MERIND LTD, MUMBAI V. DCIT CC 14, MUMBAI

ITSSA 25/MUM/2011

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 4167 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 12-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 07-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MILIND V PATIL
• Keywords: Bogus purchase; Business expenditure; Search and seizure; Loose papers; Block assessment; Documents seized
• Section: 40A(3); 131; 132

Judgement Text

MERRIND LTD. VS. DCIT CC - 14, MUMBAI ITA(SS)A NO. 25/MUM/2001 - BLOCK PERIOD :01/01/1990 TO 19/09/2000 1 IN THE INCOME TAX APPELLATE TRIBUNAL ' B ' BENCH, MUMBAI BEFORE SHRI R.C SHARMA, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD , JUDICIAL MEMBER IT(SS) 25/MUM/2011 ( BLOCK PERIOD 01.04.1990 TO 19.09.2000) MERIND LTD. WOCKHARDT TOWER, BANDRA KURLA COMPLEX, BANDRA (EAST) MUMBAI - 400 051 VS. DCIT, CENTRAL CIRCLE - 14, MUMBAI. PAN AA ACM2735P ( APPELLANT ) ( RESPONDENT ) APPELLANT BY: SHRI M . P LOHIA, A.R. RESPONDENT BY: SHRI MILIND V. PATIL, D.R DATE OF HEARING: 07.09.2018 DATE OF PRONOUNCEMENT: 12 . 10 .2018 O R D E R PER RAVISH SOOD, JM THE PRESENT APPEAL FILED BY THE ASSESSEE FOR THE BLOCK PERIOD : 01.04.1990 TO 19.09.2000 , IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) - 22, MUMBAI, DATED 11.10.2010, WHICH IN TURN ARISES FROM THE ASSESSMENT ORDE R PASSED BY THE A.O UNDER 158BC OF THE INCOME TAX ACT, 1961 (FOR SHORT ACT) , DATED 30.10.2002. THE ASSESSEE ASSAILING THE ORDER OF THE CIT(A) HAS RAISED BEFORE US THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - 22, MUMBAI [CIT(A)] ENHANCEMENT OF ASSESSMENT AND INVOKING PROVISION OF SECTION 40A(3): 1). ERRED IN ENHANCING THE ASSESSMENT, WITHOUT GIVING ANY SHOW CAUSE NOTICE, AND MAKING ADDITION OF RS. 88,97,070/ - U/S 40A(3) @20% OF TOTAL PURCHASES OF RS. 4,44,85,348/ - ALLEGEDLY MADE IN CASH FROM THE CONCERNS OF MR. F.H RIZVI. MERRIND LTD. VS. DCIT CC - 14, MUMBAI ITA(SS)A NO. 25/MUM/2001 - BLOCK PERIOD :01/01/1990 TO 19/09/2000 2 2). FAILED TO APPRECIATE THE PROVISIONS OF SECTION 40A(3) CANNOT BE INVOKED IN ASSESSMENT U/S 158BC OF THE INCOME TAX ACT, 1961. 3). ERRED IN RELYING ON STATEMENT RECORDED AND PAPERS FOUND FROM MR. F.H RIZVI DURING THE SEARCH ON HIM ON 7.12.1998 AND IGNORING THE STATEMENT OF F.H RIZVI RECORDED ON 8.1.2001 AND 11.1.2001 DURING THE SEARCH ON THE APPELLANT AND EXPLANATIONS SUBMITTED BY MR. F.H RIZVI AND THE APPELLANT AT THE TIME OF SEA R CH AND THEREAFTER. 4). FAILED TO APPRECIATE THAT NO ADDITION BASED ON PREPONDERANCE OF PROBABILIT Y AND CIRCUMSTANTIAL EVIDENCES CAN BE MAD E IN THE BLOCK ASSESSMENT. ADDITION ON ACCOUNT OF EXCESS PAYMENT ON PURCHASES: 5). ERRED IN CONFIRMING THE ADDITION OF RS. 3,80,344/ - UNDER THE HEAD ALLEGED EXCESS PAYMENT ON PURCHASES IGNORING THE STATEMENT OF S HRI RIZVI RECORDED DURING THE SEARCH ON THE APPELLANT DENYING ANY OVER INVOICING AND ALSO IGNORING ABSENCE OF ANY FINDING ARISING OUT OF THE SEARCH. ADDITION ON ACCOUNT OF EXCESS PAYMENT ON PURCHASES: 6). ERRED IN CONFIRMING THE ADDITION OF RS. 8,89,707 / - UNDER THE HEAD UNACCOUNTED COMMISSION PAID TO SH. F.H RIZVI BEING 2% OF THE PURCHASES MADE FROM THE CONCERNS OF SHRI RIZVI IGNORING THE FACT THAT SHRI RIZVI HAS CONFIRMED ABOUT SUPPLY OF MATERIALS AND THE APPELLANT HAS PROVED BEYOND ANY DOUBT THAT THO SE MATERIALS WERE RECEIVED AND USED FOR MANUFACTURING PHARMACEUTICAL ITEMS. 7). WITHOUT PREJUDICE TO THE ABOVE, SHOULD HAVE RESTRICTED THE ADDITION TO RS. 4,44,854/ - BEING 1% OF PURCHASES FROM MR. F.H RIZVI AS IN THE ABSENCE OF ANY PROOF, MINIMUM RATE SH OULD HAVE BEEN ADOPTED. 8). WITHOUT PREJUDICE TO THE ABOVE AND WITHOUT ADMITTING, THE EXPENSES BEING FOR THE PURPOSE OF THE BUSINESS AND FOR RECEIPT OF SERVICES RELATED TO BUSINESS ONLY, THE SAME NEEDS TO BE ALLOWED AS BUSINESS EXPENSES AGAINST ESTIMATIO N OF INCOME. 9). WITHOUT PREJUDICE TO THE ABOVE AND WITHOUT ADMITTING, THE EXPENSES ON ALLEGED COMMISSION NEED TO BE TELESCOPED AGAINST THE SOURCE AVAILABLE ON ACCOUNT OF ADDITION MADE FOR ALLEGED PAYMENT FOR PURCHASES. THE APPELLANT CRAVES, TO CONSIDER EACH OF THE ABOVE GROUNDS OF APPEAL WITHOUT PREJUDICE TO EACH OTHER AND CRAVES LEAVE TO ADD, ALTER, DECIDE OR MODIFY ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL. 2. BRIEFLY STATED, THE ASSESSEE COMPANY WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING P HARMACEUTICAL GOODS ORIGINALLY BELONGED TO THE TATA GROUP OF COMPANIES , AND WAS SUBSEQUENTLY TAKEN OVER BY M/S WOCKHARDT LIFE SCIENCE ON 03.07.1998. S EARCH AND SEIZURE PROCEEDINGS UNDER SEC. 132 OF THE ACT W ERE CONDUCTED BY THE INVESTIGATION WING OF THE INCOME - TAX MERRIND LTD. VS. DCIT CC - 14, MUMBAI ITA(SS)A NO. 25/MUM/2001 - BLOCK PERIOD :01/01/1990 TO 19/09/2000 3 DEPARTMENT ON 19.09.2000 AT THE REGISTERED OFFICES, FACTORIES OF THE WOCKHARDT GROUP CONCERNS , AND THE RESIDENTIAL PREMISES OF THE IR DIRECTORS . SEARCH AND SEIZURE PROCEEDINGS WERE CONDUCTED AT THE PREM ISES OF THE ASSESSEE COMPANY VIZ. M/S MERRIND LIMITED ON 19.09.2000 AND 24.09.2000. DURING THE COURSE OF THE SEARCH AND SEIZURE ACTION , LOOSE PAPERS AND DOCUMENTS WERE SEIZED FROM THE OFFICE AND FACTORY PREMISES OF THE ASSESSEE COMPANY. THE ASSESSEE IN COM PLIANCE TO NOTICE ISSUED UNDER SEC. 158BC O N 24.08.2001 FILED ITS RETURN OF INCOME FOR THE BLOCK PERIOD 01.04.1990 TO 19.09.2000 ON 13.09.2001, DECLARING TOTAL UNDISCLOSED INCOME AT RS. NIL. SUBSEQUENTLY, A NOTICE UNDER SEC. 143(2) WAS ISSUED TO THE ASSE SSEE ON 08.10.2001. 3. THE A.O WHILE FRAMING THE ASSESSMENT OBSERVED , THAT THE ASSESSEE I N ITS BUSINESS OF MANUFACTURING VARIOUS PHARMACEUTICAL PRODUCTS WAS PROCURING RAW MATERIAL FROM VARIOUS SUPPLIERS. IT WAS NOTICED BY HIM , THAT THE ASSESSEE HAD CLAIME D TO HAVE PROCURED DEXAMETHAZONE FOR MANUFACTURING OF DECADRONE TABLETS, INJECTIONS AND EYE DROPS FROM SHRI F.H RIZVI , WHO WAS STATED TO BE RUNNING VARIOUS CONCERNS. THE A.O OBSERVED , THAT DURING THE COURSE OF THE SEARCH & SEIZURE PROCEEDINGS THE INVESTIGA TION WING HAD CONFRONTED SHRI F.H RIZVI WHO WAS ALLEGED TO BE ENGAGED IN PROVI DI NG BOGUS PURCHASE BILLS TO VARIOUS PHARMACEUTICAL CONCERNS . I T WAS NOTICED BY THE A.O , THAT SHRI F.H RIZVI WHO WAS SUBJECTED TO S EARCH & SEIZURE PROCEEDINGS ABOUT TWO YEARS BAC K ON 07.12.1998, HAD IN HIS STATEMENT RECORDED UNDER SEC. 132(4) ADMITTED THAT HE WAS ENGAGED IN ISSUING BOGUS PURCHASE BILLS IN THE NAME OF HIS CONCERNS TO VARIOUS PHARMACEUTICAL COMPANIES. IT WAS OBSERVED BY THE A.O , THAT SHRI F.H RIZVI HAD IN HIS AFORES AID STATEMENT , WHILE EXPLAINING THE MODUS OPERANDI OF PROVIDING BOGUS PURCHASE BILLS STATED THAT HE USED TO RECEIVE CHEQUES FROM THE PHARMACEUTICAL COMPANIES IN THE NAME OF HIS CONCERNS , AND AFTER DEDUCTING HIS COMMISSION OF 1 - 2% OF THE BILL VALUE, USED TO RETURN THE AMOUNT IN CASH TO THE SAID PARTIES AFTER DEPOSITING THE CHEQUES IN THE ACCOUNTS OF HIS CONCERNS AND WITHDRAWING CASH THEREFROM. IN THE BACKD ROP OF THE AFORESAID BACKGROUND THE STATEMENT OF SHRI F.H RIZVI WAS AGAIN MERRIND LTD. VS. DCIT CC - 14, MUMBAI ITA(SS)A NO. 25/MUM/2001 - BLOCK PERIOD :01/01/1990 TO 19/09/2000 4 RECORDED ON 08.01.2001 IN CONN ECTION WITH THE S EARCH & SEIZURE PROCEEDINGS CONDUCTED ON WOCKHARDT GROUP CONCERNS. SHRI F.H RIZVI IN HIS STATEMENT RECORDED ON 08.01.2001 , ON BEING QUERIED AS REGARDS HIS TRANSACTIONS WITH THE ASSESSEE COMPANY VIZ. MERIND LTD., STATED AS UNDER: Q.4 HAVE YOU SUPPLIED ANYTHING TO WOCKHARDT GROUP OF COMPANIES, TRIDOSS LAB AND MERIND LTD DURING LAST 10 YEARS. ANS. YES, I HAVE SUPPLIED THE MATERIALS MENTIONED IN MY PREVIOUS REPLY TO ALL THESE COMPANIES. I HAVE SUPPLIED 40% WITH BILLS AND 60% OGL/CASH MATERI AL TO THESE COMPANIES. I DO NOT HAVE ANY PROOF OF PURCHASE OF OGL/CASH SUPPLIES. Q.7 TO WHAT EXTENT SUPPLIES TO WOCKHARDT LTD AND MERIND LTD WERE OVER INVOICED? ANS. NO, THE SUPPLIES TO THESE COMPANIES WERE NOT OVER INVOICED. FURTHER, SHR I F.H RIZVI ON BEING CALLED UPON BY THE INVESTIGATION WING TO PRODUCE EVIDENCE REGARDING CASH PURCHASES OF GOODS MADE BY HIM , WHICH WERE SUPPLIED TO VARIOUS PHARMACEUTICAL COMPANIES, FAILED TO PLACE ON RECORD THE SAME FOR THE REASON THAT HIS BOOKS OF ACCOUN T WERE DESTROYED DURING DEMOLITION OF THE BUILDING BY BOMBAY MUNICIPAL CORPORATION. RATHER, SHRI F.H RIZVI ALSO FAILED TO PLACE ON RECORD THE PURCHASE BILLS OF GOODS WHICH WERE SUPPLIED BY HIM TO PHARMACEUTICAL COMPANIES, ON THE GROUND THAT AS HE WAS MAKIN G CASH PURCHASES FROM BROKERS, HENCE NO SUCH BILLS WERE AVAILABLE WITH HIM . FURTHER, SH. RIZVI ALSO EXPRESSED HIS INABILITY TO PRODUCE LORRY RECEIPTS, CHALLANS ETC. , WHICH COULD EVIDENCE DELIVERY OF GOODS TO THE PHARMACEUTICAL COMPANIES WHICH HAD CLAIMED T O HAVE MADE PURCHASES FROM HIM. THE ASSESSEE ON BEING CALLED UPON BY THE A.O TO SUBSTANTIATE THE GENUINENESS AND VERACITY OF THE PURCHASES CLAIMED TO HAVE BEEN MADE FROM SH. F.H RIZVI , FURNISHED ITS REPLY AND PRODUCED BEFORE HIM VARIOUS DOCUMENTARY EVIDENC E/RECORDS WHICH PROVED THAT THE ASSESSEE HAD PURCHASED AND USED THE GOODS IN MANUFACTURING OF PHARMACEUTICAL PRODUCTS VIZ. (I). RAW MATERIAL INWARD REGISTER FOR THE CONCERNED YEARS MAINTAINED BY THE QUALITY ASSURANCE D E PARTMENT, WHICH REVEALED THAT SPECIFI C RAW MATERIALS SUPPLIED BY SHRI F.H RIZVI AND USED BY THE ASSESSEE FOR MAKING DECARDONE RANGE OF FORMULATIONS WERE RECEIVED AND SUBJECTED TO MERRIND LTD. VS. DCIT CC - 14, MUMBAI ITA(SS)A NO. 25/MUM/2001 - BLOCK PERIOD :01/01/1990 TO 19/09/2000 5 QUALITY CHECK BEFORE SENDING TO THE PRODUCTION LINE; (II). EXCISE REGISTER RG - 1 DULY CHECKED AND STAMPED BY THE S UPERINTENDANT OF EXCISE OF MULUND DIVISION , FOR THE CONCERNED YEARS IN WHICH THE FINAL PRODUCT MADE FROM THE RAW MATERIALS UNDER CONSIDERATION WAS RECORDED; AND (III). THE DETAILED CHART OF PRODUCTION OF DECADRONE RANGE OF FORMULATIONS TO CLARIFY HOW THE F INAL PRODUCT WAS MANUFACTURED IN DIFFERENT BATCHES. THE A.O AFTER DELIBERATING ON THE AFORESAID DOCUMENTARY EVIDENCE/RECORDS PRODUCED BY THE ASSESSEE , WAS OF THE VIEW THAT THE ASSESSEE HAD PURCHASED THE RAW MATERIAL UNDER CONSIDERATION AND THE SAME WAS CON SUMED IN THE MANUFACTURING OF THE PHARMACEUTICAL FORMULATIONS. HOWEVER, IN THE BACKDROP OF THE TAINTED IMAGE OF SHRI F.H RIZVI WHO HAD WAY BACK IN HIS STATEMENT RECORDED BY THE INVESTIGATION WING ON 07.12.1998 ADMITTED , THAT HE WAS PROVIDING BOGUS BILLS TO VARIOUS PHARMACEUTICAL CONCERNS, HELD A CONVICTION THAT THE ASSESSEE HAD NOT MADE ANY GENUINE PURCHASES FROM SHRI F.H RIZVI , AND HAD ONLY OBTAINED BOGUS BILLS FROM HIM. THE EXPLANATION OF THE ASSESSEE THAT NO ADVERSE INFERENCES AS REGARDS THE GENUINENESS AND VERACITY OF THE PURCHASES MADE FROM SHRI F.H RIZVI WAS LIABLE TO BE DRAWN , DID NOT FIND FAVOUR WITH THE A.O. ON THE BASIS OF HIS AFORESAID CONVICTION , THE A.O CONCLUDED THAT THE ASSESSEE HAD PROCURED BOGUS PURCHASE BILLS FROM SHRI F.H RIZVI , AND AS MAT TER OF FACT, HAD MADE PURCHASES FROM AN UNKNOWN SUPPLIER. THUS, IN THE BACKDROP OF HIS AFORESAID OBSERVATIONS , THE A.O HELD THAT THE ASSESSEE BY PROCURING SUCH BOGUS PURCHASE BILLS HAD INFLATED ITS PURCHASES. FURTHER, THE A.O AFTER DELIBERATING ON THE PREV ALENT MARKET RATES FOR THE RELEVANT YEARS AS PER THE DRUG PRICE CONTROL ORDERS ISSUED BY THE DEPARTMENT OF CHEMICALS AND PETROCHEMICALS, MINISTRY OF INDUSTRIES, GOVERNMENT OF INDIA, OBSERVED THAT THE RATES AT WHICH GOODS WERE CLAIMED BY THE ASSESSEE TO HAV E BEEN PURCHASED FROM SHRI. F.H RIZVI WERE FOUND TO BE INFLATED. ON THE BASIS OF HIS AFORESAID DELIBERATIONS , THE A.O CONCLUDED THAT THE ASSESSEE HAD INFLATED ITS PURCHASES BY AN AMOUNT OF RS.3,80,344/ - . FURTHER, IT WAS OBSERVED BY THE A.O , THAT AS SHRI. F .H RIZVI WAS A TAINTED PERSON WHO WAS PROVIDING BOGUS PURCHASE BILLS , AND HAD ALSO ADMITTED TO HAVE CHARGED 1 TO 2% COMMISSION FOR PROVIDING SUCH SERVICES, MADE AN ADDITION OF RS. 8,89,707/ - TOWARDS COMMISSION THAT WOULD HAVE BEEN PAID BY THE ASSESSEE TO SHRI F.H RIZVI I.E MERRIND LTD. VS. DCIT CC - 14, MUMBAI ITA(SS)A NO. 25/MUM/2001 - BLOCK PERIOD :01/01/1990 TO 19/09/2000 6 @2% OF THE VALUE OF THE PURCHASES . THE A.O ON THE BASIS OF HIS AFORESAID DELIBERATIONS ASSESSED THE UNDISCLOSED INCOME OF THE ASSESSEE FOR THE BLOCK PERIOD 01.04.1990 TO 19.09.2000 AT RS. 12,70,051/ - . 4. AGGRIEVED, THE ASSESSEE ASS AILED THE ORDER PASSED BY THE A.O IN APPEAL BEFORE THE CIT(A). THE CIT(A) AFTER DELIBERATING ON THE AFORESAID CONTENTIONS OF THE ASSESSEE WAS HOWEVER NOT PERSUADED TO SUBSCRIBE TO THE SAME , AND SUSTAINED THE AFORESAID ADDITIONS. FURTHER, THE CIT(A) CONCURR ING WITH THE VIEW EXPRESSED BY THE A.O IN HIS REMAND REPORT THAT AS THE ASSESSEE HAD MADE CASH PURCHASES, THUS , THE SAME WERE LIABLE TO BE DISALLOWED UNDER SEC. 40A(3) OF THE ACT, AND DIRECTED THE A.O TO INVOKE THE PROVISIONS OF SECTION 40A(3) AND WORK OUT THE NECESSARY DISALLOWANCE IN THE HANDS OF THE ASSESSEE. 5. THE ASSESS E E BEING AGGRIEVED WITH THE ORDER OF THE CIT(A) HAS CARRIED THE MATTER IN APPEAL BEFORE US. THE LD. AUTHORISED REPRESENTATIVE (FOR SHORT A.R) FOR THE ASSESSEE TOOK US THROUGH THE FA CTS OF THE CASE. IT WAS SUBMITTED BY THE LD. A.R THAT THE ADDITION AS REGARDS THE ALLEGED INFLATED PURCHASES AND PAYMENT OF COMMISSION CHARGES TO SHRI F.H RIZVI WAS NOT BASED ON ANY INCRIMINATING MATERIAL SEIZED DURING THE COURSE OF THE S EARCH & SEIZURE PR OCEEDINGS CONDUCTED ON THE ASSESSEE, BUT ONLY ON THE BASIS OF A POST SEARCH STATEMENT OF SHRI F.H RIZVI RECORDED BY THE INVESTIGATION WING. THE LD. A.R SUBMITTED , THAT THE ISSUE PERTAINING TO ADDITION MADE IN THE HANDS OF THE ASSESSEE ON THE GROUND OF ALLE GED INFLATED PURCHASES AND PAYMENT OF COMMISSION WAS SQUARELY COVERED BY THE ORDER PASSED BY A COORDINATE BENCH OF TRIBUNAL I.E. ITAT G BENCH IN THE CASE OF A GROUP CONCERN OF THE ASSESSEE I.E M/S WOCKHARDT VETERINARY LTD., WHICH TOO WAS SUBJECTED TO SEA RCH & SEIZURE ACTION ON 19.09.2000. VIZ ACIT VS. M/S WOCKHARDT VETERINARY LTD. [IT(SS) NO. 50/MUM/2011 FOR THE BLOCK PERIOD 01.04.1990 TO 19.09.2000] ; DATED 18.11.2005].(COPY PLACED ON RECORD). THE LD. A.R IN ORDER TO FORTIFY HIS AFORESAID CONTENTION , TO OK US THROUGH THE OBSERVATIONS OF THE TRIBUNAL RECORDED AT PAGE 42 - 43 OF ITS ORDER. THE LD. A.R ADVERTING TO THE ENHANCEMENT OF INCOME CARRIED OUT BY THE CIT(A) SUBMITTED , MERRIND LTD. VS. DCIT CC - 14, MUMBAI ITA(SS)A NO. 25/MUM/2001 - BLOCK PERIOD :01/01/1990 TO 19/09/2000 7 THAT THE SAME WAS MADE WITHOUT ISSUING ANY SHOW CAUSE NOTICE TO THE ASSESSEE. IT W AS SUBMITTED BY THE LD. A.R THAT THE CIT(A) ON BEING ADVISED BY THE A.O IN HIS REMAND REPORT , HAD CARRIED OUT THE ENHANCEMENT WITHOUT APPRECIATING THE FACTS OF THE CASE. IT WAS THE CONTENTION OF THE LD. A.R , THAT AS ALL THE PURCHASES UNDER CONSIDERATION WE RE MADE BY THE ASSESSEE VIDE ACCOUNT PAYEE CHEQUES, THUS , NO DISALLOWANCE COULD BE MADE UNDER SEC. 40A(3) OF THE ACT. IN ORDER TO RULE OUT ANY SCOPE FOR EVEN INFERRING MAKING OF ANY CASH PURCHASES BY THE ASSESSEE FROM SHRI F.H RIZVI , IT WAS SUBMITTED BY THE LD. A.R THAT NOWHERE IT WAS EVEN ALLEGED BY SHRI F.H RIZVI THAT THE ASSESSEE HAD MADE CASH PURCHASES FROM HIM. RATHER, IT WAS THE CONTENTION OF THE LD. A.R , THAT THE MENTION OF CASH SALES WAS MADE BY SHRI F.H RIZVI IN CONTEXT OF M /S SUN PHARMACEUTICALS LTD AND M/S CIPLA LIMITED. THE LD. A.R IN ORDER TO FORTIFY HIS AFORESAID CONTENTION THAT SHRI F.H RIZVI HAD NEVER STATED TO HAVE MADE ANY CASH SALES TO THE ASSESSEE COMPANY, DREW OUR ATTENTION TO THE RELEVANT EXTRACT OF THE STATEMENT OF SHRI F.H RIZVI RECORDED ON 08.01.2001, MARKED AS ANNEXURE B OF THE REMAND REPORT . IT WAS SUBMITTED BY THE LD. A.R , THAT AS THE ADDITIONS/ENHANCEMENT MADE BY THE LOWER AUTHORITIES WHILE FRAMING THE BLOCK ASSESSMENT ARE NOT BASED ON ANY SEIZED MATER IAL, HENCE THE SAME CANNOT BE SUSTAINED. IN SUPPORT OF HIS AFORESAID C ONTENTION , THE LD. A.R RELIED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: (I). ACIT VS. HOTEL BLUE MOON (2010) 321 ITR 362 (SC) (II)). CIT VS. BALAJI WIRE (P) LTD. (2008) 304 ITR 393 (DEL) (III). CIT VS. CONCORDE CAPITAL MANAGEMENT CO. LTD. (2011) 334 ITR 346(DEL) (IV). DHEERAJ CONSTRCTION & INSDUSTRIES LTD. VS. CIT (2011) 244 CTR 71 (CAL) (V). ACIT VS. WOCKHARDT VETERINARY LTD [IT (SS) NO. 50/MUM/2011; DATED 18.11.2015] . MERRIND LTD. VS. DCIT CC - 14, MUMBAI ITA(SS)A NO. 25/MUM/2001 - BLOCK PERIOD :01/01/1990 TO 19/09/2000 8 THE LD. A.R FURTHER SUBMITTED THAT ENHANCEMENT OF INCOME MADE BY THE CIT(A) WITHOUT ISSUING A SHOW CAUSE NOTICE TO THE ASSESSEE IS NOT TENABLE IN LAW. IN SUPPORT OF HIS SAID CONTENTION , THE LD. A.R RELIED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: (I). FREE INDIA ASSURANCE SERVICES LTD. VS. DCIT (2011) 132 ITD 60 (BOM) (II). G.G DIAMOND INTERNATIONAL VS. DCIT (2006) 104 TTJ 809 (BOM) 6. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE (FOR SHORT D.R) SUBMITTED, THAT SHRI F.H RIZVI HAD DURING THE COURSE OF S EARCH & SEIZURE PROCEEDINGS CONDUCTED ON HIM ON 07.12.1998 ADMITTED , THAT HE WAS NOT DOING ANY GENUINE BUSINESS AND WAS ONLY PROVIDING BOGUS PUR CHASE BILLS TO PHARMACEUTICAL CONCERNS. IT WAS SUBMITTED BY THE LD. D.R , THAT IN THE ASSESSMENT FRAMED IN THE CASE OF SHRI F.H RIZVI IN DECEMBER, 2000, HE WAS HELD BY THE DEPARTMENT AS AN ACCOMMODATION ENTRY PROVIDER. THE LD. D.R SUBMITTED , THAT AS THE STA TEMENTS RECORDED BY THE A.O , AS WELL AS THE DOCUMENTS SEIZED IN EXERCISE OF POWERS UNDER SEC. 131 COME WITHIN THE PURVIEW OF EVIDENCE UNDER SEC. 158BB R.W SEC. 3 OF THE EVIDENCE ACT AND ARE ADMISSIBLE AS EVIDENCE FOR THE PURPOSE OF BLOCK ASSESSMENT, THUS , THE STATEMENT OF SHRI F.H RIZVI AND THE INFORMATION COLLECTED BY THE A.O WOULD BE ADMISSIBLE AS EVIDENCE FOR THE PURPOSE OF FRAMING OF THE BLOCK ASSESSMENT IN THE HANDS OF THE ASSESSEE. RELIANCE IN SUPPORT OF THE AFORESAID CONTENTION WAS PLACED BY THE LD . D.R ON THE JUDGMENT OF THE HIGH COURT OF KERALA IN THE CASE OF CIT VS. HOTEL MERIYA (2011) 332 ITR 537 (KER). 7. WE FIND , THAT THE CORE ISSUE INVOLVED IN THE PRESENT APPEAL REVOLVES AROUND THE VERACITY OF THE CLAIM OF THE ASSESSEE THAT IT HAD MADE GENUI NE PURCHASE OF MATERIAL FROM SH. F.H RIZVI. ON A PERUSAL OF THE FACTS, IT EMERGES THAT ADMITTEDLY IN THE COURSE OF THE SEARCH PROCEEDINGS CONDUCTED UNDER SEC. 132 OF THE ACT, BY THE INVESTIGATION WING OF THE INCOME - TAX DEPARTMENT AT THE PREMISES OF THE ASS ESSEE COMPANY VIZ. M/S MERRIND LIMITED ON 19.09.2000 AND 24.09.2000, NO INCRIMINATING MATERIAL HAD MERRIND LTD. VS. DCIT CC - 14, MUMBAI ITA(SS)A NO. 25/MUM/2001 - BLOCK PERIOD :01/01/1990 TO 19/09/2000 9 SURFACED WHICH COULD SUGGEST THAT THE PURCHASES MADE BY THE ASSESSEE FROM SH. F.H RIZVI WERE BOGUS. RATHER, THE ONLY FACT WHICH HAD EMERGED IN THE COURSE OF THE SEARCH PROCEEDINGS IN CONTEXT OF SH. F.H RIZVI WAS THAT THE ASSESSEE HAD MADE PURCHASES OF MATERIAL , WHICH WERE USED IN MANUFACTURING OF PHARMACEUTICAL FORMULATIONS BY THE ASSESSEE. WE FIND THAT THOUGH THE REVENUE HAD ADMITTED THE RECEIPT OF THE SAID S PECIFIC MATERIAL BY THE ASSESSEE, AND UTILISATION OF THE SAME IN THE BUSINESS OF MANUFACTURING OF PHARMACEUTICAL FORMULATIONS, BUT HAD DECLINED TO ACCEPT THE CLAIM OF THE ASSESSEE THAT THE SAID MATERIAL WAS PURCHASED FROM SH. F.H RIZVI. WE ARE UNABLE TO PE RSUADE OURSELVES TO SUBSCRIBE TO THE VIEW SO ARRIVED AT BY THE LOWER AUTHORITIES. ON A PERUSAL OF THE RECORDS, IT EMERGES THAT THE REVENUE HAD TRIED TO FORTIFY ITS CLAIM THAT THE ASSESSEE HAD NOT MADE ANY GENUINE PURCHASES FROM SH. F.H RIZVI, BY TRYING TO TAKE SUPPORT OF HIS STATEMENT THAT WAS RECORDED WAY BACK BY THE INVESTIGATION WING ON 07.12.1998, WHEREIN HE HAD ADMITTED THAT HE WAS PROVIDING BOGUS BILLS TO VARIOUS PHARMACEUTICAL CONCERNS. WE THOUGH HAVE SERIOUS DOUBTS, AS TO HOW THE AFORESAID SAID STATEMENT OF SH. F.H RIZVI RECORDED TWO YEARS AGO COULD BE USED TO CHARACTERISE HIM AS A TAINTED PERSON FOR ALL TIMES TO COME , BUT FOR SURE , ARE UNABLE TO COMPREHEND THAT AS TO HOW SUCH A STAND ALONE STATEMENT REC ORDED WAY BACK TWO YEARS AGO, MAKING NO ADVERSE REMARKS IN CONTEXT OF THE ASSESSEE BEFORE US VIZ. MERIND LIMITED, HAD BEEN PRESSED INTO SERVICE BY THE REVENUE FOR CHARACTERISING THE PURCHASES CLAIMED BY THE ASSESSEE TO HAVE BEEN MADE FROM HIM, AS BOGUS. BE THAT AS IT MAY, WE FIND THAT SH. F.H RIZVI IN HIS STATEMENT RECORDED ON 08.01.2001 IN CONNECTION WITH THE SEARCH & SEIZURE PROCEEDINGS CONDUCTED ON WOCKHARDT GROUP CONCERNS, ON BEING QUERIED AS REGARDS HIS TRANSACTIONS WITH THE ASSESSEE COMPANY VIZ. MERIND LTD., HAD CATEGORICALLY STATED THA T HE HAD SUPPLIED GOODS TO THE ASSESSEE COMPANY AND THE SAME WERE NOT OVER INVOICED, AS UNDER. Q.4 HAVE YOU SUPPLIED ANYTHING TO WOCKHARDT GROUP OF COMPANIES, TRIDOSS LAB AND MERIND LTD DURING LAST 10 YEARS. ANS. YES, I HAVE SUPPLIED THE MATERIALS ME NTIONED IN MY PREVIOUS REPLY TO ALL THESE COMPANIES. I HAVE SUPPLIED 40% WITH BILLS AND 60% OGL/CASH MATERIAL MERRIND LTD. VS. DCIT CC - 14, MUMBAI ITA(SS)A NO. 25/MUM/2001 - BLOCK PERIOD :01/01/1990 TO 19/09/2000 10 TO THESE COMPANIES. I DO NOT HAVE ANY PROOF OF PURCHASE OF OGL/CASH SUPPLIES. Q.7 TO WHAT EXTENT SUPPLIES TO WOCKHARDT LTD AND MERIND LTD WERE OV ER INVOICED? ANS. NO, THE SUPPLIES TO THESE COMPANIES WERE NOT OVER INVOICED. FURTHER, WE ARE PERSUADED TO SUBSCRIBE TO THE CONTENTION OF THE LD. A.R, THAT NOWHERE IT WAS EVEN ALLEGED BY SHRI F.H RIZVI THAT THE ASSESSEE HAD MADE CASH PURCHA SES FROM HIM. RATHER, THE MENTION OF CASH SALES WAS MADE BY SHRI F.H RIZVI IN CONTEXT OF M/S SUN PHARMACEUTICALS LTD AND M/S CIPLA LIMITED. WE FIND THAT A PERUSAL OF THE STATEMENT OF SHRI F.H RIZVI, RECORDED ON 08.01.2001, AND FORMING PART OF THE REMAND R EPORT OF THE A.O AS ANNEXURE B, REVEALS THAT SHRI F.H RIZVI HAD NEVER STATED TO HAVE MADE ANY CASH SALES TO THE ASSESSEE COMPANY. 8. IN THE BACKDROP OF OUR AFORESAID OBSERVATIONS, WE HOLD A STRONG CONVICTION THAT THERE IS NO ROOM FOR ANY DOUBT AS REGARDS THE AUTHENTICITY OF THE PURCHASES CLAIMED BY THE ASSESSEE TO HAVE BEEN MADE FROM SH. F.H RIZVI. WE FIND THAT THE ASSESSEE HAD NOT ONLY FORTIFIED THE GENUINENESS AND VERACITY OF THE PURCHASE TRANSACTIONS UNDER CONSIDERATION ON THE BASIS OF EXHAUSTIVE DOCUMENTARY EVIDENCE, BUT ALSO THE SAID CLAIM OF THE ASSESSEE HAD BEEN ADMITTED BY SH. F.H RIZVI, IN HIS STATEMENT RECORDED ON 08.01.2001. W E THUS, IN TERMS OF OUR AFORESAID OBSERVATIONS ARE UNABLE TO CONCUR WITH THE VIEW OF THE LOWER AUTHORITIES, THAT THE ASSESSEE HAD NOT MADE PURCHASES OF THE MATERIAL FROM SH. F.H RIZVI, BUT HAD PROCURED THE SAME FROM THE OPEN/GREY MARKET. 9. ALTERNATIVELY , WE FURTHER FIND THAT THE ISSUE INVOLVED IN THE CASE BEFORE US, WAS ALSO LOOKED INTO BY A COORDINATE BENCH OF THE TRIBUNAL I.E ITAT, G BENCH, MUMBAI, IN THE CASE OF A GROUP CONCERN OF THE ASSESSEE VIZ. M/S WOCHKARDT VETERINARY LTD. IN ACIT VS. M/S WOC HKARDT VETERINARY LTD. [IT(SS)A NO. 50/MUM/2011; DATED 18.11.2015 ]. IN THE AFORESAID CASE, THE TRIBUNAL HAD OBSERVED THAT AS THE ADDITION MADE BY THE A.O WHILE FRAMING THE BLOCK ASSESSMENT WAS NOT BASED ON ANY INCRIMINATING MATERIAL, BUT ON THE BASIS OF A STATEMENT RECORDED IN THE COURSE OF POST - SEARCH INQUIRIES, MERRIND LTD. VS. DCIT CC - 14, MUMBAI ITA(SS)A NO. 25/MUM/2001 - BLOCK PERIOD :01/01/1990 TO 19/09/2000 11 WHICH AS HELD BY THE HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. BALAJI WIRE S PVT. LTD. (2008) 304 ITR 393 (DEL), NOT BEING DIRECTLY CONNECTED WITH THE RECOVERY OF ANY INCRIMINATING MATERIAL DURING THE SEARCH, THUS COULD NOT BE USED FOR FRAMING THE BLOCK ASSESSMENT. IN THE BACKDROP OF THE AFORESAID OBSERVATIONS, THE TRIBUNAL HAD ON IDENTICAL FACTS INVOLVED IN THE SAID CASE, HAD UPHELD THE DELETION OF THE ADDITION AS REGARDS THE PURCHASES MAD E BY THE SAID ASSESSEE FROM SH. F.H RIZVI. 10. WE THUS, ARE OF THE CONSIDERED VIEW THAT THE ADDITION OF RS. 3,80,344/ - MADE BY THE A.O , BY INFERRING THAT THE ASSESSEE HAD NOT PURCHASED THE MATERIAL FROM SH. F.H RIZVI, BUT FROM THE OPEN/GREY MARKET, AND THUS HAD INFLATED THE PURCHASE VALUE, IS DELETED. FURTHER, THE ADDITION OF RS. 8,89,707/ - MADE TOWARDS COMMISSION PAID FOR PROCURING BOGUS PURCHASE BILLS FROM SH. F.H RIZVI, CONSEQUENTLY IN TERMS OF OUR AFORESAID OBSERVATIONS , IS ALSO DELETED. AS WE HAVE U PHELD THE CLAIM OF THE ASSESSEE THAT IT HAD MADE GENUINE PURCHASES FROM SH. F.H RIZVI, AS RECORDED IN ITS BOOKS OF ACCOUNT, AND NO CASH PURCHASES WERE MADE, THUS, THE ENHANCEMENT OF RS. 88,97,070/ - MADE BY THE CIT(A), BY ASSUMING THAT CASH PURCHASES WERE M ADE BY THE ASSESSEE, THUS, CANNOT BE SUSTAINED, AND IS DELETED. 11. THAT AS WE HAVE DELETED THE ADDITIONS MADE BY THE A.O/CIT(A) ON MERITS, THUS, WE REFRAIN FROM ADVERTING TO AND ADJUDICATING THE VALIDITY OF THE ASSESSMENT/ENHANCEMENT ON THE LEGAL GR OUNDS RAISED BY THE ASSESSEE BEFORE US., WHICH ARE LEFT OPEN. 12. THE APPEAL OF THE ASSESSEE IS ALLOWED IN TERMS OF OUR AFORESAID OBSERVATIONS. ORDER PRON OUNCED IN THE OPEN C OURT ON 12. 10.2018. SD/ - SD/ - ( R.C SHARMA ) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; 12 . 10 .2018 MERRIND LTD. VS. DCIT CC - 14, MUMBAI ITA(SS)A NO. 25/MUM/2001 - BLOCK PERIOD :01/01/1990 TO 19/09/2000 12 PS. ROHIT / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI