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Radico Nv Distilleries Maharashtra Ltd. Vs. Commissioner Of Income Tax (Central)-Iii, New Delhi & ORS.
October, 12th 2017
$~11
*    IN THE HIGH COURT OF DELHI AT NEW DELHI
+            W.P.(C) 3373/2013 & CM No.6413/2013 (stay)
       RADICO NV DISTILLERIES
       MAHARASHTRA LTD.                             ..... Petitioner
                     Through: Mr. Ajay Vohra, Senior Advocate
                              with Ms. Kavita Jha and Mr. Vaibhav
                              Kulkarni, Advocates.
                     versus
       COMMISSIONER OF INCOME TAX (CENTRAL)-III,
       NEW DELHI & ORS                         ..... Respondents
                    Through: Mr. Rahul Chaudhary, Senior
                             Standing Counsel with Mr. Sanjay
                             Kumar, Junior Standing Counsel.
       CORAM:
       JUSTICE S.MURALIDHAR
       JUSTICE PRATHIBA M. SINGH
                    ORDER
       %            09.10.2017
Prathiba M. Singh, J.:
1. The present petition impugns the order dated 3rd April, 2013 passed by the
Income Tax Settlement Commission (hereinafter referred to as the `ITSC')
under Section 245D (2C) of the Income Tax Act, 1961 (hereinafter referred
to as `the Act') in application nos. DL/DC53/2012-13/75-IT &
DL/DC53/2012-13/76-IT for the Assessment Years (`AY') 2005-06 to
2011-12. By the impugned order, the ITSC rejected the application for
settlement of the pending cases filed by the Petitioner.


Brief Facts
2. A search was conducted at the business premises of the Petitioner on 15th
February, 2011 under Section 132 of the Act. Pursuant to the search,

W.P.(C) 3373/2013                                                   Page 1 of 11
proceedings were initiated on 27th January, 2012 under Section 153A for the
AYs 2005-06 to 2010-11. At that time, the assessment proceedings for AY
2011-12 were also pending before the Assessing Authority.


3. While the proceedings under Section 153A of the Act were pending, the
Petitioner approached the ITSC under chapter XIX-A of the Act. In its
applications before the ITSC, the Petitioner made a disclosure of additional
income of Rs.11,60,96,390/- and paid additional tax and interest payable
thereon aggregating to Rs. 97,29,856/-. The applications also contained the
confidential portion which provided the details relating to the mode and
manner of earning such additional income. The Petitioner also apprised the
Assessing Officer (`AO') of the factum of filing of settlement applications
on 30th January, 2013.


4. Apart from the Petitioner's application, applications were also filed by the
group companies and individuals on whom searches were carried out. In
total the said applicants have declared a sum of Rs.104,10,90,845/-. A
consolidated order was passed by the ITSC on 8th February, 2013 directing
that "Since the applicants have prima-facie fulfilled the conditions
prescribed under Section 245C (1) of the Act, the applications are allowed
to be proceeded with."


5. The ITSC had simultaneously called for a report from the Commissioner
of Income Tax (`CIT') which was submitted on 18th March, 2013. In this
report, the `CIT' averred that the Petitioner has received substantial amount
of share capital from bogus/non-existent companies. The report further

W.P.(C) 3373/2013                                                    Page 2 of 11
states that the Petitioner has received the share capital from Enn Vee
Holdings Pvt. Ltd. (hereinafter referred to as `Enn Vee') which in turn has
received the entire share holding from bogus/non-existent/paper/briefcase
companies. The relevant portions of the report are set out as under:
            "It was alleged that M/s Radico NV Distilleries
            Maharashtra Ltd. has received substantial amount of
            share-capital from bogus/ nonexistent companies.
            Perusal of the list of allottees of M/s Radico NV
            Distilleries Maharashtra Ltd. shows that it has
            received Share capital from M/s Enn Vee Holdings Pvt.
            Ltd., in the following manner:

            F.Y.      Shares Issues     Amount Received (Rs. 
                                        Lacs)
            2007-08        5000                   400
            2008-09        320000                 320
            2009-10        880000                 880
            2009-10        544000                 544
            Total          1749000                2144
            It has been found that M/s Enn Vee Holdings Pvt. Ltd.
            has received entire shareholding from bogus/ non-
            existent/ paper/ briefcase companies and is in fact the
            unaccounted money utilized by the assessee itself.
            Further, M/s Enn Vee Holdings Pvt. Ltd. is not
            carrying out any business activities and is just a
            conduit for transfer of unaccounted money received
            through a channel of Entry operator companies. Thus,
            the entire receipt of Rs. 21.44 crore in the form of
            share-capital by M/s Radico NV Distilleries
            Maharashtra Ltd. from M/s Enn Vee Holdings Pvt. Ltd.
            is unaccounted investment. However, it would be
            pertinent to bring on record that M/s Enn Vee
            Holdings Pvt. Ltd. is a group company of the NV
            Group of cases which too was covered in the search
            and has already moved to the Settlement Commission
            separately."

W.P.(C) 3373/2013                                                      Page 3 of 11
6. The report concludes that a total of Rs.104,10,90,845/- was the total
additional income as disclosed by the Petitioner and all the other applicants.
However, according to the CIT, the total of the undisclosed income under
different heads as per seized documents is Rs.105,57,12,727/-. Thus, the
CIT reported that there was a failure by the Petitioner to make a full and true
disclosure of its income before the ITSC as also a failure to disclose the
manner in which the income was derived and the additional amount of
income tax payable on such income.





7. Pursuant to this report, the ITSC passed the impugned common order
dated 3rd April, 2013 rejecting the applications of the Petitioner as also that
of M/s. Radico Khaitan Ltd. The reasons for rejection are recorded as under:
            "1. Applicant has not filed reply to questionnaire till
            date even though the questionnaire was issued to him
            by the A.O. several months back. The learned Counsel
            for the applicant when asked to explain the reasons for
            not giving a reply even after lapse of several months
            merely stated that as the information sought was
            routine the reply was not given. In our view if the
            information sought was routine there should not have
            been any reason for the applicant to furnish the same
            without delay.

            2. Applicant has taken contradictory stand regarding
            whether it is a successor company or a new set up to
            explain the sale of assets claiming that it is a successor
            company but regarding issue of fresh share capital it
            was stated that it was in the process of set up.

            3. In Directors report at page 47 of Radico Khaitan
            Paper book filed on 01.04.2013 it is mentioned that the
            Directors are trying to strengthen the financial
            position of Enn Vee Holdings Ltd. This reflects

W.P.(C) 3373/2013                                                        Page 4 of 11
            adversely on the capacity of Enn Vee Holdings Ltd. to
            advance a sum of Rs. 21.44 Crores to the applicant
            group. At page 64 of the Paper Book it is noted that in
            the year 2009 Enn Vee Holdings Ltd. had Nil income
            and in the year 2010 it had income of just Rs. 1.08.

            4. Regarding joint venture agreement filed by the
            applicant company at page 1 of the written submission
            filed on 01.04.2013 a joint venture and share holders
            agreement is claimed to have been entered into in
            which the applicant and Enn Vee Holdings Ltd.
            amongst others are parties but at page 67 in the
            Auditors report under the column relating to joint
            venture it is mentioned as 'Nil'. Obviously this
            contradicts the stand of the applicant of having entered
            into a J.V. The learned Counsel informed that this is
            due to mistake by the statutory auditor, it is seen from
            page 1 of CIT's report dated 18.03.2013 that the
            applicant had received share capital worth Rs. 21.44
            crores from Enn Vee Holdings Ltd. which is a company
            having poor financial health as admitted by their
            Director's report at page 47 of the Paper Book filed on
            01.04.2013 by the applicant where it is mentioned that
            the directors are trying to strengthen the financial
            position of Enn Vee Holdings Ltd. This reflects
            adversely on the capacity of Enn Vee Holdings Ltd. to
            advance a sum of Rs. 21.44 Crores to the applicant
            group. At page 64 of the Paper Book it is noted that in
            the year 2009 Enn Vee Holdings Ltd. had Nil income
            and in the year 2010 it had income of just Rs. 1.08.
            Obviously, such a company having poor resources
            could not have advanced a sum of Rs. 21.44 crores to
            the applicant and as such the Commission is of the
            view that this amount should have been declared by the
            applicant in the Settlement Application.

            5. The applicant had entered into an agreement
            regarding bottling with N.V. Distilleries and Breweries
            Pvt. Ltd. on 12.04.04 on stamp paper. However, an

W.P.(C) 3373/2013                                                      Page 5 of 11
            amendment to this agreement dated 12.04.2004 was
            made on 01.06.2004 stating that it will come into effect
            from 01.04.2004, which is even before the date of main
            agreement signed on 12.04.2004. It is also note worthy
            that the amending agreement dated 01.06.2004 is on
            letter head of the applicant and not on stamp paper.
            The agreement to amend apparently has no legal
            validity and cannot be accepted as the genuine
            agreement. In view of this the out of book sales of
            Rs.3,81,56,000/- as worked out by CIT at page 4 of his
            report dated 18.03.2013 should have been declared by
            the applicant as its income but it has failed to do so
            and consequently has not made a full and true
            disclosure."

8. This order has been impugned in the present writ petition on several
grounds including (a) That the ITSC does not have the powers of reviewing
its earlier order (b) that there was no failure by the Petitioner to make full
and true disclosure of its income & (c) The application of Enn Vee against
whom the allegation has been made, that it had received the bogus shares
and that it is a conduit, is also currently pending before the ITSC and
therefore, the Petitioner's case be also taken up along with the case of Enn
Vee by the ITSC itself. Before this Court, the first issue is not pressed or
argued.


Submissions of the Petitioner
9. The main argument of Mr. Ajay Vohra, learned Senior Advocate
appearing on behalf of the Petitioner is that the application of Enn Vee for
settlement of its case is pending before the ITSC and since the Petitioner has
been non-suited on the ground that the Enn Vee had received the bogus
shares, it would be appropriate for the ITSC to consider both the
W.P.(C) 3373/2013                                                      Page 6 of 11
applications i.e. of the Petitioner and of Enn Vee together. Mr. Vohra has
relied upon the Joint Venture and Shareholding Agreement to submit that
the predecessor in interest of the Petitioner was Shetkari Baliraj Sugars Ltd.
(hereinafter referred to as `Shetkari') in which another entity Ridhi Sidhi
Shares Pvt. Ltd. (hereinafter referred to as `Ridhhi Sidhi') had 100% of the
shareholding. By this agreement, the shareholding of Ridhhi Sidhi was being
diluted to 32% and the remaining investments were to be made by Enn Vee
and other entities. Shetkari is now the Petitioner's company.


10. According to Mr. Vohra, the audited accounts of both the companies i.e.
the Petitioner and Enn Vee reflected the investment made and thus there was
no failure by the Petitioner to make a full and true disclosure to the ITSC.
He specifically relied upon the balance sheet dated 31st March, 2009 which
lists Radico Khaitan, Ridhi Sidhi and Enn Vee as the companies which are
contributing to the share capital of Shetkari - i.e., the Petitioner. Similarly,
Mr. Vohra relies upon the audited accounts of Enn Vee to show that Enn
Vee's investment in the Petitioner company is also duly reflected. Mr. Vohra
then submitted that the Revenue does not dispute that the application filed
by Enn Vee is also pending before the ITSC and hence it would be
appropriate that the ITSC considers both the applications together so that the
interest of the Revenue is also protected. Mr. Vohra relies upon the
judgment of this Court dated 17th May, 2017 passed in W.P.(C) 5424/2016
(Bindlas Duplux Ltd. v. Principal Commissioner of Income Tax (Central)
Delhi-3 & Ors.) to submit that under a similar situation this Court had
observed that "It was, therefore, not possible to examine the state of affairs
of any one company of the group in isolation of the entire group."

W.P.(C) 3373/2013                                                     Page 7 of 11
Submissions of the Revenue
11. Mr. Rahul Chaudhary, learned Senior Standing Counsel appearing on
behalf of the Revenue submits that the powers of the ITSC to review its
order are not in dispute in the present case as the Petitioner is not pressing
the same. In any event, as per the submission of Mr. Chaudhary the ITSC
has full powers to review its own order.


12. Insofar as the merits of the case are concerned, Mr. Chaudhary submits
that there was a failure by the Petitioner to make a full and true disclosure.
He specifically relies upon the contradictory stand taken by the Petitioner
which is recorded as reason no. 2 in the impugned order. He further submits
that the AO had asked several questions to the Petitioner which were not
answered by it. Mr. Chaudhary relies upon how on the one hand the
Petitioner claims depreciation of the assets of the company and on the other
hand the Petitioner also claims that the company was in the process of being
set up. These two are completely contradictory and hence the ITSC,
according to Mr. Chaudhary, has rightly rejected the applications of the
Petitioner. He submits that the purpose with which the Joint Venture
Agreement was entered into was merely to transfer manufacturing licenses
issued by the Government of Maharashtra for operating the distillery. He,
thus, submits that the Petitioner did not satisfy the threshold requirement of
the full and true disclosure.


Analysis and Findings
13. The reasons given by the ITSC for rejection of the application that have
been canvassed before the Court are primarily threefold. First that the

W.P.(C) 3373/2013                                                   Page 8 of 11
questionnaire issued by the AO was not answered. Secondly, there was a
failure to make a full and true disclosure and thirdly that the Petitioner was
taking contradictory stands.


14. Insofar as the first reason is concerned, once the ITSC proceeds with the
settlement application, as per Section 245D (4), the proceedings before the
AO comes to a standstill. This is clear from a reading of Section 245F (2) of
the Act. Thus, no adverse inference can be drawn from the fact that the
questionnaire issued by the AO was not answered.





15. Insofar as the second reason i.e. full and true disclosure is concerned,
even the report of the CIT does not point to a great variance in the income
disclosed. The difference between the two amounts as disclosed by the
Petitioner and as deduced by the CIT from the documents seized is
approximately Rs 14,621,882/- which constitutes less than 1.5% difference
in the amount disclosed and the amount computed by the CIT. It is possible
that the said amount can be reconciled before the ITSC if the application is
proceeded with and heard finally. The difference is too minimal when
compared to the total amount disclosed, to constitute a failure to make full
and true disclosure of the income.


16. Coming to the main plank of Mr. Chaudhary's submission that the
Petitioner had taken a contradictory stand, reason no.2 given in the
impugned order reads as under:
            "Applicant has taken contradictory stand regarding
            whether it is a successor company or a new set up to
            explain the sale of assets claiming that it is a successor

W.P.(C) 3373/2013                                                        Page 9 of 11
            company but regarding issue of fresh share capital it
            was stated that it was in the process of set up."

17. A perusal of the above reveals that the ITSC appears to have proceeded
on a wrong premise. There is no doubt that Shetkari is an earlier avatar of
the Petitioner. The Joint Venture Agreement clearly shows that 100% of
shareholding of Shetkari was owned by Ridhi Sidhi and that was intended to
be diluted with investments from the other companies including Enn Vee.
The application of Enn Vee is pending before the ITSC. The primary ground
for rejection is that Enn Vee is a conduit and that it has received the
substantial amount of share capital from bogus/non-existent companies. If
this is so, it would have consequences for Enn Vee as well. The dismissal of
the Petitioner's applications by the ITSC would result in a failure to examine
the matter comprehensively and in entirety. Even if what is contained in the
report is indeed true which would become clear after the proceedings at the
ITSC are concluded, appropriate orders can be passed by the ITSC in
accordance with law in respect of such bogus companies, if any. The
rejection of the applications of the Petitioner cannot be done on this sole
ground and in fact it would be appropriate if the Petitioner's case is heard
and decided along with case of Enn Vee.


18. Finally, the contradiction which has been highlighted in reason no.2
above appears to misunderstand the situation. It is not in dispute that the
Petitioner company was undergoing restructuring. The restructuring of the
shareholding is different from a company being newly setting up. The term
`process of setup' is merely a misdescription by the Petitioner of the
restructuring process, in its response dated 1st April 2013, to the notice of

W.P.(C) 3373/2013                                                   Page 10 of 11
the ITSC dated 8th February 2013. The ITSC appears to have borrowed this
terminology from the said document and has non-suited the Petitioner on
that ground. What indeed is clear from the facts is that the shareholding
pattern of the Petitioner company was being restructured/changed and it was
not an establishment of a new company. While the shareholding of any
company is being changed, there is no bar on depreciation being claimed as
permissible in law. Thus, this could not be a ground for rejection of the
Petitioner's applications.


19. In view of the above facts and following the decision in Bindlas Duplux
(supra) this Court deems it appropriate to set aside the impugned order of
the ITSC. It is clarified that this Court has not examined the merits of the
dispute which shall be examined by the ITSC in accordance with law. The
applications filed by the Petitioner shall be proceeded with and considered
by the ITSC along with the application filed by Enn Vee.


20. The writ petition is allowed in the above terms. The pending stay
application also stands disposed of.



                                               PRATHIBA M. SINGH, J



                                                      S.MURALIDHAR, J
OCTOBER 09, 2017
dk




W.P.(C) 3373/2013                                                 Page 11 of 11

 
 
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