VARIOUS ASSESSMENT YEARS SHOWN AS OTHER INCOME ARE AS UNDER : 4 ITA.NO.732, 733, 802 TO 806/H/2012 & C.OS. 110 TO 113/H/2012 M/S. HETERO LABS LIMITED, HYDERABAD. OTHER INCOME A.Y. 2003-04 RS. A.Y. 2004-05 RS. INTEREST ON LC 6,85,338 12,35,339 RENT 9,59,390 1,08,000 DIVIDEND 1,27,680 N.A. TOTAL 17,72,408 17,01,073* (*TOTAL IN AY 2004-05 DOES NOT TALLY AS DETAILS ARE NOT AVAILABLE.) 3.1. IN A.Y. 2003-04 AND 2004-05, ASSESSEE HAS CLAIMED INCOMES UNDER THE HEAD OTHER INCOME SUCH AS INTEREST ON L.C., AND RENT AND DIVIDEND AS TABULATE D HEREINABOVE. THESE ISSUES WERE ALREADY DECIDED IN E ARLIER APPEALS AND PARTICULARLY, AS SEEN FROM THE ORDER OF LD. CIT(A), ITAT HAS DECIDED MANY OF THE ISSUES AGAINST ASSESSE E FOLLOWING THE SPECIAL BENCH ORDERS THEN EXISTING. THEREFORE, LD. CIT(A), DID NOT ENTERTAIN FRESH CONTENTIONS. SINCE, THESE I SSUES WERE ALREADY DECIDED IN THE ORIGINAL ASSESSMENTS, A.O. I S DIRECTED TO FOLLOW THE SAME. 3.2. AS FAR AS ASSESSEES ALTERNATE CONTENTION THAT ONLY NET INCOME CAN BE CONSIDERED AND NOT THE GROSS INCO ME, EVEN THOUGH THERE IS LEGAL PRINCIPLES INVOLVED IN IT, WH ICH WERE UPHELD BY HONBLE APEX COURT IN THE CASE OF ACG ASS OCIATED CAPSULES P. LTD., VS. CIT 343 ITR 89 GIVEN IN THE C ONTEXT OF 80HHC, THE SAME PRINCIPLES CANNOT BE DIRECTED TO BE APPLIED HERE AS THESE ISSUES WERE ALREADY DECIDED IN THE EA RLIER 5 ITA.NO.732, 733, 802 TO 806/H/2012 & C.OS. 110 TO 113/H/2012 M/S. HETERO LABS LIMITED, HYDERABAD. APPEALS . AS WE FIND FROM SOME OF THE ORDERS PLACED ON RECORD BY ASSESSEE THE ISSUE OF EXCLUDING GROSS INT EREST AND OTHER INCOME FROM THE PROFITS OF BUSINESS FOR T HE PURPOSE OF COMPUTATION AND DEDUCTION UNDER SECTION 80HHC WERE DECIDED BY THE COORDINATE BENCH OF THE TRIBUNAL IN ITA.NO.74,75 AND 76/HYD/2007 FOR ASSESSMENT YEARS 2002-03 TO 2004-05 IN THE CASE OF M/S. HETERO LABS LTD., WHEREIN THE ITAT VIDE PARA 1 4 OF ITS ORDER HAS DECIDED THE ISSUE AS UNDER : 14. WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE APEX COURT IN THE C ASE OF ACG ASSOCIATED CAPSULES P. LTD. VS. CIT (2012-TIOL- 13- SC-IT-LB) WHEREIN THE APEX COURT HAS HELD THAT NETT ING OF INCOME FROM EXPENDITURE IS ALLOWED UNDER EXPLANATIO N (BAA) TO 80HCC I.E., ONLY 90% OF THE NET INCOME FRO M OF THE NATURE MENTIONED IN CLAUSE (1) OF EXPLANATION BAA T O 80HHC WHICH IS ACTUALLY INCLUDED IN THE PROFITS OF THE ASSESSEE IS TO BE DEDUCTED FROM THE PROFITS OF THE ASSESSEE FOR DETERMINING PROFITS OF THE BUSINESS. WE THERE FORE SET ASIDE THE ISSUE TO THE FILE OF ASSESSING OFFICER TO RE-COMPUTE THE RELIEF U/S.80HHC FOLLOWING THE RATIO OF THE APE X COURT DECISION . THEREFORE, A.O. IS DIRECTED TO FOLLOW THE ORDERS OF THE APPELLATE AUTHORITIES ON THE ISSUE. IN CASE NO SUCH INSTRUCTI ONS/ DIRECTIONS WERE GIVEN IN ANY YEAR, AO IS DIRECTED T O FOLLOW THE PRINCIPLE AND EXCLUDE ONLY NET INCOME, SUBJECT TO A SSESSEE FURNISHING SUCH EXPENDITURE DETAILS, WHILE COMPUTIN G THE DEDUCTIONS. THEREFORE, FOLLOWING GROUNDS RAISED IN ASSESSMENT YEARS 2003-04 AND 2004-05 ARE ACCORDINGLY DISMISSED . IN ITA.NO.731/HYD/2012 GROUND NO. 2 TO 5 IN ITA.NO.732/HYD/2012 GROUND NO. 2 TO 4 6 ITA.NO.732, 733, 802 TO 806/H/2012 & C.OS. 110 TO 113/H/2012 M/S. HETERO LABS LIMITED, HYDERABAD. ISSUE NO. 2 : ALLOWING DEDUCTION UNDER SECTION 80HH C AFTER REDUCING DEDUCTION UNDER SECTION 80IB. 4. THIS ISSUE WAS RAISED BY ASSESSEE IN THE A.Y. 2003-04 (GROUND NO.6) AND IN A.Y. 2004-05 (GROUND N O.5) . WITH RESPECT TO THIS ISSUE, WHILE COMPUTING THE REL IEF U/S 80HHC, THE ASSESSING OFFICER HAD REDUCED FROM THE P ROFITS AND GAINS OF THE BUSINESS, THE DEDUCTION COMPUTED U/S 8 0IB. IN ASSESSEE'S OWN CASE IN ITA NO 74 TO 76/HYD/2007 DAT ED 30.3.2012 FOR THE AY 2002-03 TO 2004-05, THE CLAIM OF ASSESSEE WAS ALLOWED FOLLOWING THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF ASSOCIATED CAPSULES P LTD V DCIT (332 ITR 42) WHEREIN IT HAS BEEN HELD THAT THE TRIB UNAL WAS NOT RIGHT IN HOLDING THAT SECTION 80-IA(9) OF THE A CT, MANDATES THAT THE AMOUNT OF PROFITS ALLOWED AS DEDUCTION UND ER SECTION 80-IA(1) OF THE ACT HAVE TO BE REDUCED FROM THE PRO FITS OF THE BUSINESS OF THE UNDERTAKING WHILE COMPUTING DEDUCTI ON UNDER ANY OTHER PROVISIONS UNDER HEADING C IN CHAPTER VI- A OF THE ACT'. T HE COORDINATE BENCH IN ITA.NO.74 TO 76/HYD/2007 IN THE CASE OF HETERO LABS LTD., (SUPRA ) HAS DECIDED THE ISSUE VIDE PARAS 17 AND 18 AS UNDER : 17. WE FIND THAT THIS ISSUE IS COVERED BY THE DEC ISION OF ASSOCIATED CAPSULES P LTD. VS. DCIT (332 ITR 42 (BO M. HC), WHEREIN IT HAS BEEN HELD : THE TRIBUNAL WAS NOT RIGHT IN HOLDING THAT SECTION 80IA(9) OF THE ACT, MANDATES THAT THE AMOUNT OF PROFITS ALL OWED AS DEDUCTION U/S 80IA(1) OF THE ACT HAVE TO BE REDUCED FROM THE PROFITS OF THE BUSINESS OF THE UNDERTAKING WHIL E COMPUTING DEDUCTION UNDER ANY OTHER PROVISIONS UNDE R HEADING C IN CHAPTER VI-A OF THE ACT. 18. RESPECTFULLY FOLLOWING THE DECISION OF THE MUM BAI HIGH COURT WE HOLD THAT WHILE COMPUTING THE RELIEF U/S. 7 ITA.NO.732, 733, 802 TO 806/H/2012 & C.OS. 110 TO 113/H/2012 M/S. HETERO LABS LIMITED, HYDERABAD. 80HHC THE DEDUCTION ALLOWABLE U/S.80IB NEED NOT BE DEDUCTED FROM BUSINESS PROFITS. 4.1 SINCE, THIS ISSUE IS ALREADY DECIDED IN FA VOUR OF ASSESSEE, WE DO NOT HAVE TO ADJUDICATE IT AFRESH. A .O. IS DIRECTED TO FOLLOW INSTRUCTIONS ON THIS IN BOTH THE YEARS CONCERNED. ACCORDINGLY THE GROUNDS ARE ALLOWED FO R STATISTICAL PURPOSES. ISSUE NO.3 : NEW DRUG LICENSE FEE AS CAPITAL EXPENDITURE. 5. THIS ISSUE HAS BEEN RAISED IN ITA.NO.731/HYD/2012 AS GROUND NO.7 AND IN ITA.NO.732/HYD/2012 AS GROUND NO.6. 5.1 BRIEFLY STATED, WITHOUT DISCUSSION IN THE ASSESSMENT ORDER, A.O. MADE THE DISALLOWANCE OF NEW DRUG LICENSE FEE OF RS. 8,80,000 FOR A.Y. 2003-04 A ND RS.4,80,000 FOR A.Y. 2004-05. ON OBJECTIONS FROM ASSESSEE, LD. CIT(A) ANALYSED THE ISSUE AND HELD TH AT PRESUMABLY, A.O. DISALLOWED THIS AMOUNT AS CAPITAL EXPENDITURE AND ALLOWED DEPRECIATION THEREON. HOWEVER, HE ALSO GAVE A FINDING THAT IN ASSESSEES OWN CASE THIS ISSUE WAS ALREADY DECIDED BY LD. CIT(A) E ARLIER AND SUCH EXPENDITURE CANNOT BE ALLOWED EITHER UNDER SECTION 35AB OR UNDER SECTION 37. 5.2. EVEN THOUGH ASSESSEE HAS AGITATED THE ISSUE IN THE PRESENT APPEAL, WE FIND THAT THIS ISSUE WAS DECIDED AGAINST, IN THE CASE OF GROUP CONCERN M/S HETERO DRUGS LTD FOR A.Y. 2003-04 IN 8 ITA.NO.732, 733, 802 TO 806/H/2012 & C.OS. 110 TO 113/H/2012 M/S. HETERO LABS LIMITED, HYDERABAD. ITA.NO.1004/HYD/2006 VIDE ORDER DATED 16.04.2012 WHEREIN VIDE PARA-7 OF THE ORDER IT WAS HELD AS UND ER : 7. WE HAVE HEARD THE PARTIES, PERUSED THE RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. IT IS OBSERVED THAT IT IS NOT A MERE LICENSE TO USE ANY KNOWHOW BUT A LICENSE TO MANUFACTURE AND IS OF ENDURING NATURE. SECTION 32(1)(II) PROVIDES F OR GRANTING DEPRECIATION IN RESPECT OF LICENSES ACQUIR ED. THE A.O. FOUND THAT FOR THE EARLIER YEAR I.E., A.Y. 2002-03 THE ASSESSEE CLAIMED EXPENDITURE ON ACQUIRING LICENSES AS EXPENDITURE TOWARDS R&D. SINCE THE FACTS ABOUT R&D WERE NOT AVAILABLE, THE ISSUE WAS SET ASIDE. HOWEVER, THERE IS NO SUCH CLAI M FOR DEDUCTION AS R&D EXPENDITURE. IN THE GROUND OF APPEAL, THE ASSESSEE HAD CLAIMED DEDUCTION U/S.35AB. SECTION 35AB IS NOT APPLICABLE FOR THE YE AR UNDER CONSIDERATION AND THE SAME IS APPLICABLE TO ACQUISITION OF KNOWHOW AND NOT MERE OF GRANT OF LICENSE TO MANUFACTURE. THEREFORE, WE HOLD THAT PAYMENT MADE TO ACQUIRE PERMISSION FROM GOVERNMENT TO MANUFACTURE A NEW DRUG FOR A PERIOD OF TIME IS CAPITAL IN NATURE. WE, THEREFORE, CONFIR M THE ORDER OF CIT(A) AND DISMISS THE ASSESSEES GROUND O F APPEAL ON THIS ISSUE. 5.3 THE ISSUE MAY HAVE ALREADY BEEN CRYSTALLIZED IN THE EARLIER ROUND OF ASSESSMENT ORD ERS, MAY BE THAT IS THE REASON WHY THE A.O. DID NOT DISC USS ANYTHING, WHILE COMPUTING IN THE RE-ASSESSMENT PROCEEDINGS. SINCE THE ISSUE WAS ALREADY DECIDED AGAINST IN THE ABOVE ORDER, THERE IS NO NEED TO DIF FER IN THE PRESENT PROCEEDINGS. WE AGREE WITH THE ABOVE FINDINGS AND CONFIRM THE CIT(A) ORDER. ACCORDINGLY , GROUNDS NO. 7 AND 6 IN ITA.NO.731/HYD/ 2012 AND ITA.NO.732/HYD /2012 RESPECTIVELY RAISED ON THIS IS SUE ARE REJECTED. 9 ITA.NO.732, 733, 802 TO 806/H/2012 & C.OS. 110 TO 113/H/2012 M/S. HETERO LABS LIMITED, HYDERABAD. ADDITIONAL GROUND : 6. IN THE COURSE OF APPEAL PROCEEDINGS, ASSESSEE HAS RAISED ADDITIONAL GROUND IN ITA.NO.731 AND 732/HYD/2012. ASSESSEE HAS DECLARED ADDITIONAL INCOMES CONSEQUENT TO SEARCHES AND A.O. AND LD. CIT(A) TREATED THE ADDITIONAL INCOMES AS INCOME FR OM OTHER SOURCES CONSEQUENTLY, DEDUCTION UNDER SECTIO N 80HHC AND 80IB ARE NOT ALLOWED. ASSESSEE HAS RAISED ADDITIONAL GROUNDS AND SUBMITTED DETAILED NOTE AS UNDER : THE ASSESSEE HUMBLY SUBMITS THAT THE ADDITIONAL AMOUNTS OFFERED BY THE ASSESSEE HEREIN AND ADDED BY THE ASSESSING OFFICER FORMS PART OF THE INCOME FROM BUSINESS AND NOT INCOME FROM OTHER SOURCES. THE ASSESSEE SUBMITS THAT THE ADDITIONAL INCOME WAS ACCEPTED BY THE CMD DURING THE COURSE OF SEARCH AND SEIZURE OPERATIONS. THE STATEMENT IS AT PAGE NOS. 11 TO 13 OF THE PAPER BOOK WHICH CLEARLY INDICATES THAT ADDITIONAL INCOME FORMS PART OF THE INCOME FROM BUSINESS AND NOT INCOME FROM OTHER SOURCES. FURTHER, EVEN THE ASSESSING OFFICER WORKED OUT THE DISALLOWANCE FROM THE PURCHASES AND, THEREFORE, ARMS PART OF BUSINESS INCOME. THE CMD ALSO OFFERED THE ADDITIONAL INCOME ON THE GROUND TH AT THERE MAY BE SOME EXCESSIVE CLAIM OF PURCHASES. THEREFORE, THE ADDITION REPRESENTS INCOME FROM BUSINESS. THE SAID AMOUNT CANNOT BE ASSESSED SEPARATELY AS INCOME FROM OTHER SOURCES BUT IS TO B E INCLUDED 3S FORMING PART OF THE BUSINESS INCOME OF THE ASSESSEE HEREIN. THE ASSESSEE SUBMITS THAT ONCE THE ADDITIONAL INCOME FORMS PART OF THE BUSINESS INCOME, THE SAID AMOUNT IS ALLOWABLE FOR DEDUCTION U/ S 80HHC AND 80LB OF THE I.T. ACT. IN THIS REGARD, THE ASSESSEE SUBMITS THAT FOR THE PURPOSE OF 80HHC, THE PROFITS OF THE BUSINESS IS DEFINED BY SEC.80HHC EXPLANATION (BAA). ACCORDING TO THE SAID DEFINITION, THE PROFIT S OF THE BUSINESS MEANS THE PROFITS OF THE BUSINESS AS 10 ITA.NO.732, 733, 802 TO 806/H/2012 & C.OS. 110 TO 113/H/2012 M/S. HETERO LABS LIMITED, HYDERABAD. COMPUTED UNDER THE SAID HEAD. THE WORD 'COMPUTED' WOULD INDICATE THAT THE AMOUNT ARRIVED AT AFTER MAKING ADDITIONS. THEREFORE, THE ASSESSING OFFICER AND THE CIT (A) ARE NOT JUSTIFIED IN EXCLUDING THE SAID SUM FOR THE PURPOSE OF WORKING 80HHC. IN SO FAR AS 80I B IS CONCERNED, THE DEDUCTION IS TO BE ALLOWED FROM THE GROSS TOTAL INCOME AND IT IS TO BE COMPUTED WITH REFERENCE TO THE PROFITS AND GAINS DERIVED FROM THE U NDERTAKING, THE PROFITS AND GAINS WOULD INDICATE THE AMOUNT COMPUTED UNDER THE HEAD BUSINESS. FURTHER, THE PROVISIONS OF SEC.80IB DEF INES THE WORD TOTAL INCOME TO INCLUDE ALL THE INCOMES ASSESSABLE AFTER CONSIDERING ALL THE PROVISIONS OF THE ACT BEFORE ALLOWING DEDUCTION UNDER CHAPTER VIA. THEREFORE, THE A.O. AND THE LD. CIT(A) ARE NOT JUST IFIED IN REDUCING SUCH ADDITIONS FOR THE PURPOSE OF WORKI NG 80IB OF THE ACT. THE ASSESSEE PRAYS THE HONBLE TRIBUNAL TO HOLD THAT THE ADDITIONAL INCOME REPRESENTS THE INCO ME FROM BUSINESS AND IS ENTITLED FOR DEDUCTION U/S.80H HC AND 80IB OF THE ACT. 7. AFTER CONSIDERING RIVAL CONTENTIONS, WE NOTICE THAT THE LD. CIT(A) DELETED THE ADDITIONS MADE AS B OGUS PURCHASES SEPARATELY MADE BY A.O. WHILE DIRECTING T HE A.O. TO ACCEPT THE INCOMES OFFERED BY ASSESSEE AS OTHER INCOME OF ASSESSEE. IT WAS THE CONTENTION THAT THI S INCOME ALSO SHOULD BE TREATED AS BUSINESS INCOME AN D DEDUCTIONS UNDER SECTION 80HHC AND 80IB ARE TO BE ALLOWED ON THIS. THIS CONTENTIONS WERE NOT RAISED E ITHER BEFORE THE A.O. OR BEFORE LD. CIT(A) AND RAISED FOR THE FIRST TIME AS ADDITIONAL GROUND BEFORE US. IN VIEW OF THI S, WHILE ADMITTING LEGAL GROUND, THE ISSUE IS RESTORED TO TH E FILE OF A.O. TO EXAMINE WHETHER THE INCOMES CAN BE CONSIDER ED AS INCOME OF THE BUSINESS ELIGIBLE FOR DEDUCTION OF ELIGIBLE UNITS/ UNDERTAKING UNDER SECTION 80HHC OR 80IB AS T HE CASE MAY BE, SUBJECT TO SATISFYING THE CONDITIONS T HEREIN. 11 ITA.NO.732, 733, 802 TO 806/H/2012 & C.OS. 110 TO 113/H/2012 M/S. HETERO LABS LIMITED, HYDERABAD. THEREFORE, THE ISSUE PERTAINING TO COMPUTATION OF I NCOME ALONG WITH ELIGIBILITY IS RESTORED TO THE FILE OF A .O. FOR FRESH CONSIDERATION AS PER FACTS AND LAW. NEEDLESS TO SAY THAT ASSESSEE SHOULD BE GIVEN DUE OPPORTUNITY OF HEARING . WITH THIS, THE ADDITIONAL GROUNDS RAISED IN ITA.NO.731 AND 732/HYD/2012 ARE ALLOWED FOR STATISTICAL PURPOS ES. 8. IN THE RESULT, ITA.NO.731/HYD/2012 AND ITA.NO.732/HYD/2012 OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. REVENUE APPEALS : ITA.NO.802/HYD/2012 ITA.NO.803/HYD/2012 ITA.NO.804/HYD/2012 ITA.NO.805/HYD/2012 ITA.NO.806/HYD/2012 9. IN ALL THE ABOVE APPEALS, REVENUE HAS RAISED THE 4 GROUNDS OUT OF WHICH, GROUNDS NO.1 AND 4 ARE GENERAL IN NATURE AND THEREFORE, IT NEED NOT BE ADJUDICATED. THE FOLLOWING TWO EFFECTIVE COMMON GROUNDS 2 AND 3 ARE AS UNDER : 1. 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. 2. 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 12 ITA.NO.732, 733, 802 TO 806/H/2012 & C.OS. 110 TO 113/H/2012 M/S. HETERO LABS LIMITED, HYDERABAD. PROOFS/JUSTIFICATION FOR THE CONTRADICTION OF SEARC H DAY CONFESSION. 10. 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 BY HETERO GROUP A.Y. TOTAL PURCHASES BY HETERO GROUP OF COMPANIES 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 2006-07 6626050454 151419013 145744355 297163368 2007 - 08 7995503539 26087710 2563878 28651588 TOTAL 27850987818 313078790 482627954 795706744 13 ITA.NO.732, 733, 802 TO 806/H/2012 & C.OS. 110 TO 113/H/2012 M/S. HETERO LABS LIMITED, HYDERABAD. 11. 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. THE DETAILS OF THE DI SCLOSURE ARE AS UNDER : 14 ITA.NO.732, 733, 802 TO 806/H/2012 & C.OS. 110 TO 113/H/2012 M/S. HETERO LABS LIMITED, HYDERABAD. AY 03-04 AY 04-05 AY 05-06 AY 06-07 TOTAL SYMED LABS LTD., 10000000 7000000 18000000 20000000 55000000 HETERO DRUGS LTD., 5000000 13000000 21000000 80000000 119000000 HETERO LABS LTD., 5000000 10000000 21000000 40000000 76000000 TOTAL 20000000 30000000 60000000 140000000 250000000 11.1. AS COULD BE SEEN FROM THE ABOVE CHART, THE DISCLOSURES WERE MADE IN THE NAMES OF THE THREE COM PANIES FOR AYS 2003-04 TO 2006-07 EXCLUDING THE ASSESSMENT YEA R 2007- 08 AND IN CASE OF M/S CIREX PHARMACEUTICALS PVT LTD , THE OTHER CONCERN OF THE GROUP, NO DISCLOSURES WERE MADE. 11.2. THE ASSESSEE COMPANY M/S HETERO LABS LIM ITED, WAS INVOLVED IN MANUFACTURING AND SALE OF BULK DRU GS AND PHARMACEUTICAL FORMULATIONS, WHILE PROCURING THE RA W MATERIAL FROM VARIOUS SOURCES INCLUDING THE TWO CONCERNS VIZ . SHREE GROUP AND POOJA GROUP LOCATED AT MUMBAI, FOR LAST S EVERAL YEARS AND DETAILS OF THE TOTAL PURCHASES AND THE PU RCHASES MADE BY THE ASSESSEE FROM THE TWO GROUP CONCERNS AT MUMBAI, FROM WHOM THE ALLEGED FICTITIOUS PURCHASES WERE SHO WN TO HAVE BEEN MADE, ARE AS UNDER : 15 ITA.NO.732, 733, 802 TO 806/H/2012 & C.OS. 110 TO 113/H/2012 M/S. HETERO LABS LIMITED, HYDERABAD. HETERO LABS LIMITED SHREE GROUP POOJA GROUP A.Y. TOTAL PURCHASES FICTITIOUS PURCHASES TOTAL PURCHASES FICTITIOUS PURCHASES TOTAL FICTITIOUS PURCHASES QUANTIFIED BY A.O. (COL.3+5) ADDITIONAL INCOME ADMITTED UNDER SEC. 132(4) 1 2 3 4 5 6 7 02-03 - - 1245698 - - - 03-04 7457249 4101487 11313484 1286341 5387828 5000000 04-05 14659006 8301853 56509260 3070748 11372601 10000000 05-06 22171802 12194491 40957528 1746258 13940749 21000000 06-07 41943920 39478055 44746982 1750036 41228091 40000000 07-08 13562027 13562027 421470 1517061 15079088 - TOTAL 99794004 77637913 155194422 9370444 77713448 76000000 11.3. WHILE COMPUTING THE TAXABLE INCOME AND FINALIZING THE ASSESSMENT ORDER, THE ASSESSING OFFI CER HAS MADE CERTAIN ADDITIONS AND DISALLOWANCES AND THE NO TABLE AMONG THEM BEING THE ADDITION OF RS.7,77,13,448 IN ALL THE YEARS, TREATING A PORTION OF PURCHASES MADE FROM BO MBAY GROUP CONCERNS, AS FICTITIOUS PURCHASES. 11.4. 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 16 ITA.NO.732, 733, 802 TO 806/H/2012 & C.OS. 110 TO 113/H/2012 M/S. HETERO LABS LIMITED, HYDERABAD. ADDITIONALLY DECLARED INCOME OF ASSESSEE IN RESPECT IVE ASSESSMENT YEARS. HIS DETAILED ORDERS IN PARA 5.12 TO 5.26 ARE AS UNDER : 5.12. THE FINDINGS/OBSERVATIONS OF THE ASSESSING OFFICER AND THE WRITTEN SUBMISSIONS OF TH E APPELLANT WITH REFERENCE TO THE NOTE GIVEN ON FICTI TIOUS PURCHASES, ARE PERUSED. AS COULD BE SEEN FROM THE F ACTS OF THE CASE, THE APPELLANT COMPANY IS INTO THE BUSI NESS OF MANUFACTURING AND SALE OF BULK DRUGS AND PHARMACEUT ICAL FORMULATIONS SINCE 1996, WITH HIGH VOLUMES OF TURNO VERS, AS INDICATED IN THE FOREGOING PARAGRAPHS OF THIS OR DER. IT HAS BEEN OBSERVED THAT THE GROUP COMPANIES WERE PROCURING THE RAW MATERIAL, THROUGH A COMMON MECHAN ISM AND THE CENTRALIZED PROCESS, FOR GROUP AS A WHOLE. THE APPELLANT COMPANY WAS PROCURING THE RAW MATERIALS F ROM VARIOUS SOURCES INCLUDING THE TWO GROUP OF COMPANIES/CONCERNS VIZ. SHREE GROUP AND POOJA GROUP , LOCATED AT MUMBAI, WHERE SURVEY/SEARCH PROCEEDINGS WERE CONDUCTED AT THEIR PLACES, WHEREIN IT WAS STAT ED BY THE REPRESENTATIVES OF THE SAID CONCERNS VIZ. MR.NI SHIT J. DOSHI AND MR.RAJESH K.PUNAMIA THAT BILLS WERE ORGAN IZED BY THEM TO THE FOUR HETERO GROUP OF COMPANIES VIZ. M/S SYMED LABS LTD. M/S HETERO DRUGS LTD. M/S HETERO LA BS LTD AND M/S CIREX PHARMACEUTICALS PVT LTD. DURING T HE PERIOD OF FINANCIAL YEAR 2002-03 TO 2006-07, WITHOU T SUPPLYING THE RAW MATERIAL. MEANWHILE, SEARCH & SEIZURE PROCEEDINGS HAVE TAKEN PLACE IN THE CASE OF HETERO GROUP OF COMPANIES WITH PROCEEDINGS INITIATED ON 10.11.20 06 AND CONCLUDED ON 8.1.2007, DURING WHICH STATEMENTS WERE RECORDED FROM THE SENIOR EMPLOYEES OF THE GROU P CONCERNS, A SECURITY GUARD AT FACTORY PREMISES OF M /S HETERO LABS LTD. THE STATEMENTS OF SRI B. PARTHASAR ATHY REDDY, CHAIRMAN OF THE GROUP COMPANIES, WAS ALSO RECORDED ON 8.1.2007. IN THE INITIAL STATEMENT RECO RDED FROM SRI B.RAMACHANDRA REDDY, VICE-PRESIDENT (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 TW O BOMBAY BASED CONCERNS WHILE INDICATING THE PERIOD O F SUCH SUPPLIES, THE PROCEDURE ADOPTED IN MAKINGTHE E NTRY OF SUCH PURCHASES IN THE STOCK REGISTER ETC.. SIMIL ARLY, STATEMENT WAS ALSO RECORDED FROM SRI SRIHARI REDDY, MANAGER (WAREHOUSE), WORKING WITH M/S HETERO DRUGS 17 ITA.NO.732, 733, 802 TO 806/H/2012 & C.OS. 110 TO 113/H/2012 M/S. HETERO LABS LIMITED, HYDERABAD. LIMITED ON 10.11.2006, WHEREIN HE HAS INDICATED THA T THERE ARE CERTAIN BILLS WHICH WERE RECEIVED WITHOUT THE MATERIAL AND WERE ENTERED INTO THE STOCK REGISTER W ITHOUT VERIFYING THE QUANTITIES OF THE RAW MATERIAL RECEIV ED. IN THE PROCESS, MR. SRIHARI REDDY ALSO CONFIRMED THE CORRECTNESS OF THE STATEMENT RECORDED FROM SRI A. SUDHAKAR, A SECURITY GUARD, POSTED AT HETERO LABS L TD, AS REGARDS TO THE PROCEDURE ADOPTED IN ENTERING THE BI LLS THAT WERE NOT ACCOMPANIED BY THE MATERIAL. IT IS ALSO A FACT THAT WHILE GIVING THE STATEMENT MR. RAMACHANDRA RED DY AND SRI SRIHARI REDDY WERE REFERRING TO NAME OF SRI K.V. BHASKER REDDY, GENERAL MANAGER (FINANCE), STATING T HAT MR. BHASKER REDDY IS THE IN-CHARGE OF THE ACCOUNTS AND AS SUCH HE IS AWARE ABOUT ALL SUCH TRANSACTIONS. HOWEVER, IT IS NOTICED THAT NO STATEMENT FROM SRI K .V. BHASKER REDDY WAS RECORDED DURING THE COURSE OF SEA RCH & SEIZURE PROCEEDINGS EXCEPT ON 26.12.2008 JUST BEF ORE CONCLUSION OF THE ASSESSMENT PROCEEDINGS AND IN THE STATEMENT RECORDED, MR. BHASKER REDDY HAS DENIED TH E 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 EARLIER AND AFFIDAVITS WERE FILED BY THE APPELLANT/DEPONENTS INDICATING THE DET AILS AND REASONS FOR DENIALS OF THEIR STATEMENT DT.10.11 .2006. SIMILARLY, MR. A. SUDHAKAR ALSO FILED AFFIDAVIT DEN YING THE STATEMENT GIVEN BY HIM ON 10.11.2006. 5.13 AS COULD BE SEEN FROM THE INFORMATION BROUGHT ON THE RECORD, THE APPELLANT GROUP MADE PURCHASES OF RAW MATERIAL FROM SHREE GROUP, AND POO JA 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 AR OUND 2.85%, PURCHASES FROM THE TWO MUMBAI CONCERNS PUT TOGETHER. SIMILARLY, THE TOTAL PURCHASES OF THE RAW MATERIAL MADE BY M/S HLL, FROM THE SHREE GROUP AND POOJA GRO UP ARE QUANTIFIED AT RS.9,97,94,004 AND RS.15,51,94,42 2 RESPECTIVELY, AS AGAINST THE TOTAL PURCHASES OF RS.795,62,21,188 BY THE APPELLANT COMPANY, FOR THE AY 2002-03 TO AY 2007-08, WHICH CONSTITUTE AROUND 3.20 % 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 18 ITA.NO.732, 733, 802 TO 806/H/2012 & C.OS. 110 TO 113/H/2012 M/S. HETERO LABS LIMITED, HYDERABAD. SENIOR EMPLOYEES/MANAGERS OF THE HETERO GROUP COMPANIES APART FROM THE STATEMENTS OF MR. RAJESH K.PUNAMIA, THE REPRESENTATIVE OF POOJA GROUP AND MR.NISHIT J. DOSHI, THE REPRESENTATIVE OF SHREE GRO UP. IN QUANTIFICATION OF SUCH FICTITIOUS PURCHASES, FROM P OOJA GROUP, THE ASSESSING OFFICER RELIED UPON THE STATEM ENT OF MR. RAJESH K. PUNAMIA AND THE ASSESSMENT ORDER PASS ED BY DCLT CC-46, MUMBAI, IN THE CASE OF TWO GROUP CONCERNS. IN THE CASE OF SHREE GROUP, THE BASIS ADO PTED IS THE STATEMENT OF MR. NISHIT J. DOSHI APART FROM THE FEW ENQUIRIES MADE WITH REFERENCE TO THE VARIATIONS, AS REGARD TO QUANTITY AND AMOUNTS IN THE BILLS ISSUED BY SHRE E GROUP. 5.14 COMING TO THE FACTS FOR THE YEAR UNDER REFERENCE, THE TOTAL FICTITIOUS PURCHASES WERE QUAN TIFIED AT RS.53,87,828 WHICH INCLUDE THE FICTITIOUS PURCHASES ATTRIBUTABLE TO THE PURCHASES MADE FROM SHREE GROUP AND POOJA GROUP AND THE AMOUNTS QUANTIFIED ARE RS.12,86,341 FROM POOJA GROUP AND RS.41,01,487 FROM SHREE GROUP. AS INDICATED, IN THE CASE OF SHREE GRO UP, THE QUANTIFICATION OF FICTITIOUS PURCHASES WERE BASED O N THE THEORY THAT FEW PURCHASES ARE 'DIRECT PURCHASES' WI TH PURCHASES MADE FROM THE MANUFACTURERS/IMPORTERS DIRECTLY AND BALANCE ORDERED BY THE TRADERS FROM TH E IMPORTERS/MANUFACTURES WITH GOODS DELIVERED DIRECTL Y TO THE CLIENTS. IN CASE OF THE TRANSIT PURCHASES, 55% OF SUCH 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 OBJECTED TO SUCH TREATMENT OR COULD DISPROVE TH E CONCLUSIONS DRAWN BY THE ASSESSING OFFICER. HOWEVER , THIS ASPECT APPEARS NOT CORRECT AS VERIFIABLE FROM THE RECORD AND WAS DISPUTED BY THE APPELLANT SAYING THA T THEY HAVE FILED THEIR OBJECTIONS TO THE SHOW CAUSE NOTICE WHERE SUCH 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 19 ITA.NO.732, 733, 802 TO 806/H/2012 & C.OS. 110 TO 113/H/2012 M/S. HETERO LABS LIMITED, HYDERABAD. THE QUANTIFICATION/BASIS FOR ARRIVING AT THE FIGURE OF FICTITIOUS PURCHASES, WITHOUT ANY EVIDENCE, OR THE SEIZED MATERIAL IN THIS REGARD. 5.15 IT IS PERTINENT TO MENTION HERE THAT THE APPELLANT MADE CERTAIN DISCLOSURES OF UNACCOUNTED I NCOME DURING THE COURSE OF THE SEARCH PROCEEDINGS AND SUC H DISCLOSURES WERE MADE TO COVER UP THE OMISSIONS, IF ANY, ON THE PART OF THE APPELLANT COMPANY AND GROUP CONC ERNS, AS PER THE SWORN STATEMENT RECORDED FROM DR. B. PARTHASARTHY REDDY ON 8.1.2007. THE AMOUNT OF SUCH DISCLOSURE MADE BY THE APPELLANT COMPANY FOR THE ASSESSMENT YEARS 2003-04 TO 2006-07, WAS INDICATED AT RS.7,60,00,000 INCLUDING THE AMOUNT OF RS. RS.50,00 ,000 FOR THE YEAR UNDER REFERENCE, AS AGAINST THE TOTAL ADDITION OF RS.53,87,828, MADE UNDER THE HEAD FICTITIOUS PURCHASES' BY THE ASSESSING OFFICER. 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 EMPLOYEES OF GROUP COMPANIES INDICATE THAT FEW OF T HEM DO ASSOCIATED WITH THE APPELLANT COMPANY, THOUGH AL L OF THEM WORKING FOR THE GROUP COMPANIES AND THE ASSESS ING OFFICER HAS GONE BY THEIR INITIAL STATEMENTS WITHOU T ANY DISCUSSION ON THE STATEMENTS RECORDED FROM THEM IN LATER PERIODS AND THE AFFIDAVITS FILED IN THAT CONNECTION . IT IS ALSO A FACT THAT THE STATEMENT OF THE MAIN PERSON I N- CHARGE OF THE ACCOUNTS FOR THE GROUP CONCERNS, MR. K.V. BHASKAR REDDY, COULD BE OBTAINED ONLY AT THE FAG EN D OF THE ASSESSMENT PROCEEDINGS WHEREIN HE CATEGORICALLY DENIED THE EXISTENCE OF FICTITIOUS PURCHASES AND TH E SUBMISSIONS MADE BY THE SAID SENIOR EMPLOYEES, IN T HEIR INITIAL STATEMENTS. AS ARGUED BY THE APPELLANT, WHI CH ARE SUPPORTED BY THE ESTABLISHED JUDICIAL DECISIONS AS REFERRED IN THEIR SUBMISSIONS, THE AFFIDAVITS FILED BY THE EMPLOYEES AS WELL AS THE APPELLANT SHOULD NOT HAVE BEEN REJECTED BY THE ASSESSING OFFICER WITHOUT CONTROVER TING THE CONTENTS OF THE AFFIDAVITS AND WITHOUT BRINGING ANY ADDITIONAL EVIDENCE ON THE RECORD. HENCE, IT CAN BE HELD THAT THE RELIANCE OF THE ASSESSING OFFICER ON THE M ERE STATEMENTS AND COMING TO THE CONCLUSION THAT CERTAI N PORTION OF PURCHASES MADE FROM SHREE GROUP AND POOJ A GROUP AS FICTITIOUS, CANNOT BE SUSTAINABLE. FURTHER , NO EVIDENCE WAS SHOWN TO HAVE BEEN FOUND DURING THE 20 ITA.NO.732, 733, 802 TO 806/H/2012 & C.OS. 110 TO 113/H/2012 M/S. HETERO LABS LIMITED, HYDERABAD. COURSE OF SEARCH & SEIZURE PROCEEDINGS OR BROUGHT O N RECORD TO PROVE THAT THE RECORDS MAINTAINED BY THE APPELLANT ARE NOT RELIABLE OR VERIFIABLE. AS COULD BE SEEN FROM THE COPY OF THE STOCK REGISTER FILED DURING TH E COURSE OF APPEAL PROCEEDINGS, WHEREIN THE QUANTITATIVE DET AILS OF VARIOUS RAW MATERIAL RECEIVED AND ISSUED UNDER VARI OUS CODES GIVEN TO THEM, ARE RECORDED IN THE COMPUTERIZ ED FORMAT, WHICH APPEARS NOT EXAMINED BY THE ASSESSING OFFICER. THE DEFICIT STOCKS ON ACCOUNT OF ALLEGED FICTITIOUS/UNVERIFIABLE PURCHASES WAS NEITHER QUANT IFIED NOR ANALYSED WITH REFERENCE TO THE PRODUCTION AND B OOKS OF ACCOUNTS 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 STATEMENT FROM MR. PUNAMIA WAS RECORDED ON 12.4.200 6 AND MR. NISHIT DOSHI ON 2.3.2007, BOTH WITH A GAP O F FEW MONTHS 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 CO NCERNED. FURTHER, AS ARGUED BY THE APPELLANT, THE STATEMENTS RECORDED FROM SUCH PERSONS WERE ON THE BACK OF THE APPELLANT AND IT APPEARS THAT THERE WAS NO OCCASION OR OPPORTUNITY PROVIDED FOR THE CROSS EXAMINATION OF T HE SAID PARTIES. UNDER THE CIRCUMSTANCES, IT CAN BE HELD TH AT SUCH STATEMENTS ARE NOT FULLY RELIABLE FOR DRAWING CONCL USION ON THE NATURE OT BOGUS/FICTITIOUS PURCHASES APART FROM QUANTIFYING SUCH PURCHASES FURTHER, AS PER MR. PUNA MIA, THE SALES WERE MADE TO HETERO GROUP AND THE UNACCOUNTED INCOME ADMITTED BY HIM, WAS ON ACCOUNT OF UNAVAILABILITY OF CERTAIN TRANSPORT RECEIPTS FOR PU RCHASES FROM M/S R.R. ENTERPRISES, APART FROM MAKING THE PE ACE WITH THE DEPARTMENT, WHICH CAN NOT BE THE BASIS FOR QUANTIFYING THE UNACCOUNTED INCOME IN THE CASE OF C LIENTS 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 21 ITA.NO.732, 733, 802 TO 806/H/2012 & C.OS. 110 TO 113/H/2012 M/S. HETERO LABS LIMITED, HYDERABAD. FICTITIOUS SALES MADE BY POOJA GROUP CAN BE DIRECTL Y ATTRIBUTABLE TO ANY PARTICULAR CLIENTS. THE ASSESSI NG OFFICER OF POOJA GROUP CONCERNS STRAIGHT AWAY CONCL UDED THAT SUCH AMOUNTS OF SALES MADE BY POOJA GROUP REPRESENT THE UNACCOUNTED PURCHASES MADE BY HETERO GROUP AND THE AMOUNTS WERE QUANTIFIED AT RS.2.48 CR ORES AS AGAINST RS.2.59 CRORES QUANTIFIED IN THE ASSESSM ENT ORDER. IN THIS CONTEXT, IT IS RELEVANT TO MENTION T HAT AT EVERY STAGE THE PRESUMPTIONS AND SURMISES HAVE PLAY ED A BIGGER ROLE THAN THE FACTS. 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 OFFICER OF THE GROUP HAS DRAWN THE GIST OF SUCH AMO UNTS AS ATTRIBUTABLE TO AY 2003-04 TO 2006-07, AT RS.2.4 8 CRORES AGAINST WHICH THE ASSESSING OFFICER OF THE H ETERO GROUP HAS ADOPTED DIFFERENT SET OF FIGURES AND PARA METERS AS INDICATED IN A CHART AT PARA 5.6 OF THIS ORDER I N DISTRIBUTING SUCH PURCHASES AMONG THE HETERO GROUP COMPANIES, WHICH ALSO INDICATES THE PRESUMPTIVE MET HODS ADOPTED IN QUANTIFICATION OF FICTITIOUS PURCHASES. WHILE QUANTIFYING SUCH UNVERIFIABLE PURCHASES AMONG THE G ROUP COMPANIES, THE ASSESSING OFFICER HAS ADOPTED THE PR ORATA BASIS AND THE BASIS ADOPTED IS QUANTUM OF PURCHASES MADE BY THE 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 C OMMON 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 22 ITA.NO.732, 733, 802 TO 806/H/2012 & C.OS. 110 TO 113/H/2012 M/S. HETERO LABS LIMITED, HYDERABAD. INDIVIDUAL COMPANY/CONCERN. THE INCONSISTENCIES IN THE STANDS TAKEN BY MR. NISHIT J. DOSHI WERE NOT EXAMINED WITH REFERENCE TO THE FACTS, EXCEPT FALLING THE STA TEMENT RECORDED ONCE ON 2.3.2007. IN THE COURSE OF THE STA TEMENT 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.2007-0 8 AND THE AMOUNTS QUANTIFIED AS FICTITIOUS PURCHASES, STOOD AT RS.24,24,37,646. AS COULD BE SEEN, DETAILS OF TH E AMOUNTS BY EACH CONCERN, FOR EACH ASSESSMENT YEAR W ERE NEITHER QUANTIFIED BY MR. DOSHI NOR BY THE ASSESSIN G OFFICER. UNDER THE CIRCUMSTANCES, IT MAY BE DIFFICU LT TO PROVE THAT THE APPELLANT COMPANY MADE THE SAID FICT ITIOUS PURCHASES FROM PARTICULAR CONCERNS AND PARTICULAR QUANTUMS, FOR EACH 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% 23 ITA.NO.732, 733, 802 TO 806/H/2012 & C.OS. 110 TO 113/H/2012 M/S. HETERO LABS LIMITED, HYDERABAD. 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. 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.53,87,828 ON ACCOUN T OF FICTITIOUS PURCHASES QUANTIFIED AGAINST THE PURCHAS ES MADE FROM POOJA GROUP (RS.12,86,341) AND SHREE GROU P (RS.41,01,487) IN THE CASE OF APPELLANT COMPANY, FO R THE YEAR UNDER REFERENCE, IS NOT 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 24 ITA.NO.732, 733, 802 TO 806/H/2012 & C.OS. 110 TO 113/H/2012 M/S. HETERO LABS LIMITED, HYDERABAD. FROM THESENIOR 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. 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 25 ITA.NO.732, 733, 802 TO 806/H/2012 & C.OS. 110 TO 113/H/2012 M/S. HETERO LABS LIMITED, HYDERABAD. 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 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 AND SUCH DISCLOSURES MADE BY THE APPELLANT COMPANY WAS PUT A T RS.7,60,00,000 FOR FOUR YEARS WITH AN AMOUNT OF RS.50,00,000 DISCLOSED FOR THE YEAR UNDER REFERENCE . DISCLOSURE WAS MADE BY THE CHAIRMAN OF THE GROUP ON THE CONCLUDING DAY OF SEARCH VIDE HIS STATEMENT DT.8.1. 2007 AND THE DISCLOSURES WERE TO COVER THE OMISSIONS AND MISTAKES COMMITTED BY THE APPELLANT GROUP COMPANIES RUN BY PAID MANAGERS. THIS ASPECT ALSO INDICATE THA T THE BOOKS OF ACCOUNT MAINTAINED BY THE GROUP CONCERNS A S WELL AS THE APPELLANT COMPANY ARE NOT FULLY RELIABL E, AS REGARDS TO THE PURCHASES AND OTHER AFFAIRS. IN CASE OF THE APPELLANT COMPANY M/S HDL, THE INCIDENCE OF SUPPRES SED TURNOVERS OF SPENT SOLVENTS AND BULK DRUGS AS POINT ED OUT BY THE CENTRAL EXCISE AUTHORITIES IS A FURTHER POIN TING CASE WHO INDICATE THAT ALL IS NOT WELL WITH THE BOOKS OF ACCOUNTS OF THE APPELLANT. HOWEVER, THE DIFFICULTY HAS ARISEN IN ADOPTING THE METHODOLOGY FOR QUANTIFICATI ON OF THE EXTRA INCOMES EARNED BY THE GROUP CONCERNS AND THE APPELLANT. SINCE THE DEFICIENCIES AS POINTED OUT BY THE ASSESSING OFFICER AND AS EVIDENCED THROUGH THE ACTI VITIES OF SOME OF THE SUPPLIERS, ARE SUPPORTED BY THE 26 ITA.NO.732, 733, 802 TO 806/H/2012 & C.OS. 110 TO 113/H/2012 M/S. HETERO LABS LIMITED, HYDERABAD. DECLARATIONS MADE BY THE APPELLANT, THE QUANTIFICAT IONS OF FICTITIOUS PURCHASES WITHOUT VERIFIABLE EVIDENCE/ INFORMATION, ARE HELD TO BE NOT SUSTAINABLE, AS THE SAME WOULD ALSO AMOUNT TO DUPLICATION, IN ASSESSMENT OF THE UNACCOUNTED INCOMES. 5.25. IT MAY BE PERTINENT TO NOTE THAT THE ASSESSI NG OFFICER HAS NOT CONSIDERED THE DECLARATIONS MADE BY THE APP ELLANT WHICH WERE ALSO ADMITTED IN FILING THE RETURNS OF I NCOME, THEREBY CREATING A SITUATION WHERE THE DECLARED INC OME IS MORE THAN THE UNACCOUNTED INCOME ASSESSED ON ACCOUNT OF QUANTIFICATION OF FICTITIOUS PURCHASES FOR CERTAIN YEARS, IN THE CASE OF THE APPELLANT AS WELL AS OTHER GROUP CONCER NS. THE SAME ARE ILLUSTRATED AS UNDER ; AY SYMED LABS LTD., HETERO LABS LTD., HETERO DRUGS LTD., TOTAL 03- 04 QUANTIFICATION DISCLOSURE QUANTIFICATION DISCLOSURE QUANTIFICATION DISCLOSURE QUANTIFICATION DISCLOSURE 12184094 10000000 5387828 5000000 5184960 5000000 22756882 20000000 04 - 05 6806310 7000000 11372601 10000000 16630477 13000000 34809388 30000000 05 - 06 11689614 18000000 13940749 21000000 14652512 21000000 40282875 60000000 06 - 07 20314454 20000000 41228091 40000000 79177624 80000000 140720169 140000000 TOTAL 50994472 55000000 71929269 76000000 115645573 119000000 238569314 250000000 5.26. AS COULD BE SEEN FROM THE ABOVE, THE DISCLOS URES WERE MADE FOR AY 2003-04 TO AY 2006-07, IN THE CASE OF T HREE GROUP COMPANIES EXCLUDING M/S CIREX PHARMACEUTICALS PVT L TD. IT HAS BEEN OBSERVED THAT THE TOTAL AMOUNTS OF DISCLOSURE IS HIGHER THAN THE TOTAL AMOUNTS OF FICTITIOUS PURCHASES QUAN TIFIED IN EACH OF THE INDIVIDUAL CASE AS WELL AS THREE GROUP COMPA NIES FOR ALL THE YEARS PUT TOGETHER WHERE DISCLOSURES WERE MADE. HOWEVER, IN CASE OF THE THREE APPELLANT COMPANIES FOR ASSESS MENT YEAR 2007-08 AND IN CASE OF M/S CIREX PHARMACEUTICALS PV T LTD, NO DISCLOSURES WERE MADE BY THE APPELLANT GROUP, WHERE QUANTIFICATIONS WERE CARRIED OUT BY THE ASSESSING O FFICER ON THE BASIS /METHODOLOGY, AS DISCUSSED ABOVE. THE QUANTIF ICATION MADE BY THE ASSESSING OFFICER AND THE DISCLOSURES M ADE BY THE 27 ITA.NO.732, 733, 802 TO 806/H/2012 & C.OS. 110 TO 113/H/2012 M/S. HETERO LABS LIMITED, HYDERABAD. APPELLANT COMPANY HAVE CREATED AN ANOMALY IN CERTAI N ASSESSMENT YEARS, WHEREIN THE AMOUNTS OF ADDITIONS MADE ON ACCOUNT OF FICTITIOUS PURCHASES ARE LOWER THAN THE UNACCOUNTED INCOME ADMITTED BY THE APPELLANT. AS COULD BE CONCL UDED FROM THE ABOVE FACTS AND DISCUSSIONS, BOTH QUANTIFICATIO NS OF FICTITIOUS PURCHASES OF RAW MATERIALS BY THE ASSESS ING OFFICER AND THE ADMITTANCE OF THE INCOME BY THE APPELLANT W ERE BASED ON ESTIMATION AND PRESUMPTION, AS SUCH ONLY ONE OF SUCH BASIS SURVIVES. HENCE, I AM OF THE CONSIDERED OPINION THA T THE QUANTIFICATIONS OF FICTITIOUS PURCHASES DONE ON EST IMATION BASIS DO NOT SURVIVE. SINCE THE DECLARATIONS MADE BY THE APPELLANT ARE HIGHER THAN THE SAID AMOUNTS FOR THE RELEVANT F OUR YEARS PUT TOGETHER (AYS 2003-04 TO 2006-07).' ACCORDINGLY , THE ASSESSING OFFICER IS DIRECTED TO ACCEPT THE ADDITIO NAL INCOMES ADMITTED BY THE APPELLANT IN FILING THE RETURNS OF INCOME FOR THE RESPECTIVE YEARS OF THE APPELLANT COMPANY AND THE S AID INCOME MAY BE ASSESSED AS INCOME FROM OTHER SOURCES SINCE THE APPELLANT HAS NOT QUANTIFIED AND ACCEPTED IT AS INC OME FROM THE BUSINESS OF THE UNDERTAKING. HOWEVER, AS INDICATED THE QUANTIFICATION OF FICTITIOUS PURCHASES ARE VARYING FROM YEAR TO YEAR VIS-A-VIS THE UNACCOUNTED INCOME ADMITTED BY T HE APPELLANT AND FOR THE YEAR UNDER REFERENCE, THE QUA NTIFICATION OF FICTITIOUS PURCHASES IS HIGHER THAN ADMITTED INCOME . BUT, KEEPING THE OVERALL PICTURE IN CASE OF SEARCH RELAT ED ASSESSMENTS (AYS 2003-04 TO 2007-08) IN MIND, WHERE THE FICTITIOUS PURCHASES IS ONE OF THE MAJOR ISSUE, THE AMOUNTS OF FICTITIOUS PURCHASES WHICH WAS ASSESSED AS UNACCOUN TED INCOME OF THE APPELLANT ARE TO BE IGNORED AND THE I NCOME ADMITTED BY THE APPELLANT IS DIRECTED TO BE ADOPTED . ACCORDINGLY, THE QUANTIFICATION OF THE FICTITIOUS P URCHASES TO THE TUNE OF RS.53,87,828, WHICH WERE TREATED AS UNACCOU NTED INCOME HELD TO UNSUSTAINABLE FOR THE REASONS DISCUS SED ABOVE AND THE INCOME OF RS.50,00,000 DECLARED BY THE APPE LLANT FOR THE YEAR UNDER REFERENCE IS DIRECTED TO BE ASSESSED AS 'OTHER INCOME' OF THE APPELLANT. ACCORDINGLY, THIS GROUND OF APPEAL IS TREATED AS PARTLY ALLOWED. 12. 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 ASSESSEES DISCLOSED INCOME IS MORE THAN THE QUANTI FIED INCOME, EVEN THOUGH VARIES IN DIFFERENT YEARS, WE A RE OF THE OPINION THAT LD. CIT(A) HAS CORRECTLY CAME TO T HE 28 ITA.NO.732, 733, 802 TO 806/H/2012 & C.OS. 110 TO 113/H/2012 M/S. HETERO LABS LIMITED, HYDERABAD. CONCLUSION THAT THE DISCLOSED INCOMES CAN BE ASSESS ED AS SUCH. ACCORDINGLY, HIS ORDERS ARE UPHELD. REVENU E GROUNDS 2 AND 3 ON THIS ISSUE ARE DISMISSED. 13. IN THE RESULT, ITA.NO.802, 803, 804, 805, 806/HYD/2012 OF THE REVENUE ARE DISMISSED. C.O.NO.110/HYD/2012 C.O.NO.111/HYD/2012 C.O.NO.112/HYD/2012 C.O.NO.113/HYD/2012 14. ASSESSEES CROSS OBJECTIONS IS ON THE DIRECTION OF LD. CIT(A) IN ASSESSING THE ADMITTED INCOME. IT WAS ASSESSEES CONTENTION THAT A.O. HAS NOT BROUGHT TO TAX THE ADMITTED INCOME, THEREFORE, LD. CIT(A) SHOULD HAVE CONFINED HIMSELF TO THE DELETION OF THE SO-CALLED FICTITIOUS PURCHASES AND SHOULD NOT H AVE DIRECTED THE A.O. TO TAX THE ADMITTED INCOME. 15. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE DO NOT SEE ANY MERIT IN ASSESSEES CONTENTIONS. IT IS A FACT THAT THERE ARE BOGUS PURCHASES AND ASSESSEE CONSEQUENT TO THE SEARCH AND SEIZURE OPERATIONS AND ALSO ON ENQUIRIES FROM THE SO-CALLED FIRMS, WHO ACCOMMODATED ASSESSEE IN ITS GROUP IN PROVIDING CERTAIN BOGUS BILLS, ASSESSEE ADMITTED INCOMES. ASSESSING OFFICER HOWEVER, CHOSE NOT TO TAKE THE ADMITTED INCOME BUT WENT BY THE QUANTIFICATION OF BOGUS PURCHASES IN A DIFFERENT METHOD BUT MORE OR L ESS TALLYING WITH ASSESSEES ADMITTED INCOMES. CONSEQUENTLY, LD. CIT(A) INSTEAD OF DELETING FULL AMOUNTS, DIRECTED THE A.O. TO CONSIDER THE ADMITTED 29 ITA.NO.732, 733, 802 TO 806/H/2012 & C.OS. 110 TO 113/H/2012 M/S. HETERO LABS LIMITED, HYDERABAD. INCOMES AS INCOMES ON THIS COUNT. EVEN ASSESSEE HAS ALSO RAISED ADDITIONAL GROUND FOR CONSIDERING THE ADMITTED INCOME AS PART OF BUSINESS INCOME SO AS TO CLAIM DEDUCTION UNDER SECTION 80HHC AND 80IB WHICH ISSUE HAS BEEN CONSIDERED IN ASSESSEES APPEALS AS ADDITIONAL GROUND. HAVING ADMITTED THE INCOMES, ASSESSEE CANNOT NOW CONTEND THAT THE AMOUNT SHOULD NOT BE BROUGHT TO TAX. IN VIEW OF THIS, WE SEE NO M ERIT IN THE CONTENTION AND ACCORDINGLY, CROSS OBJECTIONS AR E DISMISSED. 16. TO SUM-UP, ITA.NO.731 & 732/HYD/2012 OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PUR POSES, ITA.NO. 802, 803, 804, 805, 806/HYD/2012 OF THE REVENUE ARE DISMISSED AND CROSS OBJECTIONS NO. 110, 111, 112 AND 113/HYD/2012 OF THE ASSESSEE ARE DISMISSED. 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. M/S. HETERO LABS LIMITED, HYDERABAD, C/O. MR. S. RAMA RAO, ADVOCATE, FLAT NO.102, SHRIYAS ELEGANCE, H.NO .3-6- 643, STREET NO.9, HIMAYATNAGAR, HYDERABAD 500 029 . 2. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL C IRCLE- 4, 8 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 3. CIT(A)-VII, HYDERABAD. 4. CIT-(CENTRAL), HYDERABAD. 5. D.R. ITAT A BENCH, HYDERABAD.