Appellant : Commissioner Of Income Tax, Bhopal v. Respondent :M/S Som Distilleries & Breweries Ltd

THE HIGH COURT OF MADHYA PRADESH: JABALPUR(Division Bench) ITA No. 1 6 4 /2010 APPELLANT : Commissioner of Income Tax, Bhopal Versus RESPONDENT :M/s Som Distilleries & Breweries Ltd. ============================================= Coram: Hon’ble Shri Justice Ajay Kumar Mittal, Chief Justice Hon’ble Shri Justice Vijay Kumar Shukla, Judge ============================================= Appearance: Shri Sanjay Lal, Advocate for the Appellant. Shri Mukesh Agarwal, Advocate for the Respondent. ============================================= JUDGMENT (Oral){ 05.02.2020 } Per: Ajay Kumar Mittal, Chief Justice: The present appeal has been preferred by the appellant-Revenue underSection 260-A of the Income Tax Act, 1961 (for short “the Act”) against anorder dated 12.04.2010 passed by the Income Tax Appellate Tribunal, IndoreBench, Indore (hereinafter referred to as “the Tribunal”) in ITANo.22/Ind/2007 in respect of the Assessment Year 2000-01. 2.The appeal was admitted vide order dated 05.01.2016 on thefollowing two substantial questions of law:- “1.Whether on the facts and the circumstances of the case, the ITATwas justified in law in upholding the quashing of reassessmentproceedings on the ground that the reason recorded by the AOregarding escapement of income were reasons to suspect and notreasons to believe?” was justified in law in upholding the quashing of reassessmentproceedings on the ground that the reason recorded by the AOregarding escapement of income were reasons to suspect and notreasons to believe?” 2.Whether on the facts and in the circumstances of the case, the ITATis justified in law in not upholding the addition of Rs.1,62,42,450/-on account of suppressed sales even when the addition was basedon the norms prescribed by the Technical Excise Manual of theExcise Department?is justified in law in not upholding the addition of Rs.1,62,42,450/-on account of suppressed sales even when the addition was basedon the norms prescribed by the Technical Excise Manual of theExcise Department? 3.Briefly stated, the facts giving rise to the present appeal, asenumerated in the memo appeal, are that the assessee, which is engaged inthe business of Beer and bottling of Indian made foreign liquor (IMFL) filedits return of income declaring an income of Rs.1,60,96,580/-. The case wasreopened under Section 147 of the Act as the assessee is said to have notshown the ratio of yield. Thereafter, notice under Section 148 of the Act wasissued on 22.09.2004. The assessee in its reply submitted that the return filedon 30.01.2000 may be treated as return in pursuance to notice under Section148 of the Act. The Assessing Officer vide order dated 27.03.2006, on thebasis of Kerala State Excise Technical Manual formed an opinion that theassessee had suppressed the production and indulged in making the salesoutside the books of accounts relating to Beer produced by it and therefore,after computing the production of Beer as per the methodology prescribed inthe said manual, an addition of Rs.1,62,42,450/- was made. Feelingdissatisfied with the assessment order, the assessee preferred an appealbefore the Commissioner of Income Tax (Appeals-I), Bhopal [for short “theCIT(A)”], who vide order dated 23.10.2006 partly allowed the appeal of theassessee thereby holding that the Assessing Officer was not justified inmaking addition of Rs.1,62,42,450/-. Against the order of the CIT(A), theRevenue filed an appeal before the learned Tribunal, which has beendismissed vide order impugned herein. In this manner, the present appeal hasbeen filed by the Revenue. 4.Learned counsel for the appellant-Revenue submitted that theAssessing Officer had reopened the case with the reason that as per thetechnical excise manual of Kerala some specified percentage of consumptionof sugar and malt are consumed for production of same specified percentageof Beer but the assessee had not shown the said ratio of yield. According tohim, on the basis of the Technical Excise Manual of Excise Department,4672.9 BL of Beer is produced from one MT of Barley Malt and similarly asper Excise Technical rules framed by the Kerala State, 5857.14 BL worth isproduced out of one MT of sugar. If 5% wastage is taken duringmanufacturing (as per manual) and 10% storage wastage is also allowed,which is a maximum permissible limit (as per manual) then there is a netshort accountable of production of Beer by 613154 BL, which sale was notdisclosed. Learned counsel argued that even if average selling price ofRs.26.49 per BL is taken out of books of accounts, it comes out toRs.1,62,42,450/- and therefore, there was no illegality in the order passed bythe Assessing Officer. 5.On the other hand, learned counsel for the respondent-assessee arguedin support of the impugned order and prayed that the orders passed by theCIT(A) as well as the learned Tribunal deserve to be affirmed and thisappeal be dismissed. 6.We have heard learned counsel for the parties and perused theimpugned order. 7.The CIT(A) while setting aside the order passed by the AssessingOfficer has given detailed reasons for not agreeing with the findings of theAssessing Officer. Inasmuch as, the CIT(A) had come to the conclusion that the Assessing Officer had separately computed production of Beer on thebasis of consumption of sugar whereas without addition of sugar, Beercannot be produced from the barley malt. It was observed that the barleymalt is the basic raw material for production of beer and therefore, if theproduction of Beer is computed only on the basis of barley malt, there willnot remain any difference in the production of Beer, as worked out byapplying the Excise Technical Rules framed by Kerala State. On that basis, itwas held that the assessee had shown production of Beer more than what isworked out on the basis of Technical Excise Rules of Kerala State whichwere relied upon by the Assessing Officer. It was also noticed that theAssessing Officer had reopened the case without any evidence and that tooafter the block assessment was over and even the regular assessment underSection 143(3) of the Act was also completed. There was no evidence foundduring the course of search that there was undisclosed production. Further,no information was available with the Revenue that there was unaccountedproduction. The learned Tribunal concurred with the view of CIT(A) and inthis view of the matter, dismissed the appeal of the Revenue holding that itwas not a case for suppressed production as per the process ofmanufacturing which is applied in production of Beer. It was further noticedthat even the Kerala State Excise Mannual which was applied by theAssessing Officer in the case of the assessee who was operating in State ofMadhya Pradesh, was of no help to the reasoning given by the AssessingOfficer, as it was a case of pretence and reasons to suspect only. The relevantextract of the order passed by the learned Tribunal is reproduced as under:- 9.“It is a settled judicial principle that finality of completedassessment cannot be disturbed in a light manner and therefore, the lawassessment cannot be disturbed in a light manner and therefore, the law S/ has provided safeguard in the form of reason to believe, which must existdoing so. However, in the present case, the assessee is operating in theState of M.P. and Kerala State Excise Manual is a general information andtherefore, it is a case of pretence and reasons to suspect only. In this viewof the matter, we hold that the Ld. CIT(A) has rightly quashed theassessment proceedings. Thus, this ground of the Revenue is dismissed. 9.“It is a settled judicial principle that finality of completedassessment cannot be disturbed in a light manner and therefore, the lawassessment cannot be disturbed in a light manner and therefore, the law S/ has provided safeguard in the form of reason to believe, which must existdoing so. However, in the present case, the assessee is operating in theState of M.P. and Kerala State Excise Manual is a general information andtherefore, it is a case of pretence and reasons to suspect only. In this viewof the matter, we hold that the Ld. CIT(A) has rightly quashed theassessment proceedings. Thus, this ground of the Revenue is dismissed. 10.In ground no.2, the Revenue has challenged the decision of Ld.CIT(A) on merits as well. However, having considered the submissionsmade by both the parties before us and after perusal of the order of the Ld.CIT(A), we are convinced that there is no case for suppressed productionas per the manufacturing process explained to us and the A.O. has notcorrectly worked out the production even on the basis of Kerala StateExcise Manual. In this view of the matter, ground no.2 of the Revenue isalso dismissed.” 8.In our considered opinion, the power under Section 147 of the Actcannot be exercised merely on reason of suspicion but there should bereason to believe.Therefore, keeping in view the findings recorded by theCIT(A) which have been affirmed by the learned Tribunal and consideringthe same on the touchstone and anvil of the arguments advanced by thelearned counsel for the appellant-Revenue, we find no reason to differ, as noillegality or perversity has been pointed out by learned counsel for theRevenue in the aforesaid findings of fact, which may warrant interference bythis Court. 9.In view of the foregoing reasons, the substantial questions of law areanswered against the Revenue and in favour of the assessee. 10.Resultantly, the present appeal being devoid of any merit, is dismissedaccordingly. (Ajay Kumar Mittal) Chief Justice (Vijay Kumar Shukla) Judge