17 Section 245D – Settlement Commission – Settlement of cases – Section 245D – A. Y. 2000-01 to 2006-07 – Order of Settlement Commission after considering facts – Writ by Revenue – No evidence that conclusions of Settlement Commission were perverse – Order valid

CIT vs. Radico Khaitan Ltd.; 396 ITR 644
(Del):

The assessee company R was engaged in the
business of manufacturing and marketing of Indian made foreign liquor, country
liquor, etc. It also generated power for its manufacturing and bottling
plants. R was subjected to a search and seizure operation u/s. 132(1) of the
Income-tax Act, 1961, in its business premises. Search was resorted to also in
the residential premises of its directors, UPDA and at the residence of M,
Secretary General of UPDA. Also, a survey u/s. 133A was conducted at the
business premises of S, one of the core members of the “managing committee” of
UPDA. Many incriminating documents pertaining to the assessee were found and
seized from these premises. Statements of various persons including M were
recorded u/s. 132(4) and 133A of the Act. After collecting all material, the
Assessing Officer issued notices u/s. 153A for A. Ys. 2000-01 to 2006-07
requiring the assessee to file returns. R filed its returns on September 29,
2007 offering an amount of Rs. 4.5 crore for taxation. Thereafter, R filed an
application u/s. 245C of the Act before the Settlement Commission covering all
assessment years and declared additional income for the relevant period to the
extent of Rs. 23 crore. Revenue filed its report under rule 9 of the Income-tax
Settlement Commission Rules, 1987, alleging that concealment of income by the
assessee was Rs. 159,82,92,966/- under various heads. This figure was revised
to Rs. 177,84,16,966/- by a supplementary report dated February 13, 2008. After
hearing the parties and considering the material, the Commission settled the
concealed income of the assessee for all the block years at Rs. 30 crore.

Revenue filed a writ petition and challenged
the order of the Settlement Commission. The Delhi High Court dismissed the writ
petition and held as under:

“i)   The
main thrust of the Revenue’s grievance in these proceedings was with respect to
the amounts said to have been clandestinely given to UPDA as the assessee’s
contribution towards “slush fund” to be used as pay offs to politicians and
public officers in return for favourable treatment. The linkage between the
material seized from the assessee’s premises and those from UPDA’s premises as
well as the statement of M was not established through any objective material.

ii)   It
was now a settled law that block assessments were concerned with fresh material
and fresh documents, which emerged in the course of search and seizure
proceedings; the Revenue had no authority to delve into material that was
already before it and the regular assessments were made having the deposition.
That the assessee’s expenditure claim was bogus, or it had under-reported
income and that it resorted to over invoicing and diversion of funds into the
funds allegedly maintained by UPDA, was not established.

iii)   The
findings of the Commission therefore could not be faulted as contrary to law.
As far as suppression of profits for various financial years, alleged by the
Revenue, the Commission was of the opinion that the documents relied upon were
work estimates and projections that revealed tentative profitability in respect
of the assessee’s activities towards sale of country liquor i.e., that the documents
did not reflect the actual figures. The alleged bogus expenditure to the tune
of Rs. 9,11,41,457/- was claimed in the original assessments as payments made
to F and R. The Revenue alleged that F was involved in entry operations and
that the expenditure claimed by the assessee was bogus and entirely fictitious.
While the expenditure claimed by itself might be suspect, the Revenue had a
further obligation to investigate further having regard to the fact that the
agreement between the assessee and R was disclosed earlier.

The  mere statement  of 
one  employee  of  R
would not have discredited the agreement itself. The
lack of  any particulars to discredit the
services and expenditure claimed by the assessee, justified the
Commission’s   conclusion    that  
the   addition    of  Rs. 9.11 crore demanded by the Revenue or arguments on the basis that the
assessee did not disclose such amount, was not warranted.

iv)  The
Commission’s findings were not contrary to law or unreasonable. The order of the
Settlement Commission was valid.”