ARISTO PHARMACEUTICALS PVT. LTD., MUMBAI V. ADDL.C.I.T. RG. 2(1), MUMBAI

ITA 8356/MUM/2011

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0596 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 06-04-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 09-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SACHCHIDANAND DUBE
• Keywords: Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 148

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI . . , . , BEFORE SHRI I.P. BANSAL, JM AND RAJENDRA, AM ./ I.T.A. NO.8356/MUM/2011 ( / ASSESSMENT YEAR : 2006-07 M/S.ARISTO PHARMACEUTICALS PVT. LTD., MERCANTILE CHAMBERS, 3 RD FLOOR, 12,J.N.HEREDIA MARG, BALLARD ESTATE, MUMBAI 400 001 / VS. ASSTT.CIT 2(1), 5 TH FLOOR, 12, J.N.HEREDIA MARG, BALLARD ESTATE, MUMBAI 400001 ./ ./ PAN/GIR NO. : AAACA 4495N ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI AJAY KUMAR RASTOGI REVENUE BY SHRI SACHCHIDANAND DUBE ' #$ / DATE OF HEARING : 06/04/2015 ' #$ / DATE OF PRONOUNCEMENT : 22/04/2015 / O R D E R PER I.P.BANSAL, J.M: THIS IS AN APPEAL FILED BY THE ASSESSEE AND IT IS DIRECTED AGAINST THE ORDER PASSED BY LD. CIT(A) -4, MUMBAI DATED 18/10/2 011 FOR ASSESSMENT YEAR 2006-07. AS GROUNDS OF APPEAL FILED ALONGWITH APPEAL WERE LENGTHY AND NARRATIVE, THE CONCISE GROUNDS HAVE BEEN FILED BY T HE ASSESSEE ON 18/4/2013. THE GROUNDS OF APPEAL AS PER CONCISE GRO UNDS READ AS UNDER: 1. FOR THAT THE LD. CIT(A) HAS ERRED IN AFFIRMING INITIATION OF PROCEEDINGS U/S.147/148 OF THE INCOME-TAX ACT. 2. FOR THAT THE LD.CIT(A) HAS ERRED IN UPHOLDING AD DITION OF RS.1,94,27,016/- ON ACCOUNT OF JOB WORK CHARGES REC EIVED FROM M/S. MAPRA LABORATORIES PVT. LTD. 3. FOR THAT LD. CIT(A) HAS ERRED IN UPHOLDING CHARG ING OF INTEREST U/S. 234B, C & D OF THE INCOME TAX ACT. ./I.T.A. NO.8356/MUM/2011 ( / ASSESSMENT YEAR : 2006-07 2 4. FOR THAT THE WHOLE ORDER IS BAD IN FACT AND LAW OF THE CASE AND IS FIT TO ANNULLED. 2. INITIALLY THE ASSESSMENT WAS COMPLETED VIDE ORDE R DATED 25/11/2008 PASSED UNDER SECTION 143(3) OF THE ACT AT AN INCOME OF RS.149,75,16,386/- AGAINST RETURNED INCOME OF RS.146,88,38,165/-. SUB SEQUENTLY, NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED TO THE ASSE SSEE ON 11//3/2010. IN RESPONSE TO SUCH NOTICE ASSESSEE VIDE LETTER DATED 1/4/2010 SUBMITTED THAT THE RETURN EARLIER FILED MAY BE TREATED AS FILED I N RESPONSE TO NOTICE UNDER SECTION 148 OF THE ACT. THE ASSESSEE ALSO REQUIRE D THE AO TO SUPPLY THE REASONS FOR RE-OPENING OF THE ASSESSMENT WHICH WERE SUPPLIED TO THE ASSESSEE BY AO VIDE LETTER DATED 19/4/2010, COPY OF WHICH HAS BEEN FILED AT PAGE -11 OF THE PAPER BOOK. THE REASONS CONVEYED T O THE ASSESSEE ARE AS UNDER: IN THIS CASE, ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE IT ACT ON 25/11/2008 ASSESSING TOTAL TAXABLE INCOME AT RS.149 ,75,75,16,390/- AS AGAINST RETURNED INCOME OF RS.146,88,38,165/-. THE ASSESSEE COMPANY IS IN THE BUSINESS OF MANUFACTURING OF DRUG S & PHARMACEUTICALS. IT WAS REVEALED FROM FURTHER VERIFICATION OF THE RE CORD, THE FOLLOWING DISCREPANCIES:- 1 THE ASSESSEE HAS SHOWN INCOME FROM INTEREST ON FIXE D DEPOSITS WITH BANKS AT RS.24,75,08,607/-. HOWEVER, ON PERUSAL OF THE TDS CERTIFICATES, IT IS SEEN THAT THE GROSS RECEIPTS IS RS.26,71,46,323/-. THERE IS THUS UNDER ASSESSMENT OF RS.1,96,37,716/- ON ACCOUNT OF TDS CERTIFICATES. 2 FROM THE PERUSAL OF BALANCE SHEET ON PAGE 23 OF TH E ANNUAL REPORT, THE ASSESSEE HAS RECEIVED LABOUR AND CONVERSION CHA RGES OF RS.1,94,27,016/-. THIS AMOUNT HAS NOT BEEN OFFERED FOR TAXATION BY THE ASSESSEE. IN VIEW OF THE ABOVE, I HAVE REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS BEEN ESCAPED ASSESSMENT FOR A.Y. 2006-07 BY REASON OF THE FAILURE ON PART OF THE ASSESSEE TO DISCLOSE FULLY A ND TRULY ALL MATERIAL FACTS NECESSARY FOR A.Y 2006-07. 2.1 SINCE NO ADDITION HAS BEEN MADE ON ISSUES RAISE D AT SL.NO.1 IN THE REASONS RECORDED FOR RE-ASSESSMENT, THE DISCUSSION IF ANY RELATES TO SECOND ISSUE WHICH IS WITH REGARD TO ADDITION OF RS.1,94,2 7,016/- RECEIVED BY THE ASSESSEE FROM ITS ASSOCIATE CONCERN AS LABOUR AND C ONVERSION CHARGES. ./I.T.A. NO.8356/MUM/2011 ( / ASSESSMENT YEAR : 2006-07 3 REFERENCE WAS MADE TO PAGE 23 OF THE ANNUAL REPORT BY THE AO IN THE REASONS AND COPY OF PAGE 22 & 23 OF ANNUAL REPORT I S FILED AT PAGE 12 AND 13 OF THE PAPER BOOK. THE RELEVANT PORTION OF THE SAI D REPORT IS REPRODUCED BELOW FOR THE COMPLETENESS OF FACTS. 5. RELATED PARTY DISCLOSURE: A)RELATED PARTIES WITH WHOM THE COMPANY HAD TRANSAC TION: ARISTO LABORATORIES PVT. LTD. MAPRA LABORATORIES PVT. LTD. B)TRANSACTIONS DURING THE YEAR WITH RELATED PARTIES MENTIONED ABOVE PURCHASE OF GOODS/MATERIALS: AMOUNT(RS.) ARISTO LABORATORIES PVT.LTD 790,441,768 MAPRA LABORATARIES PVT. LTD. 98,330 SALE OF GOODS/MATERIALS: ARISTO LABORATORIES PVT. LTD. 2,346,412 MAPRA LABORATORES PVT. LTD. 192,817 RENT PAID: ARISTO LABORATORES PVT. LTD. 1,072,680 LABOUR & CONVERSION CHARGES PAID: ARISTO LABORATORIES PVT. 105,504 MAPRA LABORATORES PVT. LTD. 452,153 LABOUR & CONVERSION CHARGES RECEIVED: MAPRA LABORATORIES PVT. LTD. 19,427,016 BALANCE DUE TO RELATED PARTY AT THE YEAR END: ARISTO LABORATORIES PVT. LTD. 611,340 2.2 ON THE ABOVE MENTIONED FACTS, THE FIRST AND FOR EMOST GRIEVANCE OF THE ASSESSEE RAISED IN THE PRESENT APPEAL IS AGAINST T HE VALIDITY OF THE RE- ASSESSMENT PROCEEDINGS. ACCORDING TO ASSESSEE, FI RSTLY THE REASON RECORDED BY THE AO IS BASED ON THE FAILURE OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT OF THE ASSESSEE. IT WAS SUBMITTED BY LD. AR THAT THE PRESENT CASE IS NOT FA LLING UNDER THE PROVISO, AS PER THE ASSESSEE REASSESSMENT NOTICE HAS BEEN ISSUED WITHIN FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, THERE FORE, REASON ITSELF DOES ./I.T.A. NO.8356/MUM/2011 ( / ASSESSMENT YEAR : 2006-07 4 NOT DESCRIBE THE APPLICABLE PROVISION AND THUS, THE NOTICE SHOULD BE CONSIDERED TO BE VITIATED BY THE PROVISIONS OF LAW. 3. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OPINION THAT THE ISSUE RAISED BY LD. AR IS ONLY TECHNICAL. IRRESPECTIVE O F THE NON-APPLICABILITY OF THE PROVISO THE MATTER HAS TO BE EXAMINED AS PER L AW. LD.AR DID NOT RAISE OTHER ISSUES EXCEPT THE TECHNICAL OBJECTION, WHICH IN OUR OPINION, IS NOT SUFFICIENT TO DISCARD THE VALIDITY OF INITIATION O F REASSESSMENT PROCEEDINGS. 3.1 IT WAS FURTHER SUBMITTED BY LD. AR THAT OUT OF TOTAL EXPENDITURE OF RS.9,78,33,153/- INCURRED UNDER THE HEAD SALARY, WAGES AND ALLOWANCE, ONLY A SUM OF RS.7,84,06,137/- IS DEBITED TO THE PR OFIT AND LOSS ACCOUNT. HE SUBMITTED THAT WITH REFERENCE TO FIGURES MENTIONED IN P&L ACCOUNT AND AUDIT REPORT ATTACHED IN THE PAPER BOOK, A CHART I S PREPARED, COPY OF WHICH IS FILED AT PAGE 66. THE CHART IS REPRODUCED BELO W: ARISTO PHARMACEUTICALS PVT.LTD. SCHEDULE OF SALARIES , WAGES, ALLOWANCES AND OTHER MANUFACTURING EXPENSES ASSESSMENT YEAR 2006-07. AS ON 31 ST MARCH, 2006 BHOPAL DAMAN TOTAL (RS.) (RS.) (RS.) SALARIES, WAGES AND ALLOWANCES 55,793,098.48 42,040,055.19 97,833,153.67 LESS: LSABOUR & CONVERSION CHARGES RECEIVED FROM M/S. MAPRA LABORATORIES 19,427,016.03 19,427,016.03 NET AMOUNT OF SALARIES, WAGES ETC. 36,366,082.45 42,040,055.19 78,406,137.64 WATER CHARGES 103,429.00 103,429.00 FUEL FOR BOILER 8,073,748.64 3,592,403.00 11,666,151.64 TOTAL 44,543,260.09 45,632,458.19 90,175,718.28 ./I.T.A. NO.8356/MUM/2011 ( / ASSESSMENT YEAR : 2006-07 5 3.2 REFERRING TO THE AFOREMENTIONED CHART IT WAS SU BMITTED BY LD. AR THAT RELATED PARTY DISCLOSURE WAS DULY MADE IN THE ACCOU NTS OF THE ASSESSEE. A SUM OF RS.1,94,27,016/- WAS DISCLOSED UNDER THE HE AD RELATED PARTY DISCLOSURE ON ACCOUNT OF AMOUNT RECEIVED BY THE ASS ESSEE AS LABOUR AND CONVERSION CHARGES FROM MAPRA LABORATORIES PVT. LTD . THE SAID AMOUNT WAS CREDITED TO THE EXPENDITURE INCURRED FOR MANUF ACTURING, AS ACCORDING TO THE VIEW OF THE ASSESSEE THE RECEIPTS RELATES TO THOSE EXPENDITURE ONLY. THUS, IT WAS SUBMITTED BY LD. AR THAT REASSESSMENT PROCEEDINGS HAVE WRONGLY BEEN INITIATED AND ASSESSMENT ORDER SHOULD BE QUASHED ON THE SAID GROUND ITSELF. 4. IT MAY ALSO BE MENTIONED HERE THAT DURING THE CO URSE OF DISCUSSION IT WAS ADMITTED BY LD. AR THAT THE ISSUE REGARDING CR EDIT OF IMPUGNED AMOUNT AGAINST MANUFACTURING EXPENSES WAS NOT DISC USSED IN THE ORIGINAL ASSESSMENT PROCEEDINGS. SIMILARLY, HE ADMITTED THA T THERE WAS NO REPLY FILED BY THE ASSESSEE OR THERE WAS NO CLARIFICATION SOUGHT BY THE AO ON THE SAID SUE IN THE ORIGINAL ASSESSMENT PROCEEDINGS. THE ONLY SUBMISSION MADE BY LD. AR WAS THAT ONLY AFTER GIVING DUE CONS IDERATION TO THE FACT THAT IMPUGNED AMOUNT HAS BEEN CREDITED TO MANUFACTURING EXPENSES, THE AO HAS GRANTED TDS BENEFIT TO THE ASSESSEE. HE IN T HIS REGARD REFERRED TO PAGE-14 OF THE PAPER BOOK, WHEREIN COPY OF TDS CERT IFICATE IS PLACED IN WHICH TOTAL AMOUNT RECEIVED BY THE ASSESSEE FROM MAPRA LABORATORIES PVT. LTD. IS SHOWN AT A SUM OF RS.1,94,27,016/- A ND TDS HAS BEEN DEDUCTED THEREON AT RS.4,35,942/- FOR WHICH THE C REDIT HAS BEEN GIVEN IN THE ORIGINAL ASSESSMENT ORDER. IT MAY ALSO BE ME NTIONED HERE THAT THE AFOREMENTIONED AMOUNT WAS RECEIVED BY THE ASSESSEE ON VARIOUS DATES NAMELY 1/2/2006, 17/2/2006, 3//3/2006, 20/3/2006 AN D 31/3/2006 AND AGAINST THESE PAYMENTS TDS HAS ALSO BEEN DEDUCTED ON VARIOUS DATES AS DESCRIBED IN THE TDS CERTIFICATE. 4.1 ON THE AFOREMENTIONED FACTS, IT IS THE CASE OF THE LD. AR THAT THE ISSUE REGARDING AMOUNT OF RS.1,94,27,016/- WAS DULY CONSI DERED BY THE AO IN THE ./I.T.A. NO.8356/MUM/2011 ( / ASSESSMENT YEAR : 2006-07 6 ORIGINAL ASSESSMENT PROCEEDINGS, THEREFORE, THE INI TIATION OF RE-ASSESSMENT PROCEEDINGS IS BASED ON CHANGE OF OPINION. 4.2 AFTER CONSIDERING THE FACTS OF THE CASE AND SUB MISSION OF LD.AR, WE DO NOT FIND ANY FORCE IN SUCH CONTENTION OF LD. AR BEC AUSE THERE IS NO MATERIAL ON RECORD TO SHOW THAT IN THE ORIGINAL ASSESSMENT ORDER THE AO HAS FRAMED ANY OPINION ON THE IMPUGNED ISSUE. THERE IS NO E VIDENCE ON RECORD TO SHOW THAT AO HAS MADE ANY ENQUIRY ON SUCH ISSUE AN D ANY REPRESENTATION WAS MADE BY THE ASSESSEE. THEREFORE, WE ARE OF TH E OPINION THAT ASSESSEE HAS NO CASE FOR CHALLENGING THE VALIDITY OF RE-ASSE SSMENT PROCEEDINGS EVEN ON THE BASIS OF CHANGE OF OPINION. 4.3 IN VIEW OF THE ABOVE DISCUSSION, GROUND NO.1 OF ASSESSEES APPEAL IS DISMISSED. 5. NOW COMING TO THE MERITS OF THE ADDITION OF RS. 1,94,27,016/-, WHICH IS GROUND NO.2, RAISED BY THE ASSESSEE. THE FACTS H AVE ALREADY BEEN DISCUSSED IN DETAILS IN THE ABOVE PART OF THIS ORDE R. THE FOLLOWING REASONS HAVE BEEN DESCRIBED BY THE AO IN THE ASSESSMENT ORD ER FOR MAKING THE IMPUGNED ADDITION. (I) NONE OF THE FIGURES IN THE P&L ACCOUNT SUBMITT ED BY THE ASSESSEE HAVE BEEN MENTIONED TO BE NET FIGURES. THUS THE C ONTENTION OF THE ASSESSEE THAT THE SALARIES, WAGES & ALLOWANCES DE BITED TO P&L ACCOUNT ARE NET-OFF OF JOB WORK CHARGES RECEIVED I S MERELY AN AFTER THOUGHT. (II) FURTHER, THE COST AUDIT REPORTS AVAILABLE ON R ECORD CLEARLY SHOW THAT NEITHER OF THE TWO UNITS OF THE ASSESSEE HAD CARRIE D OUT ANY WORK FOR OUTSIDERS. IN OTHER WORDS, THE EXPENSES DEBITED TO THE P&L ACCOUNT OF 'SALARIES, WAGES, ALLOWANCES' WAS GROSS FIGURE AND NO EMPLOYEE COST WAS INCURRED FOR THE WORK OF OUTSIDERS. THE RELEVA NT PORTION OF THE COST AUDIT REPORT OF THE DAMAN & BHOPAL UNIT IS ANNEXED TO THIS ORDER, AS ANNEXURE' A' & 'B' RESPECTIVELY. III) MOREOEVER, THE TOTAL EXPENSES OF 'SALARIES, WA GES & ALLOWANCE' AS PER THE COST AUDIT REPORT IS THE SAME AS THE AMOUNT DEBITED IN THE P&L ACCOUNT. THUS, THERE IS NO QUESTION THAT THE AMOUNT DEBITED IN P&L ./I.T.A. NO.8356/MUM/2011 ( / ASSESSMENT YEAR : 2006-07 7 ACCOUNT IS THE GROSS FIGURE OF SUCH EXPENSES ACTUAL LY INCURRED. THIS REALITY IS ALSO SUPPORTED BY THE COST AUDIT REPORT . IV) THE ASSESSEE HAS ALSO TRIED TO EXPLAIN THAT THE JOB WORK CHARGES WERE CARRIED OUT BY THE BHOPAL UNIT AND ACTUALLY PE RTAIN TO SUPPLY OF INJECTIBLES . IT IS NOT CLEAR IN WHAT MANNER THIS C ONTENTION OF THE ASSESSEE SUPPORTS ITS BASIC ARGUMENT THAT THE JOB WORK CHARGES FORMED PART OF THE INCOME OFFERED FOR TAX. MOREOEVER, THE COST AUDIT REPORT OF THE BHOPAL UNIT ALSO SHOWS THAT NO EMPLOYEE COST WA S INCURRED IN RESPECT OF JOB WORK DONE FOR OUTSIDERS. THE TOTAL E XPENSES OF BHOPAL UNIT ON ACCOUNT OF 'SALARY' AS PER THE UNIT-WISE P&L ACC OUNT SUBMITTED BY THE ASSESSEE IS THE SAME AS PER THE COST AUDIT REPO RT. THIS CLEARLY SHOWS THAT THE ASSESSEE'S ARGUMENT THAT THE JOB WOR K WAS DONE BY THE BHOPAL UNIT IS ALSO AN AFTER THOUGHT. V) NOW THE QUESTION ARISES AS TO WHAT PURPOSE OF T HE ASSESSEE IS SERVED BY SUBMITTING THE AFORESAID ARGUMENT THAT TH E JOB WORK CHARGES ARE TOWARDS SUPPLY OF INJECTIBLES. AN ANALYSIS OF T HE BUSINESS OF THE ASSESSEE WILL EXPOSE THE MAL-INTENTION OF THE ASSE SSEE FOR COMING OUT WITH THE SUCH ARGUMENTS. ACTUALLY THE ASSESSEE HAS TWO UNITS, ONE AT DAMAN AND ANOTHER AT BHOPAL. THE UNIT AT DAMAN IS AN EXEMPT UNIT U/S. 10A OF THE I.T. ACT, WHEREAS THE ONE AT BHOPA L, IS NOT. THUS, IF THE ASSESSEE HAD NOT GIVEN THE NJECTIBLE THEORY, AND IN CASE IT WAS ACCEPTED THAT THE JOB WORK CHARGES WERE OFFERED FOR TAX, THEN THE QUESTION OF WHETHER THE SAME WAS ELIGIBLE FOR EXEMP TION U/S. 10A OF THE I.T. ACT OR NOT WOULD HAVE ARISEN. THIS CLEARLY S HOWS THAT THOUGH THE ASSESSEE HAS COME UP WITH AN AFTER THOUGH BUT IT WA S REALLY THOUGH VERY WELL. VI) MOREOVER, M/ S MAPRA LABORATORIES LTD, IS A SIS TER CONCERN OF THE ASSESSEE. THUS, IT MAKES IT MUCH EASIER FOR THE ASS ESSEE TO COOK-UP A STORY WHEN BOTH THE ENTITIES ARE RELATED TO EACH OT HER. IT IS, IN FACT, UNREASONABLE TO EXPECT THAT M/S MAPRA LABORATORIES LTD WILL NOT TOE THE LINE OF THE ASSESSEE COMPANY. SO, EVEN WHEN THE ENT IRE THEORY OF THE ASSESSEE IS AN AFTER-THOUGHT, IT IS NOT DIFFICULT F OR IT TO CREATE DOCUMENTATION IN SUPPORT OF ITS CONTENTION WHEN THE OTHER PARTY INVOLVED IS ALSO A RELATED CONCERN. HOWEVER, THE AS SESSEE DID NOT REALIZE THAT THE COST AUDIT REPORT ON RECORD WOULD EXPOSE THE HOLES IN ITS THEORY TO SUCH AN EXTENT THAT ANYONE WOULD BE A BLE TO SEE THE REALITY. VI) FURTHER, THE COST AUDIT REPORT IS A STATUTORY R EQUIREMENT FOR THE ASSESSEE AS THE 'PHARMA' PRICES ARE UNDER A SORT OF ADMINISTERED PRICING REGIME. THUS, THE COST AUDIT REPORT IS NOT PREPARED FOR INCOME TAX DEPARTMENT AND IS A MORE AUTHENTIC REPORT AS CO MPARED TO THE SUBMISSIONS MADE BY THE ASSESSEE AS AN AFTER THOUGH T. ./I.T.A. NO.8356/MUM/2011 ( / ASSESSMENT YEAR : 2006-07 8 5.1 AGGRIEVED ASSESSEE FILED AN APPEAL BEFORE LD. C IT(A). EACH AND EVERY OBJECTION OF THE AO WAS EXPLAINED IN THE WRITTEN S UBMISSIONS FILED BEFORE LD. CIT(A). THE SAME HAVE ALSO BEEN REPRODUCED BY LD. CIT(A) AS UNDER: THE ASSESSING OFFICER, HOWEVER, REJECTED THE EXPLA NATION OF THE APPELLANT ARBITRARILY AND CAPRICIOUSLY AND HAS COME TO THE CO NCLUSION THAT (J) NONE OF THE FIGURES OF PROFIT & LOSS ACCOUNT IS PREFIXED WITH T HE WORD 'NET', (2) THE COST AUDIT REPORT DOES NOT SHOW THAT ANY OF THE TWO UNIT S HAS CARRIED OUT ANY WORK FOR OUTSIDER, (3) THE EXPENSES DEBITED UNDER T HE HEADS SALARY, WAGES AND ALLOWANCE AS PER COST AUDIT REPORT IS THE SAME AS THOSE DEBITED IN THE PROFIT & LOSS ACCOUNT, (4) COST AUDIT REPORT OF BHO PAL UNIT DOES NOT ATTRIBUTE EMPLOYEE COST IN RESPECT OF JOB WORK DONE FOR OUTSI DERS, (5) IF THE ASSESSEE HAS NOT GIVEN THE INJECTIBLE THEORY AND IN CASE IT WAS ACCEPTED THAT JOB WORK CHARGES WERE OFFERED FOR TAX THEN THE QUESTION OF WHETHER THE SAME WAS ELIGIBLE FOR EXEMPTION U/S.10A OF THE 1 T. ACT OR N OT WOULD HAVE ARISEN (6) M/S MAPRA LABORATORIES PVT. LTD. BEING A SISTER CONCER N, IT WAS EASIER FOR THE ASSESSEE TO COOK-UP A STORY AND IT IS NOT DIFFICULT FOR IT TO CREATE DOCUMENTATION. HOWEVER, THE ASSESSEE DID NOT REALIZ E THE COST AUDIT REPORT ON RECORD WHICH EXPOSES THE HOLES IN ITS THEORY (7) CO ST AUDIT REPORT IS A STATUTORY REQUIREMENT AND IS A MORE AUTHENTIC REPORT AS COMPA RED TO SUBMISSION MADE BY THE ASSESSEE. WITH REGARD TO THE FIRST OBJECTION OF THE A. O. IT IS RESPECTFULLY SUBMITTED THAT THERE IS NO STATUTORY REQUIREMENT TO MENTION/ PREFI X THE WORD NET' BEFORE ITEM OF INCOMING AND/OR OUTGOING (INCOME AND EXPENDITURE ). THE APPELLANT BY PLEATHORA OF EVIDENCES, WHICH INTER-ALIA INCLUDES B IFURCATION OF EXPENSES OF RS.9.01 CRORE DEBITED UNDER THE HEAD SALARIES, WAGE S, ALLOWANCE AND OTHER MANUFACTURING EXPENSE, MONTH WISE STATEMENT OF LABO R AND CONVERSION CHARGES RECEIVED FROM MLL, DETAILS OF LOCATION WISE SALARY, WAGES AND ALLOWANCES, DEBIT NOTES RAISED BY APPELLANT ON MIL FOR MANUFACTURING INJECTIBLES, PAYMENT OF EXCISE DUTY BY MLL ON CLEAR ANCE OF SUCH GOODS FROM APPELLANT TO MILL, SUBMITTED ALONG WITH REPLY DATED 27.09.2010 (FILED ON 08.10.2010) HAS PROVED BEYOND ALL REASONABLE DOUBT THAT THE EXPENDITURE UNDER THE HEAD SALARY WISE SALARY, WAGES AND ALLOW ANCES, DEBIT NOTES RAISED BY APPELLANT ON MIL FOR MANUFACTURING INJECT IBLES, PAYMENT OF EXCISE DUTY BY MILL ON CLEARANCE OF SUCH GOODS FROM BONDED WAREFHOUSE OF APPELLANT, STOCK TRANSFER OF SUCH WISE SALARY, WAGE S AND ALLOWANCES, DEBIT NOTES RAISED BY APPELLANT ON MLL FOR MANUFACTURING INJECTIBLES, PAYMENT OF EXCISE DUTY BY MLL ON CLEARANCE OF SUCH GOODS FROM BONDED WAREHOUSE OF APPELLANT, STOCK TRANSFER OF SUCH INJECTIBLES FROM APPELLANT TO MLL, SUBMITTED ALONG WITH REPLY DATED 27.09.2010 (TILED ON 08.10.2 010) HAS PROVED BEYOND ALL REASONABLE DOUBT THAT THE EXPENDITURE UNDER THE HEAD SALARY, WAGES, ALLOWANCES AND OTHER MANUFACTURING EXPENSES AMOUNT ING TO RS.9.01 CRORE (PAGE 66 O PB ANNUAL REPORT PAGE 17) IS AFTER TAKIN G INTO ACCOUNT CONSIDERATION THE RECEIPT ON ACCOUNT OF LABOUR AND CONVERSION CHARGES ./I.T.A. NO.8356/MUM/2011 ( / ASSESSMENT YEAR : 2006-07 9 RECEIVED FROM MAPRA LABORATORIES PVT. LTD. AMOUNTIN G TO RS.1.94 CRORE. PAGE 66 OF P.B. IS THE BIFURCATION OF THE EXPENSE OF RS. 9.01 CRORE AND IT BIFURCATES THE EXPENSES BETWEEN THE TWO UNITS. THE EXPENSE OF BHOPAL UNIT (MANDIDEEP) UNDER THE HEAD SALARY WAGES AND ALLOWANCE IS RS.5,5 7,93,0981- AND AFTER REDUCING THE RECEIPT OF RS.1,9~27,0161-, A SUM OF R S.8, 63, 66, 0821- REMAINS AND ON INCLUSION OF THE OTHER TWO ITEMS, THE TOTAL EXPENSE COMES TO RS.4,45,43,260/- WHICH EXACTLY TALLIES WITH PROFORM A E( PAGE 37 OF THE PB) OF THE COST AUDIT REPORT OF MANDIDEEP. THIS PROFORM A 'E' HAS BEEN COMPLETELY IGNORED BY THE A. O. ON REDUCTION OF RS. 4,45, 43,2 601- FROM THE TOTAL OF EXPENSE OF RS.9,0L, 75, 718/-, A SUM OF RS. 4,56,32 ,458/- REMAINS AND THE SAID FIGURE IS APPEARING IN THE COST AUDIT REPORT O F DAMAN UNIT PROFORMA E. THE APPELLANT IN ITS SUBMISSION DATED 27.09.2010 (F ILED ON 08.10.2010) HAS CATEGORICALLY STATED AS PER THE ACCOUNTING PRACTIC E CONSISTENTLY FOLLOWED BY THE ASSESSEE COMPANY, THE AMOUNT OF LABOUR AND CONV ERSION CHARGES O RECEIVED BY THEM IS REDUCED FROM THE HEADING OF SA LARY, WAGES, ALLOWANCES AND OTHER MANUFACTURING EXPENSES OF THE FACTORY UNI T IN WHICH THE LOAN LICENSE MANUFACTURING WAS UNDER TAKEN. WITH REGARD TO SECOND OBJECTION OF THE AO IT IS SUBMITTED THAT THE COST AUDIT REPORT OF BOTH THE UNITS (PAGE 16 AND 17 OF P.B.) U NDER THE COLUMN 13 MENTIONS THE NAME, ADDRESS AND LOCATION OF THIRD PARTY WITH WHOM LOAN LICENSE I JOB WORK ARRANGEMENT EXISTS AND IT INCLUDES THE NAME OF M/S MAPRA LABORATORIES PVT. LTD. WITH REGARD TO THIRD OBJECTION OF THE A.O., IT IS S UBMITTED THAT ADVERSE INFERENCE, IF ANY, COULD HAVE BEEN DRAWN, IF THE EX PENSES UNDER THE HEAD 'SALARY, WAGES AND ALLOWANCES' AS PER COST AUDIT RE PORT AND THOSE DEBITED IN PROFIT AND LOSS ACCOUNT WOULD HAVE BEEN DIFFERENT AND /OR VARIED. WITH REGARD TO FOURTH OBJECTION OF THE A.O, IT IS S UBMITTED THAT NON ALLOCATION OF MANDAYS ACTUALLY WORKED AGAINST JOB WORK IN THE COS T AUDIT REPORT (ANNEXURE A & B OF ASSESSMENT ORDER) IS NOT ENOUGH TO HOLD TH AT THE JOB WORK RECEIPT OF 1.94 CRORE WAS NOT OFFERED FOR TAXATION SPECIALLY I N VIEW OF THE EVIDENCES FURNISHED ALONG WITH REPLY DATED 27.09.2010 (FILED ON 08.10.2010) (PAGE 63 TO 83 OF P.B.) WHICH INTER-ALIA INCLUDES BIFURCATION O F EXPENSES OF RS.9.01 CRORE DEBITED UNDER THE HEAD SALARIES, WAGES, ALLOWANCE A ND OTHER MANUFACTURING EXPENSE, MONTH WISE STATEMENT OF LABOR AND CONVERSI ON CHARGES RECEIVED FROM MLL, DETAILS OF LOCATION WISE SALARY, WAGES AND ALL OWANCES, DEBIT NOTES RAISED BY APPELLANT ON MLL FOR MANUFACTURING INJECT IBLES, PAYMENT OF EXCISE DUTY BY MLL ON CLEARANCE OF SUCH GOODS FROM BONDED WAREHOUSE OF APPELLANT, STOCK TRANSFER OF SUCH INJECTIBLES FROM APPELLANT T O MLL. WITH REGARD TO FIFTH OBJECTION OF THE A.O., IT IS H UMBLY SUBMITTED THAT THE A.O. HAS IGNORED THE PROFORMA 'F;' ATTACHED WITH THE COS T AUDIT REPORT OF BOTH THE UNIT WHICH GIVES THE BIFURCATION OF THE EXPENSE UND ER THE HEAD 'SALARY, WAGES ./I.T.A. NO.8356/MUM/2011 ( / ASSESSMENT YEAR : 2006-07 10 AND OTHER MANUFACTURING EXPENSE' OF RS.9,01, 75, 71 8/- BETWEEN THE TWO UNITS I.E. MANDIDEEP RS.4, 56, 32,458/- AND DAMAN R S.4,45,43,260/- AND IT EXACTLY TALLIES WITH THE BIFURCATION OF SALARY, WAG ES, ALLOWANCE AND OTHER MANUFACTURING EXPENSE SUBMITTED ALONG WITH REPLY DA TED 27.09.2010 (FILED ON 08.10.2010) (PAGE 66 OF P.B) THE DAMAN UNIT OF THE APPELLANT DOES NOT HAVE THE F ACILITY TO MANUFACTURE INJECTIBLES WHICH IS EVIDENT FROM THE ANNEXURE (1' (PAGE 60 OF P.B.) FORMING PART OF COST AUDITORS REPORT WHICH STATES PROCESS O F MANUFACTURING 'LIQUIDS, TABLETS, CAPSULES AND DRY SYRUP' WHEREAS ANNEXURE ' 1' OF COST AUDITORS REPORT OF MANDIDEEP UNIT MENTIONS THE FOLLOWING PROCESS OF MANUFACTURE : LIQUIDS, TABLETS, CAPSULES, INJECTIBLES - TWO TYPE S- AMPOULES AND VIALS AND DRY SYRUP. THE QUESTION OF EXEMPTION U/S. 10A THUS, RAISED BY THE AO IS DEVOID OF ANY MERIT AND CONTRARY TO THE RECORDS OF THE APPELLANT S CASE WHICH PROVES THAT ITS DAMAN UNITS (ELIGIBLE FOR DEDUCTION U/S. 80IB) HAS NO FACILITY TO MANUFACTURE INJECTIBLES FOR WHICH THE APPELLANT HAS RECEIVED LA BOUR AND CONVERSION CHARGES FROM MLL. WITH REGARD TO SIXTH OBJECTION OF THE AO, IT IS SUB MITTED THAT NO DOCUMENT/ EVIDENCE FROM THE RECORDS OF MILL WERE SUBMITTED IN COURSE OF REASSESSMENT PROCEEDINGS. ALL THE DOCUMENTS/ EVIDENCE FROM THE RECORDS OF MILL WERE SUBMITTED IN COURSE OF REASSESSMENT PROCEEDING. AL L THE DOCUMENTS / EVIDENCES SUBMITTED BELONGED TO THE APPELLANT (PAG E 71 TO 83 OF PB). THUS QUESTION OF CREATING DOCUMENT BY SISTER CONCERN TO SUIT THE REQUIREMENT OF THE APPELLANT DOES NOT ARISE. WITH REGARD TO SEVENTH OBJECTION OF THE AO, IT IS S UBMITTED THAT ALTHOUGH COST AUDIT REPORT IS A STATUTORY REQUIREMENT AND THE WEL L SETTLED RULE REGARDING CONSTRUCTION OF A DOCUMENT IS THAT IT SHOULD BE REA D AS A WHOLE. IN THE PRESENT CASE, THE AO HAS BRUSHED ASIDE THE FINANCIA L RECORDS, FINAL ACCOUNTS AND PART OF COST AUDIT REPORT IN THE GARB OF SL.NO .8 OF COST AUDIT REPORT WHICH FORMS PART OF ASSESSMENT ORDER AS ANNEXURE A & B FOR THE PURPOSES OF MAKING ADDITION OF RS. 1.94 CRORE ON ACCOUNT OF LAB OUR AND CONVERSION CHARGES. THE EVIDENCES AND DOCUMENTS AT PAGES 71 T O 83 OF PB DEFIES THE ACTION OF THE A.O AND IT IS PRAYED THAT THE ADDITIO N OF RS.1.94 CRORE MAY KINDLY BE ORDERED TO BE DELETED. 5.2 HOWEVER, LD. CIT(A) UPHELD THE ACTION OF AO BY OBSERVING THAT REDUCTION OF JOB CHARGES FROM SALARY, WAGES AND ALL OWANCES DEBITED TO P&L ACCOUNT IS CONTRARY TO THE REQUIREMENT OF SCHEDULE- VI BECAUSE AS PER THE REQUIREMENT OF SCHEDULE VI OF COMPANIES ACT, EACH ITEM HAVING SPECIFIC ./I.T.A. NO.8356/MUM/2011 ( / ASSESSMENT YEAR : 2006-07 11 VALUE HAS TO BE SHOWN SEPARATELY. THE AO HAS CON SIDERED THE COST AUDIT REPORT IN WHICH TOTAL LABOUR CHARGES SHOWN ARE THE SAME AS CHARGED TO P&L ACCOUNT, THEREFORE, IT IS CLEAR THAT ENTIRE LA BOUR CHARGES HAVE BEEN CLAIMED AS EXPENDITURE AND NOTHING HAS BEEN REDUCED FROM THE SAME AND THUS, ASSESSEE IS INCORRECT IN CLAIMING THAT JOB CH ARGES RECEIVED HAVE BEEN REDUCED FROM SALARY, WAGES, ALLOWANCES ETC. NETTIN G OF THE JOB CHARGES IS NOT BASED ON ANY EVIDENCE AND CAN BE SAID TO BE MERE AF TER THOUGH AS HAS BEEN OBSERVED BY THE AO. THE ASSESSEE IS AGGRIEVED, HEN CE, HAS CONTESTED THE ADDITION ON MERITS. 6. AFTER NARRATING THE FACTS, IT WAS SUBMITTED BY L D. AR THAT IN THE LETTER DATED 27/09/2010, WHICH WAS FILED BEFORE AO ON 8/10 /2010, COPY OF WHICH IS FILED ALONGWITH ANNEXURES AT PAGE-63 TO 83, IT W AS CLEARLY STATED THAT AS PER ACCOUNTING PRACTICE CONSISTENTLY FOLLOWED BY TH E ASSESSEE COMPANY, THE AMOUNT OF LABOUR AND CONVERSION CHARGES SO RECEIVED BY THEM IS REDUCED FROM THE HEADING SALARY, WAGES, ALLOWANCES AND OTHE R MANUFACTURING EXPENSES OF THE FACTORY UNIT IN WHICH THE LOAN LICE NCE MANUFACTURING WAS UNDERTAKEN. HE SUBMITTED THAT APART FROM GIVING B IFURCATION TO SHOW THAT IMPUGNED AMOUNT WAS REDUCED FROM THE TOTAL EXPENSES OF BHOPAL UNIT, COPY OF WHICH IS FILED AT PAGE 66 OF THE PAPER BOOK, (WH ICH IS ALSO REPRODUCED IN THE ABOVE PART OF THIS ORDER) MONTH WISE LABOUR AND CONVERSION CHARGES RECEIVED FROM MAPRA LABORATORIES PVT. LTD. WERE ALS O SUBMITTED, COPY OF WHICH IS FILED AT PAGE 67 OF THE PAPER BOOK. SIMIL ARLY, DETAILS OF LOCATION AND UNIT WISE SALARY, WAGES AND ALLOWANCES WAS SUBM ITTED, COPY OF WHICH IS FILED AT PAGE 68 OF THE PAPER BOOK. COPY OF THE BI LLS ISSUED BY THE ASSESSEE TO MAPRA LABORATORIES PVT. LTD. IN RESPECT OF JOB WORK DONE ARE ALSO FILED AT PAGES 71 TO 76 OF THE PAPER BOOK. COPY OF EVIDENCE OF REMOVAL OF GOODS FROM EXCISE RECORD MAINTAINED BY THE ASSESSEE IN THE SHA PE OF STOCK REGISTER AND OTHER EVIDENCES ARE ALSO FILED AT PAGES 77 TO 83 OF THE PAPER BOOK. REFERRING TO ALL THESE EVIDENCES IT WAS SUBMITTED BY LD. AR T HAT AMPLE DOCUMENTARY EVIDENCES WAS SUBMITTED TO THE AO, REFERENCE OF WHI CH WAS ALSO MADE TO LD. CIT(A) AND DESPITE ALL DOCUMENTARY EVIDENCES SUPPOR TING THE FACTS AND ./I.T.A. NO.8356/MUM/2011 ( / ASSESSMENT YEAR : 2006-07 12 FIGURES EXPLAINED BY THE ASSESSEE, LD. CIT(A) HAS U PHELD THE ADDITION WITHOUT POINTING OUT ANY DISCREPANCY IN THE DOCUMEN TS SUBMITTED BY THE ASSESSEE. IT WAS SUBMITTED THAT ASSESSEE IS A COM PANY HAVING HIGH TURNOVER AND HIGH PROFIT FOR WHICH ACCOUNTS ARE MAI NTAINED IN THE REGULAR COURSE OF BUSINESS AND THE ENTRIES WERE MADE IN REG ULAR COURSE AND IN VIEW OF THE CONTEMPORARY EVIDENCE SUBMITTED BY THE ASSES SEE, LD. CIT(A) HAS COMMITTED AN ERROR IN NOT ACCEPTING THE EVIDENCE AN D SUBMISSIONS MADE BY THE ASSESSEE. THUS, IT WAS PLEADED BY LD. AR THAT THE IMPUGNED ADDITION SHOULD BE DELETED AND NECESSARY RELIEF MAY BE GRANT ED TO THE ASSESSEE. 7. ON THE OTHER HAND, LD. DR RELYING UPON THE CONCL USION ARRIVED AT BY LD. CIT(A), THE SUM AND SUBSTANCE OF WHICH HAS ALR EADY BEEN MENTIONED IN THE ABOVE PART OF THIS ORDER, SUBMITTED THAT ADDITI ON HAS RIGHTLY BEEN UPHELD BY LD. CIT(A) AND HIS ORDER SHOULD BE UPHELD. 8. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. IT IS THE CASE OF THE ASSESSEE TH AT AS PER CONSISTENT ACCOUNTING PRACTICE THE ASSESSEE HAS BEEN CREDITING SUCH RECEIPTS TO THE HEAD SALARY, WAGES, ALLOWANCES, AND OTHER MANUFACT URING EXPENSES OF THE FACTORY UNIT IN WHICH THE LOAN LICNECE MANUFACTURIN G WAS UNDERTAKEN. THIS SUBMISSION OF THE ASSESSEE HAS ALSO BEEN REPRODUCED IN THE ORDER OF LD. CIT(A). THE AMOUNT HAS BEEN RECEIVED BY THE ASSE SSEE DURING THE YEAR ON VARIOUS DATES FOR WHICH TDS HAS ALSO BEEN DEDUC TED BY MAPRA LABORATORIES PVT. LTD. COPY OF TDS CERTIFICATE IS ALSO FILED IN THE PAPER BOOK. THE CREDIT OF TDS HAS ALSO BEEN GRANTED BY AO EVEN IN THE ORIGINAL ASSESSMENT PROCEEDINGS. THE ASSESSEE HAS SUBMITTED THE DETAILS IN THE SHAPE OF BILLS, STOCK REGISTER AND MOVEMENT OF THE GOODS, ACCORDING TO WHICH THE PAYMENTS HAVE BEEN RECEIVED BY THE ASSESSEE DUR ING THE YEAR UNDER CONSIDERATION. THE ACCOUNTS OF THE ASSESSEE ARE SU BJECT TO AUDIT. IN VIEW OF ALL THESE FACTS AND DETAILS SUBMITTED BY THE ASSESS EE, IN ABSENCE OF ANY MATERIAL TO HOLD THAT IN FACT ASSESSEE HAS INCORPOR ATED THESE ENTRIES AFTERWARDS OF FRAMING THE ORIGINAL ASSESSMENT, IT W ILL BE HIGHLY IMPROPER TO ./I.T.A. NO.8356/MUM/2011 ( / ASSESSMENT YEAR : 2006-07 13 SAY THAT THE EXPLANATION FURNISHED BY THE ASSESSEE DURING THE COURSE OF REASSESSMENT PROCEEDINGS IS AN AFTER THOUGHT. THE OBSERVATIONS OF THE AO THAT THE ACTION OF ASSESSEE IS AN AFTER THOUGHT AND SUBSEQUENT CONFIRMATION BY LD. CIT(A) OF SUCH FINDING OF THE AO, IN OUR OP INION ARE CONTRARY TO THE EVIDENCE SUBMITTED BY ASSESSEE AS WITHOUT BRINGING ANY MATERIAL ON RECORD TO HOLD SO, THE ADDITION HAS BEEN MADE AND CONFIRME D. IT MAY BE A MISTAKE ON THE PART OF THE ASSESSEE THAT INSTEAD OF SHOWING SAID RECEIPT DIRECTLY IN THE P&L ACCOUNT, THE ASSESSEE AS PER PAST PRACTI CES HAS CREDITED THE SAID AMOUNT TO HEAD SALARY, WAGES, ALLOWANCES AND OTHER MANUFACTURING EXPENSES HOWEVER, THIS FACT HAS BEEN PROVED BY TH E ASSESSEE FROM THE DOCUMENTARY EVIDENCES SUBMITTED TO THE AO IN THE CO URSE OF RE-ASSESSMENT PROCEEDINGS AND ALSO BEFORE LD.CIT(A). WE HAVE PER USED ALL THESE DOCUMENTARY EVIDENCES AND WE ARE OF THE OPINION THA T THE ALLEGATION OF AFTER THOUGHT MADE BY THE AO AND SUSTAINED BY LD. CIT(A ) HAS NO BASIS. IN VIEW OF ABOVE DOCUMENTARY EVIDENCES SUBMITTED BY THE ASS ESSEE, THE ADDITION DESERVES TO BE DELETED ON MERITS AND IS ACCORDINGLY DELETED. GROUND NO.2 OF THE ASSESSEES APPEAL IS ALLOWED. 9. APROPOS GROUND NO.3, NO ARGUMENTS WERE SUBMITTED BY LD. AR. IN ANY CASE THE CHARGING OF IMPUGNED INTEREST WOULD BE ONLY IN RESPECT OF ADDITION MADE DURING THE YEAR, WHICH HAS BEEN DELET ED BY US, THEREFORE, THIS GROUND, OTHERWISE HAS BECOME INFRUCTUOUS AND IS DIS MISSED ON ACCOUNT HAVING BEEN INFRUCTUOUS. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON 22/04/2015 ' * +, 22/04/2015 ' SD/- SD/- (RAJENDRA) . . (I.P.BANSAL) /ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; + DATED 22/04/2015 ./I.T.A. NO.8356/MUM/2011 ( / ASSESSMENT YEAR : 2006-07 14 !'# $#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. /# ( ) / THE CIT(A)- 4. /# / CIT 5. 01 #23 , $ 23 , / DR, ITAT, MUMBAI 6. 4 / GUARD FILE. / BY ORDER, 0# # //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . . .VM , SR. PS