GENOM BIOTECH PVT LTD.,MUMBAI vs. ACIT CC -40, MUMBAI

O R D E R Per Bench:-

All these cross appeals filed by the parties are directed against a common order dated 23.4.2014 passed by the learned CIT(A)-38, Mumbai and they relate to A.Ys. 2003-04 to 2009-10.

2 M/s. Genom Biotech Pvt. Ltd.

2. Since most of the issues urged in these appeals are identical in nature, they were heard together and are being disposed of by this common order, for the sake of convenience. Since grounds urged by both the parties mostly relate to same issues, we are proceeding to adjudicate the appeals issue-wise and the same will dispose of appeals of both the parties together.

4. The first common issue urged by the assessee relates to the validity of assessments done u/s 153A of the Act. The grounds of appeal raised in all the years are identical in nature and for the sake of convenience, we extract below the grounds urged in AY 2003-04:- (a) The Learned CIT(A) erred in rejecting the appellant’s contention that the order passed u/s 143(3) r.w.s. 153A is void, illegal and bad in law.

(b) The learned CIT(A) ought to have held that the order passed u/s 143(3) r.w.s. 153A is contrary to the principles of natural justice and barred by limitation.

(c) The learned CIT(A) erred in not upholding appellant’s contention that the order u/s 143(3) r.w.s. 153A is beyond the jurisdiction as the original assessment is completed u/s 143(3) and the additions made in the order u/s 143(3) r.w.s. 153A are not based on any documents, records or evidences found in the course of search.

5. The Ld A.R submitted that the assessments relating to AY 2003-04, 2004-05 and 2005-06 were completed by the assessing officer u/s 143(3) of 3 M/s. Genom Biotech Pvt. Ltd.

the Act on 29-03-2006; 26-12-2006 and 30-08-2007 respectively. He further submitted that the return of income for AY 2006-07 was filed on 29-11-2006 and hence the time limit for issuing notice u/s 143(2) has expired before the date of search, i.e., before 15-05-2008. Accordingly he submitted that assessments relating to AY 2003-04 to 2006-07 are “not abated” in terms of provisions of sec. 153A of the Act. Accordingly he submitted that those concluded assessments could be disturbed only on the basis of incriminating materials, if any, relating to AY 2003-04 to 2006-07 were found during the course of search. In support of this proposition, the Ld A.R placed reliance on the decision rendered by Mumbai Special bench of ITAT in the case of All Cargo global logistics Ltd Vs. CIT (23 Taxmann.com 103), which has since been upheld by Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd (374 ITR 645). Accordingly the Ld A.R submitted that the additions made in the case of unabated assessments without the support of any incriminating material are liable to be deleted, as the same is beyond the scope of provisions of sec. 153A of the Act.

6. The Ld D.R, however, submitted that the revenue has unearthed a lot of incriminating materials relating to various issues. Further investigation on the materials has also led to further evidences of concealment of income. Accordingly he submitted that the assessing officer has made the additions on the basis of incriminating materials as well as on the basis of further investigations. He submitted that the major addition made in all the years relate to Advertisement and Sales promotion expenses. The incriminating material found and the investigation done very much prove the bogus nature of the expenditure and hence the assessing officer was justified in disallowing the entire amount of advertisement and sales promotion expenses in all the years, as the facts are identical in all the years. The Ld A.R further submitted that the Hon’ble Kerala High Court has held in the case of E.N.Gopakumar Vs. CIT (Central) (2016)(75 taxmann.com 215) that the assessing officer is free to proceed with any lawful modes of assessment as prescribed in the Act, once the assessment is reopened in terms of sec. 153A of the Act. Accordingly the 4 M/s. Genom Biotech Pvt. Ltd.

Ld A.R submitted that there is no such restriction in the Statute that the additions could be made only on the basis of incriminating materials in the case of unabated assessment.

“(ii) Once it is held that the assessment has attained finality, then the AO while passing the independent assessment order under Section 153A read with Section 143(3) of the I.T. Act could not have disturbed the assessment/reassessment order which has attained finality, unless the materials gathered in the course of the proceedings under Section 153A of the Income-tax Act establish that the reliefs granted under the finalised assessment/ reassessment were contrary to the facts unearthed during the course of 153A proceedings. If there is nothing on record to suggest that any material was unearthed during the search or during the 153A proceedings, the AO while passing order under Section 153A read with Section 143(3) cannot disturb the assessment order.”

Since the decision rendered by Hon’ble Bombay High Court is binding on the Mumbai bench of Tribunal, we are unable to follow the decision rendered by Hon’ble Kerala High Court in the case of E. N. Gopakumar (supra). Accordingly we agree with the contentions of the assessee that the assessing officer could have made additions in AY 2003-04 to 2006-07 in the instant

5 M/s. Genom Biotech Pvt. Ltd. case, only on the basis of incriminating materials found during the course of search. The post search enquiries could be taken support of by the AO, but they should be relatable to any incriminating material, if any, found during the course of search.

6 M/s. Genom Biotech Pvt. Ltd.

7 M/s. Genom Biotech Pvt. Ltd. by the assessee towards advertisement and marketing expenses to the agents located in Cyprus and UK have not reached their logical destination i.e., advertising agencies located in Ukraine. During the course of search, original unsigned invoices of foreign companies raised in the name of the assessee towards advertisement expenses incurred in Ukraine were found. The search officials examined Shri Binod Kumar, CMD of the company and Shri C.M.P. Singh, director of the company. However both of them gave evasive replies only. Accordingly the AO expressed the view that Shri Binod Kumar and Shri CMP Singh have not co-operated with the department properly. Besides the adverse observations of DDIT (Inv), the Assessing Officer has also stated that several rubber stamps of the foreign companies were found in the assessee’s premises. The aggregate amount of overseas marketing/business promotion expenses claimed by the assessee is tabulated by the Assessing Officer as under:-

Sr. Financial Turnover Overseas marketing and No. year (amount in advertisement/business promotion INR Crores) expenses claimed (amount in INR crores)

1 2002-03 220630453 74922317 2 2003-04 579332994 293832201 3 2004-05 509840004 232937854 4 2005-06 652364341 242859517 5 2006-07 1014775012 484908646 6 2007-08 581181787 2058812 7 2008-09 591525409 3679523 Total 4149650000 1335198870 The Assessing Officer noticed that the assessee has claimed advertisement expenses/business promotion expenses almost to the extent of 50% of its turnover.

assessee-company named Shri CMP Singh. In the statement he had submitted that the supporting documents will be received in due course. The observations of AO in this regard are given in paragraph 11 to 14 of the assessment order of AY 2003-04 (pages 5 & 6). It is pertinent to note that those invoices pertained to the financial years relevant to AY 2002-03 and 2007-08. In view of the above, the AO took the view that the assessee itself has manufactured the invoices relating to advertisement expenses in all the years.

advertisement agents located in Cyprus and UK except with M/s Selesta Holdings Co Ltd.

Assessing Officer. He further submitted that it had reimbursed legitimate advertisement expenses incurred by the overseas agents. He further submitted that each of the payment vouchers is supported by valid third party invoice, actual advertisement material in Ukrainian language mainly in the form of advertisements in news papers, TV, radio, Metro and other modes of advertisement. The assessee also submitted that the invoices have been duly verified by the bankers before remitting the amounts to overseas advertisement agents.

As discussed in the previous paragraphs, the advertisement, marketing and business promotion expenditure in this case is more than 35% of the turnover. The assessee company claims to have incurred these expenditures for advertisement and marketing in Ukraine. It is claimed that 11 M/s. Genom Biotech Pvt. Ltd. the company has advertised its products in radio, TV, medical journals and news papers. For this purpose services of Ukarainian media agencies were availed. However, the assessee company has not made any payments to these media agencies. All the payments were made to companies in Cyprus and UK claiming that these companies have incurred the advt./marketing expenditures for the GBPL products in Ukraine and hence the same were reimbursed to them. However, the investigation conducted in this regard by the department projects the following picture of this entire transaction:

(i) The Cyprus and UK companies which were promoted by Mr Binod Kumar are dummy companies and not actually involved in any business promotion on behalf of GBPL. They have not paid any amount to Ukrainian media agencies for advertising /marketing the GBPL products. The fund transferred by GBPL to these companies has not been forwarded to Ukrainian agencies.

(ii) Investigation conducted in Ukraine has indicated that the Cyprus and UK companies have no business transaction with the Ukrainian media agencies.

(iii) GBPL has its own establishment in Ukraine and Russia. Its website genomworld.com claims that it has several registered offices and staff operating in Ukraine. It has its own medical representatives catering to clinical, primary health centers and hospitals. It is actively involved in promoting its products through leading Ukrainian distributors and regional wholesale companies. Such being the case, the need to engage the Ukrainian media agencies through companies of Cyprus & UK is beyond comprehension. During the assessment proceedings, the assessee company has not given any explanation that when the assessee has the establishment of his own then why there was a need to engage other agencies for the marketing/ advertisement work.

(iv) During the search several incriminating documents like unsigned invoices from Ukrainian media agencies, seals of such media agencies were found in the premises of the assessee. The Mr.Binod Kumar, Chairman and Mr. C.M.P. Singh Director were given ample opportunities to explain these incriminating materials and they were unable to offer any reply for the consideration. In fact the assessee has not filed even a single reply to explain the reason that why these documents are available in its premises. In the absence of any explanation filed by the assessee, it can only be inferred that the assessee company has fabricated the documents to give an unsuccessful impression that expenditure incurred under this head are genuine. There is nothing on the record which may suggest that the assessee has genuinely incurred the expenditure under this head.

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(v) In the absence of the explanation it can only be concluded that the assessee company has fabricated documents to give the colour of expenditure for transfer of unexplained funds.

(vi) The Special Auditors have verified the copies of the agreements between GBPL and the Cyprus/UK companies and given their comments as under:

The agreement with these agencies contains inter-alia a clause that:

“The agent shall from time to time discuss with BPPL and propose different marketing schemes and advertising proposals by intimating the cost for each of such proposals.

Upon submission the parties shall finalize the promotional schemes and accordingly, the Agent shall come up with the appropriate advertising materials, marketing materials, printed materials and other brochures, etc by providing the samples thereof and the cost associated thereto.

The agreement with these agencies contains inter-alia a clause that:

“The agency shall not exceed the limits of expenditure for each type of advertisements fixed and agreed by the mutual consent of the Genom and the Agency. Any expenses over and above the agreed expenditure shall be borne entirely by the Agency'.

The Assessee's Reply on opening of Rep. Offices outside India inter- alia contains the following: 'Even the GBPL had agreed to reimburse the advertising and marketing expenses to the distributors which is based on actual expenditure incurred in the country and hence, it was imperative to have a liaison office to ensure that all these aspects are monitored in the best interest of the company and the sales of the company is improved.' On review of Agreements, the Spl. Auditors have further observed as under;

There is nothing on record available to evidence any communication with the above mentioned parties for any limits being fixed for expenditure towards advertisements.

No quotations are available on record for third party transactions undertaken by these agencies, for justifying the reasonableness of the 13 M/s. Genom Biotech Pvt. Ltd. expenditure being incurred in the best interest of GBPL.

Further, there is no documentation on record for evidencing any monitoring being done by the liaison office of the overseas advertising and marketing expenses incurred by the above agents.

Also, it may be noted that in case of Selesta Holdings Co. Ltd, there is no sale agreement entered into as is in other cases and only reimbursements for third party bills is being given to the agency. It may be inferred from above that the Selesta has provided service without any consideration, which is not in line with normal business practice.

The Special Auditors have pointed out that there is no record of communication between GBPL and the companies in Cyprus and UK like quotation for advertisement, fixation of limit for the advt. expenses, actual advt. expenses incurred from time to time, monitoring and control of these expenditure. The reply of the assessee in this regard is as under:

We had not fixed any limits being fixed for expenditure towards advertisements. We were monitoring the expenses incurred and the effectiveness of the advertisement expenses in terms of the sales turnover achieved. We were fastest growing company in the terms of volume turnover in Ukraine.

As explained earlier we have not incurred any advertisement expenses. We have only reimbursed the expenses incurred by our overseas distributors. Since we have not incurred any advertisement expenses we were not required to invite any quotations from third party. The reasonableness of the expenditure being incurred and that the expenses were in the best interest of the company can be substantiated by the results achieved by these advertisement expenses.

The reports of monitoring being done by the liaison office of the overseas advertising and marketing expenses incurred by the above agents were received periodically. The effectiveness of the advertisement expenses can also be gauged from the sales turnover achieved and the fact were fastest growing company in the terms of volume turnover in Ukraine, It may not be out of place to mention that the reasonableness of the advertisement expenses was incurred was verified by the CIT(A) while deciding the appeal for A.Y. 2004-05 and the same was found to be reasonable.

Since we have not made any sales to Selesta Holdings Co. Ltd, there is no sale agreement entered into. However an agreement has been into with Selesta Holdings Co. Ltd. to market our goods. Selesta Holdings

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Co. Ltd is not an Associated Enterprises-and we have only reimbursed the costs incurred by them. Since these are third party costs which are reimbursed by us, the same is automatically justified at arms length and hence, your observation that it is not at arms length is incorrect. If we had paid more than what the third party had charged, then, your apprehension is justified, while, in the instant case, it is purely the reimbursement of expenses incurred with the third party.

(vii) The assessee company has also admitted there was no fixed limit for the advertisement expenditure. It claims that the increased sales turnover during these years proves the effectiveness and reasonableness of this expenditure.

The unexplained availability of unsigned, unsupported invoices (viii) and seals of various companies (including Ukranian media agencies) ignorance of Mr. Sanjeev Kumar with respect to agreement with Selesta Holdings and denial of Mr. Sanjeev kumar for signing on the voucher of the expenditure is a fact which proves that the claim with respect to Advertisement, Business Promotion and Marketing Expenses made by the assessee is not a proper one. On the contrary, the Investigation carried out by the Department clearly suggests that the claim made by the assessee for the expenditure under this head has no supporting documents and it is very much established fact, on the strength of the information gathered by the department, that Marketing and Business Promotion Expenses has been claimed to be made out only for the purpose of reduction of profit. The company owned by Mr. Binod Kumar Singh based in Cyprus and UK are the dummy companies and they are not involved in Business Promotion activities. The company having the establishment in the Ukraine has no business transactions with Ukrainian media agencies. Therefore, the expenditure claimed by these entities are clearty a bogus expenditure. The existence of these fabricated documents/seal clearly suggests that the assessee has self generated the required documents only to create some evidence to give an impression that he has made certain expenditure in this regard. Even during the course of Special Audit, despite giving a lot of opportunity to the assessee, the assessee was unable to prove that he has incurred any genuine expenditure for Marketing and Advertisement expenditure and this issue has been discussed in detail in foregoing paragraphs and an inference can be drawn here that the claim made by the assessee has no basis at all and needs to be disallowed.

(ix) In view of the above facts, it is being concluded the assessee company has not explained the discrepancies in overseas marketing & overseas advertisement/business promotion expenses during the course of assessment proceedings and hence Rs.7,49,22,317/- is being disallowed and added to the returned income.”

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(a) The advertisement agent companies located in Cyprus and UK are controlled by Shri Binod Kumar, the Managing director of the assessee.

(b) The payments made to Cyprus and UK companies have not reached Ukranian concerns, which have carried out the advertisement works. The assessee has also not directly made payments to Ukranian agencies.

(c) The assessee has not entered into any Agency Agreement with the advertisement agents located in Cyprus and UK except for a company.

(d) Original unsigned invoices of advertisement agents were found in the office of the assessee.

(e) Rubber stamps of advertisement agents and impressions of advertisement agents were found in the office of the assessee.

(f) The bills raised by advertisement agents did not have supporting documents.

(g) The staffs of the assessee Shri Sanjeev Kumar and Shri Anupam have confirmed that they were only dummy directors in the advertisement agency companies. In the cross verification also, Shri Sanjeev Kumar has stood by his submissions.

(h) Shri Binod Kumar, the Managing director and Shri CMP Singh, the director have given evasive replies in the sworn statement. They could not clarify the factual aspects.

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(i) The advertisement companies located in UK have address of its accountant. Their accounts did not depict any expenditure towards salary and rent. Shri Binod Kumar and his wife were directors of those UK based companies.

(j) The Ukranian tax authorities have confirmed that the advertisement concerns located there did not have any financial transaction with Cyprus and UK based companies. Hence the Cyprus and UK based advertisement agency companies are dummy companies and they have not engaged in any business promotion works for the assessee. They have also not paid any amount to Ukranian media agencies for advertising/marketing the assessee’s products.

(k) The advertisement, marketing and business promotion expenses account for more than 33% of the turnover.

(l) The assessee has got its own establishment in Ukraine and Russia, which is evident from the information available in the assessee company’s website. It has got its own medical representatives meeting the clinics, hospitals etc. Hence the need to engage the Ukrainian media agencies through companies located in Cyprus and UK are not comprehensible.

(m) The special auditors have observed that there is nothing on record to show that there was any communication between the assessee and advertisement companies. Other documents like quotation for advertisement expenses, fixing upper limit for advertisement expenses and comparison of actual expenses for monitoring and control purpose etc were not available. Further no material is available to show that the liaison offices of the assessee were monitoring the advertisement works.

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(n) The assessee has fabricated the invoices and also supporting documents. The Cyprus and UK based companies are dummy companies and they did not carry on any business activities.

(a) The assessee has got its own offices in Ukraine, which is evident from its website. The assessee is also having accounts in international banks. Hence there is absolutely no requirement to engage entities in Cyprus and UK for the purpose of engaging Ukrainian media agencies for carrying out advertisement in Ukraine.

(b) Assessee:- The assessee has claimed that its turnover has increased year after year only due to advertisements carried out by it.

CIT(A):- However, the turnover has increased due to the promotional activities carried on by the assessee’s branch office located in Ukraine.

(c) Assessee:- The assessee claims that the report of competent authorities of U.K and Ukraine were not given to the assessee during the course of assessment proceedings, but the same was provided only during remand proceedings.

CIT(A):- However, the assessee has been given those reports during the course of special audit itself and during remand proceedings also. The detailed submissions of the assessee has been considered by Ld CIT(A) while disposing of this ground. Hence there is no violation of principles of natural justice.

18 M/s. Genom Biotech Pvt. Ltd.

(d) Assessee:- The assessee claims that the unsigned invoices found during the course of search pertain to AY 2002-03 and hence the assessment of that year was reopened on that basis only.

CIT(A):- However, the AO did not refer to those documents while framing assessment of AY 2002-03 and the addition of advertisement expenses made in that year has also been deleted by Ld CIT(A). However this contention of the assessee is not acceptable, since the AO himself did not refer to unsigned invoices in AY 2002-03 and hence there was no occasion for Ld CIT(A) to consider the same. Further, the assessing officer has brought on record various other factors to prove that the advertisement expenses are not genuine, viz., Statement of Shri Sanjeev Kumar, Enquiries conducted by U.K and Ukrainian authorities, findings of special audit, Statement of Mr. Anupam, Statement of Shri C M P Singh, the fact that U.K. based companies are owned by Mrs and Mr Binod Kumar, report of Ukrainian authorities that no payment has been made by Cyprus and UK companies to Ukaranian concerns.

(e) Assessee:- The assessee contended that there are agencies which manage the affairs of the companies located in the international arena.

CIT(A):- However, a business entity requires a place and employees to carry on business. Further the Cyprus is a tax heaven and the address of the law firm is shown as the address of the companies. Further the companies located in UK also do not have own place and employees. Hence all these companies are paper companies only.

(f) Assessee:- The assessee has contended that the AO was not a forensic expert to find out the difference in signatures.

CIT(A):- However a common man can find out the difference in signatures. The assessee also contends that the search officials did not find out any 19 M/s. Genom Biotech Pvt. Ltd. physical stamp, but only impressions. But the normal meaning of “stamp” is only physical stamp further there is a reference to the stamp in the question put to Shri C M P Singh, to which he replied that he was not in a position to explain. However, the facts and circumstances of the case indicate that the assessee was manufacturing invoices.

(g) Assessee:- The assessee has contended that the discrepancies found in invoices of AY 2007-08 cannot be extended to other years. CIT(A):- This is not acceptable, since the AO has considered all the facts and circumstances and the evidences available. The discrepancy found in invoices is only one of the reasons only.

(h) Assessee:- The assessee has contended that the statement of Shri Sanjeev Kumar is not reliable, since he has taken contradictory stand, i.e., he has stated that he has signed agreement on behalf of Selesta Holdings Co. Ltd, but in cross examination he has stated that he has not seen the said agreement. Further he has stated that he was required to sign the agreement as a witness, but wrongly signed at the place meant for the signature of M/s Selesta Holdings Co Ltd. Further, he has shown a letter dated 07.08.2008 written by him to Shri C M P Singh that he has given adverse statement at the behest of Income tax department. However he refused to recognize the said letter later. Therefore Shri Sanjeev Kumar was not consistent in his stand and hence his statement should not be relied.

CIT(A):- This contention of the assessee is not acceptable. Shri Sanjeev Kumar has stated in the original statement that he has not seen the agreement and signed the same on the instruction of legal department, which was in turn instructed by Shri Binod Kumar. Hence his subsequent submission cannot be said to be contradictory since he has not seen the agreement at all. The letter written by him to Shri CMP singh has been disowned by him. Hence Statement of Shri Sanjeev Kumar can be relied upon, since he has reconfirmed the same in the cross examination.

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(i) Assessee:- The assessee has contended that the statement of Shri Sanjeev Kumar that he has not visited Cyprus cannot be considered to be adverse, since in today’s internet era, physical presence is not required.

CIT(A):- However, such thing is possible only when the director is a dummy director.

(j) Assessee:- The assessee has contended that the employees are made directors in the today’s business environment.

CIT(A):- But, in the instant cases, these directors have merely followed the instructions of Shri Binod Kumar and hence the contention that they are not dummy directors is not acceptable.

(k) Assessee:- The assessee has contended that the agreement with Selesta Holding Co Ltd was entered in FY 2004-05 and hence the same is relevant only for AY 2005-06.

CIT(A):- This would mean that the payments made in other years cannot be allowed as deduction in the absence of any agreement. Thus the absence of marketing agreements between the entities in Cyprus and UK with the assessee company except the sole agreement entered with Seleta holding co P Ltd for AY 2005-06, which was also signed by the employee Shri Sanjeev Kumar under the influence of Shri Binod Kumar, justifies the disallowance of Advertisement expenses.

(l) Assessee:- The assessee has contended that it was not given an opportunity to cross examine Shri Anupam.

CIT(A):- However cross examination is not a must. But the statement given by him was put forth to the assessee.

21 M/s. Genom Biotech Pvt. Ltd.

(m) Assessee:- The assessee has contended that even if the directors of companies located in Cyprus are considered to be dummy directors and Shri Binod Kumar is actual owner, the income is assessable in the hands of Binod Kumar by lifting the corporate veil. Hence the assessee is not affected by that arrangement.

CIT(A):- This contention is not acceptable, since Shri Binod Kumar is acting on behalf of the assessee only.

(n) Assessee:- The assessee has submitted that the report of Ukrainian authorities does not contain anything about alleged manufacture of invoices of Ukrainian concerns, meaning thereby, the revenue has not given those alleged invoices to them for verification. It implies that the said invoices cannot be considered to be self manufactured. Since there is no direct relationship between the assessee and Ukrainian agencies, the adverse comments, if any, on Ukrainian entities should not affect the assessee.

CIT(A):- This contention of the assessee is not relevant. The presence of seals/seal impressions of Ukrainian agencies in the premises of the assessee supports the view of the AO.

(o) Assessee:- The assessee has contended that it does not have any direct relationship with Ukrainian agencies and hence the invocation of exchange of information articles under Indo Ukrainian Treaty was not correct. The revenue did not conduct any enquiry with Cyprus revenue authorities, where the assessee had maximum transactions.

CIT(A):- This contention of the assessee is not acceptable, since the purpose of investigation is to find out as to whether the assessee has carried out any advertisement in the territories of Ukraine.

(p) Assessee:- The assessee has contended that the report of Ukrainian authorities did not give any adverse finding in respect of certain agencies

22 M/s. Genom Biotech Pvt. Ltd. like Admiral Ltd, Palanok Ltd and Medinform. There is also no adverse finding in respect of M/s DP Trigram International. Hence no adverse inference could be drawn in respect of these entities. Further the report of Ukrainian authorities itself is not reliable since, one the one hand, it states that the information of the entity is not available and on the other hand it says that the said entity does not have any dealings with companies located in Cyprus and UK.

CIT(A):- However, this is not acceptable, since the fact remains that these agencies did not have any connection with Cyprus and UK companies. The report of the Ukrainian authorities that the information is not available should be interpreted as that the information sought by the Income tax department of India is not available. In case of DP Trigram International, it was stated that the said entity is not available. Since the existence of the entity itself is doubtful, the advertisement carried out through it cannot be believed.

(q) Assessee:- In case of M/s Softinform, the report states the legal representative of the said concern has stated that the above said concern did not have any transaction with companies located in Cyprus and UK. However the statement of legal representative was not enclosed with the report resulting in violation of natural justice. Similarly in the case of M/s Medicraft Ltd also, the report refers to the statement of legal consultant.

CIT(A):- This is not acceptable, since the report does not state that a written statement was taken from the legal consultant. The report only records the results of enquiry. In any case, the assessee has been provided with an opportunity of being heard.

(r) Assessee:- The report in respect of M/s Elain Ltd states that it had no business connection with the entities located in Cyprus and UK. It was further stated that the above said company did not carry on any foreign trade. It was contended that the source of information, i.e., whether it is 23 M/s. Genom Biotech Pvt. Ltd. from legal representatives or from any other source not is not specified. Further the above said company has carried out advertisement works within Ukraine only and hence the question of foreign trade does not arise.

CIT(A):- The interpretation of the assessee is not acceptable. The above said concern has carried out advertisement works for a foreign concern and hence it will receive the payment from the foreign concern. For that an external bank account is necessary. This fact was intended to be conveyed by the tax authorities and hence it should be interpreted that the above said concern did not have any external bank account.

(s) Assessee:- In case of M/s Kolarit and M/s Yuzhnaya, the report did not enclose any supporting documents to support the finding that they did not deal with companies located in Cyprus and UK.

CIT(A):- This is not acceptable, since the report of foreign tax authorities has evidentiary value till the assessee prove that the same is maliciouos and was given with malafide intentions.

(t) Assessee:- It was contended that the report of UK tax authorities about M/s Zyus Coporation did not comment about that company’s transactions with Ukranian agencies. Accordingly it was submitted that the report of Ukranian authorities with regard to dealing with UK companies should not be relied upon.

CIT(A):- The Ld CIT(A) rejected the same by observing that the final report of UK authorities are awaited and further there is nothing in the report of UK authorities to suggest that the report of Ukrainian authorities is false. Further it shows that M/s Zyus Corporation is an extended arm of the assessee only. The assessee has also failed to show that M/s Zyus corporation has made payments to entities located in Ukraine.

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(u) Assessee:- Before Ld CIT(A), the assessee furnished certain papers downloaded from the internet as a proof of existence of some of the agencies located in Ukraine.

CIT(A):- The Ld CIT(A) observed that the existence of these agencies was not doubted, but the services rendered by these agencies have not been proved.

(v) The Ld CIT(A) referred to the report given by the Special Auditor that the evidence in the form of videos, CDs, DVDs or cassettes have not been produced or available for the advertisement done in TV and Radio in Ukraine. The assessee replied that it could not bring the same due to Customs regulations. The Ld CIT(A) did not accept the explanations of the assessee.

(w) The assessee submitted that the special auditor was satisfied with substantial amount of the advertisement expenses and has found fault with a small portion of the expenses. The Ld CIT(A), however, observed that the finding of Special Auditor shows that the claim of advertisement expenses was not in order.

(x) The Ld CIT(A) then referred to the defects pointed out by the Special auditors and the reply given by the assessee thereto. He has expressed the view that the assessee’s explanations do not prove the fact of incurring of advertisement expenses.

(y) The Special auditors had commented that the quantum of advertisement expenses of the assessee is about 50% of the turnover, whereas the competitors have spent about 7% - 10% of the turnover. The assessee submitted that the advertisement expenses incurred by the assessee in AY 2004-05 was examined by the TPO vis-à-vis industry average and made addition. However, the TPO found that the overall profitability was comparable and accordingly accepted the expenditure incurred by the 25 M/s. Genom Biotech Pvt. Ltd. assessee. The Ld CIT(A) rejected the said submissions by observing that the TPO was concerned with the methodology adopted by the assessee to arrive at the Arms Length Price. However, in the instant year, the issue relates to the genuineness of the claim.

(z) Assessee:- With regard to the bank accounts and offices located in Ukraine, the assessee submitted that it was only a liaison office and only administrative expenses which are required to run the officer were incurred there. CIT(A):- The Ld CIT(A), however, expressed the view that the assessee would have used the liaison offices to carry out the advertisement works, instead of using foreign entities located in Cyprus and UK. Since the employees of the assessee and the directors were acting as directors of the Cyprus and UK companies, they have entered into collusive transactions for siphoning off the taxable profits of the assessee company in the form of advertisement expenses.

(aa) In AY 2003-04, the advertisement expenses of Rs.7.49 crores included a sum of Rs.1.05 crores incurred by M/s Brahma Drugs P Ltd towards advertisement and Rs.60,000/- incurred towards business promotion expenses. The AO made the disallowance by observing that the advertisement/business promotion expenses relating to M/s Brahma Drugs P Ltd have been booked by the assessee. Before AO, the assessee submitted that M/s Brahma Drugs had incurred expenses on behalf of the assessee and later charged the same to the assessee. The AO did not accept the explanations of the assessee by observing that there is no evidence to support the claim of the assessee. The Ld CIT(A) confirmed the order of the AO by holding that the assessee has failed to substantiate its claim.

With these observations, the Ld CIT(A) confirmed the disallowance of advertisement expenses claimed by the assessee in all the years under consideration.

26 M/s. Genom Biotech Pvt. Ltd.

(b) He submitted that the advertisement expenses incurred by the assessee has contributed to the increase in turnover and hence the Ld CIT(A) was not justified in observing that the turnover has increased only due to other promotional activities.

(c) He submitted that the reports of Ukrainian tax authorities were not given to the assessee during the course of assessment proceedings. The AO supplied only a summary of results of investigations. The Ld CIT(A) has observed that the details of enquiries conducted in Ukraine and UK were furnished to the assessee at the time of Special Audit and the assessee has also responded to the same by filing detailed written submissions. The Ld CIT(A) has also observed that the reports were given during the course of remand proceedings also. The Ld A.R submitted that the Ld CIT(A) should not have admitted the Ukrainian tax authorities report, since it was not given to the assessee during the course of assessment proceedings. The Ld A.R further submitted that there is no direct transaction between the assessee and Ukranian entities. Therefore the Ukranian tax treaty does not apply to the assessee and the information collected by the AO cannot be used as per the Ukranian treaty.

27 M/s. Genom Biotech Pvt. Ltd.

(d) The Ld A.R further submitted that the reports submitted by Ukranian tax authorities are incomplete and in most of the cases, without supporting evidences. The submissions made by Ld A.R with regard to the report given by Ukranian tax authorities on each of the Ukranian entities was given in his written submissions and they are extracted below:- “The observations of the CIT(A) with respect to each of the companies in respect of which reports are received and the submissions of the assessee with respect to the same are as under: i. Admiral Limited where the report says that the investigation is in process and they will furnish the information as soon as they will receive it. ii. Palanok Ltd. where the report states that the desired information is not affordable.

The assessee submits that in respect of both the above companies, no adverse findings should be interpreted. The CIT(A) is silent on the above two companies in his order. iii. Medinform

As per the ClT(A)

The meaning of the term not affordable or not available interpreted by the CIT(A) is that there is no connection between Medinform and the companies in Cyprus and UK. The information sought by the Indian Tax department regarding the advertisement carried out by the Medinform for the assessee company at the behest of the entities in Cyprus and UK is not available as there is no connection between the entities in Cyprus and UK and Medinform in Ukraine.

As per Assessee

28 M/s. Genom Biotech Pvt. Ltd.

Where the report states that desired information is not affordable, i.e; not available. After stating the same the report further states that their local tax office has reported in course of their audit that there were no relations with the mentioned companies of Cyprus and UK. Thus after having stated that the desired information is not available, the report has provided adverse finding which itself is contradictory and therefore not reliable. iv. DP Trigram International

As per CIT(A)

The very fact that the said entity is not available in the address provided and the tax police of Ukraine have initiated detection measures show the dubious nature of existence of the said entity through which the advertisement is said to have been carried out.

As per Assessee

Where the report states that the only shareholder of the company, is Nicocardia. Nicocardia is the company in Cyprus through which the advertisement has been carried out. The report states that the company was not found, at the registered address and therefore local tax police department has initiated detection measures of the actual location and management official. Thus existence of company is proved but its whereabouts in 2009 was not available as per Ukrainian tax authority report. There is no adverse finding about the transactions. The copy of the English translation is enclosed. (Enclosed in Annexure 3)

As per CIT(A)

In this case, there is no reason to the authenticity of the report submitted by an independent tax agency which is not under the 29 M/s. Genom Biotech Pvt. Ltd. influence of tax department of India. Merely because written statement was not obtained from the person concerned is not enough to cast away the piece of evidence obtained in the form of report from the tax authority of another independent tax agency.

As per Assessee

The report states that the legal representative of the company has stated that they had no transactions. There is no support to the above assertions made by Ukrainian tax authority, i.e. there is no statement of any legal representative unlike in case of Softinform where the statement of legal representative in Ukrainian language is attached with the report. Thus the report of the Ukrainian tax authority is totally unsubstantiated. vi. Softinform

As per CIT(A)

It is seen from the report that there is no written statement recorded from the representative of the company. The report reveals that on an enquiry by the state tax inspection, the said company has reported that they had no relationship with the entities in Cyprus and UK.

As per Assessee

The report states that the legal representative of the company has stated that they had no transactions. Report has attached the statement of the representatives of the company which is not in English but in Ukrainian language. The assessee has got the English translation of the document attached with the Ukrainian tax report. It can be seen that there is no statement of legal representative. It only states that based on a state tax inspection, the said company has reported that they had no relationship with UK and Cyprus companies. In any case principle of natural justice requires that the statement adverse to the assessee needs to be verified with reference

30 M/s. Genom Biotech Pvt. Ltd. to the process of cross examination by the assessee. The assessee submits that this is a typical case where the Indian Income tax authorities have merely followed the report of Ukrainian tax authorities without following their due process of investigation. The assessee submits that it is a settled legal position that any adverse statement of a witness is required to be tested by the parties affected by them. Thus, in the normal course if there would have been a statement of an Indian party which would have been against the assessee, the assessee would have the right to cross examine the said person. In the present case, a person examined is a legal representative of a Ukrainian party and the said examination has been carried out outside India by a person other than the Indian tax authority. The said statement is required to be examined in detail, not only by the assessee but also by the Cyprus companies who had the dealings and transactions with the above party. The assessee submits that there is no examination or cross examination by Cyprus company or the Indian tax authority or by the assessee. The assessee therefore submits that the report of the Ukrainian tax authority is only a piece of information and not an evidence and the same is totally untested and unverified.

As per CIT(A)

It is not significant if a written statement was not recorded from the representative of Elian Ltd., and what is more important is the outcome of the enquiry or investigation. The report of the competent authority of Ukraine states clearly that Elian Ltd. has no external economical account to do foreign trade transactions. The report of the tax authorities of Ukraine is with reference to the information sought from them and the information sought is whether any advertisement work is carried out in the territory of Ukraine by the said entities in 31 M/s. Genom Biotech Pvt. Ltd.

Ukraine at the instance of the said entities located in Cyprus and UK and in that context if the report refers to no foreign trade transaction could be done as there is no separate account maintained for that purpose and in such circumstances it would only mean that the said account is required to be maintained for the purpose of receipt of money from the foreign countries and not for the purpose of cross border rendering of services.

As per Assessee

The report states that the local tax officer has informed that the company had no business connections with Cyprus and UK companies. The report has annexed statement of the said company in Ukrainian language. English translation of the same has been enclosed wherein they state they have not conducted any foreign trade transactions (external economical) with the Cyprus and UK companies and no agreements and services were provided. It further states that they do not have any account to conduct foreign trade. As against this the Ukrainian tax report further adds about issuing invoices and receipt of funds from these companies. Thus the report provides something which is not coming out of the statement of the legal representative of Elain Ltd. This shows that the report of the Ukrainian tax authority is biased and is reporting something which is not supported by the evidence they have relied upon and therefore their report is not reliable. Further, the statement of the representative of the company provides that they had no account to conduct foreign trade or that they have not conducted any foreign trade. In the context of the transactions of the assessee, the question which is required to be considered is whether carrying out the work of advertisements by the Elain Ltd. is a foreign trade or a local trade. Elain Ltd. is a Ukrainian company and has carried out advertisement in Ukraine, the customer being a foreign company. Foreign trade

32 M/s. Genom Biotech Pvt. Ltd. means rendering of services across the border. Elain Ltd. has rendered services in Ukraine only by way of advertisement in Ukraine. The assessee therefore submits that the statement of representative of Elain is not adverse to the assessee in as much as Elain has stated that they have not conducted any foreign trade on behalf of Cyprus and UK companies. viii. Kolarit & Yuzhnaya Pravda

As per CIT(A)

It is customary on part of the tax investigating agencies to conduct enquiry and submit the report without obtaining the written statements of the persons concerned. The report so obtained has evidentiary value until otherwise the assessee proves that the report is malicious and was for malafide intentions.

As per Assessee

Kolarit

The Ukrainian tax report says that in course of audit, it was ascertained that the company had no business relationship with the Cyprus and UK based companies. The assessee submits that the Ukrainian tax report only summarizes their investigation and there is no documentary evidence in support thereof. The assessee submits that principle of natural justice requires that mere statement of a third party, may be a government of another country, does not make the same an evidence. The conclusions of the foreign tax authorities needs to be supported by the evidence. Copy of report as provided by the AO does not provide any evidence at all.

Yuzhnaya Pravda

The tax report says that the company in its letter to tax office has informed that no business relationship was established with Cyprus

33 M/s. Genom Biotech Pvt. Ltd. and UK companies. The assessee submits the copy of the said statement is not enclosed with the report. It is not known whether such letter exists or not. The assessee submits that without the first document being the so called letter being provided to the assessee, the finding of Ukrainian tax authority cannot be relied upon. The assessee submits that leave aside the evidence, there is not even a letter as relied upon by the Ukrainian tax authority. The assessee therefore submits that the report of the Ukrainian tax authority is totally unsubstantiated. ix. Zyus Corporation

As per CIT(A)

The CIT(A) has upheld the validity of report of Ukrainian tax Authority based on enquiry report received from competent authority of UK in case of ZYUS Corporation Ltd. The CIT(A) has held that the reports of the UK tax authority are interim reports and in the interim reports, they have mentioned that the Zyus Corporation does not independent office and employees and the directors/shareholders in such company are none other than the CMD of the assessee company Shri Binod Kumar and his wife Smt. Sheila Singh.

As per Assessee

The assessee submits that the advertisement and marketing expenses were not carried out through Biologica UK Ltd. and therefore the reference to the said company is not relevant to the issue of allowability of advertisement and marketing expenses. As regards Zyus Corporation through whom the advertisement was carried out, the AO has only stated that as per the investigation of UK authority, Mr. Binod Kumar and his wife Mrs. Sheila Singh were the directors/ shareholders of the companies. Further, Zyus Corporation does not own any premises and has not incurred any expenditure on wages.

34 M/s. Genom Biotech Pvt. Ltd.

Further, the registered office of the company is at the address of the accountant. The assessee submits that DIT (investigation) in their letter dated 20/03/2009 addressed to FT&TR had provided brief of facts of the case for onward transmission to the UK authorities. In the said letter, reference was made of marketing and advertisement expenses of Cyprus based companies and Zyus Corporation Ltd. The request was made for verifying the bank transactions and accounts of the Ukrainian companies. It is pertinent to note that the reference was made by FT&TR under Indo Cyprus, Indo UK and Indo Ukraine agreements besides others. UK tax authority had provided their interim reports dated 13.10.2008, 19.12.2008 and 30.01.2009. In both the reports UK tax authority has not provided any comments on the transactions between Zyus Corporation and Ukrainian companies. UK tax authority has confined themselves to the UK companies, i.e., Zyus Corporation and Bilologica UK Ltd. In these reports, they have simply provided the information about the directors, their offices, their accounts, etc. No comments have been made about the transactions between Zyus and Ukrainian advertising companies. The assessee submits that in absence of any adverse comments in the report of UK tax authorities, the report of Ukrainian tax authority cannot be followed.”

(e) The Ld A.R also submitted that the Ukranian entities were identified by the assessee through internet and furnished copies of internet downloads to the Ld CIT(A) in order to prove the existence of Ukranian entities. This information available in the internet, in fact, contradicts the report of Ukranian tax authorities.

(f) The Ld A.R submitted that the unsigned invoices found during the course of search related to the AY 2002-03. The disallowance of advertisement expenses made in that year has since been deleted by Ld

35 M/s. Genom Biotech Pvt. Ltd.

CIT(A). Accordingly it was contended before the Ld CIT(A) that the deficiencies noted in AY 2002-03 cannot be extended to other years. However the Ld CIT(A) has simply rejected this contentions by observing that other facts available on record show that the advertisement expenses are not genuine. The Ld CIT(A) has referred to the statement of Shri Sanjeev Kumar. The Ld A.R submitted that the statement of Sanjeev Kumar cannot be relied upon, since he has taken contradictory stand on various occasions to suit his convenience. The Ld A.R also submitted that it is always not necessary that Shri Sanjeev Kumar should have visited Cyprus, as the operations can be controlled through online process in this internet era. He further submitted that the practice of taking employees as directors is very much prevalent trade practice. The Ld A.R further submitted that the tax authorities have also relied upon the statement given by Shri Anupam, another director employee of the assessee. He submitted that the AO did not given an opportunity to cross examine Shri Anupam and hence his statement cannot be relied upon. Even otherwise, the statements given by Shri Sanjeev Kumar and Shri Anupam are against the various evidences relating to advertisement expenses, viz., the bills raised by Cyprus and UK companies, relevant advertisement materials, payments made through banking channels etc. He submitted that these evidences were not proved to be wrong by the tax authorities.

(g) The Ld A.R submitted that the lacunae, if any, found with regard to the Cyprus and UK companies cannot disprove the fact of advertisement actually carried out by the assessee, when the assessee has furnished all the details to prove the genuineness of the advertisement expenditure. He further submitted that the assessee cannot be held to be responsible for variation, if any, in the signatures put in the invoices raised by the agents. He submitted that it is for the Cyprus and UK companies to decide as to how they should carry on business. In any 36 M/s. Genom Biotech Pvt. Ltd. case, they were only carrying on agency business, which does not require much infrastructure and staff. He further submitted that the search officials have found only “computer impressions” of seal of the Cyprus and UK companies. He submitted that the AO has presumed the same to be physical rubber stamp, which is factually incorrect. He submitted that the so called physical rubber stamp was not brought on record at stage, though it was disputed by the assessee at every stage. He submitted that the computer impressions might have been taken by some staff from the bills of the Advertisement agents, which can be easily done through computer programme. But assessee has never used the same at any stage and there is no proof to show that the assessee has misused the same. Accordingly he submitted that the mere availability of impressions would not disprove the genuineness of advertisement expenditure, when the assessee has furnished other credible evidences to support its claim.

(h) The ld A.R submitted that the assessee has entered into advertisement agreement with a company named M/s Selesta Holding Co Ltd and did not enter into any agreement with other companies. He submitted that the agreement is entered between the parties as per their understanding and hence non-availability of agreement cannot be a ground to disbelieve the advertisement expenses.

(i) The ld A.R submitted that the tax authorities have drawn adverse inference against the advertisement expenses only on surmises and conjectures. He submitted that the CMD of the assessee company Shri Binod Kumar has been linked to the Cyprus companies only because of the statements given by Shri Sanjeev Kumar and Anupam. He submitted that even if it is considered that those companies are controlled by Shri Binod Kumar, yet the AO has not proved that the payments towards advertisement expenses were not at arms length. He further submitted that the cause of action, if any, may arise in the 37 M/s. Genom Biotech Pvt. Ltd. hands of Shri Binod Kumar in this regard. Accordingly he submitted that there is no justification in disallowing entire advertisement expenses.

(j) He submitted that the report of Ukranian authorities does not contain any adverse comment on the invoices. The possibility is that the revenue has not furnished copies of the invoices seeking comments of Ukranian tax authorities. In the absence of any material or report to disprove the genuineness of invoices, there is no reason to suspect the genuineness of the advertisement bills.

(k) The Ld A.R submitted that the revenue has not conducted enquiries with Cyprus tax authorities. He submitted that the assessee had maximum transactions with Cyprus companies only. He submitted that the Cyprus companies have supplied the advertisement materials along with their invoices and these documents prove the genuineness of advertisement.

(l) He submitted that the Ld CIT(A) was not justified in placing reliance on certain adverse reports given by Special Auditors. He submitted that the special auditor has observed that the assessee did not produce videos, CDs, DVDs etc, for the advertisement done in TV and Radio in Ukraine. He submitted that the assessee has explained that those materials could not be brought into India due to Customs regulations. However the explanations of the assessee have been rejected without citing any reason. The Ld A.R further submitted that the Special auditor has found fault with only small portion of expenditure and was satisfied with substantial amount of advertisement expenses.

(m) The Ld A.R submitted that the quantum of advertisement expenses incurred by the assessee was considered to be high vis-à-vis the amount spent by the competitors. He submitted that the nature and extent of advertisement expenses is determined by a businessman on the basis of 38 M/s. Genom Biotech Pvt. Ltd. market conditions, marketing area etc. Hence there cannot be any yardstick to determine the quantum of advertisement expenses. The Ld A.R submitted that the TPO has found that the profitability of the assessee was comparable with industry average.

(n) With regard to the observations of the Ld CIT(A) that the assessee should have carried out advertisement directly, the Ld A.R submitted that the tax authorities cannot sit in the arm chair of businessman and dictate the manner of carrying on business. He submitted that the assessee has carried out the advertisement according to its convenience and the same should not have been found fault with.

(o) The Ld A.R submitted that the tax authorities have merely suspected that the assessee has siphoned off the funds through advertisement expenses only for the reason that the employees of the assessee happened to be the directors of the Cyprus companies. He submitted that the tax authorities have not shown that the advertisements were not, in fact, done or the advertisement charges were higher than the market rates. Hence the above said reasoning given by the tax authorities should only be considered as surmises.

(p) With regard to the amount reimbursed to M/s Brahma Drugs P Ltd, the Ld A.R submitted that M/s Brahma Drugs P Ltd had made payments on behalf of the assessee and the same has been reimbursed to it. However, he submitted that the disallowance out of Business promotion expenses was only Rs.60,000/- and accordingly does not want to press the same in view of smallness of amount.

(q) Accordingly the Ld A.R submitted that there is no justification in disallowing entire amount of advertisement expenses.

39 M/s. Genom Biotech Pvt. Ltd. wherein a detailed analysis of various deficiencies pointed out by the assessing officer were summarized. He also furnished supplementary written submissions on 04-01-2018. He submitted that the Cyprus and UK advertisement companies are controlled by Shri Binod Kumar, the Managing director of assessee-company. In turn, they have claimed to have carried out advertisements through entities located in Ukraine. However the investigation done by the department through their Foreign Tax division and the income tax authorities of Ukraine revealed that the so called Ukrainian entities did not have any connection with Cyprus and UK advertisement companies. Though the assessee has sent money to Cyprus and UK companies, the report of Ukranian tax authorities show that the money has not reached logical destination. He further submitted that rubber stamps found during the course of search operations, the statements given by Shri Sanjeev Kumar and Shri Anupam, evasive replies given by the directors of the assessee company, absence of agreements, variation in signatures, report of Ukranian tax authorities etc. clearly show that the assessee has diverted funds of the assessee company to abroad under the garb of advertisement expenses.

their seals/stamps were recovered from the office of the petitioner no.1 (see 544 of the petition). These incriminating documents prima facie establish that large scale tax fraud has been committed.”

The Ld D.R, accordingly, submitted that the above said findings of Hon’ble High Court prove that a major and substantial wrong has been committed by the assessee in respect of advertisement and marketing (AMP) expenses.

(CIT(A) para 12 pages 20 to 47)

This disallowance is common to all the assessment year. Assessee has claimed payment to Cyprus and U.K. based companies. These are Biogenetica Ltd., Nicocardia Pharma Ltd. (earlier Osian Trdg. Ltd.) and Selesta Holdings Co. Ltd. - all the 3 companies are based in Cyprus and Zyus Corp. Ltd. and Biological Ltd. - both these companies are based in U.K.

It was claimed that these payments to U.K. and Cyprus based companies were reimbursement of expenses which they have incurred in Ukraine for advertisement through eight Ukraine companies which are as under:

2. An Admiral Ltd. 3. DP Trigram' International 4. Elain Ltd. 5. KTD ‘Kolorit’ 6. Newspapereditory Yuzhnaya Pravda' 7. Sofitform Ltd. 8. Trade Hoose 'Palanok’ Ltd.

(A chart in this regard is at page 4 of the assessment order).

The expenses of overseas marketing and advertisement expenses were found to be excessive and at times close to 50% of the turnover (chart given at page 3-4 of the assessment order). Several incriminating

41 M/s. Genom Biotech Pvt. Ltd. documents were found in search which point towards nature of bogus expenses under this head.

Grounds for Disallowance: a) Incriminating documents/evidence found in the search: Original unsigned invoices of Foreign companies and Rubber stamps etc. were found in the company's premises during the search (para 5 page 2 and para 11 page 5 of the assessment order) Statement of Shri M.P. Singh, Director were recorded during the search and post search investigation and his replies were evasive. Various other serious discrepancies were found during search in the overseas claim of advertisement and marketing expenses. Subsequently enquiries at Ukraine & U.K./Cyprus were got done through CBDT in this case. Also the findings of Special Audit report bring out the facts pointing towards bogus nature of these expenses. b) No Supporting evidences: The fact that no supporting evidences that the bills raised by Cyprus & U.K. companies for the advertisement and marketing expenses in Ukraine has been brought by A.O. at para 15 to 17 of his order (Page Nos 7 & 8). Portion of statement of Shri M.P. Singh, Director of the assesse company has also been incorporated by A.O. on the same page wherein he has expressed his inability to substantiate the bills with the supporting evidence. Various seized invoices show that there were no supporting evidences while forwarding the claims which prove their bogus nature. These invoices are spread over seized annexures at page Nos 1 to 140 of Annexure A-3 (Paper book 1 of annexure at page Nos. 221 to 360). Shri M.P. Singh in his statement u/s. 132(4) on 15/5/08,16/5/08 has failed to explain the reasons (Excerpts from statement at para 21 pages 9 & 10 of the assessment order) c) Seals of foreign companies found at assessee's premises: At paras 18 to 21 of A.O's order (Page Nos 8 & 9) it has been brought that papers containing seals of foreign companies were found in the assessee's companies premises (seized Annexure A-5 Pages 1 to 13). Assessee has brushed aside these evidences as casual and with much weight. However these are extremely important proofs which strengthen the department's stand that the expenses done by assesse are bogus because when the assesse is dealing with Ukrainian companies through Cyprus & U.K. companies and not directly, under no normal circumstances impressions of seals of these Ukraine companies should have been found in assessee's premises. Assessee has neither entered into agreement with these Ukraine companies nor have sent the payments to them.

42 M/s. Genom Biotech Pvt. Ltd. d) No agreement between assesse company and Cvprus/U.K. based companies: A.O. at para 22 & 23 of his order at page 10 & 11 has pointed out that though payments of crores were made to U.K./Cyprus based companies for marketing and advertisement expenses through them in Ukraine, however no agreement to guide and set the terms of business have been found. The only agreement found was that Nikocardia which was signed by Shri Sanjeev Kumar employee of assessee, who in his statement as mentioned above has explained the post circumstances under which this agreement was signed by him. It is hard to believe that crores of rupees of payments are made in the absence of proper agreement/contract etc. The fact that employees of assessee company are directors of these U.K. and Cyprus based companies. In the light of absence of agreements, the bogus nature of the payments are established. Statement of Director Shri B. Singh at page 10 of the assessment order admits the fact of non-existence of such agreements. (CTT(A) Para 12.5, Page 24) e) Analysis of Seized Documents: i) Pages 106,140 of Annexure A-03(discussed at para 14 of page 6 of the assessment order) of seized documents are original invoices of Selesta Holdings wherein reimbursement of advertisement and marketing expenses are claimed from the assessee. The invoices are signed by one Mr. Achintyadas/Achintodas on behalf of Selesta Holdings. Shri Achintyadas is one of the employee of the assessee co. the variation in the signature of this person have been pointed out by A.O. in above mentioned para 14 of the assessment order. Signatures of Ajinkyadas at Page No. 220 to 237 are different from signature at pages 238 to 255. ii) Signatures of Shri Sanjeev Kumar on behalf of Biogenetica for raising reimbursement claims and Nicocardia are at pages 34 to 105 of Annexure A-3 of the seized documents (Pages 255 to 327 of assessee's paper book 1). iii) Apparent variation in the signature of Mr. Achintyadas and Mr. Sanjeev Kumar in different bills is apparent from the casual reading of the following papers:

• Paper book 1 pages 297 to 327 (302,303,304,305) regarding Nicocardia Bills. Page 308 signed by Abhishek Kumar, Signatures at 310 & 311 are different from those at 312. Also at 313 & 314 are different from those at 315 & 326.

• Paper Book 1 pages 257 to 296 in the case of Bigenetic bills. Variation in Mr. Sanjeev Kumar's Signature may be seen apparent at page Nos. 258,259 & 260 of the assessee's paper book 1. There

43 M/s. Genom Biotech Pvt. Ltd. is no seal on Nicocardia (Page 307 of Paper book 1). Regarding connection of Mr. Sanjeev Kumar with Selesta Holdings, his statement was recorded to ascertain the authenticity of the same. Parts of his statement are at para 16 page 7 & 8 and at para 23 page 11 to 15 of the assessment order. Mr. Sanjeev Kumar has refused to have signed any of the invoices categorically (page 8 of the assessment order) also regarding his directorship of Biogenetic and Nicocardia he has stated the circumstances under which he was forced and was asked on behalf of Shri Binod Kumar to sign it though he did not know anything about that company (page 11 to 14 of the assessment order) (CITfA) Para 12.6 Pages 24 & 25) f) Statement of Shri Sanieev Kumar: There is no incongruency in the statement of Shri Sanjeev Kumar. The 1st statement & 2nd statement of cross examination by the assessee have been incorporated by A.O. at para 16 of his order. Shri Sanjeev Kumar has categorically stated in his 1st statement that he was forced to sign the document on the directions of M.D. Shri B. Singh as he was a new employee and did not know the contents and purpose of the documents. In the 2nd statement when he was cross examined by the assesse Shri Sanjeev Kumar categorically stated that some of his signatures are forged and that he had never signed the documents shown to him. There is no discrepancy or change in the stand of Shri Sanjeev Kumar.(CIT(A) Para 12.8, Pages 26 to 28)

2. Dummy Directors:

In Para 25 & 26 page 16 to 18 of A.O's order Issue of dummy directors is discussed by the A.O. Though there is legally no bar in appointment of companies employee as director in other companies but the circumstantial and corroborative evidence in this clearly show that the employee were dummy director for U.K. and Cyprus companies to whom crores of rupees was paid for further hiring of Ukranian companies for alleged payments on advertisement & Marketing expenses. These directors were only directors on paper and had no clue about the nature of transaction of assessee company. Statement of Shri Anupam one of the employees of assessee company (resigned in Dec. 2007) recorded shows that the employees were appointed as dummy directors of the Cyprus/U.K. based companies who had no idea of business transactions between assessee and the U.K./Cyprus based companies and actual control was in hands of Shri Binod Kumar only. Findings at para 26 (Page 18) of assessment order are important in this regard.(CIT(A) Para 12.10 to 12.14 Pages 30 to 33).

3. Enquiries Abroad: Finding of A.O. are at Para 28 (Pages 19 &20):

(CIT(A)Para 12.3, 12.15 to 12.17 upto 12.23)

44 M/s. Genom Biotech Pvt. Ltd.

The enquiries through Ukrainian Tax Authorities reveal that companies based in Cyprus & U.K. had no transaction with the Ukranian agencies during the period F.Y. 2001-02 to 2007-08.

• Paperbook 1 Page 140 to 143 Paper Book 1 References to the Jt. Secretary, FTTR, CBDT by Director(Inv.), Mumbai. • Page 145 PB 1 is a letter seeking certain clarification addressed to Smt. Anita Kapur, Chairman, CBDT by State Ex-Administration of Ukraine. • Page 129 to 139 Paper Book 1 is report of Ukranian Tax Authorities sent to FTTR. • In case of Medic Craft, (Page 130), Softin Form Ltd. (Page 131), Medin Form(Page 131) Elain Ltd. (Page 132), Colorit Ltd. (Page 132), Yuzhnaya Praveda (Page133). It was reported that these companies have no transactions/business connection with Cyprus or U.K. based companies.(Paper Book 1) Report from U.K. in case of Zyus Corp. and Biological Ltd. is also sent to Ms. Kapur, Chairman CBDT (Page 160 to 219) of paper book 1. The covering letter is at Paper Book 1 (Page 160/161). It is interalia stated in the report that:

"B. Kumar and S. Singh (presumably Binod Kumar and Sheila Singh) used to be directors of the company.

You will also note from reviewing the financial statements of Biologica that the trading and profit and loss accounts do not indicate any expenses connected with trading premises and nor are there any deductions for salaries paid to employees. This may therefore suggest that the company did not have any proper premises of its own.

The accounts of Zyus Coproration Ltd., you will note the absence of any property in the balance sheets. You will also note that the profit and loss accounts do not contain wages, although there are rental payments appearing in the later accounts. However, the registered office of the company again appears to be that of its accountant, it may be that the rental payments are connected with the warehousing of stock. "(CIT(A) Para 12.3, 12.24 & 12.25 Pages 41-42).

5. Assessee's own Marketing Establishment in Ukaraine:

45 M/s. Genom Biotech Pvt. Ltd.

It is a fact that assesse has his own network of several registered offices/staff operating in Ukraine. Fact is brought out in assessment order at page 30(iii) (C1T(A) Para 12.1 Pages 20-21)

7. The adverb 'wholly' in the phrase 'laid out or expended....for business' refers to the quantum of expenditure- The adverb 'exclusively' has reference to the object or motive of the act behind the expenditure. Unless such motive is solely for promoting the business, the expenditure will not qualify for deduction.

CIT Vs. T.S. Hajee Moosa & Co. (Mad.) 153 ITR 422) Mysore Kirloskar Ltd. Vs CIT (Kar) 166 ITR 836 Siddho Mal & Sons Vs. ITO (Del) 122 ITR 839

In view of the above facts and circumstances of the case, it is submitted that payments sent abroad are not for business consideration and not related to business. It is not proved by assessee that any services were done by these companies for assessee either directly or indirectly in Ukrain. It is not revenue's case that sales are bogus or payments have not been made. The payments are sent abroad but their business expediency/or connection is not proved. Mere sending of payments is not enough to claim it as deductions. The services of the other party should have been proved by assessee. In view of failure on part of assessee to prove that actual services were delivered for assessee's business and also the post search verification conducted abroad through CBDT and documents found seized in the search operation and statements of employees (including ex-employees) and directors of the company in search proceedings, the expenditure on marketing and advertisement are held as not allowable.”

(a) Availability of unsigned original invoices of Osian Trading Ltd (renamed as Nicocardia Pharma Ltd), Biogenetica Ltd and Selesta

46 M/s. Genom Biotech Pvt. Ltd.

Holdings Co. Ltd and also invoices without seal and signature mismatches. In respect of invoices pertaining to AY 2007-08, it is found that there were no supporting documents and further there was variation in the signatures.

(b) Rubber stamps, seals and impressions of seals of various foreign companies were found at the premises of the assessee.

(c) The AMP expenses were as high as 50% of the sales revenue. The assessee has not entered with any Advertisement agreement except with M/s Selesta Holdings Co. Ltd. The advertisement materials in the form of CD etc. were not found with the assessee. In this regard, the assessee has submitted that the CDs and DVDs could not be brought into India due to Customs regulations. However, even the soft copy of media advertisements in TV and Radio could not be furnished by the assessee.

(d) No proper explanations from the directors about the discrepancies.

(e) The statements given by Shri Sanjeev kumar and Shri Anupam prove that they were only dummy directors and were acting at the behest of Shri Binod Kumar, the CMD of the assessee company. They were also not aware of the activities of the Cyrus and UK companies.

(f) The enquiries conducted in Ukraine and UK revealed that they have not carried out actual advertisement. The Ukrainian concerns have denied any business relationship with the Cyprus and UK companies. The UK companies were having offices at the address of their accountant. Further, the directors of UK companies were Shri Binod Kumar, CMD of the assessee company and his wife. Similarly, the Cyprus companies were also having common address. All these companies did not spend any money on salary and rent. The assessee has also not furnished bank account copies of Cyprus and UK

47 M/s. Genom Biotech Pvt. Ltd. companies in order to show that they did make payments to Ukranian entities. These facts show that they are only paper companies.

(g) Following specific discrepancies were also found by the AO (i) The selling and distribution expenses were about 50% of turnover, where as the competitors have spent only 7% to 10% of the turnover. (ii) The AMP payments were not supported by third party invoices. Further instances of more than one bill for same advertisement were also found. Some bills have not been entered in the books of accounts. (iii) Advertisement materials such as DVDs, CDs etc., were not found. (iv) The assessee has never disclosed the existence of its overseas offices and bank accounts in Moscow and Kiev and has always contended that its business in Ukraine and Russia is done through Cyprus companies. The assessee has not furnished the bank statements and books of account related to these bank accounts. (v) There is no need for the assessee to engage entities in Cyprus and UK for carrying out advertising in Ukraine, through Ukrainian media agencies, when its own website claims that it has registered offices and staff operating there. (vi) There is no record of communication between the assessee and companies located in Cyprus an UK. No other relevant materials like quotation for advertisement etc., was produced. (h) The assessee has failed to discharge the onus placed upon it to prove the genuineness of AMP expenses.

(i) The assessee has been given all the materials during the course of assessment proceedings and also in remand proceedings. The assessee has also furnished explanations. Hence there is no violation of natural

48 M/s. Genom Biotech Pvt. Ltd. justice. The assessee has contended that the report of foreign tax authorities are additional evidences and hence the Ld CIT(A) should not have admitted them. Since the assessee has been provided with the copies of reports, this contention is liable to be rejected.

(j) The contention of the assessee that the statement given by Shri Sanjeev Kumar should be ignored is not justified. He has stated in the Statement as well as during the course of Cross examination by the assessee that he has signed agreements at the instance of some other employees, that he was not aware of the contents of agreements, that he was not aware of business activities, that he has not visited Cyprus. Hence the contention of the assessee that Shri Sanjeev Kumar has written letter to Shri CMP Singh that the statement was given at the behest of Income tax department should not be considered at all. Since he has reconfirmed his earlier statement, it has got evidentiary value. Following judgments support this view:- (i) The confessional statement made by a person would be material and relevant consideration as held by Hon’ble Punjab & Haryana High Court in the case of CIT Vs. Jagdish Chand Gupta (329 ITR 583). It was further held that an admission wrongly made could be withdrawn in a given situation but when the statement made was corroborated by circumstances and was not shown to be erroneous, the retraction thereof would not deviate from its correctness.

(ii) It was held in the case of Harish Dargan Vs. DCIT (8 ITR (Trib) 125) by ITAT, Delhi that the person in charge of the bill section clearly stated in the statement during the search that the bills were written in the morning of the search in the business premises without making any actual sale and this statement was supported by the statements of other employees, the retraction

49 M/s. Genom Biotech Pvt. Ltd. from them after a long period of time could only be attributed to the influence of the assessee over them.

(iii) The Hon’ble Punjab & Haryana High Court has held in the case of Bachittar Singh Vs. CIT (329 ITR 400) that the retraction of earlier statement was not possible.

(k) The various evidences show that the all the concerns located in Cyprus are controlled by Shri Binod Kumar, since the directors of those concerns are controlled by him only. These facts prove that the payments made to Cyprus and UK companies are not for business considerations and they have been made under the garb of Advertisement and marketing expenses.

(l) The assessee has contended that it was not given opportunity to cross examine Shri Anupam, another employee who had deposed against the assessee. The Hon’ble Madras High Court has held in the case of Devasahaya Nadar Vs. CIT (51 ITR 20) that the quasi judicial authorities are not bound by rules of Evidence Act and hence it cannot be laid down as a general proposition of law that income tax department cannot rely upon any evidence which has not been subjected to cross examination. The range of natural justice is wide and whether or not there has been violation of natural justice would depend on the facts and circumstances of the case. In the case of Motilal Padampat Udyog vs. CIT (293 ITR 565), the Hon’ble Allahabad High Court has held that when the assessee has submitted his reply to the statements recorded from the partners and since the assessee got the opportunity to controvert the material gathered against him, there had been compliance with principles of natural justice.

(m) The assessee has contended that the invocation of Exchange of information article under Indo Ukranian tax Treaty is not possible, since the assessee has no direct transactions with Ukranian entities. The 50 M/s. Genom Biotech Pvt. Ltd. assessee has further submitted that, if at all any enquiry is required; the same must have been done only with Cyprus authorities, which has not been done. This contention of the assessee is not correct. The purpose of enquiry was to find out as to whether the money given by the assessee has reached the Ukranian entities or not and further the advertisements were actually carried out or not.

(n) The assessee has contended that the report given by Ukrainian tax authorities should be ignored. The defects pointed out by the assessee have been rebutted as under by Ld D.R:- (i) It was submitted that the Ukranian authorities have not given their report on three entities viz. Admiral Ltd, Palanok Ltd and Medinform. Accordingly it was contended that no adverse findings can be drawn against these entities. This contention of the assessee is not correct. The surrounding facts show that the entities in Ukraine did not have dealings with Cyprus and UK companies. Hence the report of Ukrainian authorities has to be read in its entirety and cannot be given isolated meaning.

(ii) It was further submitted that there was no adverse report in the case of DP Trigram International. It was mentioned in the report that the company was not found in the registered address.

(iii) It was submitted that in respect of Softinform and Medicraft, the competent authorities have relied upon the statement given by legal representative. However, the statement of legal representative was not enclosed with the report and further no opportunity to cross examine him was given to the assessee. This contention of the assessee is not acceptable. It is seen from the report that there is no written

51 M/s. Genom Biotech Pvt. Ltd. statement recorded from legal representative. Merely because written statement was not obtained from the person concerned is not enough to cast away the piece of evidence obtained in the form of report from the tax authority of another country.

(iv) It was contended that in the case of Elain Ltd, report was not based on any statement taken from legal representative. Further it was submitted that the report only says that the above said concern did not have business connection with entities in Cyprus and UK and also did not conduct any foreign trade transactions. However M/s Elain Ltd has carried out advertisement works only locally and hence the report depicts correct facts only. This contention of the assessee is not acceptable. The report clearly says that M/s Elain Ltd has no external economic account to do foreign trade transactions. In this case, the money for advertisement works should come from Cyprus and UK. Hence for that purpose M/s Elain Ltd should have maintained separate economic external bank account.

(v) The assessee contended that the report simply states that the entities named M/s Kolarit and M/s Yuzhnaya Pravda did not have business connection with Cyprus and UK companies. However the report does not contain any evidence to support the above said statement. This contention of the assessee is not acceptable. The tax authorizes of Ukraine has given report after conducting independent enquiries. Further, they are not under the influence of AO or any other tax authority in India. Hence the said report cannot be brushed aside and it has got its own evidentiary value.

52 M/s. Genom Biotech Pvt. Ltd.

(vi) In respect of report received from UK authorities in respect of Zyus Corporation and Biologica Ltd, it was submitted that the assessee did not utilize the services of Biologica Ltd during the years under consideration and hence the report on Biologica Ltd should be ignored. It was further submitted that the report did not give any comment on the business activities and has only mentioned that these concerns do not have independent office, that no employee cost was booked, that the directors are Shri Binod Kumar and his wife Sheila Singh etc. This contention of the assessee is not acceptable. The report of UK authorities should be read along with the report of Ukrainian authorities that the entities located in Ukraine did not have any connection with UK concerns. There is nothing in the report of UK authorities to show that the report of Ukrainian authorities was false.

(o) The assessee has submitted that the Special auditor has pointed out defects in respect of certain bills only and he was satisfied with the substantial part of advertisements. This is not correct. The report of special auditor points out following defects/deficiencies:- (i) No documents regarding monitoring of advertisement expenditure. (ii) Instances of more than one bill for the same advertisement invoice. (iii) Advertisement bills not recorded in the books of accounts.

(iv) Invoices booked were not available. (v) Booking of expenditure before the date of invoice. (vi) Supporting materials like DVD, CD, Cassette etc. not in possession of assessee.

53 M/s. Genom Biotech Pvt. Ltd.

The assessee has not controverted the above said findings. These findings only show that the claim of the overseas AMP expenses is not proper.

(p) The AO has compared the quantum of advertisement expenses incurred by the assessee with that of competitor. Further, various evidences prove that the assessee has not carried out advertisements at all. Hence the payments made to Cyprus and UK concerns are not for the purposes of business.

(q) The assessee has maintained liaison offices in Ukraine. It is in the common sense that the assessee would have used such liaison offices/bank accounts in Russia and Ukraine for its own advertisement work, instead of locating foreign entities in Cyprus and UK. All these facts show that all these concerns have entered into collusive transactions for siphoning of the profits of the assessee in the name of Advertisement and Marketing expenses.

(r) In respect of advertisement expenses incurred by M/s Brahma Drugs P Ltd, the assessee has failed to show that the advertisement expenses were incurred on behalf of the assessee.

54 M/s. Genom Biotech Pvt. Ltd. in respect of invoices relating to AY 2002-03 and 2007-08. Accordingly he contended that the deficiencies found in certain invoices, that too pertaining to AY 2002-03 and 2007-08 cannot be extrapolated to all the invoices and also cannot be extended to other years. The Ld A.R further submitted that the Ld D.R was not justified in placing reliance on the observations made by Hon’ble High Court of Bombay in the order passed against writ petition filed by the assessee, since the said observations were made by Hon’ble High Court on the basis of preliminary investigation made by the revenue. The Ld A.R submitted that the special auditor also did not find fault with substantial quantity of transactions. The deficiencies like absence of signature, alleged variation in signatures etc., are found only in certain bills. He submitted that the revenue never brought on record the alleged rubber stamps were found in the possession of the assessee. He submitted that only the “impressions” of certain companies were found in the computer. All these deficiencies cannot lead to the conclusion that the assessee was manufacturing the advertisement invoices. He submitted that the AO could not explain as to how the actual advertisement materials could be produced by the assessee. He further submitted that the assessee has dealt with concerns located in Cyprus and UK. However, no enquiry was made with Cyprus tax authorities. The report given by UK authorities is also silent about the business activities of UK companies. He further submitted that the assessee did not have direct dealings with Ukrainian entities and hence the assessee cannot be found fault, if those entities have committed mistakes/defaults or if any deficiency was found with them by their tax authorities. Accordingly the Ld A.R submitted that the tax authorities have taken adverse view of the matter only on surmises and conjectures. Accordingly he submitted that the orders passed by Ld CIT(A) on this issue on various years should be reversed.

the assessee has, in fact, diverted its funds under the garb of expenditure through the concerns located in Cyprus and UK. Accordingly the tax authorities have disallowed the entire claim made under the head advertisement and sales promotion expenses.

confessed that he has been taken as a dummy director in the companies located in Cyprus. (e) The invoices issued by Selesta Holdings Ltd were signed by a person named Mr. Achintyadas/Achintodas. The signatures were not uniform, i.e., there was variation in the signatures. Similar variations also noticed in the signature of Shri Sanjeev Kumar also. Certain invoices did not have official seal of the company. In the statement taken, Shri Sanjeev Kumar has denied his signatures. Some invoices were not signed at all. (f) The enquiries conducted through Ukrainian tax authorities have revealed that the Ukrainian entities did not have dealing in Cyprus and UK companies, meaning thereby, they did not carry on any advertisement works in Ukraine. (g) The enquiries conducted by UK authorities prove that the UK companies are paper companies only. Similarly the Cyprus companies are only paper companies. All these companies have been controlled by Shri Binod Kumar, the Chairman & Managing Director of the assessee company. (h) The special auditor has also pointed out many deficiencies in the claim. (i) The assessee is having its own marketing establishment in Ukraine and hence there was no necessity for the assessee to engage Cyprus and UK companies to carry out advertisement works in Ukraine. (j) The assessee has failed to prove that the payments made by it to Cyprus and UK companies were remitted to the so called advertisement companies located in Ukraine.

invoices do not have supporting documents. The Ld A.R further submitted that the deficiencies, if any, noticed was related to the assessment year 2002- 03 and 2007-08. Accordingly, it was submitted that the assessing officer was not justified in extending his presumptions to other years, when there is no such allegation in other years. The Ld A.R submitted that all the evidences are placed in the paper book, viz., the invoice raised by Cyprus company upon the assessee; Corresponding invoice raised by Ukraine company upon Cyprus company and supporting advertisement material. He further submitted that he has already furnished a statement for each of the assessment year on a sample basis, wherein the page numbers of each of the item stated above were given. For the sake of convenience, we extract the statement so furnished by the assessee for each of the assessment year:- A.Y.2003-04 ADVERTISEMENT EXPENSES References of invoices raised on Genom by Cyprus entities, copies of invoices raised by Ukraine entities on Cyprus entities and corresponding advertising material as proof. Refer Paperbook - 2 bearing pages 1 to 315 filed on 14.3.2016.

Corresponding invoice Invoice raised by Supporting raised by Ukraine Cyprus company on advertisement company on Cyprus entity the appellant on material on on Page Nos. Page Nos. Page Nos. 1(A) 2 3&4 5 6 12 14 13 15 to 20 26 27, 28, 29 30 to 34 39 40 41 49 50,51 52 to 55 56 57, 58, 59 60 to 63 68,69 70&71 67 72 73, 74 75, 76 79 80, 81, 82 83 to 88

58 M/s. Genom Biotech Pvt. Ltd.

A.Y.2004-05 ADVERTISEMENT EXPENSES References of invoices raised on Genom by Cyprus entities, copies of invoices raised by Ukraine entities on Cyprus entities and corresponding advertising material as proof. Refer Paperbook - 2 bearing pages 1 to 201 filed on 16.3.2016.

Invoice raised by Corresponding Supporting Cyprus company invoice raised by advertisement on the appellant on Ukraine company on material on Page Nos. Page Nos. Cyprus entity on Page Nos. 2, 9, 8-C 3 to 8 1 10 11 to 1 3 14 to 17 18 19 to 26 27 to 32 35, 37, 38 33 36 155 156 157 & 158 159 160 161 & 162 175 177, 180 to181 176, 178 182 183 to 190 191, 193 194 195 to 197 198 to 201

A.Y.2005-06 ADVERTISEMENT EXPENSES References of invoices raised on Genom by Cyprus entities, copies of invoices raised by Ukraine entities on Cyprus entities and corresponding advertising material as proof. Refer Paperbook - 2 bearing pages 1 to 241 filed on 18.3.2016.

Invoice raised by Corresponding invoice Supporting advertisement material Cyprus company raised by Ukraine on Page Nos. on the appellant company on Cyprus on Page Nos. entity on Page Nos. 5 6, 8, 10 7,9 11 12, 14, 16 13, 15 17 18 19 58 59,61,63 60, 62, 64 65 66, 68, 71 67, 69, 70, 72

59 M/s. Genom Biotech Pvt. Ltd. 73 74, 76-A 75, 76, 76-B, 76-C, 76-D 144 145, 146 147 to 149 150 151, 153, 155 152, 154, 156 178 179, 181, 183 180, 182, 184 203 204 202 205 206,208,210 207, 209,211 212 213, 215,217 214,216,218

A.Y.2006-07 ADVERTISEMENT EXPENSES References of invoices raised on Genom by Cyprus entities, copies of invoices raised by Ukraine entities on Cyprus entities and corresponding advertising material as proof. Refer Paperbook - 2 bearing pages 1 to 258 filed on 18.3.2016.

Invoice raised by Corresponding Supporting advertisement material on Page Nos. Cyprus company invoice raised by on the appellant Ukraine company on Page Nos. on Cyprus entity on Page Nos. 130 131, 133, 135 132, 134, 136 to 139 140 142, 149, 154 141, 143 to 148, 150 to 153 166 167, 170, 173 168, 169,171, 172, 174, 175 176 177, 182, 187 178 to 181, 183 to 186, 188, 189 190 191, 196, 199 192 to 195, 197 to 198 200 201,204, 207 202, 203, 205, 206, 208 to 212 213 215,216 214,217,218 223 224, 226, 228 225, 227 1 2,4, 7 3, 5, 6, 8 22 23, 25, 27 24, 26, 28

A.Y.2007-08 ADVERTISEMENT EXPENSES References of invoices raised on Genom by Cyprus entities, copies of invoices raised by Ukraine entities on Cyprus entities and corresponding advertising material as proof.

60 M/s. Genom Biotech Pvt. Ltd.

Invoice raised by Corresponding invoice raised by Supporting Cyprus company on Ukraine company on Cyprus entity advertisement material on Page Nos. on Page Nos. the appellant on Page Nos. 171 172, 173, 174, 176 175 177 178, 179, 180, 182, 183 181, 184 185 186, 187, 188, 189, 190 191, 192 197 198 to 200, 202 201 209 210, 211,212,214,216 213, 215,217,218,219 254, 255, 256, 258, 259 257, 260 253

computer system. He submitted that they might have been copied by some computer savvy enthusiastic employees. He submitted that the physical rubber stamps were not brought on record at any stage despite the same being disputed by the assessee. He submitted that the revenue has not found any single instance, where the seal impressions were misused by the assessee. Accordingly the Ld A.R submitted that the assessing officer has drawn adverse inferences on the basis of surmises and conjectures. Accordingly he contended that the AO was not justified in presuming that the assessee has manufactured the invoices of Cyprus companies.

62 M/s. Genom Biotech Pvt. Ltd. in his capacity of director of Cyprus company at the insistence of assessee; thereafter he has claimed to have written a letter to Shri C.M.P Singh that he has stated so in the statement at the insistence of the Income tax department and later during the course of cross examination he has stood by his original statement. Accordingly the assessee has stated that the statement given by Shri Sanjeev Kumar should be ignored. The assessee has also submitted that it is a common practice in the corporate world to induct employees as directors. With regard to the observation of the AO that Shri Sanjeev Kumar has never visited Cyprus, it was stated by the assessee that, in the present internet era, the physical presence is not required. As noted earlier, the assessee was not given the opportunity to cross examine Shri Anupam and hence the assessee has submitted that the statement so given by Shri Anupam should be ignored.

63 M/s. Genom Biotech Pvt. Ltd. is required to be accepted. However, he has also written a letter to the director of the assessee company stating that he has given the statement against the assessee only at the insistence of income tax department. Though he has disowned the said letter during the course of cross examination, yet if we take into account the same, there is merit in the contention of the assessee that he is shifting his stand to suit his convenience. Before Income tax department he appears to have maintained a stand and before the assessee, he appears to have maintained another stand, meaning that he did not want to antagonize either the Income tax department or his employer. If a person changes his stand to suit his convenience, his statement shall become unreliable. Hence, in our view, there is merit in the contention of the assessee that his statement should be ignored. In the statement given by Shri Anupam, he has also stated that he and other persons have been inducted as dummy directors in some of the Cyprus companies. Though his statement may have evidentiary value, yet the same cannot also be taken into consideration, since the assessee has not been given opportunity to cross examine him.

64 M/s. Genom Biotech Pvt. Ltd.

65 M/s. Genom Biotech Pvt. Ltd. and UK based companies were having direct relationship. The assessee has entrusted the advertisement works to Cyprus and UK based companies and it has also duly received the services from them. The Cyprus and UK based companies have, in turn, given the work to Ukrainian entities. The evidences furnished by the assessee along with advertisement bills show that the advertisement works have actually been carried out in Ukraine. Since the Ukrainian tax authorities could not locate some of the entities and since legal representatives of some of the entities have denied any foreign trade transactions, the revenue has drawn adverse inferences against the assessee. However, we are of the view that these transactions should be looked at from the point of view of the assessee, i.e., it has entrusted the work to some service providers and they have also completed the work given to them. If the work is completed by the service provider, then no further probe is usually done by anybody. Further, the transactions between the service providers and the Ukrainian companies may not also be relevant for the assessee. In this situation, we have to only infer that there is no irregularity from the side of the assessee and the irregularity, if any, is in the side of third parties, i.e., either at the end of Cyprus/UK companies or at the end of Ukrainian entities. The comments given by the Ukrainian tax authorities about the Ukrainian entities relate to the activities of those entities only. There could also a possibility that the Ukrainian entities may have committed serious irregularities of not reporting the works carried out by them as per the order placed by Cyprus and UK concerns. Hence, in the absence of clear cut evidences to show as to who was at fault, in our view, on cannot draw adverse inferences against the assessee merely on the basis of reports of foreign tax authorities. The assessing officer has also observed that the assessee has not proved that the payments made to Cyprus/UK companies have gone to the hands of Ukrainian entities. As noticed earlier, it may not be concern of the assessee and it may not also be possible to collect details. In any case, if the payments were not made as presumed by the AO, then the question that arise is as to how the advertisements of the assessee were carried out in Ukraine?.

66 M/s. Genom Biotech Pvt. Ltd.

Certainly advertisements could not have been carried out without making payments. As stated earlier, there is possibility that the irregularity may be at the other end for which the assessee herein cannot be held to be responsible.

67 M/s. Genom Biotech Pvt. Ltd. accounts in foreign countries and did not disclose the same. The presumption drawn by the AO was that the money given to Cyprus and UK companies might have been diverted to those bank accounts. It can be noticed that it was only presumption drawn by AO based on conjectures and surmises. Further the enquiries made by the department through its foreign tax division did not bring out anything of that sort. In any case, it is the submission of the assessee that the liaison offices had bank accounts to which the funds required to meet the expenses alone were transacted.

68 M/s. Genom Biotech Pvt. Ltd.

2007-08 Unexplained foreign remittances 4,32,14,451 2008-09 Unexplained foreign remittances 77,54,219 2009-10 Unexplained foreign remittances 4,57,51,735

69 M/s. Genom Biotech Pvt. Ltd. of sec. 153A of the Act. Accordingly we set aside the order passed by Ld CIT(A) on this issue in assessment years 2003-04, 2004-05 and 2006-07 and direct the AO to delete the additions relating to Unexplained foreign remittances made in these three years.

b) Foreign inward remittance slip Or bank advice not available 1,47,79,384 33,45,129 3,27,27,326 c) Amount received from Shri Binod Kumar, CMD 1,00,62,371 --- ---

------------------ ------------- -------------- 4,32,14,451 77,54,219 4,57,51,735 ============ ========= ========== The AO called for explanations from the assessee with regard to the discrepancies pointed by the Special auditor. The assessee explained that the assessee that the exports were made to M/s Zyus Corporation and M/s Trigram Ltd. However the payments were received from M/s Trigram GMBH on behalf of the above said companies. He submitted that the exports proceeds have to be realized within the stipulated or extended time given by RBI. The Ld A.R submitted that the assessee has duly informed the bankers that the export sales made to Zyus and Trigram Ltd is being realized from remittances made by M/s Trigram GMBH. The Ld A.R submitted that the assessee is having continuous transactions with M/s Zyus Corporation and M/s Trigram Ltd. Accordingly export dues are also realized continuously. He submitted that the concerned parties have made adjustments between themselves and accordingly remitted the amount. If the amounts received from other party against the exports made to the above said parties are not considered to be 70 M/s. Genom Biotech Pvt. Ltd. export realizations, then their account shall be showing debit balance, in which case, the assessee would not have made further exports to them.

71 M/s. Genom Biotech Pvt. Ltd. confirmation letters from the concerned parties. Accordingly the Ld D.R submitted that the assessee cannot be said to have discharged the initial onus placed upon it u/s 68 of the Act. He submitted that the ld CIT(A) has also observed that it is the responsibility of the assessee to prove in what circumstances the third parties have agreed to adjust the accounts of others. Accordingly he submitted that the Ld CIT(A) was justified in confirming the addition relating to accounts adjustments.

a continuous basis and the payments are also received on a continuous basis. Sometimes, the importers themselves reach an understanding and accordingly payment made by one party is credited to the account of the other party as per the instruction given by them. The case of the Ld A.R is that the nature of receipt is “Export realizations” and the source of the receipt is the concerned parties. Accordingly it was contended that the assessee has discharged the initial onus of proving the nature and source of the receipts. He submitted that the explanations given by the assessee was not believed by the tax authorities on the basis of surmises and conjectures. On the contrary, the case of the revenue is that the assessee did not substantiate its explanations and accordingly it was contended by the Ld D.R that the assessee has not discharged the initial burden placed on it. We notice that the assessee has mainly relied upon its books of accounts in order to substantiate its explanations. Its case is that if the explanations were not correct, then the account of export debtors would have shown debit balance and the account of the party who paid money would have shown credit balance and both the accounts would have remained so for many years.

73 M/s. Genom Biotech Pvt. Ltd.

Since the sources of the receipt and the nature of receipts are accepted, there is merit in the submissions of the assessee that it may not warrant an addition u/s 68 of the Act. In any case, we are of the view that the assessee should have substantiated its explanations by obtaining confirmation letters from both the parties. In our view, in the interest of natural justice, the assessee may be provided with an opportunity to substantiate its explanations. Accordingly we set aside the order passed by Ld CIT(A) on this issue in all the three years and restore the same to the file of the AO with the direction to afford an opportunity to the assessee to furnish confirmation letters in this regard. After considering the same, the AO may take appropriate decision in accordance with the law.

“Advance against exports”, the assessee had accounted the same as Loan amount. From the observations of the Special auditor, we notice that the auditor is cautioning against possible revenue leakage, i.e., he was of the view that the advance against exports would have resulted in effecting sales and consequent profit. We may notice that the Special auditor is mentioning about possible consequences, which may not be relevant for considering the same under the provisions of sec.68 of the Act.

75 M/s. Genom Biotech Pvt. Ltd.

Ltd. At the time of hearing, the Ld A.R did not press this ground and hence the same is dismissed as not pressed.

76 M/s. Genom Biotech Pvt. Ltd. assessments (completed assessments) and hence the additions can be made in these assessment years only on the basis of incriminating materials found during the course of search. It is not the case of the AO that the Special auditor has made his observations on the basis of any incriminating material found during the course of search. Admittedly the above said additions have been made on the basis of report furnished by the Special auditor. The report of the Special auditor, in respect of these additions, only expresses his opinion about adequacy or otherwise of supporting documents furnished. Thus the Special auditor has commented upon the supporting documents and hence it cannot be said that his opinion is based upon any incriminating material found during the course of search, which is the condition for making any addition in the case of unabated assessments. Hence the above said addition made in AY 2003-04 to 2006-07 is beyond the scope of provisions of sec. 153A of the Act. Accordingly we set aside the order passed by Ld CIT(A) on this issue in assessment years 2003-04 to 2006-07 and direct the AO to delete the additions relating to expense reimbursements made in these four years.

77 M/s. Genom Biotech Pvt. Ltd.

CIT(A) gave partial relief to the assessee, both the parties are in appeal before us. i.e., the assessee is aggrieved by the addition sustained and the revenue is aggrieved in granting relief to the assessee.

78 M/s. Genom Biotech Pvt. Ltd. should be given set off in the second negative cash balance, meaning thereby, it would be reasonable to assess only the peak negative cash balance as income of the assessee. Accordingly we confirm the order passed by Ld CIT(A) on this issue in AY 2003-04. However, in assessment year 2004-05, only the incremental peak negative cash balance should be assessed, since the income assessed in AY 2003-04 should naturally be given credit in AY 2004-05. Accordingly we modify the order passed by Ld CIT(A) in 2004-05 and direct the AO assess the incremental peak negative cash balance as income of the assessee in AY 2004-05. Accordingly the ground raised by the revenue on this issue in AY 2003-04 and 2004-05 is dismissed. The ground raised by the assessee on this issue in AY 2003-04 is dismissed and the ground raised in AY 2004-05 is partly allowed.

79 M/s. Genom Biotech Pvt. Ltd.

80 M/s. Genom Biotech Pvt. Ltd. during the course of search, which is the condition for making any addition in the case of unabated assessments. Hence the above said addition made in AY 2003-04 to 2006-07 is beyond the scope of provisions of sec. 153A of the Act. Accordingly we set aside the order passed by Ld CIT(A) on this issue in assessment years 2003-04 to 2006-07 and direct the AO to delete these additions made in these four years.

81 M/s. Genom Biotech Pvt. Ltd. one guest house is taken on lease from an outsider and since the payments made to Chairman and his wife was not shown to be beyond fair market value, we are of the view that the disallowance may be restricted to 20% of the guest house expenses, which in our view would take care of revenue leakages, if any. Accordingly we set aside the order passed by Ld CIT(A) on this issue in AYs 2007-08 to 2009-10 and direct the AO to restrict the disallowance to 20% of the guest house expenses. Accordingly the grounds urged by the revenue on this issue in AY 2003-04 to 2009-10 are dismissed. The grounds of the assessee urged on this issue in AY 2003-04 to 2006-07 are treated as allowed and the grounds urged on this issue in AY 2007-08 to 2009-10 are partly allowed.

82 M/s. Genom Biotech Pvt. Ltd.

Relying upon the above said observations made by the Special auditor, the AO disallowed entire amount of travelling expenses. The Ld CIT(A) restricted the same to 50% and hence both the parties are in appeal.

Rs.51.41 lakhs respectively in these three years. The Ld CIT(A) reduced the disallowance to 50% with the following observations:-

“26.1 There is no dispute that the travel expenses on business trips should be allowed as incurred for the purpose of business but the issue is whether the appellant actually incurred such expenses for the purpose of business. In this case, the appellant merely submitted the details of amount, place of visit and the name of person travelled but had not furnished any evidence to establish the nexus of these expenses with the business carried on by the assessee. It is necessary for the appellant to substantiate that the visits made to foreign countries are necessary for the purpose of business. The purpose of each business has not been explained. The information such as the purpose of visit, the details of the persons met during such visit, the outcome of the visit, the correspondence regarding the visit with the parties concerned etc., have not been provided. Travel on personal account cannot be ruled out as some of the expenses are incurred in the names of family members. However, disallowing the entire expenses under the head travel is unreasonable. The appellant must have carried out atleast some of the travel in connection with its business. Therefore, I am of the view that 50% of the travelling expenses claimed may be allowed and accordingly, 50% of the addition is hereby deleted.”

The main contention of the Ld A.R is that the Special auditor has made the above said observations on verification of travelling expenses on a sample basis, i.e., he has not verified all the travelling expenses and hence his observations cannot be extended entire amount booked by the assessee. He further submitted that the special auditor has only pointed out only deficiencies in the vouchers, i.e., lack of all the required information in some of the vouchers. He further submitted that the special auditor has commented out the trip to London, whereas the assessee is having business dealing with concerns located in UK. Accordingly he contended that the AO was not justified in disallowing entire travelling expenses merely by placing reliance on the report of the Special auditor. He further submitted that the Ld CIT(A) has restricted the addition to 50% without adequate reasoning.

business purposes only. He further submitted that the relatives have also accompanied the chairman, which cannot be said to be for business purposes.

85 M/s. Genom Biotech Pvt. Ltd.

86 M/s. Genom Biotech Pvt. Ltd. additions have been made on the basis of report furnished by the Special auditor, wherein he has expressed his opinion. Hence it cannot be said that his opinion is based upon any incriminating material found during the course of search, which is the condition for making any addition in the case of unabated assessments. Hence the above said addition made in AYs 2003-04 to 2006-07 is beyond the scope of provisions of sec. 153A of the Act. Accordingly we set aside the order passed by Ld CIT(A) on this issue in assessment years 2003-04 to 2006-07 and direct the AO to delete the above said additions relating to travelling expenses disallowed in these four years.

incurring the expenditure. We notice that the assessee has given explanations without substantiating the same. We agree with the contentions of the Ld D.R that the explanations not supported by any evidence may not serve any purpose.

88 M/s. Genom Biotech Pvt. Ltd.

Statement given by the Statutory auditor Shri R.S. Bagade and also the director of the assessee company Shri CMP Singh. The special auditor has also reported that the audit report produced before them was dated 29-09-2008. The special auditor has also reported that there was mismatch in the claim of depreciation; interest on margin money has been considered as business income and further proportionate amount of Share issue expenses has not been allocated. Accordingly the AO held that the assessee is not eligible for deduction u/s 10B of the Act and accordingly disallowed the claim in AY 2006-07 to 2009-10.

90 M/s. Genom Biotech Pvt. Ltd.

(d) Accordingly, there is failure to obtain the auditor’s report within the due date in the circumstances mentioned above and is a violation of one of the conditions specified in the section. (e) The assessee itself has accepted that certain export proceeds were not received within the time allowed. The assessee has contended that it has sought extension of time, but there was no reply from RBI and hence the same should be construed as deemed extension. However, the Ld CIT(A) noticed that the letters have been written to the respective banks and not to RBI. The Ld CIT(A) was of the view that the permission granted by RBI should be in writing. Since the assessee has failed to produce the permission of RBI for extension of time limit in writing, this condition has not been fulfilled. (f) The assessee has contended that the conversion of existing old unit in Domestic Tariff Area into 100% EOU would not amount to transfer of old machinery. However, the same is subject to the approval granted by the Board. In this case, the approval has been granted by the Development Commissioner of SEEPZ, which cannot be treated as the approval of the Board appointed by the Central Government u/s 14 of the Industries (Development & Regulation) Act, 1951. (g) The assessee has contended that the approval given by Development Commissioner has been ratified by the Board subsequently with retrospective effect. However the same would not make the assessee eligible to claim deduction u/s 10B as per the decision rendered by the Hon’ble Delhi High Court in the case of Regency Creations ltd (ITA No. 09 of 2008, 783 of 2009 and 1239 of 2001 dated 17-09-2012).

The Ld CIT(A), however, accepted the contentions of the assessee that separate books of accounts are not required to be maintained for the EOU unit for claiming deduction u/s 10B of the Act. However, he confirmed the disallowance made in AY 2006-07 to 2009-10, since the assessee has failed to comply with all the conditions.

91 M/s. Genom Biotech Pvt. Ltd.

Hence this objection of the AO is liable to be rejected.

deduction u/s 10B of the Act. The relevant portion of the circular is extracted below:- “4. The matter has been examined and it is hereby clarified that an undertaking set up in Domestic Tariff Area (DTA) and deriving profit from export of articles or things or computer software manufactured or produced by it, which is subsequently converted into a EOU, shall be eligible for deduction u/s 10B of the IT Act, on getting approval as 100% export oriented undertaking. In such a case, the deduction shall be available only from the year in which it has got approval as 100% EOU and shall be available only for the remaining period of ten consecutive assessment years, beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as a DTA unit. Further, in the year of approval, the deduction shall be restricted to the profits derived from exports, from and after the date of approval of the DTA unit as 100% EOU. Moreover, the deduction to such units in any case will not be available after assessment year 2009-10.”

The CBDT has also given certain illustrations to clarify its circular. The following illustration suits the assessee’s case:- “(i) Undertaking “A” is set up in Domestic Tariff Area and starts manufacture or production of computer software in Financial year 1999- 2000 relevant to assessment year 2000-01. It gets approval as 100% EOU on 10th September, 2004 in the Financial year 2004-05 relevant to assessment year 2005-06. Accordingly it shall be eligible for deduction under section 10B from assessment year 2005-06, i.e., the year in which it fulfills the basic condition of being a 100% EOU. Further, the deduction shall be available only for the remaining period of ten years i.e., from AY 2005-06 to 2009-10. This deduction under section 10B for AY 2005-06 shall be restricted to the profits derived from exports, from and after the date of approval of the DTA unit as 100% EOU.”

Since the CBDT has clarified that the conversion of DTA unit into EOU unit is also eligible for deduction u/s 10B of the Act, the question of using old plant and machinery does not arise. In any case, conversion of the status of an undertaking does not amount to “forming of new undertaking” as contemplated u/s 10(2) of the Act. Accordingly this reasoning of the AO is also liable to be rejected.

approval was initially granted by the Development Commissioner, SEEPZ Special Economic Zone, Mumbai with effect from 1.4.2005. The assessee has submitted that the same has since been ratified by the Board. The ld A.R submitted that the Development Commissioner has given approval for the undertaking located in D-122, MIDC and also for the undertaking located in D-121 & 123 separately. The Board has also ratified the approval separately. The chronology of events on the issue of ratification of approval for each unit is tabulated by the assessee as under:-

Sr. Date Particulars Remarks/Reference No. 1. 23.8.2004 Approval by Development Commissioner, In respect of undertaking at Unit No. D-122, MIDC SEEPZ vide Permission No. 28(2004)/SEEPZ-SE27EOU/IA-1 1/32/04- 05/6917 in response to the appellant's application dated 30.6.2004

The Ld A.R submitted that the Hon’ble Gujarat High Court has considered the issue of eligibility for deduction u/s 10B in this kind of situation in the case of 94 M/s. Genom Biotech Pvt. Ltd.

Principal CIT Vs. ECI Technologies (P) Ltd (61 taxmann.com 30), wherein the Hon’ble Gujarat High Court has held that for deduction to be allowed to 100% EOU if grant of approval was given by Development Commissioner and the same was subsequently ratified by Board of Approval.

“The matter regarding validity of approvals given by Development Commissioners has been examined in the Board. It has been decided that an approval granted by the Development Commissioner in the case of an hundred percent export oriented unit will be considered valid once such an approval is ratified by the Board of Approval for EOU Scheme.

This may kindly be brought into the notice of all officers under your charge.”

95 M/s. Genom Biotech Pvt. Ltd.

Act in the years under consideration. The assessee has also pointed out that it could not have attached the audit report when the returns of the years under consideration were filed electronically under e-filing method. As per Circular No.9/2006 dated 10-10-2006 issued by CBDT no documents could be attached with the return of income filed electronically.

97 M/s. Genom Biotech Pvt. Ltd.

PERIOD OF REALISATION FOR 100% EOUs Extended to One year RBI/2004-05/264 A.P. (DIR Series) Circular No 25 November 1,2004

To All Banks Authorised to Deal in Foreign Exchange

Madam/Sirs.

Export of Goods and Services Period of Realisation for Export Oriented Units (EOUs)

Attention of Authorised Dealer (AD) banks is invited to the proviso 3 of sub-regulation (1) of Regulation 9 of Notification No. FEMA 23/2000-RB dated May 3, 2000 in terms of which the Reserve Bank has been empowered to extend the period for realisation and repatriation of export proceeds to India beyond six months

2 Following the announcement by the Government in the Foreign Trade Policy in September 2004. it has been decided that 100 per cent Export Oriented Units (EOUs) and units set up under the Electronics Hardware Technology Parks (EHTPs). Software Technology Parks (STPs) and Bio- Technology Parks (BTPs) Schemes would be allowed to realise and repatriate the full value of export proceeds within a period of twelve months from the date of export.

3. The existing guidelines relating to 100 per cent credit of foreign exchange earnings to EEFC account by the above units would continue as hitherto.

4 This relaxation will be available in respect of exports made on or after September 1. 2004.

5. Authorised Dealer banks may bring the contents of this circular to the notice of their constituents and customers.

6 The direction contained in this circular has been issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions/approvals, if any, required under any other law.

Since the RBI has granted general permission for EOUs, it may not be responding to the individual requests in this regard. In respect of receipts realized beyond the period of 30th September of the concerned year or beyond

98 M/s. Genom Biotech Pvt. Ltd. one year from the date of export, the assessee has contended that it has already written letters to RBI through the banks. The Ld CIT(A) had found fault with the same and has observed that the letters written to banks may not serve any purpose. However, it is the contention of the assessee that it has to write letters to Banks, which would in turn forward the same to RBI.

99 M/s. Genom Biotech Pvt. Ltd. proportionate to the amount realized within the prescribed period. Further present position about the permission from RBI also needs to be ascertained. Since the AO has not verified the computation made the assessee and the computation has to be worked out in the light of discussions made supra, we are of the view that this issue needs to be restored to the file of the AO. Accordingly we set aside the order passed by Ld CIT(A) in AY 2006-07 to 2009- 10 and direct him very deduction computed u/s 10B of the Act by duly considering the audit report furnished by the assessee.

100 M/s. Genom Biotech Pvt. Ltd.

101 M/s. Genom Biotech Pvt. Ltd.

The Ld CIT(A), vide paragraph 61 to 62 of his order, confirmed the addition by following his decision rendered for other years.

102 M/s. Genom Biotech Pvt. Ltd.

Office Expenses. Since the assessee did not furnish any details relating to expenses, the Special auditor reported that the relevant details were not available. Hence the AO disallowed entire Overseas Office Expenses claimed by the assessee in AY 2004-05 to 2009-10.

103 M/s. Genom Biotech Pvt. Ltd. that his opinion is based upon any incriminating material found during the course of search, which is the condition for making any addition in the case of unabated assessments. Hence the above said additions made in AY 2004-05 to 2006-07 are beyond the scope of provisions of sec. 153A of the Act. Accordingly we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the above said addition made in AY 2004-05 to 2006-07.

104 M/s. Genom Biotech Pvt. Ltd.

unabated assessments (completed assessments) and hence the additions can be made in these assessment years only on the basis of incriminating materials found during the course of search. Admittedly the above said addition has been made in AY 2004-05 on the basis of report furnished by the Special auditor, wherein he has expressed his opinion about the manner of accounting the receipts. Hence it cannot be said that his opinion is based upon any incriminating material found during the course of search, which is the condition for making any addition in the case of unabated assessments. Hence the above said addition made in AY 2004-05 is beyond the scope of provisions of sec. 153A of the Act. Accordingly we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the above said addition made in AY 2004-05.

106 M/s. Genom Biotech Pvt. Ltd.

search proceedings in the premises of the assessee, the revenue retrieved certain deleted data from computer of Shri C.M.P Singh, the director of the company. The data was in the form Excel spread sheet. The data provided details of manufacturing cost, old invoice value of the products prior to 1.4.2007 and the new invoice value of the products after 1.4.2007. The difference between old price and new price revealed that the selling price has been drastically cut by 40% (approx.). Accordingly the AO asked the assessee to explain the document and why the reduction in prices should not be considered as suppression of selling prices.

Excel Spread sheet. Accordingly the AO come to the conclusion that this comparison proved the fact that there was drastic price reduction in FY 2007- 08. He also observed that the special auditors have also pointed out instances of difference between the prices mentioned in the purchase order and price mentioned in sales invoices. He observed that the assessee did not offer any valid explanations to the same. Accordingly the AO concluded that there was suppression of sales. Then the AO compared the invoice prices mentioned in bills of FY 2006-07 with the bills of FY 2007-08 and noticed that there was price reduction to the extent of 21%. Since the assessee did not maintain cost records and could not prove that there was change in manufacturing cost, the AO concluded that there was sales suppression. The AO also rejected the submission of the assessee that there was reduction in the advertisement expenses on the reasoning that he had earlier held that the advertisement expenses were bogus. Accordingly the AO concluded that the assessee has no valid explanation to offer regarding the suppression/reduction of export price of its products at an average rate of 21%. Accordingly he made addition of 21% of export sales, which worked out to Rs.683.44 lakhs in AY 2008-09 and Rs.700.69 lakhs in AY 2009-10.

109 M/s. Genom Biotech Pvt. Ltd.

110 M/s. Genom Biotech Pvt. Ltd.

(f) ACIT Vs. M/s Thakkar Popatlal Velji sales ltd (ITA No.4812, 4813, 4845/M/2010 (ITAT-Mumbai)

question that arises is whether the invoices raised by the assessee as per the price reduction policy shown in the Excel Data Sheet would give rise to any suppression of sales. In our view, if the assessee has taken a conscious decision to reduce the rates and accordingly raised invoices also at reduced rates, we are afraid that the tax authorities are entitled to interpret the same as suppression of sales.

112 M/s. Genom Biotech Pvt. Ltd.

Order has been pronounced in the Court on 14.3.2018.