Commissioner of Income Tax (Exemption), New Delhi v. U.P. Distillers Association

2. The applications stand disposed ofin the aforesaid terms. ITA 850/2019 &ITA 851/2019

3. The present appeals have been filed by the Revenue assailing the order dated 14.12.2018 passed by the Income Tax Appellate Tribunal, Delhi 'E' Bench,New Delhi passed by the ITAT in respect ofITA 3208/Del/2013 for the assessment year 2005-06 and in ITA No. 2576/Del/2010 for the assessment year 2003-04, whereby the Tribunal has allowed the appeals preferred by the Respondent/assessee and set aside the additions made by the Assessing Officer in the income ofthe Respondent/assessee trust.

4. A search and seizure operation under section 132 ofthe Act was carried out at the premises ofthe assessee and at the residence ofSh.RK Miglani, Secretary General ofthe assessee societyon 14.02.2006,from where various incriminating documents relating to the assessee society were seized. Subsequently, assessment was completed u/s 153A vide order dated 28.12.2007 at Rs. 45,21,43,413/- (against loss of Rs. (-) 73,354/-in the status of AOP)in view of AO's findings that the activities ofUPDA were not charitable in nature and were, in fact in infringement of law and in complete violation of public policy. The AO made additions of Rs.45,22,04,401 /- on account of unexplained receipts recorded in the ITA 850/2019 cfeITA 851/2019 ^ documents/books of account found and seized from the premises of the assessee and residence of Shri R. K. Miglani. He relied on the statement of Shri Miglani recorded u/s 132(4)ofthe Act wherein he had himselfadmitted that he was working as Secretary General of UPDA and the entries appearing in the seized documents were in respect of amounts paid by members of UPDA for the purpose of making illegal payments to politicians/public servants as mentioned in the said documents.Ld.CIT(A)- 33, vide order dated 18.02.2013 (in Appeal No. 354/07-08/101) dismissed the appeal of the assessee confirming the addition of Rs. 45.22 crores as unaccounted revenue receipts in the hands of the assessee which is not applied to the objects of society. Ld. CIT(A) further held that the unaccounted receipt ofRs.45.22 crore is not exempt u/s 11 as activities of UPDA were not charitable in nature and were,infact,in infringementoflaw and in complete violation ofpublic policy.

5. Ld. Tribunal vide its common order for AYs 2001-02 to 2007-08 dated 14.12.2018 in ITA 3208/Del/2013 allowed the appeals of the assessee holding that the assessmentframed u/s 153A ofthe Act was bad in law,as no search u/s 132 ofthe Act was earned out at the premises ofthe assessee and deleted the addition ofRs.45.22crores made by the AO on account of unexplained credit entries recorded in the seized documents and denial of exemption u/s 11 ofthe Act.Hence,the presentappeal.

6. The admitted position on facts, as emerging from the record, is that no search under Section 132 ofthe Act was conducted in the premises ofthe Respondent/assessee. Merely a survey under Section 133A was conducted. ITA 850/2019 cfeITA 851/2019 ^ Consequently,invocation ofSection 153A was not warranted, which led to the assessment order being framed making additions in the income of Respondent/assessee on the basis of documents recovered which, purportedly, showed cash receipts by the Respondent/assessee form its members. The assessment was made by the Assessing Officer on the basis ofthe said purported cash receipts found in the documents upon conduct of survey under Section 133A of the Act against the assessee, and upon conduct ofsearch under Section 132 on the premises ofthe Secretary ofthe Respondent Trust, Shri R. K Miglani, and on the basis of the statement attributed to him. The relevant findings returned by the Tribunal in the impugned order read as follows: "199.Ifthesearch warrant was never executed atthepremisesof the assessee, itleads to only one conclusion that the assessee was neversearched.Ifthe assessee was neversearched u/s 132ofthe Act, assessmentsframed u/s 153A of the Act are bad in law because provisions ofsection 153A providesfor assessment in case ofsearch or requisition."

7. In respectofthe additions soughtto be made under Section 68 ofthe Act, the Tribunal observed as follows: "209.Adverting to thefacts relating to the additions made u/s 68 ofthe Act, we mustfirstunderstand thepreconditionfor involdng the provisions ofsection 68 ofthe Act and the precondition is that where anysum isfound credited in the books ofthe assessee maintainedfor anyprevious year. No such entries arefound -in the books ofthe assessee. What wasfound was merely notings in loose papers/spiral bound diaries. Whether entries in loose sheets can be construed as entries in the books ofaccount, the Hon'ble Supreme Court in the cases of Common Cause, A Registered Society Vs. UOI 394 ITR 220 wherein the Hon'ble ITA 850/2019&ITA 851/2019 ^ Supreme Courtconsidered thefollowingfacts: "Raids were conducted on the Birla and Sahara Group of Companies and incriminating materials inform ofrandom sheets and loose papers, computer prints, hard disk, pen drives etc. were found. Evidence of certain highly incriminating money transactions were alsofound. Question arises as to whether a case was made out on the basis ofabove materials, to constitute SpecialInvestigation Team (SIT) and direct investigation against the variousfunctionaries/officers andfurther monitor thesame? Loose sheets ofpapers are wholly irrelevant as evidence being not admissible under section 34so as to constitute evidence with respect to the transactions mentioned therein being of no evidentiary value. The entire prosecution based upon such entries which led to the investigation was quashed by this Court. [Para 20] The Court has to be on guard while ordering investigation against any important constitutionalfunctionary, officers or any person in the absence of some cogent legally cognizable material. When the material on the basis ofwhich investigation is sought is itself irrelevant to constitute evidence and not admissible evidence, whether it would be safe to even initiate investigation? In case it is done, the investigation can be as against any person whosoever high in integrity on the basis of irrelevant or inadmissible entry falsely -made, by any unscrupulous person or business house that too not kept in regular books of account but on random papers at any given point of time. There has to be some relevant and admissible evidence and some cogent reason, which is prima facie reliable and that too,supported bysome other circumstancespointingout that the particular third person against whom the allegations have been levelled was infact involved in the matter or he has done some act during thatperiod, which may have co-relations with the random entries. In case all these are not insisted, the process oflaw can be abused against all and sundry very easily to achieve ulterior goals and then no democracy can survive in case investigations are lightly set in motion against important constitutionalfunctionaries on the basis offictitious entries, in absence ofcogent and admissible material on record, lest liberty ofan individual be compromised unnecessarily. The materials which have been placed on record either in the case ofBirla or in the case ofSahara are not maintained in regular course of business and thus lack in required reliability to be made the foundation- ofapolice investigation.[Para-21] In case ofSahara,in addition there is adjudication by theIncome Tax Settlement Commission. The order has been placed on record. The Settlement Commission has observed that the scrutiny ofentries on loose papers, computer prints, hard disk, pen drives etc. have revealed that the transactions noted on documents were not genuine and have no evidentiary value and that details in these loose papers, computerprint outs, hard disk and pen drive etc. do not comply with the requirement ofthe Indian Evidence Act and are not admissible evidence. Itfurther observed that the department has no evidence to prove that entries in these loose papers and electronic data were kept regularly during the course ofbusiness ofthe concerned business house and the fact that these entries were fabricated, nongenuine was proved. It held as well that the PCIT/DR have not been able to show and substantiate the nature and source of receipts as well as nature and reason ofpayments and have failed to prove evidentiary value ofloose papers and electronic documents within the legalparameters. The Commission has also observed that department has not been able to make out a clear case oftaxingsuch income in the hands ofthe applicantfirm on the basis ofthese documents.[Para 22] It is apparent that the Commission has recorded afinding that transactions noted in the documents were not genuine and thus has not attached any evidentiary value to the pen drive, hard disk,computerloosepapers,computerprintouts.[Para23] Since it is not disputed thatfor entries relied on in these loose papers and electronic data were notregularly keptduringcourse ofbusiness, such entries were discussed in the order passed in Sahara's case by the Settlement Commission and the documents have not been relied upon the Commission against assessee and thus such documents have no evidentiary value against third parties. On the sis ofthe materials which have been placed on record, it is opined that no case is made out to direct investigation against any of the persons named in the Birla's documents or in the documents ofSahara.[Para 24] In the case o/State ofHaryana v. Bhajan Lai 1992Supp(I)SCC 335, this Court has laid down principles in regard to quashing the F.l.R. The Courtcan quash FIR also ifsituation warranteven before investigation takes place in certain circumstances. This Court has laid down thus: (8) Where the allegations made in thefirstinformation reportof the complaint, even if they are taken at theirface value and accepted in their entirety do not prima facie constitute any offence or make outa case againstthe accused. (9) Where the allegations in the first information report and other materials, ifany. accompanying the FIR do not disclose a cognizable offence,justifying an investigation bypolice officers under section I56(I) ofthe Code except under an order ofa Magistrate within thepurview ofsection 155(2)ofthe Code. (10) Where the uncontroverted allegations made in the FIR or complaint and the evidence collected in support ofthe same do not disclose the commission ofany offence and make out a case againstthe accused. (11) Where the allegations in the FIR do not constitute a cognizable offence butconstitute only a non- cognizable offence, no investigation ispermitted by apolice officer withoutan order ofaMagistrateascontemplated u/s155(2)ofthe Code. ITA 850/2019&ITA 851/2019 Page 7of[9] 1^, (12) Where the allegations made in the FIR or complaint are so absurd and inherently improbable on the basis of which no prudent person can ever reach a just conclusion that there is sufficientgroundforproceeding againstthe accused. (13) Where there is an express legal bar engrafted in any ofthe provisions of the Code or the concerned Act (under which a criminal proceeding is instituted) to the institution and continuance ofthe proceedings and/or where there is a specific provision in the Code or the concerned Act,providing efficacious redressfor the grievance ofthe aggrievedparty. (14) Where a criminal proceeding is manifestly attended with mala fide and/or where the proceeding is maliciously instituted with an ulterior motivefor wreaking vengeance on the accused and with a view to spite him due to private andpersonalgrudge. [Para 26] n Considering the aforesaidprinciples which have been laid down, it is opined that the materials in question are notgood enough to constitute offences to direct the registration of FIR and investigation therein. The materialsshould qualify the test asper the aforesaid decision. The complaintshould not be improbable and must shoM> sufficient ground and commission ofoffence on the basis of which registration ofa case can be ordered The materials in question are not only irrelevant but are also legally inadmissibly under section 34 ofthe Evidence Act, more so with respect to third parties and considering the explanation which have been made by the Birla Group and Sahara Group, it is opined that it would notbe legallyjustified,safe,justandproper to directinvestigation.[Para 27] "

8. Therefore, the Tribunal has rejected reliance placed by the Revenue on some loose papers/spiral bound diaries, by placing reliance on Common Cause(supra).Inthese circumstances,we are oftheviewthatno questionof law arises for consideration in the present appeals, and the same are, Page I) of[9] ITA 850/2019 ITA 851/2019 accordingly,dismissed.

SEPTEMBER 23,2019 nk I VIPIN SANGHI SANJEEV NARUEA,J ITA 850/2019 &ITA 851/2019 Page9of[9]