STERLING BIOTECH LTD,MUMBAI vs. PR CIT CEN 1, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI “E” BENCH, MUMBAI

BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER. ITA. Nos. 2750 to 2756/Mum/2016 (Assessment Year: 2006-07 to 2012-13) Sterling Biotech Limited, 43, Atlanta Building, Nariman Point, Mumbai 400 021 Appellant

Vs. The Principal Commissioner Of Income Tax – (Central)-1, Mumbai 400 020 Respondent

PAN: AABCS1946H

आवेदक क� ओर से / By Assessee : Shri Vijay Mehta, A.R. राज�व क� ओर से/By Revenue : Shri Manjunathaswamy, D.R. सुनवाई क� तार�ख/Date of Hearing : 15.06.2016 घोषणा क� तार�ख/Date of Pronouncement : 29.06.2016 ORDER PER BENCH: These seven appeals filed by assessee against the orders of Principal Commissioner of Income-tax (Appeals)-I, Mumbai for A.Ys. 2006-07 to 2012-13 on the point of Section 263 of the Act. Since, most of the issues involved in all the appeals are

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 2 similar therefore, they are heard together and being disposed of by way of this consolidated order.

“1. The order passed by the learned Pr. CIT is illegal, bad in law, ultra vires and contrary to the provisions of the law and facts and without appreciating the facts of the case in their proper perspective and without application of mind and is in gross violation of the principle of natural justice. 2. On the facts and circumstances of the case, the learned Pr. CIT erred in assuming jurisdiction u/s. 263 of the I T Act, in respect of order passed by assessing officer with prior approval of the Additional Commissioner of Income Tax by treating the same erroneous and prejudicial to the interest of revenue. 3. On the facts and circumstances of the case, the learned Pr. CIT erred in coming to the conclusion that the Assessing Officer ought to have examined the applicability of provision of section 69 of the Act which he has failed to do and thereby treating the order as erroneous and prejudicial to the interest of revenue. 4. On the facts and circumstances of the case, the learned Pr. CIT erred in coming to the conclusion that Assessing Officer has failed to carry out necessary verification and inquiries before allowing deduction u/s. l0B and thereby treating the order as erroneous and prejudicial to the interest of revenue. 5. On the facts and circumstances of the case, the learned Pr. CIT erred in coming to the conclusion that assessing officer has failed to carry out necessary verification and inquiries with regard to trading activity at UAE and thereby treating the order as erroneous and prejudicial to the interest of revenue. 6. On the facts and circumstances of the case, the learned Pr. CIT erred in coming to the conclusion that assessing

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 3 officer has failed to carry out necessary verification and inquiries with regard to records of 151 entities found during search action and thereby treating the order as erroneous and prejudicial to the interest of revenue. 7. On the facts and circumstances of the case, the learned Pr. CIT erred in coming to the conclusion that assessing officer has failed to carry out necessary verification and inquiries with regard to overseas Investment in Nigeria, USA, Dubai etc and thereby treating the order as erroneous and prejudicial to the interest of revenue. 8. On the facts and circumstances of the case, the learned Pr. CIT erred in coming to the conclusion that the Assessing Officer ought to have carried out proper examination of seized data and manufacturing report before arriving at any conclusion regarding the yield of by-product/Gelatin and thereby treating the order as erroneous and prejudicial to the interest of revenue. 9. On the facts and circumstances of the case, the learned Pr. CIT erred in coming to the conclusion that the Assessing Officer has failed to carry out necessary verification and inquiries with regard to share application money to the tune of Rs.45 crore obtained from 18 entities and thereby treating the order as erroneous and prejudicial to the interest of revenue. 10.On the facts and circumstances of the case, the learned Pr. CIT erred in setting aside assessment order passed u/s. 143(3) read with Section 153A on 31/0312014 by Assessing Officer for de novo assessment.”

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 4 28.06.2011. The relevant assessment u/s.143(3) r.w.s. 153A of the Act framed on 31.03.2014 determining total income of assessee at Rs.49,25,01,170/- as against return of income of Rs.38,16,47,426/-. Book profit u/s.115JB was assessed at Rs.1,51,12,09,970/-.

"2. On verification of the assessment record, including the seized material, for A. Y. 2006-07 it is noticed that the assessment order passed by the DCIT CC-10, Mumbai (pre-restructuring), in the above case is found to be prima facie erroneous in so far as it is prejudicial to the interest of the revenue for the following reasons:- (i) The AO had given a finding in para 10.3 of the assessment order that the cash transactions found as per seized material vide Annexure1 to 14 [Party No. 17] of Sterling Biotech Limited, Sandesara, Vadodara and Annexure-1 to 21 [Party No. 11] of PMT Machines Ltd. at 20/B, Khatau Building, Fort, Mumbai were sourced from the unaccounted sale of bye-products by the assessee and allowed it to be telescoped against the undisclosed income without there being any nexus established between the generation of cash

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 5 and its application. When the source of cash utilized in such transactions is not substantiated, the AO ought to have examined the applicability of provisions of section 69 of the Act which he had failed to do. (ii) Assessee's claim of deduction u/s. 10B of the Act on its export of Coenzyme Q10 from Massar Plant was allowed by the AO without causing necessary enquiries to ascertain the veracity of its claim that it is exporting the co-enzyme Q10 to UAE at an average price of Rs.2,55,000/- per kg as compared to the rate of Rs. 15,000 per kg at which it exported the same to France and the domestic sale price of Rs. 1,226/- per kg. The AO failed to take cognizance of the important fact that the department of Customs and Central Excise, Ahmedabad had clearly stated that during the relevant period i.e. 01.04.2005 to 31.03.2013 only two consignments of Co-enzyme Q10, of 50 kg each, valued at Rs. 15,48,816/- were exported to France by the assessee and that no other export has taken place in respect of this product, either by the assessee or any other party. No evidence in the form of export bills or export realization certificates was furnished by the assessee. The A. 0. has accepted the claim of the assessee on the basis of confirmations filed in respect of a few parties in this regard and some of these confirmations are apparently signed by the same person. (iii) As per the returns filed by the assessee huge purchases were claimed to have been made from certain concerns stationed at Dubai. The Assessing Officer accepted the claim of the assessee that these purchases represents the purchases of the assessee's trading division at UAE, without verifying the audit report of such offshore branch. In the annual returns filed by the assessee company also, no such segment reporting or results of offshore branch were shown.

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 6 (iv) During the course of search at the premises 202, Suvidhi Apartments Goregaon (West) owned by Shri. Ramanulyer, Director M/s Sterling International Ltd., (as per annexure I, part of core documents)a list of 151 entities with their seals and other documentary evidence were found and seized. A similar list of 16 entities was also found from the premises at 4th floor, Chavda Commercial Centre, Link road, Malad (W), Mumbai which is also part of core documents (Annexure 1- pages 80 to 81), In these companies Shri Chetan Sandesara has substantial interest. These companies form a part of the aforesaid 151 companies. The C.A. of the group, Shri H.S.Haathi stated that these are paper companies, used by the assessee. However, later on during the course of assessment proceedings, it was claimed that most of these companies are clients of Shri H.S.Haathi with which the assessee did not have any nexus. Despite such contradictory statements, the A.O. accepted the assessee's claim without any verification. (v) During the course of search, certain documents were found and seized, for instance material found and seized from the premises of SBL at BKC Office Mumbai (Annexure A. 9) indicating investment in off-shore entities at locations like Nigeria, USA and Dubai, etc. The AO has not caused any verification in respect of these transactions entered into with offshore entities by the assessee. (vi) During the course of the search, an admission was made by Shri H. S.Hathi, CA of the assessee group regarding the bogus capital expenses on account of purchase of capital assets. Though the AO had made disallowance of depreciation in respect of some of the parties identified by the CA, he did not cause necessary verification, about the substantial addition to the block of Assets in other years and from, other parties. (vii) During the course of search, 3 factory premises of the assessee at Masar, at Karkhadi and at Ooty

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 7 were covered and certain documents were found and seized. During Assessment proceedings, an estimation of bye-products and wastes from the data of bone consumption from the Assessee’s data has been made to quantify the various bye- product ratios, on the basis of information available on a website “Technogeloconsultant .com”. The AO has erred in presuming that since the sale of gelatin is mostly to MNCs, therefore suppression is not plausible. However, the A.O. should have examined any suppression of sale of either Gelatin or DCP, before coming to such conclusion. (viii) During the course of search, it was found that 18 entities of the Sterling Group have subscribed to the Share Capital of SBL to the tune of Rs. 45 crores It was admitted by Shri H.S.Hathi in his statement during search that this was a mere paper entry and the money actually belongs to the assessee. This issue has also not been properly examined by the A. 0. 3. From the above, prima facie it is evident that the Assessing Officer has failed to carry out enquiries as warranted by the facts and circumstances of the case and that the assessment has been completed without examining all the aspects which were required to be looked into for determining the assessee's income based on the documents and other evidences detected as a result of search action on 28.06.20011 as well as the statements of various persons recorded at the time of search and during post search proceedings wherein there is clear admission of suppression of income, inflation of expenses and routing such unaccounted amount through various bogus / paper entities, and thus the assessment is rendered erroneous in so far as it is prejudicial to the interest of revenue as envisaged in section 263 of the I.T. Act. 4. In view of the above, you are hereby required to show- cause as to why the assessment order passed by the A. O. on 31.03.2014 be not set aside for de novo consideration as per the provisions of section 263 of the

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 8 Act. For this purpose your case is fixed for hearing on 17.03.2016 at 11.00 a.m. You may appear on the stipulated date and time either in person, or through your authorized representative. If you do not wish to avail the opportunity of being heard, you may send written submission which will be duly considered before passing the order u/s 263 of the Act."

"From the above, it may be seen that the assessee has already been scrutinized and investigated by the Department at three stages. Now, the Department is envisaging to again verify the same documents and same information which have already been verified and examined at three stages. If the Department proposes to review the assessment already made earlier twice, there would never be finality in the assessment proceedings. This will be against the observation of the Hon'ble Bombay High Court in CIT vs. Gabriel India Ltd (1993) 203 ITR 108, wherein the Hon’ble High Court held that such an action is against the well accepted policy of law that there must be finality in all legal proceedings and that issues should not be reactivated beyond the particular stage. This view has been consistently taken by various Courts that assessment must reach a finality and that the department cannot go on making fresh computations and issue fresh notices for all time to come. In the instant case, as already elaborated above, the assessee has passed through the investigations / verification / scrutiny for three times which is directly against the ratio laid down by various Courts including the jurisdictional Bombay High Court in Gabriel India. This principle, that is finality of assessment, has also been approved by the Hon"ble Supreme Court in case of Habibulah (44 ITR 809).

The assessee also relies on the decision of All Cargo Global Logistics Ltd which has held that in the cases where the income has already been assessed u/s. 143(3), the assessment u/s. 153A can be made only on the basis of

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 9 incriminating materials/documents found during the search and seizure. In other words, the AO has limited jurisdiction in respect of the assessments which are already completed u/s. 143(3). Accordingly, in proceeding u/s. 263, only those issues which can be taken by the Pr. CIT, which could have been taken up by the AO as per the ratio laid down by the Bombay High Court.

It is seen from the notice issued by your honour that no cogent material has been referred to establish that the assessment is erroneous and prejudicial to the interest of the revenue. In the case of Duncan Brothers reported in (209 ITR 44) it has been categorically held that an order of the Commissioner (u/s. 263 of the Act) not bringing any cogent material on record and based only on hypothesis is unsustainable.

In order to invoke section 263, two conditions are to be satisfied simultaneously i.e. the order passed by the AO has to be erroneous the order so passed should be prejudicial to the interest of the revenue. If any one of the conditions is not fulfilled, the order cannot be set aside u/s. 263. In the instant case, the AO has examined all the issues related to the determination of the income and has taken one of the possible views and therefore, the order passed by the AO cannot be considered as erroneous.

Where two views are possible and the AO has taken one view in the assessment order with which the CIT does not agree, the order cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the AO is unsustainable in Law. In this connection, attention is invited to the decision of the Supreme Court in the case of Malabar Industrial Co. Ltd. (243 ITR 83) wherein the Apex Court has held that –

‘A bare reading of this provision makes it clear that the pre-requisite to the exercise of jurisdiction by the Commissioner suo motto under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions,

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 10 namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent - if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue recourse cannot be had to S. 263(1) of the act. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the Section will be attracted. An incorrect assumption of facts or an incorrect application of Law will satisfy the requirements of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind.

The phrase prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interests of the Revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the AO accepting the same as such will be erroneous and prejudicial to the interest of the Revenue.

As held by Supreme Court in case of Malabar Industrial Co. Ltd where two different views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the AO is unsustainable in law. In view of the above since the order is not erroneous exercise of the jurisdiction by CIT under section 263 is not called for. The asessee also relies on the

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 11 decisions in the case of CIT v. Greenworld Corporation (314 ITR 81)(SC) and CIT v. Gokuldas Exports (333 ITR 214)(Kar).

The assessee would also like to relies on the decision of Hon'ble Gujarat High Court in the case of CIT v. Arvind Jewellers (2003)259 ITR 502 (Guj) which has followed the Supreme Court decision in case of Malabar Industrial Co. Ltd. It has been held by the High Court as under:

“Coming to the facts of the present case, it is the finding of fact given by the Tribunal that the assessee has produced relevant material and offered explanations in pursuance of the notices issued under Section 142(1) as well as Section 143(2) of the Act and after considering the materials and explanation, the Income- tax Officer has come to a definite conclusion. The Commissioner of Income-tax did not agree with the conclusion reached by the Income-tax Officer. Section 263 of the Act does not empower him to take action on these facts to arrive at the conclusion that the order passed by the Income-tax Officer is erroneous and prejudicial to the interests of the Revenue. Since the material was there on record and the said material was considered by the Income-tax Officer and a particular view was taken, the mere fact that a different view can be taken, should not be the basis for an action under Section 263 of the Act and it cannot be held to be justified. "

The Calcutta Tribunal has also in the case of Usha Martin Industries Ltd. (86 ITD 261) held that unless it can be established that the view taken by the AO is a perverse, or impossible view, Commissioner cannot invoke the revisionary powers conferred upon him by the statute under Section 263.

Further, it is submitted that the learned Pr.CIT has not given any finding as to how the issues raised by him have led to any loss in revenue. In the absence of any such finding, interference u1s.263 is not permitted as held in the case of Thangamaliagi reported in 259 ITR 129.

As already stated earlier, the assessment order has been

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 12 passed by the AO u/s. 153A of the Act. In such cases, the entire case has already been analyzed and investigated even by the Investigation team at the time of search and post search. The order passed by the AO u/s. 153A r.w.s. 143(3) has also been approved by the Addl. CIT as stated in the last para of the assessment order dated 31 March, 2014. Thus, it is submitted that when the assessment is made u/s. 153A cannot be subject to proceedings u/s. 263 of the Act.

Now coming to the merits of the issues raised by your honour, we submit as under:

The notice u/s. 263 sets out seven reasons for treating the assessment order as erroneous in so far as it is prejudicial to the interest of the revenue. The submissions seriatim are as under:

The show cause reads as under:

i) The AO had given a finding in para 10.3 of the assessment order that the cash transactions found as per seized material vide Annexure-1 to 14 [Party No. 17] of Sterling Biotech Limited, Sandesara, Vadodara and Armexure -1 to 21 [Party NO. 11] of PMT Machines Ltd, at 201B, Khatau Building, Fort, Mumbai were sourced from the unaccounted sale of bye-products by the assessee and allowed it to be telescoped against the undisclosed income without there being any nexus established between the generation of cash and its application. When the source of cash utilized in such transactions is not substantiated, the AO ought to have examined the applicability of provisions of section 69 of the Act which he had failed to do.

In this connection, it is submitted that during the course of assessment proceeding u/s 153A, the Assessing Officer (AO) had asked for the explanation in respect of various notings made in the loose papers/note books/pad found during the search carried out in various premises of the assessee and in the absence of such explanation, the AO had sought to consider these expenses as unexplained and added to the total income. The assessee had given a detailed explanation

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 13 for each and every page of the loose paper/documents/note book. These were examined by the AO. The AO had examined the applicability of provisions of Section 69 of the Act. However, after thoroughly considering the explanation of the assessee, the AO thought it fit not to invoke the said provision. Hence it is submitted that your contention that the Assessing Officer had not examined the applicability of Section 69 is not justified.

The show cause reads as under:

ii) Assessee's claim of deduction u/ s. 10 B of the Act on its export of Co-enzyme Q10 from Massar Plant was allowed by the AO without causing necessary enquiries . to ascertain the veracity of its claim that it is exporting the co-enzyme Q10 to UAE at an average price of Rs.2,55,000/- per kg as compared to the rate of Rs. 15,000 per kg at which it exported the same to France and the domestic sale price of Rs. 1,226/-per kg. The AO failed to take cognizance of the important fact that the department of Customs and Central Excise, Ahmedabad had dearly stated that during the relevant period i.e. 01.04.2005 to 31.03.2013 only two consignments of Co-enzyme Q10, of 50 kg each, valued at Rs. 15,48,816/- were exported to France by the assessee and that no other export has taken place in respect of this product, either by the assessee or any other party. No evidence in the form of export bills or export realization certificates was furnished by the assessee. The A.O. has accepted the claim of the assessee on the basis of confirmations filed in respect of a few parties in this regard and some of these confirmations are apparently signed by the same person.

In this connection, it is submitted that the issue raised is irrelevant as the assessee has started selling coenzyme Q10 from the financial year 2007-08 corresponding to assessment year 2008-09.

The show cause reads as under:

iii) As per the returns filed by the assessee huge

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 14 purchases were claimed to have been made from certain concerns stationed at Dubai. The Assessing Officer accepted the claim of the assessee that these purchases represents the purchases of the assessees trading division at UAE, without verifying the audit report of such offshore branch. In the annual returns filed by the assessee company also, no such segment reporting or results of offshore branch were shown.

In this connection, it is submitted that the assessee has a branch office in Dubai, UAE since 2006. The assessee had also obtained trading license as per the prevailing law of UAE. The said license authorized the assessee to carry out trading business in accordance with the valid laws and regulation thereof. The assessee has been trading in Gelatine/DCP within UAE. For the said trading the assessee has not sent any material from India nor imported any material from Dubai to India. During the course of assessment proceedings U/s 153A/143(3), the complete details of such purchase and sales were submitted. The Assessing officer had specifically called for the confirmation from the customers as well as supplier for Dubai trading which were duly submitted by the assessee company. The assessee had also filed copies of account of all these parties during the course of assessment proceeding U/s 153A of the Act. Thus the AO has verified the transactions which were carried out in Dubai. Moreover, no incriminating material has been found in this regard during the search. The show cause is absolutely silent as to how there is a loss of revenue in the instant case.

The show cause reads as under:

iv) During the course of search at the premises 202, Suvidhi Apartments Goregaon (West) owned by Shri Rarnani Iyer, Director MIs Sterling International Ltd., (as per annexure I, part of core documents) a list of 151 entities with their seals and other documentary evidence were found and seized. A similar list of 16 entities was also found from the premises at 4th floor, Chavda

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 15 Commercial Centre, Link road, Malad (W), Mumbai which is also part of core documents (Annexure l - pages 80 to 81). In these companies Shri. Chetan Sandesara has substantial interest. These companies form a part of the aforesaid 151 companies. The C.A. of the group, Shri H. S. Hathi stated that these are paper companies, used by the assessee. However, later on during the course of assessment proceedings, it was claimed that most of these companies are clients of Shri H.S. Haathi with which the assessee did not have any nexus. Despite such contradictory statements, the A.O. accepted the assessee's claim without any verification.

In this connection, it is submitted that the list of 151 entities (which also includes 16 entities found from the premises at 4th floor, Chavda Commercial Centre, Link road, Malad (W), Murnbai) found during the search were the clients of H.S. Hathi. As in the statements recorded on 2810612011, Shri H. S. Hathi was not confronted with the said list and hence the question of his stating that these are paper entities does not arise. There was no contradictory statements as contended by your honour. Moreover, except for the list, no incriminating documents have been found.

The show cause reads as under:

v) During the course of search, certain documents were found and seized, for instance material found and seized from the premises of SBL at BKC Office Mumbai (Annexure A.9) indicating investment in off-shore entities at locations like Nigeria, USA and Dubai etc. The AO has not caused any verification in respect of these transactions entered into with off shore entities by the assessee.

In this connection, it is submitted that the assessee has never made investment in any offshore entities at locations like Nigeria, USA or Dubai. However, the assessee had made small investments of around Rs. 11 lakhs in three offshore entities. The details of the said investment together with

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 16 names of entities were submitted during the course of the assessment proceedings u/s. 153A of the Act. Moreover, no incriminating material has been found in this regard during the search The show cause is absolutely silent as to how there is a loss of revenue in the instant case.

The show cause reads as under:

vi) During the course of search, 3 factory premises of the assessee at Masar, at Karkhadi and at Ooty were covered and certain documents were found and seized. During Assessment proceedings, an estimation of bye- products and wastes from the data of bone consumption from the Assessee's data has been made to quantify the various bye-product ratios, on the basis of information available on a website “Technogelconsultant.com”. The AO has erred in presuming that since the sale of gelatin is mostly to MNCs.

In this connection, it is submitted that during the course of the assessment proceedings, the AO had called for a technical note on the manufacturing process. The assessee had submitted the stage-wise manufacturing process right from purchase of raw material viz Bovine Bones from Bone Miller, crushing, demineralization, liming, deliming, extraction, conductivity, till the manufacture of final products namely gelatine. The DCP is generated at the stage of Bone acidulation itself. The assessee company had also submitted month-wise quantity of Bone charging, gelatine production, DCP production, recovery percentage, etc at each stage. The assessee company had also submitted last page of RG-1 register of gelatine to substantiate the production of Gelatin for all the years. The Assessing Officer had thoroughly examined and verified these details / documents before coming to the conclusion that the waste was to the extent of 5% and not 30% as claimed by the assessee. Hence it cannot be said that the conclusion of the AO was merely based on presumption, though even the said conclusion of the AO is devoid of any merits. Moreover, no incriminating material has been found in this regard during the search. The show cause is absolutely silent as to how there is a loss of revenue in the instant case.

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 17 The show cause reads as under:

vii) During the course of search, it was found that 18 entities of the Sterling Group have subscribed to the Share Capital of SBL to the tune of Rs. 45 crores. It was admitted by Shri H S Hathi in his statement during search that this was a mere paper entry and the money actually belongs to the assessee. This issue has also not been properly examined by the A.O.

In this connection, it is submitted that during the search a document containing share application money aggregating to Rs. 45 crores received from 18 companies was found. It is alleged that though Shri H.S. Hathi was admitted that this is merely a paper entry, the same has not been properly examined by the AO. In this connection, it is respectfully submitted that entities are promoters of the assessee company. The share application moneys were received in the financial years 2001-02 and 2002-03. As the shares were not allotted, the said share application moneys were returned to the applicant companies in December, 2006. The AO had called for the details and explanation regarding this share application money which were duly submitted and the aforesaid explanation was also submitted. Hence it is submitted that this issue has also been duly examined by the AO.

In view of the above, it is submitted that the order dated 31st March, 2014 passed by the AO is not erroneous or prejudicial to the interest of the revenue and hence we request your honour to kindly drop the proceedings initiated u/s.263 of the Act and oblige."

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 18 contention before CIT. It has also been contended that no incriminating material has been referred in the show cause notice. It was also argument of assessee company that the assessment order cannot be held as erroneous and prejudicial when two views are possible and Assessing Officer has adopted one of the possible views.

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 19 cause notice also clearly indicates loss of revenue due to lack of proper enquiries by the Assessing Officer.

(a) The order is passed without making inquiries or verification which should have been made; (b)the order is passed allowing any relief without inquiring into the claim; (c)the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d)the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.”

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 20 found to be baseless by CIT and same were rejected.

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 21 before CIT has been that it had given explanation for each and every page of the loose papers/documents/note books and the same had been examined by the Assessing Officer. In this regard, emphasis was drawn towards para 9.1 of the assessment order which reads as under:-

"In the course of discussions with C.A. Shri H. S. Hathi representing the group and also with Shri Nitin Sandesara, the key person, they have taken a stand that these documents have nothing to do with them and that if an employee is indulging in any cash dealings on his own behalf, the company from whose premises such documents have been seized, cannot be held responsible."

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 22 erroneous and prejudicial to the interest of revenue.

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 23 factory and that of the President and CEO of the assessee, Shri Deepak Korpal, being in-charge of manufacturing and Operations at Vadodara factory manufacturing Gelatin. In their statements u/s 131 recorded in the course of survey at the factory premises they have submitted in detail the manufacturing process being carried out at these factories.

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 24 evidence of production of these by-products for each of the assessment years under consideration. These by- products claimed as wastage are important input ingredients for Poultry feed and as Manure/Fertilizer as well as in glue industry. You are herewith also required to give details of rates for valuing production of these by- products.

5.1 During the course of search action u/s 132 at the business premises of M/s Sterling Biotech Ltd., at Sandesara Estate Atladara, Old Padra Road, Vadodara, various loose paper files and documents were found and seized as per Anriexure-A-1 to A-H to Panchanama dated 29.6.2011. Copies of these documents have already been handed over to you. These documents contain day to day financial transactions under taken by the assessee company and part of these transactions are noted in cash. The transactions are primarily in nature of expenses incurred. You are requested to furnish evidences to show that each of the transactions noted in seized Annexure A-1 to A-14 are recorded in your regular books of accounts failing which the cash expenses revealed from these evidences will be considered as unexplained and added to your total income by treating it as undisclosed income.

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 25 Sterling Biotech Ltd. were kept at that premises. It is pertinent to mention that during course of survey action at this premises the statement of oath was also recorded from Shri Ashok C. Gandhi. Accounts Officer on 28- 06.2011 wherein he has stated that some of these documents pertain to M/s Sterling Biotech Ltd as he is handling cash transactions for and on behalf of M/s Sterling Biotech Ltd., In view of the above facts you are requested to furnish evidences to Show that the transactions noted in impounded Annexure A-1 to A-23 and claimed to be pertaining to M/s Sterling Biotech Ltd. are recorded in your regular books of accounts failing which the cash expenses revealed from these evidences will be considered as unexplained and added to your total income by treating it as undisclosed income.

“However, without prejudice we have to state that one of the aspect on which the details have been furnished is regarding the cash income generated on account of unaccounted sales DCP and DCP lumps and on account of sale of By-products. Though none of the cash transactions belongs to us but in case if there is any transactions which are considered to be of the company thereby causing any effect on the undisclosed income of the company, it is our request that the said cash should be first adjusted from the cash sale or cash income, based on the addition made. Any cash expenses if considered as belonging to the company, then this cash outgo should be first considered as the application of alleged cash income and any impact will arise

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 26 only if the cash outgo is more than the cash income. The alleged cash income from each of the years is far more than the cash outgo. Therefore, if any cash expenditure is considered as taxable in the hands of the company the same should be after the application of alleged income.”

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 27 observation of Assessing Officer is reproduced as under:

“10.3 Both the set of documents evidencing cash transactions have been analyzed in great details and an exercise was undertaken, where assessee's representative was associated, of working out the cash impact on a day to day basis thereby giving the cash incidence on a year to year basis. This exercise was done keeping in mind that in making addition to income on account of undisclosed sales of DCP and other by-products, the source of cash has been identified. Therefore, what remains to be analyzed is the outgo of cash evidenced by these documents, either in the form of expenditure or in any other manner. The position of outgo of cash on a yearly basis is worked out in the Annexure to this order forming an integral part of this order. In that table, summary of each document under seizure has been given. Further, in the table coming up in succeeding paragraph, the same working has been given year wise, the cash outgo for all the documents taken together, their impact for each year separately. At the same time, the year wise position of estimated cash generated, being the income on account of undisclosed sales, is taken in a parallel column to ascertain whether cash generated is sufficient to explain cash outgo. In crux, as cash flow statement has been prepared.”

10.3 The Cash Flow

A.Y. F.Y. Opening Incoming Cash Cash Outgo Balance Balance being Available Undisclose d Sales 2006-07 2005-06 - 11,08,53,732 11,08,53,732 11,20,000 10,97,33,732 2007-08 2006-07 10,97,33,732 12,07,20,142 23,04,53,874 1,85,21,000 21,19,32,874 2008-09 2007-08 21,19,32,874 15,37,83,679 36,57,16,553 4,49,45,000 32,07,71,553 2009-10 2008-09 32,07,71,553 16,33,52,586 48,41,24,139 9,53,59,000 38,87.65,139 2010-11 2009-10 38,87,65,139 17,36,29,050 56,23,94,189 5.80,47,000 50,43,47,189 2011-12 2010-11 50,43,47,189 18,72.95,867 69,16,43,056 22,43,59,000 46,72,84,056 2012-13 2011-12 46,72,84,056 19,39,03,543 66,11,87,599 5,17,14,000 60,94,73,599

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 28 that Hon’ble Bombay High Court in case of CIT vs. Jawanmal Gemaji Gandhi (1985) 151 ITR 353 (Bom) held that secret profits or undisclosed income of an assessee earned in an earlier assessment year can constitute a fund, though concealed, from which assessee may draw subsequently. In the instant case, assessee acquired gold during the later half of assessment year and it could be that the undisclosed income earned in that very year constituted a fund from which the asset was acquired. Though, assessee did not contend before the ITO that source for the acquisition of gold was the addition made by ITO to the turnover, yet it was assessee’s case before the ITO that the gold had been legitimately acquired. Assessee could not then have known that the ITO would make an addition to the income on the basis of an addition to the turnover. Even before the Tribunal, assessee had adopted this stand but the assessee had contended in alternative that the source of gold could be assumed to have come out of intangible additions on account of increased turnover. In this background, it was held that Tribunal was held justified in deleting the addition of the amount as income from undisclosed sources. This ratio helps the facts of assessee as discussed above. Thus, the ratio of Jawanmal Gemaji Gandhi (supra) supports the proposition of applicability of telescopy as requested by the assessee.

“The phrase “prejudicial to the interests of the Revenue” in

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 29 section 263 of the Income-tax Act, 1961, has to be read in conjunction with the expression “erroneous” order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when the Assessing Officer adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the Assessing Officer is unsustainable in law.”

It shows that Assessing Officer can adopt one possible view as has been shown by Assessing Officer in this case. In such a situation, order of the Assessing Officer on the issue cannot be said to be erroneous and prejudicial to the interest of revenue.

“The Commissioner had the entire records before him and also the assertion of the assessee that none of the expenses comprised in Rs.9,77,010/- was relatable to Unit II. Under these circumstances, the Commissioner has chosen to merely set aside the issue without first establishing any error in the assessment made by the Assessing Officer on this count. It is also trite law that before an order can be termed as erroneous, it has to be established as to what is the error of fact or law that is sought to be made out by the Commissioner. Infact, the Commissioner is expected to examine the record and furnish his opinion precisely to justify the provisions of section 263 of the Act.”

In this background, ld. Authorized Representative submitted that CIT cannot choose to set aside the issue without first establishing any error in the assessment order made by the

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 30 Assessing Officer on this count. It is also trite law that before an order could be termed as erroneous, it has to be established as to what is the error of fact or law that is sought to be made out by the Commissioner. In this background, we are of the view that the Commissioner is expected to examine the record and arrive at his opinion to justify the provision of Section 263 of the Act which has not been done in this case, which is not justified to invoke the provisions of Section 263 of the Act. Thus, CIT is supposed to find the error in the order of Assessing Officer and he is not supposed to set aside the matter to Assessing Officer for finding of the same. This approach is not justified as held by Hon’ble Supreme Court in case of CIT vs. Max India Ltd. (supra).

“Ld. CIT has not disputed this contention of the assessee raised before him, but has simply set aside the assessment to the AO to examine it afresh. Such an exercise by the CIT cannot be appreciated, firstly, he should give specific finding as to why such a contention raised by the assessee is not correct or divorced from the facts and material records and secondly, how on the facts the order of the AO is actually erroneous and also prejudicial to the interest of the revenue. Simply mentioning the phrase in the order that the “assessment order is erroneous and so far as it is prejudicial to the interest of the revenue” is not sufficient. The Ld. CIT after examining the records and the contentions of the assessee before him, has to give a specific finding and then he can set aside the assessment order, which here in this case has not been done. Thus, we hold that, the impugned order passed by CIT in the section 263 cancelling the

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 31 assessment / setting aside the assessment for examination of exemption u/s 54F cannot be sustained as the CIT has duly examined the issue during the course of the assessment proceedings and Ld. CIT under the scope of section 263 cannot be said to be sitting as a reviewing authority and cancel the assessment without pointing out how the assessment order is erroneous or prejudicial to the interest of the revenue. Thus, we quash the impugned order passed by the CIT and allow the grounds raised by the assessee.

Again Commissioner has not given any comment on the argument of ld. Authorized Representative on the issue before him but he is simply setting aside the assessment order to examine afresh. Such exercise of CIT cannot be appreciated because he should give specific finding as to why such arguments raised by assessee was not correct or divorced from the facts and material records and secondly, how on the facts the order of the Assessing Officer was actually erroneous and also as to be prejudicial to the interest of the revenue. Simply mentioning the fact that assessment order is erroneous and so far as it is prejudicial to the interest of the revenue, is not sufficient. CIT having examined the records and the contentions of the assessee before him, has to give a specific finding only then he can set aside the assessment order, which has not been done in this case before us. So, the impugned order passed by CIT(A) u/s. 263 of the Act setting aside the assessment cannot be sustained as the Assessing Officer has duly examined the issue during the course of the assessment proceedings. CIT under the provisions of Section 263 of the Act cannot be said to be sitting as a reviewing authority and cancel the assessment without pointing out how the assessment order

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 32 is erroneous or prejudicial to the interest of the revenue.

“19. The law interpreted by the High Courts makes it clear that the Ld Pr. CIT, before holding an order to be erroneous, should have conducted necessary enquiries or verification in order to show that the finding given by the assessing officer is erroneous, the Ld Pr. CIT should have shown that the view taken by the AO is unsustainable in law. In the instant case, the Ld Pr. CIT has failed to do so and has simply expressed the view that the assessing officer should have conducted enquiry in a particular manner as desired by him. Such a course of action of the Ld Pr. CIT is not in accordance with the mandate of the provisions of sec. 263 of the Act. The Ld Pr. CIT has taken support of the newly inserted Explanation 2(a) to sec. 263 of the Act. Even though there is a doubt as to whether the said explanation, which was inserted by Finance Act 2015 w.e.f. 1.4.2015, would be applicable to the year under consideration, yet we are of the view that the said Explanation cannot be said to have over ridden the law interpreted by Hon’ble Delhi High Court, referred above. If that be the case, then the Ld Pr. CIT can find fault with each and every assessment order, without conducting any enquiry or verification in order to establish that the assessment order is not sustainable in law and order for revision. He can also force the AO to conduct the enquiries in the manner preferred by Ld Pr. CIT, thus prejudicing the independent application of mind of the AO. Definitely, that could not be the intention of the legislature in inserting Explanation 2 to sec. 263 of the Act, since it would lead to unending litigations and there would not be any point of finality in the legal proceedings. The Hon’ble Supreme Court has held in the case of Parashuram Pottery Works Co. Ltd Vs. ITO (1977)(106 ITR 1) that there must be a point of finality in all legal proceedings and the stale issues should not be reactivitated beyond a particular

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 33 stage and the lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity.

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 34 by the Assessing Officer. However, there were enough correspondence in the matter at the time of assessment proceedings which would clearly reveal that Assessing Officer had applied his mind and caused necessary enquiry.

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 35 following same reasoning, this issue in all these years is decided in favour of assessee. It is pertinent to mention here that all case laws relied by parties have been taken into consideration, though same may not be specifically mentioned.

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 36 26.1 In A.Y. 2008-09 on this issue, CIT further observed that claim of deduction u/s. l0B of the Act on its export of Co- enzyme Q-10 from Masar Plant, allowed by the Assessing Officer without causing necessary enquiry to ascertain the veracity of assessee's claim. In this regard, assessee claimed export of Q-10 which was claimed manufactured in its Masar Plant. During course of search proceedings on 28.06.2011, it was admitted by one Shri Santosh Bhaktpratap, the Deputy General Manager present at the premises that the plant at Masar along with the land was acquired from Torrent group in the year 2006. It was further stated by him that the entire machinery acquired from Torrent were being used in production facility by assessee after getting them cleaned and refurnished. Regarding new machinery installed if any, it was submitted by him that as per Form No. ER 7 and Form No. 14 IO, very limited items of capital assets were purchased. However, during course of assessment proceedings, it was claimed by assessee that the machinery purchased from Torrent was not being used for production of Q-10 on which deduction u/s.10B of the Act was being claimed by assessee company. According to assessee, it has exported majority of Q- 10 to a lone party, namely Richmond Overseas P. Ltd. at Dubai. The cost of production of Q10 as per assessee's books was Rs. 12,341/- per kg. The average domestic sale was at a price of Rs. 19,973/- only whereas assessee has claimed that it had exported to Richmond Overseas P. Ltd. @ Rs.2,25,686/- per kg. As per the information received from the Custom and Central Excise authorities at Ahmedabad, assessee has

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 37 exported a total of 100 kg of Q-10 only to a party named Capsugel France @ Rs. 13,000/- per kg for one consignment of 50 kg and at the rate of Rs.13,500/- per kg for another consignment of 50 kg in F.Y.2010-11. The Customs and Central Excise authorities further confirmed that between the period F.Y. 2005-06 to F.Y. 2013-14, no other party has exported Q-l0 and assessee has also not exported any consignment other than these two lots during the relevant period from the Ahmedabad Port to any other country also.

26.2 The abnormally high rate at which assessee had claimed to have exported the product Q-10 has not been examined by Assessing Officer with reference to the appraised value. No proof of export has been brought on record by the Assessing Officer. No documentary evidence regarding the custom clearance, assessed value and or the proof of Foreign Inward Remittance Certificate in respect of the said export sale has been gathered by the Assessing Officer. Further, blank letter heads of Richmond Overseas P. Ltd., UAE were found and seized from the premises of assessee group during the course of search, which ought to have raised reasonable doubts in the mind of Assessing Officer before allowing substantial sums as deduction u/s. l0B of the Act. Therefore, the Assessing Officer had clearly failed to carry out necessary verifications and inquiries into the claim. Thus, the order of Assessing Officer was found clearly hit by Clause (b) of newly inserted Explanation 2 below sub-section (1) of Section 263 of the Act.

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 38 26.3 Before us, the stand of assessee has been that Assessing Officer had issued notice dated 0508.2013 calling for Form 14 IO which is placed at page nos. 33 to 39. Assessee had purchased land, building and machineries from Torrent Gujarat biotech Limited (hereinafter called as “TGBL”) in the month of March, 2006. Assessee used part of land & building purchased from TGBL to manufacture pharma products like Chloro Benzoic Acid, dichloro Benzoic Acid, Imatinib Mesylate etc. Apart from the above, assessee had started a separate plant for the purpose of manufacturing of Coenzyme Q-10 for which the production and sale started in the month of March 2008. This plant was set up with the help of brand new plant and machinery partly imported from various countries. This was registered as 100% EOU as it was totally new plant with new plant and machinery. Assessee only used part of land and building earlier acquired from TGBL. Further machinery purchased from TGBL are such that it could be used only for manufacturing of other pharma products but it cannot be used for manufacturing coenzyme Q10 product. Certificates obtained from Chartered Engineer were also submitted during assessment proceedings. Submission made of Form 14 IO and other details of EOU Unit are placed at page nos. 40 to 50. Form 14 IO is for imported capital goods for production of Co- Q10. Santosh Bhaktpratap stated that we are using old machineries but no where he has mentioned that old machineries are used for manufacturing Co-enzyme Q 10 as detailed on page nos. 17 to 32 of the paper book. In response to various claims made by Assessing Officer, assessee had

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 39 made submissions dated 24.12.2013 in regard to usage of plant purchased from Torrent wherein installation Certificate was also submitted. Assessee submitted the various permission obtained from Kandla Economic Zone of Ministry of Commerce & Industry, copies of invoices of new machineries obtained and installed in EOU Unit of Masar Plant for manufacturing Co-enzyme Q10 as detailed on page nos.51 to 173. In this background, it was submitted that Assessing Officer has made enquiries for the said subject matter and all the replies with documentary evidences were placed on record. If assessee’s explanation was found to be correct, matter cannot be set aside by CIT. It is a matter of record that Assessing Officer has made various enquiries and in reply, assessee submitted on 24.12.2013 an explanation that exports were made to Capsugel France Party on trial basis to keep long relation with them. Copy of the same is placed at page nos.174 to 177. Further, it was submitted that Assessing Officer enquired about the rate difference between sale in domestic market and international market during assessment proceedings. In response to the query of Assessing Officer, assessee submitted an explanation on 19.02.2014 that the export quality that of Co-enzyme Q10 was different from the product sold in the domestic market. Production process was also submitted and inter alia stated that in domestic market, Co- Q10 sold was of EP grade and that for exports was USP grade as detailed on page nos.178 to 180. Assessee also submitted extracts of website for the international prices of Co- enzyme Q10 prevailing in that period were placed on page

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 40 nos.181-182 to substantiate the amount of transaction. It shows that Assessing Officer has made all relevant enquiry. In this regard, same was properly responded by assessee as discussed above.

26.4 We find that enquiry with regard to new machinery was made by Assessing Officer at assessment stage. Assessee has started manufacturing of Co-enzyme Q 10 with the help of newly imported Machinery. It was made clear before Assessing Officer that this unit was registered as 100% EOU being new one. Assessee has used part of land and building earlier acquired from TGBL. The machinery purchased from TGBL are such that it could be used only for manufacturing of other pharma product, but it could not be used for manufacturing of Co-enzyme Q 10 product. In this regard, certificates obtained from Chartered Engineer were also submitted during assessment proceedings. A submission made of Form 14 IO and the details of EOU have been placed by assessee at page nos. 40 to 50, certified to be filed before Assessing officer at relevant point of time. Form 14 IO is for imported capital goods for production of Co-enzyme Q 10. Above discussion shows that said Santosh Bhaktpratap stated that we are using old machinery but no where he mentioned that old machinery was being used for manufacturing Co-enzyme Q 10. CIT misunderstood these factual aspect while invoking provisions of Section 263 of the Act. In fact, all these facts were given to Assessing Officer at assessment stage. Assessee had already submitted that various permissions obtained from Kandla

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 41 Economic Zone of Ministry of Commerce & Industries. The copies of invoices of new machineries obtained and installed in EOU Unit of Masar Plant for manufacturing Co-enzyme Q 10 have been placed on page nos. 51 to 173, certified to be before Assessing Officer at relevant point of time. Assessing Officer has made relevant enquiries in this regard, same were replied on behalf of assessee. Even with regard to export, enquiries were made which were replied by assessee. Even rate difference of domestic sale and export was stated before Assessing Officer inter alia submitting that there was a big quality difference in both sales i.e. domestic and foreign with regard to one consignment to France at lower rate it was not sale but sample sale in which amount is not material. It was done on minimum price just for the sake of custom clearance. Assessee can not show zero amount of sale of these sample, so nominal cost was taken for custom purpose. In such a situation, provisions of Section 263 of the Act is not justified and same is set aside. Similar issue arose in A.Y. 2008-09, 2009-10, 2010-11, 2011-12 & 2012-13. Facts being similar so following same reasoning, we set aside the order of CIT on this issue in all these years.

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 42 or results of offshore branch were shown. In this regard, the stand of assessee has been that assessee has a branch office in Dubai, UAE, since 2006 and assessee is carrying out trading business of Gelatin/DCP in UAE in accordance with the valid laws and regulations. It was claimed that in respect of the said trading activity, assessee has neither sent any material from India nor imported any material from Dubai to India and It was claimed that the Assessing Officer has verified all these transactions and no incriminating material has been found in this regard during search. According to CIT, no segment reporting has been done while finalizing the audited report of the assessee company. According to him, certified audited results of offshore branch were not verified by the Assessing Officer. CIT observed that Assessing Officer ought to have called for the audited accounts of the offshore branch of the assessee company for verification of the assessee’s claim in this regard which he has failed to do.

27.1 In this regard, assessee drew our attention to the page no.25 of paper book no.I i.e. letter dated 19.02.2014 addressed to Deputy Commissioner inter alia which reads as under:

“3) We are enclosing here with Trading, P&L account of Dubai branch of Sterling Biotech Limited for the year ended from 31.03.2006 to 31.03.2011 as per your requirement.”

So, in this background, it was submitted that all details with regards to transactions in question were filed before the Assessing Officer at relevant point of time. Ld. Authorized

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 43 Representative took us to the relevant details filed to the paper book as on page no.27 and also drew our attention to page no.35 letter dated 05.03.2014 addressed to concerned Assessing Officer regarding information called for in the case of Sterling Biotech Limited which reads as under: “2) Confirmations were called from the parties with whom transactions i.e. sales/purchases carried out at Dubai Branch. Some of the parties responded on our request and provided their confirmations which are enclosed to this letter.”

27.2 Thus, we find that confirmations were called from parties with whom transactions of sale and purchase carried out. Thus, Assessing Officer called for information and same were responded at relevant point of time with regards to the transactions carried out at Dubai. For the example, our attention was drawn to page no.36 of paper book I, letter dated 15th February, 2014 addressed to assessee by concerned party i.e. Trading Inc. Similarly attention drawn to the letter of one Blue Mark Mercantile Ltd. dated 26th February, 2014 addressed to assessee regarding confirmation of accounts of Sterling Biotech Limited. This shows that Assessing Officer has examined the transactions of assessee at Dubai. In this situation, it cannot be said that no details were verified by the assessee regarding off shore transactions. Moreover, Assessing Officer has called for audited accounts of offshore branch of assessee company for verification of assessee’s claim in this regard. In such situation, CIT was not justified in invoking provisions of Section 263 of the Act with regards to the transactions at Dubai as discussed above. So, same is set

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 44 aside on this issue. Similar issue arose in A.Ys. 2007-08 to 2012-13. Facts being similar so following same reasoning, we are not inclined to concur with the finding of CIT who was not justified to set aside the order of Assessing Officer. Accordingly, the order of CIT on this issue is set aside.

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 45 facts given above. So, he invoked provisions of Section 263 of the Act on this issue as well.

28.1 In this regard, ld. Authorized Representative drew our attention to page no.9 of paper book II, having statement of Shri Ramani Iyer, Director of assessee group companies and specific attention was also drawn to the answer to question no.7 inter alia said Ramani Iyer stated as under:

“Q.7. You have stated that you have a flat at Suvidhi apartment (flat no.202). Please state how your are utilizing it?

Ans. No one is staying in the above flat, but I have given that flat free of rent to Sterling Biotech Group for their use. But there is no lease or rental agreement to prove that. They are using that premises for keeping the records of their various companies. Though the company is using it, the keys are available with me in my house.”

It shows that Ramani Iyer has not stated in clear words that said office is being used by assessee group companies, which is evident from the answer of question no.8 which reads as under: “Q.8. Will you please tell what kind of records the Sterling group is keeping in your above flat?

Ans. I don’t know clearly but records belongs to various companies of Sterling Biotech Group are kept there.”

Thus, again Ramani Iyer was not certain what kind of files are there in said office.

28.2 Ld. Authorized Representative also drew out attention to

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 46 page no.1 regarding 18 out of 151 companies group, the details of company was discussed by Assessing Officer whereby he was satisfied on this issue. In this situation, the direction of CIT to again verify 151 entities was not justified. However, the same have been clearly verified as mentioned in page no.1 of paper book II which addressed to Asstt. Commissioner of Income Tax inter alia explaining with regard to documents found of 151 companies in the case of search action conducted on Sterling Biotech Limited Group dated 24.12.2013, wherein it was stated that:

“With regard to above and in addition to the details submitted as per the annexure to the notice u/s.142(1) for the block period from A.Y. 2006-07 to A.Y. 2011-12, we are submitting here with the further explanation on the subject matter as discussed and questioned by you in the hearing.

In this regard we submit that these are all the details of the companies belonging to the clients of M/s H. S. Hathi & Co., Chartered Accountants.

Some of the Companies belong to our promoter group companies and some of them belong to the clients of M/s H.S. Hathi & Co., Chartered Accountants.

As office of M/s H.S. Hathi & Co. was under renovation Mr. Hemant Hathi, Partner of M/s. H. S. Hathi & Co., has requested to Mr. Chetan Sandesara to make an accommodation for keeping the files and other records, for which Mr. Chetan Sandesara has taken a flat of Mr. Ramani Iyer to keep the above documents on temporary basis.

Sandesara group along with its promoter companies are being the clients of H.S. Hathi & Co., there were Memorandum and Articles of other companies were also found along with our group concerns in the premises of M. Ramani iyer which all put together were 151 companies in the list.

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 47 With regard to transactions of Sterling Biotech Limited with other companies we state that we do have any transaction neither in sales nor in purchases. With regard to the group companies we state that these being investing companies there are certain dividend payments from our company group companies may appear which has been properly accounted and filed the income tax return regular basis.

On verification from M/s. H. S. Haul & Co. we came to know that there are certain companies which are in nascent stage and some of the companies do not have any business activities and they have also informed us wherever the business activities are there in those companies they are regular in filing the tax returns.

We have enclosed the detailed names of the companies along with their addresses and PAN for you records and reference (Annexure 6A-1).

Annexure Details 6A-1 Statement showing the details of the 151 companies along with their PAN, Directors and Income Tax Jurisdiction details.

Keeping above facts, we submit that there is no connection of Sterling Biotech Limited with that of at the 151 companies found at the flat of Mr. Ramani Iyer except with group companies as mentioned above. We hereby confirm that these companies are not operated by Sterling Biotech Limited for their benefit as all companies other then promoter companies are independent companies and are regular in filing their respective tax returns.”

28.3 It shows that assessee in certain situation has given its premises to M/s. H. S. Hathi & Co., Chartered Accountants, to use this premise to run its office because of renovation in its office 18 out of 151 details belongs to assessee group and rest belongs to M/s. H. S. Hathi & Co’s. clients as mentioned above. Thus, this clear cut factual finding arrived by Assessing Officer

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 48 at relevant point of time. The assessee had submitted name, address, PAN number, details of Jurisdictional Officers in respect of 151 parties. In such a situation, CIT was not justified in giving direction to verify the details of all 151 companies assuming the same to be belonging to the assessee group.

28.4 As regards to issue of 18 entities as raised in ground no.9 by assessee from which subscription to the share capital of assessee company to the tune of Rs.45 crore was admitted as merely a paper entry by Shri H.S. Hathi. It was claimed by assessee that share application money was returned in December, 2006. CIT observed that these companies which were reportedly belonging to the promoter group had invested in the assessee company which was admitted as a paper entry by the in house C.A. CIT has ignored these aspects. Ld. Authorized Representative drew our attention to Annexure-2, notice u/s.142(1) of the Act dated 05.08.2013 and attention drawn towards question nos.1, 2 & 3 which reads as under:

“Q.1 During the course of search it is found that M/s Sterling Group has subscribed to share capital of S.B.L. in F.Y. 2005-06. The list of the name of the Company of the 18 concerns are listed below.

Sr.No. Name of the Company 1. Aditi Hospitals Pvt. Ltd. 2. Anula Properties P.Ltd. 3. Blue Mark Mercantile Ltd. 4. Bullworth Investrade P. Ltd. 5. Doral Trading P. Ltd. 6. Helicopter Services P. Ltd. 7. Jaico Textiles P Ltd.

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 49 8. Jangpriya Investments P. Ltd. 9. Modi Capital Finance (India)Ltd. 10. Natasha Investment Co. Pvt. Ltd. 11. Paysan Publishers Pvt. Ltd. 12. Prabal Investrade P.Ltd. 13. Puja Aqua Farms P. Ltd. 14. Richmond Investments P. Ltd.

Q.2 You are requested to give the details of the PAN no., Memorandum of Association and Article of Association of the above mentioned 18concern.

Q.3 You are requested to give the bank statement for the last 6 months from the date of credit of share capital to SBL of the above mentioned 18 concern and also the bank statement after 6 months from credit of share capital to SBL.”

Further attention was drawn to page no.71 to 73 of the paper book II wherein it contains the reply of the assessee to the concerned Assistant Commissioner of Income Tax dated 24.12.2013, with regard to share application money of Rs.45 crores by Sterling Biotech Limited and refunded back afterwards.

“With regard to above and in addition to the details submitted as per the annexure to the notice u/s. 142(1) for the block period from A.Y. 2006-07 to A.Y. 2011-12, we are submitting here with the further explanation on the subject matter as discussed and questioned by you in the hearing.

In this regard we submit that pursuant to the requirement of term lending banks for equity contribution, the Promoters have to bring in additional Capital towards company's margin and accordingly the company has invited Share Application Forms from our 18 Group Companies to the tune of 45 Cr. Copy of sanction letter received from term lending bank

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 50 highlighting the condition for capital expansion is enclosed for your perusal (Annexure – 1 A-7).

The above companies have applied for the shares along with share application form. All 18 companies have paid the share application money of Rs. 2.50 Crores each to Sterling Biotech Limited prior to 31.03.2003 which is not in the purview of the block assessment. Further we are not keeping any records related to the 18 companies for the year ended 31.03.2003 or prior as it is 10 years old record, which is not traceable. Sterling Biotech Limited being listed companies, we have enclosed herewith the balance sheet of Sterling Biotech Limited showing the share application money as Rs. 45Crores in the year ending 31.03.2003 (Annexure - 1A-6). Further we enclose herewith board resolution for receiving share application money dated 30th April, 2005 (Annexure - 1A-1).

However due to management decision in the F.Y. ended 31.03.2007 it was decided to refund the share application money back to all 18 companies instead of allotment of equity shares. Copy of the Board resolution passed at the meeting of the board of directors held on 15th November, 2006 for refund of the said money is enclosed herewith (Annexure 1A - 2). sterling Biotech Limited has refunded the application money to the concerned applicant companies through account payee cheques. We have herewith enclosed the copies Share Application Forms given by applicant companies and a copies of Bank statements of our company and the applicant companies highlighting the payments made/received for your kind perusal and records (Annexure - 1A-4). Further we are enclosing herewith balance sheet of Sterling Biotech Limited for the year ended 31.03.2007 showing effect of refund of share application money (Annexure 1A-5).

We have also enclosed the balance sheet, ITR acknowledgements copies of all the 18 applicant companies for your reference and records.

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 51

Annexure Details 1 A-1 Copy of Board Resolution for approval of share application 1 A-2 Copy of Board Resolution for refund of share application 1 A-3 Details of Promoters Companies with date of Incorporation 1 A-4 Copies of Share Application Forms, Bank statements of the applicant companies, Balance sheet of the applicant companies and I.T.R. acknowledgement copies of the applicant companies 1 A-5 Copy of Balance sheet and Schedule of M/s. Sterling Biotech Ltd showing share application money refunded in the year ended 31st March, 2007 1 A-6 Copies of Balance sheet of M/s Sterling Biotech Ltd of March, 2003 showing share application money received by the company 1 A-7 Copy of sanction letter received from term lending bank highlighting the condition for capital expansion

In view of the above submissions, it is pertinent that these 18 companies have acquired funds prior to March, 2003 and they have invested these amounts as a share application money in March, 2003 in M/s Sterling Biotech Ltd. As the period is of 10 years old we are not in a position to submit the documents related to 18 companies as mentioned above but we are submitting the board resolution passed at the meeting of directors of Sterling Biotech Limited for receiving Share application money along with balance sheet of Sterling Biotech Limited for the year ended 31.03.2003 reflecting Share Application Money received to the tune of Rs. 45 Crores.

Further going ahead in March' 2007 the entire amount was refunded back to all 18 companies. The copies of balance sheet reflecting the transactions is been submitted and also the income tax returns of these

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 52 applicant companies is also submitted for your perusal. We have also enclosed copy of bank statement of 18 companies reflecting the transaction of money returned by Sterling Biotech Limited along with the copies of bank statement of Sterling Biotech Limited reflecting the payout of the said money.

28.5 This gives the details of investors and also details of refund of the same to 18 companies as discussed above and was available before Assessing Officer at relevant point of time. It shows that 18 companies belong to assessee and transactions with the same have been clearly specifically asked in assessment proceedings and same were replied by the assessee. So, CIT was not justified in invoking provisions of Section 263 of the Act with regard to transactions with 18 parties as discussed above because same were duly verified at assessment level. Regarding remaining other than 18 out of 151, same did not belong to assessee as discussed above because same belong to client of M/s. H. S. Hathi & Co. who was using the premises in question on temporary basis as discussed above. In any case the share applications money of Rs.45 crore had been received from 18 companies in A.Y. 2003-04 which is beyond the assessment years under consideration. This take care of issue raised in ground nos. 6 & 9. So, order of Assessing Officer cannot be said to be erroneous as to be prejudicial to the interest of Revenue to make it fall in provisions of Section 263 of the Act. Same is set aside. Similar issue arose in A.Y.2007-08 to 2012-13. Facts being similar so following same reasoning, all orders of CIT are set aside for reasons discussed above.

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 53 29. Next issue is with regards to documentary evidence found during the course of search in respect of investment in offshore entities like USA and Dubai etc. In this regard, the stand of assessee has been that assessee company has not made any such investment, except small investment of Rs. 11,00,000/- in three offshore entities. It was claimed that details of such investments were submitted during the course of assessment proceedings u/s 153A of the Act. Further, assessee's above submissions were not found to be satisfactory as the seized material contains sufficient evidences to indicate that the assessee company has substantial offshore investments. According to CIT, Page 1 of annexure 2 of the loose paper seized during search operation indicated invoice raised by M/s. Burnish Infrastructure Ltd., which has also found place in the statement of Shri Chetan Sandesara recorded during search action on 29.06.2011. The same was true for page No. 2 & 3 of the above annexure which also indicates huge payments made by Sterling Port Ltd. Page Nos. 6 to 8 of the same annexure is indicative of fund transfer to the tune of 1.07 lakh US Dollars to their subsidiary business of oil exploration in Nigeria. Page No. 17 is indicative of Cycle Plan for routing fund for project in Nigeria. In addition to the above, there were other documents in the same annexure which contains identical information about overseas investment activities of the assessees company, and the group. Blank letter heads of many such offshore entities, like Arabian Projects Ltd, Hallmark Enterprises Ltd and Richmond Overseas Ltd were found and seized. According to CIT, Assessing Officer ought to have thoroughly examined all

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 54 the documents and should have worked out the correct scale of overseas investments of the assessee company. Accordingly, he invoked Section 263 of the Act on this issue, Which has been opposed on behalf of assessee. On other hand, ld. Departmental Representative supported the order of CIT.

29.1 Before us, ld. Authorized Representative drew our attention to page no.21 of the paper book II having invoice of Burnish Infrastructure Pvt. Ltd. which reads as under:

Work Description Unit Price Total Price Mobile Harbor Total Order Rs. Rs.71,02,00,000 Cranes 2000 TPH Value (Ex CGS, 35,51,00,000 for multipurpose Dahej) cargo berth

Design, engineering, procurement, supply and Erection Advance Rs.28,40,80,000 Towards start of works Total Rs.28,40,80,000 Advance Due

BankDetails Bank Name Axis Bank Ltd Branch Goregaon Link Road Branch, Mumbai Account No 910020017038117 RTGS Code UTIB0000219

This shows that letter of Burnish Infrastructure Private Limited dated May 10,2011 was addressed to Sterling Port Limited and this document reveals the facts that advances have made by

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 55 Sterling Port Limited towards start of works of Rs.28,40,80,000/-. This document evidenced the transactions between Burnish Infrastructure Pvt. Ltd. and Sterling Port Limited. In this regard, our attention was drawn towards the assessment order of Sterling Port Limited as placed on page 39to 40 of paper book II wherein it is clearly mentioned that said assessee company is engaged in the business of developing port at Dahej (Gujarat). During the relevant year assessee company has not earned any income as the project was on initial stage. There was no business activity. The capital work in progress for the year as per balance sheet was shown at Rs.393.26 crore. But facts remained that transactions were between Burnish Infrastructure Pvt. Ltd. and Sterling Port Limited and it is nothing to do with the assessee. Our attention was drawn to the statement of Shri Chetan J. Sandesara recorded u/s.132(4) of the Act. During assessment proceedings, explanation for all the documents seized was submitted. Page no.1,2,3 are related to Sterling Port Limited (Page 21-23 of part II). In response to the enquiries, submission was made to Assessing Officer on 24.12.2013 with regard to capital advances made by Sterling Port Limited (Page 37-38 of part II). Further assessment of Sterling Port Limited was also completed by Assessing Officer and all related documents and explanations were filed. Page no.6,7,8 are fund transfer details of foreign entities which have not financial impact in the books of Sterling Biotech Limited (Page 24-26 of part II). Page no.17 which is projection / estimation of project at Nigeria which also does not have any financial impact in the

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 56 books of Sterling Biotech Limited (Page 27 of part II). The assessee had also given page-wise explanation before the Investigating Wing as well as the Assessing Officer (page nos. 28, 29 of PB No.2). Letter heads found are belongings of the visitors who left by mistake at the premises of assessee. In this background, ld. Authorized Representative submitted that the order of CIT be set aside on the issue. On the other hand, ld. Departmental Representative supported the order of CIT.

29.2 After going through rival submissions and material on record, we find that during course of search, in respect of investment in offshore entities like USA and Dubai were found. In this regard, the stand of assessee has been that he has not made such big investment in offshore entities and details of same were submitted during course of proceedings u/s.153A of the Act. The documents as discussed in para 29.1 reveals that Burnish Infrastructure Private Limited was having transaction with Sterling Port Limited towards start of works of Rs.28,40,80,000/-. According to the details at page nos. 39- 40 of paper book II, said company was engaged in the business of developing port at Dahej (Gujarat). All details in this regard had been appreciated by Assessing Officer indicating that said transaction was between Burnish Infrastructure Pvt. Ltd. and Sterling Port Limited not with assessee. All records found as discussed above in preceding para and records were not belonged to assessee company. The said contention of assessee was accepted by Assessing Officer after due consideration of the facts because in assessment proceedings,

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 57 explanation for all documents were seized and submitted. In response to the queries, submissions were made to the Assessing Officer on 24.12.2013 with regard to capital advances made by Sterling Port Limited as placed on Page 37- 38 of paper book part II. Assessment of said Sterling Port Limited was also completed by same Assessing Officer and all related documents and explanations were filed in said assessment. The said transaction is nothing to do with the assessee Sterling Biotech Limited. Even projection/estimation of project at Nigeria has nothing to do with assessee. Assessee has already given page-wise explanation before the Investigating Wing as well as the Assessing Officer as detailed on page nos. 28, 29 of paper book No.II. In view of our legal and factual discussion, CIT was not justified to invoke the provisions of Section 263 of the Act in regard to this allegation, so, same is set aside.

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 58 incriminating material was found in this regard during the search. Since, the complete quantitative details were admittedly maintained regarding production of gelatin and DCP at both units that is Karkhadi and Ooty, which were further verifiable with reference to the various internal quality check reports and quantitative tally, any such suppression of sale either of gelatin and DCF, ought to have been ascertained from the facts the case. However, the Assessing Officer chose to resort to estimation of byproducts and wastes from the data of bone consumption sourced from assessee. According to CIT, Assessing Officer also erred in holding that since the sale of gelatin in mostly to MNCs, therefore, suppression was not feasible and that only in sale of DCP, there was a possibility of unaccounted sales. CIT discussed that even the party wise details of sales and purchases had not been brought on record before arriving at this finding. The method adopted by the Assessing Officer and the basis chosen is not supported by any case specific data. CIT observed that Assessing Officer’s discussion about the internet information also does not mention about the accepted yield of gelatin, the main product. The exercise resorted to by the Assessing Officer in estimating the yield and consequent suppression of sale does not stand on any factual or logical footing, when all the relevant materials and data was at his disposal. He should have carried out proper examination of seized data and in particular manufacturing report, before arriving at any conclusion in this regard. His failure to do so and the method of estimation as discussed above clearly resulted in the assessment order being

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 59 totally erroneous and prejudicial to the interest of revenue.

30.1 In this regard, the stand of assessee has been that wastage at 30% was reduced to 5% by Assessing Officer. Ld. Authorized Representative relied on the written submission filed on page no.105 of the paper book II and he drew our attention to the page no.41 of the paper book II inter alia submitted that Deputy Commission of Income Tax called for information and same was submitted by assessee vide letter dated 06.02.2014 which reads as under:

“During the course of hearing of the above company your good self has called for certain information/ documents I records. We are herewith submitting the information in the following manner along with annexures.

1) Copy of last page of RG-1 register of Gelatin for the years ended 31st March of each year from 2006 to 2012.

2) With regard to the query raised during the course of hearing related to purchase of plant & machinery in Masar EOU unit of Sterling Biotech Limited, we have to state that company has not made any purchase from the 151 companies.

3) Month wise details of Bones chargedGa1in and DCP produced is enclosed here with as per "Annexure - 1".”

In this background, it was submitted that details of production and wastage at 30% have been filed before the Assessing Officer in toto. In such a situation, even according to ld. Authorized Representative, once details are given, the estimation of wastage at 5% as against the claim by assessee at

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 60 30% was not justified and if details would have been verified properly. Assessing Officer could not have made any addition at all. In such a situation, even if without prejudice to the merit of the claim of the wastage, Assessing Officer’s order estimating 5% of the wastage after due verification of the facts produced before him, order cannot said to be erroneous as well as prejudicial to the interest of revenue as stated by CIT. So, CIT was not justified in invoking provisions of Section 263 of the Act in this account as well. In this background, ld. Authorized Representative submitted that order of CIT be set aside and that of order of Assessing Officer be restored. On the other hand, ld. Departmental Representative supported the order of CIT.

30.2 After going through rival submissions and material on record, we find that assessee has claimed wastage of 30% which was reduced to 5% by Assessing Officer after taking into consideration all details in this regard. Though, assessee was not satisfied with the reduction of wastage, but, facts remain that enquiry was done by the Assessing Officer at relevant point of time in assessment proceedings. So, CIT cannot be said that order of Assessing Officer is erroneous so as to prejudice to the interest of Revenue in absence of any enquiry. Under the circumstances, the order of Assessing Officer on this issue cannot be said to be erroneous, so as to prejudicial to the interest of Revenue so as to invoke provisions of Section 263 of the Act, and same is set aside.

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 61 31. Next issue pertains to A.Y.2010-11, 2011-12 & 2012-13 with regards to block of assets. With regards to addition to block of assets from other parties has been submitted party- wise with relevant invoices and documents at assessment stage. CIT observed that no such evidences like invoices etc. were found on the record indicating necessary enquiry having been carried out in this regard. Considering the facts that inflation of capital asset has been admitted by assessee, Assessing Officer ought to have carried out due verification of addition with regard to fixed assets during the relevant year in all other instances as well. Therefore, contention of assessee was not found acceptable and provision of Section 263 of the Act was invoked by CIT.

31.1 Before us, In this regard, ld. Authorized Representative drew our attention to order of Assessing Officer inter alia questionnaire was issued with regards to fixed assets by Assessing Officer as details on page nos.12 to 18 of the paper book duly certified before the Assessing Officer. In response to above questionnaire, assessee submitted details before the Assessing Officer as detailed on page nos. 190 to 197 of the paper book. In this background, it was submitted that it is not correct that Assessing Officer has not done verification of addition to the fixed assets. Similar explanation was submitted before the CIT in response to show cause u/s.263 of the Act with respect to the addition to the block of assets as detailed on page 23 of the paper book. So, ld. Authorized Representative requested that the order of CIT on the issue be

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 62 set aside. On the other hand, ld. Departmental Representative submitted that order of CIT on the issue be upheld.

31.2 After going through rival submissions and material on record, we find that the allegation of CIT is that there is inflation of the capital assets by assessee. Assessing Officer ought to have duly verified the addition towards fixed assets. As stated above, questionnaire was issued by Assessing Officer with regards to fixed assets as mentioned above and in response to the same, relevant details have been filed by assessee at relevant point of time as discussed above. In this background, it cannot be said that Assessing Officer has not done verification of the addition to the fixed assets. All these explanations with regard to questionnaire by Assessing Officer had been submitted before CIT in response to show cause notice and with regards to addition to the block of assets. But, same has not been taken into consideration by CIT, which is not justified. Under facts and circumstances, CIT was not justified in invoking provisions of Section 263 of the Act, while Assessing Officer has already made detailed investigation with regard to addition of assets in assessment u/s.153A r.w.s. 143(3) of the Act. So, order of CIT on the issue be set aside.

ITA Nos.2750 to 2756/Mum/16 A.Ys. 06-07 to 12-13 [Sterling Biotech Ltd. vs. Pr.CIT] Page 63 CIT was not justified in setting aside the assessment and cannot direct to do the assessment de novo.

Pronounced in the open Court on this the 29th day of June, 2016.

Sd/- Sd/- (RAJESH KUMAR) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai: Dated 29/06/2016 True Copy S.K.SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाइल / Guard file. By order/आदेश से,

उप/सहायक पंजीकार, आयकर अपील�य अ�धकरण, मुंबई ।