Covalent Laboratories Pvt Ltd., Hyd, Hyderabad V. DCIT, Circle-1(2), Hyderabad, Hyderabad

ITA 863/HYD/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6888 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-B
• Assessment Year: 2013-2014
• Appeal Filed On: 19-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y V S T SAI
• Assessee Lawyers: S RAMA RAO
• Keywords: Opportunity of being heard; Earning of tax free income; Additional evidence; Corroborative evidences; Set aside
• Section: 133A; 234B; 14A; 133(6); 73; 13; 6; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B , HYDERABAD BEFORE SHRI P. MADHAVI DEVI, JUDICIAL MEMBER AND D.S. SUNDER SINGH, ACCOUNTANT MEMBER (THROUGH VIDEO CONFERENCE) ITA NO. 1022 /HYD/201 7 ASSESSMENT YEAR: 20 13 - 14 DY. COMMISSIONER OF INCOME - TAX, CIRCLE 1(2), HYDERABAD. VS. COVALENT LABORATORIES PVT. LTD., HYDERABAD. PAN AABCC 9544R (APP ELLANT ) (RESPONDENT ) ITA NO. 863/HYD/2017 ASSESSMENT YEAR: 20 13 - 14 COVALENT LABORATORIES PVT. LTD., HYDERABAD. PAN AABCC 9544R (APPELLANT) DY. COMMISSIONER OF INCOME - TAX, CIRCLE 1(2), HYDERABAD. (RESPONDENT) ASSESSEE BY : S HRI S. RAMA RAO REVENUE BY : S HRI YVST SAI DA TE OF HEARING : 0 8 - 0 9 - 20 20 DATE OF PRONOUNCEMENT : 11 - 0 9 - 20 20 ORDER PER D.S. SUNDER SINGH, A.M. BOTH THESE APPEALS ARE CROSS APPEALS BY THE ASSESSEE AS WELL AS REVENUE DIRECTED AGAINST THE ORDER OF LD. CIT(A) 1, HYDERABAD, DATED 06/02/2017 FOR AY 2013 - 14. 2 ITA.NO S . 1022 & 863 /HYD/201 7 COVALENT LABORATORIES PVT. LTD., HYD. . ITA NO. 1022/HYD/2017 APPEAL OF THE REVENUE 2. GROUND NOS. 1 TO 4 ARE RELATED TO THE ACTION OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE OF R&D EXPENDITURE OF RS. 1,10,48,321/ - BY ACCEPTING THE ADDITIONAL EVIDENCE IN THE FORM OF BILLS FOR CONSUMABLES SUBMITTED BY THE ASSESSEE FOR THE FIRST TIME BEFOR E THE CIT(A). BRIEF FACTS OF THE CASE ARE THAT D URING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD DEBITED IN P&L ACCOUNT R&D EXPENSES TO THE EXTENT OF RS. 1,10,48,321/ - . SINCE THE ASSESSEE FAILED TO SUBMIT THE BILLS/VOUCHERS ETC. PERTAIN ING TO THE SAID R&D EXPENSES, THE AO MADE THE ADDITION OF THE SAID AMOUNT OF RS. 1,10,48,321/ - . 2. 1 T HE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD. CIT(A) DELETED THE SAID DISALLOWANCE ON THE BASIS OF THE ADDITIONAL EVIDENCE AND THE SUBMISSION S MADE BY THE LD. AR DURING THE APPEAL HEARING BEFORE FIRST APPELLATE AUTHORITY. 3. AGAINST THE ORDER OF LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 4. BEFORE US, THE LD. DR SUBMITTED THAT THE LD. CIT(A) HAS ACCEPTED THE ADDITIONAL EVIDENCE IN THE FORM OF BILLS, VOUCHERS FOR CONSUMABLES, WHICH HAVE BEEN FIL ED FOR THE FIRST TIME BEFORE THE LD. CIT(A) . HE FURTHER SUBMITTED THAT THE SURVEY U/S 133A WAS CONDUCTED IN THE PREMISES OF THE ASSESSEE AND STATEMENTS OF THE SR. EXECUTIVES WERE RECORDED WHEREIN THEY HAD STATED THAT NO SEPARATE EXPENDITURE WAS INCURRED FOR ACQUIRI NG MATERIAL FOR R&D WORK AND THE ENTIRE RAW MATERIALS REQUIRED FO R R&D WERE PROCURED FROM THE REGULAR PURCHASE S FOR PRODUCTION. HE FURTHER SUBMITTED 3 ITA.NO S . 1022 & 863 /HYD/201 7 COVALENT LABORATORIES PVT. LTD., HYD. . THAT THE ASSESSEE HAD FAILED TO PRODUCE ORIGINAL BILLS/VOUCHERS TO SUBSTANTIATE R&D EXPENDITURE AT THE TIME OF SURVEY AS WELL AS IN THE AS SESSMENT PROCEEDINGS. THEREFORE AR GUED THAT THE LD. CIT(A) OUGHT NOT TO HAVE ADMITTED THE ADDITIONAL EVIDENCE OR AT LEAST GIVEN THE OPPORTUNITY TO THE AO AS REQUIRED U/S 46A OF IT RULES. THEREFORE, THE LD. DR REQUESTED TO SET ASIDE ORDER OF THE LD. CIT(A) AND THE ORDER OF AO BE RESTORED. 5. ON THE OTHER HAND, LD. AR OF THE ASSESSEE SUPPORTED THE ORDER OF THE LD. CIT(A). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED ON RECORD. THE LD. CIT(A) DELETED THE DISALLOWANCE MADE BY THE AO BASED ON THE ADDITIONAL EVIDENCE PRODUCE D BY THE ASSESSEE. WE FIND THAT THE ADDITIONAL EVIDENCE HAS PLACED BY THE ASSESSEE FOR THE FIRST TIME BEFORE THE LD. CIT(A) AND THE LD. CIT(A) HAS DECIDED THE ADDITION WITHOUT CALLING FOR REMAND REPORT FROM THE AO AND WITHOUT MAKING ANY VER IFICATION OF THE EXPENDITURE INDEPENDENTLY. THEREFORE, IN THE INTEREST OF JUSTICE, WE ARE OF THE VIEW THAT THE ISSUE IS TO BE REMITTED BACK TO THE FILE OF THE AO AND ACCORDINGLY, WE REMIT THE ISSUE BACK TO THE FILE OF THE AO WITH A DIRECTION TO REEXAMINE T HE ISSUE AND DECIDE THE SAME ON MERITS IN ACCORDANCE WITH LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THUS, GROUND NOS. 1 TO 4 ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 4 ITA.NO S . 1022 & 863 /HYD/201 7 COVALENT LABORATORIES PVT. LTD., HYD. . 7. GROUND NO. 5 TO 7 ARE DIRECTED AGAINST THE ACTION OF THE CIT(A) IN DELETING THE ADDITION MADE BY THE AO OF RS. 19,80,09,010/ - ON ACCOUNT OF UNDER REPORTING OF CONSIGNMENT SALES THE ASSESSEE DURIN G THE YEAR MADE THROUGH M/S ABS MERCANTILE PVT LTD( IN SHORT CONSIGNEE). 8. THE AO FOUND THAT THE ASS ESSEE HAD ACCOUNTED FOR THE SALES OF RS. 74,90,49,064/ - THROUGH M/S ABS MERCANTILE PVT. LTD. (ABS IN SHORT) WHEN THE CONFIRMATION U/S 133(6) WAS CALLED FROM THE ABS , IT WAS FOUND THAT THE SALES EFFECTED WAS RS. 94.70 CRORES AS AGAINST 74.90 REPORTED BY THE ASSESSEE. WHEN THE AO ASKED THE ASSESSEE TO EXPLAIN THE SAID DIFFERENCE, THE ASSESSEE FURNISHED THE RECONCILIATION STATEMENT REDUCING THE SALES OF RS.14,07,65 , 059/ - STATED TO BE RELATING TO M/S ADLEY FORMULATION, CHEQUES CANCELLED FOR THE AMOUNT OF RS.2,14,66,883/ - AND ALS O OPENING CONSIGNEMENT STOCK OF RS.4,99,05,220/ - . ON VERIFICATION THE AO FOUND THAT M/S ADLEY FORMULATION SALES WERE NOT REFLECTED IN THE STATEMENT OF SALES FOR THE AY 2013 - 14 AND THE AMOUNT REPRESENTING CHEQUES WERE NOT ACCOUNTED AS PER THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE AND THE OPENING BALANCE OF CONSIGNMENT STOCK WAS NOT CLARIFIED AS THE INFORMATION RECEIVED FROM THE ABS U/S 133(6 ) DOES NOT CONTAIN THE SAME. THEREFORE THE AO REJECTED THE EXPLANATION OF THE ASSESSEE AND MADE THE ADDITION OF RS. 19,80,08,010/ - . A GAINST WHICH, THE ASSESSEE WENT ON APPEAL BEFORE THE LD. CIT(A). 5 ITA.NO S . 1022 & 863 /HYD/201 7 COVALENT LABORATORIES PVT. LTD., HYD. . 8. 1 BEFORE THE LD. CIT(A), THE ASSESSEE FILED RECONCILIATION STATEMENT AND THE LD. CIT(A) DID NOT FIND ANY DIFFERENCE BETWEEN SALES REPORTED BY THE ASSESSEE AND THE ABS , THUS DELETED THE AD DITION OF CONSIGNMENT SALES DIFFERENCE OF RS. 19,80,08,010/ - , HENCE, THE DEPARTMENT IS IN APPEAL BEFORE US. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL PLACED ON RECORD. IN THE INSTANT CASE, THE AO MADE THE ADDITION OF RS. 19,80,08,010/ - ON ACCOUNT OF UNDER REPORTING OF CONSIGNMENT SALES. A S PER THE INFORMATION RECEIVED FROM THE CONSIGNEE, THE SALES WERE RS. 94.70 CRORES AS AGAIN ST THE ADMITTED SALES OF RS. 74.90 CRORES. D URING THE ASSESSMENT PROCEEDINGS, THE AO GAVE OPPORTUNITY TO THE ASSESSEE TO FILE RECONCILIATION STATEMENT AND ON PERUSAL OF THE RECONCIL IATION STATEMENT, THE AO FOUND THE DISCREPANCIES WITH REGARD TO SALES MADE TO M/S ADLEY FORMULATION , OPENING STOCK OF CONSIGNMENT AND THE CANCELLATION OF CHEQUES ETC. THE LD. CIT(A) MERELY RELIED ON THE RECONCILIATION STATEMENT WITHOUT VERIF YING THE SAME WITH THE BOOKS OF ACCOUNT REPRES ENTING THE CHEQUES CANCELLED . THE LD. DR CONTENDED THAT THE OPENING BALANCE CLAIMED BY THE ASSESSEE WAS NOT REPORTED BY THE ABS IN ITS REPLY AND WITH REGARD TO THE CANCELLATION OF CHEQUES AND THE STOCKS SOLD WERE REQUIRED TO BE VERIFIED. SIMILARLY WITH REGARD TO THE SALES OF M/S ADLEY FORMULATION THE AO FOUND THAT HE SAME WAS NOT REFLECTED 6 ITA.NO S . 1022 & 863 /HYD/201 7 COVALENT LABORATORIES PVT. LTD., HYD. . SEPARATELY IN THE STATEMENT OF SALES FOR THE A.Y2013 - 14. THE LD. CIT(A) DELETED THE ADDITION WITHOUT CALLING THE REMAND REPORT OF THE AO . THEREFORE, THE ISSUE NEEDS TO BE VERIFIED WITH THE BOOKS OF ACCOUNT AND IF NECESSARY C ROSS VERIFICATION TO BE MADE WITH ABS TO RECONCILE THE SALES. THEREFORE, BOTH THE PARTIES HAVE AGREED TO REMIT THE MATTER BACK TO THE FILE OF THE AO FOR FURTHER VERIFICATION AND RECONCILIATION. HENCE, IN THE INTEREST OF JUSTICE, WE REMIT THIS MATTER BACK TO THE FILE OF AO WITH A DIRECTION TO RE EXAMINE THE ISSUE AND DECIDE THE SAME AFRESH AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GROUND NO. 5 IS TREATED AS ALLOWE D FOR STATISTICAL PURPOSES. 10. GROUND NOS. 8 & 9 ARE DIRECTED AGAINST THE ACTION OF THE CIT(A) IN DELETING THE ADDITION OF RS. 5,06,343/ - MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF EXPENDITURE U/S 14A OF THE ACT. 11. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. THERE WAS NO DISPUTE THAT IN THE IMPUGNED AY, THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME. W HEN THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME AND THERE CAN BE NO D ISALLOWANCE UNDER SECTION 14A OF THE ACT. THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD., REPORTED IN (2015) 378 ITR 33 (DEL.) HAS HELD THAT SECTION 14A WILL NOT APPLY WHERE NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT ASSESS MENT YEAR . SIMILAR VIEW IS TAKEN BY THIS TRIBUNAL IN THE CASE OF PRATHISTA INDUSTRIES LTD., SECUNDERABAD IN ITA NO. 1302/HYD/2015 7 ITA.NO S . 1022 & 863 /HYD/201 7 COVALENT LABORATORIES PVT. LTD., HYD. . DATED 29/04/2016. RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THE COORDINATE BENCH OF ITAT, WE HOLD THAT NO DISALLOWANCE IS CALL ED FOR U/S 14A. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DISMISS THE GROUND RAISED BY THE REVENUE ON THIS ISSUE. 12. GROUND NOS. 10 TO 12 ARE DIRECTED AGAINST THE ACTION OF CIT(A) IN DELETING THE ADDITION OF RS. 1,35,65,645/ - MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENDITURE ATTRIBUTABLE INTEREST FREE ADVANCES MADE BY THE ASSESSEE TO THE GROUP CONCERNS I.E. SVS REMEDIES LTD. 13. THE CONTENTION OF THE REVENUE IS THAT THE ASSESSEE HAS ADVANCED INTEREST FREE FUND S TO SVS REMEDIES LTD. OUT OF INTEREST BEARING BORROWED FUNDS, HENCE, THE DISALLOWANCE NEEDS TO BE MADE U/S 36(1)(III) OF THE ACT. 14. THE CONTENTION OF THE LD. AR IS THAT THE ASSESSEE IS HAVING INTEREST FREE FUNDS, OUT OF WHICH, THE ASSESSEE HAS ADVANC ED THE SUMS AND THEREFORE, NO DISALLOWANCE IS CALLED FOR. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. N O INFORMATION WAS PLACED BEFORE US TO SUBSTANTIATE, WHETHER THE ASSESSEE HAS ADVANCED INTEREST FREE FUNDS OR INTEREST BEARING BORROWED FUNDS TO IT S GROUP CONCERN S . HENCE , THIS ISSUE ALSO NEEDS VERIFICATION AT THE END OF THE AO WITH REG ARD TO THE AVAILABILITY OF INTEREST FREE FUNDS AND BOTH THE 8 ITA.NO S . 1022 & 863 /HYD/201 7 COVALENT LABORATORIES PVT. LTD., HYD. . COUNSELS HAVE AGREED TO R EMIT THE MATTER BACK TO THE FIE OF THE AO TO VERIFY THE FACTS . ACCORDINGLY THE ISSUE IS REMITTED BACK TO THE FILE OF THE AO WITH A DIRECTION TO EXAMINE WHETHER THE ASSESSEE HAS MADE ADVANCES OUT OF INTEREST FREE FUNDS OR INTEREST BEARING FUNDS AND DECIDE THE ISSUE AFRESH ON MERITS AFTER GIVING OPPORTUNITY TO THE ASSESSEE . THE GROUNDS RAISE D ON THIS ISSUE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 16. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 863/HYD/2017 BY THE ASSESSEE 17. THE ASSESSEE HAS RAISED 6 GROUNDS IN ITS APPEAL, OUT OF WHICH GROUND NOS. 1 & 6 ARE GE NERAL IN NATURE, WHICH NEED NO ADJUDICATION. 18. GROUND NO. 2 IS RELATED TO THE ADDITION OF RS. 18,55,71,506/ - ON ACCOUNT OF DIFFERENCE OF AMOUNT BETWEEN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND THE BOOKS OF ABS MERCANTILE (P) LTD. GROUND NO. 3 IS RELATED TO SUSTAINING THE ADDITION OF RS. 97,94,743/ - MADE BY THE AO WITH REGARD TO EXCESS CLAIM OF PURCHASES. 19. THE AO MADE THE ADDITION OF RS. 18,55,71,506/ - AFTER CALLING FOR INFORMATION U/S 133(6) FORM M/S ABS MERCANTILE PVT. LTD. WHEREIN THE ABS CO NFIRMED PAYABLES AT RS. 4,70,80,629/ - AS AGAINST RS. 23,26,52,135/ - REPORTED BY THE ASSESSEE IN THE BALANCE SHEET. ON CALLING FOR EXPLANATION , THE ASSESSEE SUBMITTED THE A CCOUNT COPY OF ABS IN THE BOOKS OF THE ASSESSEE AND MADE CERTAIN ADJUSTMENT TO 9 ITA.NO S . 1022 & 863 /HYD/201 7 COVALENT LABORATORIES PVT. LTD., HYD. . TALLY THE BALANCE IN THE BOOKS OF THE ASSESSEE WITH THAT OF ABS. HOWEVER NO MATERIAL WAS PLACED BY THE ASSESSEE TO SUPPORT THE ADJUSTMENTS. THEREFORE THE AO MADE THE ADDITION OF RS.18,55,71,506/ - IN HANDS OF THE ASSESSEE. 19.1 B EFORE THE LD. CIT(A), ASSESSEE FILED PAPER BOOK WITH ACCOUNT COPIES OF THE ASSESSEE IN THE BOOKS OF M/S ABS MERCANTILE PVT. LTD. I N PAGE NOS. 222 TO 233 OF THE PAPER BOOK, WHEREIN, CERTAIN ADJUSTMENTS WERE MADE ON 31/03/2013 WITH REGARD TO CLOSING STOCK AND DEBTORS AGAINST CONSIGNMENT SALES IN THE BOOKS OF M/S ABS MERCANTILE PVT. LTD. THE LD. CIT(A) . N OT BEING CONVINCED WITH THE EXPLANATION OF THE ASSESSEE, THE LD. CIT(A) SUSTAINED THE ADDITION MADE BY THE AO . 2 0. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, THE AO COLLECTED INFORMATION U/S 133(6) OF THE ACT AND AS PER THE INFORMATION RECEIVED BY THE AO, THE OUTSTANDING SHOWN BY THE ABS MERCANTILE PVT. LTD. WAS RS. 4,70,80,629/ - WHEREAS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE, IT WAS SHOWN AT RS. 23,26,52,135/ - . THUS, THERE WAS A DIFFERENCE OF RS. 18,55,71,506/ - . THOUGH, THE ASSESSEE FILE D ACCOUNT COPY OF THE ASSESSEE IN THE BOOK S OF M/S ABS MERCANTILE PVT. LTD., THE ASSESSEE HAS N OT FURNISHED THE SUPPORTING EVIDENCES BEFORE THE LOWER AUTHORITIES. SINCE THE ENTRIES ARE MADE IN THE BOOKS OF ACCOUNTS THE CL A IM OF THE A SSESSEE CANNOT BE BRUSHED ASIDE MERELY BECAUSE THE ASSESSEE HAS N OT SUBMITTED THE SUPPORTING DOCUMENTS. IN THIS CASE THE ASSESSEE IS MAINTAINING THE 10 ITA.NO S . 1022 & 863 /HYD/201 7 COVALENT LABORATORIES PVT. LTD., HYD. . REGULAR BOOKS OF ACCOUNTS WHICH WERE PRODUCED BEFORE THE AO. THE ASSESSEE ALSO DUTY BOUND TO EXPLAIN THE DISCREPANCIES WITH THE BOOKS OF ACCOUNTS AND THE SUPPORTING DOCUMEN TS . THE CORRECTNESS OF THE ENTRIES MADE IN THE ABS AND THE RECONCILIATION SUBMITTED BY THE ASSESSEE NEEDS VERIFICATION. IT APPEARS TO US THAT THERE WERE SOME ISSUES WHICH NEED TO BE VERIFIED RELATING TO THE ACCOUNTS OF ABS. AS DISCUSSED IN PARAS 8 TO 10 O F THIS ORDER, THE AO MADE THE ADDITION OF RS. 19.80 CRORES DUE TO UNDER REPORTING OF SALES IN RESPECT OF ABS. WE ARE OF THE OPINION THAT THE ACCOUNT OF ABS NEEDS TO BE VERIFIED IN DETAIL TO ASCERTAIN THE FACTUAL POSITION. THEREFORE WE REM IT TH E MATTER BA CK TO THE FILE OF AO WITH A DIRECTION TO CAUSE NECESSARY ENQUIRIES WITH M/S ABS MERCANTILE PVT LTD AND DECIDE THE ISSUE AFRESH ON MERITS. NEEDLESS TO SAY THAT OPPORTUNITY SHOULD BE GIVEN TO THE ASSESSEE. 21. THE ISSUE IN GROUND NO. 3 IS WITH REGARD TO T HE DIFFERENCES IN PURCHASES DEBITED TO THE PROFIT AND LOSS ACCOUNT AND THE INFORMATION RECEIVED FROM THE VENDORS. THE DIFFERENCE IS AS UNDER: VENDOR NAME PURCHASES DEBITED TO PROFIT & LOSS ACCOUNT (RS) SALES MADE TO YOU BY VE NDOR (AS PER 133(6) (RS.) EXCESS DEBIT (RS. 1. G. AMPHRAY LABS 6,76,20,369 6,48,48,309 27,72,060 2. SI GROUP NAVI MUMBAI 5,74,77,748 5,04,55,065 70,22,683 11 ITA.NO S . 1022 & 863 /HYD/201 7 COVALENT LABORATORIES PVT. LTD., HYD. . AS FOUND FROM THE ASSESSMENT OR DER, THE ASSESSEE FAILED TO RECONCILE THE DISCREPANCIES IN PURCHASES WITH REFERENCE TO G. AMPHRAY LABS AND SI GROUP NAVI MUMBAI, INSP ITE OF GIVING SHOW CAUSE NOTICE AND GIVING OPPORTUNITIES HENCE THE AO MADE THE ADDITION OF RS.97,94,743/ - . 21 . 1 ON AN APPE AL BEFORE THE CIT(A ), THE ASSESSEE FILED RECONCILLIATION STATEMENT. HOWEVER, LD CIT(A) NOT BEING SATISFIED WITH THE EXPLANATION DISMISSED THE GROUND OF APPEAL OF THE ASSESSEE. 22. THE LD. AR SUBMITTED BEFORE US THAT THERE WAS NO DIFFERENCE IN PURCHASES AND, THUS, THE ADDITION OF RS. 97.94 LAKHS IS UNWARRANTED. THE LD.AR FURTHER SUBMITTED THAT THE DIFFERENCES WE R E DUE TO NON - C ONSIDERATION OF RETURNED GOODS, CREDIT NOTES AND THE CHE QUES RETURNED. THE LD. AR STATED THAT THOUGH HE HAS SUBMITTED THE INFORMATION BEFORE THE LOWER AUTHORITIES THE SAME WAS NOT CONSIDERED AND IF THE OPPORTUNITY IS GIVEN THE ASSESSEE WOULD BE ABLE TO ESTABLISH THE CORRECTNESS OF THE PURCHASES DEBITED TO THE P &L ACCOUNT. HE FURTHER SUBMITTED THAT ALL THE PAYMENTS WERE MADE THROUGH BANKING CHANNELS. HE, THEREFORE, REQUESTED TO REMIT THE MATTER BACK TO THE FILE OF THE AO, FOR WHICH LD. DR DID NOT EXPRESS ANY OBJECTION. 23. WE HAVE CAREFULLY CONSIDERED THE SUBMIS SION OF THE ASSESSEE AND FIND MERIT IN THE ARGUMENT OF THE LD.AR. IN THIS REGARD THERE IS NO DISPUTE THAT THE ASSESSEE FILED RECONCILIATION STATEMENT BEFORE THE LD. CIT(A) AND THE LD. CIT(A) REJECTED THE ASSESSEES CLAIM FOR WANT OF 12 ITA.NO S . 1022 & 863 /HYD/201 7 COVALENT LABORATORIES PVT. LTD., HYD. . CROSS VERIFICATIONS. TH E LD. CIT(A) OUGHT HAVE VERIFIED THE INFORMATION OR SHOULD HAVE CALLED FOR THE REM A ND REPORT FROM THE AO. IT IS UNJUSTIFIED TO REJECT THE CLAIM WITHOUT MAKING PROPER VERIFICATION. THEREFORE WE, REMIT THE ISSUE BACK TO THE FILE OF THE AO WITH A DIRECTION MAKE NECESSARY VERIFICATIONS AND CROSS VERIFICATIONS AND DECIDE THE ISSUE AFRESH ON MERITS AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THUS, GROUND NOS. 2 & 3 ARE TREATED AS ALLOWED FO R STATISTICAL PURPOSES. 24 . GROUND NO. 4 IS RELATED TO DISALLOWANCE OF COMMISSION EXPENSES OF RS. 1,75,06,656/ - PAID TO M/S FEROZ TEJARAT CO. 2 5 . THE AO DURING THE SURVEY PROCEEDINGS, FOUND THAT THE COMPANY HAD PAID HUGE COMMISSION TO ONE MR. FEROZ TEJAR ATH , WHO IS BASED AT OVERSEAS FOR AY 2012 - 13 TO AY 2015 - 16. IT WAS FURTHER NOTICED THAT THE COMPLETE AMOUNT OF COMMISSION CLAIMED ON THIS ACCOUNT, FOR ALL THESE YEARS WAS SHOWN AS PAYABLE ON THE DATE OF SURVEY. WHEN THE ASSESSEE WAS ASKED TO PROVIDE DOCU MENTARY EVIDENCE IN SUPPORT OF THE GENUINENESS OF THE COMMISSION EXPENSES CLAIMED, THE ASSESSEE FAILED TO PROVIDE THE RELEVANT DOCUMENTARY EVIDENCE DESPITE SUFFICIENT OPPORTUNITIES WERE GIVEN . THE AO, THEREFORE, DISALLOWANCE SAID AMOUNT OF RS. 1,75,06,656/ - , WHICH WAS CONFIRMED BY THE CIT(A). AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 2 6 . WE HAVE HEARD THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD . BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED THAT FEROZ TEJARATH IS THE SALES AGENT TO BOOK ORDERS FROM ALBORZ BULK 13 ITA.NO S . 1022 & 863 /HYD/201 7 COVALENT LABORATORIES PVT. LTD., HYD. . PHARMA CO. T HE A SSESSEE FIXES THE SALE PRICE AND THE SAID COMMISSION AGENT ADDS HIS COMMISSION TO THE SAID SALE PRICE AS AGREED BETWEEN BOTH OF THEM. THE ASSESSEE STATED TO HAVE BEEN PLACED THE FOLLOWING EVIDENCES BEFORE THE LD. CIT(A): INVOICE COPY OF M / S. ALBORZ BULK PHARMA CO., IRAN, UNIT 3,4, NO.13, MIRZA HASANI ALLEY, GHAEMMAGHAM FARAHANI ST, TEHRAN, IRAN IN INVOICE NO.EXP /1 14 / 2012 - 13, DATED 12.07.2012 FOR 200KGS OF HDPE DRUMS CEFIXIME @ 160 USD TOTALING AMOUNT OF 3,20,000 USD. INVOICE COPY OF M / S. OPSONIN PHARM A LTD., BAGURA ROAD, BARISAL, BANGLADESH IN INVOICE NO.EXPJ120J2012 - 13, DATED 30.07.2012 FOR 300 KGS OF HDPE DRUMS CEFIXIME TRIHYDRATE MICRONIZED USP @136 TOTALING AMOUNT OF 40,800 USD. THE LD. AR ARGUED THAT TH OUGH PAYMENTS WERE MADE SUBSEQUENT TO THE D ATE AFTER THE SALE , M ERELY BECAUSE THE PAYMENT WAS SUBSEQUENT TO THE SALE, DOES NOT PERMIT THE AO TO MAKE ADDITION. LD. AR FURTHER SUBMITTED THAT BOTH THE LOWER AUTHORITIES FAILED TO APPRECIATE THE EVIDENCES PLACED BEFORE THEM AND REQUESTED FOR ONE MORE OP PORTUNITY TO SUBSTANTIATE ITS CLAIM BEFORE THE LOWER AUTHORITIES. HE FURTHER SUBMITTED THAT THE ASSESSEE WILL EXTEND ALL COOPERATION AND ASSIST THE AO IN COMPLETION OF THE ASSESSMENT. HE, THEREFORE, REQUESTED TO REMIT THE MATTE BACK TO THE FILE OF THE AO FOR RECONSIDERATION AND REEXAMINATION OF THE ISSUE. THE LD. DR DID NOT OBJECT FOR REMITTING THE MATTER BACK TO THE FILE OF THE AO. 2 7 . C ONSIDERING THE SUBMISSIONS MADE BY THE LD. AR AND THE FACT THAT THE EVIDENCES WERE PLACED BY THE ASSESSEE BEFORE THE LD. CIT(A) FOR THE FIRST TIME, WE ARE INCLINED TO REMIT THIS ISSUE BACK TO THE FILE OF THE AO WITH A DIRECTION TO EXAMINE THE CORRECTNESS AND GENUINENESS 14 ITA.NO S . 1022 & 863 /HYD/201 7 COVALENT LABORATORIES PVT. LTD., HYD. . OF THE EXPE NDITURE WITH THE EVIDENCES PRODUCED BY THE ASSESSEE AND DECIDE THE ISSUE AFRESH ON MERITS AND AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 2 8 . GROUND NO.5 IS REGARDIN G LEVY OF INTEREST U/S 234B AND 234C OF THE ACT. CHARGING INTEREST UNDER THESE SECTIONS IS CONSEQUENTIAL IN NATURE, THE AO IS DIRECTED ACCORDINGLY. 2 9 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 30 . TO SUM UP, APPEAL OF TH E REVENUE IN ITA NO. 1022/HYD/2017 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE ASSESSEE IN ITA NO. 863/HYD/2017 IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 1 1 TH SEPTEMBER , 20 20 . SD/ - SD/ - ( P. MADHAVI DEVI ) (D.S. SUNDER SINGH) JUDICIAL MEMEBR ACCOUNTANT MEMBER HYDERABAD, DATED: 11 TH SEPTEMBER, 2020 . KV 1) COVALENT LABORATORIES PVT. LTD., H.NO. 8 - 3 - 677/18, 2 ND FLOOR, SKD NAGAR, YELLAREDDYGUDA, HYDERABAD 500 0 73 2) DCIT, CIRCLE 1 ( 2 ), IT TOWERS, AC GUARDS, HYDERABAD . 3) CIT(A) - 1 , HYDERABAD 4) PR. CIT - 1 HYDERABAD. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. 6) GUARD FILE.