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Commissioner Of Income Tax Central-Iii Vs. M/s. Radico Khaitan Ltd.
July, 18th 2017
*      IN THE HIGH COURT OF DELHI AT NEW DELHI
                                                 Reserved on: 02.03.2017
                                               Pronounced on: 13.07.2017
+      W.P.(C) 7207/2008
       COMMISSIONER OF INCOME TAX CENTRAL-III..... Petitioner
                       Through : Sh. Rahul Chaudhary, Sr. Standing
                       Counsel with Ms. Lakshmi Gurung and Sh. Anurag
                       Vijay, Advocates.
                           versus
       M/S. RADICO KHAITAN LTD.                    ..... Respondent
                     Through : Sh. Ajay Vohra, Sr. Advocate with Ms.
                     Kavita Jha, Advocates.
       CORAM:
       HON'BLE MR. JUSTICE S. RAVINDRA BHAT
       HON'BLE MR. JUSTICE NAJMI WAZIRI

MR. JUSTICE 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
respondent (which is hereafter referred to as "Radico" or "the assessee") is
engaged in the business of manufacturing and marketing Indian made
foreign Liquor or IMFL, country liquor etc. 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.




W.P.(C) 7207/2008                                                  Page 1 of 20
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, requiring the assessee to file
returns within 16 days from the date of receipt of the notice. Radico 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 including the amount offered for taxation for 2006-07 thus
worked out to `27.5 crores.
4.     In terms of amended provisions of Section 245D(2D) of the Act, tax
on the additional income disclosed in the application filed and interest
thereon had to be paid before 31.07.2007. The assessee moved a writ petition
before this court claiming that the settlement application may not be held as




W.P.(C) 7207/2008                                                    Page 2 of 20
non-maintainable on the ground that interest had not been paid before
31.07.2007. The court passed an order on 26.07.2007 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 `177,84,16,966/- by filing supplementary report dated
13.02.2008.
5.     After hearing the parties and considering the materials, the
Commission settled the concealed income of the assessee for all the block
years at `30 crores. The revenue states that this ignored the relevant evidence
adduced by the petitioner and reasoning offered by her in the report filed
under Rule 9, without assigning any basis for such determination. The
revenue states that the amount of ` 30 crores determined by the Commission
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 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









W.P.(C) 7207/2008                                                    Page 3 of 20
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 search but in any case, to buy peace of mind, the
       applicant company offered a sum ofRs.27.50 crores before the
       Income Tax Department in statements U/S 132(4), out of which,
       Rs.4.5 crores have already been included in the regular return
       of income for assessment year 2006-2007. The applicant
       company begs to submit that the figure of wastages shown in
       the books of accounts is as per the norms of the industry and
       the same has been shown to have been sold to various persons
       in the unorganized sector, 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 actual realization of waste
       material. The applicant is not in aposition to identify the exact
       amount arising out of such transactions, which could be much
       less than the income offered in statement u/s 132(4) but with a
       view to buy peace of mind and settle the income tax case of the
       applicant, the additional income offered ofRs.27.5 crores in
       statement u/s 132(4) is being offered in various years including
       Rs.4.5 crores effected in regular return for assessment year




W.P.(C) 7207/2008                                                      Page 4 of 20
       2006-2007, meaning thereby a net amount of additional income
       offered before the Hon'ble Commission would be Rs.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
required to make full and true disclosure of the income including the manner
in which, such income was earned.
8.     The revenue questions the Commission's findings in treating the
papers and evidence, regarding illegal payments made by the assessee
through UPDA to various officials and politicians found from its premises
(i.e. of UPDA) and from the residence of Sh. R.K. Miglani as third party
documents. 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




W.P.(C) 7207/2008                                                        Page 5 of 20
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 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 the applicant and
with respect to concealed income of ` 25 crores was in fact not specified and
details were lacking. It was also urged that the assessee incurred expenditure
on payment of bribes to officials; the amounts were through undisclosed
income which was claimed as genuine business expenditure. Evidence was
forthcoming to the revenue during the search, which clearly belied such
expenditure. In this regard the contents of the laptop of the assessee's
managing director seized during the 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 crores, being inadmissible on account of
the statements being made by a third party, i.e. Sh. R.K. Miglani and that he
was not subjected to cross-examination, are erroneous. It was submitted that
the contents of those documents were to a certain extent corroborated by the




W.P.(C) 7207/2008                                                   Page 6 of 20
materials found in the assessee's search. Moreover, the financial break-up
found in the laptop of the assessee's managing director, corroborated the
revenue's position that there was substantial concealed income in the form 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 a known 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




W.P.(C) 7207/2008                                                       Page 7 of 20
filed along with the Rule 9 report, i.e. material retrieved from the assessee 's
managing director's laptop to show that there was suppression of profit to
the extent of ` 32.32 crores. Likewise the materials retrieved from the laptop
also showed working of revised revenue generation for financial 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 classes of
cases, where the findings rendered are so unreasonable or palpably and
manifestly contrary to the evidence on record, the court can exercise its
discretion and interfere with such findings. It was therefore argued that in the
present case the Commission's findings fall in such limited category and that
this court should exercise its discretion to set them aside.
13.    Learned senior counsel for the assessee at the outset argued that this
court has extremely narrow and limited jurisdiction 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 & Fatechand Nursing Das v.
Settlement Commission [1989] 176 ITR 169. It was submitted that even




W.P.(C) 7207/2008                                                     Page 8 of 20
wrong appreciation of facts cannot be a ground for interfering with findings
of the Commission. It was submitted that in Commissioner of Income Tax v.
Anjum M. H. Ghaswala & Ors 252 ITR 1, the Supreme Court observed that
the Commission has sufficient elbow room to arrive at a settlement which it
deems fit so long as such settlement is not in conflict with the mandatory
provisions of the section 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 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. In this context is submitted that the revenue's averment to the
effect that the alleged payment to UPDA representing the assessee's




W.P.(C) 7207/2008                                                    Page 9 of 20
undisclosed income is conjectural, premised on surmises. In the course of
search at the premises of the respondent, no documents were found
evidencing the alleged payment nor did the search yield any unaccounted
cash, bullion, jewellery etc. The revenue merely sought to rely on the ex-
parte bald statement of Sh. R.K. Miglani, General Secretary of UPDA to
substantiate the allegation that the assessee had paid monies outside the
books of accounts to UPDA. Further no independent/corroborative evidence
had been found to support the allegation of payment and 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 had been conducted in the case of the assessee,
directors and employees, no papers were found to show that any payments
had been made by it to UPDA,
(c) no opportunity had been given to cross-examine Shri R.K. Miglani,
(d) there was no independent corroborative evidence led by the petitioner-
Department to support the allegation that the assessee paid monies to UPDA
outside the books of account. Such allegation could not be supported with
reference to papers found at the premises of UPDA.
17.    Similarly, 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




W.P.(C) 7207/2008                                                 Page 10 of 20
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
payments made to Rimjhim were justified; he submitted that the agreements,
which the assessee had entered into with, that concern, could not be
displaced or discounted. As to the nature of expenditure, 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 settlement in respect
of an assessment year that is pending; no application is permissible once




W.P.(C) 7207/2008                                                   Page 11 of 20
proceedings are pending under 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 receipt of an application (under Section 245C) , the
Commission should, within seven days from the date of its receipt, issue a
notice to the applicant requiring him to explain as to why the application
should be allowed to be proceeded with. After hearing the applicant, the
Commission has to, within a period of 14 days (from the date of the
application), by an order in writing, reject the application or allow the
application to be proceeded with. Proviso to Section 245D (1) stipulates that
where 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
the specified period, the Commission has the discretion to, (within 15 days
of receipt of report) and by an order in writing, declare the application in
question as invalid. In such case, the Commission has to send a copy of such
order to the applicant and the revenue (i.e. Commissioner). The first proviso




W.P.(C) 7207/2008                                                  Page 12 of 20
to Section 245D (2C) ensures that an application shall not be declared
invalid by the Settlement Commission unless an opportunity has been given
to the applicant of being heard. The second proviso 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 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 if it was subsequently found by the Commission
that it had been obtained by fraud or misrepresentation of facts. Section




W.P.(C) 7207/2008                                                     Page 13 of 20
245D (7) provides that where a settlement becomes void under sub-section
(6), the proceedings in respect of the matters covered by the settlement shall
be deemed to have been revived from the stage at which the application was
allowed to be proceeded with by the Commission and the income tax
authority concerned, may, notwithstanding anything contained in any other
provision of the said Act, complete such 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 passed under Section 245D (4), have, (subject to Section 245D (3)),
exclusive jurisdiction to exercise the powers and perform the functions of an
income tax authority under the said Act in relation to the case.

22.    What triggered the assessee's settlement application in this case was
the search and seizure operations conducted by the revenue in its premises,
the premises of its directors and the offices of the UPDA as well as that of
Sh. Miglani, a functionary of the UPDA. The main thrust of the revenue'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




W.P.(C) 7207/2008                                                   Page 14 of 20
extent that it concealed over ` 35 crores in payments into the fund, and for
payments to police, state excise and other officials.

23.    The revenue's argument mainly hinges upon the clandestine payments
to UPDA and statements of its Secretary General. These include various
tables and charts mentioning the names of distilleries (members of the
association) and the expected payment from such distilleries. These
documents were signed by the Sh. Miglani and on behalf of the 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 the Act, which read as follows:




W.P.(C) 7207/2008                                                   Page 15 of 20
       "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- tax Act,
       1922 (11 of 1922 ), or under this Act. 1
       Explanation.- For the removal of doubts, it is hereby declared
       that the examination of any person under this sub- section may
       be not merely in respect of any books of account, other
       documents or assets found as a result of the search, but also in
       respect of all matters relevant for the purposes of any
       investigation connected with any proceeding under the Indian
       Income- tax Act, 1922 (11 of 1922 ), or under this Act.]
        (4A) Where any books of account, 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 documents which purport to be in the
       handwriting of any particular person or which may reasonably
       be assumed to have been signed by, or to be in the handwriting
       of, any particular person, are in that person' s handwriting, and
       in the case of a document stamped, executed or attested, that it
       was duly stamped and executed or attested by the person by
       whom it purports to have been so executed or attested."









W.P.(C) 7207/2008                                                   Page 16 of 20
It is evident that in the absence of these foundational facts, the revenue is
under an obligation 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'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 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




W.P.(C) 7207/2008                                                    Page 17 of 20
by the Commission cannot be said to be unreasonable as to warrant
interference. Likewise, so far as suppression of profits for financial year
2004-05 is concerned the 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 have anything
to do with actual state of affairs. 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 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 Fair N Square Pvt.
Ltd and Rimjhim. The revenue alleged that the first Company (Fair N
Square) was involved in entry operations and that expenditure claimed by the
assessee was bogus and entirely fictitious. To say so it relied upon the




W.P.(C) 7207/2008                                                  Page 18 of 20
statement of one Rajan Jassel. The assessee counters to this by saying that
Jassel's statement was recorded on 4th February 2004 long before the date of
search in its case. Furthermore, the assessee states that there was nothing in
the statement of Jassel that he had 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 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 claimed by the assessee at the relevant time was suspect, and
whether it was on account of any fresh material is not clear. In any event the
Commission concluded that the agreement of 01.06.2002 envisions
supervision services by Rimjhim.
28.    In this regard, the court is of the opinion that while expenditure
claimed by itself might be suspect, the revenue had a further obligation to




W.P.(C) 7207/2008                                                   Page 19 of 20
investigate further and more deeply into the matter having regard to the fact
that the agreement between the assessee and Rimjhim was disclosed earlier.
The mere statement of one employee of Rimjhim would not have discredited
the agreement itself. It was incumbent upon the revenue-had it suspected the
expenditure, (in the over four-month period given to it to furnish its report
under Rule 9), to elicit particulars from the concerned AO having
jurisdiction over Rimjhim as to whether that concern 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.
29.    On an overall assessment of the materials that the Commission was
confronted and had to deal with, its findings are neither unreasonable nor
contrary to law. The findings are based on a proper appreciation of facts,
which this court affirms. For these reasons, the writ petition has to fail; it is
accordingly dismissed, without order on costs.

                                                        S. RAVINDRA BHAT
                                                                  (JUDGE)



                                                             NAJMI WAZIRI
                                                                  (JUDGE)
JULY13, 2017




W.P.(C) 7207/2008                                                     Page 20 of 20
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