DY. COMMISSIONER OF INCOME TAX , CIRCLE-1(2), HYDERABAD vs. COVALENT LABORATORIES PRIVATE LIMITED, HYDERABAD

Brief facts of the case are that the assessee company engaged in the manufacturing of bulk drugs and API, e-filed its return of income on 23.09.2012 declaring a total income of Rs.26,95,31,744/-under normal provisions and Rs.31,52,46,457/- u/s 115JB of the Act. There was a survey u/s 133A of the Act on the assessee company on 29.09.2015 and the survey party found discrepancies in the a/cs of the assessee company. Therefore, the return of income was taken up for scrutiny u/s 147 after issuance of a notice u/s 148 of the Act. During the assessment proceedings, the AO observed that according to the books of account of the assessee, the assessee has made consignment sale of Rs.62,11,54,349/- through ABS Mercantile Pvt Ltd, whereas according to the consignee, the goods sold were worth Rs.91,73,58,265/-. The assessee was asked to explain the discrepancy. The assessee filed a reconciliation statement, but the AO was not convinced. Thereafter, he treated the difference of Rs.29,62,03,916/- as unaccounted income of the assessee. The AO also made disallowances of R&D expenses, commission expenses and also of expenditure u/s 14A. Aggrieved, the assessee preferred an appeal before the CIT (A) who granted partial relief to the assessee and the assessee is in second appeal before the Tribunal by raising the following grounds: “(i) The order of the Ld. CIT(A) is erroneous on facts as well as in law. (ii) The Ld. CIT(Appeals) erred in deleting the addition made by the AO on account of disallowance of R&D expenditure of Rs 1,59,08,943/- by accepting the additional evidence in the form of bills for consumables submitted by the assessee for the first time before the CIT(A). (iii) The Ld. CIT(A) ought to have appreciated that Sr. Executives in R&D Department of the company had clearly stated in the statement recorded during the survey operation u/s 133A that all raw materials required for R&D were procured from the regular raw material purchased for production and no separate expenditure was incurred for acquiring material for R&D. (iv) The Ld. CIT(A) ought to have provided an opportunity to the Assessing Officer as required under Rule 46A of I T Rules before admitting additional evidence particularly when these evidences were not found at the corporate office or the factory premises of the assessee during the survey. (v) The Ld. CIT(A) erred in deleting the entire addition made by the Assessing Officer of Rs 29,62,03,916/- on account of under reporting of consignment sales made by the assessee during the year through a consignment agent. (vi) The Ld. CIT(A) ought to have further considered that the sales made to the said entity through the consignment agent got crystallized during the year and the same should

The learned DR has confirmed the said facts and submitted that without prejudice to the reliance made by him upon, the orders of the authorities below, following the decision of the Coordinate Bench of the Tribunal, the matter may be set aside to the file of the AO with similar directions as given for the A.Y 2013-14. Taking the same into consideration, all these three appeals are also set aside to the file of the AO for denovo consideration in accordance with law and in accordance with the directions given by the Tribunal for the A.Y 2013-14. A copy of the order of the Tribunal in the assessee’s appeal dated 11.09.2020 may be annexed to this order and shall be treated as part of this order.

In the result, appeals of the Revenue are treated as partly allowed for statistical purposes. Order pronounced in the Open Court on 24th February, 2021.