ACIT, CHENNAI V. M/s. Medopharm, CHENNAI

ITA 94/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64670 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-12-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 13-12-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 20-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R B NAIK
• Assessee Lawyers: D ANAND
• Keywords: Business income; Principle of natural justice
• Section: 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI [BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER] I.T.A.NO.94/MDS/2011 ASSESSMENT YEAR : 2007-08 THE ACIT CIRCLE-IV CHENNAI VS M/S MEDOPHARM NO.25, PULIYUR 2 ND MAIN ROAD, TRUSTPURAM KODAMBAKKAM CHENNAI 600 024 [PAN AAAFM 4227H] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.B.NAIK, CIT/DR RESPONDENT BY : SHRI D. ANAND, ADVOCATE DATE OF HEARING : 13/12/2012 DATE OF PRONOUNCEMENT : 17/12/2012 O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVE NUE AGAINST THE ORDER OF THE CIT(A)-VIII, CHENNAI, DATED 29.10.2010, FOR ASS ESSMENT YEAR 2007-08. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS O F APPEAL: 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (AP PEALS) IS OPPOSED TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LD. CIT(A) ERRED IN .DELETING THE ADDITI ON MADE BY THE ASSESSING OFFICER ON ACCOUNT OF AMOUNTS RECEIVED BY THE ASSESSEE FROM M/S TROGE MEDICAL PRIVATE LIMITED. I.T.A.NO. 94/2011 :- 2 -: 2.1 THE LD. CIT(A) FAILED TO APPRECIATE THAT THE AS SESSEE DID NOT OFFER ANY EXPLANATION FOR NOT INCLUDING THE AMOUNTS RECEIVED FROM M/S TROGE MEDICAL PRIVATE LIMITED, DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 3. THE LD. CIT(A) ERRED IN DELETING THE ADDITION MA DE BY THE ASSESSING OFFICER ON ACCOUNT OF AMOUNTS RECEIVED BY THE ASSESSEE FROM M/S GLENMARK PHARMACEUTICALS LIMITED AND M/S CIPLA LIMITED. 3.1 THE LD. CIT(A) FAILED TO APPRECIATE THAT THE AS SESSEE TOOK CONTRADICTORY STANDS REGARDING THE ACCOUNTAL OF THE SE AMOUNTS, DURING ASSESSMENT PROCEEDINGS AND LATER DURING APPE AL PROCEEDINGS. 4. THE LD. CIT(A) ERRED IN GIVING RELIEF TO THE ASS ESSEE ON THE ABOVE TWO ISSUES RELYING UPON ASSESSEE'S WRITTEN SU BMISSIONS, DOCUMENTARY EVIDENCES AND CONFIRMATION LETTERS FILE D FOR THE FIRST TIME. 4.1. THE LD. CIT(A) .FAILED TO NOTE THAT NO EVID ENCE WAS PRODUCED BEFORE THE ASSESSING OFFICER IN SPITE OF A DEQUATE OPPORTUNITY. 4.2. THE LD. CIT(A) ERRED IN CONSIDERING THE FRESH EVIDENCES WITHOUT ACCORDING OPPORTUNITY TO THE ASSESSING OFF ICER AND WITHOUT CALLING FOR A REMAND REPORT. 4.3. THE LD. CIT(A) FAILED TO NOTE THAT PRODUCTION OF OPPORTUNITY TO THE ASSESSING OFFICER IS A CONDITION PRECEDENT B EFORE TAKING INTO ACCOUNT ANY FRESH EVIDENCE AS PER RULE 46A( 3) OF THE INCOME TAX RULE, 1962. 4.4. THE LD. CIT(A) HAS FAILED TO COMPLY WITH THE R NANDATORY REQUIREMENTS OF LAW AND THE ACT OF THE CIT(A) IS AG AINST THE PRINCIPLES OF NATURAL JUSTICE. 5. THE LD. L T(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO GIVE CREDIT FOR THE ENTIRE TAX DEDUCTED AT SOURCE WHEN T HE ASSESSEE ITSELF ADMITTED THAT CERTAIN PORTION OF CORRESPONDI NG INCOME WAS NOT INCLUDED IN ITS PROFIT AND LOSS ACCOUNT BUT ONL Y IN THE PROFIT AND LOSS ACCOUNT OF ITS SISTER CONCERN. I.T.A.NO. 94/2011 :- 3 -: 6. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCE D AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER FO THE COMMISSIONER OF INCOME TAX(APPEALS) MAY BE SET ASIDE AND THAT OF ASSESSING OFFICER RESTORED. 3. GROUND NO.2 OF THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE CIT(A) IN RESTRICTING THE ADDITION TO ` 1,42,273/- IN PLACE OF ` 50,60,120/- MADE BY THE ASSESSING OFFICER ON ACCOUN T OF AMOUNTS RECEIVED BY THE ASSESSEE M/S TROGE MEDICAL PVT. LTD.. 4. GROUND NO.3 OF THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE CIT(A) IN DELETING THE ADDITION MADE BY THE ASSESSI NG OFFICER OF ` 5,75,65,264/- ON ACCOUNT OF AMOUNT RECEIVED BY THE ASSESSEE FROM M/S GLENMARK PHARMACEUTICALS LTD. AND M/S CIPLA LTD . 5. GROUND NO.4 OF THE APPEAL IS DIRECTED AGAINST THE O RDER OF THE CIT(A) IN VIOLATING THE PROVISIONS OF RULE 46A(3) O F THE INCOME TAX RULES, 1962. 6. GROUND NO.5 OF THE APPEAL IS DIRECTED AGAINST THE O RDER OF THE CIT(A) IN DIRECTING THE ASSESSING OFFICER TO KEEP C REDIT FOR THE ENTIRE TAX DEDUCTED AT SOURCE WHEN THE ASSESSEE ITSELF AD MITTED THAT A CERTAIN PORTION OF THE CORRESPONDING INCOME WAS NOT INCLUDED IN ITS PROFIT & LOSS ACCOUNT BUT INCLUDED IN THE PROFIT & LOSS ACCOUNT OF ITS SISTER CONCERN VIZ. M/S MEDOPHARM PVT. LTD. I.T.A.NO. 94/2011 :- 4 -: 7. SINCE THE ISSUES INVOLVED IN THE ABOVE GROUNDS OF A PPEAL OF THE REVENUE ARE INTERCONNECTED AND FACTS ARE COMMON, TH EY ARE BEING DISPOSED OF TOGETHER AS UNDER: 8. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER MADE AN ADDITION OF ` 50,60,120/- ON THE GROUND THAT THE SAID RECEIPT WA S A CONTRACT RECEIPT FROM M/S TROGE MEDICAL PVT. LTD. A S PER THE TDS CERTIFICATE FILED, BEING INCOME NOT IN THE PROFIT & LOSS ACCOUNT AND THEREFORE, NOT OFFERED TO TAX. 9. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED AS UNDER : 6.1 THE APPELLANT BY ITS WRITTEN SUBMISSIONS DAT ED 16.03.2010 HAS CLARIFIED THE ABOVE ISSUE AS UNDER: 'THE ASSESSEE FIRM HAD DONE JOB WORK FOR TROGE MEDI CAL PVT. LTD. DURING THE ACCOUNTING PERIOD END. RECEIVED A TOTAL AMOUNT OF RS.50.60 LAKHS FROM THAT COMPANY. THE JOB WORK INVOLVED PURCHASE OF RAW MATERIALS TO THE EXTENT OF RS.42.87 ON BEHALF OF THAT COMPANY WHICH WAS CONVERTED INTO FINISHED PRODUCTS BY THE ASSESSEE. AN AMOUNT OF RS.6.48 LAKH S WAS RECEIVED BY THE ASSESSEE FIRM TOWARDS PROCESSING CH ARGES WHICH WAS DULY RECORDED IN THE BOOKS OF ACCOUNT. EN TRIES WERE ALSO PASSED TO SET OFF THE EXPENDITURE OF RS. 42.87 LAKHS FOR PURCHASE OF RAW MATERIALS AGAINST THE REC EIPTS OF RS.50.60 LAKHS FROM TROGE MEDICAL PVT. LTD. THE ASS ESSING OFFICER HAS ERRONEOUSLY CONCLUDED THAT THE ASSESSEE HAS NOT DISCLOSED THE RECEIPT OF RS.50.60 LAKHS ONLY ON THE BASIS OF TDS CERTIFICATE ISSUED BY THE COMPANY. THE RECEI PTS OF RS.50.60 LAKHS HAVE BEEN RECORDED IN THE BOOKS ON V ARIOUS DATES AS PER ANNEXURE I(1). THE EXPENSES OF RS.42.87 INCURRED ON PURCHASES MADE FOR THE JOB WORK ARE REC ORDED ON VARIOUS DATES AS PER ANNEXURE 1(1). THE BALANCE OF PROCESSING CHARGES AMOUNTING TO RS.6,48,362/- LAKHS S HAVE BEEN RECORDED IN THE BOOKS AS PER ANNEXURE 1(1). IT IS THEREFORE VERY CLEAR THAT THE ASSESSEE FIRM HAS DUL Y RECORDED THE RECEIPTS OF RS. 50. 60 LAKHS IN THE BOOKS OF ACCOUNT. THE ADDITION MADE BY THE ASSESSING OFFICER MAY THEREFORE BE KINDLY DELETED. I.T.A.NO. 94/2011 :- 5 -: 10. THE CIT(A), AFTER CONSIDERING THE ABOVE SUBMISSIONS OF THE ASSESSEE, RESTRICTED THE DISALLOWANCE TO ` 1,42,273/- BY OBSERVING AS UNDER: 6.2 THE APPELLANT'S ABOVE CONTENTION HAS BEEN EXAM INED. IT IS NOT AN ACCEPTABLE FACT THAT AS CONCLUDED BY THE ASSESSING OFFICER, THAT THE GROSS RECEIPTS OF RS.50,60,120/- NOT DISCLOSED FOR TAXATION ON THE BASIS OF TDS CERTI F ICATES. THE APPELLANT HAD CLEARLY STATED THAT IT HAD DONE JOB W ORK AND THE PROFIT ELEMENT OF RS.6 . 48 LAKHS WAS ALSO ACC O UNTED FOR IN THE BOOKS OF ACCOUNTS IN RESPECT OF M/S. TROGE MEDICAL PVT . LTD. FOR THE JOB WORK UNDERTAKEN TO THEM AND NOT OF RS. 50,60,120/- AS HELD BY THE LEARNED AO VIDE HIS ASS ESSMENT ORDER IN PARA NO.2 OF PAGE NO.2. THE APPELLANT FIR M HAD A SUM OF RS. 72,64,881/- AS GROSS CONVERSION CHARGES FOR PAYMENT BUT IN THE PROFIT AND LOSS ACCOUNT ONLY RS. 66,16,519/- HAS BEEN DEBITED AS AGAINST GROSS CONVE RSION CHARGES SUPPOSED TO PAY OF RS. 72,64,881/- AFTER MI NUSING THE JOB WORK RECEIPT OF RS. 6,48,362/- RECEIVED FRO M M/S. TROGE MEDICAL PVT. LTD. THE BREAK UP IS AS UNDER: - SL. NO. NAME AMOUNT 1. AMANATH PHARMACEUTICALS 287837 2. ACE PHARMACEUTICALS 390237 3. BAYSHORE PLASTICS PRIVATE LIMITED 798490 4. CAPLIN POINT LABORATORIES LIMITED 2357 5. CENTRAL DRUGS & PHARMACEUTICALS 20172 6. DANMED PHARMACEUTICALS 3809423 I.T.A.NO. 94/2011 :- 6 -: LIMITED 7. HINDUSTAN LATEX LIMITED 206425 8. INDO FRENCH LABORATORIES LIMITED 38727 9. MMC HEALTH CARE 517095 10. RAYMOND PHARMACEUTICALS PRIVATE LIMITED 590264 11. SANPLAST 493959 12. TRISTAR FORMULATIONS PVT. LTD. 109894 7264881 LESS: RECEIVED FROM TROGE INDIA PVT. LTD 6,48,362 66,16,519 FROM THE ABOVE IT IS UNDERSTANDABLE THAT THE FIRM H AS PAID A SUM OF RS. 66,16,519/- AS CONVERSION CHARGES TO VAR IOUS PARTIES WHEREAS IT HAS ALSO RECEIVED A SUM OF RS. 6 ,48,362/- AS CONVERSION CHARGES RECEIVED FROM M/S. TROGE MEDI CAL PVT. LTD. AND NOT OF RS. 50,60,120/- AS HELD BY THE LEANED ASSESSING OFFICER. 6.3 HOWEVER, THE APPELLANT HAS NOT DEBITED THE EXPE NDITURE OF RS. 42,87LAKHS IN THE PROFIT AND LOSS ACCOUNT BU T ONLY DEBITED THE PROFIT OF RS. 6,48,362/- IN THE PROFIT ARID LOSS ACCOUNT UNDER THE HEAD OF MATERIALS PURCHASED FOR T HE JOB WORK TO M/S. TROGE MEDICAL PVT. LTD. AND THEREBY RE DUCED THE CONVERSION CHARGES SUPPOSED TO BE PAID OF RS. 72,64,881/- TO RS. 66,16,519/- AND THEREFORE THE AO HAS GIVEN THE CONCLUSION THAT WHOLE SUM OF RS. 50,60,12 0/- WAS NOT OFFERED FOR TAXATION IS NOT FOUND TO BE IN ORDE R. I.T.A.NO. 94/2011 :- 7 -: 6 . 4 BUT, THE RECONCILIATION GIVEN BY THE APPELLANT IS SHORT OF RS. 1,24,273/- FOR WHICH THE APPELLANT HAS GIVEN TH E EXPLANATION THAT THE AMOUNT IS STILL OUTSTANDING FR OM THE CUSTOMER M/S. TROGE MEDICAL PVT . LTD. BUT THIS EXPLANATION IS NOT ACCEPTABLE AS THE APPELLANT IS FOLLOWING MERCAN TILE BASIS OF ACCOUNT AND THIS AMOUNT OF OUTSTANDING IS NOT AN EX CUSE TO OFFER AS INCOME ACCORDING L Y A SUM OF RS. 1,24,273/- IS TREATED AS PROFIT FROM THE JOB WORK AND I T IS CONFIRMED ALONG WITH PROFIT OFFERED BY THE APPELLANT OF RS. 648,362/-. HOWEVER, RS. 6,48,362/- HAS ALREADY BEEN CONSIDERED BY THE APPE LL ANT. ONLY A SUM OF RS. 1,24,273/- I S CONSIDERED NOW. MOREOVER IN THE ANNEXURE-1(1) FILED BY THE APPELLAN T (FORMING PART OF THE APPELLATE ORDER IT IS SEEN TH AT AN ADVANCE OF RS : 18,000/- WAS RECEIVED BY THE APPELLANT WHICH HAS TO BE INCLUDED ALONG WITH THE TOTAL RECEI PT OF RS. 50,60,120/- THEREBY THE TOTAL RECEIPTS COMES TO RS. 50,78,120/-. TOTAL RECEIPT : RS. 50,78,120 LESS: EXPENSES RS 42,87,845 RS 7,90,635 LESS: PROFIT OFFERED RS 6,48,362 PROFIT NOT OFFERED RS 1,42,273 6.5 IN VIEW OF THE ABOVE I AM OF THE OPINION THAT THE SHORTAGE OF RS. 1,24,273/- TOWARDS OUTSTANDING FROM THE CUSTOMER M/S. TROGE INDIA PVT . LTD. AND RS. 18,000/- TOWARDS ADVANCE WHICH HAVE NOT BEEN TAKEN INTO ACCO UNT, TOTALING RS. 1,42,273/- IS TREATED AS PROFIT FROM CONVERSION CHARGES RECEIVED FROM M/S. TROGE MEDICAL PVT. LTD. AND IS CONFIRMED AND THE APPELLANT GETS RELIEF OF ` 49,17,847/-. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 11. THE ASSESSING OFFICER FURTHER MADE AN ADDITION OF ` 5,75,65,264/- ON THE GROUND THAT THE COMMISSION AND CONTRACT PAYMENTS AS PER THE TDS CERTIFICATES WERE NOT ACCOU NTED FOR AS INCOME IN THE HANDS OF THE ASSESSEE. 12. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED AS UNDER : I.T.A.NO. 94/2011 :- 8 -: 7.1 DURING THE COURSE OF APPEAL PROCEEDINGS, THE APPELLANT BY ITS WRITTEN SUBMISSION DATED 04.08.2 010 HAS CLARIFIED THE ABOVE ISSUE AS UNDER: THE ABOVE ADDITION HAS ALSO BEEN MADE BY THE LEARNE D ASSESSING OFFICER WITHOUT MAKING ANY ENQUIRIES AND VERIFYING THE FACT GIVEN BY THE ASSESSEE FIRM AND O N THE SURMISE THAT THEY ARE CONTRACT RECEIPTS, BUT FACTUA LLY THEY ARE NOT CONTRACT RECEIPTS AND IT CANNOT BE TERMED A S 'CONTRACT OF WORK' ALSO. 13. THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE, HAS DELETED THE ADDITION BY OBSERVING AS UNDER: 7.2 NO DOUBT THE APPELLANT HAD SOLD THE GOODS TO TWO CONCERNS, VIZ. M/S GLENMARK PHARMACEUTICALS LTD., A ND M/S CIPLA LTD. TO THE EXTENT OF ` 53,92,900/ - AND RS.294,74,914/- RESPECTIVELY. THESE SALES HAVE BEEN DULY RECORDED IN THE BOOKS OF ACCOUNT. THE BREAK UP DETA I LS FOR ADMISSION OF ENTIRE SALES OF RS. 5,75.65,264/- IN T HE FIRM & COMPANY ARE ENCLOSED AS ANNEXURE TO THIS SUBMISSION . THE STAND TAKEN BY THE ASSESSING OFFICER THAT THE S AID RECEIPTS PERTAINING TO THE 'WORKS CONTRACT' IS NOT ACCEPTABLE FOR THE MAIN REASON THAT 1) NO WORKS CONTRACT AGREEMENT HAVE BEEN EXECUTED BETWEEN M/S. MEDOPHARM AND THE OTHER TWO CUSTOMERS VIZ., GLENMARK PHARMACEUTICALS LTD., AND CIPLA LTD. 2) THE STAND TAKEN BY THE LEARNED ASSESSING OFFICER THAT IT ' IS A 'WORKS CONTRACT' IS NOT ACCEPTABLE FOR , THE REASON THAT THE MATERIALS WERE NOT SUPPLIED BY THE PURCHASERS, VIZ. M/S. GLENMARK PHARMACEUTICALS LTD., AND M/S. CIPLA LTD. BUT THE MATERIALS WERE PURCHASED ONLY BY M/S.MEDOPHARM THE APPELLANT AND EXE C UTED THE WORK BASED ON SPECIFICATIONS GIVEN BY THE ABOVE TWO PURCHASERS. THE BREAK UP DETA I LS PERTAINING TO THE ABOVE SALE WITH THE TWO CONCERNS, V I Z. M/S. GLENMARK PHARMACEUTICALS LTD. AND M/S. CIPLA LTD. IS ENCLOSED AS AN ANNEXURE. THESE SALE I.T.A.NO. 94/2011 :- 9 -: RECEIPTS HAVE BEEN ACCOUNTED FOR IN THE FINANCIAL STATEMENTS AND INCLUDED FOR INCOME PURPOSES. SINCE IT IS NOT A WORKS CONTRACT, THE PROPOSIT I ON TAKEN BY THE LEARNED ASSESS IN G OFFICER TO MAKE THE ADDITION, TREATING I T AS CONTRACT RECEIPTS IS BASICALLY WRONG. THE ENTIRE RECEIPTS HAVE BEEN . ACCOUNTED IN THE BOOKS OF ACCOUNT AS 'SALES' ONLY. 7.3 HOWEVER, IT IS PERTINENT TO POINT OUT THAT TH E REASON FOR DEDUCTION OF TAX AT SOURCE BY THOSE TWO CONCERNS IS THAT AS AN ABUNDA N T CAUTION U/S 40 (A) (IA) THEY HAVE DEDUCTED THE TAX. IN SUPPORT OF THIS VERSION , THE APPELLANT FILED A COPY OF THE CERTIFICATE RECEIVED FROM M/S. GLENKMARK PHARMACEUTICALS LTD., BOMBA Y WHEREIN IT IS STATED THAT AS A MATTER OF ABUNDANT PRECAUTION AND TO AVOID ANY DISALLOWANCES U/S 40(A)(IA), WE HAD DEDUCTED TAX AN D ISSUED CERTIFICATES FOR THE SAME. THE SAME IS REPRO DUCED AS UNDER FOR THE SAKE OF CONVENIENCE : 'THIS IS WITH REFERENCE TO TDS CERTIFICATE NO. 206 DATED 30 TH APRIL, 2007, ISSUED IN FAVOUR OF M/S. MEDOPHARM (PAN AAAFM4227H) TOWARDS THE ASSESSMENT YEAR 2007-08. WE HEREBY WISH TO STATE THAT THE TRANSACTIONS REFLE CTED IN THE ABOVE CERTIFICATE WERE TOWARDS MANUFACTURE AND SUPPLY OF FINISHED GOODS, AS PER OUR SPECIFICATION, BY M/S. MEDOPHARM AND MEDOPHARM PRIVATE LIMITED . WE HAVE ALSO ACCOUNTED THE SAME AS PURCHASE OF GOODS, IN OU R BOOKS OF ACCOUNTS. WE HAD DEDUCTED TAX U/S 194C, WHICH WAS AMENDED SEVERAL TIMES SINCE ITS ENACTMENT. THE CBDT HAD ALS O ISSUED VARIOUS CIRCULARS FROM TIME TO TIME, CLARIFY ING THE DISTINCTION BETWEEN A WORK CONTRACT AND CONTRACT OF SALE. WE HAD ALSO RELIED UPON VARIOUS CIRCULARS ISSUED BY CBDT FROM TIME TO TIME WHICH WERE EITHER IS SU ED FOLLOWING THE MEANING OF THE PHRASE 'CARRYING OUT A NY WORK', BY THE JUDICIAL PRONOUNCEMENTS OR WHERE SUCH MEANING WERE SUBJECT TO FURTHER ELABORATION BY THE COURTS SUBSEQUENT TO THEIR ISSUE. I.T.A.NO. 94/2011 :- 10 -: SECTION 40(A)(IA) OF THE INCOME TAX ACT, 1961, ALSO SPECIFIES THAT, ANY AMOUNT PAYABLE TO A CONTRACTOR FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR F OR CARRYING OUT ANY WORK), ON WHICH TAX IS DEDUCTIBLE UNDER CHAPTER XVIII-B AND SUCH TAX HAS NOT BEEN DEDUCTED, SUCH AMOUNTS SHALL NOT BE DEDUCTED WHILE COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GA I NS OF BUSINESS OR PROFESSION.' HENCE, AS A MATTER OF ABUNDANT PRECAUTION AND TO AV OID ANY DISALLOWANCES UNDER SECTION 40(A)(IA), WE HAD DEDUCTED TAX AND ISSUED CERTIFICATES FOR THE SAME . THIS LETTER HAS BEEN ISSUED TO MEDOPHARM UPON THEIR SPECIFIC REQUEST IN THIS REGARD VIDE EMAIL DATED 4 TH MARCH 2010. FURTHER, A CERTIFICATE RECEIVED FROM M/S. CIPLA MUM BAI WHEREIN THE CONTENTS OF T HE SAME ARE ALSO REPRODUCED AS UNDER: 'THIS IS TO CERTIFY THAT WE HAVE NOT MADE ANY PAYMENTS TO M/S. MEDOPHARM OR M/S. ' MEDOPHARM PVT. LTD. (SISTER CONCERN OF M/S. MEDOPHARM), TOWARDS AN Y JOB WORK CHARGES (I.E. WORKS CONTRACT) DURING THE FINAN CIAL YEAR 2006-07 RELEVANT TO ASSESSMENT YEAR 2007-08. THE PAYMENTS MADE AND REFLECTED IN TDS CERTIFICATES RELEVANT TO THE ASSESSMENT YEAR 2007-0 8, ARE TOWARDS SUPPLY OF FINISHED GOODS MANUFACTURED AS PE R OUR SPECIFICATIONS TOWARDS WHICH WE HAVE ISSUED FORM C . THE SAME HAS BEEN ACCOUNTED AS PURCHASES IN OUR BOOKS O F ACCOUNTS. THE DETAILS OF RELATED INVOICE NUMBERS FOR PAYMENTS APPEARING IN TDS CERTIFICATES ARE ATTACHED SEPARATELY. ' 7 . 4 IN VIEW OF THE AFORESAID SUBMISSION, AS THE SAME I S NOT 'WORKS CONTRACT' AND IT BEING ACTUALLY A ' CONTRACT OF SALE' AND MOREOVER THE ENTIRE RECEIPTS HAVE BEEN ADMITTED AS SALES RECEIPTS . IT IS PRAYED THAT THE ENTIRE ADDITION MADE BY THE LEARNED ASSESSING OFFICER AMOUNTING RS.5,75,65,264/- MAY KINDLY BE DELETED. IN SUPPORT OF OUR CLAIM, RELIANCE IS PLACED IN A RECENT JUDGMENT DELIVERED B Y THE HONOURABLE BOMBAY HIGH COU R T ON 12.03.2010, THE CIT (TDS) VS. GLENMARK PHARMACEUTICALS LTD. WHEREIN IT HAS BE EN HELD I.T.A.NO. 94/2011 :- 11 -: THAT TDS IS NOT DEDUCTABLE U/S 194(C) IF IT IS A C ASE OF ' CONTRACT OF SALE'. THE COURT HAD ELABORATELY HELD THAT THE MAIN SIGNIFICANCE PLACED IS WHETHER THE MATERIAL HAS BEE N PURCHASED FROM THE CUSTOMERS, WHO ORDERS THE PRODUCT. THE MAT ERIAL IS PURC H ASED FROM THE CUSTOMER, WHO ORDERS A PRODUCT, IT CONSTITUTES 'CONTRACTS OF WORK' W H I LE ON THE OTHER HAND WHETHER A MANUFACTURER HAS SOURCED THE MATERIALS FR OM A PERSON OTHER THAN THE CUSTOMER, IT WOULD CONSTITUTE A SALE . A COPY OF JUDGMENT IS ENCLOSED AS AN ANNEXURE . IN THE INSTANT CASE, THE MATERIALS WERE NOT SUPPLIED BY M/S . GLENMARK PHARMACEUTICALS LTD., AND M/S. CIPLA LTD . , BUT THEY WE R E PROCURED BY THE APPE L LANT ON ITS OWN FROM THIRD PARTIES AND CARRIED OUT THE JOB AS PER SPECIFICATIONS GIVEN BY THE PURCHASERS, VIZ. GLENMARK PHARMACEUTICALS LTD., AND CIPLA LTD. 7.5 IT I S FURTHER SUBMITTED THAT THE ABOVE T W O PURCHASERS INADVERTENTLY HAVE ISSUED THE RELEVANT TDS CERTIFIC ATES ON L Y IN THE NAME OF THE FI RM M/S . MEDOPHARM INSTEAD OF ISSUING THEM O N BOTH THE CONCERNS, VIZ. M/S. MEDOPHARM AND M/S. MEDOPHARM (P) LTD BASED ON THE V OLUME OF SALES EFFECTED , SINCE THIS PHARMACEUTICALS FIRM IS WELL KNOWN PROMI NENTLY AND CO N STITUTED EARLY AND THE COMPANY M/S. MEDOPHARM (P) L TD. BEARINQ A R ECENT IDENTITY. SINCE, THE ENTIRE TDS CERTIFICATE S WERE RECEI V ED IN THE NAME OF THE FIRM M/S . MEDOPHARM AND WH I LE FIL I NG THE RETURN THEY WERE CLAIMED INADVERTENTLY IN TH E FIRM'S CASE THOUGH SOME OF THE RELATE TO SISTER CON CE R N , VIZ. M/S . MEDOPHARM (P) LTD. HOWEVER, TDS CREDIT WAS NOT CLAI MED I N THE ABOVE SISTER CONCERN, I . E, M/S . MEDOPHARM (P) LTD. AND THEREBY THERE IS NO REVENUE LOSS. HENCE IT IS PRAYED THAT SINCE IT IS A 'CONTRACT OF SALE' AND THEY HAVE BEEN RECORDED IN THE BOOKS OF ACCOUNT AND ACCOUNTED AS SALE RECEIPTS IN THE FINANCIAL STATEME NTS, THE SAID ADDITION MAY KINDLY BE DELETED AND RENDER JUSTICE. 7.6 THE APPELLANT'S ABOVE CONTENTION HAS BEEN EXA MINED BASED ON THE FACTS FURNISHED BY THE APPELLANT. THE ASSESSING OFFICER'S CONCLUSION THAT THE ENTIRE RECEIPTS WERE NOT OFFERED TO TAX IS NOT ACCEPTABLE PROPOSITION . SINCE, THE TRANSACTION IS A 'CONTRACT OF SALE' AND IT IS NOTICED THAT THE SAID TRANSACT I ON IS TAKEN AND ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS OF M/S. MEDOPHARM (P) LTD. AND OFFERED FOR TAXAT I ON . THE APPELLANT'S PLEA THAT THE DEDUCTOR HAD ISSUED THE TDS CERTIFICA TES WRONGLY IN THE NAME OF THE APPELLANT FIRM M/S MEDOPHARM INS TEAD OF IN THE NAME OF THE COMPANY VIZ. M/S. MEDOPHARM (P) LTD. AND THAT THEY HAVE ADMITTED THE INCOME IN THE NAME OF THE CO MPANY M/S. I.T.A.NO. 94/2011 :- 12 -: MEDOPHARM (P) LTD. AND CLAIMED CREDIT FOR THE SA I D TDS CERTIFICATES IN THE APPELLANT'S CASE IS FOUND TO BE FACTUALLY CO RRECT. THE APPEL L ANT'S CONTENTION THAT THERE IS NO REVENUE L OSS I S ALSO FOUND TO BE AN ACCEPTABLE FACT FOR THE REASON THAT THE CORRE SPONDING ENTIRE INCOME HAS BEEN OFFERED TO TAX I N THE HANDS OF M/S . MEDOPHARM (P) LTD. S I NCE, THE TAX DEDUCTOR , HAD I SSUED THE CERTIFICATES IN THE NAME OF THE APPELLANT FIRM, VIZ. M/S . MEDOPHARM , THEY HAVE CLAIMED CREDIT FOR THE SAID TDS IN THE HANDS OF THE APPE L LANT. HENCE IT CANNOT BE CONCLUDED THAT THE I NCOME WAS NOT OFFERED TO TAX. IF THE SA I D RECE I PTS ARE ADDED, IT WILL AMOUNT TO TAXATION OF SAME I NCOME TWICE . FURTHER, THE APPELLANT HAS ALSO GIVEN A STATEMENT F OR THE SALES MADE TO M/S. GLENMARK PHARMACEUTICALS LTD. AND M/S. CIPLA LTD. AND FOR WHICH TDS ALSO DEDUCTED. THE SAME IS REPROD UCED AS UNDER: SUMMARY A.Y. 2007 -08 A SALES FROM MEDOPHARM SALES TDS 1 GLENMARK PHARMACEUTICALS LTD 5,392,900 120,801 2 CIPLA LTD 29, 474,914 661 417 TOTAL 34,867,814 782,218 B SALES FROM MEDOPHARM PVT LTD 1. GLENMARK PHARMACEUTICALS LTD 16,661,733 373,223 CIPLA LTD 6,035,717 135, 439 TOTAL 22,697, 450 508,662 ABSTRACT A SALES FROM MEDOPHARM 34,867,814 782,218 B SALES FROM MEDOPHARM PVT. LTD 22,697,450 508,662 TOTAL 57,565,264 1,290,880 THE LEARNED AO HAS ADDED RS . 5 , 75,65,264/- AS THE RECEIPTS WERE NOT OFFERED TO TAXATION. FROM THE ABOVE TABULA TION, THE APPELLANT HAS EXPLAINED THAT A SUM OF RS. 3,48,67,814/- WAS OFFERED AS SALES IN THE HANDS OF THE APPELLANT I . E. M/S. MEDOPHARM WHICH WAS INCLUDED IN THE TOTAL SALE OF RS. 90,19,93,247/- (VIDE ANNEXURE-I WHICH IS FORMING PART OF THIS APPELLATE ORDER). FURTHER THE APPELLANT HAS ALSO EXPLAINED THAT ANOTHER SUM O F RS. 2,26,97,450/- WHICH WAS THE SALES EFFECTED BY T HE MEDOPHARM PVT. LTD. FOR WHICH THE PURCHASER M/S. GLENMARK PHA RMACEUTICALS LTD. AND M/S CIPLA LTD. HAVE DEDUCTED TDS FOR AN AB UNDANT CAUTION AS PER THE PROVISIONS OF SEC 40(A)(IA) WAS NOT CLEAR AT THAT POINT OF TIME. HOWEVER, NOW IT IS MADE CLEAR T HAT THE I.T.A.NO. 94/2011 :- 13 -: SAME SALES WERE OFFERED IN THE HANDS OF MEDOPHARM P VT. LTD. IN THE PROFIT AND LOSS ACCOUNT AND ACCORDINGLY THE AR OF THE APPELLANT IS TRYING TO EMPHASIZE THAT ALL THE RECEI PTS WERE FORMING PART OF THE PROFIT AND LOSS ACCOUNT AND THE REFORE NO RECEIPT WERE OMITTED TO BE INCLUDED ' IN THE PROFIT AND LOSS ACCOUNT. 7.7 IN VIEW OF THE ABOVE FACTUAL POSITION EXPLAINED BY THE APPELLANT FIRM, THE AO IS DIRECTED TO GIVE CREDIT O F THE TDS PERTAINING TO MEDOPHARM ALONE. ON THE BALANCE OF TD S, THE SAME IS NOT RELEVANT IN THIS APPELLANT'S CASE IS CO NCERNED; BUT IT SHOULD BE CONSIDERED ONLY IN THE HANDS OF THE CO MPANY I . E. M/S. MEDOPHARM PVT. LTD. FURTHER, THE AR OF THE APP ELLANT IS RELYING ON THE JUDICIAL DECISION IN THE CASE OF M/S . SUPREME RENEWABLE ENERGY LTD. VS. ITO WHEREIN THE FACT OF T HE CASE IS THAT THOUGH THE RECEIPTS WERE NOT OFFERED FO RTAXAT ION, THE TDS CREDIT MAY BE GIVEN TO THE DEDUCTEE. BUT IN THE FAC TS OF THE APPELLANT CASE IS CONCERNED, IT IS TOTALLY DIFFEREN T FROM THE CASE LAW RELIED ON BY THE APPELLANT AND IN THE APPELLANT 'S CASE, THE TOTAL SALES WERE ALREADY OFFERED IN THE FINANCIAL S TATEMENT AND ACCORDINGLY THE AO HAS TO GIVE THE CREDIT TO THE TD S MADE BY M/S. GLENMARK PHARMACEUTICALS LTD. AND M/S. CIPLA L TD. AGAINST THE APPELLANT FIRM. ACCORDINGLY, THE ENTIRE ADDITION OF RS 5,75,65,264/- IS HEREBY DELETED AND THE LEARNED ASSESSING OFFICER IS DIRECTED TO GIVE CREDIT FOR TH E CORRESPONDING TDS IN THE HANDS OF THE APPELLANT, AS CLAIMED. 14. THE DR RELIED ON THE ORDER OF THE ASSESSING OFFICER WHEREAS THE A.R OF THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A). 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. REGARDING REDUCTION OF THE ADDITION OF ` 50,60,120/- TO ` 1,42,273/- MADE BY THE CIT(A) ON ACCOUNT OF CONVERSION CHARGES AND IN RESP ECT OF DELETION OF ADDITION OF ` 5,75,65,264/- ON ACCOUNT OF SALES TO M/S /S GLENMA RK PHARMACEUTICALS LTD. AND M/S CIPLA LTD, WE FIND THA T THE CIT(A) HAS DELETED THE SAME AFTER VERIFYING THE BOOKS OF ACCOU NT AND BY PROPERLY I.T.A.NO. 94/2011 :- 14 -: APPRECIATING THE FACTS OF THE CASE. NO MATERIAL HA S BEEN BROUGHT BEFORE US BY THE REVENUE TO SHOW THAT THERE WAS ANY MISTAKE IN THE FINDING OF THE CIT(A). NO SPECIFIC DEFECT IN THE F INDINGS OF THE CIT(A) IN RESPECT OF THE ABOVE ISSUES COULD BE POINTED OUT BY THE DR. IN THE ABSENCE OF ANY DEFECT POINTED OUT, WE DO NOT FIND A NY GOOD AND JUSTIFIABLE REASON TO INTERFERE WITH THE ORDER OF T HE CIT(A) ON THE TWO ISSUES. 16. REGARDING THE GROUND TAKEN IN RESPECT OF VIOLATION OF RULE 46A, NO SUBMISSION WAS MADE BY THE DR IN THE COUR SE OF HEARING. IN THE ABSENCE OF ANY SPECIFIC MATERIAL OR DOCUMENT BE ING POINTED OUT WHICH EVIDENCE WAS NOT BEFORE THE ASSESSING OFFICER , WE DO NOT FIND MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. 17. WITH REGARD TO THE CREDIT OF TDS IN RESPECT OF SALE S WHICH WERE FOUND BY THE CIT(A) TO BE THE SALE OF M/S MEDO PHARM PVT. LTD. OTHER THAN THE ASSESSEE-FIRM, WE FIND THAT THE CIT( A) HIMSELF HELD THAT THE ASSESSING OFFICER IS DIRECTED TO GIVE CREDIT OF THE TDS PERTAINING TO MEDOPHARM ALONE. ON THE BALANCE OF TDS, THE SAME I S NOT RELEVANT IN THIS APPELLANTS CASE IS CONCERNED; BUT IT SHOULD B E CONSIDERED ONLY IN THE HANDS OF THE COMPANY I.E M/S MEDOPHARM PVT. LTD . HOWEVER, IN THE CONCLUDING LINE OF THE SAME PARAGRAPH, THE CIT( A) HAS DIRECTED THE ASSESSING OFFICER TO ALLOW CREDIT OF ENTIRE TDS AS CLAIMED BY THE I.T.A.NO. 94/2011 :- 15 -: ASSESSEE. THUS, WE FIND THAT THE CIT(A) HAS HELD T HAT THE ASSESSEE IS NOT ENTITLED FOR CREDIT OF TDS WHICH WERE DEDUCTED BY THE DEDUCTEE FROM THE SALE OF THE OTHER ASSESSEE, M/S MEDOPHARM PVT. LTD, BUT THE CIT(A) HELD CONTRARY TO THIS OBSERVATION IN THE LAS T LINE OF THE RELEVANT PARAGRAPH. THE ARGUMENT OF THE A.R THAT AS BECAUSE CREDIT FOR THE RELEVANT TDS WAS NOT CLAIMED BY THE COMPANY M/S MED OPHARM PVT. LTD AND THEREFORE, THE CREDIT SHOULD BE ALLOWED IN THE HANDS OF THE ASSESSEE-FIRM, IN OUR CONSIDERED OPINION CANNOT BE ACCEDED TO. THOUGH WE AGREE WITH THE SUBMISSION OF THE ASSESSE E THAT CREDIT FOR THE TDS MUST BE ALLOWED TO THE ASSESSEE BY THE DEP ARTMENT AND PROVISIONS OF TDS ARE NOT INTENDED TO HAVE DOUBLE C OLLECTION OF THE TAX BUT AT THE SAME TIME, WE ARE ALSO ALIVE OF THE PROV ISIONS OF SECTION 199 OF THE ACT WHICH PROVIDES THAT CREDIT FOR TDS COULD BE ALLOWED IN THE HANDS OF THE ASSESSEE IN WHOSE HANDS RELEVANT INCO ME IS ASSESSABLE. THEREFORE, IF ADVISED, M/S MEDOPHARM PVT. LTD, MAY TAKE REMEDIAL MEASURES AS AVAILABLE UNDER THE ACT FOR GETTING CRE DIT FOR THE TDS, BUT ASSESSEE CANNOT BE ALLOWED CREDIT FOR THE TDS ON TH AT GROUND FOR WHICH IT IS NOT LEGALLY ENTITLED TO. WE, THEREFORE , MODIFY THE ORDER OF THE CIT(A) IN RESPECT OF THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO NOT TO ALLOW CREDIT FOR TDS WHICH WAS DEDUCTED FROM THE SALE OF MEDOPHARM PVT. LTD. THUS, THE GROUND RELATING TO T HIS ISSUE IS ALLOWED AND THE GROUNDS IN RESPECT OF THE OTHER ISSUES ARE DISMISSED. I.T.A.NO. 94/2011 :- 16 -: 18. IN THE RESULT, THE APPEAL OF THE REVENUE PAR TLY ALLOWED. ORDER PRONOUNCED ON MONDAY, THE 17 TH OF DECEMBER, 2012, AT CHENNAI. SD/- SD/- (CHALLA NAGENDRA PRASAD) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER DATED: 17 TH DECEMBER, 2012 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR