TMI Blog2017 (7) TMI 500X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 the view taken by the Commission cannot be said to be unreasonable as to warrant interference.The assessee’s managing director prepared these estimates. The Commission accepted this contention and concluded that the revenue’s arguments were based upon surmise; the Commission also felt that the documents did not disclose that any payments made were illegal. Furthermore it relied upon the document observing that it contained no writings highlighting that in case a means was made in further expenses 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 con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It also generates power for its manufacturing and bottling plants. Radico operates from four locales, Rampur in UP, Reengus, Hyderabad and Bajpur, Uttaranchal. Apart from its units the assessee utilizes services of other bottling plants spread over different states. 3. Radico was subjected to a 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 of M/s. UPDA. Many incriminating documents pertaining to the assessee were found and seized from these premises. Statements of various persons including Sh. R.K. Miglani were recorded under Sections 132(4) and 133A of the Act. After collecting all the material, the Assessing Officer (AO) issued notices under section 153A of the Act on 20.09.2006, for assessment years 2000-2001 to 2006-2007, requirin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 disclosure of its income, which had not been disclosed before the AO and the manner in which, such income had been derived. It is alleged that the assessee did not disclose any basis to arrive at a figure of ₹ 27.50 crores for concealed income offered in the settlement application. The assessee had in its application stated that: The applicant had maintained books of accounts in respect of business carried on by it. The business operation of the applicant is largely conducted through employees 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 sear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cuments. In this context, it is argued that this reasoning is incorrect and contrary to the evidence 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 quantum of bribes to be paid by the various members depending upon the level of production of liquor by each member distillery. 9. It is argued on behalf of the revenue that the Commission's finding with respect to ₹ 29.95 crores payments made towards illegal gratification and bribes, (on the ground that such inference could not be drawn) is entirely erroneous. Highlighting that the Commission's view with respect to a lack of corroboration, learned counsel submitted that the unaccounted illegal payments made by the assessee to various public servants and politicians were in fact fully corr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and notorious entry operator who used to provide accommodation entries by charging Commission. His statement for February 2004, disclosing that his business was to take cash and that in cheques for providing accommodation entries was taken into account by the revenue in its submission but wrongly rejected. Likewise it was submitted Rimjhim dealt with steel rolling mills and steel products and therefore could have no knowledge of molasses; the assessee s reliance upon payments made under 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-investigation and were discovered to be self-serving documents on which no reliance could have been placed. It was lastly urged that there was sufficient documentary evidence in the form of annexures filed along ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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 are wrong. A final decision however wrong is still final and its binding force does not depend upon its correctness. There must be an end of litigation. The Settlement Commission is provided under the Income-tax Act for the said purpose. 14. Learned counsel argued that the present case is not one where the Settlement Commission has blindly and mechanically accepted the application filed by the assessee. The Commission has increased the undisclosed income surrendered by the respondent applicant 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure, learned counsel submitted that the different nature of business of the assessee and Rimjhim ipso facto could not lead to the conclusion that the latter concern could not provide supervisory and other connected services to the assessee, in an unrelated business. 18. It was submitted that the reliance 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 made were of a greater magnitude than what was reported to the revenue. Analysis and Findings 19. The Commission was set-up under Section 245B of the Act with the objective of settling tax liabilities in complicated cases avoiding endless and prolonged litigation and consequential strain on investigational resources of the Income-tax Department. An assessee can apply for sett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll 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 report on the matters covered by the application and any other matter relating to the case. The Commissioner (revenue) has to furnish the report within a period of 90 days of receipt of the communication from the Commission. If the revenue does not furnish a report within the said period of 90 days, the Commission may proceed to pass an order under Section 245D (4) without such report. The latter provision authorizes the commission to pass orders as it thinks in accordance with the Act, after examining 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different distilleries. The revenue had prepared a chart for each assessment year and the payment made by the assessee to the fund, according 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 whether this reasoning is sound. 24. Section 132 no doubt mandates a presumption in respect of search and seizure operations; yet textually the presumption relates to material documents and books of account seized of from the assessee's premises and the presumption that can be made from it, not from materials seized and statement recorded, of third parties. Only if the materials that are sought to be relied upon emanate from the premises of the party subject to assessment, that the presumption can be drawn. This is evident from Sections 132 (4) and (4A) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely 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 proceedings; the revenue has no authority to delve into material that was already before it and the regular assessments were made having regard to the deposition, the inability of the revenue to establish as it were, 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 tentative profitability in respect of the assessee s activities towards sale of country liquor i.e. that the documents did not refl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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 that company was relied upon. The asseessee had relied upon it in earlier income tax proceedings. It is quite clear that the assessee, in the original returns disclosed this expenditure as well as the expenditure in respect of services rendered by Rimjhim. In case the revenue wished to discredit that material, it should have relied upon fresh material. It relied upon the statement of an employee of Rimjhim who claimed that there was no written agreement with the assessee nor were any such documents available. The statement however does not mention about any written agreement of 1st June 2002.This statement was recorded after the search and not during the regular assessment proceedings. As to why the expenditure clai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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