TMI Blog2014 (4) TMI 530X X X X Extracts X X X X X X X X Extracts X X X X ..... unit and in lieu thereof the assessee has obtained accommodation bills – the CIT(A) was justified in holding that some of the plant and machinery has been shifted from Delhi unit to the Baddi unit. Extent and value of old plant and machinery - Held that:- CIT(A) rightly held 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 the machines are more than three to five years old – the 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 - 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 - 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 discount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have definitely incurred certain expenditure in taking such accommodation bills - CIT (A) has estimated the same at 2% and the estimation as fair and reasonable – thus, there is no reason to interfere with the order of the CIT (A). Deletion made on account of suppression of wages – Held that:- The CIT(A) has rightly observed that this is related to the assessment year 2008-09 and not to earlier assessment years - 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 the facts are taken into consideration the very basis for making the addition by the AO becomes unsustainable - the CIT(A) rightly 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 understood by the AO in the right perspective - the order of the CIT(A) is upheld. Deletion on account of suppression of production – Held that:- The assessee has explained its production process in detail and the wastage/loss arising in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi unit to Baddi unit, such machinery will be eligible for depreciation - The value of such machinery needs to be deducted while making disallowance - the CIT(A) was justified in restricting the disallowance to the net of the amount of accommodation bills i.e. Rs.54 Lakh - value of the machinery shifted to the Baddi unit. Deletion of unexplained investment and expenses – Held that:- The AO 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% - the CIT(A) was justified in setting aside the addition. Deletion on account of income of Delhi unit – Held 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uation 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 - the difference in the valuation as per the DVO and as per the books of account is less than 10%. - ITA No.3287/Del./2012, ITA No.4072/Del./2012, ITA No.4073/Del./2012, CO No.353/Del/2012, CO No.417/Del/2012, CO No.418/Del/2012 - - - Dated:- 7-2-2014 - Smt. Diva Singh And Shri B. C. Meena,JJ. For the Petitioner : Shri Ved Jain, Advocate For the Respondent : 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Officer on acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/- 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 Section 153A are bad in law in the absence of any incriminating material belonging to the assessee being found during the cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 Kris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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). (c) It is found that Plant Machinery worth Rs. 40,64,691/- was claimed to be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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. 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 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertaking 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. (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) I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proved 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. (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 assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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% 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preciation 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 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 appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansported. 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 take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 evid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % of old machineries 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. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the approved valuers 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccommodation 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 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 afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerned. 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) The above facts are not disputed by the learned DR. 37. In view of the above it is clear that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucted 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 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/- w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings." 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 accommodation entry provider and hence addition of 2% by the CIT(A) per year is untenable. 59. We have considered the riv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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? 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 state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure 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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration 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. 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- - 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf. 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. 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 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of the survey. The explanation given by the assessee has not been 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 anne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneration. 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 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. 2006-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 steps from conversion of raw material and packing into finished goods product. The loss in each step starting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 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 learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncorrect 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:- "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 differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 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 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovement 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 leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is for estimating 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 conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance 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 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 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 obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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 ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PIP 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 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 Shakun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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 partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ported 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 valuati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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