DCIT CENTRAL CIRCLE-8, NEW DELHI vs. MOHAN MEAKIN LTD, GHAZIABAD

ITAs No.621 & 622/Del/2020 2.1 Therefore notice u/s 153C of the Act was issued to the assessee by the then AO on 22.12.2016 and consequent to issuance of notice u/s 153C of the Act the pending assessment proceedings u/s 143(3) of the Act were abated. Subsequently, the assessment for AY 2005-06 was completed u/s 153C r.w.s. 143(3) of the Act on 31.12.2007 at an income of Rs. 6,65,45,076/. The assessee filed appeal before the CIT(A) who vide order dated 05.12.2008 upheld the findings of the AO and confirmed the major additions made in the assessment order while allowing relief to the assessee on some minor additions. The assessee further appealed before the Tribunal and the ITAT vide order dated 23.11.2012 quashed the assessment proceedings u/s 153C of the Act.

2.2 Subsequent to the order dated 23.11.2012 of the ITAT quashing the proceedings u/s 153C of the Act, the pending assessment proceedings u/s 143(3), which were abated earlier due to issue of notice u/s 153C dated 22.12.2006, were revived by issue of notice u/s 143(2) dated 04.07.2013 as per the provisions of section 153A(2) of the Act. The revived assessment was completed u/s 143(3) of Act vide order dated 23.03.2014 at Rs.6,65,45,076/-. In the meanwhile, the Department filed appeal before Hon’ble High Court, against the order of ITAT dated 23.11.2012 wherein the proceedings u/s 153C were quashed by the Tribunal. The Hon’ble High Court vide order dated 22.01.2015 set aside the order of the Tribunal dated 23.11.2012 and directed to decide the appeal afresh. Since, the Hon’ble High Court set aside the order of the Hon’ble

ITAs No.621 & 622/Del/2020 ITAT dated 23.11.2012, the revival of assessment proceedings u/s 143(3) done vide notice u/s 143(2) dated 04.07.2013, became ineffective as per the provisions of proviso to subsection (2) of section 153A of the Act. Further, the ITAT passed fresh order in pursuance to directions of the Hon’ble High Court vide order dated 22.01.2015. The ITAT vide fresh order dated 01.08.2017, again quashed the proceedings u/s 153C of the Act. The Department has filed appeal against this order of the Tribunal before the Hon’ble High Court u/s 260A of the Act.

2.3 Since the earlier revival of assessment proceedings u/s 143(3) in pursuance to order of the ITAT dated 23.11.2012 had ceased to have effect in pursuance to order of Hon’ble Delhi High Court dated 22.01.2015, the assessment proceedings u/s 143(3) still remained abated proceedings. The pending assessment proceedings u/s 143(3), which were abated earlier due to issue of notice u/s 153C of the Act dated 22.12.2006, were again revived by the AO as per the provisions of subsection (2) of section 153A of the Act. Since the order of the ITAT dated 01.08.2017 was received in the office of Pr. CIT(Central)-l, New Delhi on 24.10.2017, the pending assessment proceedings u/s 143(3) of the Act stood revived on 24.10.2017. Notice u/s 143(2) of the Act was issued to the assessee company on 15.03.2018, which was duly served upon the assessee. In response the assessee sought grounds of revival of proceedings which were provided to him by the AO. Further, the assessee objected to the ITAs No.621 & 622/Del/2020 revival of assessment proceedings vide submission dated 25.04.2018. The objections of the assessee were disposed of vide a speaking order dated 10.10.2018 which has been reproduced by the AO in para 8 of the assessment order.

2.4 Thereafter, the AO issued show cause notice u/s 142(1) of the Act to the assessee. In response to this notice, the assessee company filed its reply on 17.10.2018 intimating filing of Writ Petition challenging issue of notice u/s 143(2) of the Act in Hon’ble Delhi High Court on 12.10.2018 and further requesting to keep the proceedings in abeyance till the hearing of the said Writ Petition. The Hon’ble High Court, was pleased to dismiss the said Writ Petition of the assessee as withdrawn. Therefore, the AO held that the revival of assessment proceedings and notice u/s 143(2) in the current proceedings legally valid and correct. During the current assessment proceedings the AO issued show cause notice u/s 142(1) of the Act to the assessee on 22.10.2018 which has been reproduced in para 10 of the assessment order. In response to show cause notice dated 22.10.2018 the assessee vide its submission dated 25.10.2018 again filed objections and reiterated the same issues which were duly considered while disposing of the objections of the assessee vide office order dated 10.10.2018. The AO noticed that the assessee has raised these issues even before the Hon’ble Delhi High Court in the Writ Petition which was dismissed by the Hon’ble Court as withdrawn. Therefore, the objections filed by the ITAs No.621 & 622/Del/2020 assessee company vide its submission dated 25.10.2018 were rejected by the AO. Thereafter, the assessment in the case of the assessee company was finalized on the basis of information available on record.

2.5 The AO noticed that the major addition in the assessment for the year under consideration was made on account of illegal payment of Rs. 2,04,15,426/- made by the assessee to various public servants. The ITAT has quashed the order dated 31.12.2007 passed u/s 153C on the basis that no documents belonging to the assessee were found during the search/survey operation and therefore, no assessment under section 153C of the Act can be framed in this case. AO believed that merits of the additions were not considered by the Tribunal. The AO was of the opinion that the assessee has not brought out any new facts in its submission during the current assessment proceedings and what is submitted has already been dealt with in the previous proceedings u/s 153C and is in records. The AO concluded that- i) The documents seized/impounded from the residential/office premises of UPDA are genuine and relate to the assessee. ii) The figures contained in these documents are real and correct. iii) The name of the assessee appears in the documents seized from the residence of Sh. R.K. Miglani which contained the figures of illegal payments made.

ITAs No.621 & 622/Del/2020 iv) The assessee was fully involved in financial control and management irrespective of the agreement dated 28.06.2002 with M/s Prudent Breweries & Distilleries Pvt. Ltd.(PDL) who was simply responsible for supervision and management.

2.6 The AO held that the amount of Rs.2,04,15,426/- paid by the assessee for illegal payments as its undisclosed expenditure and therefore added to the income of the assessee.

2.7 The AO found that the assessee has debited a sum of Rs. 4,64,200/- towards tips under the head charges general. As per history of the case this expenditure had been disallowed. The assessee contended that similar disallowance was made in earlier assessment years. The CIT(A), New Delhi, however deleted major part of this addition. These are business expenses incurred in normal course of business and paid to various peons of various offices (like banks, insurance companies, auditor’s office and of the Govt. Offices) visited by the company officials in connection with the business of the company and therefore allowable business expenses. After considering the submission of the assessee the AO found that these expenses cannot be allowed as these are not verifiable and also not supported by any vouchers and bills. Therefore, the assessee failed to substantiate the claim of expenditure under this head. The CIT(A) has also upheld such disallowance in A.Y. 1997-98 onwards. Keeping in view all these facts expenses of Rs. 4,64,200/- debited under the 7

ITAs No.621 & 622/Del/2020 head ‘Tips’ was disallowed by the AO and added back to total income of the assessee. After scrutinizing the relevant documents on test check basis, total income of the assessee was assessed by the AO at Rs. 6,65,45,080/- u/s 143(3) of the Act on 30.10.2018.

1. The ld.CIT(A) has erred in law and on facts in deleting the addition of Rs.3,28,36,200/- (A.Y.2004-05) [Rs.2,04,15,426/- for AY 2005-06] representing illegal payments made by the assessee through the agency of UP Distillers Association.

2. The assessee craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.”

5. Heard and perused the record. After considering the rival contentions, it comes up that the ld. DR still persists on the argument that the CIT(A) should have considered the issue on merits as done by the AO.

6. However, after going through the sequence of events with regard to earlier set of litigation, we find that the question of addition on account of alleged illegal payments has been examined by the Tribunal in order dated

ITAs No.621 & 622/Del/2020 01.08.2017 and by following the observations as relied by the ld.CIT(A), the issue stands decided in favour of the assessee holding that the addition was made by the AO without any material and without discharging the burden. For convenience, we reproduce the findings and observations of the Tribunal in order dated 01.08.2017:- “6.1 In the case of the assessee, the allegation of the revenue, based on the documents seized from the premises of UPDA, is that the assessee had made illegal payments to various politicians/ bureaucrats. We have gone through the pages of the seized documents Annexure A-1 to A-10 furnished before us and from the examination of the aforesaid documents, as have been furnished before us by the revenue, we are of opinion that the said documents are dumb documents as such documents are wholly unauthenticated and unreliable. The allegation of the revenue is that UPDA was collecting the sums from the distilleries to make illegal payments to various politicians/ bureaucrats. Had the theory of revenue been true and correct then the document would have been complete i.e. would also recorded the name of payees i.e. the politicians/ bureaucrats to whom such payments have been made or even some entries would have been found indicating/identifying the persons to whom such alleged payments were made. We concur with the submission of the assessee that there is no document found in respect of balancing of figures in respect of the alleged payments. Thus, in the absence of any other evidence either in the shape of cash book, day book, recording of payment, etc. the record showing the alleged production of all the distilleries and alleged contribution by such distilleries, is wholly unreliable. Had there been any entry found establishing payouts by UPDA, the revenue could have been then probably justified to contend that contributions were made by the distilleries and the payments were made to the politicians and bureaucrats. In such circumstances, we, on the appreciation of the entire evidences produced before us, are of the considered opinion that such documents are unreliable and dumb. 6.2 The revenue has also placed heavy reliance on the statements of third persons recorded behind the back of the assessee. In the instant case revenue has relied on the statements of Sh. R.K. Miglani and directors of M/s Prudent Distillery. However, the fact remains that before placing reliance, such persons have not been confronted for the cross examination of the assessee even though specific request for the same was made by the assessee vide letters dated 24.12.2007 and 28.12.2007 (at pages 125 to 128 and 132 to 133 of PB Part - I.) The AO rejected the prayer of the assessee,

ITAs No.621 & 622/Del/2020 as is evident from page 11 and 12 of his order, wherein he has held that there is no requirement to provide cross - examination of Sh. R.K. Miglani to the assessee and with regard to the cross examination of the directors of M/s Prudent Distilleries Ltd., no finding has been recorded. As such, on an appreciation of the entire factual matrix and the settled law we hold that these statements need to be excluded altogether, as it was incumbent upon the AO/ Ld. CIT (A) to have provided the opportunity to cross - examine the persons on whose statements reliance was being placed by them. Not providing such opportunity is fatal to the proceedings and no additions can be made on the basis of such unreliable statements. It has so been held by various courts, and recently the Hon'ble Apex Court in the case of M/s Andaman Timber Industries vs CCE (SC) reported in 127 DTR 241 has held as follows: "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 inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross- examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross- examination of the said dealers could not have brought out any material which would not be in possession of the assessee themselves to explain as to why their ex- factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the assessee wanted to cross- examine those dealers and what as mentioned above, the assessee had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross- examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, order dated 17.03.2005 was passed remitting the case back to the ITAs No.621 & 622/Del/2020

Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions. In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause Notice.We, thus, set aside the impugned order as passed by the Tribunal and allow this appeal." 6.3 In the instant case revenue has relied on the statements of Sh. Miglani and on going through the additional evidence so filed by the assessee, which has been admitted earlier in the order, even the statement of Sh. R.K. Miglani, so relied on by the Revenue, cannot be relied on, as Sh. Miglani had retracted the said statement by filing an affidavit dated 01.03.2008 and thus, relying on the judgment of Hon'ble High Court of Delhi in the case of CIT vs Sunil Aggarwal (supra) and order of ITAT Pune in the case of Prabhat Chandra S. Jain vs ACIT (supra), relief is given to assessee on this count also, as the sole case of Revenue is the statement of Sh. R.K. Miglani and once the same is excluded from consideration, the addition made by the AO has no legs to stand and needs to be deleted. 6.4 We also note that the Hon'ble Settlement Commission in the case of M/s Radico Khaitan (searched along with Sh. R.K. Miglani) has dismissed the plea of the Revenue to rely on the documents found from Sh. R.K. Miglani and M/s UPDA and have also held that since the opportunity to cross - examine Sh. R.K. Miglani was not provided to M/s Radico Khaitan, addition cannot be made on the basis of said documents. This is what has also been held by us in earlier paragraphs that not providing the opportunity to cross - examine Sh. R.K. Miglani is fatal to the proceedings and the addition needs to be deleted on this count also. 6.5 The facts of the instant assessee are somewhat peculiar as the distillery of the assessee company at Lucknow is not being operated by the assessee but by M/s Prudent Distilleries Ltd and M/s Suraj Distilleries Ltd under manufacturing, sales and, financial assistance agreements and the assessee gets a guaranteed amount only. The Lucknow Distillery was operated by M/s Prudent Distilleries Ltd. from 01.07.2002 to 31.03.04 and, thereafter from 01.04.2004 by M/s Suraj Distilleries Ltd. All the operations of the unit are to be managed and, financed by the operators. In such circumstances, even if the theory of the revenue is taken to be correct, which we have already negated, the submission of the assessee that there was no occasion for the assessee to have made any such alleged payment, seems logical and well founded. In such circumstances, merely because the documents refer MML, does not by itself would mean that the assessee has been referred to as a distillery since the assessee company is not engaged in the production at all. 6.6 In the instant case, the assessee has denied making any such payments and hence, the burden is on the Revenue to establish the fact of ITAs No.621 & 622/Del/2020 making the alleged payments with corroborative evidences, which has not been done by Revenue. In the instant case, the revenue has merely relied on the statement of Shri Miglani and also on the seized material found from him, which remain unreliable and unauthenticated. In any case, there is no material showing any nexus of the assessee with such documents and, therefore, the burden was on the revenue to bring positive material to prove the allegation, which in the instant case has not been discharged. The judgment of Hon'ble Delhi High Court in the case of CIT vs Ved Prakash Choudhary reported in 305 ITR 245 is fully applicable on the facts of this case, wherein, a search was conducted at the residence of the assessee on 10-2-2000. During the course of search, two Memorandums of Understanding (MOU) dated 1-3-1999 were recovered. These MOUs were entered into between the assessees, Ravi Talwar and Madhu Talwar. In terms of the MOUs, the assessee had paid Rs. 25 lakhs each to Ravi Talwar and Madhu Talwar towards part consideration for the purchase of agricultural land valued at Rs. 123.30 lakhs. The balance amount was to be paid on or before 30-4-1999, failing which the amount of Rs. 25 lakhs each would be forfeited. On the basis of the MoUs, the Assessing Officer issued a questionnaire to Ravi Talwar and Madhu Talwar regarding receipt of the amount of Rs. 25 lakhs each, but while they both admitted having signed the MoUs, they denied having received any amount. The Assessing Officer concluded that the denials by the assessee of having made payments and of Ravi Talwar and Madhu Talwar of having received the amounts were only to escape payment of tax liabilities. Accordingly, an amount of Rs. 50 lakhs was added in the hands of the assessee under section 69 of the Income-tax Act, 1961 as unexplained expenditure. The addition made by the AO was deleted by the CIT (A) and the Tribunal. On further appeal, Hon'ble High Court dismissed the appeal of the revenue by holding as under: "12. Insofar as the present case is concerned, the Assessee had stated that in fact there was no transfer of money between him and Ravi Talwar and Madhu Talwar. On the other hand, Ravi Talwar and Madhu Talwar had denied receipt of any money from the assessee. In the fact of these denials, there ought to have been corroborative evidence to show that there was in fact such a transfer of money. Both the Commissioner as well as the Tribunal have come to the conclusion that there was no such material on record.

ITAs No.621 & 622/Del/2020