ACIT, NEW DELHI vs. M/S. MODI INDUSTRIES LTD., GHAZIABAD

The Jurisdictional High Court of Delhi, vide order dated 22.01.2015, has considered a batch of appeals preferred by the Revenue, challenging the common order of the Tribunal dated 23.11.2012.

3. The relevant findings of the Hon'ble High Court read as under:

“The revenue urges that the Assessing Officer and the CIT(Appeals) took note of not merely the document which listed out the payments made in a tabular form for different purposes, but also other documents and materials in the form of production figures, the statement of Mr. R K Miglani, and the circumstance that the production figures coincide with the figures available with the revenue in the pending proceedings. It appears that the ITAT has not rendered any specific findings on the status of such documents. For instance, if the production figures were in fact forwarded by the concerned unit under a letter or some other form connecting it with the material form seized, inference would be of particular kind.

7. We refrain from expressing any final opinion in the matter even on the contentions urged. Instead, we remit the matter for reconsideration on the lines indicated above. The ITAT shall refer to the material in entirety in respect of each assessee and render specific findings on this aspect. All 522/2013, 530/2013, 534-537/2013, 252-256/2014, 418-423/2014, 447/2014, 759-761/2014 & 782-784/2014 Page | 7 rights and contentions of the parties, including that of the revenue, if they feel aggrieved against the orders of the ITAT, are kept open. It is also clarified that the findings of the ITAT, if adverse to the revenue, are open to challenge.

8. The above appeals are remitted to the ITAT for fresh consideration. ITAT shall consider and render findings on the grounds raised by or in the appeals before it by the concerned assessees. It is clarified that this is not a limited remand and the ITAT shall proceed to hear the merits of the appeals pending before it on other grounds as well.”

6. The ld. CIT-DR was also heard at length, who also preferred to file written synopsis alongwith certain documents, which formed the basis of satisfaction note and ultimately the assessment orders framed u/s 153C of the Act.

COMMON GRIEVANCE NO. 1

WHETHER THE NOTE OF SATISFACTION RECORDED BY THE ASSESSING OFFICER SATISFIES THE LEGAL REQUIREMENT OF VALID INITIATION OF PROCEEDINGS U/S 153C OF THE I.T. ACT, 1961?

“Sir, SUB: - SATISFACTION NOTE FOR ACTION U/S 153C OF INCOME TAX ACT, 1961 IN' THE CASE OF M/S. SIR SHAD! LAL ENTERPRISES LIMITED, 4A, HANSALAYA, 15, BARAKHAMBA ROAD, NEW DELHI APPEARING IN THE DOCOMENTS SEIZED IN M/S RADICO KHAITAN GROUP OF CASES – REGARDING

It has come to my knowledge that you exercise jurisdiction over the case of M/s. Sir Shadi Lai Enterprises Limited.. Search and seizure actions under section 132 of I.T. Act 1961 were taken on M/s Radico Khaitan Limited group of cases and also at the residence of Shri R.K. Miglani, Secretary General of UPDA on 14.2.2006. Simultaneously a survey u/s 133 A of the I.T. Act, 1961 was carried out at the office of the L'PDA (Uttar Pradesh Distillery Association). Various incriminating documents were found and seized therefrom. Action u/s 153A has been initiated against, various persons including M/s Radico Khaitan Ltd, and Shri R.K. Miglani. During the course of search various documents were seized / impounded and statements u/s 132(4) / 133 A were recorded including those of Shri R.K. Miglani.

The scrutiny of incriminating documents found at the residence of Shri Miglani and also from the office of UPDA reveals that illegal payments were made by various Distilleries to various public servants. The UPDA acted as the nodal agency for making these illegal payments. The total of such illegal payments which are inadmissible expenditures works out to Rs.246 crore as per details given hereunder {as understood from annexure A-l & A-2 seized from the residential premises of Shri R K Miglani}:-' S.No. Name of the 2002-03 2003-04 2004-05 2005-06 Total Distillery (Till Jan) (in Lakhs

The distilleries appearing at S.No.12 & 13 belong to M/s Sir Shadi Lal Enterprises Ltd.

So, from the above chart, the total of such illegal payments in respect of M/S. Sir Shadi Lai Enterprises Limited, 4A, Kansalaya, 15, Barakhamba Road, New Delhi, which are inadmissible expenditure works out to Rs. 992.9 lakh, as per details given hereunder:- S. No. Name of the Distillery 2002-03 2003-04 2004-05 2005-06 Total (in (tillJan.) lakhs

1. Pilkhani 162 339 185.3 213.6 899.9

2. Shamli 93 93

M/s Saraya Industries Ltd. has taken over these country liquor division of M/s Balrampur Chini Mills Ltd. in the Financial Year 2005-06, so there are illegal payments by M/s Balrampur Chini Mills Ltd. in this year.

Pilkhani and Shamli Distilleries are owned by the same Sir Shadi Lal Group, so till a part of Financial Year 2003-04, the illegal payment amount has been calculated separately, but thereafter it has been clubbed.

For M/s Mohan Meakins Group also the Lucknow and Ghaziabad Distilleries are clubbed, through the major production/illegal payments come from Lucknow Distillery operations. M/S Majhola Distillery started making illegal payments in the Financial Year 2005-06. These illegal payments to public servants are fixed on the basis of monthly production / different distilleries. The total illegal payment amount is settled with the public servants and then this amount is divided proportionately on the basis of production / sales of different Distilleries. These figures of production / sales reflected in the papers impounded / seized from LPDA headquarters and the residence of its Secretary General Shri R. K. Miglani, in fact, tallies with the actual production / sales shown by different distilleries in their books of a/c, which, in a way indicate that these papers depict the illegal payments made and are not imaginary papers. These distilleries have adopted different methods for siphoning off / generation of this illegal payment amounts. Some of the instances noticed are as under:-

M/S National Industrial Corporation Ltd. (NICL) has paid (a) more than Rs. 10 Crores in F.Y. 2002-2003 and 2003-2004 to M/S Aneja & Co. as commission / supervision charges. M/S Aneja & Co. even after including these amounts did not have to pay any tax.

M/S Unnao Distillery has paid more than Rs. 30 Crores as (b) depot charges / expenses to two Delhi based parties, who .have paid negligible taxes on this amount. Such charges were not paid till Financial Year 2001-02.

Many distilleries started paying commission on sales, (c) expenses on sales, sales incentives etc. from F.Y. 2002-2003 onwards, when these types: of payments do not result into corresponding incidence of tax in the hands of the recipients. Sometimes these payments are made to business concerns in non-related business. Shamii and Pilkhani Distilleries. Daurala, Distillery.. M/S Lords Distillery have made such types of payments.

In most cases, expenses on empty bottles have increased (d) disproportionately since F.Y. 2002- 2003.

Some of the distilleries like Saraya are paying inflated (e) transportation charges if compared with other distilleries.

In view of the above facts based on seized documents and coupled with the statements of Shri R.K. Miglani. Secretary General of UPDA, I am satisfied that the documents seized. Hence. Action u/s 153C is called for in the ease of above noted person who has incurred illegal expenditure as mentioned above.

Photocopies of Annexures A-l to A-10 seized from the residence of Sh. R. K. Miglani and Annexures A-1 to A-8 impounded from the office of UPDA are being enclosed. Annexure A-9, impounded from the office of UPDA is a hard disc. Assessing Officers requiring copies thereof may obtain from the undersigned. Also find enclosed statement of Sh. R. K. Miglani, Secretary General UPDA recorded u/s 132 (4) and u/s 133 A on 14.02.2006. [C.P. Singh] Asstt. Commissioner of Income-tax Central Circle-4, New Delhi”

“153C (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the assessing officer is satisfied that (a) any money, bullion, jewellery or other valuable article or thing seized or requisitioned belongs, or (b) any books of account or documents or assets seized or requisitioned pertains or pertain to or any information contained therein relates to A person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to Assessing Officer having jurisdiction over such other person] and that Assessing Officer shall proceed against each such other person and issue notice assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person [for six assessment iimmediately preceding the assessment year relevant to the previous year] such search is conducted or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153A]”

Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to 45[sub-section (1) of] section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person.”

“4. Before we examine these writ petitions in detail it would be pertinent to point out that recently in the case of Pepsi Foods Pvt. Ltd. Vs. Assistant Commissioner of Income Tax,

WP (C) No.415/2014 and other connected matters, this court had occasion to examine the very provisions which are under consideration in the matters before us. In the judgement delivered on 07.08.2014 in the case of Pepsi Foods Pvt. Ltd. (supra), after examining the provisions of Sections 153C, 132(4A)(i) & 292C(1)(i) of the said Act, this Court had observed as under:

“6. On a plain reading of Section 153C, it is evident that the Assessing Officer of the searched person must be “satisfied” that inter alia any document seized or requisitioned “belongs to” a person other than the searched person. It is only then that the http://www.itatonline.org WP (C) Nos.414, 566, 567, 572, 573 & 574 of 2014 Page 5 of 17 Assessing Officer of the searched person can handover such document to the Assessing Officer having jurisdiction over such other person (other than the searched person). Furthermore, it is only after such handing over that the Assessing Officer of such other person can issue a notice to that person and assess or reassess his income in accordance with the provisions of Section 153A. Therefore, before a notice under Section 153C can be issued two steps have to be taken. The first step is that the Assessing Officer of the person who is searched must arrive at a clear satisfaction that a document seized from him does not belong to him but to some other person.

The second step is – after such satisfaction is arrived at – that the document is handed over to the Assessing Officer of the person to whom the said document “belongs”. In the present cases it has been urged on behalf of the petitioner that the first step itself has not been fulfilled. For this purpose it would be necessary to examine the provisions of presumptions as indicated above. Section 132(4A)(i) clearly stipulates that when inter alia any document is found in the possession or control of any person in the course of a search it may be presumed that such document belongs to such person. It is similarly provided in Section 292C(1)(i). In other words, whenever a document is found from a person who is being searched the normal presumption is that the said document belongs to that person. It is for the Assessing Officer to rebut that presumption and come to a conclusion or “satisfaction” that the document in fact belongs to somebody else. There must be some cogent material available with the Assessing Officer before he/she arrives at the satisfaction that the seized document does not belong to the searched person but to somebody else. Surmise and conjecture cannot take the place of “satisfaction”.”

“A search was conducted in the case of a company E and when the panchnama for the search was prepared, the name of the company R was also added to it. During the course of search, a letter written by the assessee to the company R was found, which contained the details of commission payments by the assessee to R in that year with a request to issue bills to the assessee• A copy of the ledger account of R maintained by the assessee as proof of payments made through official channel was also seized. The seized documents were handed over to the Assessing Officer, but, only one document namely the letter written by the assessee to R was handed over to the Officer of the assessee. A notice under section 153C of the Act was issued directing the assessee to file its return of income for the assessments 2007-08 to 2012-13, enclosing a satisfaction note dated July 21, 2014 stating that the seized documents belonged to the assessee and it was a fit case for initiating proceedings under section 153C read with section 153A of the Act.”

24. And held as under:

“Allowing the petitions, that the seized documents mentioned in the satisfaction note were the ledger account maintained by the assessee showing the commission payments made by the assessee to R and the letter written by the assessee to R. Since the letter was written by assessee to R to be treated as a document belonging to R and not to the assessee. Whether it might or might not be related to the assessee was not relevant since the amendment to section 153C of the Act in that regard was prospective with effect from June 1,2015 i.e. subsequent to the date of preparation of the satisfaction note. With regard to the extract of the ledger account maintained by the assessee concerning the payments of commission made by it to R, even if it was held to "belong" to the assessee, it could not be an “incriminating" document. This was a document relevant only for the assessment year 2010- 11. It could not have been used for reopening the assessments of the earlier assessment years 2007-08 to 2009-10, 2011-12 and 2012-13. While the ledger account extract might be relevant for the assessment year 2010-11, it could not be an incriminating material warranting reopening of the assessment. The return originally filed by the assessee for the assessment year 2010- 11 was picked up for scrutiny and finalised by an assessment order under section 143(3) of the Act. The payments of commission to R as reflected in the ledger account were already disclosed in the assessee's accounts which were examined while finalising the regular assessment. Therefore, the ledger account could not have led the Assessing Officer to be satisfied that any income had escaped assessment for the assessment year 2010-11. Thus, neither of the documents mentioned in the satisfaction note could have formed a valid basis for the Assessing Officer to initiate proceedings against the assessee under section 153C of the Act for the assessment year 2010-11 or any of the other years as proposed. Therefore, the notice dated July 23, 2014 issued by the Assessing Officer to the assessee under section 153A read with section 153C of the Act and all proceedings consequent thereto were to be quashed.”

25. Satisfaction note in the case of ARN Infrastructure India Limited [supra] reads as under:

"Satisfaction note for initiating proceedings under Section 153C read with 153A of the Income Tax Act, 19611n the case of M/s ARN Infrastructures India Limited, 9, Birla House, Arya Samaj Road, Karol Bagh, Karol Bagh, Delhi- 110005 (PAN AAFCA6403M) A search action u/s 132 of the I T Act,. 1,961 was initiated in the case of M/s Earth Infrastructures Ltd, at B-100, Indl Area Naraina, Phase-I, New Delhi on 16/01/2013. It has been brought to the notice by the AO of M/s Earth Infrastructures Ltd,(in this case the AO is same as undersigned) in whose cases-action under section 132 of the Income Tax Act was taken place that various documents/books of accounts etc were found, and seized during the course of search and statement of various persons were recorded; The AO of the searched persons has recorded his satisfaction that the following seized papers / documents belonged to the assessee i.e. M/s ARN Infrastructure India Limited.

Party Name and, address of Details of Details of No the person searched Annexure papers/documents seized 1. M/s Earth Infrastructures Annexure Pages 120-122 are a Ltd, at B-100, Indl Area, A/27 panchnama of extract from Naraina, Phase -1 dated 18.01.2013 the books (Ledger) New Delhi of M/s ARN Infrastructures India Limited relating to M/s Real Gains Estate Pvt Ltd. Page no. 123 is a fetter written by ARN Infrastructures India Limited dated 27/1/2010. The said satisfaction note prepared by the AO of the person searched has been kept on record.

I have also examined the above documents and the contents noted/written therein. After examination of these documents, I am also satisfied, that these documents belong to M/s ARN Infrastructures India Limited. .In view of the same, I am; further satisfied that it is a fit case for initiating proceedings u/s 153C rws-153A of the Income Tax Act, 1961 for AYs 2007-08 to A.Y 2012-13.

Accordingly, notices u/s 153A rws 153C are issued as per provisions of the IT Act, 1961.

New Delhi Asst. Commissioner of Income Tax 21/7/2014 Central Circle-14, New Delhi."

“I am showing you pages 150 to 155 of Annexure A-1. Have these papers been written by you and if yes, please explain the transactions on these papers.”

Answered - “Pages 152 and 155 only have been written by me. However, all the above mentioned papers contained record of payment/contribution by various members of UPDA which add upto 508.05 lakhs. The next figure is 670.00 which is contribution to be paid (due) from these members on account of above mentioned payment. Page 154 again contains details of balances attributed to various members of UPDA in respect of amount to be paid (due) on account of the above.”

“The hand written entries are written by me and these are in respect of amount received by the Core Distilleries from other members towards contribution of amount to be paid to various Government Agencies/persons.”

“I am showing you page 94 of Annexure A-3 which is marked “Confidential”. Please explain the transaction recorded on this paper.”

Answer:

“This is details of expenses to be incurred by each member of UPDA @ Rs. 20/- per case and the amount to be paid by each party has been calculated on this basis and mentioned against each of them.”

Miglani and search which took place at his residence. The Tribunal upheld the order of the Assessing Officer which was affirmed by the Hon'ble High Court of Delhi. But this was in the context of provisions of section 12AA of the Act, and, therefore, cannot be stretched to the proceedings u/s 153C of the Act in respect of 11 distilleries. A judgment has to be considered in the context in which it was delivered.

COMMON GRIEVANCE NO. 2

NO CROSS EXAMIANTION OF SHRI R.K. MIGLANI WAS ALLOWED BY THE REVENUE

“Once there is a violation of principles of natural justice, in as much as seized material is not provided to an assessee nor is cross examination of the person whose statement the Assessing Officer relies upon, granted, then, such deficiencies would amount to denial of opportunity and consequently would be fatal to the proceedings.”

“11. In the present case the Assessing Officer has placed reliance on the statement of Smt.Sarla Aggarwal, daughter of the assessed while arriving at the conclusion, that the entries belong to the transactions of the assessed. This statement made by Smt.Sarla Gupta, cannot be said to be relevant or admissible evidence against the assessed, since the assessed was not given any opportunity to cross-examine her and even from the statement, no conclusion can be drawn that the entries made on the relevant page belongs to the assessed and represents his undisclosed income. It is also an admitted fact that the statement of the assessed was not recorded at any stage during the assessment proceedings. The only conclusion which can be drawn about the nature and contents of the document is that it is a dumb document and on the basis of the entry of nothings or figure etc. in this document, it cannot be concluded that this represents the undisclosed income of the assessee.”

“According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity in as much as it amounted to violation of principles of natural justice because of which the assessee was adversely affected.”

54 further relied upon the provisions of section 132(4A) of the Act and 292C of the Act. These sections read as under:

“Section 132(4) in The Income- Tax Act, 1995 (4) The authorised officer may, during the course of the search or seizure, examine on oath any person who is fond 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.] Section 132(4A) in The Income- Tax Act, 1995 (4A) 2 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-

55 (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.]

Section 292C

|l)] Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession ol of any person in the course of a search under section 132 20[or survey section 133A], it may, in any proceeding under this Act, be presumed— 1 i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person;

56 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.

Where any books of account, other documents or assets have been d to the requisitioning officer in accordance with the provisions of 132A, then, the provisions of sub-section (1) shall apply as if such books of account, other documents or assets which had been taken into custody from on referred to in clause (a) or clause (b) or clause (c), as the case may be, of sub-section (1) of section 132A had been found in the possession or control of that person in the course of a search u/s 132.”

__________________________________________________________ Assessment Returned income Assessed income u/s Year ____________________Rs. _______________Rs_____________________ 2000-01 177080 177080 153A 2001-02 194615 194615 -do- 2002-03 191652 191652 -do- 2003-04 343219 343219 -do- 2004-05 225541 225541 -do- 2005-06 231867 231867 -do-

Lords Distillery Limited 2577 & 2578/DEL/2010 [A.Ys. 2003-04, 2004-05 & 2005-06] [Assessee’s appeals]

“The assessment framed by the Assessing Officer on 30.12.2008 is barred by limitation and thus it be held to be without jurisdiction.”

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that once the Tribunal passed an order the matter became final with regard to the point which was settled by the Appellate Assistant Commissioner and was not agitated before the Tribunal unless it was taken up to the High Court ?

2. Whether the Tribunal was right in holding that the previous order of the Tribunal dated June 21, 1969, restoring the case to the file of the Income-tax Officer meant that the only point that was open was in respect of the addition of Rs. 19,421 and not the legal or jurisdictional aspect whether the reassessment proceedings were correctly initiated under section 147/148 ?

The legal position about waiver of such a mandatory provision created in the wider public interest to operate as fetter on the jurisdiction of the authority is well settled that there could never be waiver, for the simple reason that in such cases jurisdiction could not be conferred on the authority by mere consent, but only on conditions precedent for the exercise of jurisdiction being fulfilled. If the jurisdiction cannot be conferred by consent, there would be no question of waiver, acquiescence or estoppel or the bar of res judicata being attracted because the order in such cases would lack inherent jurisdiction unless the conditions precedent are fulfilled and it would be a void order or a nullity. The settled distinction between invalidity and nullity is now well brought out in the decision in Dhirendra Nath Gurai v. Sudhir Chandra Ghosh, AIR 1964

SC 1300, 1304, where their Lordships had gone into this material question as to whether the act in breach of the mandatory provision is per force a nullity. The passage in Macnamara on Nullities and Irregularities, referred to in Ashutosh Sikdar v. Bihari Lai Kirtania [1907] ILR 35 Cal 61 [FB], at page 72, was in terms relied upon as under: "...no hard and fast line can be drawn between a nullity and an irregularity; but this much is clear, that an irregularity is a deviation from a rule of law which does not take away the foundation or authority for the proceeding, or apply to its whole operation, whereas a nullity is proceeding that is taken without any foundation for it, or is so essentially defective as to be of no avail or effect whatever, or is void and incapable of being- validated."Thereafter, their Lordships pointed out that whether a provision fell under one category or the other was not easy of discernment as in the ultimate analysis, it depended upon the nature, scope and object of the particular provision. Their Lordships in terms approved a workable test laid down by Justice Coleridge in Holmes v. Russel [1841] 9 Dowl 487 as under: "It is difficult sometimes to distinguish between an irregularity and a nullity; but the safest rule to determine what is an irregularity and what is a nullity is to see whether the party can waive the objection; if he can waive it, it amounts to an irregularity; if he cannot, it is a nullity." Thereafter it was pointed out that a waiver is an intentional relinquishment of a known right, but obviously an objection to jurisdiction could not be waived, for consent could not give a court jurisdiction where there was none. Even if there was inherent jurisdiction, certain provisions could not be waived. What can be waived would be only those provisions which are for the private benefit and protection of an individual in private capacity, which might be dispensed with without infringing any public right or public policy." This settled legal position was again reiterated in Superintendent of Taxes v. Onkarmal Nathmal Trust, AIR 1975 SC 2065, where the question had arisen in the context of the Assam Taxation (on Goods Carried by Road and on Inland Waterways) Act, 1961. The assessee had obtained an injunction order against the State in a writ petition challenging the validity of the Act. The assessee had not submitted the return under section 7(1) and under section 7(2) a notice had to be issued only within two years from the end of the return period. The procedure of best judgment assessment was laid down in section 9(4) and the question arose whether, in view of the injunction order obtained by the assessee, ignoring the two years' limit laid down as a fetter for issuance of the notice under section 7(2), the best judgment assessment procedure was permissible. At page 2070, the learned Chief Justice first held that if a return under section 7(1) was not made, the service of a notice under section 7(2) of the Act was the only method for initiation of a valid assessment proceeding under the Act. The period of two years under section 7(2) was a fetter on the power of the authority and was not just a bar of time. It was the scheme of the Act that the service of notice within two years from the end of the return period was an imperative requirement for initiation of assessment proceeding as also reassessment proceeding under the Act. Further proceeding, at page 2071, their Lordships pointed out the settled legal distinction between the provisions which conferred jurisdiction and provisions which regulated procedure, because jurisdiction could neither be waived nor created by consent, while a procedural provision could be waived by conduct or agreement. Their Lordships pointed out that in that case the assessee could not be said to have waived the provisions of the statute because there could not be any waiver of a statutory requirement or provision which went to the jurisdiction of assessment. The origin of assessment was either an assessee filing a return as contemplated in the Act or an assessee being called upon to file a return as contemplated in the Act. The respondents challenged the Act. The order of injunction did not amount to a waiver of the statutory provisions. The issue of a notice under the provisions of the Act related to the exercise of jurisdiction under the Act in all cases. The learned Chief Justice in terms pointed out that the revenue statutes are based on public policy. The revenue statutes protect the public on the one hand and confer power on the State on the other. Therefore, even in the context of such a revenue statute like a taxation measure such fetter on the jurisdiction being a fetter laid to protect public, on wider ground of public policy, it was held that such provisions which confer jurisdiction on assessment and reassessment could never be waived for the simple reason that jurisdiction could neither be waived nor created by consent. In the concurring judgment his Lordship, Beg. J., at page 2077, also pointed out that if the notice under section 7(2) was a condition precedent to the exercise of jurisdiction to make the best judgment assessment, the doctrine of waiver could never confer jurisdiction so as to enable the parties to avoid the effect of violating a mandatory provision on a jurisdictional matter even by agreement. This decision completely settles the legal position. It makes a distinction between the provisions which confer jurisdiction and provisions which merely regulate the procedure by holding that such provisions which confer jurisdiction or such mandatory provisions which are enacted in public interest on ground of public policy even in such revenue statutes could not be waived, because of the underlying principle that jurisdiction could neither be waived nor created by consent. The decision in Director of Inspection of Income-tax v. Poor an Mall & Sons [1974] 96 ITR 390 (SC), which is so vehemently relied upon by the learned standing counsel, does not detract from the aforesaid ratio, and in fact, reiterates the same. In that case, the question had arisen regarding the waiver of a provision in section 132(5) of the Income-tax Act which permitted the Income-tax Officer to pass an order of seizure within 90 days. The provision was held to be not a mandatory provision and at page 400 it was also pointed out that there was no question of the period of limitation under section 132(5) involving public interest. It was intended for the benefit of the parties. The settled principle which had been stated on Crates on Statute Law, 6th edition, at page 259, was as under: "As a general rule, the conditions imposed by statutes which authorize legal proceedings are treated as being" indispensable to giving the court jurisdiction. But if it appears that the statutory conditions were inserted by the legislature simply for the security or benefit of the parties to the action themselves, and that no public interests are involved, such conditions will not be considered as indispensable, and either party may waive them without affecting the jurisdiction of the court." Therefore, the period of limitation prescribed under section 132(5) being intended for the benefit of the person concerned, it was held that the assessee could waive that provision. That decision could not, therefore, be invoked in the present context of such a jurisdictional provision which is also a mandatory provision enacted in public interest in this revenue statute as earlier pointed out and which could never be waived. Besides, the question of waiver could never be raised if the person had no knowledge of his legal rights so that he could make any such conscious waiver. In the present case, the Appellate Assistant Commissioner in his order had pointed out that it was when he perused the order sheet that he found that there were no reasons recorded by the Income- tax Officer for issuing notice under section 148. The entry on the order sheet dated September 3, 1963, simply contained the direction: "Issue notice under section 148", and no reasons were recorded by the Income-tax Officer before reopening the assessment. Even the relevant sub- section of section 147 under which the assessment was sought to be reopened was not mentioned. These facts, prima facie, disclosed that the reasons came to the notice of the assessee for the first time when the Appellate

Assistant Commissioner perused this order sheet and brought this fact to the notice of the assessee. Even on that ground, therefore, there can be no question of any waiver on the facts of the present case. Even the alternative ground of finality of this order of the Tribunal suffers from the same infirmity, as the Tribunal has failed to notice this material distinction between a mere procedural provision which could be waived and such jurisdictional provision or a mandatory provision enacted in public interest which could not be waived, because by consent no jurisdiction could be conferred on the authority unless the conditions precedent were first fulfilled. In Dasa Muni Reddy v. Appa Rao, AIR 1974 SC 2089, 2092, such a question of waiver was examined also in the context of the bar of estoppel or of res judicata. At page 2091, it was pointed out that want of jurisdiction must be distinguished from irregular or erroneous exercise of jurisdiction. If there is want of jurisdiction the whole proceeding is coram non judice. The absence of a condition necessary to found the jurisdiction to make an order or give a decision deprives the order or decision of any conclusive effect. (See Halsbury's Laws of England, 3rd edition, volume 15, paragraph 384). Further proceeding at page 2092, it was pointed out that just as the courts normally did not permit contracting out of the Acts so there could be no contracting in. A status of control of premises under the Rent Control Acts could not be acquired either by estoppel or by res judicata. Their Lordships in terms held that the principle was that neither estoppel nor res judicata could give the court jurisdiction under the Acts which those Acts said it was not to have. Therefore, bar of res judicata or estoppel or waiver were negatived in such a case where the plea was outside the ambit of the Rent Control Act, for the simple reason that as one could not confer jurisdiction by consent, similarly one could not by agreement waive exclusive jurisdiction of the rent courts over the buildings in question. It is true that section 254(4) in terms provides that save as provided in section 256 (which provides for the reference to the High Court), orders passed by the Appellate Tribunal on appeal shall be final. That finality or conclusiveness could only arise in respect of orders which are competent orders with jurisdiction and if the proceedings of reassessment are not validly initiated at all, the order would be a void order as per the settled legal position which could never have any finality or conclusiveness. If the original order is without jurisdiction it would be only a nullity confirmed in further appeals. If the essential distinction is borne in mind in such cases when there is such defect of jurisdiction because the conditions to found jurisdiction are absent, the Tribunal also would be suffering from the same defect and it could not confer any jurisdiction on the Income-tax Officer by making the remand order, because of the settled legal principle that consent could not confer jurisdiction when jurisdiction could be created only by fulfilment of the condition precedent as in the present case. Therefore, no question of finality of the remand order could ever arise in the present context, if the mandatory conditions for founding jurisdiction for initiating reassessment proceeding were absent. This is the view in Commissioner of Income-tax v. Nanalal Tribhovandas [1975] 100 ITR 734 (Guj), agreeing with the Madras view that there would be no such finality by remand because consent could not confer jurisdiction, and so, such objection in regard to the validity of the notice under section 34 could be raised before the Appellate Assistant Commissioner. The learned standing counsel in this connection marshalled in aid the decision in Northern Railway Co-operative Credit Society Ltd. v. Industrial Tribunal, Rajasthan, AIR 1967 SC 1182; 31 FJR 511, which could hardly be invoked in the present case. There the High Court in writ jurisdiction had held at the earlier stage that the dispute in question was an industrial dispute and, therefore, the reference being a competent reference, the writ petition was dismissed. The order of the High Court was a final judgment which terminated the independent writ proceeding. It was held at page 1186 that that order having not been appealed before the Supreme Court, it had become final and it was no longer open to the parties to raise a plea of jurisdiction in appeal against the subsequent award given by the Industrial Tribunal after exercising jurisdiction which the Tribunal was permitted to exercise by the order of the High Court. These were competent proceedings and the independent writ proceeding was also finally terminated and, therefore, this final order precluded the parties from reagitating the same question before the Industrial Tribunal. Their Lordships distinguished the earlier decision in Satyadhyan Ghosal v. Smt. Deora-jin Debi, AIR 1960 SC 941, where the question had arisen about the applicability of section 28 of the Calcutta Thika Tenancy Act, 1949, and the plea having been rejected by the munsif trying a suit, revision, the High Court had held that operation of section 28 of the Act was not affected by the subsequent amendment Act and the case was remanded to the munsif for disposal according to law. After the final decree was passed by the munsif and the appeal finally came to the Supreme Court, it was held by the Supreme Court that the order of the High Court holding section 28 to be applicable could not operate as res judicata in appeal before the Supreme Court, because the High Court's order of remand was merely an interlocutory order, which did not terminate the proceeding pending before the munsif and which had not been appealed from at that stage. Consequently, in the appeal from the final decree or order it was open to the party concerned to challenge the correctness of the High Court's decision. The two special features which distinguished that case were: one, that the order of the High Court which was relied upon to invoke the principle of res judicata was an interlocutory order, and the other, that it was made in a pending suit which as a result of that order did not finally terminate. In the present case also the remand order did not terminate the proceedings at the earlier stage. In fact, no question of any bar of res judicata even at the subsequent stage of the same proceeding could arise in the present case for the simple reason that the original order is said to be without jurisdiction. The first condition in invoking any bar of res judicata is the condition about the competence of the court. Similarly, the provision of finality in this relevant provision in section 254(4) could also not be attracted in such a case, where the question admittedly, went to the root of the jurisdiction and if that contention was upheld, it would have made all the proceedings of reassessment totally void and without jurisdiction. As per the aforesaid settled legal position such a point could not be waived and there can be no question of the earlier remand order operating as a final order, because if such a jurisdictional point could not be waived, even the fact of passing of the remand order by the Tribunal could not confer jurisdiction on the Income-tax Officer, if the conditions to found his jurisdiction were absent. Therefore, if this settled position was borne in mind, the Tribunal's view was clearly erroneous that the matter became final when the Tribunal passed the earlier remand order so that this point of jurisdiction got finally settled, which could not be agitated unless the assessee had come in the reference to this court at that stage. The Tribunal's view was also incorrect that in restoring the case to the file of the Income-tax Officer by the earlier order, the only point left open was in respect of addition of Rs. 19,421 on merits and that the legal or jurisdictional aspect whether the reassessment proceedings were legally initiated was not kept open. Even on the third question the Tribunal's view was erroneous that even though this point went to the root of the jurisdiction and was a. pure question of law, merely because the point was initially raised and not pressed when the matter was taken up before the Appellate Assistant Commissioner, it could be waived and it could not be reagitated. Therefore, in view of the settled legal position our answers on questions Nos. 1 and 2 are in the negative, while our answer on question No. 3 is in the affirmative, that is to say, all the questions are answered against the revenue and in favour of the assessee. The reference is accordingly disposed of and the Commissioner shall pay the costs of the assessee.”

‘153B. Time-limit for completion of assessment under section 153A.—(1) Notwithstanding anything contained in section 153, the Assessing Officer shall make an order of or reassessment,— (a) in respect of each assessment year falling within six assessment years ret in clause (b) of sub-section (1) of section 153A, within a period of two years end of the financial year in which the last of the authorizations for search section 132 or for requisition under section 132A was executed; b) in respect of the assessment year relevant to the previous year in which conducted under section 132 or requisition is made under section 132A. period of two years from the end of the financial year in which the last of the authorizations for search under section 132 or for requisition under section was executed :

Referred to in clause (a) or clause (b) of this sub-section or nine months from the end of the financial year in which books of account or documents or assets seized questioned are handed over under section 153C to the Assessing Officer having jurisdiction over such other person, whichever is later: Provided further that in the case where the last of the authorizations for search section 132 or for requisition under section 132 A was executed during the Financial Year commencing on the 1st day of April, 2018,— (i) the provisions of clause (a) or clause ( b) of this sub-section shall have effect, as if for the words "twenty-one months”, the words "eighteen months” had been substituted; (ii) the period of limitation for making the assessment or reassessment in case of other person referred to in section 153C, shall be the period of eighteen months from the end of the financial year in which the last of the authorizations for search under section 132 or for requisition Provided that in case of other person referred to in section 153C, the period of limitation for making the assessment or reassessment shall be the period as referred to in clause (a) or clause (b) of this sub-section or one year from the end of the financial year in which books of account or documents or assets seized or requisitioned are handed over under section 153C to the Assessing Officer having jurisdiction over such other person, whichever is later: Provided further that in the case where the last of the authorizations for search under section 132 or for requisition under section 132A was executed during the financial year commencing on or after the 1st day of April, 2004 but before the 1st day of April, 2010,— (i) the provisions of clause (a) or clause (b) of this sub-section shall have effect as if / for the words “two years” the words “twenty-one months” had been substituted; (ii) the period of limitation for making the assessment or reassessment in case of other J person referred to in section 153C, shall be the period of twenty- one months from the end of the financial year in which the last of the authorizations for search under section 132 or for requisition under section 132A was executed or nine months from the end of the financial year in which books of account or documents or assets seized or requisitioned are handed over under section 153C to the Assessing Officer having jurisdiction over such other person, whichever is later:.

Explanation.—In computing the period of limitation for the purposes of this Section (1) the period during which the assessment proceeding is stayed by an order or injunction of any court.”

Shadi Lal Enterprises Ltd to 456/DEL/2010 [Revenue’s appeals & CO Nos. 67 to 69/DEL/2010 [assessee’s cross objections]

Shadi Lal Enterprises Ltd 2678 & 2679/DEL/2010 [Assessee’s appeals]

1537, 1538, 1539 & 4692/DEL/2012 Saraya Industries [Assessee’s appeal]

F.Y. A.Y. Amount [Rs.] 2002-03 2003-04 8,25,79,200/- 2003-04 2004-05 10,79,16,400/- 2004-05 2005-06 5,17,62,721/- 2005-06 2006-07 7,39,59,500/-

“A conspectus of the above decisions makes it evident that even correct and authentic entries in books of account cannot without independent evidence of their trustworthiness, fix a liability upon a person. Keeping in view the above principles, even if we proceed on the assumption that the entries made in MR 71/91 are correct and the entries in the other books and loose sheets which we have already found to be not admissible in evidence under Section 34) are admissible under Section 9 of the Act to support an inference about the formers' correctness still those entries would not be sufficient to charge Shri Advani and Shri Shukla with the accusations levelled against them for there is not an iota of independent evidence in support thereof. In that view of the matter we need not discuss, deleve into or decide upon the contention raised by Mr. Altaf Ahmed in this regard. Suffice it to say that the statements of the for witnesses, who have admitted receipts of the payments as shown against them in MR 71/91, can at best be proof of reliability of the entries so far they are concerned and not others. In other words, the statements of the above witnesses cannot be independent evidence under Section 34 as against the above two respondents. So far as Shri Advani is concerned Section 34 would not come in aid of the prosecution for another reason also. According to the prosecution case itself his name finds place only in one of the loose sheets (sheet No. 8) and not in MR 71/91. Resultantly, in view of our earlier discussion, section 34 cannot at all be pressed into service against him.”

“Raids were conducted on the Birla and Sahara Group of Companies and incriminating materials in form of random sheets and loose papers, computer prints, hard disk, pen drives etc. were found. Evidence of certain highly incriminating money transactions were also found. ■ Question arises as to whether a case was made out on the basis of above materials, to constitute Special Investigation Team (SIT) and direct investigation against the various functionaries/officers and further monitor the same?

■ Loose sheets of papers are wholly irrelevant as evidence being not admissible under section 34 so as to constitute evidence with respect to the transactions mentioned therein being of no evidentiary value. The entire prosecution based upon such entries which led to the investigation was quashed by this Court. [Para 20] ■ The Court has to be on guard while ordering investigation against any important constitutional functionary, officers or any person in the absence of some cogent legally cognizable material. When the material on the basis of which investigation is sought is itself irrelevant to constitute evidence and not admissible evidence , whether it would be safe to even initiate investigation? In case it is done, the investigation can be as against any person whosoever high in integrity on the basis of irrelevant or inadmissible entry falsely made, by any unscrupulous person or business house that too not kept in regular books of account but on random papers at any given point of time. There has to be some relevant and admissible evidence and some cogent reason, which is prima facie reliable and that too, supported by some other circumstances pointing out that the particular third person against whom the allegations have been levelled was in fact involved in the matter or he has done some act during that period, which may have co- relations with the random entries. In case all these are not insisted, the process of law can be abused against all and sundry very easily to achieve ulterior goals and then no democracy can survive in case investigations are lightly set in motion against important constitutional functionaries on the basis of fictitious entries, in absence of cogent and admissible material on record, lest liberty of an individual be compromised unnecessarily. The materials which have been placed on record either in the case of Birla or in the case of Sahara are not maintained in regular course of business and thus lack in required reliability to be made the foundation- of a police investigation. [Para 21] ■ In case of Sahara, in addition there is adjudication by the Income Tax Settlement Commission. The order has been placed on record. The Settlement Commission has observed that the scrutiny of entries on loose papers, computer prints, hard disk, pen drives etc. have revealed that the transactions noted on documents were not genuine and have no evidentiary value and that details in these loose papers, computer print outs, hard disk and pen drive etc. do not comply with the requirement of the Indian Evidence Act and are not admissible evidence. It further observed that the department has no evidence to prove that entries in these loose papers and electronic data were kept regularly during the course of business of the concerned business house and the fact that these entries were fabricated, non-genuine was proved. It held as well that the PCIT/DR have not been able to show and substantiate the nature and source of receipts as well as nature and reason of payments and have failed to prove evidentiary value of loose papers and electronic documents within the legal parameters. The Commission has also observed that department has not been able to make out a clear case of taxing such income in the hands of the applicant firm on the basis of these documents. [Para 22] ■ It is apparent that the Commission has recorded a finding that transactions noted in the documents were not genuine and thus has not attached any evidentiary value to the pen drive, hard disk, computer loose papers, computer printouts. [Para 23]

■ Since it is not disputed that for entries relied on in these loose papers and electronic data were not regularly kept during course of business, such entries were discussed in the order passed in Sahara's case by the Settlement Commission and the documents have not been relied upon the Commission against assessee and thus such documents have no evidentiary value against third parties. On the sis of the materials which have been placed on record, it is opined that no case is made out to direct investigation against any of the persons named in the Birla's documents or in the documents of Sahara. [Para 24] ■ In the case of State of Haryana v. Bhajan Lai 1992 Supp (1) SCC 335, this Court has laid down principles in regard to quashing the F.l.R. The Court can quash FIR also if situation warrant even before investigation takes place in certain circumstances. This Court has laid down thus: (1) Where the allegations made in the first information report of the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or make out a case against the accused. (2) Where the allegations in the first information report and other materials, if any. accompanying the FIR do not disclose a cognizable offence, justifying an investigation by police officers under section 156( 1) of the Code except under an order of a Magistrate within the purview of section 155(2) of the Code.

(3) Where the uncontroverted allegations made in the FIR or complaint and the evidence collected in support of the same do not disclose the commission of any offence and make out a case against the accused. (4) Where the allegations in the FIR do not constitute a cognizable offence but constitute only a non- cognizable offence, no investigation is permitted by a police officer without an order of a Magistrate as contemplated u/s 155(2) of the Code. (5) Where the allegations made in the FIR or complaint are so absurd and inherently improbable on the basis of which no prudent person can ever reach a just conclusion that there is sufficient ground for proceeding against the accused. (6) Where there is an express legal bar engrafted in any of the provisions of the Code or the concerned Act (under which a criminal proceeding is instituted) to the institution and continuance of the proceedings and/or where there is a specific provision in the Code or the concerned Act, providing efficacious redress for the grievance of the aggrieved party. (7) Where a criminal proceeding is manifestly attended with mala fide and/or where the proceeding is maliciously instituted with an ulterior motive for wreaking vengeance on the accused and with a view to spite him due to private and personal grudge. [Para 26]

■ Considering the aforesaid principles which have been laid down, it is opined that the materials in question are not good enough to constitute offences to direct the registration of F.I.R. and investigation therein. The materials should qualify the test as per the aforesaid decision. The complaint should not be improbable and must show sufficient ground and commission of offence on the basis of which registration of a case can be ordered. The materials in question are not only irrelevant but are also legally inadmissibly under section 34 of the Evidence Act, more so with respect to third parties and considering the explanation which have been made by the Birla Group and Sahara Group, it is opined that it would not be legally justified, safe, just and proper to direct investigation. [Para 27]”

1563 & 1564/DEL/2012 Saraya Industries [ Revenue’s appeals]

“That in the absence of requisite satisfaction contemplated u/s 153C of the Act, the Assessing Officer has no jurisdiction to frame the assessment and accordingly, the assessment so framed by the Assessing Officer dated 26.12.2008 u/s 143(3) of the Act is without jurisdiction.”

C.O. No.84/Del/2010 (In Kesar Enterprises Limited

ITA No. 1658/Del/2010 National Industrial Corporation Ltd

ITA No. 1042/Del/2010 ITA No. 1044/Del/2010 ITA No. 2806/Del/2010 ITA No. 2807/Del/2010 C.O. No. 127/Del/2010 C.O. No. 128/Del/2010 C.O. No. 129/Del/2010

National Industrial Corporation Ltd [Revenue’s appeals and assessee’s cross objections]

ITA No. 2053/Del/2010 ITA No. 2772/Del/2012 ITA No. 2773/Del/2 Modi Industries Limited [Revenue’s appeals]

Sl Assessment ITA Total Tax Effect [Calculated @ No Year Number Quantum 33.99%] . 1. 2000-01 Rs. 17,58,000 Rs.5,97,544 Involved 2. 2002-03 ITA No. 2054/ Del/2010 Rs.32,89,000 Rs. 11,17,931 1 3. 2004-05 ITA No. 2772/Del/2012 Rs.12,51,000 Rs.4,25,215 i 4. 2005-06 ITA No. 2773/Del/2012 Rs.23,28,000 Rs.7,91.287 i 1 5. 2006- Rs.5,44,000 Rs. 1,84,906 i

“This Circular will apply to SLPs/appeals/cross objections/ references to be filed henceforth in Supreme Court/High Court/Tribunal and it shall also apply retrospectively to pending SLPs/appeals/cross objections/ references. The pending appeals below the specified tax limit in para 3 above may be withdrawn/not pressed.”

ITA No. 2177/Del/2012 ITA No. 2496/Del/2010 Modi Industries Limited [Assessee’s appeals]

ITA No. 5572/Del/2014 ITA No. 4216/Del/2010 ITA No. 4217/Del/2010 Simbholi Sugars Limited [Assessee’s appeals]

“The decision in CIT Vs. Anil Kumar Bhatia does not deal with a situation where, as in the present case, no incriminating material was found during the search conducted u/s 132

Nevertheless, it was interesting to note that in CIT Vs. Chetan Das Lachman Das the court underscored the need for department to have unearthed material during the search to justifying the assessment sought to be made. It was held that an assessment u/s 153A has to be made under this section only on the basis of seized material.

On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under:

(i) Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.

(ii) Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise.

(iii) The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the ‘total income’ of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs “in which both the disclosed and the undisclosed income would be brought to tax”.

(iv) Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment “can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material.”

(v) In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word ‘assess’ in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word ‘reassess’ to completed assessment proceedings.

(vi) Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.

(vii) Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.”

458/DEL/2010 Superior Industries Ltd

720/DEL/2012 721/DEL/2012 722/DEL/2012 1022/DEL/2012 1023/DEL/2012 Superior Industries Ltd [Assessee’s appeals

1024/DEL/2012 Superior Industries Ltd

ITA No. 1648/Del/2013 ITA No. 1650/Del/2013 ITA No. 1651/Del/2013 ITA No. 1652/Del/2013 ITA No. 1653/Del/2013

DCM Shriram Industries Ltd [Revenue’s appeals]

C.O. No. 126/Del/2013 C.O. No. 127/Del/2013 C.O. No. 128/Del/2013 C.O. No. 129/Del/2013 C.O. No. 130/Del/2013 C.O. No. 131/Del/2013

187 In the result, the cross objections of the assessee are allowed.

ITA No. 9/Del/2012 ITA No. 11/Del/2012 ITA No. 3208/Del/2013 ITA No. 3209/Del/2013 ITA No. 3210/Del/2013 ITA No. 3211/Del/2013

U.P. Distillers Association [Assessee’s appeals] 188 The above appeals are preferred against the orders of the CIT(A), New Delhi for A.Ys 2001-02 to 2007-08. and 3211/DEL/2013 are appeals where assessment has been framed u/s 143(3) of the Act whereas all the other appeals are where assessment has been framed u/s 153A of the Act.

1. Shri R.K. Miglani 2. Shri Lalit Khaitan 3. M/s Radico Khaitan Ltd 4. UPDA

“Order u/s 133A(3) (1a) of the I.T Act. The following books of accounts/documents found during the course of survey u/s 133A at the premises of UPDA, 4th Floor, PHD House, August the premises of UPDA, 4th Floor, PHD House, August Kranti Marg, Delhi on 14/2/2006 are hereby impounded. S. No. Description Pages A-1 Executive Diary 2006 1to 22 A-2 Block Diary 2004 1 to 168 A-3 Organizer 2005 1 to 151 A-4 Ibico Spiral Note Book 1 to 40 A-5 Ibico Spiral Note Book 1 to 42 A-6 Loose Papers 1 to 14 A-7 Loose Papers 1 to 19 A-8 Loose Papers 1 to 24 A-9 CPU One Recovered Annexure A-1 to A-B Along with the survey folder R. K. Gupta Asstt. Director of Income Tax (Inv.) Unit-V(3), ARA Centre E-2, Jhandewalan Extn. New Delhi 110055 Copy to the assessee R. K. Gupta Asstt. Director of Income Tax (Inv.) Unit-V(3), ARA Centre E-2, Jhandewalan Extn. New Delhi 110055.”

“In view of the amendment made in section 132A by the Finance Act 2017, ‘reason to believe’ as the case may be, is not required to be disclosed to any person or any authority or Appellate Tribunal as recorded by revenue authority u/s 132 or section 132A of the Act.”

Sl. No. A.Y Sum 1. 2003-04 56.80 crores 2. 2004-05 76.04 crores 3. 2005-06 45.42 crores 4. 2006-07 56.41 crores

“Raids were conducted on the Birla and Sahara Group of Companies and incriminating materials in form of random sheets and loose papers, computer prints, hard disk, pen drives etc. were found. Evidence of certain highly incriminating money transactions were also found. ■ Question arises as to whether a case was made out on the basis of above materials, to constitute Special Investigation Team (SIT) and direct investigation against the various functionaries/officers and further monitor the same?

And held as under:

■ Loose sheets of papers are wholly irrelevant as evidence being not admissible under section 34 so as to constitute evidence with respect to the transactions mentioned therein being of no evidentiary value. The entire prosecution based upon such entries which led to the investigation was quashed by this Court. [Para 20] ■ The Court has to be on guard while ordering investigation against any important constitutional functionary, officers or any person in the absence of some cogent legally cognizable material. When the material on the basis of which investigation is sought is itself irrelevant to constitute evidence and not admissible evidence , whether it would be safe to even initiate investigation ? In case it is done, the investigation can be as against any person whosoever high in integrity on the basis of irrelevant or inadmissible entry falsely made, by any unscrupulous person or business house that too not kept in regular books of account but on random papers at any given point of time. There has to be some relevant and admissible evidence and some cogent reason, which is prima facie reliable and that too, supported by some other circumstances pointing out that the particular third person against whom the allegations have been levelled was in fact involved in the matter or he has done some act during that period, which may have co- relations with the random entries. In case all these are not insisted, the process of law can be abused against all and sundry very easily to achieve ulterior goals and then no democracy can survive in case investigations are lightly set in motion against important constitutional functionaries on the basis of fictitious entries, in absence of cogent and admissible material on record, lest liberty of an individual be compromised unnecessarily. The materials which have been placed on record either in the case of Birla or in the case of Sahara are not maintained in regular course of business and thus lack in required reliability to be made the foundation- of a police investigation. [Para 21] ■ In case of Sahara, in addition there is adjudication by the Income Tax Settlement Commission. The order has been placed on record. The Settlement Commission has observed that the scrutiny of entries on loose papers, computer prints, hard disk, pen drives etc. have revealed that the transactions noted on documents were not genuine and have no evidentiary value and that details in these loose papers, computer print outs, hard disk and pen drive etc. do not comply with the requirement of the Indian Evidence Act and are not admissible evidence. It further observed that the department has no evidence to prove that entries in these loose papers and electronic data were kept regularly during the course of business of the concerned business house and the fact that these entries were fabricated, non-genuine was proved. It held as well that the PCIT/DR have not been able to show and substantiate the nature and source of receipts as well as nature and reason of payments and have failed to prove evidentiary value of loose papers and electronic documents within the legal parameters. The Commission has also observed that department has not been able to make out a clear case of taxing such income in the hands of the applicant firm on the basis of these documents. [Para 22] ■ It is apparent that the Commission has recorded a finding that transactions noted in the documents were not genuine and thus has not attached any evidentiary value to the pen drive, hard disk, computer loose papers, computer printouts. [Para 23] ■ Since it is not disputed that for entries relied on in these loose papers and electronic data were not regularly kept during course of business, such entries were discussed in the order passed in Sahara's case by the Settlement Commission and the documents have not been relied upon the Commission against assessee and thus such documents have no evidentiary value against third parties. On the sis of the materials which have been placed on record, it is opined that no case is made out to direct investigation against any of the persons named in the Birla's documents or in the documents of Sahara. [Para 24]

■ In the case of State of Haryana v. Bhajan Lai 1992 Supp (1) SCC 335, this Court has laid down principles in regard to quashing the F.l.R. The Court can quash FIR also if situation warrant even before investigation takes place in certain circumstances. This Court has laid down thus: (8) Where the allegations made in the first information report of the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or make out a case against the accused. (9) Where the allegations in the first information report and other materials, if any. accompanying the FIR do not disclose a cognizable offence, justifying an investigation by police officers under section 156( 1) of the Code except under an order of a Magistrate within the purview of section 155(2) of the Code. (10) Where the uncontroverted allegations made in the FIR or complaint and the evidence collected in support of the same do not disclose the commission of any offence and make out a case against the accused. (11) Where the allegations in the FIR do not constitute a cognizable offence but constitute only a non- cognizable offence, no investigation is permitted by a police officer without an order of a Magistrate as contemplated u/s 155(2) of the Code.

(12) Where the allegations made in the FIR or complaint are so absurd and inherently improbable on the basis of which no prudent person can ever reach a just conclusion that there is sufficient ground for proceeding against the accused. (13) Where there is an express legal bar engrafted in any of the provisions of the Code or the concerned Act (under which a criminal proceeding is instituted) to the institution and continuance of the proceedings and/or where there is a specific provision in the Code or the concerned Act, providing efficacious redress for the grievance of the aggrieved party. (14) Where a criminal proceeding is manifestly attended with mala fide and/or where the proceeding is maliciously instituted with an ulterior motive for wreaking vengeance on the accused and with a view to spite him due to private and personal grudge. [Para 26] ■ Considering the aforesaid principles which have been laid down, it is opined that the materials in question are not good enough to constitute offences to direct the registration of F.I.R. and investigation therein. The materials should qualify the test as per the aforesaid decision. The complaint should not be improbable and must show sufficient ground and commission of offence on the basis of which registration of a case can be ordered. The materials in question are not only irrelevant but are also legally inadmissibly under section 34 of the Evidence Act, more so with respect to third parties and considering the explanation which have been made by the Birla Group and Sahara Group, it is opined that it would not be legally justified, safe, just and proper to direct investigation. [Para 27]”

“A conspectus of the above decisions makes it evident that even correct and authentic entries in books of account cannot without independent evidence of their trust worthiness, fix a liability upon a person. Keeping in view the above principles, even if we proceed on the assumption that the entries made in MR 71/91 are correct and the entries in the other books and loose sheets which we have already found to be not admissible in evidence under Section 34) are admissible under Section 9 of the Act to support an inference about the formers' correctness still those entries would not be sufficient to charge Shri Advani and Shri Shukla with the accusations levelled against them for there is not an iota of independent evidence in support thereof. In that view of the matter we need not discuss, deleve into or decide upon the contention raised by Mr. Altaf Ahmed in this regard. Suffice it to say that the statements of the for witnesses, who have admitted receipts of the payments as shown against them in MR 71/91, can at best be proof of reliability of the entries so far they are concerned and not others. In other words, the statements of the above witnesses cannot be independent evidence under Section 34 as against the above two respondents. So far as Shri Advani is concerned Section 34 would not come in aid of the prosecution for another reason also. According to the prosecution case itself his name finds place only in one of the loose sheets (sheet No. 8) and not in MR 71/91. Resultantly, in view of our earlier discussion, section 34 cannot at all be pressed into service against him.”

“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.

"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."

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.

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.”

(ii) Incriminating documents were also seized from the laptop of Shri Ajay Agarwal, General Manager of M/s Radico Khaitan Ltd.

“1. The A.O in Para 13 of the assessment order for Assessment Year 2001-02, held that assessee is not eligible for exemption u/s 11 & 12 of IT Act as follows: “13. The perusal of the object of the association, specially object mentioned above, it is, clear that the UP Distilleries Association is for production and promotion of Alcohol. They are also making illegal payments as discussed above. 13.1. The object as stated above can form a part of charitable purpose only if they come within the ambit of the clause " advancement of any other object of general public utility”. It now needs to be analysed whether the Assessee with its stated object can be considered as an association working for the object of general public utility. Consumption of alcohol is injurious to health and consumption of alcohol is against state policy so much that the states of Gujarat prohibits the consumption of alcohol. Time and again other states e.g. Haryana, Andhra Pradesh have also imposed ban on consumption of alcohol it is therefore clear that time and again the States has toyed with the idea of imposing a prohibition with consumption of alcohol. Even the article 47 of the Constitution of India, in the Directive Principles of State Policy has stated that “ ………the state shall endeavor to bring about prohibition of the consumption except for medicinal purpose sine of intoxicating drink and of drugs which are injurious to health. The Constitution of India also visualizes the production and consumption of alcohol as being injurious to health and the objects of the association are against state policy. Many WHO articles have pointed out as to how the consumption of alcohol is injurious to health.

13.2. In addition to above, as per the seized documents and statement of Sh. Miglani as discussed above, association has been primarily engaged the work of facilitating the collection and payment of bribe money which is against the public policy welfare.

13.3. Due to the reasons explained above the object and activities of the Trust cannot be considered for charitable purpose and exemption u/s 11 and 12 of the IT Act, is denied and assessment is being made in the status of AO P.” In view of the above detailed reasons, the assessee is not eligible for exemption u/s 11 & 12 of IT Act in respect of following unaccounted receipts:

S. No. Assessment Year Amount (Rs.) 1 2003-04 56,80,00,000 2 2004-05 76,04,15,200 3 2005-06 45,22,94,401 4 2006-07 56,41,74,550

The above unaccounted receipts are not reflected in the return of income filed by the assessee. Moreover, at no stage of the proceedings, the assessee has claimed or furnished documentary evidence in support of the fact that the above amounts were spent for charitable purposes, which is the primary condition for claiming exemption u/s 11 & 12 of IT Act. “

“When a person pays membership fee or subscription to a society or a trust, he does not make a gift of the membership fee or subscription amount to the society. The amount of subscription paid by a member to the society can never be considered as gratuitous payment made by the member to the society or as a payment without any consideration. membership and subscription amounts received by the applicant-trust/society from its members cannot be characterised as "voluntary contribution" . The subscription amount received by the assessee-trust was not liable to be included in the total income of the trust.”

The order is pronounced in the open court on 14.12.2018.