Income Tax Appellate Tribunal - Delhi
Wings Pharmaceuticals Pvt. Ltd.,, New ... vs Department Of Income Tax on 23 April, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'H' : NEW DELHI)
BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER
and
SHRI B.C. MEENA, ACCOUNTANT MEMBER
ITA No.3287/Del./2012
(ASSESSMENT YEAR : 2006-07)
ITA No.4072/Del./2012
(ASSESSMENT YEAR : 2007-08)
ITA No.4073/Del./2012
(ASSESSMENT YEAR : 2008-09)
ACIT, Central Circle 2, vs. M/s. Wings Pharmaceuticals Pvt. Ltd.,
New Delhi. J - 13, Udyog Nagar Industrial Area,
New Delhi.
(PAN : AAACW0963B)
CO No.353/Del/2012
(in ITA No.3287/Del./2012)
(ASSESSMENT YEAR : 2006-07)
CO No.417/Del/2012
(in ITA No.4072/Del./2012)
(ASSESSMENT YEAR : 2007-08)
CO No.418/Del/2012
(in ITA No.4073/Del./2012)
(ASSESSMENT YEAR : 2008-09)
M/s. Wings Pharmaceuticals Pvt. Ltd., vs. ACIT, Central Circle 2,
J - 13, Udyog Nagar Industrial Area, New Delhi.
New Delhi.
(PAN : AAACW0963B)
(APPELLANT) (RESPONDENT)
2 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012
ASSESSEE BY : Shri Ved Jain, Advocate
REVENUE BY : Shri R.S. Meena, CIT DR
ORDER
PER B.C. MEENA, ACCOUNTANT MEMBER :
ITA No.3287/Del/2012 and CO No.353/Del/2012 emanate from the
order of the CIT (Appeals)-III, New Delhi dated 23.04.2012 for the Assessment Year 2006-07. ITA No.4072/Del/2012 and CO No.417/Del/2012 emanate from the order of the CIT (Appeals)-III, New Delhi dated 11.05.2012 for the Assessment Year 2007-08. ITA No.4073/Del/2012 and CO No.418/Del/2012 emanate from the order of the CIT (Appeals)-III, New Delhi dated 28.05.2012 for the Assessment Year 2008-09. The assessee is engaged in the manufacturing of pharmaceutical formations and Ayurvedic products having its plant and Delhi and Baddi in Himachal Pradesh. Excise authorities carried out investigation of Shri Dinesh Sharma wherein he was found to be providing accommodation entries to various concerns in Delhi and NCR through its concerns M/s. Krishna Machine Tools and Shri Krishna Machine Tools. Assessee was also found to have obtained accommodation bills for machineries. Consequent to this investigation, a search and seizure operation was carried out at the premises of assessee on 14.02.2008 and survey u/s 133A of the Act on 03.03.2008. Notices u/s 153A were issued. The assessee company got incorporated in the year 1987 and the manufacturing 3 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 activities were carried out from Delhi. The company also established production unit for production of Allopathic Pharma products at Baddi which came into operation with effect form 03.05.2005. The assessee company also did job work for CIPLA Limited and others. During the search operation, some material was found that assessee has shifted some machinery from its Delhi unit to Baddi unit which was also admitted in the statements recorded during the search operation. A survey was also carried out at Baddi unit and a valuation report was also obtained by revenue authorities to ascertain the value of the machineries at Baddi unit. The machinery was valued at Rs.6,36,52,889/- and out of this, machinery to the extent of Rs.5,72,01,279/- were observed to be old more than 3 to 5 years. In the assessments proceedings, deduction u/s 80IC was denied. However, in appeal, CIT (A) granted relief to the assessee in all these years.
2. In all these appeals and cross objections, the grounds of appeal are by and large common, therefore, these appeals and cross objections are being disposed off by this common order for the sake of convenience.
3. The grounds of appeals and cross objections are reproduced as below :- ITA No.3287/Del/2012
"1 On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in law and or facts in 4 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 restricting the addition to Rs.1,06,000/- out of total addition of Rs.21,00,000/- made by the Assessing Officer on account of obtaining accommodation bills of machinery.
2 On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in deleting the addition of Rs.1,15,89,750/- made by the Assessing Officer on account of suppression of wages.
3 On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in holding that Assessing Officer was not justified in holding that the assessee had suppressed production of Rs.72,91,213/-.
4 On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in deleting the disallowance of Rs.18,01,14,280/- made by the Assessing Officer on account of deduction u/s 80IC of the Income tax Act, 1961.
5 On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in directing the Assessing Officer not to disallow any deduction u/s 80IC on the "Job work income" from manufacturing activity carried out at Baddi Unit.
6 On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in deleting the disallowance of Rs.47,97,439/- made by the Assessing Officer on account of investment in plant and machinery.
7 On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in directing the Assessing Officer to recomputed the depreciation thus, giving a relief of Rs.3,06,413/- to the assessee out of total disallowance of Rs.8,10,000/- made by the Assessing Officer on account of depreciation claimed on Baddi Unit.
8 On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in directing the Assessing Officer to recomputed the depreciation thus, giving a relief of Rs.23,93,587/- to the assessee out of total disallowance of 5 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 Rs.27,00,000/- made by the Assessing Officer on account of depreciation c1aimed on Delhi Unit.
9 On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in deleting the addition of Rs.24,98,104/- made by the Assessing Officer on account of unaccounted investment and expenses.
10 On the facts and in the circumstances of the case, the CIT(A) bas erred in law and on facts in deleting the addition of Rs.30,48,737/- made by Assessing Officer on account of income of D-6 Unit, Delhi.
11 On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in deleting the disallowance of Rs.12,00,000/- made by the Assessing Officer on account of scrap sale.
12 On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in restricting the disallowance to Rs.1,36,000/- out of total disallowance of Rs.10,11,000/- made by the Assessing Office u/s 14A of the Income tax Act, 1961.
13 The order of the CIT(A) is erroneous and is not tenable on facts and in law.
14. The appellant craves to add, alter or amend any/all of the ground of appeal before or during the course of the hearing of the appeal."
Cross Objection No.353/Del/2012 "1. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the proceedings initiated under Section 153A and order passed by the learned Assessing Officer (AO) under Section 153A/143(3) is without jurisdiction.
6 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012
2. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the proceedings initiated under Section 153A are liable to be quashed in the absence of a valid search.
3. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the proceedings initiated under Section 153A are bad in law in the absence of any incriminating material belonging to the assessee being found during the course of the search.
4. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of AO in making disallowance of an amount of Rs.1,36,000/- invoking the provisions of Section 14A of the Act.
5. (i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the AO has erred in reviewing the assessment proceedings for the year under consideration without there being any adverse material on record.
(ii) That the above said additions are otherwise untenable since reassessment under Section 153A consequent to search is to be confined only to the incriminating material belonging to the assessee found during the course of the search.
6. The respondent craves leave to add, amend or alter any of the grounds of cross objection."
ITA No.4072/Del/2012
"1. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in deleting the disallowance of Rs.22,10,42,520/- made by the Assessing 7 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 Officer on account of deduction u/s 80IC of the Income tax Act, 1961.
2. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in directing the Assessing Officer not to disallow any deduction u/s 80IC on the "Job work income" from manufacturing activity carried out at Baddi Unit.
3. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in deleting the addition of Rs.1,02,40,635/- made by the Assessing Officer on account of suppression of production.
4. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in holding that the Assessing Officer was not justified in holding that the assessee had suppressed wages expenses of Rs.62,26,820/-.
5. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in restricting the addition to Rs.2,000/- out of total addition of Rs.9,00,000/- made by the Assessing Officer on account of obtaining accommodation bills of machinery.
6. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in deleting the addition of Rs.47,97,439/- made by the Assessing Officer on account of investment in plant and machinery.
7. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in directing the Assessing Officer to recompute the depreciation thus, deleting the disallowance of Rs.2,62,321/- out of total disallowance of Rs.6,88,500/- made by the Assessing Officer on account of depreciation claimed on Baddi Unit.
8. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in deleting the addition of Rs.4,71,000/- made by the Assessing Officer on account of short term capital gain on the basis of DVO's report.8 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012
9. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in deleting the addition of Rs.12,00,000/- made by the Assessing Officer on account of scrap sale.
10. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in restricting the disallowance to Rs.3,16,096/- out of total disallowance of Rs.13,21,000/- made by the Assessing Officer u/s 14A of the Income tax Act, 1961.
11. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in deleting the addition of Rs.3,90,00,000/- made by the Assessing Officer on account of inflated income.
12. The order of the CIT(A) is erroneous and is not tenable on facts and in law.
13. The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal."
Cross Objection No.417/Del/2012 "1. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the proceedings initiated under Section 153A and order passed by the learned Assessing Officer (AO) under Section 153A/143(3) is without jurisdiction.
2. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the proceedings initiated under Section 153A are liable to be quashed in the absence of a valid search.
3. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the proceedings initiated under 9 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 Section 153A are bad in law in the absence of any incriminating material belonging to the assessee being found during the course of the search.
4. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of AO in making disallowance of an amount of Rs.3,16,096/- invoking the provisions of Section 14A of the Act.
5. On the facts and circumstances of the case, the learned CIT(A) has erred in sustaining addition of Rs.10,00,171/- as unexplained investment u/s 69B of the Act on account of construction cost at Plot No.43-44, HPSIDC, Baddi as per the report of DVO Chandigarh.
6. (i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the AO has erred in reviewing the assessment proceedings for the year under consideration without there being any adverse material on record.
(ii) That the above said additions are otherwise untenable since reassessment under Section 153A consequent to search is to be confined only to the incriminating material belonging to the assessee found during the course of the search.
7. The respondent craves leave to add, amend or alter any of the grounds of cross objection."
ITA No.4073/Del/2012
"1. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in deleting the disallowance of Rs.14,40,38,568/- made by the Assessing Officer on account of deduction u/s 80lC of the Income tax Act, 1961.
2. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in directing the Assessing 10 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 Officer not to disallow any deduction u/s 80IC on the "Job work income" from manufacturing activity carried out at Baddi Unit.
3. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in deleting the addition of Rs.4,44,86,782/- made by the Assessing Officer on account of suppression of production.
4. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in holding that the Assessing Officer was not justified in holding that the assessee had suppressed wages expenses of Rs.26,47,992/-.
5. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in deleting addition of Rs.24,00,000/- made by the Assessing Officer on account of obtaining accommodation bills of machinery.
6. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in deleting the addition of Rs.47,97,439/- made by the Assessing Officer on account of investment in plant and machinery.
7. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in directing the Assessing Officer to recompute the depreciation thus, deleting the disallowance of Rs.5,85,225/- made by the Assessing Officer on account of depreciation claimed on Baddi Unit.
8. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in deleting the addition of Rs.4,71,000/- made by the Assessing Officer on account of short term capital gain on the basis of DVO's report.
9. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in restricting the addition to Rs.7,30,355 out of total addition of Rs.10,00,000/- made by the Assessing Officer on account of scrap sale.
10. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in deleting the addition of 11 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 Rs.2,50,00,000/- made by the Assessing Officer on account of inflated income.
11. The order of the CIT(A) is erroneous and is not tenable on facts and in law.
12. The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal."
Cross Objection No.418/Del/2012 "1. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of AO in making disallowance of an amount of Rs.26,26,000/- invoking the provisions of Section 14A of the Act.
2. On the facts and circumstances of the case, the learned CIT(A) has erred in sustaining addition of Rs.13,33,033/ as unexplained investment u/s 69B of the Act on account of construction cost at Plot No.43-44 HPSIOC, Baddi as per the report of DVO Chandigarh.
3. On the facts and circumstances of the case, the learned CIT(A) has erred in sustaining addition of Rs.7,30,355/- on account of suppressed scrap receipt.
4. The respondent craves leave to add, amend or alter any of the grounds of cross objection."
ITA No.3287/Del/2013
6. One of the common issues in all these three appeals of revenue is with regard to deduction u/s 80IC of the Act. It is Gr. No.4 in ITA No.3287/Del/ 2013 and Gr. No.1 in ITA Nos.4072 & 4073/Del/2012. The facts involved 12 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 in this ground are also relevant in many other grounds, hence being decided first.
7. During the course of the assessment proceedings, the AO confronted the assessee with the material found during the course of the search and survey and also with the valuation report obtained during survey operation. Assessing Officer issued questionnaire on 20.11.2009 and 10.12.2009. In response thereto the assessee submitted clarifications vide letters dated 27.11.2009, 30.11.2009, 7.12.2009, 11.12.2009 and 24.12.2009. The Assessing Officer, however, was not convinced with the reply submitted by the assessee and denied deduction under Section 80IC of the Act. Relevant observations of Assessing Officer are as follows :-
"9. I have considered the reply of the assessee carefully. During the course of search ample evidences have been found which clearly establish that the assessee company was engaged in the activity of procuring accommodations bills for the plant & machinery installed at Baddi unit which is evidenced from the statement of Mr. Dinesh Sharma who controlled the billing process of M/s Krishna Machine & Tools and its sister concerns. In his statement he stated that the assessee company procured merely bills instead of actual delivery of goods. Mr. Dinesh Sharma procured merely bills instead of actual delivery of goods. Mr. Dinesh Sharma was investigated by the Central Excise & Custom Department as well as by the Income Tax Department. In both the investigations Mr. Dinesh Sharma accepted that he was providing merely bills instead of goods.
9.2 As evident from the seized material, two letters from the assessee one addressed to Mr. Chauhan and an other letter addressed to M/s Krishna Machine & Tools for procuring bills, which are annexed as per Annexure A and B with this order. From these papers it is established that the assessee company 13 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 was procuring the bogus purchase bills for machine. Claim of the assessee is incorrect in respect of M/s Krishna Machine & Tools and Mr. Dinesh Sharma as per following reasons :
(1) Assessee was asked to produce owner of M/s Krishna Machine & Tools, but despite having repeated opportunities he was not produced. Basic onus was on assessee to prove its purchases claimed in its books. The assessee has completely failed in discharging this onus.
(2) Payment of machinery to Sh. Krishna Machine & Tools were and its sister concerns M/s Krishna Machine & Tools were made by the assessee as late as in 2008 which is after 3 years from so called of purchase. Accommodation bills were obtained amounting Rs.8,48,640/- and Rs.36,24,660/- during A.Y. 05-06 and A.Y. 06-07 respectively from these parties of Dinesh Sharma. Payments of these bills to Krishna Machine & Tools were made during A.Y. 0607 of Rs.15,00,000/- and in A.Y. 08-09 Rs.20,55,560/- and balance amount of Rs.69,100/-
was adjusted by way of debit note. Sri Krishna Machine & Tool was paid during A.Y. 06-07 and A.Y. 08-09 amount of Rs. 5,50,000/-, Rs.2,88,775/- respectively and balance amount of Rs.9,865/- was adjusted by way of debit note. In normal course the machine supplier do take advance money and only then they supply machine. But in this case payment pattern itself proves that they are accommodation bills. (3) At the last even payment was not made to Sh. Krishna Machine & Tools amounting to Rs.69,100/- which was adjusted from the account of M/s Krishna Machine & Tools after three years from the date of the purchase. It could be seen from its ledger in the books of the assessee.
9.3 It is found that there were two type of accommodation bill provider in the case of the assessee.
(i) Those who are not doing any manufacturing activity and merely providing bills,
(ii) Those who are actually doing manufacturing work but have provided assessee accommodation bill to the assessee, in order to secure there business interest with the assessee. 14 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012 Common pattern in both are that the payment made by the assessee in respect of accommodation bills took much longer time than the payment of other purchase bills, in most of the times."
"10 As reproduced in beginning Shri Surendra Singh Banga (in two statements), Shri D.V. Sardana, T Kukundan, all have stated in their statements recorded during course of search that the assessee company has shifted its old and used machinery from New Delhi and formed a unit at Baddi. Two of them Shri Surender Singh Banga and Shri D.V. Sardana have claimed to have retracted their statement. It is important to note that Mr. Surendra Singh Banga had given two statements during the search proceeding. It is not clear as to which statement he so claimed to have retracted. Cognizance of their retraction cannot be taken. Reason is livelihood upon the assessee company. Retraction letter were filed after months from the day when there statement on oak were recorded. It clearly proves that under influence of the assessee its employees had retracted their statements. The so called retraction letter is self serving evidence created by the assessee. The same therefore, cannot be taken into cognizance."
"11. As per the Inspection Report of the Approved Valuer which was submitted on 09.05.2008, it was reported that value wise 88.72% of the plant and machinery at Baddi Unit of the assessee were old where as only 11.28% of the Plant & Machinery were new. The total value of Plant & Machinery at Baddi Unit was worked out at Rs.5,72,01,279/-, out of which the value of new Plant & Machinery has been certified at Rs.64,51,610/- as per valuation report.
a) As per the Inspection Report, the aggregate amount of new plant & machinery accounting for 11.28% of total value of Plant & Machinery installed at Baddi Unit is only Rs.64,51,610/-.
b) It is established that old Plant & Machinery were transferred by the assessee company from its Delhi Unit to Baddi Unit as is evident by the seized material (i.e. Annexure A-29 of Party WB-2).
15 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012
(c) It is found that Plant & Machinery worth Rs.
40,64,691/- was claimed to be sold/ written off by the assessee company from D-06 Unit during the AY 2006-07 and loss of Rs.39,42,380/- was booked in the P & L Account of D-06 Unit. This issue has also been discussed in the order of A.Y. 05-06 in the case of the assessee. It has been concluded that the said entry of loss on sale of machinery was introduced to create a smoke screen on for shifting of machineries by the assessee from its Delhi Unit to its Baddi Unit."
8. Based on the above finding the Assessing Officer concluded as under:-
"13. In view of the above and discussion made in the preceding paras of this order, it is established that the assessee company has formed its Baddi Unit by transferring its Plant & Machinery from its Delhi Unit. As per section 80IC of the Act, a new unit should be formed. Instead of that, the assessee shifted Plant &Machinery of its old unit at Delhi and installed these used and old Machineries at another unit in tax free area at Baddi (HP) which is not permissible as per conditions laid down under section 80IC of the Act.
13.2 Incontrovertible evidence of accommodation bills of more than Rs. 54 lacs of machinery purchase as introduced by the assessee has been found by the Department during AY 2005-06 and 2006-07. Further unassailable evidence of shifting of machinery from D-6, Delhi Unit to Baddi Unit is in the possession of the department. As per statements on oath recorded (Mr. D.V. Sardana) D-6, Delhi Unit was closed in May, 2006. The assessee itself claims that the Baddi Unit was started in May, 2006.
13.3 The WDV of Plant & Machinery as on 31.03.2005 of D- 6 Unit as per Companies Act was Rs. 1,60,50,810/-. Majority of these machineries had been shifted to the Baddi Unit.
13.4 It is also found that the value of Old Plant & Machinery of the assessee company, as per valuation report of the approved valuer was 88.72% whereas only 11.28% of the machinery were new. As per report of Shri Umesh Johar of M/s Johar & Associates more than 70% of the machines in 16 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 numbers were manufactured/ purchased during the period 1998 to 2003. Therefore, it is incontrovertibly clear that majority of machinery installed at Baddi unit was shifted from the old existing unit at D-6 New Delhi or the assessee had purchased old and used machines. Value of the old machinery (88.72%) is much higher than the limit of 20% of old machinery being the limit laid down in section 80IC of the I.T. Act.
13.5 As discussed earlier, the certificate filed by the assessee in form No. 10CCB has been found unreliable. After examination of the same, it has been rejected by giving detailed reasons. For the claim of deduction u/s 80IC of the Act, a correct and true form No. 10CCb is required to be filed with return of income. However, the assessee company has failed on this account also.
13.6 As discussed above in preceding paragraphs of this order, the assessee company has failed to fulfill mandatory conditions laid down in section 80IC of the Act. Therefore, the assessee's claim of deduction u/s 80IC for the assessment years 2006-07, 07-08 and AY 08-09, if found incorrect and impermissible in law. Therefore the entire deduction u/s 80IC is liable to be taxed."
9. Assessee filed appeal before the CIT(A) and also made alternative plea that in any case the value of the old machinery at Baddi unit being less than 20% of the total value of the machinery.
10. The CIT(A) called a remand report from the Assessing Officer on the following specific issues :-
"The appellant has made a detailed submission dated 23.06.2011 with respect to the issue of exemption disallowed in his case u/s 80IC of the IT Act.
On a perusal of the assessment order and from the submission made by the appellant it is observed the exemption u/s 80IC has been denied on the ground that the total value of old machinery or plant or parts installed at the appellant's unit at 17 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 Baddi (Himachal Pradesh), during the above referred assessment years exceeds 20% of the total value of machinery or plant used in such new business. The substance of the finding in the assessment order is that the assessee has obtained accommodation bills from one M/s Krishna Machines and Tools, M/s Shri Krishna Machines and Tools and certain other parties for plant & machinery which has not bee actually purchased and that such machinery as shown in these accommodation bills have actually been shifted from appellant's already existing unit located at D-6, Udhyog Nagar Industrial Area, New Rohtak Road, Delhi - 110041, which was no longer used for production activities. The above finding of the AO is based on certain seized material in form of accommodation bills where the words "bill only" or "no material transfer" has been written. Further, the fact of physical transfer of machineries from D-6 Unit at Delhi is also found corroborated from the statements recorded from the employees at the time of search, which has been referred to in the assessment order. Reliance has also been placed on the statement recorded of Sh. Dinesh Sharma, the main person controlling the accommodation bill providing companies/ concerns. Further to this is case of some other concerns also statements were recorded during the course of assessment proceedings whereby these persons have also accepted giving accommodation bills. From Para 13.2 of the assessment order at Page 134 it is noted that the AO has thus found incontrovertible evidence of accommodation bills for more than Rs. 54 Lacs of machinery purchase which has been shifted from D-6 Delhi Unit to Baddi Unit.
The AO has also placed reliance on the valuation report of the approved valuer which was prepared on the basis of valuation done at the time of survey conducted u/s 133A at Baddi Unit of the assessee on 03.03.08. Placing reliance on the valuation report wherein the said aforesaid valuer has remarked that the machineries installed at Baddi Unit are more than "five years old", the AO has held in the assessment orders that the conditions specified in section 80IC as to the requirement of at lease 80% of plant and machinery installed in a given year being new has not been fulfilled.18 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012 The assessee in the present submission has contested the valuation report of the valuer on several grounds which inter alia are as under:-
i. That the observation that the condition of the machinery is more than five years old has been made in a mechanical manner.
ii. That the inspection has been done by the valuer within two hours without allowing cross examination and verification.
iii. No basis for taking present day value as suggested by the valuer has been indicated in the report. Neither any quotation taken by the valuer from suppliers of such machinery has been made part of the report.
iv. Total the assessee is having relevant bills with suppliers name and specification which clearly establishes the fact that the machineries are new.
v. The assessee has also adduced evidence relating to the transportation and installation expenses of such new plant and machinery which has not been controverted by the AO.
vi. That the assessee has submitted the complete list of machineries and the list of suppliers alongwith photocopy of their bills as well as confirmation / affidavit from each of the supplier, some of whom were also examined by the AO at the time of assessment and who have confirmed having supplied new plant and machinery.
Accordingly, the assessee/ appellant has in his submission concluded that the dispute relating to accommodation bills in respect of the plant and machinery which in fact was old and was being earlier used at D-6, Delhi unit comes only to Rs. 54 lacs. The argument of the assessee is that even if such plant and machinery is treated as old in nature it is the depreciated value of such machinery, shifted to Baddi Unit which should be appropriately taken for working out eligibility u/s 80IC, at Rs. 20,57,421/-, as seen from the enclosed chart. In support of this claim the appellant in the chart has given the name of the original supplier of such machineries together with the original 19 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 value and the depreciated value of such machine as on 31.03.2005 and 31.03.2006 (partly) and therefore the appellant has submitted a reworking of the total value of new machines and old machines as on the end of financial year31.03.2006, 31.03.2007 and 2008 and has submitted that the eligibility for exemption u/s 80IC is available to the assessee as per the said reworking.
You are required to go through the submission and the enclosures as well as the copy of bills submitted by the appellant and offer your comments on the same. You may also offer your comments on the valuation aspect of the machineries by the accrued valuer and the claim being made by the appellant that most of the other machineries installed at Baddi are actually new and are supported by bills and other expenses incurred for transportation and installation. You may also point out any other evidence relied upon the AO in the order to the effect that the plant and machinery (other than of the value of Rs. 54 Lacs) is essentially old in nature."
11. The Assessing Officer submitted its remand report on 23.08.2011.
12. The assessee filed rejoinder to the remand report which read as under :-
"1. That the appellant in its written submissions has raised various issues with reference to the assessment orders passed by the assessing officer for the various years.
2. The assessing officer has disallowed the claim of the assessee under Section 80-IC of the Act on the ground that the machinery installed a the new undertaking set up by the assessee at Baddi (H.P.) has more than 20% as old plant and machinery. In this regard he has referred to the various statements taken during the course of the search/survey and to also various documents.
3. In our written submissions we have explained each and every issue raised by the assessing officer and also after analyzing all the allegations of the assessing officer it was submitted that even as per AO's own allegation if the same is taken to the logical end the assessee will still be eligible for exemption under Section 80-IC of the Act. In this regard we 20 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 have made submissions based on the allegations made by the assessing officer.
4. The assessing officer has now submitted the remand report on our written submissions. As per this remand report the assessing officer has stated the facts starting from page 2 to page 8 in para 3.1 to para 3.16. These facts are exactly the same as stated in the assessment order. In fact it is a verbatim copy of the assessment order."
5. In para 5, the assessing officer has stated the contention raised by us. In para 5.1 he has referred to the applicability of Rule 46A in the case of the assessee and then referred to the various judgments on this issue. In this regard it is submitted that the assessee during the assessment proceedings has filed all necessary details and evidences as were called by the assessing officer. The assessee during the appellate proceedings has analyzed the same facts and has put the same in the columnar form based on the records available with the assessing officer. The assessing officer is wrongly assuming that the assessee has submitted additional evidences. On going through the Annexures which have be enclosed therein your honour will notice that the assessee has submitted a chart showing yearwise details of the old machines as alleged by the learned assessing officer in Annexure A-2. In Annexure A-3 the same machines have been stated again as alleged by the learned assessing officer and a working of the written down value has been done. Thus this is an analysis of the allegations of the AO. Further the value of these machines is as per the records for each of the assessment years and also referred to in the search and seized record and the statements which have been curled out by the assessee and put in here. Accordingly the assessing officer was not justified in objecting to this analysis as additional evidence.
6. Further your honour will appreciate that the assessing officer in the assessment order has made an allegation that the value of the old machines is more than the prescribed percentage for availing exemption under Section 80-IC of the Act. It is not the case of the AO that he has called for certain evidences which the assessee has failed to produce. It is a case whether this analysis has been prepared as a matter of 21 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 alternative submission despite contention that the old machineries having been installed at Baddi. The assessee has taken an alternative ground before your honour that even assuming that the allegation of the AO is correct still the value of the old machinery is less than 20%. It is in this context clause (c) of Rule 46A(1) will be applicable because this evidence is relevant to the grounds of appeal to be deduced by your honour and this was never the contention of the assessee before the assessing officer and as such he was prevented by sufficient cause by producing these before the assessing officer. It is further submitted that as per Rule 46A the assessing officer has to be given an opportunity for examination of the papers. Having given the same the process has been completed and the entire discretion for admission of additional evidence vests with the CIT(A) who is the deciding authority. Further the power of the CIT(A) is co-terminus with the AO and he is well within his right to call for any additional evidence or information which is necessary to decide the issue before him. In this regard Rule 46A(4) is relevant which specifically provides that this rule shall not affect the power of the Commissioner (Appeals) to direct the production of any document or examination of any witnesses to enable him to dispose of the appeal. Further under Section 250(4) the Commissioner (Appeals) has the power to make such further query as he thinks fit or may direct the AO to make further enquiry and report the result of the same to the Commissioner (Appeals) In this regard relevance is being placed on the following judgments:-
I. In case of Electra Jaipur P Ltd. Vs IAC (1998) 26 ITD 236 Del it was held that if the evidence is genuine, reliable and proves the assessee's case assessee should not be denied the opportunity adduce it.
II. The Supreme Court in the case of Collector, Land Acquisition vs Mst. Katiji & Others (1987) 167 ITR 471 (SC) where an issue of limitation has arisen, has observed as under:
"It must be grasped that the judiciary is respected not on account of its power to legalize on technical grounds by because it is capable of removing injustice and I expected to do so."22 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012 III. If evidences goes to the route of the matter and is essential for rendering substantial justice then the same is required to be admitted.-Bonanza Stock Brokers vs. ITO (ITA No. 1002/Del/06)(ITAT) Abhay Technoplast (HUF) vs. ITO (ITA No. 565/Del/07)(ITAT).
IV. Hon'ble Supreme Court in the case of Collector Land Katiji, 167 ITR 471 (SC) also held that when technical consideration are pitted against the cause of substantial justice, the latter must prevail.
V. Additional Evidence if in the interest of justice, and renders assistance to the authority in passing order, may be admitted-held in Dwarka Prasad V/s ITO 63ITD.
7. The assessing officer in para 5.2 has referred to certain judgments to the accepted preposition that it is assessee who has to substantiate its return and claim of deduction. The AO has stated that burden is not discharged by any fantastic explanation. Here is a case where the assessee has justified its claim and the AO is rejecting the same as fantastic which is being contested by the assessee.
8. In para 5.3 the assessing officer stated that the written down value is not acceptable for the reason that the specification strips were not found on the machines and in the absence of the same the life span could not be exactly determined.
9. Further in sub-para (ii) it has been stated that in the absence of the specification strips on the machines it is now not verifiable as copies of the bills submitted before your goodself are for the same machines which have been shifted to Baddi unit by the assessee.
10. The above observation of the AO in the remand report contradicts the stand taken by him in the assessment order. Your honour will appreciate that as per the assessment order the whole of the allegation of the AO right from the start till end is revolving around the fact that the assessee has shifted its old machineries from Delhi to Baddi unit. If the contention of 23 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 the AO is that these old machineries have not been shifted to Baddi unit then the whole case of the AO falls flat.
11. Further the AO has stated that the life span could not be exactly determined. If that he the case how come the valuation has been done by the valuer and on what basis he has assumed the cost of such machineries. The AO in para (iii) has further commented that the bills of the machineries pertain to the period 1989, 1990, 1994, 1997 and 2003. If that is what the allegation is and that is what the basis in assessment order all these details are part of the assessment record where each assessment yearwise additions in the plant and machineries are available.
12. Further during the course of the search documents have been seized giving the value of these machineries as per the books of account and which have been further examined and corroborated and referred to by the assessing officer with the statement of the persons thereto. Even for the sake of argument that the bills of these machineries are ignored still the fact remains that the details given in Annexure - 2 and Annexure - 3 are on the basis of the assessment record and the seized record and on that basis this analysis has been prepared to prove the alternative contention of the assessee.
13. In sub-para (iv) the assessing officer has given justification of the rejection of the books of account. In this regard the AO has just repeated what he has stated in the assessment order. He has not rebutted any of the contention raised by us in the written submission. This clearly demonstrates that he has no material whatsoever to rebut the submissions made by the assessee on this issue.
14. In para (v) the AO has referred to the valuation done by Mr. Umesh Johar of M/s Johar & Associates and on this basis he has stated that the correctness of inspection and valuation is beyond doubt. In this connection in our written submission we have raised the following issues:-
i) Who is the approved valuer? Mr. Umesh Johar or Mr. A.K. Govil. In this regard there is an inspection report dated 9th May, 2008 signed by Mr. Umesh Johar and 24 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 there is a valuation report dated 23rd June, 2008 signed by Mr. A.K. Govil. On the report signed by Mr. Umesh Johar there is no registration number appearing of an approved valuer. It is a fact on record that Mr. A.K. Govil has not visited nor inspected the Baddi unit. If that be the case how come Mr. A.K. Govil has valued the machinery as there is no answer to this in the remand report.
ii) Secondly what is the basis for present day replacement nowhere is coming in the report. Is it based on the quotations obtained from the suppliers or is it an arbitrary estimate? There is no answer to this. How can the machinery has been valued at a replacement value when the law is clear that the machinery has to be valued at cost.
iii) On going through the inspection report the life span of the machinery has been estimated and is being claimed that this is the correct life of the machinery and that is why this value is being claimed to be correct. Now in the remand report the assessing officer himself has stated that in the absence of strips it was not possible to determine the life of the machinery. Which statement is correct and what is the basis, the remand report is silent.
In this regard it will be important to refer to the following specific issues on the valuation report of the valuer:-
(a) We have raised the issue that the observation that the machinery is more than 5 years old has been made in a mechanical manner as can be seen from a cursory look at the valuation report. What is the basis for assessing machineries is more than 5 years old no where has been stated nor replied in the remand report?
(b) We have also raised the issue that the inspection has been done within two hours without allowing cross examination and verification. The remand report is totally silent on this issue.25 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012
(c) The valuation has been done on the basis of the present day value which is incorrect.
(d) Further there is no basis given for the present day value such as quotation, etc.
(e) We have also raised the issue that in respect of the new plant and machinery installed at Baddi unit no dispute has been raised by the AO. The assessee has submitted documentary evidences regarding the bills, transportation, etc. In the absence of any rebuttal there can be no denial that the new machineries have been purchased and installed at the Baddi unit by the assessee. The remand report is totally silent on this issue.
(f) This is important to note that the assessee had submitted complete list of machineries, list of suppliers along with confirmations and affidavits for which independent verification was made by the AO from these suppliers and each of these suppliers have confirmed having supplied the new plant and machinery to the assessee. The AO has not been able to rebut this contention of the assessee.
(g) It is important to note that the AO in the remand report has accepted the fact in para 8 that the list of the machineries submitted by the assessee for calculating the written down value reveals that the description of the machines mentioned is the same and is in accordance with the valuation report. Further the AO in para 8 has also admitted the fact that the arithmetical calculations of WDV submitted in this chart appears to be correct. This statement of the AO in this para 8 that the description and the calculation is correct proves beyond doubt that old machineries are limited to this chart only and for which the valuation as worked out by the assessee is correct and the valuation done by the valuer on the basis of which the AO has denied deduction under Section 80 IC is incorrect and cannot be relied upon.
(h) It is important to note that the description of the machineries having been tallied there is no reason to 26 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 doubt about the machines particularly on the basis that the strips were not available.
In view of the above facts it is submitted that the AO has not appreciated the issue which is being contended before your honour. Your honour will appreciate the basis for denying deduction under Section 80IC is that assessee has shifted its old plant and machinery from Delhi to Baddi unit. This allegation is being made on the basis of certain documents found during the course of the search and the statement recorded. Further based on this statement a survey has been carried out on the basis of which an inspection was carried out and valuation report has been obtained. On reading the assessment order the AO has made out a case that old machineries of Delhi unit have been shifted to Baddi and then he has got these machineries valued from a valuer and on the basis of the valuation adopted by such valuer he has worked out the percentage even though old machineries are more the prescribed percentage for claiming deduction under Section 80IC. In this regard the stand of the assessee has been that the contention of the AO is wrong. Further even if it is assumed that the contention of the AO is correct then the value of the plant and machinery shifted to Baddi unit is less than the prescribed percentage. In this regard, firstly it was submitted that the valuation done by the valuer is incorrect on the following grounds:-
(a) It is not a valuation done by an approved valuer.
(b) Valuation has been done by a person who has not verified the machineries himself.
(c) The valuation has been done on the basis of replacement cost assumed at the current rate without finding out the actual cost.
(d) Discounted method of valuation cannot be applied.
(e) There is no basis even for estimating the present market value as there is no quotation, no comparable instances.27 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012
(f) That the allegation that machineries are more than 5 years old is too generic. The assessee's Baddi unit has been working for quite some time.
Accordingly, the value adopted by the AO on the basis of this valuation report has to be totally disregarded. The remand report has nowhere been able to rebut these issues raised by us. Now coming to the actual valuation it is the case of the AO that the old machineries of the assessee at Delhi unit have been shifted to Baddi unit. The value of these old machineries have been computed as per the assessment record and that valuation has been found correct in the remand report. Accordingly this value has to be adopted for the purpose of finding out eligibility for deduction under Section 80IC. That this working done by the assessee in this regard is correct meaning thereby that the value of the old machineries comes to Rs.20,57,421/-.
The third issue is value of the new machineries. The assessee has submitted a complete list of the new machineries. The assessee has submitted evidences, including affidavits, confirmations. These confirmations have been cross-verified by the AO during assessment stage and nothing adverse has been pointed out. Accordingly there cannot be any dispute to the extent of these new machineries at Baddi unit. In these circumstances the case of the assessee squarely falls within the eligibility prescribed under Section 80IC as has been explained in the written submission as under:-
The total value of the machinery for A.Y. 2006-07 will be as under:-
Total machineries as per books : Rs.2,57,65,050/- Less: Machineries in which there is an allegation That the bills are not genuine : Rs. 53,23,540/-
New machineries for which there is
no dispute : Rs.2,04,41,510/-
28 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012
Old machineries as per list enclosed : Rs. 20,40,750/-
Total value of machineries : Rs.2,24,84,260/-
% of old machineries : 9.09%
Your honour will appreciate that the percentage of the old machinery is much less than 20% prescribed under Explanation 2 to Section 80IC of the Act.
In view of above facts the assessee is eligible for exemption under Section 80IC of the Act.
We may further submit that the above computation is for the assessment year 2006-07. In the assessment year 2007-08 the assessee has made a further addition of new machinery of Rs.9693657/-. There is no dispute and no allegation whatsoever about the purchase of these new machineries. Complete list of these purchases along with suppliers' bills were filed before the A.O. and the same have been placed in the Paper Book. On going through the same your honour will notice that in this assessment year there is no allegation whatsoever about the purchases of these new machineries except one allegation of old tablet compression machine having invoice cost of Rs.83200/- and W.D.V. of Rs.14671/-. In the light of the above facts the value of the new machinery will be as under :-
Total machineries as per books : Rs.3,54,58,707/- Less: Machineries in which there is an allegation That the bills are not genuine : Rs. 54,06,740/-
New machineries for which there is
no dispute : Rs.3,00,51,967/-
Old machineries as per list enclosed : Rs. 20,57,421/-
Total value of machineries : Rs.3,21,09,388/-
% of old machineries : 6.41%
29 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012
Similarly for assessment year 2008-09 the assessee has purchased new machinery of Rs.5366819/-. The details of the same along with evidences in the form of bills, suppliers' affidavits were also filed before the A.O. There is no dispute whatsoever or any allegation about these machineries. The total value of the machinery for this assessment year will be as under :-
Total machineries as per books : Rs.4,08,25,526/- Less: Machineries in which there is an allegation That the bills are not genuine : Rs. 54,06,740/-
New machineries for which there is
no dispute : Rs.3,54,18,786/-
Old machineries as per list enclosed : Rs. 20,57,421/-
Total value of machineries : Rs.3,74,76,227/-
% of old machineries : 5.49%
Accordingly it is submitted that the AO was not justified in denying exemption under Section 80IC of the Act as per his own allegation and it is prayed that the AO be directed to allow deduction under Section 80IC of the Act."
13. After considering the submissions of assessee and perusing the record, CIT (A) granted relief to the assessee by holding as under : -
" On a consideration of the findings of the AO and the submission of the appellant, it is observed that the contention of the appellant is essentially two fold. While the appellant's primary submission is that there was no transfer of old machinery from their Delhi unit to Baddi unit and accordingly the claim for deduction u/s 80IC of the IT Act is allowable in terms of this section, the alternate argument of the appellant is that even if part of the machinery installed at Baddi (which as per the accommodation bills purchased, is for a total 30 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 consideration of Rs.54 lacs) is taken as old still the appellant's claim is allowable in terms of the provisions of Section 80IC, as the value of old plant and machinery installed at Baddi vis- à-vis the newly installed plant and machinery remains within 20%.
A. From the assessment order it is noted that the main points on basis of which the AO has given his finding regarding shifting of old plant and machinery from Delhi Unit to Baddi Unit are as follows:-
i. Statements recorded of Sh. Dinesh Sharma, the proprietor of M/s Krishna Machine Tools and M/s Shri Krishna Machine Tools who during the course of earlier searches conducted on him by Central Excise Authorities and Income Tax Department had admitted to have provided "only accommodation bills" for purchase of certain plant and machinery without having actually supplied any such machinery to the assessee company. The copy of statement of Sh. Dinesh Sharma has been provided to the appellant, who has failed to controvert the same.
ii. During the course of search at the appellant's premises located at D-6, Udyog Nagar, New Delhi certain documents (inventorised as Annexure A-29) have been seized which contains "accommodations bills". The remarks noted on these seized "accommodation bills" bears recording/narrative to the effect "bill only" or "no material transfer". The names of all such parties whose accommodation bills are inventorised in Annexure A-29 have been recorded in detail in para 7.11 of the assessment order. The notings on these bills additionally substantiate that in actuality no such plant or machinery, as mentioned on these bills, has in reality been "newly purchased" by the appellant. This also further goes on to substantiate the statements recorded of Sh. Dinesh Sharma.
iii. The fact that there has been transfer of certain old machinery from D-6, Udyog Nagar, Delhi to Baddi Unit is also proved from the statements of the three senior executives of the assessee company viz., Sh. P. Kumundan, Distribution Manager, Sh. DV Sardana, Administration Manager and Sh. SS Banga, GM (Production). Though the assessee has tried to 31 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 wriggle out from the import of the statements given by these senior officers of the company, by relying on their retraction letters but the same fact of the matter reins that all the three officers had in their statement, which was recorded separately from each other, have confirmed that old plant and machinery from D-6, Udyog Nagar, Delhi was shifted to Baddi Unit. This reflects upon the credence and evidentiary value to be attached to these statements. In fact the retraction made at a later stage is unreliable for the possibility of these employees being tutored and pressurized to retract their earlier voluntary statement is real. Moreover, the retraction is also unbelievable when weighed against the back drop of the seized documentary evidences at Annexure A-29 and the statements of Shri Dinesh Sharma both seen in conjunction.
iv. Apart from the above, Sh. Rajender Singh the Director of M/s Tabmac Tools P. Ltd. has in his statement recorded on 18.12.09 under oath vide S. 131 of the Act (much after the date of search and during the assessment proceedings) has categorically admitted to have provided "mere bills" and not supplied any goods to the assessee for an amount of Rs.68,900/-. This is yet another evidence which confirms that old machineries have been indeed been transported from Delhi Unit and installed at Baddi Unit under the garb/cover of new machinery.
v. Apart from the above, the AO has also brought on record the fact that in all such cases where accommodation bill have been purchased, the payment patter consistently shows that there has been unreasonable and undue time lag in making payment, extending to more than 2 years, which is not a normal feature of business when genuine purchases are made. vi. Thus on a combined and cumulative analysis of the above facts, as brought out in detail by the AO in the assessment order, I am of the firm considered view and in absolute agreement with the AO's finding that certain old machineries from D-6, Udyog Vihar, Delhi have been passed off as new machinery installed at Baddi by purchasing accommodation bills from various parties, as referred to in the assessment order. As to the question of the value of such old machineries passed off as new, it is observed from para 13.2 of 32 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 the assessment order that the AO has himself categorically held that incontrovertible evidence of accommodation bills of more than Rs.54 lacs of machinery purchases, as introduced by the assessee, has been found by the department during AY 2005-06 & 2006-07.
B. However, the question as to whether 88.72% of the values of machinery installed at Baddi was old as per the valuation report of M/s Johar & Associates as well as the estimation of this very valuer firm that 70% of the machinery at Baddi was old still requires to be answered, as it is this determination which would decide the issue of allowability of deduction u/s 80IC.
In this connection it is observed that the assessee company has objected to the legality of the inspection and also pointed out to several factual inaccuracies. The appellant states that a general observation, in a mechanical way, has been made by the valuer that the condition of the machines are more than five years old. That from the Inspection Report it does not come out clearly as to on what scientific basis it is being stated that the machines are more than five years old. That this inspection was carried out in March, 2008 and apparently the machines were not new by this year, as production had started in 2005 i.e. almost 3 years ago. There is no precise scientific way to distinguish between the age of the machinery which is engaged in production activities. To put it differently, the difference of the age of installed machineries being 3 years old or 5 years old is therefore a matter of guess work. That the assessee himself has also got done an Inspection by an approved Chartered Engineer which was filed before the A.O. In this report this Chartered Engineer has also examined each machinery based on documentary evidence and has given a report. The A.O. has not taken cognizance of this report which has been ignored. It has been also submitted that the whole inspection has been completed within two and half hours (172 minutes) involving more than 200 machines, which demonstrates the lack of focus and application.
In view of the above facts as argued by the appellant, in my considered view, the valuation report of Departmental valuer as regards their valuation and the age of the machineries has to 33 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 be taken with a pinch of salt as the same is at best only an approximation of the age of machinery installed in a running plant. It is also important to note that the A.O. is considering the inspection report in which has been completed within two hours who has not been subjected to cross-examination by the assessee.
As regards the other factual inaccuracies in the valuation report it is firstly observed that the Departmental Valuer has recorded the present day replacement value of the machinery i.e. the value on the date of inspection i.e. 3.3.2008 and thereafter a discounted value has been worked out as on 31st March, 2005. No basis of working of this discounted value has been stated. Further Para 9 of the valuation report reflects that the valuer has taken quotation/verbal confirmation from the suppliers for estimating the valuation as on 3.3.2008. No such quotation has been made part of the report, nor has it been stated that from which supplier and for which brand the verbal quotation for machinery has been taken.
The subject valuation report suffers from yet another defect. The purpose of obtaining this valuation report was to value the old machineries which according to A.O. had been installed at Baddi Unit. This would entail that such finding has to be taken to its logical end i.e. the cost of these machineries as on the date of acquisition has to be ascertained and thereafter depreciation upto the date on which the machinery has been shifted to Baddi Unit has to provided for. However, instead the impugned valuation report takes into account the cost of new machinery as on the date of valuation and by applying an index rate of return the discounted value of this new machinery as on 31st March, 2005 has been worked out. This method assumes the value of the new machine as on 31st March, 2005 and not the value of the old machines which as per the A.O.'s findings had been previously purchased and was being used at D-6 Unit at Udyog Vihar, Delhi from a prior date. There is yet another aspect to this method of discounting. This method of valuation further assumes appreciation taking place for each item that too in tandem with the RBI Wholesale Price Index, while the fact of the matter is that RBI Wholesale Price Index tracks changes in average price of goods traded in a wholesale market. Further while RBI wholesale Price Index is the most 34 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 common measure of inflation but it is not necessarily the rate at which different items appreciate over a period of time as may be certain items/ goods which may witness sharp increase while there could be certain items, the prices of which have undergone decline.
It is further noticed that Shri A.K. Govil, the person who has signed the valuation report has himself not inspected the machineries, as is evident from the fact that the inspection was carried out by Shri Umesh Johar. This fact is based on the appellant having contended and filed the copy of list of the Approved Valuers' maintained in office of CCIT-Delhi wherein the name of Sh. Umesh Johar does not appear, which shows that he was not an approved valuer for the purposes of Plant & Machinery (Inspection & Valuation). The appellant has contended that as per CBDT Instruction Number 1858 dated 20/09/1990, the report of a Valuer, other than that approved by CCIT, is liable to be rejected.
Accordingly, for all reasons cumulatively considered the Inspection & Valuation Report of Umesh Johar of M/s Johar & Associates cannot be absolutely relied upon, on its face value. As the correctness inspection report of the valuer regarding the age of machinery installed at Baddi Unit cannot be treated as conclusive proof of their age therefore the answer to this contentious question would have to be found from the list of purchases of the machineries installed at Baddi and the suppliers thereof. As stated above, the A.O. has given adverse finding of fact in specific cases of purchases of machineries from Krishna Machine Tools, Sri Krishna Machine & Tools and certain other bills of other suppliers and held that these bills are accommodation bills. In para 13 of the assessment order the AO has given a categorical finding that the assessee has taken accommodation bills of Rs.54 lacs. However there is no categorical and firm positive adverse finding of fact as regards the other purchases of the machineries, (apart from the valuation report of the departmental valuer which for the reasons discussed above, cannot be regarded as conclusive). Accordingly, as regards the other purchases of machineries a reasonable view as regards their age has to be taken based on other evidences on record. It is seen from the assessment order 35 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 that during the course of the assessment proceedings the assessee had submitted complete list of machineries and the list of suppliers along with their name and address and a photocopy of their purchase bills. The assessee has submitted confirmation/affidavits from each of these suppliers. The assessee also submitted evidences in support of the fact that the machinery had in fact moved from the respective suppliers either to Baddi Unit or after having been received at Delhi Unit, transported by the assessee himself to Baddi Unit. In support of this copy of G.R. (Builty); Copy of Form 26A issued by Excise & Taxation Dept., Himachal Pradesh, details of their installation, foundation/erection charges & transportation charges have been filed. The appellant also filed Affidavits duly notarized from the suppliers of the machineries, in which the suppliers have confirmed to have made the sale of machineries as per the bills issued by them as also the mode and the lorry number by which such machinery was transported. It has also been confirmed in the affidavits that the payments as shown in the bills has been received by these supplier parties through account payee cheques (the cheque nos. and debit notes have been also recoded). Further statement of account of these suppliers with the assessee company have also been confirmed and filed. In these affidavits the Income Tax PAN and the office where these suppliers are assessed to tax are also stated. I have gone through the above documents submitted by the appellant (which were also filed before the AO) and also checked the ledger account of the suppliers of the machinery in order to verify unusual delay, if any, in payment. From the verification of above it is prima facie observed that the payments in these cases have either been made in advance or within a reasonable credit period, which shows that these purchases (apart from purchases for Rs.54 lacs) are prima facie genuine in nature. It is a matter of record that the list of total machinery purchased by the assessee up to 31/03/2008 comes to Rs. 408 Lacs. The assessee has submitted that even if the finding of the A.O. regarding accommodation bills of machinery of Rs.54 lacs is taken as correct this would still leave a sum of Rs.354 Lacs being value of the new machinery purchased by the assessee. C. Now the next issue to be considered is that as to what would be value of the old machinery which have been shifted 36 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 to Baddi unit from Delhi by way of accommodation bills from D-6 Unit. The assessee has submitted a detailed list of machineries based on A.O.'s conclusive finding regarding the machineries of the value of Rs. 54 lacs (as per accommodation bills) which have been so shifted. The appellant has submitted that the value of such machineries on WDV basis comes to Rs.20,57,421 as per the Income Tax Act as it is this WDV which should be logically substituted for the purposes of calculation of the percentage of old machinery vis-à-vis new machinery. For this purpose the assessee has submitted six annexures, which as under:-
i) Annexure - A (i) - Statement showing party wise detail of old machines as alleged by the A.O.
ii) Annexure - A (ii) Statement showing machine wise detail of the old Machines as alleged by the A.O.
iii) Annexure - A (iii) Statement showing detailed year wise calculation of the WDV of old machines as alleged by the AO.
iv) Annexure - A(iv) Statement showing machine wise addition of Plant & Machinery at Baddi Unit in comparison with valuation made by the Department Valuer.
v) Annexure - A(v) Statement showing year wise addition to Plant & Machinery installed at Baddi.
vi) Annexure -A(vi) Copies of the corresponding old bills of the old machineries as alleged by the AO.
(i) All the above said annexures along with written submission of the assessee was forwarded to the AO for his comments vide letter dated 07.07.2011. Subsequently the copy of the AO's remand report received thereon was provided to the appellant for his counter comments. The appellant's rejoinder is summarized as under:-
In the remand report the AO has objected to the admissibility of additional evidences. In this regard the assessee has 37 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 clarified that the documents submitted in the appellate proceedings are only analysis and alternate submissions of the appellant on the conclusion arrived by the AO and are not in nature of fresh evidences. Moreover, even if these submissions are considered as additional evidence the same may be admitted under Rule 46A, for which reliance has been placed on various judicial rulings which are as under:-
a) In the case of Allen Bradley India Limited vs DCIT (1993) 47 TTJ (Del) 314 it was held that appellant not having been given sufficient time to produce information sought for by assessing officer, additional evidence was admitted.
b) In the case of Electra (Jaipur) (P) Ltd. vs. IAC (1998) 26 ITD 236 (Del) it was held that if the evidence is genuine, reliable and proves the assessee's case the assessee should not be denied the opportunity to adduce it.
c) If evidence goes to the root of the matter and is essential for rendering substantial justice then the same is required to be admitted. - Bonanza Stock Brokers vs. ITO (ITA No. 1002IDel106) (ITAT) Abhay Technoplast (HUF) Vs. ITO (ITA No.5651Del/07) (ITAT).
d) Hon'ble Supreme Court in the case of Collector Land Katji, 167 ITR 471 (SC) has held that when technical considerations are pitted against the case of substantial justice, the latter must prevail.
e) The Hon'ble ITAT Calcutta in the case of ITO (Exemptions) vs. Bajoria Foundation (254 ITR (AT) 65) has held that if prima facie information is necessary to examine the claim of the assessee, the Commissioner of Income - tax (Appeals), should consider the necessary evidence in exercise of his powers u/s 250(4) and it is settled in law that when a statutory authority has the power to do something, then it has a corresponding duty to exercise such powers whenever circumstances warranting exercise of such powers exist.38 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012 In view of the fact that no new evidence has been filed by the appellant and these are mere alternate submissions the objection of the AO with respect to the admissibility of the new documentary evidences, in the nature of old & previous purchase bills for machinery based on which these alternate arguments are being made, is not appropriate and therefore the copy of these earlier years bills corresponding to the purchases of accommodation bills for machineries for the value of Rs. 54 lacs and their computation for calculating their WDV as on 31.03.05 and statement showing addition to plant and machinery along with other documents submitted are admitted for purposes of deciding the issue at hand. Additionally, these documents go to the basic premise of the issue in question and are otherwise relevant for deciding the alternate Ground of Appeal No.10-(iv), taken by the appellant.
(ii) With regard to adoption of WDV of the machineries transferred from D-6 Delhi Unit to Baddi Unit, the AO in his remand report has on merits, made the following comments:-
In para 5.3 of the remand report the AO has stated that the written down value is not acceptable for the reason that the specification strips were not found on the machines and in the absence of the same the life span could not be exactly determined.
Further in sub-para (ii) it has been stated that in the absence of the specification strips on the machines, it is now not verifiable as copies of the bills submitted before your goodself are for the same machines which have been shifted to Baddi unit by the assessee. Because on the bills the number and the name / model has specifically been mentioned by the seller whereas the same was not found on the machines by the registered valuer.
The AO in para (iii) has further commented that the bills of the machineries pertain to the period 19879, 1990, 1994, 1997 and 2003 and this aspect was never contended by the assessee during the assessment proceeding.
In sub-para (iv) the assessing officer has given justification for the rejection of the books of account.39 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012 In para (v) the AO has referred to the valuation done by Mr. Umesh Johar of M/s Johar & Associates and on this basis he has stated that the correctness of inspection and valuation is beyond doubt.
With regard to the above comments of the AO, I have examined the submissions of the assessee and in my considered view in a situation where the identification number on the machines, that i.e. the specification strips were not found, the only reasonable alternative left is to identify the machines on the basis of description of the assets as mentioned on the accommodation bills of Rs.54 lacs, on which the AO has based his finding.
Vide Para no.6 of the remand report the AO has admitted that the bills and the depreciation chart submitted by the assessee is as per the description of the machines mentioned on the bills and the same is also in accordance with the valuer report. The AO has also stated that the arithmetical calculation of the WDV appears to be correct in the chart. These observations of the AO implicitly supports the analysis submitted by the assessee regarding calculating the WDV of the old & used machinery shifted from D-6 Unit for the WDV of Rs.20,57,421/-, that it is correct and should be taken into account for computing eligibility U/s 80IC. The AO has in para (iii) commented that the bills of the machineries pertain to the period 1989, 1990, 1994, 1997 and 2003, which is a statement of fact as all these details are part of the Income Tax return of each assessment year. In sub-para (iv) the assessing officer has given justification for the rejection of the books of account. In this regard the AO has merely repeated what has been stated in the assessment order. In para (v) the AO has referred to the valuation done by Mr. Umesh Johar of M/s Johar & Associates and on this basis he has stated that the correctness of inspection and valuation is beyond doubt. In this connection I have already spelled out the reasons in the preceding paras as to why the Inspection & Valuation report of the Approved valuer cannot be made the basis for determining the age & value of the machineries installed at Baddi for 80IC purposes.40 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012 The AO in the remand report has accepted the fact in para 8 of his remand report that the list of the machineries submitted by the assessee for calculating the written down value reveals that the description of the machines mentioned is the same and is in accordance with valuation report. Further the AO in para 8 has also admitted the fact that the arithmetical calculations of WDV submitted in this chart appears to be correct. From this statement of the AO it is concluded that the WDV of the old machineries as computed & submitted by the appellant are correct.
As regards the other machineries installed at Baddi Unit, a finding has already been given in the proceeding paras that n view of the affidavits & other documents / copy of accounts, confirmation of suppliers / payment in cheques to the suppliers/ transportation bills & the fact that the description of machines as written on the bills tallies with the machineries found at Baddi Unit, during the survey, the balance machineries installed can fairly and reasonably be accepted as newly purchased and installed and not old machines passed off as new ones.
D. In the light of the above analysis and finding, the correct value of old & new machinery computed for AY 2006-07 would be as under:-
A.Y. Total value Bills of Value of Value of old Total value % of old of machine machineries new machineries of machineries as per books included in machineries to be machineries above need included exclusion 2006-07 2,57,65,050 53,23,540 2,04,41,510 20,42,750 2,24,84,260 9.09 The total value of machineries as per books for the assessment year 2006-07 is Rs.2,57,65,050/- which includes bills for Rs.53,23,540/- (as on 31.03.06) which are not genuine. In place of the value as per the accommodation bills for Rs.53,23,540/- the WDV of the old machineries shifted to Baddi Unit is taken at Rs.20,42,750/- in order to ascertain the percentage of the old machineries installed at Baddi as on 31.03.06.41 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012 New machineries : Rs.2,04,41,510 Old machineries : Rs.20,42,750 Total value of machineries : Rs.2,24,84,260 % of old machineries : 9.09% In my considered opinion since the percentage of the old machinery is considerably less than 20% prescribed as under
Explanation 2 Section 80IC of the Act, the assessee is found eligible for claim of deduction under Section 80IC of the Act. The Ground of appeal No.10 is accordingly allowed."
14. Now the Revenue is before us by challenging the order of the CIT(A) in giving a relief to the assessee and finding that assessee is eligible for deduction under section 80IC as the value of the old machinery at Baddi unit is less than the maximum limit prescribed under the statute.
15. The learned DR pleaded that the CIT(A) was not justified in ignoring the valuation report done by an expert. The valuer has found that the total value of the machinery at Baddi unit was Rs.6,36,52,889/- and out of that the value of the old machinery was Rs.5,72,01,279/-. He further submitted that the above valuation report is corroborated from the seized material found during the course of the search as well as with the statement of the various employees recorded during the course of search. In this regard, learned DR further submitted that computation of the value of the accommodation bills at Rs.54,00,000/- taken by the CIT(A) is not correct. Finally, the learned DR relied on the order of the Assessing Officer and pleaded that the order of CIT (A) may be set aside.42 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012
16. Learned AR submitted that the order passed by the AO was arbitrary. It has been passed by ignoring the facts and the contention as brought out by assessee vide its submissions made on 27.11.2009, 30.11.2009, 7.12.2009, 11.12.2009 and 24.12.2009. In these submissions, assessee has clarified each and every issue raised by Assessing Officer.
17. With regard to the valuation of machinery, the learned AR submitted that the process followed for inspection and valuation is completely flawed. Our attention was drawn to the photographs taken at the time of the inspection to highlight the point that the whole process of inspection has been completed in 2 hours, as can be seen from the time recorded on the first photograph and the time recorded on the last photograph. It was submitted that these photographs were provided in a CD by the department itself. It was further contended that the Valuer has simply taken the value of the machinery as on date and then applied the discounted cash flow method to work out the value as on 31st March, 2006, instead of finding out the original cost of machinery. The basis adopted for obtaining the market value has also not been stated nor substantiated despite specifically asking for the same.
18. The learned AR further submitted that the inspection was carried out by Mr. Umesh Johar as evident from inspection report dt. 9th May 2008 and he is not an authorized valuer as evident from the list of the approved valuers 43 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 supplied by the Chief Commissioner of Income Tax. The assessee submitted complete list of machinery along with name and address suppliers, invoice, etc. as is evident from letter dated 18th November, 2009 filed with the Assessing Officer. Detailed investigations were carried out by the Assessing Officer from each of these suppliers during the assessment proceedings. Nothing adverse could be found about the purchase of these machineries except a few instances of accommodation bills which has been computed at Rs.54,00,000/- by the Assessing Officer. There is no material against the other purchases of the new machineries. In the absence of any adverse material, no adverse inference can be drawn against the assessee with regard to purchase of machineries.
19. With regard to the specific instances of accommodation bills cited by the Assessing Officer in the assessment order it was submitted that the AO was not justified in drawing adverse inference on the basis of the statement of Mr. Dinesh Sharma, the so-called Proprietor of M/s Krishna Machine Tools. In this regard attention was invited to the letter dated 30th November, 2009 wherein in reply to point No. 30 assessee has submitted complete details of the purchases made from M/s Krishna Machine Tools along with sales tax number and the excise registration number. A copy of the statement of account was also submitted which shows that all payments have been made by account payee cheques.
44 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012
20. It was further submitted that assessee had made repeated requests to the AO to provide a copy of the statement of Mr. Dinesh Sharma, Shri Surender S. Bagga, Shri S.K. Mehndiratta and Mr. D.V. Sardana as is evident from the letter dated 7.12.2009. The assessee has also asked for cross-examination of Mr. Dinesh Sharma in support of its contention. Thus the adverse inference drawn by Assessing Officer and confirmed by CIT (A) about accommodation bills of Rs.54 lakhs is not justified.
21. With regard to the other new machinery, the assessee vide letter dated 7.12.2009 brought to the notice of the Assessing Officer that it has filed a detailed chart with regard to the installation of the machineries in the Baddi Unit for all the three years incorporating complete description of the machineries, suppliers of the machineries, their complete name and address, details of the transportation (Builty/GR number and date), details of the installation, foundation/erection charges and the transportation charges. The assessee has also submitted copies of the bills along with excise documents in Form No.26A issued by the Excise and Taxation Department, Himachal Pradesh evidencing clearance of the machineries from the border. It has also filed copies of the sales tax registration certificate, excise registration certificate, confirmation and affidavit of the suppliers of the machineries.
22. It was further contended that vide letter dated 24.12.2009 the assessee has produced the machinery suppliers viz. Mr. Rahul Khurana of M/s Sainath 45 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 Boilers & Pneumatics and Mr. Atul Sharma of M/s Precision Gears (Indore) Ltd., and these suppliers have clarified that the installation was carried out by deputing their own engineers and installation team which is part of the system of supply of the machinery to the pharmaceutical industries. It was clarified that this is a general trend prevailing in this type of industry and not only that they also provide training to the workers for operating and maintenance of the machinery.
23. On the basis of these submissions, the learned AR submitted that the Assessing Officer was not justified in drawing adverse inference against the assessee by making a general observation and without going into each purchase of the machineries. In the absence of any adverse finding with regard to the purchases of the machineries from suppliers other than referred to in the assessment order, the complete details and evidence were submitted to Assessing Officer. No adverse material was found despite carrying out intensive verification. The Assessing Officer was not correct to ignore these purchases.
24. Finally, the learned AR pleaded that the adverse finding of the CIT(A) with regard to shifting of the old machineries needs to be deleted. The action of the CIT(A) in allowing deduction under Section 80IC is to be upheld.
25. We have heard both sides in detail and have considered the submissions. We have also perused the relevant material filed in voluminous 46 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 paper books and relied upon by learned AR. After consideration of all relevant material, we find no merits in the contention of learned DR that the assessee was not eligible to claim deduction under Section 80IC as it has failed to fulfill all the conditions as the value of the old machinery exceeds the prescribed percentage as provided in Section 80IC of the Act. In our considered view, the CIT(A) was justified in not relying on the valuation report and allowing deduction under Section 80IC.
26. Now we take the issues one by one on which the Assessing Officer has denied the deduction. The main issues were whether the assessee has shifted old machineries from its Delhi unit to Baddi unit and obtained accommodation entry for machinery. In support of this allegation, the Assessing Officer has relied upon the statement of Mr. Dinesh Sharma, Proprietor of M/s Krishna Machine Tools and M/s Shri Krishna Machine Tools. In this statement Mr. Dinesh Sharma has admitted that he has issued accommodation bills for the purchase of certain plant and machinery without making actual supply of such plant and machinery to the assessee. The assessee has challenged the action of the AO in drawing adverse inference on the ground that Mr. Dinesh Sharma was not proprietor of one of this concern and further no cross examination was allowed despite repeated requests. We have gone through the facts and we notice that though opportunity of cross examination was not allowed by the AO despite assessee repeatedly asking 47 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 for the same. But we are of the view that assessee has not been able to controvert the allegation arising thereof as can be seen from the statement of the employees recorded during the search as well as the other material brought on record by the AO to support this allegation.
27. The statement of the three senior executives of the assessee company viz., Mr.P. Mukundan, Distribution Manager, Mr. D.B. Sardana, Administration Manager and Mr. S.S. Banga, G.M. (:Production) were recorded during the course of the search. All these three officials in the initial statement have confirmed that some of the old plant and machinery from the Delhi unit was shifted to the Baddi unit. Though these persons have retracted these statements later on but the fact remains that in the initial statement all these three persons have confirmed the fact that the old machineries have been shifted from Delhi unit to the Baddi unit.
28. Further one of the suppliers, Mr. Rajinder Singh, Director of M/s Tebmac Tools Pvt. Ltd. in the statement recorded by the AO, has admitted to have provided accommodation bill for an amount of Rs.68,900/-. This also confirms the allegation of the AO that accommodation bills have been obtained in respect of the old plant and machinery shifted from Delhi unit to Baddi unit.
29. We further notice that the CIT(A) has also examined the statements of accounts of these suppliers and he could identify same suppliers from whom 48 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 accommodation bills have been taken by observing a peculiar pattern of payment. The payment for these suppliers were unduly delayed extending to more than two years, which CIT(A) has rightly held to be not normal feature of the business.
30. All the above facts taken together do confirm the fact that some of the old plant and machinery from Delhi unit has been shifted to the Baddi unit and in lieu thereof the assessee has obtained accommodation bills. Accordingly the contention of the assessee to the extent that old plant and machinery has not been shifted and the AO has failed to establish the same in the absence of providing opportunity for cross-examination cannot be accepted and we uphold that the CIT(A) was justified in holding that some of the plant and machinery has been shifted from Delhi unit to the Baddi unit.
31. Having held so now the second issue which arises for consideration is the extent and value of such old plant and machinery which has been shifted from the Delhi unit to the Baddi unit. Linked with this will be also the issue of value of the new plant and machinery purchased and installed by the assessee at Baddi unit. This will be so because as per Explanation 2 of Section 80IC states that where in the case of an undertaking any machinery or plant or any part thereof previously used for any purpose if transferred to any business and the total value of the machinery or plant so transferred does not exceed 20% of the total value of the machinery or plant used in business, then 49 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 the condition specified for claiming exemption under Section 80IC shall be deemed to have been complied with.
32. The implication of the above explanation is that there is no bar on using old machineries in an eligible unit but the value of old plant and machinery should not exceed 20% of the total value of the plant and machineries. Accordingly it is important to find out the value of the new plant and machinery as well as the value of the old plant and machinery and then to workout the exact percentage of the old plant and machinery. In this regard we notice that the AO has worked out the percentage of the old plant and machinery on the basis of the valuation report whereby the valuer has placed the value of the total machineries at Rs.7,63,15,000 /- as on the valuation date i.e. 9th May 2008. As per this valuation report which has been quoted extensively by the AO in the assessment order, the above valuation has been carried out for the purpose of determining the current day (9th May, 2008) market value of the plant and machinery based on the verbal information collected from the market and the value as on 31st March, 2005has been derived by the process of de-escalation as per the wholesale price index of Reserve Bank of India. By applying this methodology the total present market value of the plant and machinery installed at Baddi unit has been computed at Rs.7,63,15,000/- and the discounted value as on 31st March, 2005 has been worked out at Rs.6,36,52,889/- out of which discounted value of the 50 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 old plant and machinery worked out at Rs.5,72,01,279/- only and the value of the new machinery comes to Rs.64,51,610/-. Now the issue which arises for consideration is whether this methodology adopted by the valuer is correct and can this be a basis for computing the value of the machineries. In this regard we notice that the allegation of the AO is that old machinery has been installed by the assessee at Baddi unit after shifting some of the old machinery from the Delhi unit. As such to substantiate this allegation, it was important to find out the value of the old machinery and also to carry out verification with respect to the new machinery purchased by the assessee and the value thereof. The issue before the AO was not the present value of the machinery as on the date of the inspection but the actual value of the old and new machineries in each of the year. In our view finding out the present value on the basis of verbal enquiries and then to discount it by the Reserve Bank of India wholesale price index will not give the correct actual cost of the machinery. Thus we are of the view that the methodology adopted by the AO on the basis of the valuation report is not correct and cannot be a basis for computing the valuation of the old machines and the new machineries.
33. We are in agreement with the findings given by the CIT(A) that a general observation in a mechanical way has been made by the valuer that the condition of the machineries are more than three to five years old. From the inspection report, it does not come out on what basis the valuer has stated that 51 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 the machines are more than three to five years old. In fact, this inspection was carried out in the month of March, 2008 i.e. after a period of about three years when these machineries were acquired. Apparently these machineries cannot be said to be new at the time of inspection. The production has started in the year 2005. The fact that such large numbers of machines were inspected within a short period. The time period of inspection has not been controverted neither by the AO in the remand report nor by ld. DR during the course of the hearing before us. Such inspection report cannot be taken as perfect and cannot be relied upon. We further notice that the CIT(A) has also taken note of the fact that the valuation report is not supported by any material, documents or evidence for estimating the value as on the date of the inspection. No reference has been given to any quotation. Similarly, no reference has been made about any suppliers for which assessee submitted full details.
34. In our considered view, the correct approach would have been to find out the value of the machinery, the time of purchase and the date when assessee has acquired these machineries was relevant rather than valuing on a later date and then discounting back the same with wholesale price index. Assessee has carried out such exercise. The calculation of the same has not been disputed by the Assessing Officer in its remand report. The contention of the learned AR that the whole process of inspection and valuation is 52 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 flawed, hence cannot be relied is justified. The other objections raised by the learned AR on the credibility of the inspection and the valuation report which the learned DR has not been able to rebut. The revenue has failed to clarify the specific issues raised with regard to relevancy of the valuation report. In view of these facts, we uphold the order of the CIT(A) on this issue.
35. The next issue is value of the new machineries purchased and installed at Baddi unit. The assessee has submitted details of the machineries installed at Baddi unit. As per this the total value of machineries in AY 2006-07 is of Rs.2,57,65,050/-. The allegation of the AO is that assessee has obtained accommodation bills of Rs.54 lacs. This allegation of the AO we have held to be correct. Now the issue is about the rest of the machineries purchased by the assessee. In this regard we notice that during the course of the hearing assessee has submitted complete details of the machineries purchased by it along with supporting evidences in the form of bills, excise records, GR, etc. The assessee has submitted copy of account of each of the supplier giving its name, address, sales tax number, excise registration number. All these details were before the AO and the AO in the assessment order has not been able to point out any error or inaccuracies in these details. As regards the new machinery purchased by the assessee in each of the year we notice that the CIT(A) has held as under:-
"It is seen from the assessment order that during the course of the assessment proceedings the assessee had submitted complete list of 53 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 machineries and the list of suppliers along with their name and address and photocopy of their purchase bills. The assessee has submitted confirmation/affidavits from each of these suppliers. The assessee also submitted evidence in support of the fact that the machinery had in fact moved from the respective suppliers either to Baddi Unit or after having been received at Delhi Unit, transported by the assessee himself to Baddi unit. In support of this copy of G.R. (Builty); Copy of Form 26A issued by Excise & Taxation Dept., Himachal Pradesh, details of their installation foundation/erection charges & transportation charges have been filed. The appellant also filed Affidavits duly notarized from the suppliers of the machineries, in which the suppliers have confirmed to have made the sales of machineries as per the bills issued by them as also the mode and the lorry number by which such machinery was transported. It has also been confirmed in the affidavits that the payments as shown in the bills has been received by these supplier parties through account payee cheques (the cheque nos. and debit notes have been also recorded.) Further the statement of account of these suppliers with the assessee company have also been confirmed and filed. IN these affidavits the Income Tax PAN and the office where these suppliers are assessed to tax are also stated. I have gone through the above documents submitted by the appellant(which were also filed before the AO) and also checked the ledger account of the suppliers of the machinery in order to verify unusual delay, if any, in payment. From the verification of the above it is prima facie observed that the payments in these cases have either been made in advance or within a reasonable credit period, which shows that these purchases (apart from purchases for Rs. 54 lacs) are prima facie genuine in nature."
During the course of the hearing the learned DR could not controvert the above finding of the CIT(A).Voluminous details in this regard were filed before us in the form of paper book. We have perused these documents as well and we notice that there is nothing in these documents on the basis of which it can be doubted that assessee has not purchased these machineries. During the financial year 2005-06 i.e. assessment year 2006-07, the total value of the machineries at the Baddi unit as per the books of account is 54 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 Rs.2,57,65,050/-. Out of these purchases, the allegation is limited to Rs.53,23,540/-. The assessee on its part has submitted these details and has also submitted the evidences in support thereof. In these circumstances no adverse inference can be drawn so far these purchases are concerned.
36. During the course of the hearing the learned DR has raised the issue that the CIT(A) was not correct in holding that accommodation bills to the extent of Rs.54 Lakh have been taken. However, the above contention of the learned DR goes against the findings of the AO himself in the assessment order. In this regard we notice that as per AO's allegation of accommodation bills is Rs.54 Lacs as is evident from the fact that the AO has made addition on account of the accommodation bills spread over three years on the basis of the payment of these Rs.54 Lakh accommodation bills made in three years as under:-
A.Y. 2006-07 : Rs.21.00 Lakh
A.Y. 2007-08 : Rs. 9.00 Lakh
A.Y. 2008-09 : Rs.24.00 Lakh
Total : Rs.54.00 Lakh
Further AOP has disallowed depreciation in each of the three years on Rs.54 Lakh as under:-
A.Y. 2006-07 810000 15% of Rs.54,00,000
A.Y. 2007-08 688500 15% of (Rs.5400000 - 810000)
A.Y. 2008-09 582225 15% of WDV (5400000 - 810000
- 688500)
55 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012
The above facts are not disputed by the learned DR.
37. In view of the above it is clear that the accommodation bills considered by the AO in total are Rs.54 Lakh only out of which Rs.53,23,540/- have been accounted for in the assessment year 2006-07 and Rs.83,200/- in assessment year 2007-08 and the aggregate of the same thus comes to Rs.54,06,740/-.
38. On the basis of the above it is to be held that out of the total machinery purchases of Rs.2,57,65,050/- bills to the extent of Rs.53,23,540/- are accommodation bills and rest of the machineries i.e. Rs.2,04,41,510/- is the machinery purchased during the year by the assessee.
39. Having reached at the value of the new machinery the other issue remains for consideration is value of the old machinery shifted from Delhi unit to the Baddi unit.
40. As held above, some of the old plant and machinery from Delhi unit has been shifted from Delhi unit to Baddi unit. In this regard, it is noticed that the CIT(A) during the appellate proceedings has examined the record and worked out the value of the old machinery shifted to Baddi unit. The CIT(A) forwarded the detailed computation to the AO for examination.
41. The CIT(A) called for clarification of specific points as under:-
"The appellant has made a detailed submission dated 23.06.2011 with respect to the issue of exemption disallowed in his case u/s 80IC of the IT Act.56 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012 On a perusal of the assessment order and from the submission made by the appellant it is observed the exemption u/s 80IC has been denied on the ground that the total value of old machinery or plant or parts installed at the appellant's unit at Baddi (Himachal Pradesh), during the above referred assessment years exceeds 20% of the total value of machinery or plant used in such new business. The substance of the finding in the assessment order is that the assessee has obtained accommodation bills from one M/s Krishna Machines and Tools, M/s Shri Krishna Machines and Tools and certain other parties for plant & machinery which has not bee actually purchased and that such machinery as shown in these accommodation bills have actually been shifted from appellant's already existing unit located at D-6, Udhyog Nagar Industrial Area, New Rohtak Road, Delhi - 110041, which was no longer used for production activities. The above finding of the AO is based on certain seized material in form of accommodation bills where the words "bill only" or "no material transfer" has been written. Further, the fact of physical transfer of machineries from D-6 Unit at Delhi is also found corroborated from the statements recorded from the employees at the time of search, which has been referred to in the assessment order. Reliance has also been placed on the statement recorded of Sh. Dinesh Sharma, the main person controlling the accommodation bill providing companies/ concerns. Further to this is case of some other concerns also statements were recorded during the course of assessment proceedings whereby these persons have also accepted giving accommodation bills. From Para 13.2 of the assessment order at Page 134 it is noted that the AO has thus found incontrovertible evidence of accommodation bills for more than Rs. 54 Lacs of machinery purchase which has been shifted from D-6 Delhi Unit to Baddi Unit.
The AO has also placed reliance on the valuation report of the approved valuer which was prepared on the basis of valuation done at the time of survey conducted u/s 133A at Baddi Unit of the assessee on 03.03.08. Placing reliance on the valuation report wherein the said aforesaid valuer has remarked that the machineries installed at Baddi Unit are more than "five years old", the AO has held in the assessment orders that the conditions specified in section 80IC as to the requirement of at 57 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 lease 80% of plant and machinery installed in a given year being new has not been fulfilled.
The assessee in the present submission has contested the valuation report of the valuer on several grounds which inter alia are as under:-
vii. That the observation that the condition of the machinery is more than five years old has been made in a mechanical manner.
viii. That the inspection has been done by the valuer within two hours without allowing cross examination and verification.
ix. No basis for taking present day value as suggested by the valuer has been indicated in the report. Neither any quotation taken by the valuer from suppliers of such machinery has been made part of the report.
x. Total the assessee is having relevant bills with suppliers name and specification which clearly establishes the fact that the machineries are new.
xi. The assessee has also adduced evidence relating to the transportation and installation expenses of such new plant and machinery which has not been controverted by the AO.
xii. That the assessee has submitted the complete list of machineries and the list of suppliers alongwith photocopy of their bills as well as confirmation / affidavit from each of the supplier, some of whom were also examined by the AO at the time of assessment and who have confirmed having supplied new plant and machinery.
Accordingly, the assessee/ appellant has in his submission concluded that the dispute relating to accommodation bills in respect of the plant and machinery which in fact was old and was being earlier used at D-6, Delhi unit comes only to Rs. 54 lacs. The argument of the assessee is that even if such plant 58 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 and machinery is treated as old in nature it is the depreciated value of such machinery, shifted to Baddi Unit which should be appropriately taken for working out eligibility u/s 80IC, at Rs. 20,57,421/-, as seen from the enclosed chart. In support of this claim the appellant in the chart has given the name of the original supplier of such machineries together with the original value and the depreciated value of such machine as on 31.03.2005 and 31.03.2006 (partly) and therefore the appellant has submitted a reworking of the total value of new machines and old machines as on the end of financial year31.03.2006, 31.03.2007 and 2008 and has submitted that the eligibility for exemption u/s 80IC is available to the assessee as per the said reworking.
You are required to go through the submission and the enclosures as well as the copy of bills submitted by the appellant and offer your comments on the same. You may also offer your comments on the valuation aspect of the machineries by the accrued valuer and the claim being made by the appellant that most of the other machineries installed at Baddi are actually new and are supported by bills and other expenses incurred for transportation and installation. You may also point out any other evidence relied upon the AO in the order to the effect that the plant and machinery (other than of the value of Rs. 54 Lacs) is essentially old in nature."
42. In response thereto in para 6, the Assessing Officer has stated as under:-
"8. The depreciation chart for the machines has now been put up by the assessee before your goodself, calculating therein the WDV of the machines which have been shifted from D-6 to the Baddi Buit of the assessee. A perusal of the same reveal that the same is as per the description mentioned on the bills submitted and the same is in accordance with the valuation report. The arithmetical calculation of the WDV appears to be correct in the chart."59 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012
43. The AO in the remand report has verified the description of old machineries with the valuer report and also confirmed that the calculation of the value at Rs.20,42,750/- is correct.
44. The learned DR could not dispute these facts before us.
45. In view of these facts, the CIT(A) was correct in holding that the value of old plant and machineries is Rs.20,42,750. Thus the value of the new machinery comes to Rs.2,04,41,510/- and the value of the old machineries shifted from Delhi unit to Baddi unit comes to Rs.20,42,750/- and total value of the machinery comes to Rs.2,24,84,260/-.
46. Since the value of the old machinery is less than 20% of the total value of the machinery, therefore, it cannot be said that the assessee has failed to comply with the condition laid down in section 80IC of the Act.
47. In view of these factual matrix, we hold that the CIT(A) was justified in holding that the value of the old machinery is less than 20% and assessee is eligible for deduction under section 80IC.
48. For assessment year 2007-08, a similar exercise has been carried out by the CIT(A) after taking into the additional facts for the year. In the assessment year 2007-08, the assessee has further made an addition of machinery of Rs.96,93,657/-. There is no dispute about the addition of these machineries during the period relevant to Assessment Year 2007-08. The total value of the machineries after excluding the value of the machinery for 60 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 which accommodation bills were obtained comes at Rs.3,00,51,967/-. The value of the old machinery shifted from Delhi unit to Baddi unit comes to Rs.20,57,421/-. Thus the value of the old machinery is less than 20%. In view of these facts, the CIT(A) was justified in holding that the assessee has complied with the condition laid down for deduction under section 80IC of the Act.
49. Similarly for the assessment year 2008-09, the assessee has further made addition to machinery of Rs.53,66,819/-. The value of the new machinery comes to Rs.3,54,18,786/- after excluding Rs.54,06,740/- for which the assessee has obtained accommodation bills. The value of the old machinery is Rs.20,57,421/-. Thus the total value of the machinery for assessment year 2008-09 was Rs.3,74,76,207/-. The value of the old machinery is less than 20% of the total value of the machinery. In view of these facts, the assessee will be eligible for exemption under section 80IC of the Act.
50. The Assessing Officer has also denied deduction on the ground of discrepancies in Form 10CCB, which is one of the conditions for availing the deduction under section 80IC. The Assessing Officer's objection was that the form 10CCB was revised by the assessee. Further the assessee has obtained accommodation bills and assessee has not accounted for sale of scrap, the book result of the assessee has been rejected and accordingly the particulars 61 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 filled in the Form 10CCB has to be rejected. Once Form 10CCB is rejected then the assessee will not be eligible for exemption under Section 80IC. In this regard the explanation of the assessee before Assessing Officer for revision of the certificate was limited to not considering depreciation while computing eligible income. It was further clarified that it does not result in any change in the taxable income.
51. The learned DR has supported the order of the AO on this account. He has submitted that Form 10CCB is one of the conditions and since Form 10CCB was not correct the assessee will not be eligible for deduction under Section 80IC.
52. On the other hand, the learned AR has submitted that the assessee has got its account audited and obtained the 10CCB report as prescribed under the law. The report has been submitted along with the return. Thus, there is a complete compliance of the provisions of Section 80IC.
53. We have considered the submissions and we notice that under the law for claiming exemption under Section 80IC assessee is required to get the accounts audited and submit the report in the prescribed form. There is no dispute about the fact that the assessee has got the accounts audited and submitted the report in the prescribed form. Having complied with the provisions of the Act, the deduction cannot be denied merely on the ground that during the course of the hearing, Assessing Officer noticed certain errors 62 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 or discrepancies in the audit report. Having complied the conditions of obtaining report and submitting along with returns, the deduction on this reasoning cannot be denied.
54. In view of the above facts, we uphold the order of the CIT(A) allowing deduction under Section 80IC to the assessee.
55. Ground no.1 of assessment year 2006-07 and ground no.5 of assessment years 2007-08 and 2008-09 are in respect of the additions made by the AO on account of the accommodation bills which has been restricted by the CIT(A) to 2% of the total value of the accommodation bills. In this regard the AO has made addition for the various assessment years as under:-
A.Y. 2006-07 : Rs.21 Lakh
A.Y. 2007-08 : Rs. 9 Lakh
A.Y. 2008-09 : Rs.24 Lakh
Total : Rs.54 Lakh
In this regard the Assessing Officer has stated as under :-
"14.4 There are ample instances of procuring accommodations bills for machineries for which cash was received back against the issuance of cheques. Few of such examples as under:-63 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012 S. No. Name of the party A.Y. 1 M/s Krishna Machine & Tools/ Sri 2005-06 & Krishna Machine & Tools 2006-07 2 M/s Multitech Instrument Company 2005-06 Pvt. Ltd.
3 M/s Malhotra Compressors 2006-07 4 M/s Tabmach Tools Pvt. Ltd. 2006-07 5 M/s A.R. Enterprises 2005-06 6 M/s Accura Engg. 2005-06 The department conducted a survey at the business premises of the assessee's and a qualified Engineer/ Valuer examined the machinery found installed at the premises. On the basis of inquiries conducted he was of the opinion that more than 88.72% machinery installed was old. The assessee company obtained accommodation entries for machines and cash so generated has been utilized the assessee for its unaccounted transactions. The assessee company as a result of capitalization of bogus expenses claimed for purchase of machinery claimed excess depreciation also.
On the basis of the above, the AO has held that the assessee has obtained accommodation purchase bills."
The Assessing Officer further held as under :-
"15.19 Whenever payment for accommodation bills use to made through cheques, they always come back as cash to the assessee company. Payments of accommodation bills to Krishna Machine & Tools were made during A.Y. 06-07 of Rs.15,00,000/- and in A.Y. 08-09 Rs.20,55,560/- and balance amount of Rs.69,100/- was adjusted by way of debit note. Sri 64 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 Krishna Machine & Tool was paid during A.Y. 06-07 and A.Y. 08-09 of amounting Rs.5,50,000/-, Rs.2,88,775/- respectively and balance amount of Rs.9,865/- was adjusted by way of debit note. The controller of these two companies Mr. Dinesh Sharma has already stated that he used to return the cash amount in lieu of the cheque received by him for his accommodation bills. Purchase bills of machinery of the assessee contains large number of accommodation bills. However Department has evidences in respect of procurement of accommodation bill of Rs.54 Lacs only. Therefore addition of cash receipt on this account is restricted to this limit only. As per facts of the case and payment pattern by the assessee to the bill provider concerns of Mr. Dinesh Sharma, such unaccounted cash receipt (in lieu of the cheque issued for accommodation bills) of the assessee company is estimated at Rs.21 lacs, Rs.9 lacs and Rs.24 Lacs for the period of AY 06- 07, AY 07-08 and AY 08-09 respectively.
15.20 Thereby an addition of Rs.21,00,000/- is made in the year under consideration that is A.Y. 2006-07 to the total income of the assessee on account of unaccounted cash receipt against cheque issued for accommodation bills."
On the same ground, addition of Rs.9 Lakh has been made in the assessment year 2007-08 and Rs.24 Lakh in the assessment year 2008-09.
56. The CIT(A) has deleted the above additions by giving following finding:-
"In this regard I have already considered the findings of the AO and submissions of the assessee company and held for reasons discussed in finding given with respect to Ground of appeal No.10 that accommodation bills to the tune of Rs.54 lacs have been purchased by the assessee for which as per the established market practice commission is paid. This is reasonably estimated at 2% of the total bills of Rs.53 lacs have been purchased during the year and works out at Rs.1,06,000/-. Since this amount has been not paid from explained sources of income therefore the same is added to income u/s 69 of the I.T. 65 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 Act. As regards the issue of addition to income for Rs.21,00,000/- on account of alleged cash receipt in lieu of the cheques issued for purchase of accommodation bills of machineries is concerned the receipt back of cash against the cheque issued from books of account cannot be treated as income as it amounts to conversion of one form of asset to other. Thus the appellant party succeeds on this ground and AO is accordingly directed to rework the addition made on this account in accordance with the above findings."
57. It has been submitted by the learned DR that the CIT(A) was not justified in restricting the addition to 2%. Since the assessee has obtained accommodation bills for Rs.54 Lakh in the three years, the entire amount received by the assessee against accommodation bills needs to be added as income of the assessee.
58. The learned AR, on the other hand, has submitted that under the provisions of the Income Tax Act income earned has to be computed. Firstly the assessee has not taken any accommodation bills and even for the sake of argument it is assumed that the assessee has taken accommodation bills, there cannot be any income since cheque has been issued from the explained source and it cannot be said that any unexplained investment has been made by the assessee. He further contended that the CIT(A) was not justified even in restricting the addition to 2% as the assessee having first issued the cheque even in the case of accommodation, he would have received back the balance amount after deduction of any amount, if any paid for such services to the 66 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 accommodation entry provider and hence addition of 2% by the CIT(A) per year is untenable.
59. We have considered the rival submissions. We have upheld the finding of the CIT(A) that assessee had taken accommodation bills to the extent of Rs.54 Lakh while deciding issue of 80IC claim in preceding paras. Further we hold that while taking accommodation bills, the assessee has first credited the bills in the books of account and thereafter he has made payment from the books of account to the accommodation entry providers. There is no dispute regarding the source of payment for such bills. Since these were accommodation bills, the assessee would not have made any actual payment and hence the AO was not right in making addition on account of the payment made for accommodation bills as these payments have been made from the regular books of account. However, we are in agreement with the CIT(A) that the assessee would have definitely incurred certain expenditure in taking such accommodation bills. The CIT (A) has estimated the same at 2% and we find this estimation as fair and reasonable. We do not find any reason to interfere with the order of the CIT (A). These grounds of the revenue's are dismissed in all three years.
60. In ground no.2 of the assessment year 2006-07 and ground no.4 of assessment years 2007-08 and 2008-09 are in respect of the deletion made by 67 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 the CIT(A) of the addition made by the AO on account of suppression of wages as under:-
A.Y. 2006-07 : Rs.1,15,89,750/-
A.Y. 2007-08 : Rs. 62,26,820/-
A.Y. 2008-09 : Rs. 26,47,992/-
In this regard the AO in the assessment order has stated as under :-
"14.5 During the course of search proceedings various evidences have been found which indicate that one shift of approx. 108 workers was not fully entered in the books of accounts. Only 12 workers were shown in the register, as such 96 workers were not shown in the register. It is apparent that the assessee was suppressing its wages expenses at Baddi Unit. During the course of search at Baddi, statement of Sh. S.K. Mendiratta, GM was recorded on oath; relevant extract of the statement is reproduced as under :
"Q8. Now I am showing you list of workers as per Annexure 3 containing nine pages prepared today morning showing the workers home, token no. of salary drawn by him/her and signed by them. Please tell after seeing your salary register, pages 1 to 68 of Annexure A-10 for Dec., 07 and Jan., 08 whether these workers are shown in the same?
Ans. I have seen the list of workers of night duty prepared by you as on 14/02/08, total no 9 pages (nine Pages) and showing 108 workers. I would submit that only workers/ staff mentioned at Sr. NO. 10, 73, 74, 87, 71, 88, 102, 103, 104, 105, 107 & 108 of the list are shown in the Salary register. The other workers as mentioned in the list are not enrolled in our factory and are not entered in the salary register of books of accounts.
Q9. Please tell whether there is ay particular criterion for obligation legal or other for recruiting employees in your factory?68 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012 Ans. There is legal obligation of recruiting of about 70% Himachalies workforce and remaining may be non- Himachalies.
Q10. Please tell how many Himachalies workforce is there in your factory?
Ans. Out of 199 work force, 51 workers/ staff are belonging to Himachal, the other 148 are non-Himachlies which comes to 26% only."
Further enquiries in this regard were made from Sh. Ashutosh Huparikar, working as Manager HR & Admin. At Baddi Unit, whose statement was also recorded. In this statement he was also not able to furnish any satisfactory explanation. Excepts of relevant part of his statement are as under:-
"Q. I am showing you list of 108 persons whose names, token no. and signatures were obtained, who had completed their night shift in your company and the details were obtained at the time of departure in the morning of the day of search. Please explain about their employment status in you company.
Ans. The said 108 persons are employed by our company on temporary basis as and then required in your company.
Q. How you pay them their wages and what records are being maintained for those expenses by your company?
Ans. We play them I cash for their work days, but I cannot explain about the mode of accountancy for those expenses.
Q. I am showing you Annexure A-17 and A-23 in which you have kept personal profiles of 80 persons in Annexure A- 23 and of 160 persons in Annexure A-17. Please explain for what purpose these have been kept by your company.
Ans. These are the persons to whom the company had provided temporary employment in the past and their profiles have been kept by the company for use in the future. They have been paid wages in cash as per their days of workings, but I am not aware how these expenses have been accounted 69 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 for by the company. The accountant would be able to explain properly. However, these parsons do not find their names in the Salary register of the company.
Q. I am showing you Annexure A-18 (Page 20-28) on which heading is given as "Employee Salary Register for the month of July, 2006" and cash is shown to have been paid to the persons detailed in this list. Please state whether or not these persons find their names on the pay rolls of company?
Ans. I cannot explain anything about this.
Q. You please see your salary register/ pay roll and then explain about the matter asked above?
Ans. I have seen the salary register of the company and accordance to that the name of said persons do not appear in salary register/ Pay roll of the company.
Q. Do you want to anything else? Ans. No.
The assessee was accorded opportunity to explain the source of expenditure made on wages in respect of the labour which was not found to be on salary register of the company. The assessee has submitted that these workers were newly recruited so these were not entered in the salary register. The contention of the assessee is not tenable. The assessee has tried to find out ways and means to cover up such unaccounted expenditure made outside the books of account by depositing ESI/PF for the month of Feb 2007, however no such deposits were found in earlier months prior to search. It was informed that there is legal obligation of recruiting of about 70% Himachalies workforce and remaining may be non-Himachalies. Then it was also informed by the GM of the company that out of 199 work force, 51 workers/staff bare belonging to Himachal, the other 148 are non-Himachalies which comes to 26% only."
Further, it clearly shows that substantial portion of wages expenditure was being made outside the books of accounts. This clearly shows that the assessee used to employ large numbers of employees but that would not be recorded on 70 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 books of accounts with the obvious purpose to reduce accounted expenditure so."
The Assessing Officer has further observed as under:-
"15.10 It has been observed that there is huge variation in the wages to turnover ration shown by the assessee in respect of its Baddi Unit and Delhi Unit. Ratio of wages in Baddi Unit has always been significantly lower.
The following chart clarifies this positions :
Delhi Unit Period Wages Rs. Turnover Percentage of Rs. Wages to the Turnover 2006-07 (D-6 & 56,30,548/- 14.14 Cr 3.98% H-18) 2007-08 (H-18) 16,63,071/- 4.55Cr 3.65% 2008-09(H-18) 29,05,596/- 3.93Cr. 7.39% Average ratio of wages to the turnover at Delhi Unit comes to around 5%. It has also been considered that H-18 Unit of the assessee is manufacturing Ayurvedic medicines.
Baddi Unit
Period Wages Rs. Turnover Rs. Percentage
of Wages to
the
Turnover
2006-07 Rs. Rs. 38.52 Cr & job 1.20%
49,94,250 work of Rs. 2.94 Cr.
2007-08 Rs. Rs. 55.02 Cr & Job 3.20%
1,94,34,680 work of Rs. 5.36 Cr.
2008-09 Rs. Rs. 53.69 Cr. and job 4.20%
12,41,75,258 work of Rs. 2.78 Cr.
71 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012
Average ration of wages to the turnover at Baddi Unit comes to around 2.86% only. The suppression of wages expenses is at much higher side during A.Y. 06-07 & 07-08. Relevant evidences (A-20 & A-21 of WB-5) as discussed earlier in the order were found during search on 14/02/2008.
15.11 In view of the detailed discussion made in earlier paragraphs, it is clear that the assessee has not declared the true expenditure on wages and deflated the same to arrive at higher profits as the income was exempt u/s 80IC of the Act. The assessee company was having only 26% Himachali Employees and it was required to show 70% of the employees as Himachali as per direction of State Govt. Accordingly payment to non Himachli workers were made out of books and was reason of suppressed wages. In view of the same and keeping in view the expenditure under this head claimed in other (non exempt) units, I estimate the expenditure @ 4, 4.25 and 4.75% in the year 2006-07, 2007-08 and 2008-09 respectively. On the basis of the same, difference in wages is treated to be made out of undisclosed sources and treated as part of unaccounted income of the assessee. The Working of addition is as under :-
Period Turnover Rs. Percentage of Wages Percentage of Wages to the Turnover to the Turnover 2006-07 Rs. 38.52 Cr & job 1.20% 49,94,250 4 1,65,84,000 work of Rs. 2.94 Cr.
2007-08 Rs. 55.02 Cr & Job 3.20% 1,94,34,680 4.25 2,56,61,500 work of Rs. 5.36 Cr.
2008-09 Rs. 53.69 Cr. and job 4.20% 2,41,75,258 4.75 2,68,23,250 work of Rs. 2.78 Cr.
15.12 Accordingly an addition of Rs. 1,15,89,750/- is made in the year under consideration that is A.Y. 2006-07 on account of unexplained expenditure incurred for suppressed wage expenses."
On the similar reasonings, addition has been made in assessment year 2007- 08 and 2008-09.
72 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012
61. The CIT(A) has deleted the addition for the assessment year 2006-07 by making following finding:-
"I have considered the finding of the AO and the submissions made by the assessee on this issue. It is a fact on record that no evidence with regard to none entering the name of any worker in the wages register for this year has been found during the course of search. Also no evidence of any unaccounted payment made to workers during the year has been found. In fact the entire addition on account of suppression of wages is based on comparison of percentage of wages to turnover vis-à- vis Delhi unit and Baddi Unit. Taking into account the percentage of wages to turnover for 3.9% at Delhi unit in AY 2006-07, the AO has held that for Baddi Unit the percentage of wages to turnover is estimated to be 4% instead of the actual percentage to wages for Baddi unit as per books of account of the assessee at 1.2%. AS against this estimation made by the AO, which forms the basis of addition, the appellant has argued that the wages scale of Delhi and Baddi are not comparable for the reason that minimum wages per month at Delhi is for Rs. 3,500/- while minimum wages per month for Baddi is Rs. 2,100/-, which is only 60% of the minimum wages at Delhi. Moreover as argued for the year under consideration although in Delhi Unites even while there was substantial decline in the sales, there was no such decline in wages for the reason that the permanent workers could not be removed due to labour issues. Thus if the above said two factors are taken into account the basis for estimation made by the A.O. loses it's rationale. Moreover no positive evidence of payment of unaccounted wages has been found during the search. So on this account also no addition to income is justified. In view of the above facts the addition to income for Rs. 1,15,89,750/- as unexplained expenditure for suppressed wages, is directed to be deleted."
Similar findings have been given by the CIT(A) while deleting the addition for assessment year 2007-08.
73 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012
62. Addition for the assessment year 2008-09 has been deleted by the CIT(A) on the following reasoning:-
"I have considered the finding of the AO and the submission made by the assessee on this issue. It is a fact on record that the entire addition on account of suppression of wages is based on comparison of percentage of wages to turnover vis-à-vis Delhi unit and Baddi Unit. Taking into account the average percentage of wages to turnover for A.Y. 2006-07, 2007-08 & 2008-09 of 5.00% at Delhi unit, the AO has held that for Baddi Unit the percentage of wages to turnover is estimated to be 4.75% instead of the actual percentage to wages for Baddi unit as per books of account of the assessee at 4.2%. As against this estimation made by the AO, which forms the basis of addition, the appellant has argued that the wages scale of Delhi and Baddi are not comparable for the reason that minimum wages per month at Delhi is for Rs. 3633/- while minimum wages per month for Baddi is Rs. 3,000/-, which is only 82% of the minimum wages at Delhi. Thus if the above said factor is taken into account the basis for estimation made by the A.O. loses it's rationale. With regard to non-entering of the names of the 96 workers in the shift of 108 workers the assessee has submitted that these workers were newly recruited in the month of February, 2008 itself. In support of it, PF and ESIC document have been filed before the AO, vide reply dated 11.11.2009. I have examined the same and in my considered opinion that the wages on account of the shift is duly accounted for in the month of march 2008, which was the first month when wages became due to these newly recruited workers. In view of all these facts taking into totality, in my considered view, the AO's finding that addition of Rs. 26,47,992/- is required to be made in the year under consideration on account of unexplained expenditure for suppressed wages expenses is directed to be deleted."
63. The learned DR submitted that the deletion by the CIT(A) is not justified. The ld. DR has referred to the statement recorded during the course of the survey and relied on the reasoning given by the AO. 74 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012
64. The learned AR, however, supported the order of the CIT(A). It was submitted that the AO has not appreciated the facts in the right perspective. It is not a question of any unaccounted wages. The issue was accounting treatment of the wages which has been misunderstood by the AO. It was further submitted that for the assessment year 2006-07 and 2007-08 there is no adverse material whatsoever. The CIT(A) has given a categorical finding that no evidence with regard to non-entering of any name of any worker in the wage register for the assessment year 2006-07 and 2007-08 were found. No evidence of any unaccounted payment made to the workers during the year has been found.
65. For the assessment year 2008-09, the CIT(A) has appreciated the facts in the right perspective and has taken cognizance of the fact about the variation in the minimum wages payable in the State of Himachal Pradesh and in the State of Delhi. The CIT(A) has also taken cognizance of the PF and ESIC documents filed before the AO in support of the contention that the wages have been duly accounted for.
66. We have considered the rival submissions. On going through the facts we notice that the AO assumed that there were workers, the names of which were not recorded in the wages register. On the basis of this, he has assumed that assessee has made payment outside the books of account to these 75 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 workers. Firstly we hold that the CIT(A) has rightly observed that this is related to the assessment year 2008-09 and not to earlier assessment years i.e. 2006-07 and 2007-08. During the course of the hearing the learned DR was asked to clarify whether there is any material or evidence of any unaccounted payment being made to any worker on account of wages during the assessment year 2006-07 and 2007-08. The learned DR clarified that that there is no evidence other than spot verification carried out during the assessment year 2008-09. The AO probably has extrapolated the same to the preceding two assessment years i.e. 2006-07 and 2007-08. In the absence of any material found during the course of the survey or in the absence of any evidence on suppression of wages in the assessment years 2006-07 and 2007- 08 we are of the view that the CIT(A) was right in deleting the addition.
67. The AO has made a tabulated chart of the wages paid in Delhi and wages paid at Baddi in absolute terms but he has ignored the fact that the wages scale of Delhi and Baddi are not comparable. If these facts are taken into consideration the very basis for making the addition by the AO becomes unsustainable. We are also in agreement with the finding given by the CIT(A) that the assessee has submitted necessary documents relating to PF and ESIC in respect of the 96 workers who were found working during the course of the survey. The explanation given by the assessee has not been 76 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 understood by the AO in the right perspective. In view of the above, we uphold the order of the CIT(A) and these grounds of appeals are dismissed.
68. Ground No.3 in assessment year 2006-07, 2007-08 and 2008-09 is relating to the deletion of the addition made by the CIT(A) on account of suppression of production as under:-
A.Y. 2006-07 : Rs. 72,91,213
A.Y. 2007-08 : Rs.1,02,40,635
A.Y. 2008-09 : Rs. 4,44,86,782
The above said additions have been made by the AO by giving the following findings:-
" The assessee company maintains production details of different products which is recorded in Production Registers maintained on day-to-day basis for each year separately. Photo copies of Production registers were made available during the course of search for Fin. Years 2005-06, 06-07 and 07-08. Date wise manufacturing chart and quantity released was prepared. In the succeeding dates and months, it has also been observed that full size batches are not shown in the column of quantity of medicines released. A detailed working of batches not included in the quantity of medicines released for packing is separately annexed with the order also. The year wise complete detail of such suppression of production on transfer price comes as under :-
Yearwise Total Month 2005-06 2006-07 2007-08 April 1955320 926718 May 462870 642600 465708 June 683316 704462 8294346 July 932298 1264925 481580 August 482929 670330 1432498 September 411979 339168 1278011 October 939178 563027 788942 77 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 November 978202 923725 894945 December 781330 980484 631417 January 732327 1053115 435749 February 530392 475114 28856868 March 650192 578365 Total 72,91,213 10240635 44486782 Grand Total 6,21,18,630/-
In response to explain the said discrepancy, the assessee has submitted that there is no suppression of production in its case. However, the assessee admitted the discrepancy but termed it as wastage. According to the assessee its transfer value was Rs. 72,03,880/- only. The assessee has claimed that in its industry the same is not suppression of production but normal loss of the production process. It is merely wastage generated in the production process. Explanation of the assessee cannot be accepted as discussed in earlier Para during the discussion rejection of book result of the assessee. In view of the fact that no wastage has been claimed in the auditor's report, wherein specific detail is required to be submitted. The assessee has submitted its reply just before end of the assessment proceeding, and no meaningful verification/investigation is possible. However, fact remains that the assessee is not disclosing its actual production and merely termed as wastage. Income from sale of such wastage has not been shown. It is apparent that the assessee has also incurred unaccounted expenses for wages in its Baddi Unit to circumvent the state regulation of employment. For such unaccount expense the assessee has to generate income out of books. Contention of the assessee is not accepted on following ground:
• The assessee company is flagship concern of the group for revenue generation.
• Evidence of suppression of wages for the assessee company has been found and worked out.
• Evidences of suppression of production was gathered by the department in search. Reply of the assessee has reached this office only the during last week of assessment proceeding. Therefore, no meaning full enquiry is possible at this stage. 15.14 The assessee claimed of loss on production is not supported by documentary evidence, in its case and was not 78 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 part of auditors report submitted along with returns of income of the respective years. It is also found that the assessee company is suppressing its wage expenses as discussed above.
Though Department has got evidences of suppression of production of Rs.72,91,213 in its Baddi unit. In the facts and circumstances, of this and as per facts of suppressed wages and suppress production, I hold that the assessee has suppressed its production by at least an amount of Rs.1,15,89,750/-. Addition of the same is require to be made in the hands of the assessee. However it is also found that the assessee has suppressed its wage expenses. An addition of Rs.1,15,89,750/- is already made in this year under consideration that is A.Y. 2006-07 on account of unexplained expenditure incurred for suppressed wage expenses. Hence no separate addition is made on account of suppressed production considering the same is used for suppressed wages."
69. The CIT(A) has deleted the said addition on the basis of the following findings:-
"On a careful consideration of the finding of the AO and the submission made by the assessee it is seen that the AO's conclusion regarding suppression of production is based on the premise that while the batch size taken for production of tablets is for a higher number of tablets, the quantity released per batch results into a difference of 4000 tablets, per batch. The AO has not allowed for this wastage of 4000 tablets per batch as claimed by the assessee. The reason given in the assessment order is that such production wastage is not reported and does not form part of the auditor's report. The other reason is that the appellant's reply on this normal production loss has been submitted at the fag end of the assessment proceedings and no meaningful verification is possible at this stage.
On a perusal of the submissions made by the appellant it is seen that the assessee has been maintaining production register which is prescribe under Schedule-U of Drugs and Cosmetics Act in which day to day entries relating to the quantitative details of raw material used in the production process and the final product is maintained. Apart from some calculation 79 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 mistakes, which have been explained by the assessee, nothing has been noted from the said statutory production/ manufacturing records which can lead to the inference of suppression of production is such records. The appellant has also detailed the manufacturing process from which it is observed that certain amount of wastage/ production loss is a necessary feature of the appellants' production process, which cannot be entirely ruled out. Moreover, even under the Drug Price control order 1995 and Drugs and Cosmetics Act, 1940 and rules framed there under, a wastage/production loss which is less than 4%, is within permissible limits. In the facts of the instant case the percentage production loss comes to less than 1% which is well within the limit prescribed by the Drugs Control Act. Moreover, no evidence has been found during the course of search which shows that the assessee has been manufacturing unaccounted tablets resulting in unaccounted sales thereof and that these unaccounted tablets are produced as a result of bogus claim of wastage by the assessee(already observed above as well within the reasonable limits). In view of all these facts taking into totality in my considered view the AO's finding relating to unaccounted sales arising out of suppressed production calculated for Rs. 72,91,213/-, is directed to be deleted."
70. The learned DR has supported the order of the AO. He submitted that CIT(A) was not justified in deleting the addition made by the AO. On the other hand, the learned AR submitted that the addition made by the AO was in total disregard to the facts of the case. Ld. AR invited our attention to the detailed explanation submitted by the assessee on this issue before AO vide letter dated 30th November, 2009 whereby the whole process of a batch size taken at 4.8 lakh of finished product release of 4.76 lakh was explained. It was further explained that the loss of 40000 tablets in the process is less than 0.83%. It was also submitted that the making of tablets consists of many 80 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 steps from conversion of raw material and packing into finished goods product. The loss in each step starting from the raw material dispensing and sieving while transferring from PP bag or drums, loss arising in dry mixing, wet mixing, sizing of wet mass, drying of wet granules, sizing of dry granules, liberation of the sized dry granules, wastage arising on account of any process checking which is mandatory as per the Drugs & Cosmetic Act and the requirement of taking out samples for quality control, testing and control samples for future reference as per relevant notification issued under the Drug (Prices) Control Order, 1995. It was further submitted that during the course of the search and the survey no incriminating material was found that assessee has actually produced more or has sold out any material outside the books of account.
71. We have considered the submissions made by both sides. The assessee has explained its production process in detail and the wastage/loss arising in the process has been quantified at each level. During the course of the hearing, revenue could not point out any error or defect in the explanation given by the assessee. Further it is also a matter of fact that no adverse material or evidence was found during the course of search or survey that the assessee has suppressed any production nor any material was found with regard to any sale of such production outside the books of account. In view 81 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 of the above facts, we uphold the finding of the CIT (A) for deleting the addition.
72. Ground no.5 of assessment year 2006-07 and ground no.2 of assessment years 2007-08 and 2008-09 is relating to denial of the benefit of deduction under section 80IC in respect of the job work income from manufacturing activity carried out at Baddi unit. In this regard the AO has stated that job work income cannot be treated as income derived from manufacturing activity and accordingly he has denied the benefit of deduction in respect of the job work charges. The CIT(A) has rejected the above contention of the AO by giving the following findings:-
"I have considered the submission of the assessee with regard to above observation made by the AO. Complete details of the job work charges with names & address of the parties were filed before the AO. During the year under consideration job work charges for Rs.2,93,84,240/- was received from three parties including largely from Cipla Ltd. The assessee has submitted that complete work starting from the conversion of powder to tablet / capsules was undertaken. All this work was done on loan license basis. Thus complete manufacturing process has been undertaken. Only the raw material was supplied by the respective party. With regard to admissibility of deduction u/s 80IC on job work the assessee further submitted as under :-
- The above said nature of job work very much involved production of article or thing as required u/s 80IC of the Act.
- That section 80IC nowhere stipulates that the manufacturing work should be limited only for self.
The appellant also placed reliance on the case of CIT vs. Taj Fire Works Industries 288 ITR 92 wherein it has been held by the Hon'ble Madras High Court that in the case of Job work 82 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 receipts too the assessee is entitled to deduction U/s 80HH and 80I.
In view of the above discussion, in my considered view there is no justification for disallowing the claim of deduction u/s 80IC on the income from job work. The AO is accordingly directed not to alternately and separately disallow any deduction u/s 80IC on the "job work income" from manufacturing activity carried out at Baddi Unit."
73. The learned DR has relied upon the order of the AO. The learned AR has supported the order of the CIT(A). This issue is squarely covered in favour of the assessee by the following judgments whereby it has been held that income arising from the job work carried by eligible unit is eligible for deduction:-
(i) CIT vs. Sadhu Forging Ltd. 336 ITR 444 (Del)
(ii) CIT vs. Northern Aromatics Ltd. 196 CTR (Del) 479
(iii) Nu-Look (P) Ltd. vs. CIT 157 ITR 253 (Del)
(iv) CIT vs. Taj Fire Works Industries 288 ITR 92 (Mad)
74. We have gone through the facts of the case. We notice that the assessee is engaged in the in the manufacturing activity at the Baddi unit and there is no dispute about this fact. Further assessee has carried out job work and necessary details about the same including name and address of the parties for whom these job works have been done were filed before the AO. The major work has been done by the assessee for a pharmaceutical company, CIPLA Ltd. The assessee has also submitted complete details of the process and the work starting from the conversion of power to tablets and capsules. Thus the assessee has done complete manufacturing process. Only raw 83 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 material was supplied by the respective parties. This nature of job work is as good as manufacturing. Hence we uphold the order of the CIT (A) on this issue.
75. Ground no.6 of each of the assessment year is regarding deletion of addition made by the Assessing Officer on account of unexplained investment in plant and machinery as under:-
A.Y. 2006-07 : Rs.47,97,439
A.Y. 2007-08 : Rs.47,97,439
A.Y. 2008-09 : Rs.47,97,439
The above said addition has been made by the AO on the basis of following finding:-
" Approved Government Valuer, Mr. Umesh Johar of Johar & Associates has valued the plant and machinery installed at Baddi unit and submitted his report to the Department. As per his report out of total machinery installed at the Baddi premises of the assessee company component of old machinery was found at 88.72% and rest were treated as new. As per this report total value of plant and machinery at the Baddi unit was as on 31-03-2005 was estimated at Rs.5,72,01,279/- out of which value of new plant and machinery was estimated at Rs.64,51,610/-. As such the value of old Plant & Machinery as per valuation report comes to Rs.5,07,49,669/- as on 31-03-2005. Further value of the same plant and machinery found installed at Baddi as in March 2008 was reported by the Approved Government Valuer Rs.6,85,87,500. The assessee company has shown all its Plant & Machinery, equipments etc. as on 31-03-2008 gross value as per books was Rs. 4,06,95,182/-. The difference of the Rs.2,78,92,318/- was pointed out to the AR and this issue was confronted to the assessee company.
15.22 According to the assessee company, it did not accept the findings of the report of Mr. Umesh Johar. According to the assessee value of Plant & Machinery as on 31-03-2006 was 84 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 Rs.2,54,85,590/- and as on 31-03-2007 it was Rs.3,53,28,358/- and as on 31-03-2008 it was Rs.4,06,95,182/-.
The assessee has further submitted that the company has purchased the machineries in different years starting from A.Y. 2005-06 to A.Y. 2008-09. Details of addition to the Plant & Machinery is as under:
A.Y. Opening Addition Total Value
Value during the
year
2005-06 0 42,67,690/- 42,67,690/-
2006-07 42,67,690/- 2,12,17,905/- 2,54,85,590/-
2007-08 2,54,85,590/- 98,42,768/- 3,53,28,358/-
2008-09 3,53,28,358/- 53,66,819/- 4,06,95,182/-
I have considered the reply of the assessee carefully. However, contentions of the assessee is not acceptable on following grounds:
15.33 The valuation has been done by an approved and qualified technical valuer who is having an expertise in his field and has followed the logical/ correct procedure determining the value as on 31-03-2005. The inspection has been made in the presence of General Manager of the company Sh. S.K. Mendiratta and also in the presence of other employees of the company. The assessee company has not claimed erection charges in its balance sheet for machines during its formation period.
(ii) During the course of search proceedings evidences have been found which proved that the assessee has arranged accommodation bills from various persons in the garb of purchase bills of machineries which further substantiate that the capitalization of the assessee company with regard to Plant & Machinery is not correct.
(iii) It is also established that the assessee company has shifted its Plant & Machinery from its D-6/ J-13 Unit of Delhi to its Baddi Unit during the later part of the A.Y. 05-06. Finally Delhi Unit of D-6 was also closed in May, 2006 as per 85 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 statement of D.V. Sardana of the assessee company. The assessee company has claimed its production for the first time at its Baddi Unit during May, 2005 only. When down value of Plant & Machinery at D-6 Unit of Delhi was Rs. 1,60,50,810/- as on 01-04-2005 as per the Companies Act. The assessee has shifted sizeable part of Plant & Machinery of the assessee company from its D-6 Unit to its Baddi Unit during A.Y. 05- 06 and A.Y. 06-07. Few of the machineries could not be shifted as found during course of search on 14-02-2008 because of non availability of space at its Baddi Unit. In the circumstances, I have estimated in all fairness and according to the fact of the case that plant & Machinery of WDV of Rs.1,35,00,000/- was transferred from D-6 Unit and then installed at Baddi Unit. As such the assessee company was not required to make any investment against these Plant & Machinery.
15.24 Accordingly the contention of the assessee in respect of the valuation report and its investment in value of the Plant & Machinery do not have any merit and is rejected. It has been established that assessee has obtained accommodation bills for which it has issued the cheque and received cash against the same. Such capitalization n the books of assessee is unreliable, incorrect and false. In the circumstances investment of the assessee company in Plant & Machinery is required to be determined on the basis of facts available on the record. Total value of Plant & Machinery at Baddi Unit in March 2008 was valued at Rs. 6,85,87,500. The assessee company has shown all its Plant & Machinery, equipments etc. as on 31-03-2008 gross value as per books was Rs.4,06,95,182/-. The difference in both of them is Rs.2,78,92,318/-. It is further found that the assessee company has shifted its plant and machinery of Delhi unit to Baddi unit and its value is estimated is at Rs. 1,35,00,000/-. In all fairness the amount of unaccounted investment in plant and machinery should be reduced by this amount for which the assessee company was not required to make any investment. As such the excess investment in plant and machinery of the assessee company comes to Rs. 1,43,318/- (Rs. 2,78,92,318 - Rs.1,35,00,000)"
The CIT(A) has deleted this addition by giving the following finding:-86 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012 "On a consideration of the AO's finding and the submission of the appellant it is noted that the addition made with respect to this Ground of Appeal is essentially arising out of the difference between the valuation of plant and machinery made by Sh. Umesh Johar, the Departmental valuer as on 31.03.08 and the value of such plant and machinery as on 31.03.08 itself, based on the value recorded in books of accounts of the assessee. In this connection, it has already been held in the detailed finding given with respect to Ground of Appeal No. 10 that there are several deficiencies in the valuation made by the Departmental valuer and therefore the same cannot be taken as correct, on face value and that too when the bills for purchase of plant and machinery installed at Baddi Unit has been placed on record by the assessee, in which the purchase price of such plant and machinery has been record by the assessee, in which the purchase price of such plant and machinery inventorised during the course of survey at Baddi unit was found as unrecorded in the books maintained by the assessee. Further to this it has also been held in the finding given in Ground of Appeal No. 10 that Sh. Umesh Johar was not a Govt. Approved Valuer as seen from the list of approved valuers, as obtained from the office of CCIT, Delhi-1 and filed by the assessee. For this reason too, the valuation report cannot be relied upon.
In view of above discussion addition of Rs. 47,97,439/- on account of estimated unexplained investment in Plant and Machinery at Baddi is unjustified, as the same is based on surmise, conjecture and estimation of value of a plant/machinery. Accordingly, this ground of appeal is allowed and the A.O. is directed to delete the addition."
76. Before us it was submitted by the learned DR that the CIT(A) was not justified in deleting the addition. The AO has adopted scientific basis for making the above addition. The learned AR on the other hand has submitted that the addition made by the AO is absolutely arbitrary and unjustified and 87 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 against the facts. It was submitted that the valuation done by the approved valuer is based on the current market price and that too without any basis. Addition in respect of any unexplained investment is to be made on the basis of actual investment made in the plant and machinery. It is not the case of the Revenue that assessee has purchased any machinery outside the books of accounts and has not accounted for in the books of account. It was also submitted that the stand of the Revenue is in fact contrary. The Revenue on the one hand is making an allegation that the assessee has shifted old plant and machinery from Delhi unit to Baddi unit and not purchased the new machinery and on the other hand the AO is making an allegation that the assessee has purchased machinery from unaccounted sources and made an unexplained expenditure of Rs.1,43,92,318/-. It was further submitted that during the course of the search and survey nothing was found even to raise a doubt that assessee has made any investment in plant and machinery from any unexplained source.
77. We have considered the rival submissions and we are in agreement with the contention of the learned AR. In fact this addition of the AO contradicts his own stand which he has taken while denying the benefit of deduction under Section 80IC on the ground that the machinery installed at the Baddi unit are old machineries. Further as held hereinabove that the valuation methodology adopted by the valuer is not a correct method. We are 88 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 in agreement with the finding given by the CIT(A) that there are several deficiencies in the valuation made by the department valuer. Therefore, the same cannot be taken as correct and reliable for any addition that too when the bills for the purchase of plant and machinery installed at Baddi unit has been placed on record with evidences in support thereof. In each of these bills the value of the machinery, description has been mentioned. In view of the above we uphold the finding of the CIT(A) and this ground of appeal is dismissed.
78. In ground no.7 for the three assessment years, the Revenue is contesting the relief given by the CIT(A) in respect of the depreciation claimed in the Baddi unit:-
Assessment Year Disallowance made by Relief given by AO CIT(A) (Rs.) (Rs.) 2006-07 8,10,000 3,06,413 2007-08 6,88,500 2,62,321 2008-09 8,85,225 2,24,384 The AO has made this addition by giving the following findings:-
"15.26 During the course of search evidence of accommodation bills were found in the case of the assessee. It has been informed by Sh. Dinesh Sharma the controller of M/s Sri Krishna Machine & Tools and its sister concerned that he merely provides bills and does not supply any goods.
There is ample evidence showing that the machinery was not installed and bills were in the form of accommodation entry only. It is also found that the assessee was using old 89 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 machines instead of new. It has been proved beyond doubt that the assessee has acquired bills only, from various parties. From the discussion made above it is found that the assessee has acquired bills for amount of Rs. 54,00,000/- accordingly depreciation as claimed by the assessee is reduced to the extent of depreciation claimed is required to be reduced.
Value Depreciation WDV
2006-07 54,00,000/- 8,10,000/- 45,90,000/-
2007-08 45,90,000/- 6,88,500/- 39,01,500/-
2008-09 39,01,500/- 5,85,225/- 33,16,275/-
15.27 Accordingly an addition of Rs.8,10,000/- is made to the income of the assessee on account of wrong claim of excess depreciation. "
The CIT(A), however, has given relief on the ground that machinery to the extent of Rs.20,42,750/- were shifted from the Delhi unit to Baddi unit. Accordingly, the disallowance of depreciation has to be limited to the net of accommodation bills of machinery Rs.54 Lakh - 20,42,750/- and accordingly the CIT(A) has computed the disallowance on the net amount of Rs.53,57,250. In this regard the findings of the CIT(A) are as under:-
"The import of the detailed finding in Grounds of Appeal No. 10 is that machinery having WDV of Rs. 20,42,750 was shifted from D-6 Delhi unit to Baddi Unit 31/03/2006. Therefore in my considered view the assessee company is entitled to claim depreciation on this WDV for Rs. 20,42,750 instead of depreciation of RS. 8,10,000 on plant and machinery having accommodation bills of Rs. 54 lacks. The AO is accordingly directed to recompute the depreciation, in terms of the above finding. The ground of appeal is accordingly partly allowed."
79. The ld. DR placed reliance on the order of the Assessing Officer. On the other hand, the learned AR submitted that the disallowance sustained by 90 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 the CIT(A) itself is not justified in view of the contention that the allegation of the accommodation bills per se has not been substantiated by the Revenue. In this regard he referred to various documents submitted by the assessee in respect of the so-called accommodation parties which clearly establishes that the assessee in fact has purchased the machinery. He also referred to the fact that in the absence of any cross-examination of the person whose statement has been used against the assessee no adverse inference needs to be drawn. In the alternative the learned AR submitted that the computation done by the CIT(A) is the correct computation. It is the allegation of the Revenue that old machinery have been shifted from Delhi Unit to Baddi unit and the value of such machinery at Rs.20,42,750/- have been verified and confirmed by the AO in the remand proceedings and accordingly the disallowance has to be restricted to balance amount of the machinery. We have considered the rival submission. As per the AO the assessee has taken accommodation bills of Rs.54 Lakh. It is also the allegation of the AO that the old machineries from Delhi unit have been shifted to Baddi unit. This allegation has to be taken to the logical end. The assessee having shifted the machinery from Delhi unit to Baddi unit, such machinery will be eligible for depreciation. The value of such machinery at Rs.20,42,750/- obviously needs to be deducted while making disallowance. Accordingly we hold that the CIT(A) was justified in restricting the disallowance to the net of the amount of accommodation bills 91 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 i.e. Rs.54 Lakh - value of the machinery shifted to the Baddi unit. Accordingly this ground of appeal is dismissed.
80. Ground no.8 of assessment year 2006-07 is relating to the relief of Rs.23,93,587/- given by the CIT(A) in respect of the disallowance of depreciation made by the AO on Delhi Unit. In this regard the AO has stated as under :-
"15.28 As discussed above incontrovertible evidence of accommodation bills of more than Rs 54 lacs of machinery purchase as introduced by the assessee has been found by the Department during AY 2005-06 and 2006-07 for Baddi unit. Further unassailable evidence of shifting of machinery from D- 6, Delhi Unit of Baddi Unit is in the possession of the Department. Mr. S. Banga has stated that four section of production system were shifted to Baddi unit from Delhi unit. As per statements on oath recorded (Mr D.V. Sardana) D-6, Delhi Unit was closed in May, 2006. As such corresponding depreciation on plant and machinery and on other assets is required to be disallowed for AY 2005-06 and AY 2006-07. The assessee itself claims that the Baddi Unit was started in May, 2006. The WDV of Plant & Machinery as on 31.03.2005 of D-6 Unit as per Companies Act was Rs. 1,60,50,810/-. Majority of these machineries had been shifted to the Baddi Unit. Corresponding depreciation for the period (for six month) was disallowed from the books of Delhi unit for AY 2005-06. During AY 2006-07 in Delhi unit total Depreciation claimed by the Assessee Company was Rs. 44,17,953/-. It includes for machinery & plant of Delhi-6 & H-18 both along with other assets. The assessee could not submitted its claim of depreciation for its D-6 Unit separately, despite repeated request. In the circumstances depreciation of D-6 as per Income Tax is estimated in the ratio of value of Plant & Machinery as per Company Act. Value of Plant & Machinery as per Company Act for D-6 Unit and H-18 Unit was shown at total of Rs.1.41 crore. During AY 2005-06 depreciation component of D-6 was estimated at 77.66% of total depreciation. As such depreciation of Unit D-6 is estimated at 92 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 77.66% of the total depreciation. Accordingly depreciation amount of D-6 comes to Rs. 44,17,953X 77.66% = Rs.
34,28,331. Accordingly depreciation of Rs 27,00,000 claimed for D-6 unit by the assessee is hereby disallowed and added back to the total income of the assessee on account of major part of machines of D-6 unit were shifted to the Baddi unit. Penalty proceeding u/s 271 (1) (c) of the Act initiated for filing inaccurate particulars of income."
The CIT(A) has deleted the addition on the ground that machinery to the extent of Rs.20,42,750/- have been shifted from Delhi Unit to Baddi unit and the disallowance in respect of Delhi unit has to be limited to this machinery of Rs.20,42,750/-. We note that this issue is directly linked to the ground no. 7 in respect of which we have held that the credit of the machines shifted from Delhi unit to Baddi unit of Rs.20,42,750/- needs to be allowed. Since credit in Baddi unit is being allowed for Rs.20.,42,750/- as a necessary co-relation to that the disallowance in Delhi unit has to be limited to Rs.20,42,750/-.
81. Ground no.9 of assessment year 2006-07 is regarding deletion of addition of Rs.24,98,104/- made by the AO on account of unexplained investment and expenses. In this regard the AO has stated as under:-
" As discussed in beginning preparation of a building for pharma production normally takes much longer time and more investment than ordinary factory building due to regulation/inspection of the Drug authorities. But the assessee could not substantiate this aspect in its case that the persons who have performed the ejection work of machines from D-6 unit and the persons who have installed these machines at Baddi. Building improvement Rs.35,01,896, shown was not found sufficient enough for preparation of building for pharma production. No expense for erection of machine was shown in the balance sheet. During the assessment proceeding part of 93 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 the Building improvement was claimed as expense for erection of machines amounting Rs.22,27,301. The assessee company was found doing construction work and making investment in plot no. 43 and 44 HPSIDC Indl. Area Baddi. Investment for the period was shown at Rs.45,62,763. The said property was referred for valuation to the Distt. Valuation Officer Chandigarh. As per DVO of Income Tax Department its investment was reported at Rs.48,75,092 in the Plot No. 43 & 44 of HPSIDC Baddi. As such the excess and out of books investment of the assessee for the period comes to Rs.3,12,329 (Rs.48,75,092 - Rs.45,62,763/-). In response to the same it was submitted by the assessee company that it has not made any investment out of books.
15.30 The claim of the assessee in this respect is grossly suppressed. When assessee was asked about detail of erection work it has divided its building improvement expense in two parts. The assessee was doing the building improvement and erection work simultaneously. It can be fairly estimated on the basis that major part of the machines of D-6 unit were shifted to the Baddi unit. It need fair amount of expenses for there ejection from D-6 unit, installation at Baddi and preparations of factory building at Baddi for pharma production and related expenses/investments. In the circumstances and facts of the case investment made and expenses incurred in this process including excess investment in plot no 43 and 44 as discussed above is estimated at Rs.60,00,000 during the period under consideration. As the assessee has shown building improvement Rs.35,01,896, hence the difference of the both Rs.24,98,104 (Rs.60,00,000 - Rs.35,01,896) is added to the total income of the assessee on account of unaccounted expense incurred during the period."
The CIT(A) has deleted this addition on the following reasoning:-
"It is observed that no evidence/ seized material has been found during the search which indicates that the appellant has made investment in excess of the amount disclosed in the books of accounts. The AO is not mandated under any legal provision to the Income Tax Act to estimate the valuation of the construction or other expenses incurred in this regard, as he 94 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 himself is not a technical person. In this connection the appellant has placed reliance on the ration of decisions, in the following cases:
a) CIT vs Manoj Jain (2007) 163 Taxman 223 (Delhi)
b) Saraswati Industrial Syndicate Ltd. v. CIT [1999] 237 ITR 1
c) CIT vs Jupiter Builders Pvt. Ltd 156 Taxman 361 It is further observed that the AO has also ignored the fact that the DVO, Chandigarh has valued the construction cost of property No. 35 HPSIDC, BADDI at Rs. 23,79,000/- on account of building improvement for the AYs. 2005-06 to 2007-08 taken together as against the expenses of Rs.
22,37,694/- recorded in the books of accounts which indicates that the actual expenses incurred are largely in consonance with the report of the DVO. Even this difference as valued by the DVO is less than 6% which is not significant enough as this report is also at best an estimate. Likewise, the DVO, Chandigarh has value the construction cost at Plot No. 43 & 44 HPSIDC, BADDI at Rs. 48,75,092/- on account of building improvement for the AYs. 2005-06 to 2007-08 taken together as against the expenses of Rs. 45,62,763/- recorded in the books of accounts which indicates that the actual expenses incurred are largely in consonance with the report of the DVO. This difference as valued by the DVO is around 6% which is not significant enough as this report is also at best an estimate. Thus in my considered opinion there is no justification for making an addition of Rs. 24,98,104/- on account of estimated building improvement / erection charges carried out at property No. 43/44 & 35 HPSIDC, Baddi. Accordingly, the AO is directed to delete the addition of Rs. 24,98,104/- made on this account."
82. The learned DR relied on the order of the Assessing Officer. On the other hand, the learned AR has supported the order of the CIT(A). In this 95 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 regard it was submitted that there is no basis whatsoever for estimating the investment at Rs.60 Lakh.
83. We have considered the rival submissions and we notice that the Assessing Officer has referred the matter to the District Valuation Officer, who has valued the investment at Rs.48,75,092/- as against Rs.45,62,763/- as per the books of account. The difference in the value as per valuer's report and the value as per books of account is less than 6%. Valuation after all is not a science and this difference being less than 10% we are of the view that the CIT(A) was justified in deleting the addition. This ground of appeal is accordingly rejected.
84. Ground no.10 is regarding deletion of addition of Rs.30,48,737/- made by the AO on account of income of Delhi unit. The addition has been made by the AO on the following reasoning:-
"15.32 During the period under consideration the assessee company has claimed loss of Rs.51,64,292, on its D-6 unit of Delhi. As discussed above in preceding paras that incontrovertible evidence of accommodation bills of more than Rs. 54 lacs of machinery purchase as introduced by the assessee has been found by the Department during AY 2005- 06 and 2006-07. Further unassailable evidence of shifting of machinery from D-6, Delhi Unit to Baddi Unit is in the possession of the Department. As per statements on oath recorded (Mr D.V. Sardana) D-6, Delhi Unit was closed in May, 2006. Mr. S. Banga GM of the assessee company has stated on oath that four section of production system of D-6 unit was shifted to Baddi unit. The assessee has claimed total turn over of Rs. 12,19,49,514, and claim loss of Rs.51,64,292 for AY 2006-07 on this unit. Assessee Company has created veil of business in this unit only to cover its shifting of 96 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 machinery from this unit to Baddi. The assessee has claimed that its business was normal and it never transferred its plant and machinery of D-6 unit to the Baddi unit.
15.33 However the assessee could not substantiate the reason of distress sale of machines as discussed in para 15.31. Logical reason of business of a running unit D-6 at Delhi was reduced to one third in one year was also remain unexplained till the end of assessment proceeding. As such claim the assessee in respect of loss is found unreliable and as such rejected. Book result of the assessee company is found unreliable and rejected in the preceding para. Depreciation claimed by the assessee on this unit amounting Rs.27,00,000 has already been disallowed in the preceding para. Loss on sale of plant and machinery amounting Rs. 39,42,380 was disallowed in preceding Para. It is not revenue loss. It was also disallowed by the assessee in its computation of income. Total turnover shown by the assessee during this period in D-6 unit of Delhi was at Rs. 12,19,49,514. It also reflect absence of majority of machines and plant at Delhi unit. The assessee has not submitted detail of machines used by it during this period. In the given circumstances it has been concluded that the book result of the D-6 unit is unreliable and income of this unit is needs to be estimated. On the basis of facts and circumstances of the case I hereby estimate the income of the assessee representing its D-6 unit, in absence of its major plant and machinery, at Rs. 30,48,737 at the net profit rate of 2.5% of the turnover declared. An addition of Rs.27,00,000, has already been made on account of excess depreciation claimed by the assessee company in this unit which is over and above of this estimation. Accordingly I hereby made an addition of Rs. 30,48,737 to the total income of the assessee for the period under consideration."
The CIT(A) has deleted the above addition by giving following finding:-
"I have considered the observation of the AO and the submission of the assessee. During the year under consideration the assessee company has claimed loss of Rs. 51,64,292 on it's D-6 Unit on a turnover of Rs. 12,19,49,514 for this unit. It is observed that there is no basis for estimating 97 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 the above said income and rejection of books of accounts, without pointing out any positive evidence that the assessee company has suppressed receipt from this unit or inflated the expenditure. In my considered view there is no justification for estimating the income of Rs. 30,48,777 being 2.5% of turnover. Thus the Ground of Appeal is allowed and the AO is directed to delete the addition made under this head."
85. The learned DR relied on the order of the AO while the learned AR has placed reliance on the order of the CIT(A). It was submitted that the AO has arbitrarily applied a net profit rate of 2.5% and there is no basis for rejecting the books of account and no evidence was found of any sale or purchases being made outside the books of account.
86. We have considered the rival submission. We are in agreement with the contention of the AR that the AO has made the addition without bringing any material or evidence to substantiate the net profit rate of 2.5%. On going through the assessment order we also note that except the allegation of shift of some of the machineries from Delhi unit to Baddi unit there is no other allegation so far as Delhi unit is concerned. There is no material and evidence against assessee for inflating the purchases or suppressing the sales. Accordingly we are of the view that the CIT(A) was justified in deleting the addition. Accordingly this ground of appeal is dismissed.
87. Ground no.11 in Assessment Year 2006-07 and ground no.9 in Assessment Years 2007-08 & 2008-09 are regarding deletion of addition made by the AO on account of scrap sales and ground no.3 in cross objection 98 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 no.418/Del/2012 is against sustaining part addition in Assessment Year 2008-
09. The details are as under:-
Assessment Year Addition made by Addition sustained Assessing Officer by CIT(A) (Rs.) (Rs.) 2006-07 12,00,000 NIL 2007-08 12,00,000 NIL 2008-09 10,00,000 7,30,335 The above said addition has been made by the AO on the following grounds:-
"It has been observed that the sale of scrap of Baddi is not being fully accounted for by the assessee. The documents seized during the course of search reveals that such scrap sales was being made on regular basis and as the assessee has been carrying out the same business activity and no scrap sales have been declared in earlier years in this unit, it goes on to show that the assessee has been utilizing this modus operandi to generate unaccounted cash. The detail of the document seized as per Annexure A-20 & A-21 of party WB-5 pertaining to sale of scrap of AY 2007-08 and AY 2008-09, is as under:
(i) A-20 Rs. 3,61,433/-
(ii) A-21 Rs. 3,68,922/-
Total Rs. 7,30,355/-
On being confronted, the assessee claimed that the scrap sale is used for the welfare of the labor.
15.16 Reply of the assessee is evasive. It has not explained why scrap sale was not included in sale receipt of the assessee. The assessee has also not submitted total detail of Scrap Sale of the period. In absence of detail supplied by the assessee company, its Scrap Sale is estimated as per fact & period of the case. The assessee company was doing construction & installation work during A.Y. 06-07 and A.Y. 07-08 hence Scrap Sale would be on higher side during the period. Accordingly, I hereby estimate that the sale from Scrap A.Y. 99 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 06-07, A.Y. 07-08 and A.Y. 08-09 is Rs.12 lacs, Rs.12 lacs and Rs.10 lacs respectively. Thereby an addition of Rs.12,00,000/- is being made in the year under consideration that is A.Y. 2006-07, to the total income of the assessee on account of suppressed receipt from sale of scrap."
The CIT(A) has deleted the addition. In the assessment year 2006-07 and 2007-08 on the ground that these additions are based on estimation as no incriminating material was found in the year under consideration. The CIT(A) has further held that in the case of a search addition to income are confined to the evidence found during the search and other information gathered during the investigation. In assessment year 2008-09 the CIT(A) sustained part addition to the extent of Rs.7,30,335/- on the ground that the seized document shows that there was scrap income to the extent of Rs.7,30,355/-.
88. The learned DR has submitted that the CIT(A) was not justified in deleting the addition in the assessment year 2006-07, 2007-08 and restricting the addition to Rs.7,30,355/- for assessment year 2008-09. He submitted that since evidence has been found for assessment year 2008-09 regarding the income from scrap, the AO was justified in estimating the income in the preceding years on account of such scrap sales. On the other hand, the learned AR submitted that no addition can be made merely on estimation basis. Further it has been clarified before the AO that the scrap generated is being used for staff welfare activities. The assessee is having one unit at 100 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 Baddi which is being managed by the staff and any proceeds from the sale of such scrap is being used by the staff for their day to day welfare activities and hence no addition could be made. It is not a case where the assessee has received any money on account of the scrap sale and which has not been accounted for. It is a case where the scrap has been realized by the employees itself and used by them for their welfare activities. In this regard he submitted that in various office scrap in the form of newspaper, empty boxes, bottles, etc. are normally used by the lower staff for their welfare activities and that being the practice there was nothing wrong in the case of the assessee where the staff has used the scrap realized for their welfare activities.
89. We have considered the rival submissions. From the facts it is apparent that some scrap is being generated. Evidences were found during the assessment year 2008-09 to the extent of Rs.7,30,355/-. Accordingly it cannot be assumed that there was no scrap in the preceding two years i.e. 2006-07 and 2007-08. The contention of the learned AR though appears to be attractive but we are not inclined to accept the same. The scrap having been generated, the assessee was duty bound to account for the same in the books of account. However, as regards estimation at Rs.12 Lakh each in the preceding two years we are of the view that when the scrap value in the assessment year 2008-09 was Rs.7,30,355/- it shall not be appropriate to estimate the value in preceding years at Rs.12 Lakh each. Accordingly we 101 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 estimate the same at Rs.7 Lakh each. Accordingly these grounds in assessment years 2006-07 and 2007-08 in the Revenue appeal is allowed partly. The ground of revenue's appeal in assessment in assessment year 2008-09 is dismissed and ground no.3 in assessee's CO No.418/Del/2012 is also dismissed.
90. Ground no.12 in revenue's appeal and ground no.4 in CO No.353/Del/2012 for assessment year 2006-07, ground no.10 of revenue's appeal and ground no.4 in CO No.417/Del/2012 for AY 2007-08 and ground no.1 in CO No.418/Del/2012 for Assessment Year 2008-09 are regarding disallowance under section 14A of the Act. In Assessment Year 2006-07, the Assessing Officer has made disallowance of Rs.10,11,000/- and the CIT(A) has restricted the same to Rs.1,36,000/-. In assessment year 2007-08, the AO made a disallowance of Rs.13,21,000/- and the CIT(A) has restricted the same to Rs.3,16,096/-. The assessee has also filed cross objections regarding sustaining of disallowance of Rs.1,36,000/- for Assessment Year 2006-07 and Rs.3,16,096/- for Assessment Year 2007-08. In both these assessment years, the AO has made the disallowance applying the Rule 8D. The CIT(A) has reduced the same by holding that Rule 8D is not applicable for both these assessment years. In this regard the findings of the CIT(A) are as under:-
"As regards the addition made by way of disallowance u/s 14A for Rs. 10,11,000/- is concerned the appellant submitted that as per the decision of Godrej & Boyce Manufacturing Co Ltd 328 ITR 81 (Bombay HC) and certain other decisions as cited in 102 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 the submission, Rule 8D has been held as prospective in operation and is therefore applicable for AY 2008-09 onwards and that for earlier years it has been held that the AO would have to establish the nexus between the actual expenditure incurred for earning the exempt income. Accordingly, the disallowance made by AO as per rule 8D is held not to be in accordance with law.
Further to that while investments during the year under consideration has increased from Rs. 2.11 Cr. to Rs. 10.36cr, the same could be taken to have been made out of internal accruals, as during the year there has been net profit (before tax) for Rs. 17.81 Crore. In addition to this the unsecured loan has also decreased from Rs. 5.16 cr to Rs. 3.75 Cr. In view of the above facts and placing reliance on the ration of the decision in Reliance Utilities (313 ITR 340 Bom.) as relied upon by the appellant, it is held that no financial expense can be attributable to the investment made for earning of exempt income."
91. The learned DR has placed reliance on the order of the AO and learned AR has placed reliance on the order of the CIT(A). The learned AR invited our attention to the financials of each of these years in support of its contention that the assessee has got its own funds which are far more than the investment made by the assessee company.
92. We have considered the submission made by the learned DR as well as AR and we have also gone through the assessment order and the order passed by the CIT(A). It is a settled law that Rule 8D is prospective and is not applicable for the assessment years 2006-07 and 2007-08. On going through the financials of the assessee it is also a fact that the assessee company has got its substantial own funds which are far more than the investment made by it. 103 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012 Accordingly we are in agreement with the CIT(A) that no interest expenses can be attributable to the investment made for earning exempt income. As regards the estimation of administrative expenses we find that the CIT(A) has adopted a reasonable basis. Accordingly we uphold the order of the CIT(A) on this issue.
93. In ground no.1 in cross objection no.418/Del/2012 for Assessment Year 2008-09, the issue is regarding disallowance sustained by the CIT(A) of Rs.26,26,000/- under the provisions of Section 14A of the Income Tax Act. The said disallowance has been made by the AO by invoking the provisions of Rule 8D as under:-
"15.32 From the Tax audit report it is seen that the assessee has made investment of Rs.236447559/- for earning exempted income. The assessee has shown Financial expense of Rs.5291529/-. The total investment for earning exempted income is Rs.236447559/- and proportionate interest is to be disallowed u/s 14A. The disallowance u/s 14A is computed as under as per rule 8D which is computed as under :
Disallowance Under Rule 8D (i): NIL
Disallowance Under Rule 8D (2)(ii).
As computed below:
Particulars 31-03-2008 31-03-2007
Fixed Assets Rs. 11.27 Crs Rs. 9.39 Crs
Investments Rs. 23.64 Crs Rs.17.90 Crs
Current Assets Rs. 39.73 Crs Rs.36.52 Crs
Rs. 74.64 Crs Rs.63.81 Crs
Total Average Assets: (74.64 Crs. + 63.81 Crs)/2 = Rs. 69.22 Crs.
A. Total Average investment: Rs. 20.77 Crs.
B. Total Finance Charges: Rs. 52.92 Lacs
104 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012
C. Total Average Assets: Rs. 69.22 Crs.
Disallowance Under Rule 8D (2)(ii) : A x B / C = Rs. 15.88 Lac.
Disallowance Under Rule 8D (2)(iii):
Total Average investment: Rs. 20.77 Crs.
Disallowance expenses @ 0.5% of average investment: Rs. 10.38 Lac.
15.33 Total disallowance u/s 14A. (A+B+C) (Nil + Rs. 15.88 Lac + Rs. 10.38 lac) i.e. Rs. 26,26,000/-."
The CIT(A) has confirmed the said disallowance by giving the following findings:-
"It is observed that from AY 2008-09 onwards disallowance of expenses incurred for earning of exempt income is required to be made upon application of Rule 8D. In the case of Godrej & Boyce (supra) the Hon'ble Bombay High Court has held that Rule 8D is applicable for AY 2008-09 onwards and therefore the AO has correctly disallowed the expenditure incurred in relation to income not includable in total income and accordingly the addition of Rs. 26,26,000 is herewith confirmed and the Ground of Appeal No. 12 is dismissed."
94. The learned AR submitted that the disallowance made by the AO and confirmed the CIT(A) is in total disregard to the facts of the case. It was submitted that the assessee has its own funds of Rs.60.95 Crore as is evident from its Balance Sheet as on 31st March, 2008. Further it has own funds of Rs.49.60 Crore as on 31st March, 2007. The total interest paid during the year was Rs.52.91 Lakh out of which only Rs.12,47,329/- was on account of unsecured loan. This unsecured loan has been obtained long time back. 105 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012 Further the AO has ignored the fact that the financial charges of Rs.52.91 Lakh includes bank charges of Rs.14.12 Lakh, interest on car loans of Rs.73,846/-, delayed payment charges of Rs.22,58,038/-. It was further submitted that the investment taken by the AO at Rs.23.64 Crore included certain investments on which income were not exempt under the provisions of Chapter III of the Act. On this basis it was submitted that the disallowance sustained by the CIT(A) is ignoring the facts of the case. The learned DR on the other hand supported the order of the CIT(A). It was submitted that Rule 8D is applicable for assessment year 2008-09.
95. We have considered the rival submissions. We are in agreement with the contention of the learned DR that the provisions of Rule 8D are applicable from assessment year 2008-09. However we are of the view that the assessee has got its own funds which are quite substantial as compared to the investment made. This fact has been recognized by the CIT(A) in the preceding assessment year where he has held that no disallowance is called for on account of interest. The facts of this year are not different and accordingly so far as interest is concerned we hold that no disallowance is called for. As regards administrative expenses the learned AR raised the issue that the computation of the investment needs to be done by excluding those investments whose income or loss shall be chargeable to tax. Accordingly we direct the AO to verify this contention of the assessee and to exclude such 106 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 investment while computing disallowances on account of administrative expenses under Rule 8D. This ground of appeal is allowed for statistical purpose.
96. Ground no.8 of assessment year 2007-08 in revenue appeal is regarding deletion of addition of Rs.4,71,000/- made by the AO on account of short term gain on the basis of DVO report. The above addition has been made by the AO on account of the following reasoning:-
"15.30 During the period under consideration it is found that the assessee company has sold its two properties namely (i) 25 Bigha land situate at Village panga near EPIP, Phase-I, Jharmajri, Baddi, (ii) 21 Bigha land situate at Village Kunjar near EPIP Phase-I, Jharmajri, Baddi. These two properties were sold for a sale consideration of Rs. 62,50,000/- and Rs. 46,00,000/- respectively on 06-11-2006 and 14-02-2007. These properties were purchased by the assessee company in the assessment year 2005-06 in the same amount. To verify the genuineness of the sale consideration these properties were referred to Distt. Valuation Officer, Chandigarh. As per the report of the DVO Chandigarh submitted in this respect. Fair market value of the land at the time of the sale has been determined as Rs. 64,77,000/- and Rs. 48,44,000/- respectively. Accordingly the difference of Rs. 2,27,000/- (Rs.48,44,000- Rs. 46,00,000) for the second property is required to be treated as undisclosed sale consideration which is chargeable to tax as short term capital gain.
15.31 In response to the said difference of consideration shown by the assessee and fair market value of the property as reported by DVO, the assessee company has submitted that it ahs received the consideration which has been shown in the books of accounts. It is also pointed out by the AR that the variation in the reported value and considerations insignificant and within permissible limit. I have considered the reply of the assessee but I do not found any merit in its. The assessee has claimed that its purchase cost and sale consideration is remain 107 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 same, which is not possible. Any assessee would not make investment without earning any gain. Report of the DVO has evaluated the fair market value of the sold property. There is no reason to believe that the assessee would sale its property below the market rate. AS search it has been concluded that the assessee company has suppressed it short - term capital gain by Rs. 4,71,000/- (Rs. 2,27,000 + Rs. 2,44,000). Accordingly I hereby make an addition of Rs. 4,71,000/- to the total income of the assessee on account of suppressed short- term capital gain."
The CIT(A) has deleted the said addition by giving the following findings:-
"The estimated value at the time of the sale on 06/11/06 of 25 Bigha land situate at village panaga near EPIP pahse-1 Jharmajri Baddi assessed by the Valuer is Rs. 64,77,000/- as against the actual sale price of Rs. 62,50,000/-. The difference is of 3.63% is not significant. Similarly, estimated value of the 21 bigha land situate at Village kunjhal near EPIP Phase-I, Jharmajhri, Baddi at the time of sale on 14/02/07 assessee by the Valuer is Rs. 48,44,000/- as against actual sale price of Rs. 46,00,000/-. This difference is of 5.3% which is also not significant. Thus is my consideration opinion the addition of Rs. 471000/-(227000+244000) as suppressed short term capital gain on the sale of 25 Bigha land situated at village Panga near EPIP Phase-I, Jharmajhri, Baddi and 21 bigha land situated at village Kunjhal near EPIP Phase-I, Jharmajhri, Baddi is not only based on insignificant difference in valuation/ estimation of sale price but also relates to sale of land and is not related to cost of construction as in the case of Plot No. 43 & 44 HPSIDC, BADDI. Accordingly, the AO is directed to delete the addition of Rs. 471000/- (Rs. 227000+244000) made on these two transactions."
97. On going through the above we notice that the Assessing Officer has referred the matter to the Valuation Officer. The difference in the value as per the valuation report and the actual sale consideration was around 5.3%. Further there is no material on record to show that the assessee has received 108 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 any amount over and above the actual sale consideration. This issue stand settled by the judgment of the jurisdictional High Court in the following cases whereby it has been held that in the absence of any material to the effect that the assessee in fact has received any amount over and above the sale deed, no addition can be made merely on the basis of valuation report.
(i) CIT vs. Mahesh Kumar 196 Taxman 415 (Del)
(ii) CIT vs Smt Shakuntala Devi 316 ITR 46 (Del)
(iii) CIT vs Suraj Devi 328 ITR 604 (Del)
(iv) CIT vs Jaipur Golden Transport Co (Del)
(v) CIT vs Bajrang Lal Bansal 335 ITR 572 (Del)
(vi) CIT vs. Puneet Sabharwal 338 ITR 485 (Del)
(vii) Devinder Kumar vs DCIT (ITAT, Delhi) ITA No. 1141, 1142/Del/08 dated 28.1.2011 Accordingly we uphold the order of the CIT(A) and dismiss this ground.
98. In assessment year 2008-09 a similar ground no.8 of deletion of addition of Rs.4,71,000/- has been raised by the Revenue. It was fairly conceded by the learned DR that there is typographical error while drafting grounds of appeal as no such addition has been made in the assessment year 2008-09 on this account by the AO. Accordingly this ground of appeal is dismissed.
99. Ground no.11 of assessment year 2007-08 is regarding addition of Rs.3,90,00,000/- and ground no.10 of assessment year 2008-09 is regarding deletion of addition of Rs.2,50,00,000/- made by the AO on account of inflated income. The above addition has been made by the AO on the ground 109 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 that the profits at the Baddi unit have been inflated. The above said addition has been made on the ground that the profits of the Baddi unit are as normally high.
100. The CIT(A) has deleted the said addition by giving the following findings:-
"I have carefully considered the observation of the AO and submissions of the assessee. In my considered opinion the AO has no basis for presuming that in the initial years of setting of Baddi Unit, the expense on account of labour, professional charges, salary and transportation of material would be on higher side. No evidence to this effect has been found during the search/survey proceedings. Moreover if one takes in to account the effect of saving in excise duty of Rs. 17,19,68,201, the reduction in advertisement expenses of Rs. 5,47,83,874 and increase in job work income of Rs. 5.36 crore, there will be no basis to hold inflating of income on the part of the assessee company, in order to avail section 80IC benefit. Thus in my considered view the above said observation of the AO is held as based on surmise, conjecture and guess work and accordingly is directed to be deleted. However, as no addition to income has been made with respect to this ground of appeal, therefore no specific deletion from assessed income is required to be made."
101. The learned DR has relied upon the order of the AO. On the other hand, the learned AR has relied upon the order of the CIT(A). It was further submitted by the AR that the above addition has been made most arbitrarily. It was submitted that the assessee has made purchases and sales from reputed parties, there is no evidence whatsoever of inflating the sale. In this regard the assessee has submitted detailed explanation about the profitability at the 110 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 Baddi unit and the assessee has been making sales to reputed pharmaceutical companies. The learned AR further submitted that the additions made by the AO are contradictory. This addition made by the AO contradicts his own stand whereby in the assessment order at one place he is making an allegation of suppressing of production and consequent suppression of profit and at the other hand he is making an allegation of inflating the income and that too without bringing any material or evidence in support thereof.
102. We have considered the rival submissions. We notice that this addition has been made by the AO by indulging into surmises and without bringing any material or evidence in support of said addition. It is a matter of fact that the assessee has made sales to various parties. All these sales are fully vouched and accounted for. During investigation nothing has been found to indicate that assessee has inflated its sales. Further we notice that the assessee has given detailed explanation regarding its profitability at Baddi unit and AO has not been able to point out any error or discrepancy in such explanation. The learned DR during hearing also could not point out any material or discrepancy to support such addition. In view of the above facts, we are of the view that the CIT(A) was justified in deleting the addition and we uphold the order of the CIT(A).
103. In grounds no.1 to 3 in cross objection no.353/Del/2012 for assessment year 2006-07 and cross objection no.417/Del/2012 for Assessment Year 111 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 2007-08, the assessee has challenged the assessment framed under section 153A. It has been contended that the assessment order having been framed under section 153A/143(3) is without jurisdiction. It has been further contended that in the absence of a valid search the proceedings initiated under section 153A are liable to be quashed. It has been further contended that in the absence of any incriminating material belonging to the assessee being found during the course of the search, the reassessment proceedings are in fact invalid.
104. We have gone through the facts and we notice that there is no dispute to the fact that a search was carried on the assessee under section 132(1) and incriminating material was found during the course of the search. The AO therefore has issued notice under section 153A and the assessee has filed return in response thereto. The assessment has been framed as per the procedure prescribed under the law. We do not find any fault in assumption of jurisdiction by the AO and the consequent order and the procedure followed thereafter. Accordingly these grounds of cross objection are rejected.
105. In assessment year 2007-08, in ground no.5 the assessee has challenged the addition of Rs.10,00,171/- confirmed by the CIT(A). The AO has made the said addition on the basis of the following reasoning:-
"15.32 The assessee company was found doing construction work in plot no. 43 and 44 HPSIDC Indl Area Baddi. Its 112 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 investment in this year was shown at Rs. 1,46,11,403/-. The said property was referred for valuation to the Disst. Valuation Officer Chandigarh. As Per DVO of Income Tax Department its investment was reported at Rs. 1,56,11,574/- in the Plot No.43 & 44 of HPSIDC Baddi during the period under consideration. As such the excess and out of books investment of the assessee for the period comes to Rs.10,00,171/- (Rs.1,56,11,574 - Rs. 1,46,11,403/-). In response to the same it was submitted by the assessee company that it has not made by investment out of books."
The CIT(A) has confirmed the same by giving the following findings :-
"It is observed that the DVO, Chandigarh has valued the construction cost at Plot No. 43 & 44 HPSIDC, BADDI at Rs. 15611574/- as against the expenses of Rs. 14611403/- recorded in the books of accounts which indicated that the expenses incurred on cost of construction are more that what is disclosed by the assessee in his books of account. Accordingly this difference in investment for Rs. 10,00,171/- is upheld as unexplained investment u/s 69 B of the I.T.Act."
106. It was submitted by the learned AR that no addition can be made merely on the basis of the allegation. The assessee has invested Rs.1,46,11,403/- as against which the valuation has been done by the valuer at Rs.1,56,11,574/-. The difference of Rs.10,00,171/- is less than 10%. Further valuation is not a perfect science. It is only estimation. In the absence of any incriminating material or any specific instance, the CIT(A) was not justified in confirming the addition. The CIT(A) has ignored the facts of the case. The learned DR on the other hand supported the order of the CIT(A).
107. We have considered the rival submissions. We notice that the addition has been made merely on the basis of a difference in valuation and that this 113 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 difference is less than 10%. We further notice that on a similar addition in assessment year 2006-07 where the difference was almost same, the CIT(A) has deleted the addition. However, he has confirmed the similar addition in this assessment year 2007-08. We do not see any reasoning why this addition should be confirmed. Though the AO has stated that evidence of unaccounted investments were found during the course of search but to a pointed query from the learned DR, he could not point out which evidence was found which can support the case of the assessee for this addition. The issue of valuation of the machinery was a different issue as compared to the issue of investment in the property and after going through the assessment order we could not find out any evidence found during the course of the search indicating any unexplained investment in this property. We notice that the difference in the valuation as per the DVO and as per the books of account is less than 10% and accordingly we are of the view that this addition needs to be deleted. We order accordingly and this ground of appeal is upheld.
108. In ground no.4 of cross objection for assessment year 2008-09 is regarding addition of Rs.13,33,033/- sustained by the CIT(A) on account of unexplained investment in the construction cost of flat no. 43-44, HPSIDC, Baddi. This addition has been made by the AO on the basis of the DVO report. Similar addition was made by the AO in the assessment year 2007-08. We have deleted the addition made on similar ground in the assessment year 114 ITA Nos.3287, 4072 & 4073/Del./2012 CO Nos.353, 417 & 418/Del/2012 2007-08. For the same reason we notice that this addition has been made on the ground that as per the valuation report the total construction cost has been estimated at Rs.2,08,07,178/- as against total cost of construction shown in the books Rs.1,94,74,145/-. The difference as per valuation report and as per the books of account is less than 10% and for the reasoning given in the assessment year 2007-08, we direct that this addition needs to be deleted.
109. Ground nos.13 & 14 of revenue's appeal and ground no.6 of assessee's cross objection for assessment year 2006-07, grounds no.12 and 13 of revenue's appeal and ground no.7 of assessee's cross objection for assessment year 2007-08 and grounds no.11 and 12 of revenue's appeal and ground no.4 of assessee's cross objection for assessment year 2008-09 are general in nature and hence needs no adjudication. The same are dismissed.
110. In the result, all the appeals filed by the revenue and all the cross objections filed by the assessee are disposed off on the above terms. Order pronounced in open court on this 7th day of February, 2014.
Sd/- sd/-
(DIVA SINGH) (B.C. MEENA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated the 7th day of February, 2014
TS
115 ITA Nos.3287, 4072 & 4073/Del./2012
CO Nos.353, 417 & 418/Del/2012
Copy forwarded to:
1.Appellant
2.Respondent
3.CIT
4.CIT(A)-III, New Delhi.
5.CIT(ITAT), New Delhi.
AR, ITAT
NEW DELHI.