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Commissioner of Income Tax Versus M/s. Radico Khaitan Ltd.

Payments made towards illegal gratification and bribes - block assessment - validity of Income Tax Settlement Commission - Held that:- Unfortunately the linkage between the material seized from the assessee's premises and those from UPDA's premises as well as the statement of Sh. Miglani was not established through any objective material. It is now settled law that block assessments are concerned with fresh material and fresh documents, which emerge in the course of search and seizure proceeding .....

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- Suppression of profits for various financial years - Held that:- Commission was of the opinion that the documents relied upon were work estimates and projections that revealed tentative profitability in respect of the assessee’s activities towards sale of country liquor i.e. that the documents did not reflect actual figures. The documents reflected profit methods for both years which left the Commission to infer they were in fact not based upon actuals but alternative projections. Here again .....

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es would have been incurred in respect of various divisions of the assessee. Here too the interpretation of the documentary evidence by the Commission – which is to be viewed with caution, does not appear to be contrary to law or unreasonable. In the circumstances the revenue’s contentions on this aspect too cannot be accepted. - Bogus expenditure claimed - Held that:- The court is of the opinion that while expenditure claimed by itself might be suspect, the revenue had a further obligation .....

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rn in fact had received the amounts towards the assessee's claim. The omission in this regard and lack of any particulars to discredit the services and expenditure claimed by the assessee, justified the Commission’s conclusion that the addition of ₹ 9.11 crores demanded by the revenue or other arguments on the basis that the assessee did not disclose such amount, was not warranted. The Commission's findings are not contrary to law or unreasonable.On an overall assessment of the materials t .....

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S. Ravindra Bhat 1. This writ petition under Article 226 of the Constitution, preferred by the Commissioner of Income tax (hereafter referred to as "the revenue") questions and seeks the quashing of an order of 13.03.2008 made by the Income Tax Settlement Commission (hereafter referred to as "the Commission"), under Section 245 D(1) of the Income Tax Act, 1961 (hereafter referred to as "the Act"). 2. The facts necessary for deciding this case are that the second res .....

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search and seizure operation under section 132(1) of the Act by the revenue on 14.02.2006 in its business premises. Search was resorted to also in the residential premises of its directors; M/s Uttar Pradesh Distiller's Association (hereinafter referred to as UPDA ) and at the residence of Sh. R.K. Miglani, Secretary General of UPDA. Also, a survey under Section 133A was conducted at the business premises of M/s. Saraya Industries Ltd, one of the core members of the "Managing Committee .....

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o filed its returns on 29.09.2007 though the return for assessment year 2006-2007 was filed in the regular course on 30.11.2006, offering an amount of ₹ 4.5 crores for taxation. Radico thereafter filed an application under Section 245C of the Act before the Commission on 30.05.2007 covering all assessment years covered by the block period i.e. 2000-2001 to 2006-2007. The assessee declared additional income for the relevant period to the extent of ₹ 23 crores. The total income includi .....

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7.2007 directing the Commission to dispose off the application before 31.03.2008 as required under Section 245D (4A) of the Act in accordance with law so that the proceeding would not abate in terms of the newly inserted Section 245HA(1) of the Act. The revenue filed its report, under Rule 9 of the Income Tax Settlement Commission Rules, on 04.02.2008, alleging that concealment of income by the assessee was ₹ 159,82,92,966/- under various heads. This figure was revised at ₹ 177,84,16 .....

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ission included the amount of ₹ 27.50 crores offered by the assessee in the statement of facts filed with the settlement application. Thus the Commission made an effective addition of ₹ 2.5 crores only. The revenue is further aggrieved by the fact that the Commission granted immunity to the assessee from prosecution and penalties under the various provisions of the Act. 6. The revenue argues that the Commission failed to appreciate that the assessee did not make a full and true discl .....

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oyees at various places. The payment made to these employees are all routed through the books of the applicant. During the course of search, certain papers have been found and seized by the Income Tax Department, which may reflect the utilization of funds routed through employees in such a manner and a fashion other than what is reflected in the books of accounts. The management of the applicant company is not in aposition to comprehend the veracity of the material found during the course of sea .....

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r, thus there may be certain amount of difference between such sales of waste material in the books of accounts and in reality, generating certain income outside books. There are no regular records maintained for such transactions/activities and thus it is not possible to actually pin point the quantum of income arising out of certain expenses of disallowable nature incurred by the employees of the company out of the funds budgeted by the company for some other purpose and income arising out of .....

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y a net amount of additional income offered before the Hon'ble Commission would be ₹ 23 crores in various years. The applicant company has distributed the additional income in various years as per its perception, Hon'ble Commission may redistribute the same in various years for the proper settlement of the case as per its perception. " 7. The revenue contends that the assessee made vague statements in its application. In terms of Section 245C (1) of the Act, the assessee was r .....

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placed on record by the revenue. UPDA is not an unrelated third party. In fact, it is an association of persons of distillers of UP of which, assessee is one of the controlling members of the "Core Committee". The papers regarding the illegal payments and determination of the percentage to be paid by the assessee, found and seized during simultaneous search are signed by its director, as the assessee was one of the core members of the committee of UPDA, which used to determine the quan .....

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d illegal payments made by the assessee to various public servants and politicians were in fact fully corroborated from the documents found and seized for from various premises of the assessee Company as well as from the residence of UPDA and its officers. In this regard learned counsel relied upon the Rule 9 report filed by the income tax authorities before the Commission. Pointing out that these were credible, learned counsel stated that the surrender or disclosure made to the commission by th .....

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he search and the details found in the form of tables retrieved were disclosed as annexures to the Rule 9 report. It was submitted that these documents referred to in detail the payments made to Abkari officials, the Circle Inspector, constables etc. likewise bribes were paid at Rajasthan to various government officials to the tune of ₹ 8,22,996/- for financial year 2005-06. 10. It was also argued on behalf of the revenue that the findings of the Commission with respect to the ₹ 29 c .....

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orm of underreported production, distribution and sale of liquor the proceeds of which were used to bribe public officials. It was also submitted that the revenue was able to demonstrate that a sum of ₹ 91,14,15,451/- was claimed as bogus expenditure for four years, i.e. 2000-01; 2001-2002; 2002-03; 2003-04 and 2004-05.These were in the form of alleged payments to M/s. Fair & Square Private Ltd. and M/s. Rimjhim Ispat Pvt. Ltd. [hereafter Rimjhim ]. It was stated that Rajan Jassel was .....

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a contract for supervision and inspection charges to this entity were questionable. The assessee was unable to throw any light much less reasonably explain what kind of services and supervision would be obtained from a concern that was unrelated to the business carried on by it, i.e. liquor production bottling and distribution. 11. Furthermore, the assessee had debited huge amounts in its books without vouchers and supporting bills for sales promotion. These expenses were examined post-investiga .....

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year 2004-05 to the tune of ₹ 33.35 crores through booking bogus expenses in the same manner, as was done for the previous year. This unaccounted cash was utilized for illegal expenditure which could not be claimed in the books of account and were to the tune of ₹ 17.35 crores. Of this ₹ 9.7 crores was made was spent to words bribery etc. 12. It was submitted that even though the orders of the settlement Commission are final, and judicial review is exercisable in limited classe .....

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to interfere with findings rendered by the Commission. He relied on the decisions reported as Jyotendra Sinhji Vs. S.I Tripathi & Ors 201 ITR 621 (SC) to say that discretion can be exercised only when the order of the Commission is contrary to any of the provisions of the Act if it has also prejudiced the petitioner / appellant. These are apart from grounds of bias, fraud and malice, which constitute a separate and independent category. Reliance was also placed on R.B. Shreeram Durga Prasad .....

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on like in the quantum and payment of tax and/or interest. The decision of this court in Capital Cable (India) Pvt Ltd vs. Income-tax Settlement Commission 267 ITR 528 too was relied on. The court held, in that decision that: "When the Act provides that the order shall be final and conclusive, the final judgment or the final decision of the Settlement Commission does not lose its force and as such because in a different case subsequently a view is taken indicating that the views expressed a .....

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cant by a further amount of ₹ 2.5 crores to arrive at the final income of ₹ 30 crores. This, it was urged, clearly showed application of mind. 15. Counsel argued that the revenue alleged that a payment of ₹ 29.95 crores to UPDA, should have been added as undisclosed income of the assessee. In this context is submitted that the revenue s averment to the effect that the alleged payment to UPDA representing the assessee s undisclosed income is conjectural, premised on surmises. In .....

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the said allegation was based merely on the basis of inferences drawn from certain loose papers, which is not permissible in law. That apart, it was contended that UPDA, who is involved in making illegal payments, has categorically denied the same before Tax Authorities vide letter dated 15.11.2007. 16. It was stated that the Commission did not find any merit in the revenue s case for the reason that- (a) papers which were found were in respect of the third party, (b) though extensive search ha .....

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arly, urging the court not to interfere with the Commission s findings, learned senior counsel stated that the argument with respect to bogus expenditure is unfounded; the Commission had taken the revenue s submission into consideration in this regard, in Paras 16 to 20 of the impugned order. It was submitted that merely because an entry operator allegedly managed one of the concerns it did not follow that the amounts paid to him could not be genuine. Learned counsel also highlighted that the pa .....

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by the revenue on computer material and alleged detailed working out of profits of the assessee, from its managing director s laptop, are clearly aspects that were gone into by the Commission at the revenue s behest. The Commission had taken note of the revenue s argument as well as the stand of the assessee that it was a very profitable concern and that the inchoate nature of the material relied on did not in any way establish that they were actual figures or that the amounts earned or profits .....

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Section 153A. The assessee s application should make full and true disclosure of income that was originally not revealed in the return (Section 245C). Under Section 245-D(1A) the revenue could object to the continuance of settlement proceedings; the proviso enables the Commission to proceed, after hearing the objections and ruling on it. 20. Section 245D outlines the procedure which the Commission has to follow after receipt of application (for settlement). Section 245D (1) stipulates that on r .....

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no order is passed within the above mentioned period by the Settlement Commission, either allowing the application or rejecting the application, the application shall be deemed to have been allowed to be proceeded with. Section 245D (2B) obliges the Commission to call for a report from the Commissioner; that official has to furnish the said report within 30 days of receipt of the communication from the Commission. Under Section 245D (2C) where a report of the Commissioner, is furnished within t .....

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iso says that where the Commissioner has not furnished the report within the specified period, the Settlement Commission should proceed further in the matter without the report. 21. The Commission, under Section 245D (3) inter alia, in respect of a valid application may call for the records from the revenue and after their examination, if it is of the opinion that any further enquiry or investigation in the matter is necessary, it may direct the revenue to enquire or so investigate and furnish a .....

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xamining the records and report of revenue, under Section 245D (2B) as well. Section 245D (6) states that every order passed under Section 245D (4) should provide for the terms of settlement including any demand by way of tax, penalty or interest, the manner in which any sum due under the settlement is to be paid and all other matters to make the settlement effective. It specifically enacts that the terms of settlement are to indicate that the settlement would be void if it was subsequently foun .....

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h proceedings at any time before the expiry of two years from the end of the financial year in which the settlement became void. Section 245F enacts that in addition to the powers conferred on the Settlement Commission under the said Act, it would also have all the powers which are vested in an income tax authority under the said Act. Section 245F (2) also stipulates that where an application has been allowed to be proceeded with under Section 245D , the Commission shall, until an order is passe .....

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nue s grievance in these proceedings is with respect to amounts said to have been clandestinely given to UPDA as the assessee s contribution towards slush funds to be used as pay-offs to politicians and public officers in return for favourable treatment. In short, the revenue s case is that the materials seized from UPDA and the statements made by Sh. Miglani to the assessee to the extent that it concealed over ₹ 35 crores in payments into the fund, and for payments to police, state excise .....

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ording to it, worked out to ₹ 29.95 crores. This was allegedly used to bribe public officials and politicians. The reasoning of the Commission was that these documents were in the possession of UPDA and the statements of Sh. Miglani were made not in the course of its search (i.e. of the assessee's premises) and therefore corroboration of the statements as well as the documents with the materials seized from the assessee s premises in this regard was necessary. The question here is whet .....

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an be drawn. This is evident from Sections 132 (4) and (4A) of the Act, which read as follows: Section 132…. (4) The authorised officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income- .....

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nt, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed- (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; (ii) that the contents of such books of account and other documents are true; and (iii) that the signature and every other part of such books of account and other docum .....

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on to establish through materials relatable to the assessee, what it alleged against it. What were the best pointers for further investigation were the discovery of material and evidence, which the revenue claim pointed to the assessee's failure to disclose full facts and income, should have resulted in further investigation and unearthing of material in the form of seized documents from the assessee's premises. Unfortunately the linkage between the material seized from the assessee' .....

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re, that the assessee s expenditure claim was bogus, or it had underreported income and that it resorted to over invoicing and diversion of funds into the funds allegedly maintained by the UPDA, was not established. The findings of the Commission therefore cannot be faulted as contrary to law. 25. As far as suppression of profits for various financial years, alleged by the revenue, the Commission was of the opinion that the documents relied upon were work estimates and projections that revealed .....

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he revenue in its Rule 9 report stated that the extra money generated was ₹ 33.35 crores and expenditure incurred was ₹ 17.35 crores [of this substantial bribe amount were paid]. According to the revenue major expenditure out of this ₹ 17.35 cores was illegal and could not be allowed. The assessee's stand was that the internal indications in the document itself showed that the figures were tentative calculations as evidenced from the expression expected and that it did not .....

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ious divisions of the assessee. Here too the interpretation of the documentary evidence by the Commission - which is to be viewed with caution, does not appear to be contrary to law or unreasonable. In the circumstances the revenue s contentions on this aspect too cannot be accepted. 26. The last aspect is with his with respect to alleged bogus expenditure claimed by the assessee to the tune of ₹ 9,11,41,457/-.This expenditure was claimed in the original assessments as payments made to Fai .....

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d received the amounts from the assessee which were bogus; that he provided it some accommodation entries to others could not have been the sole basis for discrediting the expenditure claimed by the assessee, Radico for the relevant assessment year. 27. The assessee had relied upon the written agreement between it and Fair N Square Pvt Ltd dated 31st March 2001; likewise in the case of Rimjhim, the agreement of 1st June 2002 describing the terms and conditions and various services rendered by th .....

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