DCIT, DEHRADUN vs. M/S. M.L. JUYAL & CO. (AOP), DEHRADUN

These two appeals are filed by the Dy. Commissioner of Income Tax (Appeals)-2, Agra Camp at Dehradun, for assessment years 2009-10 and 2010-11, raising the following grounds of appeal. [ Ay 2009-10] That the Ld. CIT (A) has erred in law and on facts in deleting the 1. addition of Rs.2,74,19,941/-, made on account of undisclosed income, without appreciating the facts brought on record by the AO.

Facts before us facts for AY 2009-10 show that assessee is an Association of person engaged in retail sale of Indian made foreign liquor.

The search u/s 132 of The Income Tax Act, 1961 [The Act] was initiated on the business and residential premises of the assessee Association of person on 21/10/2010 in the Juyal group of cases. Accordingly notice u/s 153A (1) (a) of the act was issued on 13 February 2012 for the impugned assessment year. In response to the above notice, the assessee AOP filed its return of income on 27/7/2012 declaring the same income as per the original return of ₹ 7,082,810.

Ld AO noted that Mr. Manohar Lal Juyal is the main controlling person of the family who is involved in the business of liquor trade in the status of Association of person, running of hotels, educational Institute and real estate business in an around Dehradun. The two concerns M/s M L Jyual & co and M/s Juyal & co are association of persons being run by the group consisting of members of the family and figures of member are different in year to year. Sri Manohar Lal and his family members hold maximum percentage of shares in profit and loss of this association of persons in whose account the liquor business is being run. During the course of search conducted on 21/10/2010 the documents and computer hard disks were found and seized. The learned that AO noted the modus operandi of the group that the members of the AOP arranges availability of funds required at the time of submitting applications for auction and after obtaining of liquor shops in the state of Uttaranchal as per the Excise policy framed by the government . To obtain the maximum number of shops in that particular region the group submits a number of applications for the district Excise authorities in different names and in different districts and for making such application deposit substantial amount by way of demand draft being purchases either in cash or through bank accounts of the AOPs and the members of AOP. It also incurs substantially solvency expenses at the beginning. On successful bid, it deposits license fees and initial Excise duty before commencement of the business, which also runs into crores of rupees. For this purpose, the funds are arranged by the different family members of the group and from the main members of AOP.

During the course of search certain documents were found and seized from the residence of Sri Suresh Chand Gupta , some of the documents found shows that a statement which is named as net profit distribution sheets prepared in which actual profit/loss by the different shops district -wise is mentioned which is distributed among the main members of the AOPs which run into crores of rupees with the profit disclosed in the return of income of the AOP is very small which is around 25% to 30% of the actual net profit. In the chart, the funds provided by each member and further funds provided during the year and further funds required is also mentioned with the details of the withdrawals made by them. The AO noted that during the course of search annexure LP –3 was found and seized from Hotel Saurabh, which contain record of vital transactions related to liquor business of the group. According to the document the details of distribution of net profit of ₹ 31,861,009/– during the period 16/6/2008 to 31 March 2009, details for the period from 1/6/2007 to 16 /6/2008 showing net profit of ₹ 22,295,000/– and the similar detail for the period 1/4/2009 to 2 March 2010 for distribution of net profit of ₹ 50,866,876/– has been mentioned. According to the AO the above documents show the details for the period of three years while the similar papers containing the details of above three years and also for the earlier years was found from the residence of Mr. Gupta , who is an accountant of the AOP. Thus the learned assessing officer prepared a chart starting from 1 April 2005 to 31st of March 2010 tabulating the net profit earned and distribute amongst the AOP members as per the documents seized amounting to ₹ 143,329,462 against which the profit shown in the return in respect of both the AOPs in aggregate were only ₹ 37,300,379/– . Therefore on the year -wise bifurcations of the sum according to the AO there is a different profit earned by these AOPs against the returned income shown. Accordingly, the assessee was asked to furnish an explanation of the transactions of those documents with respect to the entries in the books of accounts and income disclosed in the returns for the respective assessment years. Assessee submitted that above documents pertaining to one Dehradun wine company and no such business entity existing in reality. It was further submitted by way of an affidavit that no such real transactions took place. It was further stated that these documents absolutely either have no relevance for assessment of the total income of of the two AOPs or of their members and therefore no addition is required to be made. The learned assessing officer rejected the contention of the assessee. The learned assessing officer noted that Dehradun wine company is just another name of the AOP. The documents are found from the residence of the main accountant of the AOP and it contains the trial balances and ledger account of the parties from whom the liquor purchases have been made and therefore these accounts pertain to the assessee only. The AO further noted that the above accounts completely tally with the books of accounts of the AOP as well as the ledger account submitted by the assessee. The AO further rejected the argument of the assessee that the above profit distribution statement was only to attract the investor for the reason that the documents seized also contain share percentage and investment ratio and capital account of the individual AOP members. The AO further noted that in the statement recorded of Mr. Gupta he admitted that all the documents found from his residence belong to AOPs. The learned AO further referred the statement recorded of Mr. Gupta on 21/10/2010 wherein he categorically stated that the documents belong to the AOPs. The AO further noted that there are undisclosed income of the AOPs also substantiated by the fact that Mr. Manohar Lal himself during a statement recorded on 21/10/2010 voluntarily surrendered ₹ 7.5 crores looking into the transactions in the seized documents and discrepancies found in his books of accounts. The AO noted that such a huge surrendered had only been made by him on ground of accepting the fact that the actual profits of business had not been disclosed during the above. Based on this, the books of accounts of the assessee were found to be incorrect and on the basis of the evidences as given in the papers seized wherein the actual net profits of the two AOPs of the profit for the year Under assessment is computed applying the provisions of Section 144 of the income tax act. The AO noted that for the assessment year 2009 – 10 the net profit shown by both the AOPs in the return of income is only Rs 7,480,504/- whereas the net profit shown in the seized documents is ₹ 36,343,600 and therefore the difference to be added in the hands of the assessee is ₹ 28,863,096/–. Accordingly out of the above sum for assessment year 2009 – 10 the assessing officer made an addition of Rs 2,74,19,941/- in the hands of assessee being the share of undisclosed income to be added in the hands of the assessee AOP. For working out the allocation of undisclosed income the learned assessing officer noted that in both the AOPs the income declared is 5% and 95% respectively and therefore undisclosed profit is also attributed on that basis. Thus, an addition of RS 2, 74,19,941 was added as undisclosed income of the assessee for the assessment year 2009 – 10. Consequently the assessment order u/s 153A read with Section 144 of The Income Tax Act was passed on 21st of March 2013 determining total income of the assessee at Rs 34,502,749/– against the returned income of the assessee at ₹ 7,082,808/–.

The assessee aggrieved with the above order containing the above addition preferred an appeal before the learned CIT – A. The learned CIT – A considered the written submission filed by the assessee on 10 September 2014, wherein the assessee referred to the various affidavits in the documents submitted before the assessing officer. In the above submission the affidavit of Mr. Gupta as well as Mr. Manohar Lal was also pressed. Learned CIT – A forwarded the comment of the assessee to the learned assessing officer for her comments on 10 September 2014 itself asking to submit whether there was any entry is in the books of accounts of the assessee or other seized materials, which could corroborate the fact of the authenticity of what was stated in the seized documents. The AO on 23 September 2014 submitted the detailed report reiterating that the addition has been correctly made in the hands of the assessee. The copy of the remand report of the AO was provided to the authorised representative on 24/9/2014 for its comments. On 15/10/2014, the assessee submitted a detailed reply to the report of the learned assessing officer once again reiterating that the addition has been incorrectly made. Assessee also made an another written submission before him on 30 January 2015 explaining that the papers at page number 13 – 27 of the remand report and tallied with the sales as assessed by the State trade tax department. The learned CIT – A further granted an opportunity to the assessing officer on 3 February 2015 which was replied by the learned AO by submitting another report on 4 February 2015 once again reiterating that the addition of undisclosed profits has been correctly made in the hence of the AOP on the basis of important documents seized during the course of search. The assessee further submitted a rejoinder on the second remand report on 18 February 2015 and submitted a written submission on 11 January 2016. The AO was further given an opportunity to deal with the specific issue raised by the assessee that the composition of the members of Dehradun wine company as relied upon by the learned assessing officer in the assessment order do not match with the appellant’s AOP as the members were not entirely same. Further it was also stated that the members share in the two AOPs were also not matching as shown in the profit distribution sheets of Dehradun Wine company. In response to that the learned assessing officer once again submitted his comment on 15th of March 2016 wherein the learned assessing officer referred to the statement recorded u/s 132 (4) of the act at the time of search. The learned AO further submitted that in the statement of Mr. Gupta recorded u/s 131 though he has retracted from the statement given u/s 132 (4) however such a change was not unusual in view of the influence of Mr. Manohar Lal over Mr. Gupta. The AO further stated that the difference in the composition of the appellant’s AOP with that of the Dehradun wine company should not have any bearing on the profits determined in the assessee’s hands. In response to that, the assessee further made submission on 17th of March 2016. All these correspondences between the assessing officer and of the assessee before him are reproduced ad verbatim by the learned CIT appeal at page number 13 – 60 of his order. After considering the submission of both the parties the learned CIT – A gave a categorical finding that the entire addition made by the AO is solely made based on the documents in Pen drive, which were seized from the residence of Mr. Suresh Gupta in the form of profit distribution sheets, is not sustainable. He gave his reasons for deletion of the same in his order at page number 61 – 77. Thus the learned CIT – A deleted the addition and therefore the revenue is aggrieved and is in appeal before us.

The learned departmental representative vehemently referred to the various observations made by the learned assessing officer and extensively took us through the order of the learned assessing officer. In fact, he supported the order of the learned AO.

The learned authorised representative supported the order of the learned and CIT – A.

We have carefully considered the rival contention and perused the orders of the lower authorities. The only issue involved in this appeal is whether the addition can be made in the hands of the assessee based on the profit distribution sheets found from the place of Shri S C Gupta, erstwhile accountant of the assessee AOP. The established fact shows that that these sheets were found during the course of the search conducted at the business premises of the assessee and Mr. Gupta. The fact also shows that initially while recording a statement u/s 132 (4) of the income tax act of Mr. Gupta, he confessed that these documents belong to the AOP. Further the main person of the firm Mr. Manohar Lal in his statement recorded u/s 132 (4) of the act disclosed an undisclosed income of ₹ 7 .5 crore however, same disclosure was not owned by the assessee in its return of income. Further several rounds of hearing during the pendency of appellate proceedings before the learned CIT – A and submission of both the parties i.e. the learned authorised representative as well as the learned assessing officer before the learned CIT – A, has thrown light about the relevance of the seized material found from the accountant of the assessee. The learned CIT – A has extensively reproduced the submission of both the parties and after consideration of the same has reached at a conclusion. The learned CIT – A has dealt with the whole issue of the above addition as Under:- “14. I have considered the facts of the case; the written submissions filed by the learned authorised representative for the appellant on different dates and have perused the assessment order as well. Besides, the remand report submitted by the AO and the rejoinder submissions on the same filed by the learned that AR of the appellant on different dates has also been considered. From the perusal of the same, I find that the entire addition made by the AO is solely made based on documents/pen drives et cetera, which were seized from the residences of the Mr. S C Gupta, accountant and the documents, which were seized from Hotel Saurabh. These documents were in the nature of profit distribution sheets of one Dehradun wine company and while other papers showing the amount of capital brought in by various members of the AOPs in wine trade, the profit earned by them during the year, the distribution of this profits and the balance outstanding in the names of these members at the end of the year. The loose papers also contain trial balances and ledger accounts of parties from whom liquor has been purchased. During the course of statement of Sri Gupta which was recorded u/s 132 (4) of the act, shri Gupta has stated that these documents and pen drive belongs to Shri M L Joyual and his association of persons and he has brought all these things to his home for posting the same in the books of accounts being maintained in the computer at his residence. In response to another question, he has stated that the net profit indicated to have been distributed of ₹ 50,866,876/– belongs to the office at 15 Saharanpur Road and it was the net profit for financial year 2009 – 10. On the basis of his statement and the coincidences noted in the ledgers of these entities with the books of M/s M L Joyual & co, the AO has concluded that the numerous wine companies are in fact pseudonymous for the territorial operation of the appellant’s AOPs and since the wine companies contain members of both the AOPs i.e. M/S M l Joyual & co and M/s M L Joyual, therefore the corresponding profits have been added back in the hands of the both AOPs according to a formula devised by her . The coincidences noted by the AO are that that the credit balances of the companies as reflected in the trial balance and the Ledger accounts of the parties from whom liquor were purchased, tallied completely with the ones that have been found in the books of the AOPs. Further, during the course of remand proceedings the AO has pointed out that the bank account details on the balances in the trial balance of Dehradun wine company tally with the bank details in the accounts of M/ M L Joyul & co. It has also been pointed out that the capital accounts of these members found on the pen drives and the details of capital found in the profit distribution sheet tally with the capital accounts of these members found in the trial balances of the wine companies and the addition of capital of the members as per the sheets and computer files tally with the capital introduction is reflected in the registered marked annexure A – 3 found at the residence of S C Gupta. , The accountant. It is the stance of the AO that since other details in the trial balances are found to match with the regular books of M/s M L Joyual & co , there is a clear presumption that the profits in the profit distribution sheets are not fake and fabricated, but in the present the actual profit earned by the appellant’s AOPs, which have not been disclosed by the AOPs before the Department. It has also been pointed out that register A – 3 has never been denied by the parties and has in fact formed the basis of surrender of ₹ 7.5 crores by Shri M L Joyual. It is thus been argued that if the linkages to the books of accounts approved for even one year, then it creates a presumption that the documents are not fake and fabricated in the profits distributed for all the years are actually as per the profit distribution sheets found and seized.

It is worthwhile to mention that while the seizure of the documents that show the profit distribution of Dehradun wine company to its members and the linkages noticed between the papers relating to this entity and the trade creditors and bank balances in the accounts of M/s M L Joyual & co to create a suspicion that Dehradun wine company is pseudonym for M/s M L Joyal & co, as pointed out by the AO in the remand report, however at the same time it is also true that during the course of the search not even a single document was found which could reveal/ point out as to how the profit has been earned or determined, no duplicate books of accounts have been found, which would definitely have been maintained, in fact it was the case that the assessee was maintaining two sets of accounts, one for itself to keep track of the business and one producing the same before the tax authorities to justify the lower profits. It is further borne out that apart from the profit distribution sheets, no other material has been found during the course of the search or which is highlighted by the AO to show suppression of receipts or profits or inflation of expenses with a view to reducing profit. Thus the entire profit distribution sheets appear to be a standalone document, not backed by any other document that would show how it came into being. Even the trial balance referred to by the AO, being incomplete, does not help in determining the assessee’s undisclosed profits. If the assessee was indulging in this kind of out of book sales in generation of profits of such magnitude, the records relating to it would have certainly revealed out of the search operation, however no record of any such nature could be unearthed or revealed from the extensive search conducted by the Department. The absence of any such books of accounts or documents to show how these distributed profits have been earned and determined does cast doubt on the evidentiary value of these seized papers alone indeed.

Further with regard to the AO’s findings in determining the assessee’s undisclosed profits, it is necessary that the profits that are distributed have to be earned first. It may be noted that high undisclosed profits in the trading venture can only happen if quantum of sales or their value are suppressed, purchases are inflated or excessive expenses claimed. As regards the same, the AO throughout the course of assessment and remand proceedings, has not been able to bring on record any evidence regarding appellant’s indulging into inflating its purchases are expenses or suppressing its sales or the value of its sales. Whereas the appellant on the other hand has pointed out that the Indian made foreign liquor ( IMFL), the commodity in which it deals, is a controlled and regulated commodity in all states and cannot be purchased from anywhere, except on a permit issued by an excise officer and from the authorised warehouses. Every purchase has to be entered in stock registers issued by the excise authority and every sale is to be accounted for in order to keep the available stock with a vendor verifiable at all times for periodic surprise checks by excise and police authorities. It is a rule which is enforced by the state excise authorities that no person other than a licensed vendor can keep in his possession more than a certain specified quantity of liquor stock with it. Any trade or possession of liquor outside these norms amounts to bootlegging and the same is a criminal offence. It is further argued that regular checks are maintained by police and excise authorities to prevent on authorised trading of liquor. In this regard the learned AR has contended that no evidence in this case has come to light in the course of the search of the appellant indicating that the appellant had been indulging in bootlegging. Therefore in view of these contentions of the appellant there is practically no scope of suppression of quantity of sales. This is because the license of liquor vends are given by the state excise authorities from year to year basis and same expires 31st March of each year. At that point of time the vendor has to surrender the unsold stock to the authorised warehouses. Further, periodic inspection of stock are done by the excise department. Thus if out of book sales were made, the stock statements would vary and there would be excess stock in the books liable for surrender to the authorised warehouses. It is a regular feature of the liquor trade that the end of the financial year the liquor vends hold sales to exhaust existing stock, to avoid surrender of the same to the authorised warehouses.

It is pertinent to observe that in the liquor business, since the quantities related to excise duty payable, the quantity of purchases is consequently documented. Even the price at which the purchases are made from warehouses are controlled by the government. Thus there is extremely limited scope for the appellant to overstate its purchases from the purpose of suppressing its profits, and/or making purchases of excess liquor outside the books, without paying excise duty and receiving a permit for the same. As already observed, this would amount to an illegal activity. Moreover no such evidences relating to unauthorised purchases have come to fore during the course of search. During the course of search no paper indicating the purchases made out of the books was found and seized. As the liquor production is a highly controlled commodity, the purchases are made from the authorised distributors, distilleries and the same were subject to Tax Collection At Source (TCS) provisions Under the act. Therefore, in the given facts that no any such instances of purchase outside the books of accounts have been came to the fore out of the search operation, therefore there is no room that the appellant’s purchases can be doubted in any manner, unless any outside books of accounts purchases are detected by the AO either out of the search or during the post such enquiries. However, the AO has not brought on record any evidence which could prove the incidence of purchases made outside books of accounts by the appellant. Once the purchases are not in doubt, the sale itself though in cash could not be inflated because it is to be made at the most on MRP and MRP being subject to state levies fixed in this case. The AO while not doubting the purchases and the sales of the appellant, however had resorted to make the addition on the basis of papers, notations in pen drives found during the search, which the appellant vehemently throughout has stated that they were fake and do not give any picture of real business of the appellant.

While examining assessee’s details of other expenditures, it is further observed that the AO has not brought on record any evidence of inflation of expenses which were either attempted or claimed by the assessee. This is because the major heads of the expenditure in the case of liquor vendors are license fees and excise duty which are fully documented and subject to open verification. The remaining expenditures i.e. the engagement of helpers, rent of shops, electricity and transportation do not constitute such a large percentage of the liquor trade that any inflation of the same could lead to any extreme variations in profits that exist between the appellant’s accounts and the papers of Dehradun wine company. The AO in the assessment so framed has not brought on record any material for demonstrating that the assessee was overstating its excise duty payments or those on account of license fees.

Thus, in such a circumstance, there remains only the possibility of the suppression of the realized value of sales, if the assessee indulged into understating its sales by not recording a part of the value of sale is realised in the books of accounts. However as regards such an assumption, as nothing supporting this assumption has been unearthed during the course of search, therefore it gets to an imperative for the AO that such type of mere presumption has necessarily to be proved with reference to some cogent material and this could not simply be presumed. This aspect could have been proved if papers showing the record of assessee appellant understating its sales were found or duplicate set of accounts found which revealed once that recording true value of sales being charged from customers and another showing the suppressed sales in the regular books. But as already observed, the AO has not brought any such material on record on this count, either during the course of assessment or remand proceedings. On the other hand the appellant during the course of appellate proceedings has duly furnished the copies of assessment orders issued by the state trade tax authorities which go to support the appellant’s contention is that no suppression of sales were noticed by the state sales tax authorities concerned in the detailed scrutiny conducted of the assessee’s case before them. It is undisputed fact that there is no material which was unanswered during the search to explain how the profits that were presumed to have been distributed as per the profit distribution sheets, came to be earned or determined. Therefore, in the given facts and circumstances, the core seized documents depicting distribution of profits of Dehradun wine company cannot be held to be depicting the real profits of the appellant’s AOPs, even on the extreme if one were to consider or argue that the appellant’s AOP had destroyed its old duplicate set of books of accounts to avoid its detection in the search operation as conducted against it u/s 132 (1) on 21/10/2010. However there is no iota of any such evidence found during the course of search which could point to any such act on the appellant’s part.

The AO in the remand report has claimed that if the trend of suppression of profit is established with reference to one assessment year it can very well be presumed for the other years as well. Even though it is an undisputed fact that there was no positive evidence of suppression of sales that was unearthed during the course of the search, the AO while framing the assessment has proceeded on the lines of subscribing to the theory of human probabilities. In my view the fact that even during the current year of search there was no contrary material found indicating that the appellant has understated it sales , therefore, the AO in her approach to determine the assessees undisclosed profits has rather jumped to a conclusion merely by taking clue which the entries provided and arrived to finding that profit distribution sheets of Dehradun wine company depict a real picture of the assessee’s AOPs profits. If at all the the notations/entries as appearing on the loose paper or in the pen drive were of any relevance, that was in respect of providing to the AO with a cause and lead for canvassing the issue of assessee is undisclosed profits further with requisite inquiries, investigations with due conduct of independent verification and corroboration of evidence by way of examination of witness concerned, especially when the important statement of Shri S C Gupta was retracted by him, and such investigations/inquiries could have led to the AO to reach an unmistakable conclusion for establishing the actual undisclosed profits earned by the appellant’s AOP. However, the AO without developing on the primary information that these entries and notations on the papers and pen drives provided, had readily jumped to the conclusion that such notations/entries represented the undisclosed profits and hence undisclosed income of the appellant’s AOPs. However, keeping in view the fact that the said entries on the loose papers and soft media remain to be unsubstantiated from the AO’s end, therefore in such circumstances the appellant’s view has to be regarded that the paper/entries in question indicate nothing beyond what is stated by the appellant throughout the proceedings as before me or before the AO that these were entered/posted with a view to attract more investments and present a better picture during the state excise lottery as well as to the prospective investors.

Further, the AO has recorded the observations that the credit balances of the companies as reflected in the trial balance of the Dehradun wine company and the Ledger account of the parties from whom liquor were purportedly purchased by it, tallied completely with the ones that have been found in the books of the AOPs and the capital accounts of the members of Dehradun wine company tally with the capital accounts in register A – 3 which has not been denied by the assessee, however as regards the same it is observed that such an observation of the AO does not prove in any way that the profit stated to be earned by Dehradun wine company were earned by the assessee AOPs. The matching names and balances of the trade creditors in the books of the AOPs with the details contained in the trial balance and ledgers of Dehradun wine company and the matching details and balances of bank accounts of the AOPs, if prove anything, go to underline the fact that no case of out of book purchases have been found in the case of the assessee. No undisclosed bank account which were used to park the undisclosed profits so held to be earned by the assessee were found or detected during the course of the search and seizure operations. Further it is observed that the AO has not drawn any adverse inference against the members capital contribution as reflected in register A – 3 as no unexplained capital has been brought to tax in the hands of the AOP. The AO has not held any contributor of capital to be a benamidar of any other member. It is therefore noted again that the fact that the capital introduced by certain members of Dehradun wine company matches with the capital introduced by those members in register A – 3, which has been admitted by the appellant’s AOP to be authentic, does not prove that the profit shown to be distributed to those members by Dehradun wine company have actually been earned by the appellant’s AOPs.

As still further observed from the AO’s order, the figures in the impugned seized papers on computer files are sought to be justified by the AO on the basis of statement of Shri S C Gupta , accountant, recorded u/s 132 (4) would stated that the data related to the two AOPs and the entries were made as per the direction of Sri M L Joyual and net profit of ₹ 50,866,876/– belongs to 15 Saharanpur Road and is the net profit of financial year 2009 – 10. While most of the statement has been reiterated by him in subsequent statements and which have also been confirmed by him and Shri M L JOyual in their affidavits, however the issue of the profit of the AOPs have been denied by him. The said Sri S C Gupta has retracted from his statement before the AO during the course of assessment proceedings both in the form of an affidavit and the statement u/s 131, wherein he stated that the data was used to prepare fake and fabricated documents to entice investors to invest an the time of state excise lottery. However in view of such an assertion and retraction from his statement of the said Sri S C Gupta , the AO did not examine the issue of retraction further by calling witnesses or cross examine the said Sri Gupta at any length on his retraction from the statement. Therefore the AO has been granted another opportunity to examine Shri S C Gupta by way of remand so that the contradictions if any in his later statement could be brought to the fore and the facts now being stated by him could be ascertained with certainity whether the retraction was an afterthought or was a genuine indeed. But the concerned documents relating to the profit, the trial balances et cetera were not properly confronted to Sri S C Gupta and the AO could not bring any material on record to show why the retraction made by Sri S C Gupta was not acceptable. The AO has merely expressed an opinion that Shri S C Guta was the loyal accountant of Sri M L Joyal and the retraction was being made at the his behest, however the AO omitted to consider that Sri S C Guppta has stated that he had since left the service of the appellant’s AOPs. In any case a statement, from which the person making the statement has retracted from, cannot be the sole basis for including that a profit is assessable in the hands of the assessee appellant. As the retraction has added another dimension to the facts before the AO, then in such an eventuality, it was incumbent upon the AO to further examine the witnesses concerned, including Shri S C Gupta and Shri M L Joyual, with independent inquiries and arrived to a logical conclusion that the retraction is made from a statement by the said Shri Gupta was an afterthought and unjustified. However this has not been course adopted by the AO as the AO has not carried out the requisite examination of said Sri S C Gupta to any logical end, and the AO merely on the basis of retraction made by shri SC Gupta from his earlier statement also while suspecting that CSC Gupta has retracted from his earlier given statement at the behest and Under the influence of the managing partner Shri ML Joyaul., Has proceeded to make the addition solely on the basis of original and retracted statement of Sri Gupta and arrived to the conclusion about undisclosed income in the hands of the assessee. However in my considered view, the AO has not been able to contradict or refute the contention of the affidavit filed by Shri SC Gupta and Shri ML Jpyal, which however in view of the assessee’s reliance in the honourable Supreme Court’s decision in the case of Mehta Parikh & co V CIT reported at (1956) 30 ITR 181 (SC) ought to have been rebutted by the AO, and however in the absence of such an action by the AO, the contents of the affidavit of Shri S C Gupta retracting from his earlier statement cannot be disbelieved. Therefore, without unduly refuting and rebutting the contents of Sri Gupta’s affidavit and his fresh claim with any independent inquiries were evidences, the AO seems to have jumped to her findings, which makes the AO’s action to be all the more unsustainable.

The AO in the assessment order has duly noted the fact that the assessee during the course of search and made a surrender of the amount of ₹ 7.5 crore, however the same has not been shown by the assessee appellant in its return of income filed for both the AOPs for all the years covered by the notice u/s 153A, however it is noted that once the appellant did not return the surrendered amount in its return of income, the AO in such a situation had to resort to further enquiries with independent evidences for correlating and establishing the justification of income surrendered by both the AOPs of the appellant, however the AO without doing so, just proceeded to arrive to her findings of assessee’s AOPs undisclosed profits on the basis of entries/notations appearing on paper/Pen drives which throughout the length of proceedings before the AO as well as before me, has evidently been challenged by the appellant as fake and fabricated. It is seen that the total profits for both the AOPs for the period to which the profit distribution seeds pertain, have been declared at ₹ 37,300,379/–. The appellant’s AOPs explain the surrendered to have been made in the circumstances of the fact that this capital, although coming from legitimate sources, as they were able to demonstrate before the learned AO successfully, and as such no addition was made by the AO on that count in the assessment order was not recorded in the regular books of account. As regards the surrender of income made, it may be mentioned here that in case of the withdrawal of surrender made during the search cannot lead the AO to make assessment by making additions on the basis of papers claimed as fake without considering the purpose claimed by the appellant and without pointing out any evidences or discrepancy in the accounts produced by the appellant during the course of assessment proceedings. Therefore, as it is the fact that in this case, and quite evident from the proceedings conducted that even if a surrender was made during the search on the basis of register A – 3, it was retracted later and the AO could not find any evidence to show that the surrender was justified because the AO made no addition on account of the surrender made on account of register A – 3, while framing the assessment in the appellant’s case of different years for the two AOPs. As a natural corollary of the retraction on the basis of the document which in its ultimate analysis could not be adversely viewed, it cannot be held that the surrendered amount per se, constitute any evidence of undisclosed income, for making any addition on holding any earning or undisclosed profits by the assessee’s AOPs. Thus the fact of surrender cannot constitute evidence of earning of undisclosed profits. Admittedly it can be a ground for suspicion, however suspicion, howsoever strong that may be, cannot take place of the concrete evidence, which especially in view of nondisclosure or retraction by the assessee, then the earning of undisclosed profits ought to have been proved by the AO on the basis of cogent material which however is not the case in the assessment is framed by the AO for different years of the assessee’s AOPs.

I have further considered the appellant’s claim that not all the members of the AOPs are members of Dehradun wine company and all the three entities of different compositions. Further, that the members of the AOPs have filed the return of income on the basis of the profit as distributed in the AOPs books of account, and not that it has been shown on the basis of alleged profit distribution sheets of Dehradun wine company. As regards the said contentions of the appellant, it transpires that the AO while framing the assessment in the appellant’s case has dismissed the issue of variation in the composition of the AOPs and Dehradun wine company out rightly as irrelevant on the plea that what is being looked in these proceedings is the quantum of assessment of the AOPs and not the assessment of the members, however, as regards such an observation of the AO, I find there is a credence and force in the appellant’s contention is that the composition of the three entities i.e. AOPs are very much relevant for the purpose of ascertaining the respective identities. The AO in the assessment order has nowhere alleged that the members of the appellant’s AOPs, who are not the members of Dehradun wine company, are not, in fact, the members of the appellant’s AOPs themselves. That being the case, if it was to be held that the profits distributed to the members of Dehradun wine company as per the profit distribution sheets prepared and the actual profit of the appellant’s AOP, then in such a situation how the profits and income is offered for tax will be explainable which is shown by the remaining members, not being members of Dehradun wine company, in the respective returns of income filed with the Department. While keeping in view the same there cannot be a situation where it can be held that the profits earned by Dehradun wine company represent the real profits earned by and distributed by the appellant’s AOP for some members were members of Dehradun wine company and at the same time also to hold that books of account of the AOP are authentic in respect of distribution of profits to the remaining members of the AOP who are not members of Dehradun wine company. Says per the AO’s view is the profits on an distributed by Dehradun wine company are considered to be the appellant’s AOP true profits, then the profits distributed to the remaining members of the AOPs, which form part of the income tax returns, cannot be considered to be authentic. In short, the acceptance of the fact that the accounts of Dehradun wine company represent the authentic state of affairs of the appellant’s AOP would amount to holding that many of the members of the AOPs who in fact, not members of the two AOPs, are benamidars of others indeed, that the AOPs constituted by them is a sham and incomes declared by them in the respective returns are also sham . However, the AO has not arrived to any of these conclusions in the assessment as framed by her either of the AOPs or individual members.

The AO in the initial part of the assessment order has discussed the modus operandi of the appellant’s AOP in securing the liquor licenses. While alleging that the profits are distributed among the main members, she has not recomputed the income of any of these main members on the basis of this profit distribution sheet . Rather she has investigated the receipts of money from the various prospective members of the AOPs further contribution to the state excise lottery held in March 2010 and recorded statement of some of the persons in this regard, however she did not find any discrepancies in the same. That explains the reasons why the AO has not made any addition on account of capital introduction of capital contribution by the members at the time of formation of the appellant’s AOP. Thus going by the AO’s acceptance of capital contribution was brought in by the AOPs members, the AO in the process has also accepted effectively the genuineness of each such members capital introduction/contribution while framing the assessment in this case. While that being the case, then how a document i.e. the Dehradun wine company members profit sharing sheets, which is largely at variance with the assessee’s AOP, can be accepted as authentic in which the large majority of members of the AOP have been shown to have received no profits in the end. Even if the AO’s version was to be accepted, then could any part of the profits of Dehradun wine company be assessed in the hands of the appellant’s AOP, the obvious answer to this question remains to be in the negative.”

On persuasion of the reasons given by the learned CIT – A for deleting the above addition he has also relied upon the decision of the learned CIT – A in case of another AOP M/s M L Joyual & co AOP for the same assessment year deleting the identical addition made in the hands of the assessee which was proportionately made by the AO on the basis of the percentage of the income disclosed by both these AOPs. The learned DR could not show us the reason that whether the order passed by the learned and CIT – A has been further agitated before the coordinate bench or not. Whereas the learned authorised representative stated that no such appeal is being filed by the revenue before the coordinate bench.

The learned CIT – A has also considered that when the seized document is found from the premises of the assessee or from the accountant of the assessee the provisions of Section 292C applies and the assessee has stated that no duplicate books of accounts were found which even remotely suggest that such profits have been distributed. Therefore, the rebuttable presumption raised by the provisions of that Section has been effectively rebutted by the assessee. Further the main reason for deletion of the addition by the learned CIT – A is absence of any corroborative material found during the course of search, which supports even remotely that such profit as disclosed in the profit distribution sheets have been earned by the assessee AOP. The learned CIT – A further analyzed the nature of the business of the assessee wherein he gave a categorical finding that there is no evidence of any unrecorded sales, unrecorded purchases, inflation of expenses or in any other manner of inflating/deflating profits of the business of the assessee. He further found that there is no evidence of any excess stock available with the assessee. With respect to the statement of the accountant of the assessee, the learned CIT – A has categorically recorded a finding that during the course of assessment proceedings before the assessing officer itself such statement was retracted. During the course of remand proceedings the AO was given one more opportunity to verify whether the original statement made by the accountant or the retracted statement made by him is correct. The learned assessing officer as per the version of the learned CIT – A could not bring any material to show that the retracted statement of the accountant does not show the correct picture. Even otherwise, no corroborative evidences or examination of witnesses was carried out by the assessing officer. The learned CIT – A has also categorically stated that stock tally of the assessee of purchase and sales of Indian made foreign liquor are subjected to extensive audit by state trade tax authorities and assessee has come out unscathed in it. It was further pointed out that though the statement of distribution of profit found during the course of search was also showing the contribution of capital by the partners and withdrawals by the members of AOP, no such adverse inferences are taken of those figures. More so, the disclosure made by the assessee of ₹ 7.5 crores during the course of search in case of statement u/s 132 (4) of the managing member of the AOP not owned in the return of income, was not at all considered by the AO. No addition is made on that account. Therefore, it is apparent that the disclosure made by Mr. Manohar Lal was also without having backing of any corroborative material. In view of this we do not find any infirmity in the order of the learned CIT – A in deleting the addition of Rs 274,19,941/– in the hands of the assessee. Thus, we confirm the order of the ld CIT (A) . In view of this we dismiss ground number 1 – 4 of the appeal of the learned assessing officer.

In the result appeal filed by the learned AO for assessment year 2009 – 10 in ITA number 4866/del/2016 is dismissed.

Coming to the appeal for assessment year 2010 – 11 in ITA number 4851/del/2016 filed by the learned assessing officer against the order of the Commissioner of income tax (Appeals) – 2 dated 31st of March 2016 wherein on identical facts and circumstances of the case of the assessee addition made by the learned assessing officer of Rs 30,933,217/– is deleted, both the parties stated that the facts and circumstances of the case are identical to the facts for assessment year 2009 – 10 and therefore their arguments are also same. We have also carefully perused the rival arguments as well as the orders of the lower authorities for this assessment year and find that the orders have been passed by both the order authorities on the same line as were passed for assessment year 2009-10 in case of the assessee. Therefore, for the reasons given by us in upholding the order passed by the learned and CIT – A in deleting the addition for assessment year 2009 – 10, we also confirm the order of the learned and CIT – A for assessment year 2010 – 11 in deleting the above addition. Consequently, the similar grounds of appeal raised by the learned assessing officer for this year also that is ground number 1 – 4 are dismissed.

Accordingly, ITA number 4851/del/2016 filed by the learned assessing officer for assessment year 2010 – 11 is dismissed.

In the result both the appeals filed by the learned assessing officer for these two respective assessment years are dismissed. Order pronounced in the open court on 18/05/2021.