DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-I, CHANDIGARH , CHANDIGARH vs. MS SCOTT EDIL ADVANCE RESEARCH LABORATOTRIES AND EDUCATION LTD., , CHANDIGARH

Order \nPer Bench:\nAll these captioned appeals have been directed against the\nseparate orders of the Ld. CIT(A) and pertained to the assessments\ncarried out under Section 153A of the Income Tax Act, 1961\n(hereinafter referred to as the “Act”) pursuant to the search action\ncarried out under Section 132 of the Act in Scott Edil Group of cases\non 15.11.2017. Since the facts involved in all these captioned appeals\nare identical and there are common issues, hence the same were heard\ntogether and the same are being disposed of by this common order.\n2. The grounds/issues raised in all the appeals are summarized as\nunder :\nITA No. 489/Chandi/2023 (Sanjeev Aggarwal, AY 2017-18) (Assessee’s\nAppeal)\n1. Ground No. 1 – General in nature.\n2. Ground no. 2 – Deemed dividend on account of credits exceeding remuneration /\npayments received from SEPL.\n3. Ground no. 3 - Deemed dividend on account of credits exceeding remuneration /\npayments received from SEARLE.\n4. Ground no. 4 – approval u/s 153D\n5. Ground no. 5 – transfer order u/s 127 dated. 30.03.2018 was without sanction of\nlaw, hence bad in law.\n6. Ground no. 6 – General in nature.\nITA No. 505/Chandi/2023 Sanjeev Aggarwal, AY 2017-18 (Appeal by Department)\n1. Ground No. 1 – Deemed dividend u/s 2(22)(e) on account of credit credits\nexceeding remuneration / payments.\n2. Ground no. 2 – General in nature.\nITA No. 480/Chandi/2023 Sanjeev Aggarwal, AY 2018-19 ( Assessee’s Appeal)\n1. Ground No. 1 – General in nature.\n2. Ground no. 2 – Transfer order u/s 127 dtd. 30.03.2018 was without sanction of\nlaw, hence bad in law.\n3. Ground no. 3 – Deemed dividend on account of credits exceeding remuneration /\npayments received from SEPL.\n4. Ground no. 4 – Payment made by SEPL for construction of H.NO 323, Sector-9,\nChandigarh\n5. Ground no. 5 – Payment made by SEPL for construction of H.NO 3100, Sector 21,\nChandigarh.\n6. Ground no. 6 – Addition u/s 69C r.w.s.115BBE on account of difference in\nvaluation of H.NO 3100, Sector-21, Chandigarh.\n7. Ground no. 7: Approval u/s 153D.\n8. Ground No. 8- General in nature.\n9. Ground No. 9- General in nature.\nITA No. 506/Chandi/2023 (Sanjeev Aggarwal, AY 2018-19 ) (Appeal by Department)\n1. Ground No. 1 – Deemed dividend on account of credits exceeding remuneration /\npayments received from SEPL.\n2. Ground No. 2: General in nature.\nITA No. 482/Chandi/2023 (Vaishali Aggarwal, AY 2017-18 ) (Appeal by Assessee)\n1. Ground No. 1 – General in nature.\n2. Ground No. 2 – Deemed dividend u/s 2(22)(e) on account of credit credits\nexceeding remuneration / payments.\n3. Ground No. 3 - Approval u/s 153D.\n4. Ground No. 4 - Transfer order u/s 127 dtd. 30.03.2018 was without sanction of\nlaw, hence bad in law.\n5. Ground No. 5 – General in nature.\nITA No. 483/Chandi/2023 (Vaishali Aggarwal, AY 2018-19) (Appeal by Assessee)\n1. Ground No. 1 – General in nature.\n2. Ground No. 2 – Transfer order u/s 127 dtd. 30.03.2018 was without sanction of law,\nhence bad in law.\n3. Ground No. 3 - Deemed dividend u/s 2(22)(e) on account of credit credits exceeding\nremuneration / payments.\n4. Ground No. 4 - Payment made by SEPL for construction of H.NO 323, Sector-9,\nChandigarh.\n5. Ground No. 5 – Payment made by SEPL for construction of H.NO 3100, Sector-21,\nChandigarh.\n6. Ground no. 6 – Addition u/s 69C r.w.s.115BBE on account of difference in valuation\nof H.NO 3100, Sector-21, Chandigarh.\n7. Ground No. 7 – Unexplained investment in jewellery.\n8. Ground No. 8 - Approval u/s 153D.\n9. Ground No. 9 – Reasonable opportunity of being heard not provided.\nITA No. 591/Chandi/2023 (Maxport India Pvt Ltd, AY 2018-19 ) (Appeal by\nAssessee)\n1. Ground No. 1 – General in nature.\n2. Ground No. 2 - Transfer order u/s 127 dtd. 30.03.2018 was without sanction of law,\nhence bad in law.\n3. Ground No. 3 – Order deserves to be quashed in absence of incriminating material.\n4. Ground No. 4 – Deemed dividend on account of credits exceeding\nremuneration/payments received from SEPL\n5. Ground No. 5 - Approval u/s 153D.\n6. Ground No. 6 – General in nature.\nITA No. 579/Chandi/2023 (Maxport India Pvt Ltd, AY 2017-18 )(Appeal by Assessee)\n1. Ground No. 1 – General in nature.\n2. Ground No. 2 - Transfer order u/s 127 dated 30.03.2018 was without sanction of law,\nhence bad in law.\n3. Ground No. 3 – Order deserves to be quashed in absence of incriminating material.\n4. Ground No. 4 – Commission on sales and purchase transactions carries out allegedly\noutside books.\n5. Ground No. 5 - Approval u/s 153D.\n6. Ground No. 6 – General in nature.\nITA No. 584/Chandi/2023 (Maxport India Pvt Ltd, AY 2016-17 ) (Appeal by\nAssessee)\n1. Ground No. 1 – General in nature.\n2. Ground No. 2 - Transfer order u/s 127 dtd. 30.03.2018 was without sanction of law,\nhence bad in law.\n3. Ground No. 3 – Order deserves to be quashed in absence of incriminating material.\n4. Ground No. 4 – Commission on sales and purchase transactions carries out allegedly\noutside books.\n5. Ground No. 5 - Approval u/s 153D.\n6. Ground No. 6 – General in nature.\nITA No. 583/Chandi/2023 (Maxport India Pvt Ltd, AY 2015-16) (Appeal by Assessee)\n1. Ground No. 1 – General in nature.\n2. Ground No. 2 - Transfer order u/s 127 dtd. 30.03.2018 was without sanction of law,\nhence bad in law.\n3. Ground No. 3 – Order deserves to be quashed in absence of incriminating material.\n4. Ground No. 4 – Commission on sales and purchase transactions carries out allegedly\noutside books.\n5. Ground No. 5 - Approval u/s 153D.\n6. Ground No. 6 – General in nature.\nITA No. 582/Chandi/2023 (Maxport India Pvt Ltd, AY 2014-15 )(Appeal by Assessee)\n1. Ground No. 1 – General in nature.\n2. Ground No. 2 - Transfer order u/s 127 dtd. 30.03.2018 was without sanction of law,\nhence bad in law.\n3. Ground No. 3 – Order deserves to be quashed in absence of incriminating material.\n4. Ground No. 4 – Commission on sales and purchase transactions carries out allegedly\noutside books.\n5. Ground No. 5 - Approval u/s 153D.\n6. Ground No. 6 – General in nature.\nITA No. 732/Chandi/2023 (Balram Krishan Aggarwal, AY 2018-19) (Appeal by\nAssessee)\n1. Ground No. 1 – General in nature.\n2. Ground No. 2 - Transfer order u/s 127 dtd. 30.03.2018 was without sanction of law,\nhence bad in law.\n3. Ground No. 3 – Order deserves to be quashed in absence of incriminating material.\n4. Ground No. 4 – Commission on sales and purchase transactions carries out allegedly\noutside books.\n5. Ground No. 5 - Payment of Rs.18,15,549/-by SEPL for construction of house and\nholding the same as deemed dividend.\n6. Ground No. 6 – Payment of Rs.7,77,384/- by SEPL for construction of house and\nholding the same as deemed dividend.\n7. Ground No. 7 – Difference in valuation as per DVO report and books of accounts.\n8. Ground No. 8- Shortage of stock found during search.\n9. Ground no. 9 – approval u/s 153D\n10.Ground no.

\nGround No. 4: That on facts, circumstances and legal position of the case, Worthy CIT(A)\nhas erred in confirming the addition made by Ld. AO of Rs.28,41,258/- u/s 69C r.w.s.\n115BBE of the Act on account of difference in valuation of factory building situated at\nVillage Dasora, Majra Hiltop, Near Venus Remedies, Jharmajri, Baddi as per DVO’s\nreport and as per books of the appellant even when the valuation exercise carried out by\nDVO is absolutely incorrect.\n43. The brief facts relating to this issue are that the assessee was carrying on\nmanufacturing operations of pharmaceutical products. One of the manufacturing\nfacilities was at Village Dasora, Majra Hill Top, Near Venus, Remedies, Jharmajri, Baddi.\nThe construction on the said property was carried out primarily during FYs 2009-10 to\n2011-12, though, some activity was done almost every year thereafter also. A search\naction u/s 132 was carried out by the investigation wing on 15.11.2017 at the premises\nof the assessee. The Ld. DDIT referred the matter of valuation of construction of above\nreferred property to the DVO u/s 132(9D). The DVO, thereafter framed his report and\nforwarded it to the Ld. DDIT. The DDIT further forwarded the copy of the report of the\nDVO to the Assessing Officer. The DVO vide his valuation report valued the property at\nRs.58.67 crores as against Rs.44. 51 crores declared by the assessee in its books. The\ndifferential amount of the year in question was computed in the same ratio in which the\nconstruction expenses were recorded by assessee in different years in its books and based\non that, difference for the year was computed at Rs.1.98 cr. The AO issued notices to the\nassessee show-causing it as to why the difference of the valuation may not be added to\nthe income of the assessee, to which the assessee responded disputing the DVO’s\nvaluation and submitted an independent valuation report from M/s Sharma & Associates,\na registered valuer, empanelled with the Income Tax Department, valuing the property at\nRs.46.07 crores. The assessee also provided an analysis highlighting computational\nerrors in the DVO’s valuation methodology. The ld. AO, however, rejected the\ncontentions raised by the assessee holding that DVO was an independent authority and\nthat there was no reason to consider valuation report of registered valuer over DVO’s\nreport. The AO, based on the DVO’s report, made addition of the differential amount\nunder Section 69C read with Section 115BBE of the Act. Assessing Officer made\nidentical addition in every year being the difference reported by the Ld. DVO. Being\naggrieved by the said order of the AO on this issue, the assessee preferred appeal before\nthe Ld. CIT(A).\n44. In appeal before the Ld. CIT(A), the assessee contended that the valuation report\nof the DVO was based on assumptions and estimations, ignoring actual records of\nexpenses incurred; That the assessee had maintained complete books of accounts, duly\naudited, and no defect was pointed out by the ld. AO before making reference to DVO.\nFurther that the DVO erroneously applied CPWD rates instead of local PWD rates, which\nwere more appropriate. It was also contended that the assessee had self-supervised the\nconstruction, leading to substantial savings that were not considered in the DVO’s\nvaluation. It was also contended that the DVO’s report was merely an estimate and should\nnot be the sole basis for making additions. A legal issue was also raised to the effect that\nthe Ld. AO did not make his own reference to DVO u/s 142(2A) and she only relied upon\nDVO’s report as was obtained by Ld. DDIT in a reference made u/s 132(9D). It was\ncontended that since no incriminating material was found during search action on the\nbasis of which it could be suspected that assessee invested unaccounted funds in\nconstruction and in absence of incriminating material having been found, the reference\nto DVO in itself was bad in law.\n45. The Ld. CIT(A), after considering the above submissions of the assessee directed\nthe AO to get the valuation of the same property from the DVO again since the earlier\nDVO report had been obtained in violation of principles of natural justice. The DVO gave\nthe report valuing it at Rs.58,67,88,300/- as against Rs.44,51,28,408/- recorded in the\nbooks of the assessee. The Ld. CIT(A) applied the said report of the DVO. The Ld.\nCIT(A) though, observed that there was merit in the argument of the Ld. AR of the\nassessee regarding the application of State PWD rates, but noted that the assessee had\nfailed to provide evidence to show that the DVO's valuation was higher than the State\nPWD based valuation. He, however, further observed that on the basis of documents\nfurnished, it was evident that no contractor was engaged and therefore, benefit on account\nof self-supervision/Self-procurement was to be allowed. He, however, held that the said\nincome/addition was not eligible for deduction u/s 80IC as it was not derived from\neligible business. The Ld. CIT(A), thus gave part relief to the assessee. Accordingly, the\nremaining addition of Rs.28,41,258/- made by the AO was upheld. The relevant part of\nthe order of the Ld. CIT(A) on this issue is reproduced as under:\n“On going through the facts of the case, and submission of the Ld. AR on the above\nissue, it is found that there is merit in the argument that PWD rates\nshould have been adopted for the purpose of valuation by the DVO. However, the\nappellant has not provided any material to show that the revised valuation made\nby the DVO was higher than the valuation on the basis of PWD rates. Therefore no\nmerit is found in such submission of the appellant. Such income is not eligible for\ndeduction u/s 80IC of the Act as the same has not been derived from the eligible\nbusiness. Further the DVO has allowed rebate on account of self supervision/ self\nprocurement of the material after going through relevant record. The appellant has\nfurnished copy of construction account wherein various expenditure for labour,\nmaterial, steel, electrical items etc have been clearly demarcated. From the same it\nis evident that no contractor was engaged by the appellant for the purpose of\nconstruction of the said building. The AO has not brought on record any material to\nshow that construction was not done through self supervision/ self procurement of\nthe material. The DVO only after being satisfied on this account and as per the\nrelevant guidelines has allowed rebate for this purpose. The AO has accepted the\ngenuneness and particulars of cost of construction as declared in the books of\naccount for different assessment years. Such objections of the AO in the remand\nreport have been found without any substance. It is relevant to mention here that\nthe DVO was engaged by th"e Department itself.\n10.6 On the basis of above facts, discussion and report of the DVO it is evident that\ncost of construction has been under stated by the appellant. Reliance is hereby\nplaced upon the decision of Hon'ble Madras High Court in the case of Shri Krishna\nMahal vs ACIT ZSOITR 0333/169 CTR0228 (2001). Keeping in view above facts and\ndiscussion it is evident that the appellant has failed to explain source and nature of\ninvestments made to the extent of difference in cost of construction of factory\nbuilding as determined by the DVO and as d red by the appellant in its books of\naccount satisfactorily. Accordingly the addition made by the AO for AY 2018-19 is\npartly confirmed for Rs.56,21,339/- u/s 69B r.w.s.115BBE oi the Act and\ncorresponding ground of appeal is partly allowed.”\n46. Being aggrieved by the above order of the CIT(A) on this issue, the assessee has\ncome in appeal before us agitating against the confirmation of the addition made by the\nCIT(A), whereas the Revenue has come in appeal assailing the action of the CIT(A) to\nthe extent the addition on this issue stood deleted by him.\n47. Before us, the Ld. Counsel for the assessee has submitted that the DVO had\ncalculated the aggregate difference in construction cost and then bifurcated the same year\nwise in the same ratio in which construction value was declared by the assessee. No basis\nfor such adoption of ratio was mentioned in the report of DVO. That the DVO had\npresumed that the assessee was under-recording the construction cost in the same\nproportion in which he was recording the construction at every point of time throughout\nthe period of construction spanning more than 10 years. That these estimates were pure\nguess works without having any evidence in hand. It was further submitted by the Ld.\ncounsel that the valuation report filed by the Ld. DVO was full of errors. He has made a\nwrong computation of area as well as the rate. That the assessee has declared the expenses\non construction of relevant property in its books of accounts and that no discrepancy,\ndefect or incriminating material regarding the same was found during the course of search\naction. That even the said books have neither been doubted nor rejected by AO or the Ld.\nCIT(A). The ld. Counsel for the assessee contended that the construction on the said\nproperty was carried out primarily during FYs 2009-10 to 2011-12, though some activity\nwas done almost every year. That the expenses incurred on the subject property were duly\nrecorded in the books. That the expenditure incurred on the construction in the books of\naccounts was at Rs.44. 51 cr. However, as per the valuation report from the independent\nregistered valuer namely M/s Sharma & Associates, was at Rs.46.07cr, which was only\n3.5% more than the value recorded in books. He, therefore has submitted that under the\ncircumstances, no addition was warranted in this case due to such a small difference.\nThe Ld. counsel for the assessee further contended that while making valuation of the\nproperty, DVO made certain mistakes which included calculation on CPWD rates rather\nthan State PWD rates, which were lesser than the CPWD rates. It has been contended\nthat thought the Ld. CIT(A) agreed with the view that State PWD rates should be used\nbut, the ld. CIT(A) did not give any relief on this count despite the fact that the assessee\nhad submitted a report wherein valuation was computed with State PWD rates and also\nprovided analysis of difference between the CPWD rates and State PWD rates. He\nsubmitted that the analysis of rates would show that the State PWD rates were more than\n20% lesser than the CPWD rates. The Ld. counsel submitted that State PWD rates would\nbe applicable for property valuation as the property is situated in a jurisdiction where\nsuch rates are applicable. The ld. Counsel of the assessee has relied upon following\nJudicial pronouncements on this issue: :\na) Smt. Kamini Sharma, Solan vs. ITO, ITA Nos.1365 to 1369 of 2010\n(Chandigarh ITAT),\nb) C.S. Daniel vs. DCIT, 220 TAXMAN 336 (Kerala HC),\nc) CIT vs. K. Jayakumar, 216 TAXMAN 166 (Madras HC), and\nd) CIT vs. D. Subramanian, 296 ITR 348 (Chennai HC)\n48. Further, the ld. Counsel for the assessee also contended that the difference in\nreport of DVO and as per books was less than 10% and therefore, the addition u/s 69B\nwas not sustainable as per the judicial precedents laid down by Hon’ble J&K HC in\nHonest Group Of Hotels (P) Ltd. Vs. Cit, 123 Taxman 0464.\n49. The Ld. Counsel for the assessee has further contended that reference made by the\nDDIT u/s 132(9D) was without rejecting the books of the accounts which was bad in law\nand that the subsequent DVO report was also legally not sustainable as per the judicial\nprecedent laid down by the Hon’ble Apex Court in the case of Sargam Cinema vs. CIT,\n328 ITR 513.\n50. The ld. Counsel for the assessee further contended that the ld. AO did not have\nany incriminating evidence to prove that the assessee incurred out-of-book construction\nexpenses. Therefore, the addition made solely on the basis of the DVO report without\nany evidence was incorrect.\n51. The ld. Counsel for the assessee has further, alternately, contended that\nundisputedly, the assessee’s only source of income was profit from manufacturing\noperation which was eligible for deduction u/s 80IC. That when there was no other source\nof income of the assessee, even if there was any undisclosed investment in construction\nof property, the same would have come from the same profit from manufacturing\noperations. Therefore, the deduction u/s 80IC should have been allowed on that\ncomponent of income invested in alleged construction.\n52. The Ld. CIT (DR) , on the other hand, has contended that the ld. AO was justified\nin making the impugned addition on the basis of valuation report of the DVO on account\nof difference calculated proportionately, based on the expenses incurred by the assessee\nover different years. She has placed reliance on the orders of ld. AO and ld. CIT(A) and\nstated the assessee's reliance on an alternate valuation report by M/s Sharma and\nAssociates, was not tenable as the DVO was an independent authority, and the valuation\nwas conducted on a reference made by the Investigation Wing u/s 132(9D), ensuring\ncredibility and impartiality. She has further contended that assessee's claim that the\nestimates made by DVO were without any evidence was not correct. That the DVO used\navailable data and professional expertise to determine the construction cost. The ld. DR\nrebutting the contentions of the Ld. AR of the assessee regarding books being not rejected\nand even no defect pointed out by any of the authorities in the same, has submitted that\nthat the books of accounts alone cannot conclusively determine the correctness of\ndeclared expenses, especially when external valuation highlights significant\ndiscrepancies. She therefore, has contended that the ld. CIT(A)’s decision to uphold the\nDVO’s valuation, with limited adjustments for self-supervision and procurement, was\nfair and reasonable.\n53. The ld. DR has also submitted that assessee’s claim for deduction u/s 80IC was\nuntenable as the addition pertains to unexplained construction costs, which were not\nderived from manufacturing activities eligible for the deduction. She has further\ncontended that the Ld. CIT(A) has rightly applied the CPWD rates for valuation of the\nproperty and that there was no discrepancy in the same. She, therefore, has relied upon\nthe findings of the lower authorities.\n54. We have heard the rival contentions and gone through the record. In this case,\nadmittedly, no incriminating material, whatsoever, was found during the course of search\naction. It has been held time and again that the report obtained of the DVO after the\nsearch action, would not fall in the definition of incriminating material. The Ld. Counsel\nfor the assessee has relied upon various case laws to stress the point that even in the\nabsence of any corroborating evidence, the addition solely on the basis of the report of\nthe DVO cannot be made even in the normal course or even in case of abated assessment\nyears on the date of search. He has further submitted that the report of the DVO was a\nmere estimation of investment and would not constitute as conclusive evidence of\ninvestment. The ld. Counsel has further relied upon the decision of the Hon’ble Supreme\nCourt in the case of PCIT vs. Abhisar Buildwell P. Ltd. Civil Appeal No.6580 of 2021\ndated 24.04.2023 reported in [2023] 149 taxmann.com 399 (SC) wherein the Hon’ble\nSupreme Court has held that in respect of completed/unabated assessments, no addition\ncan be made by the AO in an assessment carried out u/s 153A of the Income Tax Act in\nthe absence of any incriminating material found during the search action. He has further\nrelied upon various case laws to contend that the report of the DVO cannot be construed\nas an incriminating material found during the course of search action and further that\naddition cannot be made on account of unexplained investment in a property solely on\nthe basis of DVO report without any other corroborating evidence or incriminating\nevidence found in support of such addition. The Hon’ble Supreme Court in Sargam\nCinema v. CIT (328 ITR 513) has held that a DVO’s report cannot be relied upon unless\nthe books of accounts are found to be incorrect. The Income Tax Act does not mandate\nblind reliance on a DVO’s report unless corroborated by substantive proof of undisclosed\ninvestment. Valuation reports are opinion-based and susceptible to variations due to\ndiffering methodologies, assumptions, and regional price fluctuations. The reliance in\nthis respect can be placed on the following decisions:\n“(i) [Assistant Commissioner of Income Tax, Central Circle-1(3), Kolkata v. Narula\nEducational Trust [2021] 126 taxmann.com 158 (Kolkata - Trib.)\n(ii) Champaklal S. Kasat v. Deputy Commissioner of Income-tax, Cent. Cir. 1(3),\nAhmedabad [2017] 82 taxmann.com 243 (Ahmedabad - Trib.)\n(iii) Kay Jay Projects Pvt. Ltd. Versus Dcit, Central Circle, Noida 2023 (8) Tmi 431:\nAssessment u/s 153A - Addition towards the cost of construction of the building -\nReference made to ld. DVO u/s 142A - HELD THAT:- Admittedly, no incriminating\nmaterial has been found during the course of search qua this addition towards cost of\nconstruction. This fact is evident from the perusal of the orders of the lower authorities. [Refer para 13]\nSole basis of the addition is only the valuation report furnished by the DVO which has\nbeen obtained by the ld. AO during the course of search assessment proceedings. Then,\nthe said report cannot constitute incriminating material found during the course of\nsearch. Hence, we have no hesitation to hold that no addition could be made by placing\nreliance on the said valuation report while framing the assessment u/s 153A of the Act\nin the hands of the assessee. This issue is now well settled by the recent decision of\nSargam Cinema vs. (2009 (10) TMI 569 – SC ORDER] and in the case of CIT Vs.\nNirmal Kumar Aggarwal (2018 (10) TMI 2002- SC ORDER] as referred to supra in the\ncontentions of the ld. AR.\n(iv) The Dcit, Central Circle-1 Ludhiana Versus M/S Rajan Enterprises And Vice\nVersa 2022 (5) Tmi 1376\nAddition on account of difference in cost of construction as per the books of account and\nas per the report of the DVO - As it is an undisputed fact on record that no incriminating\nmaterial or evidence was found during the course of search which could indicate that the\nassessee had made investment towards cost of construction outside the regular books of\naccount. We also note that the Ld. CIT(A) had deleted the addition in this year by\nfollowing the order of the Ld. CIT(A) for the immediately preceding assessment year.\nSince no material was found in the search and seizure operations which could justify the\nAssessing Officer's action in referring the matter to the DVO for his opinion on valuation\nof the said properties, then the valuation arrived at by the DVO would be of no\nconsequence. Accordingly, in view of the above cited judicial precedents as well as the\nfactual finding recorded by the Ld. CIT(A) in assessment year 2016-17, which, in our\nopinion, is both sound as well as logical, we have no hesitation in upholding the same.\nAccordingly, the ground raised by the Department on this issue also stands\ndismissed.[Para 8.3]\n(v) Commissioner Of Income Tax Versus Abhinav Kumar Mittal 2013 (1) Tmi 629 –\n(Delhi High Court: (2013] 351 Itr 20\nAdditions u/s 69 - search conducted u/s 132 - notice u/s 153C - valuation of properties\nreferred to District Valuation Officer (DVO) - ITAT deleted the addition - Held that:- No\nreason to differ from the view taken by the Tribunal as no material was found in the\nsearch and seizure operations, which would justify the A0's action in referring the matter\nto the DVO for his opinion on valuation of the said properties. If that be the case, then\nthe valuation arrived at by the DVO would be of no consequence. In any event, the\nTribunal has also, on facts, held that the DVO's valuation was based on incomparable\nsales, which is not permissible in law - in favour of assessee. [Para 5]\n(vi) Smt. Jatinder Kaur, Smt. Harbhajan Kaur Versus The Dcit Cc-1, Ludhiana2021\n(10) Tmi 1150 - Itat Chandigarh\nAssessment u/s 153A - Undisclosed investment in the residential buildup house -\ndifference in values as declared by the assessee and as opined by the DVO, - Whether no\nincriminating evidence was found during the course of search relating to the part\nadditions as confirmed by the Worthy CIT(A)? - Tribunal in the second appeal reversed\nthe findings of the Ld. CIT(A) and deleted the addition holding that since no material\nwas found during the search to justify the reference to the DVO, the action was not in\naccordance with law - HELD THAT:- As in the present case, the authorities below have\nnot pointed out any corroborative evidence to show that the assessee had made\ninvestment in question more than the amount declared by the her during assessment\nproceedings. Hence respectfully following the judgment of Abhinav Kumar Mittal [2013\n(1) TMI 629 - DELHI HIGH COURT] we allow the appeal of the assessee and set aside\nthe impugned order passed by the Ld. CIT(A).[Para 6& 7]\n(vii) 2021 (7) TMI 671 - ASSISTANT COMMISSIONER OF INCOME-TAX,\nCENTRAL CIRCLE-1 (3), KOLKATA VERSUS M/S. JIS FOUNDATION AND\n(VICE-VERSA)\nAssessment u/s 153A - Unexplained investment u/s.69 - valuation report of the District\nValuation Officer (DVO) - Estimation of value of assets by Valuation Officer - HELD\nTHAT:- As relying on M/S. NARULA EDUCATIONAL TRUST AND M/S. NARULA\nEDUCATIONAL TRUST VERSUS DEPUTY COMMISSIONER OF INCOME-TAX,\nCENTRAL CIRCLE-1 (3), KOLKATA [2021 (2) TMI 459 - |TAT KOLKATA] From the\nperusal of panchnama and the assessment orders, it can be safely inferred that the\nreference made by DDIT (Inv.) for valuation of the properties was without any\nincriminating materials found during search [oral or documentary which could have\nsuggested that the assessee has shown less investment in its books for building\nconstruction] Therefore, no addition was permissible in the assessment order u/s 153A\nof the Act in the case of un-abated assessments unless it is based on relevant\nincriminating material found during the course of search qua the assessee and qua the\nAY. - Decided in favour of assessee. [Para 15]\n(viii) 2013 (5) TMI 637 - ITAT DELHI ASSTT. COMMISSIONER OF INCOME TAX\nCENTRAL CIRCLE-11, NEVW DELHI VERSUS MS. ASHA KATARIA\nAddition made upon the valuation done by the DVO - value of the property in this case\nas reflected in the registered sale deed was Rs.33,00,000/-. Reference u/s.142A was\nmade to the DVO who determined the value of the property at Rs.63,74,700/- as against\nRs.33,00,000/- shown by the assessee. Hence, there was difference of Rs.30,74,700/-.\nThis was added to the income of the assessee. CIT(A) deleted the addition as there was\nno evidence of adverse material regarding payment of under hand consideration - Held\nthat:- As no other incriminating material was found during the course of search CIT(A)\nis correct in this regard. Addition in this case has been made pursuant to search on the\nbasis of Valuation Report of the DVO. It has been settled that in case of search in the\nab sence of any incriminating material found during search, no addition can be made on\nthe basis of Report of the DVO. See K.P. Varghese vs. ITO, Ernakulam&Anr. [1981 (9)\nTMI 1-SUPREME Court],C.I.T. vs. Abhinav Kumar Mittal [2013 (1) TMI 629 - DELHI\nHIGH COURT], C.I.T. Vs. Mahesh Kumar [2010 (8) TMI 64 - DELHI HIGH COURT].\nThus in the absence of any evidence that the assessee has invested more than value\ndeclared in the registered sale deed of property purchased, the addition in this regard\non the basis of Valuation Report by the DVO is not sustainable. [Para 50]\n(ix) 2015 (3) TMI 156 - DELHI HIGH COURTCOMMISSIONER OF INCOME TAX\nVERSUS NISHI MEHRA, ARUN MEHRA, SUSHIL MEHRA, SUBHASH MEHRA,\nSURBHI MEHRA, MANJU MEHRA\nScope, power and jurisdiction of AO in block assessment proceedings and the term\n\"undisclosed income - AO concluded a comparison between declared value and the value\ndetermined by the DVO disclosed serious discrepancy and added the difference and\nbrought them to tax in the block assessment orders – ITAT concluded that the A0 could\nnot have brought to tax the amounts that he ultimately did merely based upon the DVO's\nreport in the absence of any material pointing to under valuation - Held that:- As decided\non CIT Versus. Naveen Gera (2010 (8) TMI 194 - Delhi High Court] it is settled law that\nin the absence of any incriminating evidence that anything has been paid over and above\nthan the stated amount, the primary burden of proof is on the Revenue to show that there\nhas been an understatement or concealment of income. It is only when such burden has\nbeen discharged, would it be permissible to rely upon the valuation given by the DVO.\nAs apparent from the factual narrative, the materials collected in the search operations\nimpelled the A0 to complete the block assessment in this case. Conspicuously, however,\nthere was no material in the course of the search or collected during the proceedings\npost search, pointing to under valuation of the assessees' properties which were\nultimately held to have been the subject of under valuation. Again, significantly the\nassessees had at relevant time when the actual purchases were effected disclosed the\ntransactional value of those assets; the A0 has then unreservedly accepted them. Wealth\nTax authorities too had accepted the valuation. - Decided in favour of assessee.\n55. As noted above, it has been held time and again by various courts of law that the\nDVO’s report on standalone basis without any corroborating material cannot be\nconstrued as incriminating material and hence the additions solely on the basis of the\nDVO’s report are not sustainable. The Ahmedabad Bench of the Tribunal in the\ncase of ACIT vs. Shri Jayantilal T. Jariwala in IT(SS) A\nNo.65/Ahd/2009 vide order dated 28.10.2015 has taken note of the\nfollowing decisions of the Hon’ble High Courts in this respect:\n“ i) Hon’ble Gujarat High Court in the case of CIT Vs. Jayendra N. Shah, (2014) 52\ntaxmann.com 54 (Gujarat).\nii) The Hon’ble High Court in the case of CIV Vs. Vasudev Construction (2014) 44\ntaxmann.com 30 (Kar.)\niii) CIT Vs. Berry Plastics P. Ltd., (2013) 35 taxmann.com 296 (Guj)\niv) CIT Vs. Sadhna Gupta (IT Appeal No.434 of 2012) (Delhi HC);\nv) CIT Vs. Lahsa Construction P. Ltd., (2014) 42 taxmann.com 549 (Delhi);\nvi) GookluckAutomobils P. Ltd. Vs. ACIT (2012) 26 taxmann.com 254 (Guj)”\n56. The Coordinate Ahmedabad Bench of the Tribunal in the case of\nACIT vs. Shri Jayantilal T. Jariwala (supra) taking note of the aforesaid\ndecision of various High Courts, under similar circumstances, has\ndecided the issue in favour of the assessee, observing as under:\n“8. We have duly considered rival contentions and gone through the record carefully.\nBefore we embark upon an inquiry on the facts of the present case, we would like to take\nnote of the finding recorded by the Delhi High Court in the case of CIT Vs. Sadhna Gupta\n(supra) on the issue whether merely on the basis of the DVO’s report, an addition can be\nmade or not. The following finding is worth to note:\n“4. The only point to be considered is whether the valuation rendered by the DVO\nis to be taken into account or not. It has been argued by the learned counsel for\nthe revenue that the assessing officer was justified in referring the matter to the\nDVO for an opinion with regard to the fair market value of the property and once\nthat opinion has been rendered, the same has to be taken into account and if that\nwere to be so, the addition of Rs.2,81,83,0007- would be fully justified.\nConsequently, it was submitted by the learned counsel for the revenue that the\nTribunal had erred in deleting the addition. On the other hand the learned\ncounsel for the respondent referred to a Division Bench decision of this Court in\nthe case of CIT v. Puneet Sabharwal [2011] 338 ITR 485. In that decision a\nspecific question had been raised as to whether the Income Tax Appellate\nTribunal was right in holding that notwithstanding the report of the DVO the\nrevenue had to prove that the assessee had received extra consideration over and\nabove the declared value of the same. That question was answered by this Court\nin favour of the assessee and against the revenue. The Division Bench in the case\nof Puneet Sabharwal (supra) had also placed reliance on the decision of Supreme\nCourt in K. P. Varghese (supra) as also on another decision of a Division Bench\nof this Court in CIT v. Smt. Suraj Devi [2010] 328 ITR 604 wherein this Court\nheld that the primary burden of proof with regard to concealment of income was\non the revenue and it was only when the said burden was discharged that reliance\ncould be placed on the valuation report of the DVO. There are several other\ndecisions of this Court in the same vein. One such case being the case of CIT v.\nVinodSinghal (IT Appeal No.482/2010 decided on 05.05.2010) where, again,\nreliance was placed on the very same decision of the Supreme Court in K.P.\nVarghese (supra) and also on a decision of this Court in CIT v. Smt. Shakuntala\nDevi [2009] 316 ITR

46. It was observed that there must be a finding that the\nassessee had received an amount over and above the consideration stated in the\nsale deed and for this the primary burden was cast on the revenue. It is only when\nthis burden is discharged by the revenue that it would be permissible to rely upon\nthe value as given in the valuation report of the DVO.\n57. Even the the ld. AO has not rejected the books of accounts of the assessee, which\nwere duly audited. It is a settled principle that unless books of accounts are rejected under\nSection 145(3), the declared cost cannot be ignored in favour of a mere estimate by the\nDVO. In “ITO v. Sanjeev Kumar”(ITA No. 1234/Chd/2020) and “CIT v.\nPratapsingh Amrosingh Rajendra Singh” (282 ITR 641), it has been held that DVO’s\nreport cannot override actual expenditure recorded in books unless books are proven\ndefective.\n58. Moreover, the value of investment estimated by the DVO was highly disputed and\nvarious discrepancies have been pointed out in the same by the Ld. Counsel for the\nassessee, hence the same cannot be formed the sole basis for making the impugned\nadditions. Even the DVO has adopted Central Public Works Department (CPWD) rates,\nwhereas, the property in question is situated in the State of Himachal Pradesh and the\nDVO, otherwise was supposed to take the State Public Works Department (PWD) rates\nand that the State PWD rates were about 20% lesser than the CPWD rates. The\nIndependent registered valuer M/s Sharma & Associates, has valued the property as per\nthe State PWD rates. He has also given the comparison between CPWD rates and State\nPWD rates. Therefore, the observations of the Ld. CIT(A) that the assessee has failed to\ndemonstrate the difference between the State PWD rates and CPWD rates is factually\nincorrect. Even, as pointed out by the Ld. Counsel for the assessee, there was no evidence\nthat the assessee has ever given any contract of the construction of the property to any\nbuilder. That even as per the DVO, the properties in question were improved/renovated\nduring different assessment years. Under the circumstances, the A.O should have given\nthe deduction of 10% to 15% on the value estimated by the DVO on account of self\nsupervision and self-purchasing of material. The ld. Counsel has submitted that the\ndifference of amount of investment in the said property even as per the DVO’s report is\nless than 10% and is liable to be ignored. The ld. Counsel has further submitted that if\nthe difference of valuation on account of 20% less State PWD rates, 10% to 15% saving\non account of self-supervision/self-purchase of material is deducted, then the resultant\nfigure will be minus. . The Hon’ble J&K High Court in Honest Group of Hotels (123\nTaxman 464) held that minor variations in valuation should not trigger additions under\nSection 69C in the absence of corroborative evidence. The Revenue failed to establish\nthat the assessee incurred unrecorded expenses. Considering the above facts and settled\nlegal position, we hold that the addition made by the AO and sustained by the CIT(A)\nbased solely on the DVO’s valuation is not justified and the same is accordingly ordered\nto be deleted. The facts and issue involved in the appeals as given in chart above relating\nto the above issue/ground are identical, hence our findings given above will accordingly\napply to all the appeals /ITAs as given above in the chart and the identical additions made\nin all these appeals are accordingly ordered to be deleted.\n59. As regards the ground of the revenue on the component of relief allowed by\nCIT(A) to the assessee, since the entire addition on this score has been ordered to be\ndeleted by us, this ground of the revenue’s appeals does not survive anymore and hence\nthe same is rejected. This issue is accordingly directed in favour of the assessee.\nIssue 4: Enhancement u/s 251(1) regarding alleged understatement of investment in\nproperty at 28/6, Industrial Area, Phase-2, Chandigarh.\n60. Following are the cases involving this issue:-\nSr.\nNo.\nName of the assessee\nAY\nAppeal by\nAppeal No.\nGround\nNo.\n1\nScott Edil Pharmacia\nLimited\n2017-18\nAssessee\n833/Chandi/2023\n7\n2\nScott Edil Pharmacia\nLimited\n2015-16\nAssessee\n831/Chandi/2023\n9\n3\nScott Edil Pharmacia\nLimited\n2016-17\nAssessee\n832/Chandi/2023\n5\n4\nScott Edil Advance\nResearch Laboratories\nand Education Limited\n2016-17\nAssessee\n857/Chandi/2023\n7\n61. The lead case taken up is Scott Edil Pharmacia Limited for AY 2017-18, having\nITA No. 833/Chandi/2023.The assessee in this appeal has taken the following grounds\nof appeal:\nGround No. 7: That on facts, circumstances and legal position of the case, the\nWorthy CIT(A) has erred in directing the ld. AO to make further addition of Rs.\n15,23,214/- u/s 69B by erroneously making enhancement u/s 251(1) regarding\nalleged understatement of investment in property at 28/6, Industrial Area, Phase –\n2, Chandigarh.\n62. The issue raised by the assessee in the above appeals relates to enhancement u/s\n251(1) regarding alleged understatement of investment in property at 28/6, Industrial\nArea, Phase-2, Chandigarh. During assessment proceedings u/s 153A for AY 2012-13 to\n2018-19, the ld. AO noted that Sanjeev Aggarwal held a General Power of Attorney\n(GPA) for a property transferred to Vaishali Aggarwal in 2015. This property was leased\nto group concerns SEARLE and SEPL. The tenants had incurred expenditure for\nconstruction/improvement of the said property. The DDIT referred the valuation of the\nproperty to the DVO. The value of the construction cost as per DVO’s report was more\nthan that was shown in the books of accounts of tenants SEARLE & SEPL. The AO\nadded the difference of valuation in the hands of individuals/Landlords treating the said\ndifference in valuation as an expenditure incurred from undisclosed sources.\n69. The Ld. CIT(A), however, held that the addition on account of difference in\nDVO’s report and books of the company-tenant cannot be made in the hands of\nIndividual-Landlords but can only be made in the hands of tenants since the tenants have\nthemselves admitted of having made accounted portion of expenditure. He deleted the\naddition made in the hands of Individual-Landlords but, proposed addition by way of\nenhancement in the income of company-tenants u/s 69B r.w.s.115BBE for AY 2013-14,\n2015-16 to 2017-18. Further, the cases of AY 2010-11 & 2012-13 were not before Ld.\nCIT(A) and for these years qua this issue of difference in DVO report and book value of\nconstruction, he directed the AO to take remedial measures by taking appropriate action\nu/s 148\n63. The Ld. Counsel for the assessee has taken identical grounds as discussed above\nviz. that the ld. AO relied solely on the DVO’s report without considering their objections,\nsuch as errors in area and rates used by the DVO; That the assessee also submitted\nvaluation report from M/s Sharma & Associates showing that construction costs were\naligned with what was recorded in their books, with differences less than 10%; That the\nreference to DVO was bad in law since no incriminating material qua outside books\nconstruction was found or even alleged before making reference; That books of accounts\nhave not been rejected; That the DVO applied CPWD rates instead of State PWD rates.\nThat the property was constructed under self-supervision and self-procurement of\nmaterial was done and no contractor was engaged hence the cost was less. That the Copy\nof ledger account categorizing expenses into labour, materials, and electrical fittings were\nplaced on record before the lower authorities and no defect or infirmity was found in the\nsame.\n64. The Ld. DR has also reiterated her submissions as discussed above regarding the\nissue of valuation of building/Immovable Property situated at Village Dasora.\n65. In view of the factual as well legal discussion made above on the identical issue\nof valuation of the property at village, Dasora, and in the light of various Judicial\npronouncements as discussed above, this issue is accordingly decided in favour of the\nassessee and against the revenue. The impugned additions are ordered to be deleted. The\ndirection of the Ld. CIT(A) to reopen the assessment on account of difference in valuation\nthe basis of DVO’s report for AY. AY 2010-11 & 2012-13 is also set aside and quashed.\nIssue 5: Directions by CIT(A) to AO to reopen assessment u/s 147/148 for AY 2010-11\nand 2012-13\n66. Following is the list of cases involving this issue :-\nSr.\nNo.\nName of the assessee\nAY\nAppeal by\nAppeal No.\nGround\nNo.\n1\nScott Edil Pharmacia\nLimited\n2013-\n14\nAssessee\n829/Chandi/20\n23\n8\n2\nScott Edil Advance\nResearch Laboratories\nand Education Limited\n2010-\n11\nAssessee\n842/Chandi/20\n23\n4\n3\nScott Edil Advance\nResearch Laboratories\nand Education Limited\n2010-\n11\nAssessee\n842/Chandi/20\n23\n4\n67. The issue raised by the assessee in the above appeals relates to the directions given\nby the ld. CIT(A) to ld. AO to initiate 147/148 taking shelter of s.150(1)(2) for AY 2010-\n11 and 2012-13\n68. In view of our findings given , above, the direction of the Ld. CIT(A) to reopen\nthe assessment on account of difference in valuation the basis of DVO’s report for AY.\nAY 2010-11 & 2012-13 is also set aside/quashed This issue is accordingly decided in\nfavour of the assessee.\nIssue 6: Shortage of stock found during search held as undisclosed sale.\n69. Following is the list of cases involving this issue :-\nSr.\nNo\n.\nName of the assessee\nAY\nAppeal by\nAppeal No.\nGround\nNo.\n1\nScott Edil Advance Research\nLaboratories and Education\nLimited\n2018-19\nAssessee\n846/Chandi/2023\n5\n2\nScott Edil Pharmacia Ltd.\n2018-19\nAssessee\n846/Chandi/2023\n4\n3\nBalram Krishan Aggarwal\n2018-19\nAssessee\n732/Chandi/2023\n8\n70. The lead case taken up is Scott Edil Advance Research Laboratories and\nEducation Limited for AY 2018-19, having ITA No. 846/Chandi/2023. The assessee in\nthis appeal has taken the following grounds of appeal:\nGround no. 4: That on facts, circumstances and legal position of the case, Worthy\nCIT(A) has erred in confirming the addition made by Ld. AO of Rs.30,26,235 where\nhe had erroneously held that the alleged shortage of stock found during the search\nof Rs.2,75,12,235/- is undisclosed sales of the appellant and on the same, GP rate\nof 11% is to be applied.”\n71. The brief facts relating to the issue under consideration are that during the search\naction u/s 132 of the Act, the department made inventory of the stock of the assessee.\nThe investigation team arrived at the value of stock at Rs.13,24,36,300/. At the same\ntime, the department also computed the stock as per books by applying GP Ratio method.\nBased on this, they computed the book stock at Rs.15,99,48,635/-. Therefore, it was\nobserved that there was shortage of stock of Rs.2,75,12,235. On above shortage of stock,\nthe Ld. AO assumed that the assessee might have sold the said stock outside the books.\nThe AO, therefore, applied past GP Rate of 11% and made addition of Rs.30,26,235/- as\nundisclosed profits of the assessee. Being aggrieved by the said addition made by the\nAO, the assessee raised this issue in appeal before the Ld. CIT(A).\n72. In appeal, it was contended by the assessee that the valuation of the stock done by\nthe department was not correct and that it was based on estimation in cost as well\nquantities. That even the stock taking was completed within 3 days even when the stock\nof the assessee was at more than one locations and it comprised of raw material, work in\nprogress (WIP), finished goods, packing material etc. and all the stock were technical\nproducts. It was, therefore, contended that the addition on account of shortage of stock\nwas based on incorrect valuation and pure estimation, therefore, the impugned addition\nwas not justified.\n73. The ld. CIT(A), however, observed that the aforesaid stock valuation was\nconfronted to the directors, Shri Sanjeev Aggarwal and Shri Balram Krishan Aggarwal,\nwho accepted its correctness in their statements recorded u/s 132(4). That the assessee\nfailed to maintain a proper stock register, as reflected in Clause 35 of Form 3CD. That\nthe assessee had not properly maintained the quantitative and qualitative details of raw\nmaterials, finished goods, and work-in-progress. The Ld. CIT(A), therefore, held that the\nld. AO rightly determined the book stock by applying the average GP rate of the\npreceding three years, which was reasonable and accepted method. He held that the claim\nof the assessee that the physical inventory was incorrectly recorded was an afterthought.\nHe, therefore, upheld the addition, so made by the AO.\n74. We have heard the rival contentions and gone through the record. The ld. Counsel\nof the assessee contended that the assessee is a renowned pharmaceutical manufacturer,\nand like any other manufacturing company, it always has a substantial component of\nWork in Progress (WIP) at any given time. The nature of the pharmaceutical industry\nnecessitates continuous production cycles, meaning that raw materials undergo multiple\nstages of transformation before reaching the finished goods stage. However, during the\nsearch, the search team completely ignored WIP during the physical stock-taking process,\nwhich resulted in a flawed and incomplete inventory assessment. The Ld. Counsel has\nfurther contended that the physical inventory conducted by the department only included\nraw materials and finished goods while completely disregarded partially processed\ngoods, which are a significant part of the stock in any manufacturing company. He,\ntherefore, has contended that incorrect method of valuation by the search team led to an\nunderstatement of physical stock, whereas, there was no shortage of stock of the assessee\nas compared to the books of accounts of the assessee. The Ld. Counsel has submitted that\nthe assessee had maintained year-wise stock records, which clearly reflected the actual\ninventory including WIP at the end of each financial year during the block period. He in\nthis respect has referred to pages 142 to 158 of the paper book which is the copy of year wise detail of stock as at close of every year in the block period, contents of which are\nreproduced below for the sake of ready reference:\n75. The ld. Counsel of the assessee has further contended that even the assessee’s\nstock was pledged as collateral with banks to avail CC limits and loans, making the banks\nan interested party in ensuring the accuracy of stock records. Banks conducted regular\nstock audits through independent external auditors, who physically verified the stock\nbefore approving any financial facility. These third-party verifications consistently\nconfirmed the stock position as per the assessee’s books, and at no point did these audits\nreport pointed any discrepancies in stock levels. Copies of stock audit reports of the\nExternal Auditors appointed by the bankers to physically verify the stocks have been\nattached at page 157-177 of Additional Paper Book. The ld. Counsel for the assessee,\nhas further contended even the search time wrongly computed the book stock by applying\nan average GP margin from previous years. That this approach was inappropriate for a\nlarge-scale manufacturing company engaged in pharmaceutical production with a\nturnover exceeding Rs.200 crores. He has contended that the GP method is typically\nused for retail businesses, where stock turnover is quick and product margins are\nrelatively stable. However, in a pharmaceutical manufacturing setup, the cost structure is\nvastly different, with variations in raw material costs, production expenses, and\nregulatory requirements affecting profitability each year. That the correct approach would\nhave been to reconcile the book stock with actual stock as recorded in the books of\naccounts and verified by the independent bank auditors. He , therefore, has contended\nthat the ld. AO as well as the ld., CIT(A) ignored the industry-specific nature of stock\nvaluation and wrongly reconstructed the trading account using an arbitrary GP rate,\nwhich resulted in a misleading computation of book stock. The Ld. Counsel has further\npointed out the following discrepancies in the stock taking by the Department:\na. Certain storage locations and godowns were entirely missed, leading to an\nincomplete stock count.\nb. Quantities were misclassified, as the search team failed to understand product\nvariations and incorrectly recorded certain high-value pharmaceutical products.\nc. Wrong valuation rates were applied, further distorting the stock computation and\ncreating an artificial discrepancy.\nd. The methodology used did not account for packaging materials, chemicals, and\nsemi-processed goods, which form a significant portion of the stock.\n76. The Ld. Counsel has further demonstrated that these errors were highlighted in\ndetail vide submission dated 23.01.2018 submitted before the DDIT during post-search\ninvestigations, along with supporting documents that clearly demonstrated that the\nphysical inventory recorded by the search team was unreliable. That however, both the\nlower authorities have failed appreciate the above factual contentions raised by the\nassessee. He has further contended that there was no incriminating material, no\nunrecorded cash transactions, no undisclosed bank accounts, and no buyer confirmations\nunearthed during the search action which could prove that the assessee was involved in\nunaccounted sales. That only a sum of Rs.5.65 lakhs in cash were found across all\npremises, which was inconsistent with the allegation of the department of massive\nunaccounted sales. The Ld. Counsel therefore, has contended that the entire exercise done\nby the department of the valuation od stock was inaccurate and flawed. That the additions\nwere made solely and entirely on assumptions and presumptions, without any iota of\nincriminating material found in the respect during the course of search action.\n77. The ld. Counsel for the assessee has further relied on the decision of the\nChandigarh Bench of the Tribunal in the case of “ Vishal Paper Industries vs. JCIT\n(2013) 21 ITR 0220 (Chd Trib) , wherein it was held that enhanced income due to\ndisallowances should be eligible for 80-IC deduction, and contended that the assessee\nwas entitled to 100% deduction u/s 80IC, and any addition to business income should\nalso qualify for this deduction. He has submitted that even the CBDT Circular No.\n37/2016 clarifies that disallowances resulting in enhanced profits should still be eligible\nfor deduction under Chapter VI-A.\n78. The ld. Counsel has further contended that the department failed to apply the\nprinciple of telescoping, which allows for adjusting alleged undisclosed income against\nunexplained investments or expenditures. That, if the short stock was considered as sales\noutside the books, then the cash generated from such sales should have been available to\nexplain other alleged unexplained investments. That, instead, the ld. AO made multiple\nadditions, resulting in double taxation which was wrong and against the principles of\nnatural justice. For this proposition the ld. Counsel of the assessee relied on the judgment\nof Hon’ble Apex Court in the case of CIT vs. S. Nelliappan (1967) 66 ITR 722 (SC)\nand hon’ble Allahabad HC in the case of CIT vs. Saraf Trading Co. (2015) 376 ITR\n534, wherein the principle of telescoping for adjusting unexplained income was\nconfirmed and it was also held that income cannot be added twice.\n79. The ld. DR, on the other hand has relied upon the findings of the lower authorities\nas discussed above. Her main contention has been that both the lower authorities have\nobserved that the assessee had not maintained proper stock register reflecting quantitative\nand qualitative details of raw material, finished goods, and work-in-progress. She,\ntherefore has contended that in the absence of proper books and stock registers, the only\nviable method for the ld. AO was to recast the trading account by applying the average\nGP rate of the preceding three years to determine the stock as per books. She, therefore,\nhas contended that the AO has rightly made the impugned additions on account od\nshortage of stocks considering that the assessee was indulged in undisclosed sales.\n80. We have considered the rival contentions and gone through the record. In this\ncase, it is apparent from the pleadings made by both Ld. Representatives of the parties,\nthat the there were flaws in taking the valuation of the stock. The major flaw pointed out\nby the assessee, which remained unrebutted by the department was that the search party\nfailed to take into account the work in Progress stock in making the inventory of the\nstock. The Ld. Counsel , in this respect has explained that the assessee, being a large scale\npharmaceutical manufacturer, invariably had a significant portion of its inventory\nin the form of WIP at any given time, however, the physical inventory taken by the search\nteam only accounted for raw materials and finished goods. Thus, the valuation of\ninventory becomes flawed on this score. Even we find force in the contention of the Ld.\nCounsel that the valuation of stock by applying GP rate of the past years was not an\nappropriate method for computing book stock in a large-scale pharmaceutical\nmanufacturing unit. Even the search party did not reconcile the book stock with actual\nstock as recorded in audited books through an expert in the field. The Ld. Counsel, as\nnoted above, has pointed out serious errors in physical stock taking such as exclusion of\ncertain storage locations and godowns, counting errors and misclassification of items,\nparticularly pharmaceutical products of different compositions, dosages, and packaging\nsizes, incorrect valuation rates applied, failure to account for packaging materials,\nchemicals, and semi-processed goods. Even the assessee had submitted a detailed\nexplanation along with supporting documents to the DDIT during post-search\ninvestigations, proving that the physical inventory recorded by them was incorrect.\nHowever, neither the search party nor both the lower authorities could rebut the same.\nThe Ld. counsel in this respect has placed reliance upon the decision of the hon’ble\nGujarat High Court in the case of “ CIT vs. President Industries (258 ITR 654) (Guj\nHC), wherein it has been held that estimation-based methods should not replace actual\nrecorded transactions unless books of accounts are rejected u/s 145(3), which was not\ndone in this case. The said decision, in our view, is squarely applicable in this case.\n81. Further, the allegation that the assessee did not maintain properly the stock\nregister, has been also proved wrong by the Ld. AR by referring to the year-wise stock\nrecords, which included WIP details, and these were also submitted before the lower\nauthorities but, the same have not been dealt with by any of the lower authorities. The\nLd. DR has also failed to rebut the above facts. Moreover, the stock was duly vouched\nby the Banks also, with whom the same was hypothecated. Periodical stock audit reports\nwere submitted by the assessee to the banks and stock was also physically verified by the\nexternal auditors appointed by banks at regular intervals and stock audit reports issued\nby them, but no shortage ever pointed out by them. Even no incriminating material, what\nso ever, such as any unrecorded invoices, or any cash receipts were found during the\nsearch action. Even the Ld. AO has not mentioned with whom the assessee entered into\nunaccounted transitions. The AO totally failed to bring on record as to who were the\nalleged buyers to whom the assessee allegedly made unaccounted sales, what to say of\nany evidence in the shape of corresponding entries in other entities’ books to support the\ntheory of unrecorded sale. Even though, the allegation is that the assessee had made large\nunaccounted sales of crores of rupees, but no unaccounted cash was found during the\ncourse of search action. The total cash found during the search proceedings was Rs.5.65\nlakhs only. Even the assessee’s profit were eligible for deduction u/s 80IC, hence under\nthe circumstances, there did not seem to be any clear motive for the assessee to engage\nin unaccounted sales. The entire addition, in our view, has been made on assumptions\nand presumptions, without an iota of any corroborative evidence, which is not\nsustainable, hence accordingly ordered to be deleted.\n82. Even, regarding the alternate contention of the Ld. AR that even otherwise, the\naddition made on the alleged suppressed profits will be eligible for deduction u/s 80IC,\nit is to be noted that if the allegations are that the assessee had indulged in suppression of\nprofits by making unaccounted sales and there is no allegation of any unaccounted\npurchases, and the assessee’s unit is eligible for 80IC deduction, then obviously such\nprofit determined by the AO will be business profit of the manufacturing unit and the\nsame will be eligible for 80IC deduction as held by the coordinate Chandigarh Bench of\nthe Tribunal also in the case of “ Vishal Paper Industries vs. JCIT ( supra). (2013) 21\nITR 0220 (Chd Trib). In this case, the AO on the one hand has alleged that the assessee\nhas booked bogus/excess purchases, on the other hand made addition on account of\nsupressed sales. This stand of the AO is contradictory to the allegation of bogus\npurchases. Nonetheless, since we have deleted the addition on this issue, hence this issue\nis rendered academic in nature.\nIssue 7: Estimation of Commission/profit @ rate of 1% of total alleged unaccounted sales\nand purchases.\n83. Following is the list of cases involving this issue :-\nSr.\nNo.\nName of the\nassessee\nAY\nAppeal by\nAppeal No.\nGround\nNo.\nAO Order\nCIT Order\n1\nMaxport India Pvt.\nLtd.\n2018-19\nAssessee\n591/Chandi/\n2023\n4\nPage 5-9\nPara 8.6\nPage 75-85\nPara 6.8 & 6.9\n2\nMaxport India Pvt.\nLtd.\n2017-18\nAssessee\n579/Chandi/\n2023\n4\nPage 3-10\nPara 8.13\nPage 75-85\nPara 6.8 &\n3\nScott Edil Advance\nResearch\nLaboratories and\nEducation Limited\n2017-18\nAssessee\n845/Chandi/\n2023\n6\nPage 11-16\nPara 9.9\nPage 78-97\nPara 9.17\n4\nScott Edil\nPharmacia Limited\n2018-19\nAssessee\n834/Chandi/\n2023\n5\nPage 7-12\nPara 7.8\nPage 208-243\nPara 8.17\n84. The lead case taken up is Maxport India Pvt. Ltd. for AY 2018-19, having ITA\nNo. 591/Chandi/2023. The assesse in this appeal has taken the following ground of\nappeal:\nGround no. 4: That on facts, circumstances and legal position of the case, Worthy CIT(A) has\nerred in confirming the addition made by Ld. AO amounting to Rs.5,17,697/- on account of\nalleged commission/profit earned at estimated rate of 1% on sales and purchase transactions\ncarried out allegedly outside books.\n85. The brief facts relating to the issue under consideration are that during the course of\nsearch proceedings, certain loose sheets/evidence were found which showed that the\nassessee was engaged in sales and purchases with its group companies, however, no\nphysical stock was found during the search action. The ld. AO observed that the assessee\nwas a shell entity with no real business operations. During the search proceedings, it was\nfound that the assessee had no physical stock, godown, or office for storage purposes,\ndespite showing significant stock in its books. This indicated that the assessee existed only\non paper and was functioning to provide accommodation entries to other entities in the\ngroup. The AO also noted that the director of the company, Mrs. Pooja Pandita, when\nquestioned during the search, denied having any knowledge of being a director in the\ncompany. She stated in her statement recorded u/s 132(4) of the Act that she was merely\nan employee in another group entity, and she was not involved in the management or\nmeetings of the assessee company. This lack of knowledge about her own directorship\nreinforced the finding of the AO that the company was a paper entity with no genuine\noperations. The assessee contended before the AO that it was an active entity within the\ngroup, performing intergroup sales and purchases. However, the AO pointed out that no\nevidence of physical movement of goods or genuine trading activity was provided. The\nassessee also contended that even Smt. Pooja Pandita has also retracted from her statement.\nThe AO however observed that assessee company was a shell company and it has not\nactually carried out any sale or purchase but facilitated group entities by providing the bills\nfor these sales and purchases when such goods never existed. The AO concluded that the\ncompany’s transactions were not genuine and were sham in nature. Based on these findings,\nthe AO treated the income of the company as commission income, applying a rate of 6.5%\non the alleged purchases and sales with the group companies. Being aggrieved by the said\norder of the AO, assessee preferred appeal before the Ld. CIT(A) on this issue.\n86. The ld. CIT(A) upheld the estimation of income, however, restricted the\ncommission rate @ 1%. He rejected assessee’s arguments regarding the lack of any\nmaterial and the involuntary nature of statements made during search. The ld. CIT(A) also\ntook note of the statement of Ms. Pooja Pandita (Director), though, the same stood\nretracted later on.\n87. Before us, the ld. Counsel for the assessee contended that the assessee company\nwas incorporated in F.Y. 2013-14. It was being used as a trading arm of the Scott Edil\ngroup. The intergroup transfer/sale/purchases were routed through the assessee company.\nFurther, sometimes even the imports of material were made by assessee, which were\nsubsequently sold to other companies in the group. The Ld counsel, therefore, has\ncontended that the assessee company is an existent and identified group company which\nhas only been used by the assessee’s group as a trading company for routing Intergroup\nSale/Purchase and hence it has been wrongly held as a shell or a paper company. The\ncounsel for the assessee has further submitted that the assessee has duly disclosed the\nprofits earned from its trading activities. Further, the ld. counsel for the assessee\ncontended that a detailed party-wise list of sales and purchases was provided to the AO,\nalong with relevant VAT returns, invoices, ledgers, and confirmations from all parties\ninvolved, yet, no defect or discrepancy was pointed out by the ld. AO. It was, therefore,\ncontended that estimation of commission/profit was not justified.\n88. The ld. Counsel for the assessee has further contended that the ld. CIT(A) in his\norder, though reduced the rate of commission from 6.5% to 1%, but wrongly contended\nthat the additions for the relevant years were based on incriminating material. The ld.\nCounsel of the assessee contended that except the said retracted statement of Mrs. Pooja\nPandita, not even a single incriminating corroborative evidence against the assessee was\nfound. Therefore, addition made solely on the basis of the said retracted statement\ndeserves to be deleted.\n89. The ld. Counsel for the assessee further contended that assessee has only been used\nas a trading arm by the Scott Edil group. That the assessee was only used as a conduit/\nchannel to trade the goods of the group companies. The Ld. Counsel has contended that\nat the most it could, academically, was a case of circular trading without movement of\ngoods where one group entity issued invoice of goods to assessee, who, without taking\nphysical delivery, sells to another group entity and that another group entity sold it to a\nthird-party. Even if there is no movement of goods, it was not a case where the goods\nnever existed. It had been manufactured by one group entity and sold to assessee who\nsold it onwards to another group entity. Identical was the position when such another\ngroup entity sold goods to the assessee company, who in turn sold it to original\nmanufacturer group entity.\n90. At this stage, a specific question was put to the Ld. Counsel for the assessee as to\nwhy the assessee company was engaged in circular trading of goods if no\ncommission/bogus profit element was involved in these transactions. In reply, the ld.\nCounsel for the assessee explained that in fact, the entire circular trading transactions\nwere done to increase the turnover of the assessee as well as of the group companies. He\nexplained that the banks for the purpose of giving loan/credit limit etc. consider the higher\nturnover. He explained that the entire exercise was done to inflate the turnover, however,\nit was not a case of bogus billing to earn a commission income. He in this respect has\nsubmitted that it is not the case of the department that the assessee has shown bogus\npurchases from any third party or the assessee has shown bogus sales to show bogus\nprofits or that the assessee has given accommodation entry to any party to route any\nunaccounted income in the guise of business transaction. There is no such allegation on\nthe assessee or on any of the group companies of the assessee. The only allegation is that\nthe assessee has done circular transactions with its group companies, for that no other\nmotive can be attributed on the part of the assessee. The Ld. Counsel, therefore, has\nsubmitted that the estimation of commission income by the lower authorities was not\njustified in this case. The Ld. Counsel in this respect has also relied upon the ratio of\njudgement in the case of “ DCIT vs M/S Himachal Futuristic (ITA No. 5741/Del/2013)\n(Del Trb.); Jt. CIT (Osd), Circle-3(1)(1) vs M/S. Pradip Overseas Ltd. (ITA No.\n790/Ahd/2018) (Ahemdabad Trb.) and M/s. Arman Fashion Pvt. Ltd. vs. ITO (ITA\n2400 and 2407/Ahd/2012) (Ahemdabad Trib.), wherein it was held that :\n“Heard both the sides and perused the material on record. During the course\nof assessment, the assessee has admitted that it was engaged in circular\ntrading wherein the bills/invoices changed hands without movement of\nphysical goods. The Assessing Officer has treated such purchase of Rs.\n2,83,77,87,618/- as not reliable and disallowed 5% of such purchases which\nworked out to Rs.14,18,89,380/- and added to the total income of the\nassessee. During the course of assessment and appellate proceedings the\nassessee explained the complete modus operandi of circular trading\ntransaction which was carried out to show better turnover. Without reiterating\nthe facts as elaborated in this order, it is undisputed fact that assessee would\nmake payment to the entity from whom it made purchases, who in turn would\nmake consequent payment and the funds would finally reach back to the\nassessee. In circular trading the payments were made through cheques and\nprofit on circular trading was disclosed by the assessee in its return of income.\nIn the earlier assessment year, the assessee has gone to Settlement\nCommission and furnished the circular trading/sample bills and chart which\nwas discussed by the ld. CIT(A) in his findings as supra in this order. The\ncomplete particulars of circular transaction in the table of transaction given\nin the finding of ld. CIT(A) demonstrated that assessee had sold goods worth\nRs.3,31,79,415/- in circular trading through first party who in turn sold such\ngoods to the second party at Rs.3,32,72,933/- and the last party has sold back\nto the assessee at Rs.3,32,72,933/- ultimately the difference in the first sale\nand the last sale was of 0.28% of circular purchases made by the assessee.\nThe ld. CIT(A) has also referred the decision of the ITAT Ahmedabad on the\nidentical issue of circular transaction in the case of M/s. Arman Fashion Pvt.\nLd. vs. ITO vide ITA 2400 and 2407/Ahd/2012. The ld. CIT(A) has also\ndiscussed in his finding that this was not a case of estimation of net profit on\ncircular purchases but this was a case where the assessee had incurred\nexpenses for circular purchases/transaction @ 0.28% and estimated the\ndisallowance @ 0.30% of circular trading purchases. The ld. CIT(A) has also\nexplained in his finding regarding analysis of the transaction made by the\nassessee that these transactions were carried out in order to show better\nturnover in financial accounts. The Revenue could not controvert the facts\nreported by the ld. CIT(A) with any relevant material. Therefore, looking to\nthe above facts and finding, we do not find any infirmity in the decision of ld.\nCIT(A) in estimating the disallowance @ 0.30% of circular trading purchases\nof Rs.2,83,77,87,618. Accordingly, this appeal of the revenue is dismissed.”\n91. The ld. Counsel of the assessee further contended that so far as transaction of the\nassessee with SEPL / SEARLE were concerned, the ld. AO wrongly computed the\ndifference in sales & purchases in every year in respect of transactions with assessee and\nSEPL / SEARLE . Further as regards the reduction of deduction u/s 80IC by the Ld. AO\nto the extent of GP Rate on sales made by SEPL / SEARLE to the assessee, this action\nhas resulted in making addition in the hands of the group several times as explained\nbelow:\na. GP Rate on sale was applied and addition thereof was made in the hands of SEPL\n/ SEARLE. For the same amount, deduction claimed u/s 80IC has been reduced.\nb. Addition was made assessing the higher Profit Rate in case of Maxport. Another\naddition was made by reducing the deduction u/s 80IC.\nc. That similar type of addition was ordered to be deleted by the ITAT in ITA No.\n284/Chd/2015 dtd. 28.12.2015 in the case of assessee’s group entity namely Scott\nEdil Pharmacia Ltd. vs Addl. CIT.\n92. The ld. DR, on the other hand has relied upon the findings and observations of the\nld. AO as well as of the ld. CIT(A) and submitted that company’s transactions were not\ngenuine and were sham. With regard to the statement of Ms. Pooja Pandita, the Ld. DR\nsubmitted that the assessee wrongly relied on the retraction of Mrs. Pooja Pandita’s\nstatement. However, the AO correctly treated the initial statement as incriminating\nevidence, as it was made during the course of search proceedings. That the later retraction,\neven if accompanied by an affidavit, was considered an afterthought and not credible.\nThe ld. DR contended that on submission of detailed party-wise list of sales and\npurchases, along with VAT returns, invoices, ledgers, and confirmations by the assessee,\nthe ld. AO and CIT(A) have observed that merely providing documentation without\nsupporting evidence of actual trading activity could not substantiate the claim of genuine\nbusiness. The lack of physical verification of stock and movement of goods invalidated\nthese claims. She, therefore, has contended that the lower authorities have rightly\nidentified that the group attempted to route profits and deductions in a circular manner\nthrough the assessee company. That by showing sales and purchases between group\nentities without actual movement of goods, the group aimed to artificially inflate profits\nand claim benefits u/s 80IC.\n93. We have heard the arguments of both parties and perused the material on record.\nThe issue under consideration pertains to the alleged commission/profit earned at an\nestimated rate of 6.5% by the Assessing Officer on total alleged sales and purchases\nconducted on paper only, which stood reduced by the Ld. CIT(A) @ 1%. It is not the case\nof the department that the assessee is involved in providing accommodation entries. The\nonly case of the department is that the assessee has shown bogus sales and purchases from\ngroup entities to artificially inflate the profits and claim benefit u/s.80IC of the Act.\nMoreover, it is the own case of the department that the transactions were circular\ntransactions within the group entities. There is no allegation that the goods at the first\ninstance or to say in the case of the initial/first party were bogus nor there is any allegation\nthat sales made by any of the group entities/first party to third parties were bogus. The\nonly case of the department is that the trading within the group companies has not actually\nhappened or the same has happened without actual movement of goods within the group\ncompanies. Though the Ld. AR of the assessee at first instance has tried to demonstrate\nand justify the aforesaid purchase and sales transactions within the group companies and\nhas also contended that the assessee was the trading arm of the group companies and that\nthe trading was done through assessee company. However, when specifically asked by\nthe Bench about the object and purpose of such circular transactions within the group\ncompanies, the Ld. Counsel has fairly admitted that this was done to artificially inflate\nthe turnover so s to convince the banks to grant higher loan/credit limits. This is also in\ncase of the Ld. DR that the assessee has artificially inflated the turnover, however, the\ncontention of the ld. DR is that the said exercise has been done to claim bogus 80IC\ndeductions. Considering that it is the case of the assessee as well as the department that\nthe circular transactions were done through artificially inflate the turnover, therefore, the\nestimation of any commission income in this case cannot be held to be justified and the\nsame is ordered to be deleted. However, the assessee will not be entitled to claim 80IC\ndeduction in respect of profits shown on these bogus sales made to group companies.\nHowever, this finding of us will be appliable only for the assessment years in which the\nassessment for the relevant year stood abated and not completed. However, in respect of\nappeals/cases in which the assessment stood completed and not abated on the date of\nsearch, in view of our observations made above while deciding the first issue, since no\nincriminating material was found during the course of search action, no addition is\nsustainable in respect of those assessment years where the assessment stood completed\nand not abated on the date of search action as discussed above. With the above\nobservations, this issue is accordingly decided partly in favour of the assessee and partly\nin favour of the revenue.\nIssue 8: Addition made by Ld. AO of Rs.58,09,346/- and also denying deduction u/s 80IC\non account of alleged GP on net sales & purchase transaction made by SEARLE to M/s\nMaxport India Pvt. Ltd\n94. Following is the list of cases involving this issue :-\nSr.\nNo\n.\nName of the assessee\nAY\nAppeal by\nAppeal No.\nGround\nNo.\n1\nScott Edil Advance Research\nLaboratories and Education\nLimited\n2017-18\nAssessee\n845/Chandi/202\n3\n6\n2\nScott Edil Pharmacia\nLimited\n2017-18\nAssessee\n833/Chandi/202\n3\n5\n95. The lead case taken up is Scott Edil Advance Research Laboratories and\nEducation Limited. for AY 2017-18, having ITA No. 845/Chandi/2023. The assessee\nin this appeal has taken the following grounds of appeal:\nGround no. 6: That on facts, circumstances and legal position of the case, Worthy\nCIT(A) has erred in confirming the addition made by Ld. AO of Rs.58,09,346/- by\ndisallowing deduction u/s 80IC on account of GP on net sales made to M/s Maxport\nIndia Pvt. Ltd. by erroneously holding that purchases and sales to the said concern\nare bogus and has arisen on account of non-manufacturing activities.\n96. The issue under consideration pertains to addition made by Ld. AO of Rs.\n58,09,346/- by estimating the GP on net of sales and purchase transactions made by\nSEARLE to M/s Maxport India Pvt. Ltd. The ld. Counsel of the assessee has contended\nthat the ld. AO has computed the difference in sales & purchases in every year in respect\nof transactions with the Maxport and wherever, in any year, the purchases exceeded the\nsales from Maxport, the said differential amount was added by the Ld. AO as unexplained\nexpenditure, however, wherever the situation was otherwise i.e., sales to the Maxport\nexceeded the purchases made from the company, GP Rate was applied on the differential\namount and the same was added. Further that the GP Rate on above difference between\nsales & purchases was computed and deduction u/s 80-IC has been reduced from total\nallowable deduction u/s 80IC to which the assessee was undisputedly eligible.\n97. We considered the rival contentions. Since the transactions were intra\ngroup/circular transactions. Since these purchase/sales were made within the group\ncompanies and in view of our discussion made above, the aforesaid transactions were\ndone to inflate the turnover of the company, therefore, the profits shown in such intra\ngroup sales/ purchases would not be eligible for deduction u/s 80IC of the Act. However,\nwe find force in the contention of the Ld. Counsel, that these transactions were both ways\ni.e. sales by SPEL to Maxport and vice versa. The AO is directed to calculate the net\nprofits/ expenditure taking into consideration all such transactions for the year under\nconsideration. If both the captioned assessees have shown any net profits in relation to\nsuch transactions, the same will be added as income from other sources and will not be\neligible for deduction under section 80IC of the Act. Subject to above observations, this\nissue is decided in favour of the revenue.\nIssue 9 : Credits received from JAAPL and Disallowance u/s 80IC - GP earned on sale made\nto JAPPL on account of alleged bogus nature of sales to JAPPL.\n98. Following is the list of cases involving this issue :-\nSr.\nNo\n.\nName of the assessee\nAY\nAppeal by\nAppeal No.\nGroun\nd No.\n1\nScott Edil Advance Research\nLaboratories and Education\nLimited\n2014-15\nAssessee\n855/Chandi/2023\n6\n2\nScott Edil Pharmacia\nLimited\n2013-14\nAssessee\n829/Chandi/2023\n4&5\n99. The lead case taken up is Scott Edil Advance Research Laboratories and\nEducation Limited for AY 2014-15, having ITA No. 855/Chandi/2023. The assessee in\nthis appeal has taken the following grounds of appeal:\nGround no. 6: That on facts, circumstances and legal position of the case, Worthy\nCIT(A) has erred in confirming the addition made by Ld. AO of Rs.4,00,00,000/- u/s 68\nregarding amount received from M/s Jai Ambey Pharmaceuticals Pvt Ltd (hereinafter\nreferred to as \"JAPPL\") by erroneously holding that M/s JAPPL is a shell company even\nwhen the amount was received against sale made to that party.\n100. This issue/appeals already stood decided in favour of the assessee in view of our\nfindings given above on issue No. 1, while holding that the assessments in the above\ncases stood completed and not abated, therefore the additions in the absence of any\nincriminating material are not sustainable in the light of the decision of the Hon'ble\nSupreme Court in the case of Abhisar Buildwell Pvt. Ltd. (supra). This issue is\naccordingly decided in favour of the assessee.\nIssue 10 : Addition made u/s 2(22)(e) of the Act on account of payment by SEPL for\nconstruction of House No. 3100, Sector 21, Chandigarh and House no. 323, Sector 9,\nChandigarh;\n&\nIssue 11: Addition made of Rs.4,60,077 / - each in the hands of individuals/ owners of\nthe house No.3100 u/s 69C r.w.s 115BBE of the Act on account of difference in valuation\nas per DVO's report as compared to the books of accounts.\n101. Following is the list of cases involving this issue\nSr.\nNo.\nName of the assessee\nAY\nAppeal by\nAppeal No.\nGround No.\n1\nSanjeev Kumar Aggarwal\n2018-19\nAssessee\n480/Chandi/2023\n4, 5 & 6\n2\nVaishali Aggarwal\n2018-19\nAssessee\n483/Chandi/2023\n4 & 5\n3\nBalram Krishan\nAggarwal\n2018-19\nAssessee\n732/Chandi/2023\n5 & 6\n102. The lead case taken up is Sanjeev Kumar Aggarwal for AY 2018-19, having ITA\nNo. 480/Chandi/2023. The assessee in this appeal has taken the following grounds of\nappeal:\n“Ground No. 4: That on facts, circumstances and legal position of the case, the Worthy\nCIT(A) has erred in confirming the addition of Rs.15,12,958 made by Ld. AO u/s 2(22)(e)\nof the Act on account of payment made by SEPL for construction of House No. 323,\nSector 9, Chandigarh.\nGround No. 5: That on facts, circumstances and legal position of the case, Ld. AO has\nerred in making addition of Rs.7,77,384/ - u/s 2(22)(e) of the Act on account of payment\nmade by SEPL for construction of House No. 3100, Sector 21, Chandigarh.\nGround No. 6: That on facts, circumstances and legal position of the case, Ld. A0 has\nerred in making addition of Rs.4,60,077 / - u/s 69C r.w.s 115BBE of the Act on account\nof difference in valuation of H.no. 3100, Sector-21, Chandigarh as per DVO's report and\nas per books of the appellant.”\n103. The brief facts relating to the issue are that during the assessment proceedings, the\nLd. AO treated the construction expenses incurred by SEPL on two houses owned by its\ndirectors/substantial share holders as deemed dividend u/s 2(22)(e) of the Act. The Ld.\nAO further made addition u/s 69C on account of difference between the assessee’s\ndeclared construction cost and the valuation made by the DVO. The details of the\nadditions made are as follows:\nHouse No. 3100, Sector 21, Chandigarh:\nValue as per DVO’s report: 49.37 lakhs\nValue as per Registered Valuer: 40 lakhs\nExpenditure booked in the books\nof accounts of SEPL: 23lakhs\nExpenditure booked by individual\nowners/share holders: 12Lakhs\nIndividual ownership share in the house: 1/3rd each.\nAddition made by the AO u/s 2(22) (e) : 23 x 1/3: 7.77 lakhs each.\nAddition made u/s 69C : 49-35= 14laks : 14 x 1/3: 4 lakh each.\nHouse no. 323, Sector 9, Chandigarh\nOwnership: Mr. Sanjeev Kumar Aggarwal (25%), Mrs. Vaishali Aggarwal (35%),\nSh. Balram Krishan Aggarwal (30%) & Smt. Pushpa Rani (10%).\nValue as per DVO: 119 lakhs\nExpenditure in books of SEPL: 60.51 Lakhs\nExpenditure in books of Assessee: 60 Lakhs\nTotal Addition made by AO u/s 2(22)(e): 60 lakhs :\nSanjeev Kumar 60 x 25% : 15.12 Lakhs\nVaishali Aggarwal 60 x 35% : 21 Lakhs\nBalram Krishan 60 x 30%: 18 Lakhs\n104. The ld. CIT(A) while confirming the addition made by the ld. AO, observed that\nthe assessee failed to provide evidence that the property was used by SEPL as its office.\nAs a result, the Ld. CIT(A) held that SEPL discharged the assessee's liability for the\nconstruction, which constituted a benefit to the assessee without consideration,\nclassifying the payments as \"income from other sources.\" Therefore, the additions of Rs.\n15,12,958/- and Rs.7,77,384/- were upheld as income from other sources .\n105. Before us, the Ld. Counsel for the assessee contended that the SEPL was the\ntenant of the assessee and the ld. AO added the construction expenses for the aforesaid\ntwo houses incurred by the tenant company as payments to the assessee as deemed\ndividend. That the tenant had incurred expenses on construction and it was for the benefit\nof the company. That no direct or indirect benefit accrued to the assessee by this\nconstruction. That the property was intended to be used as rent-free accommodation for\nits director. Further, that the assessee had personally guaranteed loans and mortgaged\npersonal properties to secure credit facilities for SEPL. The assessee’s personal\ncontribution far exceeded the payments made by SEPL for the construction. That the ld.\nAO erred by only considering the payments made by SEPL and ignoring the payments\nmade by the assessee to SEPL. It was also contended that the Valuation as per State PWD\nrates should have been taken by the DVO instead of CPWD rates. Identical contentions\nhave been raised as were made regarding the discrepancy in the valuation of factory\nbuilding as discussed in earlier paras of this order. The ld. Counsel of the assessee ,\ntherefore has contended that the addition made the ld. AO and upheld by CIT(A)\namounting to Rs. Rs.15,12,958/- on account of payment made by SEPL for construction\nof House No. 323, Sector 9, Chandigarh and of Rs.7,77,384/- u/s 2(22)(e) of the Act on\naccount of payment made by SEPL on for construction of House No. 3100, Sector 21,\nChandigarh and Rs.4,60,077/- u/s 69C r.w.s 115BBE of the Act on account of difference\nin valuation of H.no.3100, Sector-21, Chandigarh should be deleted.\n106. The ld. DR, relied on the findings and observations of the ld. AO and ld. CIT(A)\nand argued that the lower authorities have rightly made the impugned additions.\n107. We have heard the rival contentions and gone through the record. The Ld. Counsel\nfor the assessee has not been able to substantiate the claim that the said properties were\nbeing used as office premises by the company. No lease agreement, rent receipts, or board\nresolutions were furnished. Therefore, the conclusion of the lower authorities that SEPL\nhad made gratuitous payments for construction of the aforesaid houses on behalf of the\nassessee, in our view, is correct and does not warrant any interference by us. The\nobservation of the Ld. CIT(A) that the said benefit is to be added as “ Income from other\nsources” instead of deemed dividend is also justified as the said payments are not in the\nnature of loans or advances rather, the said payment has been made gratuitously without\nany consideration. However, as discussed in earlier paras of this order, the Govt. Valuer\nwas supposed to adopt State PWD rates instead of CPWD rates and further that the CPWD\nrates are higher about 20% than the PWD rates in Chandigarh. Further the Regd. Valuer\nengaged by the assessee has estimated the value of the house No. 3100, sector 21,\nChandigarh at Rs.40 Lakhs, hence it is directed that the value of the said house be taken\nat Rs.40 Lakhs. The assessee and the SEPL have booked the total expenditure in respect\nof the said house in their books of account of Rs.35,57,000. The difference i.e. 40 (-)\n35.57 = 4.43 lakhs is considered as investment from undisclosed sources. The said amount\nbe divided in the ratio of 1/3rd each and hence the addition u/s 69C is restricted to the\nextent of 1.47 Lakhs in the hands of each of the three owners of the said house. Remaining\nadditions on account of gratuitous expenses incurred by the SEPL in respect of both the\nhouses is hereby confirmed as income from other sources.\nIssue 12: Disallowance in respect of bad debts claimed during the year.\n108. Following is the list of cases involving this issue :-\nSr.\nNo.\nName of the assessee\nAY\nAppeal by\nAppeal No.\nGround\nNo.\n1\nScott Edil Pharmacia Limited\n2017-18\nAssessee\n833/Chandi/2023\n6\n109. The assessee in this appeal has taken the following grounds of appeal on this issue:\n“Ground No. 6: That on facts, circumstances and legal position of the case, the\nWorthy CIT(A) has erred in confirming the addition made by the ld. AO of Rs.\n6,45,85,557/- on account of disallowance of provision of bad debts claimed by the\nappellant in its return even when the same deserves to be allowed as deduction.”\n110. The brief facts relating to the issue under consideration are that the assessee\nclaimed bad debts amounting to Rs.6,45,85,557/- during the year under consideration.\nThe assessee vide reply 23.12.2019 submitted before the Ld. AO that this amount\npertained to receivables outstanding for over 3 years, which were previously included in\nits income. The assessee claimed that these debts had become bad during the relevant\nyear. But due to a clerical error, these amounts were not written off in the books for that\nyear and were instead written off in subsequent years.\n111. During the assessment proceedings, the AO disallowed this claim of bad debt,\nholding that such provisions were not allowable as deductions under Section 37(1) or\nSection 36(1)(vii) of the Income Tax Act, 1961, since such debts were not actually written\noff in the books of accounts in the year under consideration but in subsequent years. The\nLd. CIT(A) confirmed the additions so made by the AO.\n112. We have heard the rival contentions of the Ld. Representatives of the parties and\ngone through the record. The ld. Counsel for the assessee contended that the debt was\noriginally created on account of goods sold and said sales were credited to P&L A/c and\nthat it satisfies the first condition for claim of bad debt u/s 36. Further, from the ledger\naccount, it was also shown that these debts were not cleared for more than 3 years.\nFurther, the Ld. AR also demonstrated from documents in the paper book that efforts\nwere made to recover these debts but with no results. The Ld. Counsel, therefore has\nsubmitted that there is no rebuttal to the contention that these debts had actually become\nbad during the year under consideration. The only point raised by the AO was that the\nsame could not be claimed as deduction in a return filed U/s 153A of the Act when, the\nsame were not actually written off in the books of accounts. The Ld. Counsel in this\nrespect has explained that such bad debts having been written off through computation\nof income was sufficient compliance of requirement of s.36(2). He has contended that\nit was a settled principle of law that reflection in accounts of a transaction was not\ndeterminative of its allowability for tax purposes and vice-versa as held in Taparia Tools\nLtd. vs. CIT [2015] 372 ITR 605 (SC). He has further relied upon the decision of Bombay\nHigh Court in the case of “PCIT vs. JSW Steel Ltd” [2020] 115 taxmann.com 165\n(Bombay) to contend that that a new claim for the first time can be made in the ITR filed\nu/s 153A post search though, such claim was not made in the ITR filed u/s 139. He has\nfurther submitted that the taxability of an item or allowability of an expense under\ntaxation laws cannot be decided as per the treatment or disclosure of the item given in\nbooks of accounts, rather, the same is to be decided as per the facts and underlying\ntaxation principles. He in this respect has further placed reliance upon the following case\nlaws:\ni. Sutlej Cotton Mills Ltd. Vs. Commissioner Of Income Tax, 116 ITR 1, wherein it\nwas held that :\n“It is settled that the way in which entries are made by the assessee is not\ndeterminative of the question whether the assessee earned any profit or suffered any\nloss. The assessee may, by making entries which are not in conformity with the proper\naccountancy principles, conceal profit or show loss and the entries made by him\ncannot, therefore, be regarded as conclusive one way or the other. What is to be\nconsidered is the true nature of the transaction and whether in fact it has resulted in\nprofit or loss to the assessee.”\nii. The Peerless General Finance And Investment Company Ltd. Vs.Commissioner\nOf Income Tax, 416 ITR 0001 (SC), wherein it was held that :\n“Book keeping entries were not decisive or determinative of true nature of entries—\nCourt had to see true nature of receipts and not go only by entry in books of\naccount—Assessee’s appeal allowed”\n113. The ld. DR relied on the order and findings of the ld. AO and ld. CIT(A) and\ncontended that the ld. CIT(A) rightly upheld the AO’s findings.\n114. We have considered the rival contentions of Ld. Representatives of both the parties\nand perused the material on record. So far as legality of making a new claim of deduction\nin the return filed in response to notice u/s 153A, when, the same was not claimed in the\noriginal return of income is concerned, it is to be noted that the assessment for the year\nunder consideration stood abated on the date of search action. In such circumstances, the\noriginal return loses its validity and is required to be replaced with a new return unless\nthe assessee categorically declares that his original return be treated as his return filed u/s\n153A of the Act. In an assessment carried out u/s 153A in such a case , all the issues get\nopen. The assessee can make a new claim and the AO also gets opportunity to examine\neach of the claim a fresh and pass assessment order. The issue stands settled by the\ndecision of the Hon’ble Bombay High Court in JSW Steel (supra) . As discussed above,\nthere is also no rebuttal to the contention that the debts in question have actually become\nbad. The only contention raised by the department is that such debts have not been\nactually written off in the books of accounts during the year under consideration. The Ld.\nCounsel in this respect has contended that disclosure of an item in the books is not\ndeterminative of its allowability in the Tax proceedings. We are of the view that that the\nwriting off the debts which have become bad, though is not sine qua non, but a relevant\nfactor for claim of deduction in this respect. However, this is also a fact on the file that\nthough such debts were actually written off in subsequent years, but the same could not\nbe claimed in those years as the same were already claimed in the return u/s 153A for\nthe year under consideration. In our view, when the genuineness of the claim is not\ndoubted and the debts have also actually become bad in the year under consideration,\nthen denial deduction on the technical ground of not writing off the same in the books of\naccounts, due to error or omission , would further complicate the matter as in that event\nthe assessment for the years in which the same was written off in the books would have\nto be reopened and that would disturb the already finalized assessments and that in our\nview would not be appropriate at this stage, especially, when the claim of the assessee is\notherwise admissible for the year under consideration. We therefore, direct the AO to\nallow the deduction of the bad debts in the year under consideration. This issue is\naccordingly decided in favour of the assessee.\nIssue 13 : Addition u/s 69C - purchases from parties treated as bogus.\n115. Following is the list of cases involving this issue :-", "summary": { "facts": "A search action was conducted, and no incriminating material was found. Assessments were carried out under Section 153A, proposing additions. The assessee contested these additions, citing lack of incriminating material and that assessments were completed/non-abated at the time of search.", "held": "The Tribunal observed that the AO relied on a statement from an employee of a group company which was later retracted and did not constitute incriminating material. Furthermore, for additions based on DVO reports, the Tribunal noted that without incriminating material or corroborating evidence, such additions are not sustainable. The Tribunal also pointed out procedural irregularities in obtaining approvals.", "result": "Allowed", "sections": [ "153A", "132", "132(4)", "153D", "69C", "115BBE", "2(22)(e)", "150", "147", "148", "139", "149", "151", "153", "153C", "142(2A)", "142A", "133(6)", "131", "37(1)", "36(1)(vii)", "36(2)", "80IC", "251(1)", "132(9D)" ], "issues": "The core issues revolved around whether additions made under Section 153A were sustainable in the absence of incriminating material found during search, the validity of additions based on DVO reports without corroboration, and procedural lapses in obtaining approvals (Section 153D)." } }