Radico Nv Distilleriesmaharashtra Ltd v. Commissioner Of Income Tax (Central)-Iii,New Delhi & Ors

$~11 *IN THE HIGH COURT OF DELHI AT NEW DELHI+W.P.(C) 3373/2013 & CM No.6413/2013 (stay) RADICO NV DISTILLERIESMAHARASHTRA LTD...... PetitionerThrough:Mr. Ajay Vohra, Senior Advocatewith Ms. Kavita Jha and Mr. VaibhavKulkarni, Advocates. versus COMMISSIONER OF INCOME TAX (CENTRAL)-III,NEW DELHI & ORS..... RespondentsThrough:Mr.RahulChaudhary,SeniorStanding Counsel with Mr. SanjayKumar, Junior Standing Counsel. CORAM: JUSTICE S.MURALIDHARJUSTICE PRATHIBA M. SINGHO R D E R%09.10.2017 Prathiba M. Singh, J.: 1. The present petition impugns the order dated 3[rd]April, 2013 passed by theIncome Tax Settlement Commission (hereinafter referred to as the ‘ITSC’)under Section 245D (2C) of the Income Tax Act, 1961 (hereinafter referredtoas‘theAct’)inapplicationnos.DL/DC53/2012-13/75-IT&DL/DC53/2012-13/76-IT for the Assessment Years (‘AY’) 2005-06 to2011-12. By the impugned order, the ITSC rejected the application forsettlement of the pending cases filed by the Petitioner. Brief Facts 2. A search was conducted at the business premises of the Petitioner on 15[th]February, 2011 under Section 132 of the Act. Pursuant to the search, W.P.(C) 3373/2013 Page 1 of 11 proceedings were initiated on 27[th]January, 2012 under Section 153A for theAYs 2005-06 to 2010-11. At that time, the assessment proceedings for AY2011-12 were also pending before the Assessing Authority. 3. While the proceedings under Section 153A of the Act were pending, thePetitioner approached the ITSC under chapter XIX-A of the Act. In itsapplications before the ITSC, the Petitioner made a disclosure of additionalincome of Rs.11,60,96,390/- and paid additional tax and interest payablethereon aggregating to Rs. 97,29,856/-. The applications also contained theconfidential portion which provided the details relating to the mode andmanner of earning such additional income. The Petitioner also apprised theAssessing Officer (‘AO’) of the factum of filing of settlement applicationson 30[th]January, 2013. 4. Apart from the Petitioner's application, applications were also filed by thegroup companies and individuals on whom searches were carried out. Intotal the said applicants have declared a sum of Rs.104,10,90,845/-. Aconsolidated order was passed by the ITSC on 8[th]February, 2013 directingthat “Since the applicants have prima-facie fulfilled the conditionsprescribed under Section 245C (1) of the Act, the applications are allowedto be proceeded with.” 5. The ITSC had simultaneously called for a report from the Commissionerof Income Tax (`CIT') which was submitted on 18[th]March, 2013. In thisreport, the ‘CIT’ averred that the Petitioner has received substantial amountof share capital from bogus/non-existent companies. The report further W.P.(C) 3373/2013 Page 2 of 11 states that the Petitioner has received the share capital from Enn VeeHoldings Pvt. Ltd. (hereinafter referred to as ‘Enn Vee’) which in turn hasreceived the entire share holding from bogus/non-existent/paper/briefcasecompanies. The relevant portions of the report are set out as under: “It was alleged that M/s Radico NV DistilleriesMaharashtra Ltd. has received substantial amount ofshare-capitalfrombogus/nonexistentcompanies.Perusal of the list of allottees of M/s Radico NVDistilleriesMaharashtraLtd.showsthatithasreceived Share capital from M/s Enn Vee Holdings Pvt.Ltd., in the following manner: W.P.(C) 3373/2013 Page 2 of 11 states that the Petitioner has received the share capital from Enn VeeHoldings Pvt. Ltd. (hereinafter referred to as ‘Enn Vee’) which in turn hasreceived the entire share holding from bogus/non-existent/paper/briefcasecompanies. The relevant portions of the report are set out as under: “It was alleged that M/s Radico NV DistilleriesMaharashtra Ltd. has received substantial amount ofshare-capitalfrombogus/nonexistentcompanies.Perusal of the list of allottees of M/s Radico NVDistilleriesMaharashtraLtd.showsthatithasreceived Share capital from M/s Enn Vee Holdings Pvt.Ltd., in the following manner: It has been found that M/s Enn Vee Holdings Pvt. Ltd.has received entire shareholding from bogus/ non-existent/ paper/ briefcase companies and is in fact theunaccounted money utilized by the assessee itself.Further, M/s Enn Vee Holdings Pvt. Ltd. is notcarrying out any business activities and is just aconduit for transfer of unaccounted money receivedthrough a channel of Entry operator companies. Thus,the entire receipt of Rs. 21.44 crore in the form ofshare-capitalbyM/sRadicoNVDistilleriesMaharashtra Ltd. from M/s Enn Vee Holdings Pvt. Ltd.is unaccounted investment. However, it would bepertinent to bring on record that M/s Enn VeeHoldings Pvt. Ltd. is a group company of the NVGroup of cases which too was covered in the searchand has already moved to the Settlement Commissionseparately.” 6. The report concludes that a total of Rs.104,10,90,845/- was the totaladditional income as disclosed by the Petitioner and all the other applicants.However, according to the CIT, the total of the undisclosed income underdifferent heads as per seized documents is Rs.105,57,12,727/-. Thus, theCIT reported that there was a failure by the Petitioner to make a full and truedisclosure of its income before the ITSC as also a failure to disclose themanner in which the income was derived and the additional amount ofincome tax payable on such income. 7.Pursuant to this report, the ITSC passed the impugned common orderdated 3[rd]April, 2013 rejecting the applications of the Petitioner as also thatof M/s. Radico Khaitan Ltd. The reasons for rejection are recorded as under: “1. Applicant has not filed reply to questionnaire tilldate even though the questionnaire was issued to himby the A.O. several months back. The learned Counselfor the applicant when asked to explain the reasons fornot giving a reply even after lapse of several monthsmerely stated that as the information sought wasroutine the reply was not given. In our view if theinformation sought was routine there should not havebeen any reason for the applicant to furnish the samewithout delay. 2. Applicant has taken contradictory stand regardingwhether it is a successor company or a new set up toexplain the sale of assets claiming that it is a successorcompany but regarding issue of fresh share capital itwas stated that it was in the process of set up. 3. In Directors report at page 47 of Radico KhaitanPaper book filed on 01.04.2013 it is mentioned that theDirectorsaretryingtostrengthenthefinancialposition of Enn Vee Holdings Ltd. This reflects adversely on the capacity of Enn Vee Holdings Ltd. toadvance a sum of Rs. 21.44 Crores to the applicantgroup. At page 64 of the Paper Book it is noted that inthe year 2009 Enn Vee Holdings Ltd. had Nil incomeand in the year 2010 it had income of just Rs. 1.08. 2. Applicant has taken contradictory stand regardingwhether it is a successor company or a new set up toexplain the sale of assets claiming that it is a successorcompany but regarding issue of fresh share capital itwas stated that it was in the process of set up. 3. In Directors report at page 47 of Radico KhaitanPaper book filed on 01.04.2013 it is mentioned that theDirectorsaretryingtostrengthenthefinancialposition of Enn Vee Holdings Ltd. This reflects adversely on the capacity of Enn Vee Holdings Ltd. toadvance a sum of Rs. 21.44 Crores to the applicantgroup. At page 64 of the Paper Book it is noted that inthe year 2009 Enn Vee Holdings Ltd. had Nil incomeand in the year 2010 it had income of just Rs. 1.08. 4. Regarding joint venture agreement filed by theapplicant company at page 1 of the written submissionfiled on 01.04.2013 a joint venture and share holdersagreement is claimed to have been entered into inwhich the applicant and Enn Vee Holdings Ltd.amongst others are parties but at page 67 in theAuditors report under the column relating to jointventure it is mentioned as 'Nil'. Obviously thiscontradicts the stand of the applicant of having enteredinto a J.V. The learned Counsel informed that this isdue to mistake by the statutory auditor, it is seen frompage 1 of CIT's report dated 18.03.2013 that theapplicant had received share capital worth Rs. 21.44crores from Enn Vee Holdings Ltd. which is a companyhaving poor financial health as admitted by theirDirector's report at page 47 of the Paper Book filed on01.04.2013 by the applicant where it is mentioned thatthe directors are trying to strengthen the financialposition of Enn Vee Holdings Ltd. This reflectsadversely on the capacity of Enn Vee Holdings Ltd. toadvance a sum of Rs. 21.44 Crores to the applicantgroup. At page 64 of the Paper Book it is noted that inthe year 2009 Enn Vee Holdings Ltd. had Nil incomeand in the year 2010 it had income of just Rs. 1.08.Obviously, such a company having poor resourcescould not have advanced a sum of Rs. 21.44 crores tothe applicant and as such the Commission is of theview that this amount should have been declared by theapplicant in the Settlement Application. 5. The applicant had entered into an agreementregarding bottling with N.V. Distilleries and BreweriesPvt. Ltd. on 12.04.04 on stamp paper. However, anregarding bottling with N.V. Distilleries and BreweriesPvt. Ltd. on 12.04.04 on stamp paper. However, an amendment to this agreement dated 12.04.2004 wasmade on 01.06.2004 stating that it will come into effectfrom 01.04.2004, which is even before the date of mainagreement signed on 12.04.2004. It is also note worthythat the amending agreement dated 01.06.2004 is onletter head of the applicant and not on stamp paper.The agreement to amend apparently has no legalvalidity and cannot be accepted as the genuineagreement. In view of this the out of book sales ofRs.3,81,56,000/- as worked out by CIT at page 4 of hisreport dated 18.03.2013 should have been declared bythe applicant as its income but it has failed to do soand consequently has not made a full and truedisclosure.” 8. This order has been impugned in the present writ petition on severalgrounds including (a) That the ITSC does not have the powers of reviewingits earlier order (b) that there was no failure by the Petitioner to make fulland true disclosure of its income & (c) The application of Enn Vee againstwhom the allegation has been made, that it had received the bogus sharesand that it is a conduit, is also currently pending before the ITSC andtherefore, the Petitioner’s case be also taken up along with the case of EnnVee by the ITSC itself. Before this Court, the first issue is not pressed orargued. Submissions of the Petitioner 8. This order has been impugned in the present writ petition on severalgrounds including (a) That the ITSC does not have the powers of reviewingits earlier order (b) that there was no failure by the Petitioner to make fulland true disclosure of its income & (c) The application of Enn Vee againstwhom the allegation has been made, that it had received the bogus sharesand that it is a conduit, is also currently pending before the ITSC andtherefore, the Petitioner’s case be also taken up along with the case of EnnVee by the ITSC itself. Before this Court, the first issue is not pressed orargued. Submissions of the Petitioner 9. The main argument of Mr. Ajay Vohra, learned Senior Advocateappearing on behalf of the Petitioner is that the application of Enn Vee forsettlement of its case is pending before the ITSC and since the Petitioner hasbeen non-suited on the ground that the Enn Vee had received the bogusshares, it would be appropriate for the ITSC to consider both the W.P.(C) 3373/2013 Page 6 of 11 applications i.e. of the Petitioner and of Enn Vee together. Mr. Vohra hasrelied upon the Joint Venture and Shareholding Agreement to submit thatthe predecessor in interest of the Petitioner was Shetkari Baliraj Sugars Ltd.(hereinafter referred to as ‘Shetkari’) in which another entity Ridhi SidhiShares Pvt. Ltd. (hereinafter referred to as ‘Ridhhi Sidhi’) had 100% of theshareholding. By this agreement, the shareholding of Ridhhi Sidhi was beingdiluted to 32% and the remaining investments were to be made by Enn Veeand other entities. Shetkari is now the Petitioner’s company. 10. According to Mr. Vohra, the audited accounts of both the companies i.e.the Petitioner and Enn Vee reflected the investment made and thus there wasno failure by the Petitioner to make a full and true disclosure to the ITSC.He specifically relied upon the balance sheet dated 31[st]March, 2009 whichlists Radico Khaitan, Ridhi Sidhi and Enn Vee as the companies which arecontributing to the share capital of Shetkari - i.e., the Petitioner. Similarly,Mr. Vohra relies upon the audited accounts of Enn Vee to show that EnnVee's investment in the Petitioner company is also duly reflected. Mr. Vohrathen submitted that the Revenue does not dispute that the application filedby Enn Vee is also pending before the ITSC and hence it would beappropriate that the ITSC considers both the applications together so that theinterest of the Revenue is also protected. Mr. Vohra relies upon thejudgment of this Court dated 17[th]May, 2017 passed in W.P.(C) 5424/2016(Bindlas Duplux Ltd. v. Principal Commissioner of Income Tax (Central)Delhi-3 & Ors.) to submit that under a similar situation this Court hadobserved that “It was, therefore, not possible to examine the state of affairsof any one company of the group in isolation of the entire group.” W.P.(C) 3373/2013 Submissions of the Revenue 11. Mr. Rahul Chaudhary, learned Senior Standing Counsel appearing onbehalf of the Revenue submits that the powers of the ITSC to review itsorder are not in dispute in the present case as the Petitioner is not pressingthe same. In any event, as per the submission of Mr. Chaudhary the ITSChas full powers to review its own order. W.P.(C) 3373/2013 Submissions of the Revenue 11. Mr. Rahul Chaudhary, learned Senior Standing Counsel appearing onbehalf of the Revenue submits that the powers of the ITSC to review itsorder are not in dispute in the present case as the Petitioner is not pressingthe same. In any event, as per the submission of Mr. Chaudhary the ITSChas full powers to review its own order. 12. Insofar as the merits of the case are concerned, Mr. Chaudhary submitsthat there was a failure by the Petitioner to make a full and true disclosure.He specifically relies upon the contradictory stand taken by the Petitionerwhich is recorded as reason no. 2 in the impugned order. He further submitsthat the AO had asked several questions to the Petitioner which were notanswered by it. Mr. Chaudhary relies upon how on the one hand thePetitioner claims depreciation of the assets of the company and on the otherhand the Petitioner also claims that the company was in the process of beingset up. These two are completely contradictory and hence the ITSC,according to Mr. Chaudhary, has rightly rejected the applications of thePetitioner. He submits that the purpose with which the Joint VentureAgreement was entered into was merely to transfer manufacturing licensesissued by the Government of Maharashtra for operating the distillery. He,thus, submits that the Petitioner did not satisfy the threshold requirement ofthe full and true disclosure. Analysis and Findings 13. The reasons given by the ITSC for rejection of the application that havebeen canvassed before the Court are primarily threefold. First that the W.P.(C) 3373/2013Page 8 of 11 questionnaire issued by the AO was not answered. Secondly, there was afailure to make a full and true disclosure and thirdly that the Petitioner wastaking contradictory stands. 14. Insofar as the first reason is concerned, once the ITSC proceeds with thesettlement application, as per Section 245D (4), the proceedings before theAO comes to a standstill. This is clear from a reading of Section 245F (2) ofthe Act. Thus, no adverse inference can be drawn from the fact that thequestionnaire issued by the AO was not answered. 15. Insofar as the second reason i.e. full and true disclosure is concerned,even the report of the CIT does not point to a great variance in the incomedisclosed. The difference between the two amounts as disclosed by thePetitioner and as deduced by the CIT from the documents seized isapproximately Rs 14,621,882/- which constitutes less than 1.5% differencein the amount disclosed and the amount computed by the CIT. It is possiblethat the said amount can be reconciled before the ITSC if the application isproceeded with and heard finally. The difference is too minimal whencompared to the total amount disclosed, to constitute a failure to make fulland true disclosure of the income. 16. Coming to the main plank of Mr. Chaudhary’s submission that thePetitioner had taken a contradictory stand, reason no.2 given in theimpugned order reads as under: “Applicant has taken contradictory stand regardingwhether it is a successor company or a new set up toexplain the sale of assets claiming that it is a successorwhether it is a successor company or a new set up toexplain the sale of assets claiming that it is a successor company but regarding issue of fresh share capital itwas stated that it was in the process of set up.” 16. Coming to the main plank of Mr. Chaudhary’s submission that thePetitioner had taken a contradictory stand, reason no.2 given in theimpugned order reads as under: “Applicant has taken contradictory stand regardingwhether it is a successor company or a new set up toexplain the sale of assets claiming that it is a successorwhether it is a successor company or a new set up toexplain the sale of assets claiming that it is a successor company but regarding issue of fresh share capital itwas stated that it was in the process of set up.” 17. A perusal of the above reveals that the ITSC appears to have proceededon a wrong premise. There is no doubt that Shetkari is an earlier avatar ofthe Petitioner. The Joint Venture Agreement clearly shows that 100% ofshareholding of Shetkari was owned by Ridhi Sidhi and that was intended tobe diluted with investments from the other companies including Enn Vee.The application of Enn Vee is pending before the ITSC. The primary groundfor rejection is that Enn Vee is a conduit and that it has received thesubstantial amount of share capital from bogus/non-existent companies. Ifthis is so, it would have consequences for Enn Vee as well. The dismissal ofthe Petitioner’s applications by the ITSC would result in a failure to examinethe matter comprehensively and in entirety. Even if what is contained in thereport is indeed true which would become clear after the proceedings at theITSC are concluded, appropriate orders can be passed by the ITSC inaccordance with law in respect of such bogus companies, if any. Therejection of the applications of the Petitioner cannot be done on this soleground and in fact it would be appropriate if the Petitioner’s case is heardand decided along with case of Enn Vee. 18. Finally, the contradiction which has been highlighted in reason no.2above appears to misunderstand the situation. It is not in dispute that thePetitioner company was undergoing restructuring. The restructuring of theshareholding is different from a company being newly setting up. The term`process of setup' is merely a misdescription by the Petitioner of therestructuring process, in its response dated 1st April 2013, to the notice of W.P.(C) 3373/2013 the ITSC dated 8th February 2013. The ITSC appears to have borrowed thisterminology from the said document and has non-suited the Petitioner onthat ground. What indeed is clear from the facts is that the shareholdingpattern of the Petitioner company was being restructured/changed and it wasnot an establishment of a new company. While the shareholding of anycompany is being changed, there is no bar on depreciation being claimed aspermissible in law. Thus, this could not be a ground for rejection of thePetitioner’s applications. 19. In view of the above facts and following the decision in Bindlas Duplux(supra) this Court deems it appropriate to set aside the impugned order ofthe ITSC. It is clarified that this Court has not examined the merits of thedispute which shall be examined by the ITSC in accordance with law. Theapplications filed by the Petitioner shall be proceeded with and consideredby the ITSC along with the application filed by Enn Vee. 20.The writ petition is allowed in the above terms. The pending stayapplication also stands disposed of. PRATHIBA M. SINGH, J OCTOBER 09, 2017dk S.MURALIDHAR, J W.P.(C) 3373/2013