La-Chem Pharmaceuticals Pvt. Ltd., New ... vs Department Of Income Tax

Income-tax Officer, vs. LA-Chem Pharmaceuticals Pvt. Ltd. Ward 4(3), 10/351, Sunder Nagar, New Delhi. Pashchim Vihar, New Delhi (PAN: AAACL2369N ) (Appellant) (Respondent)

Revenue by: Shri Gaurav Dudeja, Sr. DR Assessee by: Shri Mukesh Kohli, CA

Date of hearing : 07 .01.2015 Date of pronouncement: 26 .03.2015

ORDER

PER I.C. SUDHIR: JUDICIAL MEMBER The Revenue has questioned first appellate order on the following grounds:

1. The order of the Learned CIT(Appeals) is erroneous & contrary to facts and law.

2. On the facts and in the circumstances of the case and in law, the Learned CIT(Appeals) has erred in deleting the addition of Rs.1,14,95,416 made on account of unexplained stock of finished goods.

2.1 The Learned CIT(Appeals) ignored the finding recorded by the A.O. and the fact that the assessee did not file the requisite 2

evidence during the course of reassessment proceeding despite having been provided with ample opportunities.

3. On the facts and in the circumstances of the case and in law, the Learned CIT(Appeals) has erred in deleting the addition of Rs.28,80,609 made on account of shortage of finished goods and raw material.

3.1 The Learned CIT(Appeals) ignored the finding recorded by the A.O. and the fact that the assessee did not file the requisite evidence during the course of reassessment proceeding despite having been provided with ample opportunities.

4. On the facts and in the circumstances of the case and in law, the Learned CIT(Appeals) has erred in deleting the addition of Rs.19,88,487 made on account of modvat to be reserved for bogus purchases.

4.1The Learned CIT(Appeals) ignored the finding recorded by the A.O. and the fact that the assessee did not file the requisite evidence during the course of reassessment proceedings despite having been provided with ample opportunities.

2. Heard and considered the arguments advanced by the parties in view

of orders of the authorities below, material available on record and the

decisions relied upon.

3. Ground No.1 is general in nature, hence, does not need independent

adjudication.

3

4. Ground Nos. 2, 2.1, 3, 3.1,4 and 4.1 : The basic facts are that the

assessee company is engaged in the business of manufacturing of basic

drugs and pharmaceuticals. During the year, the assessee filed its return of

income at Rs.26,697 and the assessment order under sec. 143(3) of the

Income-tax Act, 1961 was passed on 29.2.20000 determining the total

income at Rs.56,700. Thereafter, notice under sec. 148 of the Act was issued

on 15.3.2002 and assessment was reframed under sec. 147/143(3) of the Act

on 31.3.2003 determining the total income at Rs.1,64,21,220 after making

the following additions of :

1. Rs.1,14,95,416 on account of excess unexplained finished goods/raw-material;

2. Rs.28,80,609 on account of shortage of finished goods/raw material, and

3. Rs.19,88,497 on account of modvat claimed on bogus purchases.

5. Aggrieved with the assessment order, the assessee preferred appeal

before the Learned CIT(Appeals) and the Learned CIT(Appeals) vide her

order dated 18.12.2003 allowed the appeal. The Learned CIT(Appeals)

deleted all the additions mentioned above. The Revenue preferred appeal

against the said order before the ITAT and the ITAT vide its order dated 4

03.10.2007 restored the matter back to the file of the Assessing Officer with

the following observations:

"11. In ground No.2 the Revenue has challenged the deletion of Rs.1,14,95,416 on account of excess unexplained finished goods/raw- material, Rs.28,80,609 on account of shortage of finished goods/raw- material and rs.19,88,497 on account of modvat claimed on bogus purchases.

.............

16. We have carefully considered the entire material on record and the rival submissions. On going through the order of the Assessing Officer, it is found that he has not examined the material collected during survey conducted by the Income-tax Department. Similarly the Assessing Officer has himself not made independent inquiry and mostly placed reliance on the material unearthed by the Central Excide Department or the material ascertained from the Settlement Commission. So far as the proceedings before the Settlement Commission are concerned, they related to assessment years 1995-96 and 1996-97 and not to assessment year 1997-98. Therefore, the material relevant to assessment year 1997-98 was not submitted by the assessee before the Settlement Commission. At the time of hearing it was informed that the proceedings before the Settlement Commission have not been finalized. It was also informed that the proceedings initiated on account of search conducted by the Central Excise Department have also not been finalized. The contention of the Learned AR was that at the time of survey, entire stock was available but the Assessing Officer has not considered the same.

5 18. In view of the above facts and particularly on account of the fact that in this matter while passing order under sec. 143/148 of the Act, the Assessing Officer has himself not made any effective investigation in relation to excess stock or short stock and in relation to other aspects of the matter nor he examined the books of account and documents pertaining to survey. It is also to be pointed out that proceedings before the Settlement Commission and Central Excise Department on the basis of which the Assessing Officer has initiated proceedings, have not reached any final conclusion and therefore, the position is not clear. Under these circumstances, in our opinion, it will be proper if the matter is properly examined and all relevant aspects relating to various additions made and deleted are thoroughly considered. In fact, the at the time of hearing, both the parties agreed to such a course. Hence we set aside the findings of the Learned CIT(Appeals) in deleting the additions and restore the matter back to the file of the Assessing Officer to decide it afresh after examining the entire relevant material in the light of observations as made above. While doing so, the Assessing Officer shall given due opportunity of being heard to the assessee."

6. In compliance of the order of the ITAT, reproduced hereinabove, the

Assessing Officer has repeated the same additions which have been deleted

by the Learned CIT(Appeals). Against this action of the Learned

CIT(Appeals), the Revenue is in appeal before the ITAT. 6

7. In support of the grounds, the learned Sr. DR referred the assessment

order in support of his contentions that despite adequate opportunity, the

assessee did not bother to furnish the required details, books of account

along with supported bills and vouchers so as to prove that the findings of

the Central Customs &Excise Department with regard to the glaring

discrepancies relating to stock inventories were falls. Neither any fresh

facts/evidences have been brought on record nor the details called for were

furnished. The Assessing Officer was thus justified in repeating the same

additions made earlier in the assessment framed under sec. 147/143(3) of the

Act. He submitted that the there were certain discrepancies in stock as taken

by excise authorities and subsequently again by the Income-tax Department.

8. The Learned AR on the other hand tried to justify the First Appellate

Order questioned by the Revenue. He submitted that despite directions of the

ITAT in this regard, the Assessing Officer has not examined its case

independently from the case of the Central Excise Department. He reiterated

the submissions made on behalf of the assessee before the Learned

CIT(Appeals). He submitted further that the details of stock were submitted

to the Assessing Officer vide letter dated 17.12.2008 and some details were

also submitted on 8.12.2008 but the Assessing Officer has not given any

finding on those details and has simply repeated the addition made on earlier 7

occasion in the assessment framed under sec. 147/143(3) of the Act. The

Learned AR also referred page No. 116 of the paper book filed on behalf of

the assessee which is the copy of the original assessment framed under sec.

143(3) on 29.2.2000, wherein it has been noted by the Assessing Officer that

the details as well as books of account were produced and examined on test-

check-basis. The Learned AR submitted further that while making the

assessment in compliance of the order of the ITAT afresh, the Assessing

Officer has passed the order in haste within 20 days without carrying out any

independent investigation.

9. Having gone through the orders of the authorities below, order of the

ITAT and material available on record, we find substance in the grievance of

the assessee that the Assessing Officer has not made any independent

verification of the relevant material in the light of the observations made by

the ITAT. The ITAT had noted that the Assessing Officer while passing the

order under sec. 143(3)/148 of the Act has himself not made any effective

investigation in relation to excess stock or short stock and in relation to other

aspects of the matter nor he examined the books of account and documents

pertaining to survey. The Assessing Officer has not bothered to comment

upon the details which he has mentioned as filed by the assessee on

08.12.2008 in part. In the original assessment dated 29.02.2000 framed 8

under sec. 143(3), it has been mentioned by the Assessing Officer that the

assessee had filed details and the books of account as called for which were

examined on test-check basis. In the assessment framed under sec.

147/143(3) of the Act on 31.3.2003, the Assessing Officer had noted that in

the reassessment proceedings, the assessee has filed part of the books, which

have been duly considered by him. Thus, the Assessing Officer while

passing the order on 31.3.2003, and the assessment order dated 30.12.2008

in question has not mentioned as to what were those details filed by the

assessee stated to be in part and what he had found after examining those

details. The Learned CIT(Appeals) has reproduced the following

submissions of the assessee made before him against the assessment order in

question:

"The A.O. made additions merely on the findings of Central Excise Department. The A.O. has not checked any record. There was neither excess finished goods nor excess raw material on the date of search or even during the year under consideration. Had there been any excess stock then survey would have been converted into search by the Income-tax Department which did not happen. The Income-tax Department did not find any irregularity in stock. Hence addition made by the A.O. on the findings of Central Excise Department is totally illegal.

There was also neither shortage of finished goods nor shortage of raw material on the date of search or even during the year under 9

consideration. Had there been any shortage of finished goods or raw material then profit on the short goods would have been the income of the company instead of whole amount of shortage.

We wish to submit that the appellant company has declared bogus creditors of Rs.1,30,21,922 before the Hon'ble Settlement Commission and during the VDIS. When the appellant declared the creditors bogus it means it declared bogus purchases and bogus modvat claimed on that purchases. Modvat is the excise duty levied on purchase cost. The value of creditors = Purchase cost+ excise duty (Modvat). When creditors are declared bogus when it is wrong to make addition of modvat separately."

10. The Learned CIT(Appeals) has deleted the additions mainly on the

basis that the books of account and documents pertaining to survey were not

examined by the Assessing Officer as per directions of the ITAT and has

simply followed the findings made in the assessment order which was

passed under sec. 147/143(3) of the Act on 31.3.2003. He has thereafter

followed his predecessor's order and deleted the additions on the basis that

the fact and circumstances of the case remained unchanged in the reframed

assessment order dated 30.12.2008. The Learned CIT(Appeals) has also

reproduced his predecessor's order wherein it has been mentioned that the

books of account were produced before the Assessing Officer during the 10

course of assessment as well as reassessment proceedings; in the course of

assessment proceedings, all the information and documents called for by the

Assessing Officer were furnished; the books of account were audited by a

firm of Chartered Accountants and their report was unqualified, full quantity

tally of raw-material, finished goods etc. was maintained; the total turnover

declared for the year has been accepted as correct by the Assessing Officer;

complete books of account and vouchers for purchases, sales and expenses

were maintained; the purchases were made from the dealers registered with

the sales-tax department and they were paid for by account payee cheques

and the appellant's bank account corroborated this, etc. In absence of

conduction of its independent investigation by the Assessing Officer in the

matters, as directed by the ITAT, we are thus of the view that the Learned

CIT(Appeals) was justified in deleting the additions in question. The same is

upheld. The grounds are accordingly rejected.

11. In result, the appeal is dismissed.

Decision pronounced in the open court on 26 .03.2015

Sd/- Sd/-

( J.S. REDDY ) ( I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 26 /03/2015 Mohan Lal 11

Copy forwarded to:

1) Appellant

2) Respondent

3) CIT

4) CIT(Appeals)

5) DR:ITAT

ASSISTANT REGISTRAR

Date Draft dictated on computer 26.03.2015 Draft placed before author 26.03.2015 Draft proposed & placed before the second member

Draft discussed/approved by Second Member. 26.03.2015 Approved Draft comes to the Sr.PS/PS 31.03.2015 Kept for pronouncement on 26.03.2015 File sent to the Bench Clerk 31.03.2015 Date on which file goes to the AR Date on which file goes to the Head Clerk.

Date of dispatch of Order.