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TMI Blog2022 (3) TMI 1017X X X X Extracts X X X X X X X X Extracts X X X X ..... merely relying on the register maintained by the Assessee to have control on demineralized water and the statements recorded during the course of search without pointing how the said material shows any suppressed production and sales on the part of the Assessee. A.O. failed to demonstrate the nexus between the seized material and the addition made during the relevant years. Thus, the allegation of the Ld. A.O. that there was a suppressed production or sale was without any basis and merely on the basis of conjecture and surmises. Thus in case of unabated / concluded assessment, on the date of search, deserves to be undisturbed in the absence of any incriminating material found in the course of search and accordingly the addition made by the assessing officer has been rightly deleted by the ld CIT(A). Addition of capital gain - HELD THAT:- We note that assessee has shown capital gain in his books of accounts in respect of impugned property and we also observe that assessee has shown such capital gain in the computation of total income for the assessment year 2010-11. The assessee computed capital gain and paid the due taxes, therefore, the property which is disclosed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s filed by Revenue and seven Cross Objections filed by Assessee, pertaining to Assessment Years (AYs) 2008-09 to 2014-15 are directed against the common order passed by the Commissioner of Income Tax (Appeals)-4, Surat [in short the ld. CIT(A) ] dated 22.05.2017 which in turn arise out of separate assessment orders passed by the Assessing Officer under section 143(3) r.w.s 153A of the Income Tax Act, 1961 (hereinafter referred to as the Act ) all dated 29.02.2016. 2. Since, the issues involved in all the appeals and cross objections are common and identical; therefore, these appeals and cross objections have been heard together and are being disposed of by this consolidated order. First we shall take IT(SS)A Nos.01,02, 04,05 and 06 pertaining to assessment years 2008-09, 2009-10, 2011-12, 2012-13, 2013-14 and 2014-15. For the sake of convenience, the grounds as well as the facts narrated in IT(SS)A No.01/SRT/2018, and CO.No.02/SRT/2018, for assessment Year 2008-09, have been taken into consideration for deciding the above appeals en masse. Note: IT(SS)ANo.03/SRT/2018 and CO.No.04/SRT/2018 for A.Y. 2010-11, contain different issue, therefore, these are being adjudicated sepa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.02/SRT/2018, for AY.2008-09, are as follows: 1. The learned commissioner of Income Tax (Appeals)-4, Surat erred in upholding the validity of the assessment order dated 29.02.2016 passed u/s 153A r.w.s 143(3) of the Act without appreciating the fact that no valid action u/s 132(1) of the Act was initiated against the Respondent Assessee. The condition precedent to initiate action u/s 132(1) of the Act is not satisfied in the present case. The Competent authority did not have any information in his possession to have a reason to believe that the Assessee has the undisclosed income or property. Thus, the proceedings, initiated u/s 153A and the Assessment order passed pursuant to the same are void ab initio and the same may be quashed as bad in law. 2. The learned commissioner of Income Tax (Appeals)-4, Surat erred in upholding the validity of the assessment order dated 29.02.2016 passed u/s 153A r.w.s 143(3) of the Act without appreciating the fact that on the date of action u/s 132(1) dated 18.06.2013 no proceedings were pending. Thus, no abatement of the proceedings had taken place. In absence of any incriminating material re-determination of income u/s 153A is bad in l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms an important and the most basic part of alcoholic beverage viz: IMFL and is therefore an integral part of the entire manufacturing process. Based on the production and various documents and facts gathered during the search and post search proceedings the assessing officer observed the Mismatch in the DM Water consumption found and resultant production reported. 7. During the search proceeding, it was observed by search team that there was substantial mismatch in usages of DM (demineralized) water vis-a-vis the production reported therefrom. To verify the stated mismatch of DM Water consumption and to quantify the suppressed production therefrom, the Statement of the production manager in charge of DM Water, Shri Kamlesh Lad was recorded under oath u/s 132(4) at the premises of M/s Krimpi Distillery on 19.06.2013. Shri Kamlesh Lad has,(as part of his statement) provided detailed year-wise and month wise data on the production and consumption of DM Water for several Months. The statement of Shri Kamlesh Lad along with said year and month wise summary is reproduced by the assessing officer in his assessment order, vide page no.5 to 7 of the assessment order. 8. In response t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us. 11. Shri H. P. Meena, Departmental Representative (CIT-DR) for the Revenue pleads that during the course of search, the statement of the Production Manager, Shri Kamlesh Lad, was recorded on oath under section132of the Act at the premises of M/s Krimpi Distillery on 19.06.2013. Based on the documents impounded/seized it is observed that assessee purchased denatured alcohol (i.e. Rectified Spirit) from various states and then reduces the strength of such alcohol with demineralized water(DM) to drinkable level. Thereafter requisite flavour is added to the reduced alcohol strength to create the IMFL beverage. Thus, DM water formed an important and the most basic part of alcoholic beverage viz. IMFL and is therefore an integral part of the entire manufacturing process. It was observed by assessing officer that there was substantial mismatch in usages of DM (demineralized) water vis-a-vis the production reported therefrom. Shri Kamlesh Lad, as part of his statement, had provided detailed year-wise and month wise data of the production and consumption of DM Water for several Months. In response to question number no. 1 of statement, Shri Kamlesh Lad stated that DM water is stor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld Counsel strongly objected to the addition made by the assessing officer for all the year under consideration. The Ld Counsel pointed out that cost of DM water is very low in comparison to the total cost of production of liquor and the same can be substantiated from the Profit and Loss Accounts of the relevant assessment years. The Ld Counsel also stated that Revenue, neither in the process of search action, nor in the assessment proceedings, has pointed out any fault in the books of accounts maintained by the Assessee as well as stock register provided before the assessing officer. The ld Counsel further pleads that Assessee being manufacturer of alcoholic beverages needs to maintain the record of rectified spirit and finished goods of IMFL and CL under the strict supervision of the State Excise Department. The movement of rectified spirit and finished products are made under the signature of authorised person in the State Excise Department. The ld Counsel submitted before the Bench the copy of State Excise Audit Report, which is enclosed at pages 423-425 in the assessee`s paper book. Therefore, ld Counsel submits that addition was made by assessing officer without application o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Whisky (in cases only). The Assessee bottles the above items in different brand names. The Assessee does not have any full-fledged manufacturing Plant to produce rectified sprit which is used as raw material in producing the above products. The Assessee is regularly filed its return of income. The Assessee's business premises and the Assessee's Partner's residences were subjected to a search and seizure action u/s 132(1) of the Income Tax Act, 1961.During the course of search, statement of one Mr. Kanjibhai B. Tandel, partner of the assessee was recorded u/s 132(4) which is compiled at page 35 to 46 of the paper book. The statement is recorded in Hindi and English translation of the same is at pages 51 to 72 of the Paper Book. Statement of Mr. Kamlesh Lad, who is in charge of the Water Plant operated within the premises of the assessee to generate de-mineralized water (D M Water), is at pages 47 to 50, which, is again in Hindi. The English translation of the same is at pages 72 to 78 of the Paper Book. These statements and the water reports prepared from the register were submitted by the assessee before the Bench. Mr. Ramesh Ramu Halpati's statement was recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer of question no.6 of the statement of Shri Kanjibhai B. Tandel recorded under section 132(4) of the Act; dated 18.06.2013 applied the ratio 44.44:55.45 arbitrary basis for the production use of rectified spirit for blending with reference to DM water used. The ld Counsel draws our attention to the show cause notice issued by the Ld. A. O. dated 05/02/2016 compiled at pages 88 and 89 of paper book. The chart prepared on page 88 of paper book, relying on the register maintained by Mr. Kamlesh Lad will show that Ld. A. O. has made erroneous assumptions. In this show cause notice no addition has been proposed on account of alleged suppressed sales for the Financial Year 2009-10 i.e. Assessment Year 2010-11. The assumptions made by the Ld. A. O. leads to absurd results as explained in the detailed submissions filed in response to the above mentioned show cause notice vide letter compiled at pages 92 to 108 of paper book. 18.We note that entire production of DM water cannot be used for the purpose of manufacturing of IMFL and CL since the same has also been utilized for many other purposes. For manufacturing the alcoholic beverages, the substantial ingredient used is the rectified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 19th June, 2013. The recording of statement was again temporarily suspended for a while and resumed on 20th June, 2013. Finally, the recording of the statement was concluded on 21st June, 2013.In the statement recorded on 19th June, 2013, the assessee's partner Mr. Kanjibhai was confronted with various documents found seized during the course of the search action. The relevant part of the statement is at pages 40 to 42 of the paper book. The Assessee's partner was, for the first time, asked a question with respect to the demineralized water and its production during the course of the statement recording which took place on 20th June, 2013. The relevant questions and answers are at page 43 to 45 of the paper book. We note that register found during the course of the search in which details of demineralized water produced are mentioned, is not an incriminating document. The said register was maintained merely for having a supervisory/administrative control over the demineralized water produced and used for several operations of the Assessee. The Assessee, right from the beginning has contended that the register which is maintained to have control over the demineralized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciate that the determination of undisclosed income on account of unaccounted production and the book sales by the assessee company and the assessee has sworn on the statement at the time of search u/s 132(4) of the Income Tax Act, 1961. In this regard ld Counsel submits that in none of the statements recorded during the course of the search the partner of the assessee and the employee of the assessee indicate any suppression of production or sales of IMFL and CL. The entire allegation is made on conjecture and surmises. 21. We note that issue for assessment years 2008-09, 2009-10, 2011-12 to 2013-14 and for assessment year 2014-15 are against the addition made for alleged suppression of production of liquor worked out on the basis of production of DM water. The arguments and the contentions of the ld Counsel in all the years are basically the same, except that in A.Y. 2014-15 the addition is being challenged against extrapolation too. The Assessing Officer has made the additions for alleged suppression of production of liquor work out on the basis of production of DM water, assuming that the entire production is used for blending with spirit, without any wastage, other usages c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18.06.2013, no proceedings were pending, therefore in absence of any incriminating material, the assessing officer cannot make addition. In assessee`s case under consideration, no incriminating material was found, hence no addition should be made under section 153A r.w.s. 143(3) of the Act. We note that although section 153A of the Act 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 assessing officer 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. Assessments and reassessments pending on the date of the search shall abate. The total income for such assessment years will have to be computed by the assessing officer as a fresh exercise. 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 153A is relatable to abated proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a fresh exercise. (iii) The LD AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The LD 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 153A 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 LD 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 proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some incriminating material unearthed during the course of search. The Tribunal has held that the completed assessments would mean those assessments which were not pending and have not abated due to the search. The Tribunal has also held that the completed assessments would include 143(1) orders, where time to issue notice u/s 143(2) has elapsed. The Tribunal has concluded that in cases of abated assessments and where the assessment has not become final due to time remaining for issue of notice u/s. 143(2) under the Act; the entire income including that not unearthed as a result of search, can be and has to be assessed. 25. The Hon'ble Jurisdictional Gujarat High Court has confirmed the above decisions of the ITAT in the recent cases of Desai Construction reported at 387 ITR 552 and Saumya Construction reported at 387 ITR 529. 26. In view of the aforesaid findings and respectfully following the judicial precedents relied upon hereinabove, we hold that in case of unabated / concluded assessment, on the date of search, deserves to be undisturbed in the absence of any incriminating material found in the course of search and accordingly the addition made by the assessing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted against the Assessee. The condition precedent to initiate action u/s 132(1) of the Act is not satisfied in the present case. The Competent authority did not have any information in his possession to have a reason to believe that Assessee has undisclosed income or property. Therefore, search is invalid hence consequential proceedings will be invalid. 31. On the other hand, Learned DR for the Revenue submits that Tribunal does not have power to examine the validity of search. 32. We have heard both the parties. We note that Assessee has challenged the validity of the search action carried out against it on 13/06/2013. The Assessee submits that the department didn't have any valid information in their possession to have reason to believe to initiate search and seizure action u/s 132(1) of the Act. Thus, the condition precedent to conduct assessment proceedings u/s 153A of the Act are not satisfied. Hence, the assessment order passed on 29/02/2016 is bad-inlaw and void ab-initio. We note that by the Finance Act, 2017 an explanation was inserted in section 132 of the Act with effect from 01/04/1962, which reads as follows: Explanation- For the removal of doubts, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... area from the assessee viz: M/s. Krimpi Distillery. It is also observed by assessing officer that M/s Dhangra Hotels Beach Resorts Pvt Ltd, purchased the said plot of land totaling upto 3550.00 Square Meter in sum of ₹ 66,00,000/- on 17.02.2010.Further a valuation report dated 21.05.2012, prepared by M/s Space Architects (prop: Mr. Pankaj Mistry) for the purpose of M/s Dhangra Hotels Beach Resorts Pvt Ltd, for getting a bank loan from ICICI Bank has been impounded, which mentions the market value of the said land is to the tune of ₹ 7,65,02,500/-. Further, the valuer who prepared the valuation report viz. Mr. Pankaj Mistry was examined u/s 131 of the Act and his statement has been recorded to establish the veracity of the said valuation report. In response to Ques. No. 4, Shri Pankaj Mistry has stated that the basis of the valuation is the area where the said land is situated and was made after studying the surrounding market area of that time. Further in response to Ques No. 10, Mr. Mistry has also stated that the party had agreed to the said valuation and had no objections to the valuation made by Shri Mistry.Also, in response to Question No. 14, Mr. Pankaj Mistry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 153A of the Act, hence we cannot take judicial notice about such unfounded allegation of the assessing officer. As we have already adjudicated the issue relating to incriminating material in above para of this order and opined that in assessee`s case the search team did not find any incriminating material, therefore, our above findings are applicable for assessment year 2010-11 also. 41. We note that property has been got valued by the bank for the purposes of loan applied by the purchaser. The valuation is for fair market value as on 21.05.2012 i.e., more than two years after the date of transfer. The ld CIT(A) observed that in these circumstances, without proving any out of books/undisclosed payments the actual consideration shown cannot be replaced on the basis of an estimate of fair market value that too obtained after more than two years of actual transfer, for the purposes of taking a loan from a bank by the purchaser. The ld CIT(A) further observed that no incriminating document showing transfer of money, above the consideration, shown has been found even after the search action. It is to be noted that even when the valuation is by departmental valuer u/s 50C(3); and th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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