Vhb Life Science Ltd, Mumbai vs Department Of Income Tax

ITA No.5612/Mum/2013 ( Assessment Year :2010-11) DCIT-7(3), Mumbai Vs. M/s VHB Life Sciences Ltd., 50, AB, Government Industrial Estate, Charkop Naka, Kandivali (W est), Mumbai-400067 PAN/GIR No. : AACCV 5103 A ( Appellant) .. ( Respondent)

/Revenue by : Shri Sachchidanand Dubey /Assessee by : Shri B.V.Jhaveri Date of Hearing : 15/01/2015 Date of Pronouncement : 18/02/2015 ORDER

PER R.C.SHARMA (A.M.) :

This is an appeal filed by the Revenue against the order of CIT(A)

dated 4-6-2013, for the assessment year 2010-11, in the matter of order

passed u/s.143(3) of the I.T.Act, wherein following grounds have been

taken by the revenue :-

(i) The Learned CIT(A) has erred on facts and in law in deleting the addition of Rs.3,99,50,717/- made u/s.69C on account of unexplained investment without properly appreciating the factual and legal matrix of the case as clearly brought out by the Assessing Officer.

(ii) The Learned CIT(A) has erred on facts and in law in deleting the addition of Rs.3,99,50,717/- made u/s.69C on account of unexplained investment by holding that since the transaction was made through banking channel therefore the provision of section 69C of the Act were not attracted applicable."

2 ITA No.5612/2013 2. Rival contentions have been heard and record perused. Facts in

brief are that besides its activity of actual sale and purchase of Drugs

Pharmaceuticals etc., during the year under consideration and also in

earlier years, the assessee was indulged in entering into circuitous paper

transactions with Litika Group. The assessee entered accommodation

(paper) purchase sale transactions. On perusal of total transactions with

Litika Group, it was noticed that assessee had received a total payment of

Rs.200.40 crores, whereas, it had made a payment of Rs.177.45 crores to

the same group during the year and in the preceding years. Thus, in the

process of executing paper transactions, the assessee had received a net

excess payment of Rs.22.95 crores, over and above the payment made in

the circuitous transactions. The excess payment received pertaining to

the year under consideration was amounting to Rs.3,99,50,717/- which

has been added by the AO in the income of assessee u/s.69C of the Act.

3. By the impugned order, the CIT(A) deleted the addition after

having following observations :-

3.3 I have considered the facts of the case. The appellant was engaged in the business of trading and manufacturing of drugs, vaccine and pharmaceuticals and allied products. During the year, the appellant had sales/turnover of Rs.280.64 crores. As discussed above, the Investigation Wing of the Department carried out search action u/s.132 of the Act on the premises of Litika Group of Pune.

The search action of Litika Group revealed that such group had circuitous / paper transactions with the appellant. Consequently, the Investigation Wing of the Department carried out a survey action at the premises of appellant company. Such survey action revealed that during assessment year 2007-08,2008-09 and AY 2009-10, the appellant entered into circuitous transactions with Litika Group by issuing accommodation/paper sale / purchase bills.

The year-wise break-up of such accommodation transactions were as under:-

3 ITA No.5612/2013

Year Total Total Profit on such Accommodation Accommodation accommodation sales purchases transactions 2007-08 38,14,66,393 23,59,88,547 14,54,77,846 2008-09 146,48,26,338 102,04,44,691 44,43,81,647 2009-10 129,48,38,780 129,10,56,021 37,82,759 TOTAL 70,99,79,096

Thus, during the year and in earlier years, the appellant was engaged in actual sale/purchase of goods/products and also accommodation sale purchase of goods. The gross sales during the year were at Rs.280.64 crores out of which sales of Rs.129.48 crores were on account of circuitous transactions. On account of these, circuitous transactions, the appellant made payment for paper purchases and also received payments on account of paper sales. The AO noticed that during all these years, the appellant had made payments for paper transactions totaling to Rs.177.45 crores whereas, it had received payments for paper transactions totaling to RS.200.40 crores. Thus, during these years, the appellant received net excess payment of Rs.22.95 crores, out of which Rs.3,99,50,717/- excess payment received were pertaining to the year under consideration. After considering appellant's submissions, the AO has considered this amount of Rs.3,99,50,717/- as appellant's unexplained expenditure u/s.69C of the Act by presuming that the equivalent amount had been transferred by the appellant to Litika Group outside the books of accounts.

"I have considered the facts of the case. It was a fact admitted by appellant as well as by the AO that transactions with the Litika Group were mere paper transactions. It was also a fact on record that the amounts pertaining to such paper purchase I sales transactions were routed through normal banking channels and there was no involvement of exchange of cash between the two parties for these circuitous transactions. It was also an admitted fact that all these circuitous transactions had been regularly accounted by the appellant in the books of accounts. The AO has mentioned figures of such circuitous sale I purchase on Page-4 of the assessment order. Perusal of such figures reveals that these circuitous purchase and sales transactions have resulted in additional profits to the appellant. All these circuitous transactions were entered into books of accounts and the profit earned thereon had been duly shown in the Profit and Loss account. The appellant had paid taxes on profits earned on actual transactions and has also paid taxes on profit earned on these circuitous transactions. Thus, it was not a case that the profit earned on such circuitous transactions has been adjusted by the appellant against any expenses or losses. Without prejudice to the morality of such circuitous transactions, by entering into such circuitous transactions, the appellant had not violated any provisions of the I T Act. On such paper transactions, the appellant earned profit on which the appellant had paid the taxes. Thus, the appellant had also paid taxes on the profits which was not real income of the appellant but it was mere profit arising out of paper circuitous 4 ITA No.5612/2013

transactions. Thus, so far as appellant is concerned, there was no loss of Revenue to the Department on account of appellant's entering into such circuitous transactions.

During all these years, the appellant had received excess' amount of Rs.22.95 crores on account of such circuitous transactions. It is worth to clarify here that the amounts pertaining to such circuitous transactions during all these years were much more but out of those amounts, the appellant received total payments of Rs.200.40 crores and made payments of RS.177.45 crores during these years. Thus, during all these years, appellant received excess payment of Rs.22.95 crores. Out of this, excess payment of Rs.3,99,50,717/- was pertaining to assessment year under consideration. The AO has made addition of Rs.3,99,50,717/- U/s. 69C of the Act in the income of the appellant. The AO, in Para - 5.2 of the assessment order, has presumed that equivalent amount of Rs. 3,99,50,717/- was transferred by appellant to Litika Group and therefore, such cash amount transferred by appellant represents appellant's unexplained expenditure. I have considered the AO's findings. Section 69C of the I T Act deals with the unexplained expenditure incurred by a person. However, in the case under consideration, there is no finding in the assessment order suggesting that the appellant had incurred any such unexplained expenditure.

There were no documents/evidences found during survey operation, suggesting that the appellant had incurred any such unexplained expenditure totaling to Rs.3,99,50,717/-. Even the enquires made during assessment proceedings, if any, had not revealed that the appellant had incurred any such unexplained expenditure. The AO has presumed that the appellant had transferred equivalent cash of Rs.3, 99,50, 717/ - to the Litika Group. However, neither the survey operations carried out nor the enquires made, if any, during assessment proceedings had revealed that the appellant had transferred cash of Rs.3,99,50,717/- to Litika Group. No evidences of transfer of cash of Rs.3,99,50,717/- had been found during survey operations on appellant or during enquiry proceedings, if any made during assessment proceedings. In the assessment order, the AO has also not discussed as to whether any evidences/ documents were found during search operations carried out on Litika Group. There is also nothing on record to suggest that the appellant and the Litika Group of Pune were involved in some other Scam/Scandal involving money laundering or violation of any Law.

In the facts and circumstances, the provisions of section 69C of the Act were not attracted/applicable. The excess payment received during the year amounting to Rs.3, 99,50,717/ - were duly forming part of Gross Sales of the year on which profit was earned and taxes were duly paid. Addition made by the AO, therefore, amounts of double taxation of amount of Rs. 3,99,50,717.

The AO has made addition of Rs.3,99,50,717/- u/s. 69 C of the Act. As discussed above, since the provisions of section 69C were not applicable, therefore the addition made by AO is deleted."

5 ITA No.5612/2013 Against the above order of CIT(A), the Revenue is in appeal before us.

4. We have considered rival contentions and carefully gone through

the orders of the authorities below and also deliberated on the judicial

pronouncements cited at bar with regard to addition to be made u/s.69C

of the IT Act.

5. From the record, we found that assessee is engaged in the

business of trading and manufacturing of drugs. The assessee was

having business dealing with Litika Group of Pune. There was search at

the premises of Litika Group u/s.132. During the course of search it was

found that Litika Group had entered into various circuitous paper

transactions with the assessee. Thereafter survey was also undertaken at

assessee's premises. On survey it was revealed that assessee had

entered into circuitous transactions with Litika Group by issuing

accommodation/paper sale/purchase bills. During the year under

consideration in respect of accommodation sales bill issued by the

assessee, the AO found that the assessee had received excess payment

of Rs.3.99 crores. The AO held that the excess amount of

Rs.3,99,50,717/- received by the assessee is assessee's unexplained

expenditure u/s.69C of the Act by presuming that the assessee has

transferred equivalent amount to Litika Group outside the books of

accounts.

6. From the record we also found that assessee has accommodated

Litika Group by issuing sales bills. In order to have corresponding charges

Litika Group issued purchase bill to the assessee. Thus, the inventory

was balanced. Since transaction had been regularly accounted in the 6 ITA No.5612/2013

books of accounts, the difference between the sales and purchase price

resulted into profit to the assessee. On such profit the assessee has paid

due taxes by duly incorporating such profit in its profit and loss account to

composite that additional tax liability. The Litika Group issued cheques to

the assessee. The details of such sales bills issued by the assessee, the

purchases made from Litika Group and the amount paid to and received

from Litika Group have duly been incorporated by the AO in his

assessment order. From these details it is clear that assessee has offered

profit on account of sales and purchases made from Litika Group and

corresponding tax liability has been reimbursed by the Litika Group to the

assessee. Thus there was neither any unexplained expenditure nor any

income as accrued to the assessee. Whatever the income accrued has

been duly accounted for in the regular books of accounts and taxes have

already been paid thereon. During the assessment year 2007-08 to

2010-11, the assessee had made payment for such paper transactions

totaling to Rs.177.45 crores, against which it had received payment for

paper transaction amounting to Rs.200.40 crores. Thus, during these

years, the assessee had received net excess payment of Rs.22.95 crores,

out of which Rs.3.99 crores excess payment received were pertaining to

the year under consideration.

7. There is no dispute to the fact that transactions entered into by the

assessee with the Litika Group were mere paper transactions as accepted

by the AO. There is also no dispute to the fact that all the amounts of such

paper purchase/sale transaction were routed through banking channels.

No transaction of cash dealing was found either during the course of 7 ITA No.5612/2013

search at Litika Group nor during the course of survey at assessee's

premises. It is also a matter of record that all these transactions were

entered by the assessee in its regular books of accounts. Such circuitous

transactions were entered into books of accounts and the profit earned

thereon had been duly shown in the Profit and Loss account. There is

also no dispute to the fact that on entire profit earned on actual

transactions as well as circuitous transactions of purchase and sales, the

assessee had paid due taxes on profit earned on all these transactions. It

is not the case of the AO that profit earned on such circuitous transactions

have not been accounted for by the assessee in its books of accounts,

nor it is the case of AO that such profit was adjusted against any

expenses or losses. Thus, there is no loss to the department insofar as

assessee has paid due taxes even on the profit earned on such circuitous

transactions. For the year under consideration the assessee had filed its

return at income of Rs.1.50 crore, which has not been disturbed by the

AO. The provision of Section 69C is applicable wherein any financial year

assessee has incurred any expenditure but fails to offer any explanation

about the source of such expenditure. In the instant case the assessee

has neither incurred any expenses nor was not found to have incurred

any expenditure, therefore, there is no question of explanation regarding

source of such expenditure. Accordingly, there was no justification on the

part of the AO's action for making any addition u/s.69C. Neither during the

course of search at Litika Group nor during the course of survey at

assessee's premises nor during the enquiries made after survey reveal

that assessee had transferred cash of Rs.3.99 crores to Litika Group. 8 ITA No.5612/2013

There is also nothing on record to suggest that assessee and Litika Group

were involved in some scam/scandal involving money laundering or

violation of any law. After considering all these factual position, the CIT(A)

recorded detailed finding at para 3.3 of his appellate order and held that

provisions of Section 69C are not attracted. It is also not the case of the

department that excess payment received during the year amounting to

Rs.3.99 crores was not forming part of the gross results of the assessee

on which profit was earned and taxes were duly paid. The detailed finding

recorded by the CIT(A) at pages 10 to 14, para 3.3 have not been

controverted by department by bringing any positive material on record.

Accordingly, we do not find any reason to interfere in the findings

recorded by the CIT(A) resulting into deletion of addition made u/s.69C of

the Act.

8. In the result, appeal of the Revenue is dismissed.

Order pronounced in the open court on this 18th Feb.2015.

Sd/- Sd/- ( ) ( ) (VIVEK VARMA) (R.C.SHARMA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER Mumbai; Dated 18/02/2015 /pkm, PS Copy of the Order forwarded to : 1. / The Appellant 2. / The Respondent. 3. / The CIT(A), Mumbai. / BY ORDER, 4. / CIT 5. / DR, ITAT, Mumbai

6. Guard file.

//True Copy// (Asstt. Registrar) / ITAT, Mumbai