ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-1, BAREILLY V. WAVE DISTILLERIES AND BREWERIES LIMITED, BAREILLY

ITA 153/LKW/2023

AI Insights

The case involves the Income Tax Department's appeals against the orders of the Commissioner of Income Tax (Appeals), which had deleted the additions made to the income of Wave Distilleries and Breweries Limited for the assessment years 2013-14 to 2017-18. The Department contended that the assessee was the actual dealer in the business of manufacturing and selling beer under the facade of United Breweries Limited (UBL) and had suppressed income by not disclosing full sales and expenses in its accounts. The Tribunal examined the validity of the reassessment proceedings and the merits of the additions made. It was found that the reassessment was based on audit objections and a change of opinion by the Assessing Officer, influenced by higher authorities, which did not constitute valid grounds for reopening the assessment.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 31925 (ITAT-LUCKNOW)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2025
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Other Referred Cases: Principal Commissioner of Income Tax, Bangalore Vs. M/s Chamundi Winery & Distillery, CIT vs. Smt. Vyjayanthimala Bali, Adani Exports vs. DCIT, Yeshwant Talkies vs. CIT, CIT vs. Kelvinator of India Ltd., ITO vs. Sarabhai M Lakhani, A.L.A. firm vs. CIT, CIT vs. Bijli Cotton Mills (P) Ltd., CIT vs. Imperial Chemical Industries India Pvt. Ltd., CIT vs. Chamundi Winery & Distillery, Indian Oil Corporation vs. Indian Tax Officer, Central Circle V, Calcutta and Ors, Income Tax Officer vs. Lakhmani Mewal Das
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RICHA RASTOGI; RICHA RASTOGI
• Assessee Lawyers: S SALIL KAPOOR; VIBHU JAIN; MAKING AN ADDITION OF; VIRTUE OF FLA LICENSE EXCLUSIVELY RESTED UBL; S SALIL KAPOOR; VIBHU JAIN; MAKING AN ADDITION OF; VIRTUE OF FLA LICENSE EXCLUSIVELY RESTED UBL
• Keywords: Difference of opinion; Change of opinion; Reassessment proceedings; Corroborative evidences; Reopening of assessment; Diversion of income; Search and seizure; Audit objection; Reason to believe; Tangible material; Borrowed satisfaction; Presumptive income; FORM 26AS
• Section: 147; 148; 143(3); 119; 143(1); 48; 43; 22; 13; 73; 115JB; 37(1); 20

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH “B”, LUCKNOW BEFORE SHRI. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SHRI NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA Nos.153 to 157/LKW/2023 Assessment Years: 2013-14 to 2017-18 The ACIT Circle-1 Bareilly v. Wave Distilleries and Breweries Limited Unit No.29, K-185/1/T/F, Sarai Julaina New Delhi TAN/PAN:AABCU0335J (Appellant) (Respondent) C.O. Nos.23, 24, 21,22 and 25/LKW/2023 [In ITA Nos.153 to 157/LKW/2023] Assessment Years: 2013-14 to 2017-18 Wave Distilleries and Breweries Limited Unit No.29, K-185/1/T/F, Sarai Julaina New Delhi v. The ACIT Circle-1 Bareilly TAN/PAN: AABCU0335J (Cross Objector) (Respondent) Department by: Smt. Richa Rastogi, CIT (DR) Assessee by: S/Shri Salil Kapoor, Vibhu Jain and Sumit Lalchandani, Advocates O R D E R PER BENCH: These appeals have been preferred by the Revenue against the respective orders of the ld. Commissioner of Income ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 2 of 61 Tax (Appeal), National Faceless Appeal Centre (NFAC), Delhi, all dated 29.03.2023 for Assessment Years 2013-14 to 2017-18. 2. The assessee has preferred Cross Objections for all five Assessment Years (A.Ys) i.e. Assessment Years 2013-14 to 2017- 18. 3. Since the issues are mostly identical in all the appeals, assessment year 2013-14 is taken as the lead case. The brief facts of the case for assessment year 2013-14 are that the assessee-company is engaged in the manufacturing, bottling and sale of Beer for M/s United Breweries Ltd. (UBL). The assessee filed its return of income for the year under consideration on 30.11.2013, declaring a total income of Rs.30,90,13,100/- and tax was paid on the deemed total income of Rs.36,12,49,703/- as per the provisions of section 115JB of the Income Tax Act, 1961 (hereinafter called “the Act’). The case of the assessee was reopened by issuing notice dated 27.03.2021 under section 148 of the Act. For the sake of ready reference, the reasons recorded by the AO for re-opening the assessment are reproduced as under: “The facts of the case are that M/s Wave Distilleries and Breweries Limited (WDBL) owned a distillery for the manufacture and sale of alcoholic beverages under a license obtained from the State Government. The company entered ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 3 of 61 into an agreement with M/s. United Breweries Limited (UBL) for manufacturing of their various Brands of Beer at the new Brewery commissioned by the Company at Village Ahmedpura, District: Aligarh, U:P. The agreement provides for committing a substantial portion of the Beer manufacturing capacity of the Company to UBL and accordingly UBL has been treated as Principal Manufacturer. While Sales and purchase for manufacture of UBL's Brands is done in the name of the Company as it holds requisite licenses for manufacture and sale, in essence the Company has shown to get paid only a fixed amount for manufacture of UBL's Brands Accordingly, the Company has not included the following income and expenses relating to manufacture/ sale of UBL's Brands in its account: 1. Sales-Rs. 35765.45Lakhs 2. Consumption of Raw materials and Packing materials Rs. 11384.87 Lakhs 3. Other Expenses Rs. 5883.21 Lakhs 4.1 I have gone through the facts of the case and the reply of the assessee on the issues and have gone through the agreement thoroughly. Being the relevant industry highly regulated in Uttar Pradesh, it is not possible for any company to set up a distillery and manufacture and sell alcoholic beverages without an express license granted by the State Government. In some cases where the limit has exhausted or the companies which do not possess license, the companies cannot manufacture and sell alcoholic beverages. M/s UBL India, which is one of the largest global players in the liquor industry entered into an agreement with ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 4 of 61 M/s Wave Distilleries and Breweries Limited (WDBL), wherein M/s Wave Distilleries and Breweries Limited (WDBL) would manufacture alcoholic beverages by using necessary technology/ processes of M/s UBL India; and thereafter sell the same under various trademarks of M/s UBL India, against orders obtained by M/s UBL India from different distributors. As per the terms of the agreement, M/s UBL India also provided several strategic support functions in favour of M/s Wave Distilleries and Breweries Limited (WDBL). Since the sale of liquor to the distributors was effectuated by M/s Wave Distilleries, albeit against orders obtained by M/s UBL India, the entire profits arising out of the business rested within M/s Wave Distilleries and Breweries Limited (WDBL). As a reward for rendition of such services by M/s Wave Distilleries and Breweries Limited (WDBL), the two \"parties agreed that M/s Wave Distilleries and Breweries Limited (VWDBL) would retain bottling charges and the balance amount of the profits, namely after deducting from the proceeds on sale of liquor, (a) all the expenses incurred by M/s Wave Distilleries and Breweries Limited (WDBL); (b) applicable indirect taxes; and also (c) the reward of bottling charges as agreed upon as above, would be paid by M/s Wave Distilleries and Breweries Limited (WDBL) in favour of M/s UBL India. Here it would be relevant to mention that M/s WDBL has shown Rs 2841 Lakh as Bottling Charges. 4.2 At this juncture, it is pertinent to mention the decision of Hon'ble High Court of Karnataka in case of Principal Commissioner of Income Tax, Bangalore Vs. M/s Chamundi Winery & Distillery, [2018] 97 taxmann.com 568 ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 5 of 61 (Karnataka)/ [2018] 408 ITR 402 (Karnataka) wherein similar issue has been decided by the Hon'ble court and it has been held in the case that in case of contracts such as entered with by assessee company and United breweries Limited (UBL), there does not exist any diversion of income by overriding title. Rather, in such cases, position of law only authorizes the assessee for application of income or distribution of profits after having paid due taxes on the income earned by the assessee from the activity of manufacturing of beer, bottling of beer, selling of beer. Further the judgment of court further holds that it is undisputed principle that only real income of the assessee shall be subject to levy of Income Tax unless provisions of law provide otherwise as in cases of presumptive income taxation in the Act itself. However, the question of what is real income of the assessee merits consideration and requires thoughtful examination of facts and law. Liquor business in India is very different from other business as it is highly regulated. The terms of granting licences are highly stringent. The assessee M/s Wave Distilleries in the given case is the Excise Licencee and UBL may have exhausted Excise Licence Limit in the relevant assessment period. Assessee M/s Wave Distilleries and Breweries Limited (WDBL) being the licencee was alone to manufacture and sell the liquor. The terms of contract being agreed upon by the parties cannot override upon the assessee at the time of issuing the Excise Licence. The contract can provide for mechanism of running various aspects of business but it cannot be said by any stretch of imagination that the business was being conducted exclusively for and behalf of ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 6 of 61 the 3rd Party. i.e. UBL. The terms of the agreement are very wisely and intelligently drafted so as to give a prima facia impression of diversion of income. However, on careful examination, it is an attempt to bypass the conditions of Excise Licence and to showcase receipts as diversion of income. In view of aforesaid the act of the assessee to separate distributable surplus arising out of the business which is liable to be paid to M/s UBL under the agreement is nothing but application of income by Wave and not diversion of income at source by overriding title in favour of M/s UBL. As the facts in this case are similar to the facts of M/s Chamundi Winery and Distillery in whose case the Karnataka High Court has given a categorical decision that such surplus which was paid to M/s UBL is only application of income irrespective of the terms of the agreement which has been very carefully crafted and intelligently drafted so that at first blush give an impression of overriding title over income in favour of M/s UBL but an closer and deep scrutiny it is nothing but devious diversion falling short of legal prerequisites for taking it out of ambit of charge of the Income Tax Act in the hands of Wave. It is seen that in the Audit Report in notes on accounts the Chartered Accountant has mentioned that the company has not included the incomes and expenses relating to manufacture / sale of UBL Brand in its account. In view of the aforesaid the escapement of income is being based on the inputs given in notes on account by the Chartered Accountant in his report. Escapement of income is calculated: ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 7 of 61 Assessment Year Sales not included as it has been claimed relating to UBL brand. Consumption of raw materials and packing materials not included as it has been claimed relating to UBL brand. Other expenses not included as it has been claimed relating to UBL brand. Charges received by the assessee in the name of bottling fees. Escapement of income 2013-14 35765.45 lakhs 11384.87 lakhs 5883.21 lakhs Rs.2341 Lakhs Rs.15,656.37 Lakhs 5. Basis of forming reason to believe and details of escapement of income: On the basis of material available on record as discussed above and having gone through the case records and further it is seen that the assessee has not disclosed fully and truly all material facts on this issue and therefore there was omission and failure on part of the assessee with regard to this transaction to disclose fully and truly all necessary material facts necessary for assessment. Accordingly, after considering the facts mentioned as discussed above and in view of the material available on record, I have reasons to believe that income chargeable to tax to the tune of Rs.1,56,56,37,000/- has escaped assessment for the AY 2013-14. The escaped income being above Rs. One Lakh is covered by the provisions of section 49(1) (b) of the 1.T. Act, 1961. Further in view of decision of Hon'ble Supreme Court in the case of Larsen & Toubro Ltd. Civil App No. 5390/2007., Hon'ble Supreme Court, ITO Vs. Sarabhai M Lakhani 243 ITR 1 and A.L.A. firm Vs. CIT reported in 189 ITR 285, proceedings u/s 147 may be initiated on the basis of decision of Hon'ble High Court of Karnataka in case of Principal Commissioner of Income Tax, ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 8 of 61 Bangalore Vs. M/s Chamundi Winery & Distillery, [2018] 97 taxmann.com 568 (Karnataka)/ [2018] 408 ITR 402 (Karnataka) passed wherein similar issue has been decided by the Hon'ble court and it has been held that in case of contract such as entered with by assessee company and United breweries Limited (UBL), there does not exist any diversion of income by overriding title and in such cases, position of law only authorizes the assessee for application of income or distribution of profits.” 3.1 In response to notice dated 27.03.2021 under section 148 of the Act, the assessee filed return on 28.05.2021. During the course of re-assessment proceedings, it was submitted that as per the agreement entered into between UBL and the assessee, the assessee has to carry out manufacturing, bottling and sale of Beer for UBL in its plant and for this service UBL had agreed to compensate various expenses incurred by the assessee and to pay bottling charges and that for reimbursement of expenses, certain terms and conditions were set out between the two parties. The assessee-company further submitted before the AO that it had paid royalty as per the agreement between UBL and the assessee-company and it was reiterated that it was receiving only bottling charges and certain reimbursement of expenses as per agreement. It was also submitted that the sales and purchases had been recorded in the books of account for the ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 9 of 61 purpose of meeting the Excise Regulations of the State and that further except for the receipt of bottling charges, all other items reflected in the profit and loss account pertained to UBL only. It was emphasized that the said agreement provided for committing a substantial portion of the Beer manufacturing capacity of the company to UBL and accordingly UBL was the principal manufacturer. It was further submitted that while sales and purchases for the manufacturing of UBL brands was done in the name of the assessee-company, in essence, the assessee- company was receiving only a fixed amount for such manufacture and therefore, sales, consumption of raw materials and packing materials and other expenses were not to be treated as part of the profit and loss account of the assessee-company. 3.2 However, these contentions of the assessee did not find favour with the AO and he concluded that since the assessee was the Excise Licensee under the provisions of the Excise Act and that further time UBL had no Excise License in its name, it could not be said that the assessee was carrying on business exclusively for and on behalf of UBL only who was not at all subjected to any control under the Excise Act. The AO further observed that for all practical and legal purposes, the assessee was the Excise Licensee engaged in the business of manufacture ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 10 of 61 and sale of liquor and, therefore, the assessee must account for all of the profits from such manufacture and sale and offer tax on the same. The AO was of the opinion that it was the case of application of income and not diversion of income by overriding title at source. The AO placed heavy reliance on the judgment of the Hon'ble Karnataka High Court in the case of PCIT, Bangalore vs. Chamundi Winery & Distillery [2018] 97 taxmann.com 568 (Karnataka) and concluded that the Courts and the Tax Authorities have the power to look into the real purpose of the commercial arrangements and transactions to reach the truth and the transactions having the sole purpose of tax avoidance, will have no effect on the actual tax liability of the taxpayer. Accordingly, for assessment year 2013-14, the AO proceeded to compute the income of the assessee by making an addition of Rs.1,56,56,37,000/- and the total income under section 143(3) read with 147 of the Act was assessed at Rs.1,87,46,50,100/-, as under: Detail Amount (Rs.) Sales not included as it has been claimed relating to UBL brand (A) 3,57,65,45,000.00 Consumption of raw materials and packing materials not included as it has 1,13,84,87,000.00 ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 11 of 61 been claimed relating to UBL brand (B) Other expenses not included as it has been claimed relating to UBL brand (C) 58,83,21,000.00 Income not considered for computation D=A-B-C` 1,84,97,37,000.00 Charges received by the assessee in the name of Bottling Fees (E) 28,41,00,000.00 Escapement of Income (D-E) 1,56,56,37,000.00 3.3 Similar additions were made in assessment years 2014-15, 2015-16, 2016-17 and 2017-18 by the AO. For the sake of completeness, they are being reproduced hereunder: Assessment year 2014-15: Detail Amount (Rs.) Sales not included as it has been claimed relating to UBL brand (A) 4,75,64,54,000.00 Consumption of raw materials and packing materials not included as it has been claimed relating to UBL brand (B) 1,41,48,86,000.00 Other expenses not included as it has been claimed relating to UBL brand (C) 74,57,45,000.00 Income not considered for computation 2,59,58,23,000.00 ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 12 of 61 D=A-B-C` Charges received by the assessee in the name of Bottling Fees (E) 35,75,00,000.00 Escapement of Income (D-E) 2,23,83,23,000.00 Assessment year 2015-16: Detail Amount (Rs.) Sales not included as it has been claimed relating to UBL brand (A) 4,81,88,21,000.00 Consumption of raw materials and packing materials not included as it has been claimed relating to UBL brand (B) 1,44,45,78,000.00 Other expenses not included as it has been claimed relating to UBL brand (C) 77,99,18,000.00 Income not considered for computation D=A-B-C` 2,59,43,25,000.00 Charges received by the assessee in the name of Bottling Fees (E) 41,70,03,000.00 Escapement of Income (D-E) 2,17,73,22,000.00 Assessment year 2016-17: ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 13 of 61 Detail Amount (Rs.) Sales not included as it has been claimed relating to UBL brand (A) 5,02,72,95,000.00 Consumption of raw materials and packing materials not included as it has been claimed relating to UBL brand (B) 1,64,93,33,000.00 Other expenses not included as it has been claimed relating to UBL brand (C) 80,57,50,000.00 Income not considered for computation D=A-B-C` 2,57,22,12,000.00 Charges received by the assessee in the name of Bottling Fees (E) 42,64,38,000.00 Escapement of Income (D-E) 2,14,57,74,000.00 Assessment year 2017-18: Detail Amount (Rs.) Sales not included as it has been claimed relating to UBL brand (A) 2,18,82,36,000.00 Consumption of raw materials and packing materials not included as it has been claimed relating to UBL brand (B) 65,66,34,000.00 Other expenses not included as it has been claimed relating to UBL brand (C) 33,99,05,000.00 ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 14 of 61 Income not considered for computation D=A-B-C` 1,19,16,97,000.00 Charges received by the assessee in the name of Bottling Fees (E) 30,12,13,000.00 Escapement of Income (D-E) 89,04,84,000.00 4. Aggrieved, the assessee approached the Ld. First Appellate Authority challenging the five assessments, wherein the assessee challenged the reopening of the assessments and also challenged the quantum additions. 4.1 The Ld. First Appellate Authority upheld the reopening in all the captioned years. However, on the merits of the case, the Ld. First Appellate Authority observed that having regard to the terms of the Agreement, Excise License, Sale Invoices, Gate Passes, Bank Accounts, etc. it was evident that the assessee- company was a contract manufacturer for UBL and that the sales belonged/pertained to UBL only and thus the same constituted income of UBL by overriding title. The Ld. First Appellate Authority concluded that the assessee had rightly accounted for only bottling charges received as its revenue and further the cost and expenditure incurred towards manufacture and supply of UBL products and the revenue derived therefrom pertained to ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 15 of 61 UBL and not to the assessee. Accordingly, the addition of Rs.1,56,56,37,000/- was deleted by the Ld. First Appellate Authority in assessment year 2013-14. 4.2 The Ld. First Appellate Authority passed similar orders for assessment years 2014-15, 2015-16, 2016-17 and 2017-18also by deleting the addition on merits, but upholding the validity of reassessment proceedings. 5. Aggrieved, the Department has now approached this Tribunal challenging the deletion of addition by the Ld. First Appellate Authority, whereas the assessee has approached this Tribunal supporting the order of the Ld. First Appellate Authority in C.Os insofar as deletion of quantum additions is concerned, but has challenged the action of the ld. CIT(A) in upholding the initiation of reassessment proceedings in above captioned assessment years. 6. The Revenue has raised the following ground of appeal for assessment year 2013-14: 1. The Ld. CIT(A) has erred in (i) Deleting the addition of Rs.156,56,37,000/-, holding the same as 'distributable surplus' paid by the assessee M/s Wave Distilleries and Breweries Limited to M/s United Breweries Limited, India in pursuance of agreement dated 04.11.2011. (ii) Ignoring the fact that the assessee has paid brand charges to the UBL ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 16 of 61 and merely that the sale was made in the name of UBL under the arrangement of the agreement thereby treating the reimbursement as 'distributable surplus' without appreciating the fact that profit and gains from the business of manufacture and sale of liquor by assessee were assessable in its hands. (III) Holding the 'application of income' as reimbursement to M/s United Breweries Limited, India on the ground that sale proceeds were deposited in the bank account of the M/s United Breweries Limited, India and M/s United Breweries Limited, India would be providing necessary funds to the assessee for meeting all direct expenses. 7. The Revenue has raised following common grounds of appeal, except the difference in amount, for assessment years 2014-15 to 2017-18: 1. The Ld. CIT(A) has erred in 1. Deleting the addition of Rs.2,23,83,23,000/- (in A.Y. 2014-15), Rs.2,17,73,22,000/- (in A.Y. 2015-16), Rs.2,14,57,74,000/- (in A.Y. 2016-17) and Rs.89,04,84,000/- (in A.Y. 2017-18), holding the same as 'distributable surplus' paid by the assessee M/s Wave Distilleries and Breweries Limited to M/s United Breweries Limited, India in pursuance of agreement dated 04.11.2011. 2. Ignoring the fact that the assessee has paid brand charges to the UBL and merely that the sale was made in the name of UBL under the arrangement of the agreement thereby treating the reimbursement as 'distributable surplus' without appreciating the fact that profit and gains from the ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 17 of 61 business of manufacture and sale of liquor by assessee were assessable in its hands. 8. The assessee has raised following common grounds of Cross Objection for assessment years 2013-14 and 2014-15: 1. That, in view of the facts and circumstances of the case, and in law, the CIT(A)/NFAC has erred in not appreciating that the assessment order dated 29.03.2022 passed under Section 147 read with Section 144B of Act is liable to be set aside and quashed as the proceedings initiated under section 148 of the Act are invalid for want of jurisdiction as the pre-conditions for initiation of the said proceedings as stipulated under the provisions of Section 147 of the Act are not satisfied. 2.That in view of the facts and circumstances of the case and in law, the notice issued under Section 148 of the Act is illegal, bad in law and without jurisdiction as the purported reasons to believe recorded by the Assessing Officer (AO) for issuing the said notice are on the dictate of higher authority. That there is no independent application of mind of the Assessing Officer while recording the purported reasons to believe and the same is solely based on audit objections. Therefore, the requirement of Section 148 of the Act is not fulfilled. 3.That in view of the facts and circumstances of the case, the reason to believe as to escapement of income is not formed by the Assessing Officer but the notice under section 148 of the Act is issued on the directions of Higher Authority/Audit ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 18 of 61 Party and the same is illegal, bad in law. and in violation of the provisions of the Act. 4. That in view of the facts and circumstances of the case and in law, the notice issued under Section 148 of the Act is illegal. bad in law, without jurisdiction, and barred by time limitation as the reopening in the instant case has been done after expiry of four years from the end of the relevant assessment year without any failure on the part of the Assessee to disclose fully and truly all material facts. 5. That in view of the facts and circumstances of the case and in law, the notice issued under Section 148 of the Act is illegal, bad in law and without jurisdiction as there is no fresh tangible material on the basis of which the purported reasons have been recorded and therefore, there are no valid reasons to believe in the eyes of law. 6. That in view of the facts and circumstances of the case and in law, the notice issued under Section 148 of the Act is illegal, bad in law and without jurisdiction as the same has been issued without a valid approval as required under the provisions of Section 151 of the Act. That the sanction u/s 151 of the Act is illegal, bad in law and not sustainable in law as there is no application of mind while granting the approval. 7. That in view of the facts and circumstances of the case and in law. the assessment order dated 29.03.2022 passed pursuant to the notice under Section 148 of the Act is illegal, bad in law and without jurisdiction as the reopening in instant case is only on account of change of opinion which is ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 19 of 61 based on re-appreciation of facts and material already on record. 8. Without prejudice to the above, the notice under section 148 of the Act. the assessment order dated 29.03.2022 passed under Section 147 read with Section 144B of Act and the additions made therein are illegal and bad in law as the alleged escaped income is not the income of the appellant at and all and as such the allegation of escapement of income is incorrect and frivolous. The notice under section 148 of the Act and the assessment order dated 29.03.2022 are liable to be quashed on this ground alone. 9. That, in view of the facts and circumstances of the case and in law, the addition made vide assessment order dated 29.03.2022 is based on mere surmises and conjectures and is made without appreciating the explanations given, evidence produced and material placed and made available on record. 10. That, in view of the facts and circumstances of the case, the additions made are illegal, highly excessive, based on incorrect assumption of facts, and unjust. 9. The assessee has raised common grounds i.e. grounds No.1 to 9 as reproduced above, for assessment years 2015-16, 2016-17 & 2017-18. 10. At the outset, the Ld. Authorized Representative for the assessee (Ld. A.R.) sought permission of the Bench to first argue the assessee’s Cross Objection for assessment year 2013-14 in ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 20 of 61 CO No.23/LKW/2023. The Bench, with the consent of the Ld. D.R., accepted the request of the Ld. A.R. 11. The Ld. A.R. submitted that the provisions of section 147 of the Act mandate reason to believe to be that of the Assessing Officer only, however, in the present case of the assessee, the reason to believe was never formed by the AO, therefore, the re-opening was illegal, bad in law and without jurisdiction. The Ld. A.R. further submitted that admittedly notice under section 148 of the Act had been issued on the basis of audit objection, meaning thereby that the reason to believe was never formed by the AO on his own, whereas it was only on the basis of audit objection. He further submitted that the notice under section 148 of the Act issued by the AO was without formation of belief by the AO on his own and, therefore, such notice issued by the AO was illegal, bad in law and without jurisdiction. 11.1 The Ld. A.R. submitted that it is evident from the records obtained by the assessee through RTI application dated 15.09.2021 that the independence of the AO was compromised in the instant case. The AO had sent a report dated 22.01.2020, wherein after due application of mind, the AO had clearly stated that the audit objections were not acceptable in the light of the ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 21 of 61 fact that the sales made by the Assessee on behalf of the UBL was duly recorded in the books of accounts of the UBL and that the assessee had only received bottling charges from UBL for such services which had been duly recorded in its books of account of the assessee. Thereafter, another report dated 20.02.2020 was submitted by the AO to the Pr. CIT, wherein the AO had recorded a finding that the procedure adopted by the assessee that where total sale proceeds was actually received by the UBL directly and then UBL had reimbursed various costs and bottling charges to the assessee, would not have any adverse effect on the income of the assessee. The Ld. A.R. submitted that the AO had also rightly noted that the said procedure had been followed by the assessee year-after-year and undisputedly, a note in this regard had also been given in the assessee’s balance sheet. It was submitted that more importantly, it had been categorically and rightly stated by the AO that this has not resulted any suppression of revenue. The Ld. A.R. also submitted that the Ld. Pr. CIT, vide letter dated 17.06.2020 had directed the JCIT/AO to resubmit the report dated 20.02.2020 in view of certain decisions, thereby influencing the independent satisfaction of the AO. The ld. AR submitted that in response to the letter dated 17.06.2020 of the PCIT, the AO, in a complete volte face, had resubmitted his proposal to initiate reassessment ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 22 of 61 proceedings on the very same set of facts. It was further submitted that thereafter, the Ld. Pr. CIT, through JCIT, issued another letter dated 13.11.2020, directing the AO to take suitable action with regard to initiation of proceedings under section 147 of the Act. The Ld. A.R. further submitted that the flow of correspondence between the Revenue authorities clearly showed that the AO had acted upon the dictates of higher authorities and thus, the satisfaction was borrowed satisfaction. The sequence of correspondence leading to issuance of Notices under section 148 of the Act are as under: DATE EVENT PAGE NO. (REFER PAPERBOOK FILED FOR AY 22.08.2019 Office of Indian Audit & Accounts Department addressed a letter to the Principal Chief Commissioner of income Tax (CCA) Lucknow whereby the AO was asked to take suitable action on the observations made in the report of audit objections. 126-140 22.01.2020 Report by AO in reply to the Audit Objections 243-261 20.02.2020 Second Report by AO in reply to the Audit Objections 294-299 17.06.2020 Letter issued by Pr. CIT addressing JCIT directing the AO to resubmit the report on Audit Objections 312 22.06.2020 AO resubmits proposal in light of letter dated 17.06.2020 315-322 ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 23 of 61 13.11.2020 Pr. CIT, through JCIT, issued another letter directing the AO to take suitable action (being initiation of proceedings under section 147 of the Act) 335 11.2 In support of the above arguments, the Ld. A.R. has placed reliance on the judgements of Hon'ble High Court of Bombay in the cases of CIT v. Smt. Vyjayanthimala Bali 155 ITR 662 (Bombay), Adani Exports v. DCIT 240 ITR 224 (Bombay) and the judgement of Hon'ble High Court of Madhya Pradesh in the case of Yeshwant Talkies v. CIT 157 ITR 103 (M.P). The Ld. A.R., accordingly, submitted that the reassessment proceedings were void and in contravention to the provisions of section 148 of the Act and that consequently, the reassessment proceedings are to be quashed and the additions are liable to be deleted on this count alone. 11.3 The Ld. A.R. further submitted that with specific reference to Assessment years 2013-14 & 2014-15, the assessee had also raised the ground that impugned notices for the respective Assessment years were barred by limitation in terms of first proviso to section 147 of the Act. The Ld. A.R. submitted that the impugned notice under section 148 of the Act was issued on 27.03.2021 for Assessment year 2013-14 and on 30.03.2021 for Assessment year 2014-15, therefore, these notices were issued ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 24 of 61 beyond the prescribed period of 4 years. The Ld. A.R. also submitted that as per section 147 of the Act, the Assessing Officer has the power to re-open a case even beyond 4 years, when there is failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for the relevant assessment year. The Ld. A.R. submitted that proviso to section 148 of the Act placed fetters on the powers of the Assessing Officer to initiate reassessment proceedings beyond the period of 4 years from the end of the relevant assessment year, where the assessment has been completed under section 143(3) of the Act unless the income has escaped assessment by reason of the failure of the assessee to disclose fully and truly all material facts necessary for assessment. The Ld. A.R. submitted that the Hon’ble Courts have consistently held that where there was no case of any failure on the part of the assessee to fully disclose all material facts and it was only a question of drawing an inference from these facts, reopening of assessment beyond four years period is invalid. The Ld. A.R. further submitted that the Revenue, in cases falling under the aforesaid proviso, must prove that the assessee had failed to disclose fully and truly all material facts required for assessment of its income. It was submitted that in the instant case, the AO had merely made a bald allegation that the assessee has failed to disclose fully and ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 25 of 61 truly all material facts. The Ld. A.R. submitted that since all the facts, documents, details and material records were submitted/filed before the AO and examined by him in detail, the assessee was at a loss to understand as to what more was left to be disclosed by it for assessment years under consideration. The Ld. A.R. submitted that, at least, specific instance of failure ought to have been spelt out in the reasons recorded by the AO. Only bald statement alleging failure to disclose, in the reasons recorded, was not enough. In this regard, the Ld. A.R. placed reliance on the decision of Hon'ble Bombay High Court in the case of Hindustan Lever Limited Vs. Asstt. Commissioner of Income Tax: (2004) 268 ITR 332 (Bom). 11.4 The Ld. A.R. further submitted that it was undisputed that no new fresh material had come to light and that the assessee vide S. No. 6 of Note 25 annexed to its Balance Sheet, had categorically stated that Sales and Income relating to UBL products have not been accounted for by it in its books of account. The assessee had also provided a copy of the B&D agreement during the original assessment proceedings and further that during the course of assessment; the issue in question was specifically examined and rightly accepted by the AO. Therefore, there has been no failure on the part of the ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 26 of 61 assessee to make full and true disclosure in the instant case. In this regard, the Ld. A.R. placed reliance on the judgment of Hon'ble Supreme Court of India in the case of ITO v. Mewalal Dwarka Prasad, 176 ITR 529 and submitted that in this case, the Hon’ble Apex Court had held that where assessee had disclosed all material facts and the AO had accepted the documents produced and had treated the transaction to be genuine and on that footing had completed the assessment, then it was no open for the AO to re-open the assessment on the ground that there was failure on the part of the assessee to disclose all material facts. 11.5 The Ld. A.R. also placed reliance on the judgement of Hon'ble Supreme Court of India in the case of Indian Oil Corporation vs. Indian Tax Officer, Central Circle V, Calcutta and Ors: [1986] 159 ITR 561 (SC) and submitted that in this case the Hon’ble Apex Court had ruled that there must be materials to come to the conclusion that there was 'omission or failure to disclose fully and truly all material facts necessary for the assessment of the year. 11.6 The Ld. A.R. further placed reliance on the judgement of Hon'ble Supreme Court of India in the case of Income Tax Officer vs. Lakhmani Mewal Das: [1976] 103 ITR 437 (SC), wherein their ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 27 of 61 Lordships held that the duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the Income-tax Officer to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the Income-tax Officer with regard to the inference which he should draw from the primary facts. If an Income-tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment. 11.7 In light of the above facts and the legal position, the submission of the Ld. A.R. was that for assessment years 2013- 14 and 2014-15, the AO had failed to satisfy the prerequisite conditions to issue notice under section 148 of beyond the prescribed period of 4 years from the end of the relevant assessment years. It was also submitted by the Ld. A.R. that in the order passed by NFAC, disposing of the objections, it is clearly mentioned in para 15 that \"... The facts just came out through the mist of agreements and books of accounts\". The Ld. A.R. submitted that this itself shows that there was no failure on part of the assessee to disclose material and true facts and that the reassessments were initiated only on the basis of the Audit ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 28 of 61 Report. The Ld. A.R. submitted that the Hon'ble Supreme Court in the case of Lakhmani Mewal Das (supra) unequivocally held that \"If an Income-tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment.\" 11.8 The Ld. A.R. further submitted that reassessment was not permitted solely on the basis of 'Change of Opinion' and in absence of 'fresh/new material'. He submitted that it is amply clear from the reasons recorded that the reopening was solely based on the audit objection which, in turn, was based on the disclosure made by the assessee in its Audited Financial Statements [Sl. No. 6 of Note 25 in Notes to Accounts] and, therefore, there was no new or fresh material before the AO prompting him to reopen the assessment. 11.9 The Ld. A.R. also submitted that it is well settled through catena of judgments that Section 147 of the Act does not allow reassessment of an income merely on the ground that the AO has a change of opinion with regard to the interpretation of law differently on the facts that were well within his knowledge even at the time of assessment. In this regard, the Ld. A.R. placed ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 29 of 61 reliance on the judgment of Supreme Court in the case of CIT vs. Kelvinator of India Ltd. (2010) 320 ITR 561(SC). 11.10 The Ld. A.R. submitted that in the instant case, proceedings for reopening had been initiated with respect to alleged profit generated on account of sale made on behalf of UBL. The disclosure in this behalf had been categorically made by the assessee in its Notes to Accounts attached to the Balance Sheet which were before the AO during the regular assessment proceedings. Therefore, neither there was any failure to disclose fully and truly all material facts nor there was any new tangible material which could justify the reopening of the present case. The reasons recorded were primarily based on the audit objection report which in turn is based on the records which were already part of the earlier assessment and, therefore, the same was available with the AO and would tantamount to change of opinion. The Ld. A.R. submitted that for assessment year 2013- 14, the Assessing Officer posed a specific question with respect to the agreement with UBL and justified details of amounts received from UBL with specific reference to Point no. 6 of note 25 to the Audited Financial Statements furnished by the assessee during the course of original assessment proceedings, vide notice dated 22.09.2014. Moreover, for assessment year 2012-13 also, books ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 30 of 61 of accounts were examined and vide Assessment Order dated 22.10.2014 passed under section 143(3) of the Act, no adverse inference was drawn against the assessee. 11.11 The Ld. A.R. further submitted that with reference to Assessment years 2015-16 and 2016-17, the law relating to \"change of Opinion\" will equally apply in light of the judgment of Hon'ble High Court of Delhi in the case of CIT vs. Orient Craft Ltd.: 354 ITR 536, wherein the reasons for reassessment was that AO reached on a belief that there was escapement of income on going through the return of income filed by assessee after he accepted return u/s. 143(1) of the Act without scrutiny, and nothing more. On these facts, it was held by the Hon'ble Delhi High Court that it was nothing but review of earlier proceedings and abuse of power by AO. It was further held that since there was no whisper in reasons recorded, of any tangible material which came into possession of the AO subsequent to the issue of intimation, the same was an arbitrary exercise of power conferred under section 147 of the Act. He further submitted that an SLP filed by the Department against the judgment of Hon'ble High Court of Delhi (supra) came to be dismissed by the Hon'ble Supreme Court, vide order dated 20.01.2014. ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 31 of 61 11.12 The Ld. A.R. further contended that reassessment cannot be initiated solely on the basis of Audit Objections. He submitted that in the instant cases, the reassessment has been solely initiated on the basis of audit objections. It was submitted that possession of information contained in audit report vis-a-vis formation of belief by the Assessing Officer, the existence, which is a condition precedent for initiating proceedings under section 147 of the Act, has been succinctly stated by the Hon'ble Supreme Court of India in the case of Indian and Eastern Newspaper Society v. CIT: [1979] 119 ITR 966 (SC), wherein it was held that part alone of the note of an audit party which mentions the law which escaped the notice of the Income-tax Officer constitutes 'information' within the meaning of section 147(b); the part which embodies the opinion of the audit party in regard to the application or interpretation of the law cannot be taken into account by the Income-tax Officer. 11.13 In the light of the above facts, the Ld. A.R. submitted that initiation of reassessment proceedings for the captioned Assessment years was void-ab-initio, illegal and in contravention to the provisions of section 148 of the Act. Consequently, the proceedings under section 148 of the Act and the assessment orders passed are liable to be quashed. ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 32 of 61 11.14 On merits of the case, the Ld. A.R. submitted that as per the agreement, the assessee has received remuneration in terms of the bottling charges only and the same was offered to tax for all the concerned Assessment years. The allegation that the proceeds of sales were the income of the assessee is entirely baseless. Firstly, UBL procured License FL-3A (for contract manufacturing) and License FL-1A (for sale) from Uttar Pradesh Excise Department. The FL-1A License makes it apparent that the right to sell Beers manufactured in the premises of the assessee (by virtue of FL-3A license) exclusively rested with UBL and that the assessee cannot sell Beers manufactured by it while acting as a contract manufacturer for UBL. Further, it is also evident from FL-36 (i.e. gate pass issued for removal of goods from premise of manufacturer), that it is drawn in the name of UBL and not the assessee, since excise duty on sales of Beer from the premises of the assessee was paid by UBL itself. It was further submitted that the sale proceeds from the sale of Beer were directly paid to the Bank Account of UBL as is evident from confirmations given by purchasers He submitted that in light of the these facts as well as the fact that the assessee has disclosed the accounting treatment of its arrangement with UBL vide Point No. 6 of Note 25 to the Audited Financial Statements, there was no occasion to treat the sales of Beer by UBL as income earned ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 33 of 61 by the assessee. It was further submitted that the Assessing Officer has entirely misconstrued the facts of the case and relied upon the decision of Hon'ble High Court of Karnataka in the case of PCIT v. Chamundi Winery & Distillery [2018] 408 ITR 402 (Karnataka) without any appreciating the facts of the case. In this regard, the Ld. A.R. furnished before us a table detailing the distinguishing factual aspects present in the case of the assessee and that formed the basis of the decision in Chamundi Winery & Distillery, which is being reproduced below: s. No. FACTS IN CHAMUNDI WINERY & DISTILLERY’S CASE FACTS IN ASSESSEE’S CASE FINDING IN CIT(A)’s ORDER FOR AY 2013- 14 PAGE No. (REFER PAPERBO OK FILED FOR AY 2013-14) 1. The assessee in the instant case was the Excise Licensee under the provisions of the Karnataka Excise Act, 1965 and Diageo India had no Excise Licence in its name from the State during the relevant assessment period. UBL holds license for contract manufacturing of its brand of beer issued by the UP State Excise Department which is evident from Form FL- 1 A and Form FL-3 A Para 8.3 at page 49 426-431 2. Sale Proceeds were deposited in the bank accounts of the Assessee Sale Proceeds were directly paid to the bank accounts of UBL Para 8.3 at page 49 105-106 ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 34 of 61 3. Gate passes authorising movement of goods from out of Assessee’s premise is issued in the name of UBL, Compliance with Excise/VAT regulations is made by UBL. i Para 8.3 at page 49 432-436 11.15 It was further submitted that in the case of Chamundi Winery & Distillery (supra), it was an admitted fact that the assessee therein distributed surplus income in favour of the other party to the agreement, whereas in the instant case, the assessee had never received any money on account of manufacture/sale of UBL’s Brand and the same accrued to UBL only. 11.16 The Ld. A.R. concluded his submission by stating that the assessee had merely acted as a contract manufacturer and was only entitled to the agreed contract charges as per the agreement which had been duly offered for tax and that the assessee had neither recognized the sales, manufacturing expenses, purchase and other expenses incurred by them in its books, nor any loss for non-payment of bills, discounts, selling expenses which were made by UBL had been claimed by the assessee and, thus, the ld. CIT(A) has rightly appreciated the ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 35 of 61 facts of the case and deleted the additions made by the AO in the captioned assessment years. 12. In response to the arguments advanced by the Ld. A.R., the ld. CIT (DR) defended the action of the ld. CIT(A) in upholding the validity of reassessment proceedings. It was submitted that the reopening was based on suppression of sales by the assessee and that such suppression in quantum was more that Rs.1 lakh and, therefore, the reopening could be validly made within six years and therefore, the argument of the Ld. A.R. that reopening after expiry of four years was invalid was incorrect. It was further submitted that the Department had noticed variation in figures as appearing in Form No.26AS and the financial statements submitted by the assessee and this constituted additional information which could be validly utilized by the Department for the purpose of issuance of notice under section 148 of the Act. 12.1 The ld. CIT (DR) referred to Proviso (1) to section 147 of the Act in this regard. Referring to the letter issued by the Office of the Asstt. Commissioner of Income Tax, Circle 1, Bareilly to the Principal Commissioner of Income Tax, Bareilly, vide dated 08.12.2020 and placed at pages 36 to 43 of the assessee’s paper book, it was submitted that in assessment year 2014-15, suppression of sales had resulted in short computation of income ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 36 of 61 to the tune of Rs.901.61 crores thereby resulting in short charge of tax to the tune of Rs.376.95 crores. It was further submitted that the argument of the Ld. A.R. that the reassessment proceedings were initiated on change of opinion was also incorrect inasmuch as the same was based on information gathered and pointed out by the CAG Audit Team and such information validly constituted information for the purposes of issuance of notice for reassessment in terms of section 148 of the Act. The ld. CIT (DR) also refuted the argument of the Ld. A.R. that reliance on the Report of CAG demonstrated non-application of mind and submitted that the AO was duly acting under the guidance received from the PCIT in this regard. The ld. CIT (DR) placed reliance on the judgment of the Hon'ble High Court of Kerala in the case of Sree Narayana Guru Memorial Educational and Cultural Trust vs. ACIT reported in 160 taxmann.com 727 (Kerala) and submitted that the Hon'ble High Court of Kerala in this case has held that audit objection can be one of the valid reasons for reopening of assessment. It was submitted that as per this judgment if the revenue audit raised an objection that the assessment was not completed in accordance with the provisions of the Act, it cannot be treated as a change of opinion because this is a statutory ground for reopening of assessment. ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 37 of 61 12.2 The ld. CIT (DR) also referred to the order of the AO dated 25.01.2022 wherein he had disposed of the objections raised by the assessee to the reassessment proceedings and submitted that the audit objection constituted a proper reason to believe. The ld. CIT (DR) also referred to the case of PCIT, Bangalore vs. M/s Chamundi Winery & Distillery (supra) and submitted that in this case also Chamundi Winery & Distillery was the Excise Licensee and was undertaking entire business activity of manufacture and sale of liquor in its name and ownership. It only purchased raw materials from market, sold the entire liquor in the open market and to other purchasers under its own invoices, collected all gross sale receipts, met day-to-day expenses, met all sales tax, excise duty, VAT, labour charges, etc. as its operating cost and the Hon'ble Karnataka High Court had concluded that whatever income was generated out of liquor business, had to be first taxed in the hands of excise licensee, i.e. Chamundi Winery & Distillery and after payment of income tax, distribution of surplus between the two parties was at their discretion. The ld. CIT (DR) submitted that the Hon'ble Karnataka High Court went on to hold that the distributable surplus paid to Indian subsidiary was nothing but application of income by the assessee and that the same was neither an allowable expenditure under section 37(1) of the Act nor a trade loss and that further the ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 38 of 61 same did not amount to diversion of income at source by overriding title because the entire business belonged to Chamundi Winery & Distillery only. 12.3 The ld. CIT (DR) submitted that essentially and undisputedly the assessee was itself carrying out the business of brewery and in terms of excise license issued to it by the State Government and therefore income had to be taxed in the hands of the assessee only, as rightly done by the AO. 12.4 On merits of the case, the ld. CIT (DR) submitted that the ld. CIT(A) had erred in deleting the addition for the reason that he did not appreciate the observations made by the AO while making the impugned addition. The ld. CIT (DR) submitted that the source of income is from manufacture and sale of liquor under the excise license where the UBL had no privity or locus and therefore whatever income is generated out the said business has to be taxed in the hands of the excise licensee and thereafter, only after payment of income tax would arise the question of distribution of surplus. It was submitted that whether the licensee thereafter chose to part take in the profits or only took bottling charges was at the discretion of the contracting parties and that the distribution would have no effect or any overriding impact on the taxability part of the entire income arising or ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 39 of 61 accruing firstly in the hands of the assessee i.e. excise licensee. The ld. CIT (DR) re-emphasized that the distribution of surplus by the assessee after retaining bottling charges was only an application of income and not diversion of income at source by overriding title. 13. In rejoinder, the Ld. A.R. submitted that the ld. CIT(A) had raised various queries during the course of appellate proceedings and the assessee had duly responded to the same and which have been duly reproduced at pages 41 to 46 of the impugned order and it was submitted that it is only after considering these submissions of the assessee that the ld. CIT(A) had rightly come to the conclusion that the impugned addition was to be deleted. The Ld. A.R. also sought to distinguish the judgment of the Hon'ble Karnataka High Court in the case of PCIT, Bangalore vs. M/s Chamundi Winery & Distillery (supra) from the case of the assessee and submitted that in that particular case, not only was excise license under the name of M/s Chamundi Winery & Distillery, the entire business was also carried out under its own name by booking sales and purchases in its name. It was pointed out by the Ld. A.R. that in that case, M/s Chamundi Winery & Distillery had been assessed under the Sales Tax/ VAT provisions, as the principle owner of the liquor products ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 40 of 61 manufactured and sold and it was under these set of facts that it was consequently held that M/s Chamundi Winery & Distillery was responsible to pay income tax on such income as well. Whereas in the present case, the assessee was only having a license for contract manufacturing of brand of Beer owned by UBL which was evident from Form FL-3A issued by the State Excise Department. It was pointed out that UBL could do its brand of Beer manufactured on contract basis from the assessee’s facility. It was further submitted that in order to sell their products in the State of U.P., UBL was required to obtain license under the excise law and accordingly UBL had also obtained excise license FL-1A and had also furnished sample sales invoices which would show that these were not issued by the assessee but by UBL. It was further submitted that even the excise gate passes in relation to UBL were issued in the name of UBL. The Ld. A.R. drew our attention to the copies of sample invoices and licenses No. FL-3A and FL-1A placed in the paper book in this regard to substantiate his arguments. Our attention was also drawn to confirmation from UBL placed at page 104 of the paper book, vide dated 19.02.2020 wherein it has been confirmed that for financial years ending on 31.03.2012, 31.03.2013 and 31.03.2014, all the collections from the debtors with regard to sale of their brands of Beer made from the ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 41 of 61 assessee’s unit have been received directly by UBL in their account and further that as per the terms of the agreement, UBL had provided funds to the assessee for payment to creditors who had supplied material for production and packing of Beer brands of UBL. Our attention was also drawn to pages 105 and 106 of the paper book, which were confirmations from two of the buyers, namely M/s Aakruty Beverages Pvt. Ltd. and M/s Alpha Beverages Pvt. Ltd., wherein it has been mentioned that they had purchased King Fisher brand of Beer of UBL which was supplied to them through its bottler, M/s Wave Distilleries and Breweries Limited, i.e., the assessee. 13.1 In as far as the difference between Form No.26AS and the sales reported by the assessee-company was concerned, it was submitted that the assessee had to collect TCS and deposit the same with the Government in terms of the excise license and subsequently the amount of TCS so deposited is reimbursed by UBL. The Ld. A.R. also drew our attention to pages 73 to 75 of the paper book and submitted that initially vide letter dated 20.02.2020 even the AO had accepted assessee’s contention and in response to query raised by the Audit Team, it mentioned in paragraph 6 that the proceeds actually debited by the assessee will not have any adverse effect on the income of the assessee ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 42 of 61 and that the assessee has to retain the amount of expenses incurred by it on behalf of UBL after deducting various expenses and bottling charges out of total sale proceeds or whether it receives reimbursement of various expenses and bottling charges in case sale proceeds were directly received by UBL will give the same revenue result to the assessee. The Ld. A.R. pointed out that the AO has concluded specifically that this practice adopted by the assessee has not resulted in any suppression of revenue as far as accounting of revenue from bottling activity was concerned. 13.2 The Ld. A.R. prayed that the C.O.s of the assesse deserved to be allowed and the appeals of the Department deserveed to be dismissed. 14. We have heard the rival submissions and have also perused the material on record. We have also gone through the paper books filed by the assessee in support of its contentions and have also duly considered the implications of the factual matrix of the appeals as is clear from the records. First of all, we proceed to deal with the assessee’s challenge to the validity of reassessment proceedings as taken in grounds in the C.O.s. 14.1 As assessment year 2013-14 was argued as the lead case by the Ld. A.R., we will take the facts of this assessment year for ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 43 of 61 disposing of the assessee’s Cross Objections in this regard. The basic facts for assessment year 2013-14 are undisputed. The return of income for assessment year 2013-14 was filed on 30.11.2013 and was finalized in terms of the provisions of section 143(3) of the Act, vide order dated 22.10.2014 and the returned income of Rs.30,90,13,100/- was accepted by the Department. It was only on 27.03.2021 that notice under section 148 of the Act was issued by the Department seeking to reopen the assessment by mentioning that there was an escapement of income to the tune of Rs.15,656.37 lakhs in the reasons recorded for reopening. A perusal of the reasons recorded would show that the reasons behind reopening was the audit objection raised by the CAG Audit as well as the judgment of the Hon'ble High Court of Karnataka in case of Principal Commissioner of Income Tax, Bangalore Vs. M/s Chamundi Winery & Distillery (supra). In the show cause notice, it was contended by the Department that the assessee was manufacturing, bottling and selling Beer on its own account under the facade of UBL and in view of the agreement entered into between the assessee and UBL, the assessee was in effect the actual dealer and the effect of the transaction was that the assessee was earning profits on its own account although it was trying to portray the same as diversion of income by overriding title. In the show cause notice, it was the allegation of ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 44 of 61 the Department that the assessee had not disclosed fully and truly all material facts and thus there was omission and failure on the part of the assessee to disclose all material facts necessary for the purpose of assessment. 14.2 However, before we proceed to analyise the validity of reassessment proceedings, it will be worthwhile to understand the factual matrix leading to the issuance of notice under section 148 of the Act. As stated above, the assessment for assessment year 2013-14 was completed on 22.10.2014 by passing order under section 143(3) of the Act, wherein the returned income of the assessee was accepted. Thereafter, it was only on 22.08.2019 that the office of the Indian Audit and Accounts Department addressed a letter to the Ld. Principal Chief Commissioner of Income Tax (PCIT), requiring the AO to take suitable action on the observations made in the Audit Report submitted by the Audit Team. A copy of this letter has been placed at pages 126 to 140 of the paper book submitted by the assessee and it was pointed out in this Report that there were suppression of sales resulting in short computation of income and short charging of tax. The AO, vide letter dated 22.01.2020 responded to the audit objections. The response of the AO is placed at pages 243 to 261 of the paper book filed by the ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 45 of 61 assessee. A perusal of the response of the AO shows that the AO has categorically dealt with the objections and has pointed out that the difference in sales as per 26AS Statement and the sales shown in the profit and loss account has been reconciled and that in view of the facts available in the case records and after getting the required information from the assessee under section 133(6) of the Act, the audit objection was not acceptable. There were as many as 14 objections raised by the CAG Team and in his reply, the AO did not accept any of the objections and in the concluding paragraph of the reply, submitted that the Audit Party had made sweeping and generalized observations which had no bearing on the income of the assessee and that in view of the detailed facts enumerated in the reply, the various audit objections made by the Special Revenue Auditor were not acceptable. Thereafter, the AO submitted another Report dated 20.02.2020 dealing with the audit objections which has been placed at pages 294 to 299 of the paper book submitted by the assessee and in this report also the AO reiterated that the procedure actually adopted by the assessee will not have any adverse effect on the income of the assessee. It was also mentioned by the AO that the procedure/methodology has been followed by the assessee year-after-year and Note to this effect has also been given in the assessee’s audited Balance Sheet and ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 46 of 61 final accounts and that the practice adopted by the assessee had not resulted in any suppression of revenue or income and that the audit objection raised by the audit party was not based on any proper appreciation of facts of the case and thus the audit objections were not acceptable and that they should be dropped. Thereafter, on 17.06.2020, the Office of the Ld. PCIT wrote to the Joint Commissioner of Income Tax, Range 2, Bareilly (JCIT), requiring examination of assessment of the assessee and re- submit the report/proposal after considering the judgment of the Hon'ble Karnataka High Court in the case of M/s Chamundi Winery & Distillery (supra) as well as three other cases. This letter emanating from the Office of the Ld. PCIT, Bareilly is placed at page 312 of the paper book. Thereafter, on 22.06.2020, the AO submitted another Report to the Ld. PCIT, Bareilly, wherein the AO stated that the practice adopted by the assessee had resulted in suppression of turnover or income. This Report of the AO is placed at pages 315 to 322 of the paper book filed by the assessee. Thereafter, on 13.11.2020, the Ld. PCIT through JCIT issued a communication directing the AO to take suitable action in the case of the assessee. 14.3 Thus, the factual matrix as stated above, from the date of receipt of audit objection on 22.08.2019 to the direction being ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 47 of 61 issued by the Ld. PCIT for initiating proceedings under section 147 of the Act, vide communication dated 13.11.2020 would clearly show that on two earlier occasions, the AO had clearly stated in his reports that there was no suppression of sales or income by the assessee and that the accounting procedure being followed by the assessee had not resulted in any loss of revenue. It was only on third occasion when the AO was asked to re- examine the case of the assessee that the AO submitted his third Report that the transactions entered into by the assessee had resulted into suppression of sales and income. Thus, it is very clear that the AO on two earlier occasions had categorically stated that there was no loss to the Revenue, but on being again guided by the Ld. PCIT did a complete volte face and submitted a Report stating that there was suppression of sales and income. A perusal of the records would show that there was no new set of facts which came into possession or knowledge of the AO between the period 20.01.2020 and 22.06.2020, i.e., the dates of the first and third Report respectively, which would prompt the AO to submit before the Ld. PCIT that there was suppression of sales and income. Even the judgment of the Hon'ble Karnataka High Court in the case of M/s Chamundi Winery & Distillery (supra) is of year 2018 and thus, apparently there was no justifiable reason for the AO to reach a conclusion that there has ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 48 of 61 been suppression of sales or income except the continued prompting by the Office of the Ld. PCIT to draft the Report in a particular manner. Thus, we, in no uncertain terms, hold that the final conclusion reached by the AO regarding the assessee having suppressed sales/income, vide Report dated 22.06.2020 was not based on an independent exercise of the mind, but was rather borrowed satisfaction at the behest of the Office of the Ld. PCIT, Bareilly and for this very reason, the re-assessment proceedings initiated cannot be held to be legally sustainable. There are a plethora of judgments on the issue of objective recording of satisfaction in the case of re-assessment proceedings. It is very obvious from the factual matrix leading to the issuance of notice under section 148 of the Act that the assessee had made all necessary disclosures before the AO during the course of initial assessment proceedings and thereafter had also stated very categorically in response to the audit objections that there was no suppression of sales or income and, therefore, without there being any recording of fact, duly evidenced by a document or noting evidencing suppression of material facts, which came later within the possession or knowledge of the AO, would not justify reopening of the assessment. In our considered view, the action of the AO is a change of opinion and that too apparently under the guidance of ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 49 of 61 the Office of the Ld. PCIT, Barielly and, therefore, such reopening cannot be held to be legally valid. 14.4 At this juncture, it will be very relevant to refer to the judgment of the Hon'ble Apex Court in the case of CIT, Delhi vs. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC), wherein the Hon'ble Apex Court was examining the issue as to whether the concept of ‘change of opinion’ stood obliterated w.e.f. 01.04.1989, i.e., after substitution of section 147 of the Act by the Direct Tax Laws (Amendment) Act, 1987. In this regard, the Hon'ble Apex Court categorically held that although post 01.04.1989, the power to reopen was much wider, but even then section 147 does not give extra-ordinary powers to the AO to reopen the assessments on mere change of opinion. The Hon'ble Apex Court went on to hold that the concept of ‘change of opinion’ is to be treated as an inbuilt test to check abuse of power by the AO and, therefore, after 01.04.1989, the AO has power to reopen, provided there is a tangible material to come to the conclusion that there was escapement of income from assessment. In the present case, we are afraid that such tangible material is not present. Although the Department has argued vehemently that the Report of the CAG is tangible material and there are numerous judicial precedents which now also support this view. ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 50 of 61 However, on the facts of the present case, it is seen that the AO had already twice refused to accept the audit objections as being material enough for reopening the case and had stated in no uncertain terms that the observations/objections of the Audit Report were merely sketchy and without any substance. Thereafter, revising the opinion by the AO in his third Report would only tantamount to change of opinion and the audit objections of the CAG would lose the character of tangible material. 14.5 It is also seen that although the AO has, in his third Report, stated that there was failure on the part of the assessee to disclose the material facts necessary for the purpose of assessment, he has not mentioned as to what those material facts were and what new facts had come in his possession/knowledge between the period of the first Report and the third Report. Therefore, in the absence of any specific instance being pointed out about suppression of material facts and their non-disclosure by the assessee, the statement of the AO regarding suppression of material facts is just a bald statement and would not help the case of the Revenue. It is also to be noted that the final accounts of the assessee duly disclosed by way of a Note, the agreement between the assessee and UBL ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 51 of 61 and the revenue which would accrue to the assessee as a result of the said Agreement. As far as the difference in sales figures between Form 26AS and final accounts of the assessee were concerned, the AO has himself in the second Report categorically stated that the accounting treatment and the procedure being followed by the assessee would not result in any loss of revenue. Therefore, we have no hesitation in hold that the reopening of assessment for assessment year 2013-14 was without any basis and was based on mere change of opinion and was evidently at the behest of the superior authorities and thus, such initiation of reassessment proceedings do not have any foot to stand out and are hereby quashed. 14.6 It is seen that the reassessment proceedings for assessment years 2014-15, 2015-16, 2016-17 and 2017-18 were also initiated on identical lines and similar set of audit objections were raised for the above mentioned assessment years and thereafter, reassessment proceedings were also initiated after the AO refused to accept the audit objections on earlier two occasions. The reasons recorded for reopening are also almost identical and the factual matrix is also identical with the AO first refusing to accept the audit objections on two occasions and thereafter in his third report, stating that there has been ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 52 of 61 suppression of sales and income, prompting the Office of the Ld. PCIT to direct the AO to initiate appropriate action (initiate reassessment proceedings). Accordingly, following our reasoning for quashing the re-assessment proceedings for assessment year 2013-14, the re-assessment proceedings for assessment years 2014-15, 2015-16, 2016-17 and 2017-18 are also liable to be quashed. 14.7 At this juncture, it would also be worthwhile to refer to the judgment of the Hon'ble High Court of Gujarat in the case of Adani Exports vs. DCIT reported in [1990] 240 ITR 224 (Guj.), wherein the Hon'ble Gujarat High Court has held that as far as ‘belief’ within the meaning of section 147 of the Act is concerned, the AO has no authority to surrender or abdicate his function to his superiors nor can the superior arrogate to themselves such authority. In this case also, the Audit Report had pointed out defects and had raised audit objections and the Hon'ble Gujarat High Court had held that in every case, it is the AO who must determine for himself as to what was the effect and consequence of the law mentioned in the Audit Report and that whether any consequence of the law, which comes to his notice through the Audit Report, can he reasonably believe that income has escaped assessment. The Hon'ble Gujarat High Court also referred to the ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 53 of 61 Head Note in the judgment rendered by the Hon'ble Apex Court in the case of Indian and Eastern Newspaper Society vs. CIT reported in [1979] 119 ITR 966 (SC) and reiterated that the opinion rendered by the Audit Party in regard to the law cannot, for the purpose of such belief, add to or colour the significance of such law and that true evaluation of the law in its bearing on the assessment must be made directly and solely by the Income Tax Officer. Thus, based on the above judicial precedents also, we are of the considered opinion that the AO did not hold independent belief at any point of time that the income of the assessee had escaped assessment for five years under appeal. 14.8 Thus, to sum up, the issue of validity of reassessment proceedings, section 147 of the Act does not allow reassessment of income on change of opinion. It is worthwhile to point out that reopening was initiated with respect to alleged profit generated on account of sales made on behalf of UBL. Disclosure to this effect had categorically been made by the assessee in its Notes to Accounts attached with the Balance Sheet which were duly before the AO during the course of regular assessment proceedings. Thus, apart from the audit objections and the judgment of the Hon'ble Karnataka High Court in the case of M/s Chamundi Winery & Distillery (supra), the AO had no new ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 54 of 61 tangible material which could justify the reopening. However, as stated by us also in the preceding paragraphs, the AO had specifically refused to accept the audit objections and even the judgment of the Hon'ble Karnataka High Court in the case of M/s Chamundi Winery & Distillery (supra) was accepted by the AO as having a bearing on the sales and income of the assessee only after being pointed out by the Office of the Ld. PCIT, Bareilly, which again would demonstrate that the opinion of the AO was not an independent opinion, but was borrowed and that it was a change of opinion. Therefore, in view of the settled judicial precedents and specially the factual matrix in this case, we have no hesitation in holding that the reopening in all the five years was based on mere change of opinion by the AO and, therefore, such reopening is invalid in the eyes of law and, therefore, we quash the reassessment proceedings in all the five years under appeal. Accordingly, grounds No.1, 2, 3 and 4 of the Cross Objections of the assessee are allowed and grounds No.5, 6, 7, 8 and 9 of the assessee’s Cross Objections become infructuous. 14.9 Thus, in effect, all the Cross Objections filed by the assessee, as captioned above, are partly allowed. 15. Coming to the appeal of the Department, wherein the Department has challenged the deletion of various additions ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 55 of 61 confirmed by the ld. CIT(A), a perusal of the order of the Ld. First Appellate Authority would show that the Ld. First Appellate Authority has examined the Brewery and Distillery Agreement entered into between the assessee and UBL and has specifically pointed out to Clause 2.2 of the Agreement, wherein UBL has given non-exclusive, non-assignable and non-transferable right to the assessee to manufacture UBL products. The Ld. First Appellate Authority has also referred to Clause 2.3 of the Agreement which states that the assessee shall sell, dispose of the UBL products as instructed by UBL. Further, the Ld. First Appellate Authority has also referred to Clause 6.1 of the Agreement, wherein it has been specifically stated that UBL would pay bottling cost to the assessee at the prevailing market rates. It has also been stated by the Ld. First Appellate Authority that during the course of hearing a confirmation certificate from UBL was taken on record which confirmed that all the sale proceeds were deposited in the bank account of UBL and that UBL would be providing to the assessee necessary funds for meeting all the direct expenses to be incurred on behalf of UBL. After analyzing these Clauses, the Ld. First Appellate Authority has reached the conclusion that the nature of Agreement was empirical to that of a job work and that the right, title and interest over receipts/expenses attributable to such Agreement/ ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 56 of 61 arrangement was exclusively belonging to UBL. The Ld. First Appellate Authority had also required the assessee to clarify with supporting evidence its contention that the sale proceeds were received directly by UBL and in this regard also the assessee had furnished confirmation of the same, which has also be duly reproduced in the impugned order. Thereafter, the Ld. First Appellate Authority went on to examine the nature of License Fee and the assessee duly demonstrated that UBL was having License for contract manufacture of its brand of Beer issued by the U.P. State Excise Department and placed on record the License in Form FL-3A issued by the State Excise Department. Copy of this License has also produced before us and a perusal of this License shows that UBL can get its brand of Beer manufactured on contract basis from the assessee’s facility. Clause 5 of this Certificate also mentions that in order for UBL to sell their products in the State of U.P., it is required to obtain License under Excise Laws and the assessee has furnished copy of Excise License FL-1A as well, which has been taken on record and which specifically mentions the name of M/s United Breweries Ltd. (UBL) as the License holder. This FL-1A License grants License to UBL to vend foreign liquor other than denatured spirit to Wave Distilleries and Breweries Limited. Thus, effectively both the Excise Licenses, i.e., FL-1A and FL-13 ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 57 of 61 are in the name of UBL and this fact has been duly noted by the Ld. First Appellate Authority also while allowing relief to the assessee. Similarly, the assessee has also furnished sample invoices – both before us as well as before the Ld. First Appellate Authority and which have been taken on record, which demonstrate that these invoices are also issued in the name of UBL and not in the name of the assessee. Even the Excise Gate Passes in relation to UBL products manufactured by the assessee have been issued in the name of UBL and not in the assessee’s own name. Thus, it is evident that for all practical purposes, it was UBL who was entering into various transactions and the assessee was only acting as its agent. The assessee has also demonstrated with evidence that the sale proceeds were also being directly deposited in the bank accounts of UBL and that UBL would only be reimbursing the assessee towards expenses incurred by the assessee on behalf of UBL and the agreed bottling charges in terms of Brewery and Distillery Agreement. 15.1 Thus, having regard to various terms of the Agreement, Excise Licenses, Sales Invoices, Gate Passes, Bank accounts as well as conduct of both the parties, it becomes very clear that the assessee is only a contract manufacturer for UBL and in effect the sales alleged to have been effected by the assessee were in ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 58 of 61 fact sales of UBL and would, thus, constitute the income by overriding title, as far as the case of the assessee is concerned. Although the concept of diversion of income by overriding title is not explicitly defined in the Act, however, it is more or less well established through various judicial decisions. The core principle on diversion of income is the presence of overriding title that causes income to be re-directed before it reaches the hands of the assessee. The Hon'ble Apex Court had an occasion to elaborate on the concept of diversion of income in the case of CIT vs. Bijli Cotton Mills (P) Ltd. [1979] 116 ITR 60 (SC) and the Hon'ble Apex Court held that for an income to be considered diverted at source, there must be an overriding title that diverts the income before it reaches the assessee and that if such title exists, the income never becomes the property of the assessee and, therefore, does not become taxable in their hands. Similarly, in the case of CIT vs. Imperial Chemical Industries India Pvt. Ltd. Reported in [1969] 74 ITR 17 (SC), the Hon'ble Apex Court differentiated between diversion of income by overriding title and application of income and ruled that where the income is diverted before it is earned due to overriding obligation, it does not form part of assessee’s total income. Thus, the primary difference would lie the timing and nature of income allocation. In the present case, undisputedly, the assessee has only acted as a ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 59 of 61 manufacturing agent for other party, i.e., UBL and as per terms of the Agreement and various documents, which are on record, nothing more than being a contract manufacturer can be attributed to the assessee. Here, in the present case, the assessee has been obligated by virtue of Agreement to divert the income/revenue at source and is entitled only towards reimbursement of expenses and bottling charges and nothing less nothing more. Therefore, on the facts of the case and the documents produced before us, we have no hesitation in concurring with the order of the ld. CIT(A) insofar as holding of assessee as a contract manufacturer is concerned. The Ld. First Appellate Authority has rightly deleted the impugned additions on merits by holding that UBL was the de facto earner of income arising from manufacture and sale of its brands of liquor manufactured and bottled at the facility of the assessee. 15.2 The assessee has also sought to distinguish the facts of its case and the facts in the case of Chamundi Winery & Distillery (supra), on which Department has placed reliance. In this regard, it is seen that in the case of Chamundi Winery & Distillery (supra), the Excise License was held in the name of Chamundi Winery & Distillery and not in the name of other party, i.e. Diago India, whereas in the present case, it is UBL ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 60 of 61 which holds the License for contract manufacturing as is evident from Licenses FL-1A and FL-3A. Similarly, in the case of Chamundi Winery & Distillery (supra), the sale proceeds were deposited in the accounts of Chamundi Winery & Distillery only, whereas in the assessee’s case, it has been demonstrated and established that the sale proceeds were directly being deposited into the Bank accounts of UBL. Further, in the present case, the assessee has also demonstrated through Gate Passes that these Gate Passes are issued in the name of UBL and not in the name of the assessee. Therefore, we agree with the contentions of the Ld. A.R. that the facts of the case in the case of Chamundi Winery & Distillery (supra) are diametrically opposite to the facts of the present case and, therefore, the ratio of the judgment as laid down by the Hon'ble Karnataka High Court in the case of Chamundi Winery & Distillery (supra) would not apply in the present group of appeals. 15.3 Therefore, on an overall view of the matter and duly considering the documents produced before us as well as the detailed and categorical findings recorded by the Ld. First Appellate Authority, which the Department could not negate before us, we give our concurrence to the findings recorded by the Ld. First Appellate Authority while deleting the impugned ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 61 of 61 additions in assessment year 2013-14 as well as in assessment years 2014-15, 2015-16, 2016-17 and 2017-18 on identical set of facts. Accordingly, all the five appeals of the Department stand dismissed. 16. In the final result, all the five appeals of the Department stand dismissed whereas all the five Cross Objections of the assessee stand partly allowed. Order pronounced on 28.02.2025 under Rule 34(4) of the ITAT Rules, 1963. Sd/- Sd/- [NIKHIL CHOUDHARY] [SUDHANSHU SRIVASTAVA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:28/02/2025 JJ: Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. DR By order Assistant Registrar IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH “B”, LUCKNOW BEFORE SHRI. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SHRI NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA Nos.153 to 157/LKW/2023 Assessment Years: 2013-14 to 2017-18 The ACIT Circle-1 Bareilly v. Wave Distilleries and Breweries Limited Unit No.29, K-185/1/T/F, Sarai Julaina New Delhi TAN/PAN:AABCU0335J (Appellant) (Respondent) C.O. Nos.23, 24, 21,22 and 25/LKW/2023 [In ITA Nos.153 to 157/LKW/2023] Assessment Years: 2013-14 to 2017-18 Wave Distilleries and Breweries Limited Unit No.29, K-185/1/T/F, Sarai Julaina New Delhi v. The ACIT Circle-1 Bareilly TAN/PAN: AABCU0335J (Cross Objector) (Respondent) Department by: Smt. Richa Rastogi, CIT (DR) Assessee by: S/Shri Salil Kapoor, Vibhu Jain and Sumit Lalchandani, Advocates O R D E R PER BENCH: These appeals have been preferred by the Revenue against the respective orders of the ld. Commissioner of Income ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 2 of 61 Tax (Appeal), National Faceless Appeal Centre (NFAC), Delhi, all dated 29.03.2023 for Assessment Years 2013-14 to 2017-18. 2. The assessee has preferred Cross Objections for all five Assessment Years (A.Ys) i.e. Assessment Years 2013-14 to 2017- 18. 3. Since the issues are mostly identical in all the appeals, assessment year 2013-14 is taken as the lead case. The brief facts of the case for assessment year 2013-14 are that the assessee-company is engaged in the manufacturing, bottling and sale of Beer for M/s United Breweries Ltd. (UBL). The assessee filed its return of income for the year under consideration on 30.11.2013, declaring a total income of Rs.30,90,13,100/- and tax was paid on the deemed total income of Rs.36,12,49,703/- as per the provisions of section 115JB of the Income Tax Act, 1961 (hereinafter called “the Act’). The case of the assessee was reopened by issuing notice dated 27.03.2021 under section 148 of the Act. For the sake of ready reference, the reasons recorded by the AO for re-opening the assessment are reproduced as under: “The facts of the case are that M/s Wave Distilleries and Breweries Limited (WDBL) owned a distillery for the manufacture and sale of alcoholic beverages under a license obtained from the State Government. The company entered ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 3 of 61 into an agreement with M/s. United Breweries Limited (UBL) for manufacturing of their various Brands of Beer at the new Brewery commissioned by the Company at Village Ahmedpura, District: Aligarh, U:P. The agreement provides for committing a substantial portion of the Beer manufacturing capacity of the Company to UBL and accordingly UBL has been treated as Principal Manufacturer. While Sales and purchase for manufacture of UBL's Brands is done in the name of the Company as it holds requisite licenses for manufacture and sale, in essence the Company has shown to get paid only a fixed amount for manufacture of UBL's Brands Accordingly, the Company has not included the following income and expenses relating to manufacture/ sale of UBL's Brands in its account: 1. Sales-Rs. 35765.45Lakhs 2. Consumption of Raw materials and Packing materials Rs. 11384.87 Lakhs 3. Other Expenses Rs. 5883.21 Lakhs 4.1 I have gone through the facts of the case and the reply of the assessee on the issues and have gone through the agreement thoroughly. Being the relevant industry highly regulated in Uttar Pradesh, it is not possible for any company to set up a distillery and manufacture and sell alcoholic beverages without an express license granted by the State Government. In some cases where the limit has exhausted or the companies which do not possess license, the companies cannot manufacture and sell alcoholic beverages. M/s UBL India, which is one of the largest global players in the liquor industry entered into an agreement with ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 4 of 61 M/s Wave Distilleries and Breweries Limited (WDBL), wherein M/s Wave Distilleries and Breweries Limited (WDBL) would manufacture alcoholic beverages by using necessary technology/ processes of M/s UBL India; and thereafter sell the same under various trademarks of M/s UBL India, against orders obtained by M/s UBL India from different distributors. As per the terms of the agreement, M/s UBL India also provided several strategic support functions in favour of M/s Wave Distilleries and Breweries Limited (WDBL). Since the sale of liquor to the distributors was effectuated by M/s Wave Distilleries, albeit against orders obtained by M/s UBL India, the entire profits arising out of the business rested within M/s Wave Distilleries and Breweries Limited (WDBL). As a reward for rendition of such services by M/s Wave Distilleries and Breweries Limited (WDBL), the two \"parties agreed that M/s Wave Distilleries and Breweries Limited (VWDBL) would retain bottling charges and the balance amount of the profits, namely after deducting from the proceeds on sale of liquor, (a) all the expenses incurred by M/s Wave Distilleries and Breweries Limited (WDBL); (b) applicable indirect taxes; and also (c) the reward of bottling charges as agreed upon as above, would be paid by M/s Wave Distilleries and Breweries Limited (WDBL) in favour of M/s UBL India. Here it would be relevant to mention that M/s WDBL has shown Rs 2841 Lakh as Bottling Charges. 4.2 At this juncture, it is pertinent to mention the decision of Hon'ble High Court of Karnataka in case of Principal Commissioner of Income Tax, Bangalore Vs. M/s Chamundi Winery & Distillery, [2018] 97 taxmann.com 568 ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 5 of 61 (Karnataka)/ [2018] 408 ITR 402 (Karnataka) wherein similar issue has been decided by the Hon'ble court and it has been held in the case that in case of contracts such as entered with by assessee company and United breweries Limited (UBL), there does not exist any diversion of income by overriding title. Rather, in such cases, position of law only authorizes the assessee for application of income or distribution of profits after having paid due taxes on the income earned by the assessee from the activity of manufacturing of beer, bottling of beer, selling of beer. Further the judgment of court further holds that it is undisputed principle that only real income of the assessee shall be subject to levy of Income Tax unless provisions of law provide otherwise as in cases of presumptive income taxation in the Act itself. However, the question of what is real income of the assessee merits consideration and requires thoughtful examination of facts and law. Liquor business in India is very different from other business as it is highly regulated. The terms of granting licences are highly stringent. The assessee M/s Wave Distilleries in the given case is the Excise Licencee and UBL may have exhausted Excise Licence Limit in the relevant assessment period. Assessee M/s Wave Distilleries and Breweries Limited (WDBL) being the licencee was alone to manufacture and sell the liquor. The terms of contract being agreed upon by the parties cannot override upon the assessee at the time of issuing the Excise Licence. The contract can provide for mechanism of running various aspects of business but it cannot be said by any stretch of imagination that the business was being conducted exclusively for and behalf of ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 6 of 61 the 3rd Party. i.e. UBL. The terms of the agreement are very wisely and intelligently drafted so as to give a prima facia impression of diversion of income. However, on careful examination, it is an attempt to bypass the conditions of Excise Licence and to showcase receipts as diversion of income. In view of aforesaid the act of the assessee to separate distributable surplus arising out of the business which is liable to be paid to M/s UBL under the agreement is nothing but application of income by Wave and not diversion of income at source by overriding title in favour of M/s UBL. As the facts in this case are similar to the facts of M/s Chamundi Winery and Distillery in whose case the Karnataka High Court has given a categorical decision that such surplus which was paid to M/s UBL is only application of income irrespective of the terms of the agreement which has been very carefully crafted and intelligently drafted so that at first blush give an impression of overriding title over income in favour of M/s UBL but an closer and deep scrutiny it is nothing but devious diversion falling short of legal prerequisites for taking it out of ambit of charge of the Income Tax Act in the hands of Wave. It is seen that in the Audit Report in notes on accounts the Chartered Accountant has mentioned that the company has not included the incomes and expenses relating to manufacture / sale of UBL Brand in its account. In view of the aforesaid the escapement of income is being based on the inputs given in notes on account by the Chartered Accountant in his report. Escapement of income is calculated: ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 7 of 61 Assessment Year Sales not included as it has been claimed relating to UBL brand. Consumption of raw materials and packing materials not included as it has been claimed relating to UBL brand. Other expenses not included as it has been claimed relating to UBL brand. Charges received by the assessee in the name of bottling fees. Escapement of income 2013-14 35765.45 lakhs 11384.87 lakhs 5883.21 lakhs Rs.2341 Lakhs Rs.15,656.37 Lakhs 5. Basis of forming reason to believe and details of escapement of income: On the basis of material available on record as discussed above and having gone through the case records and further it is seen that the assessee has not disclosed fully and truly all material facts on this issue and therefore there was omission and failure on part of the assessee with regard to this transaction to disclose fully and truly all necessary material facts necessary for assessment. Accordingly, after considering the facts mentioned as discussed above and in view of the material available on record, I have reasons to believe that income chargeable to tax to the tune of Rs.1,56,56,37,000/- has escaped assessment for the AY 2013-14. The escaped income being above Rs. One Lakh is covered by the provisions of section 49(1) (b) of the 1.T. Act, 1961. Further in view of decision of Hon'ble Supreme Court in the case of Larsen & Toubro Ltd. Civil App No. 5390/2007., Hon'ble Supreme Court, ITO Vs. Sarabhai M Lakhani 243 ITR 1 and A.L.A. firm Vs. CIT reported in 189 ITR 285, proceedings u/s 147 may be initiated on the basis of decision of Hon'ble High Court of Karnataka in case of Principal Commissioner of Income Tax, ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 8 of 61 Bangalore Vs. M/s Chamundi Winery & Distillery, [2018] 97 taxmann.com 568 (Karnataka)/ [2018] 408 ITR 402 (Karnataka) passed wherein similar issue has been decided by the Hon'ble court and it has been held that in case of contract such as entered with by assessee company and United breweries Limited (UBL), there does not exist any diversion of income by overriding title and in such cases, position of law only authorizes the assessee for application of income or distribution of profits.” 3.1 In response to notice dated 27.03.2021 under section 148 of the Act, the assessee filed return on 28.05.2021. During the course of re-assessment proceedings, it was submitted that as per the agreement entered into between UBL and the assessee, the assessee has to carry out manufacturing, bottling and sale of Beer for UBL in its plant and for this service UBL had agreed to compensate various expenses incurred by the assessee and to pay bottling charges and that for reimbursement of expenses, certain terms and conditions were set out between the two parties. The assessee-company further submitted before the AO that it had paid royalty as per the agreement between UBL and the assessee-company and it was reiterated that it was receiving only bottling charges and certain reimbursement of expenses as per agreement. It was also submitted that the sales and purchases had been recorded in the books of account for the ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 9 of 61 purpose of meeting the Excise Regulations of the State and that further except for the receipt of bottling charges, all other items reflected in the profit and loss account pertained to UBL only. It was emphasized that the said agreement provided for committing a substantial portion of the Beer manufacturing capacity of the company to UBL and accordingly UBL was the principal manufacturer. It was further submitted that while sales and purchases for the manufacturing of UBL brands was done in the name of the assessee-company, in essence, the assessee- company was receiving only a fixed amount for such manufacture and therefore, sales, consumption of raw materials and packing materials and other expenses were not to be treated as part of the profit and loss account of the assessee-company. 3.2 However, these contentions of the assessee did not find favour with the AO and he concluded that since the assessee was the Excise Licensee under the provisions of the Excise Act and that further time UBL had no Excise License in its name, it could not be said that the assessee was carrying on business exclusively for and on behalf of UBL only who was not at all subjected to any control under the Excise Act. The AO further observed that for all practical and legal purposes, the assessee was the Excise Licensee engaged in the business of manufacture ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 10 of 61 and sale of liquor and, therefore, the assessee must account for all of the profits from such manufacture and sale and offer tax on the same. The AO was of the opinion that it was the case of application of income and not diversion of income by overriding title at source. The AO placed heavy reliance on the judgment of the Hon'ble Karnataka High Court in the case of PCIT, Bangalore vs. Chamundi Winery & Distillery [2018] 97 taxmann.com 568 (Karnataka) and concluded that the Courts and the Tax Authorities have the power to look into the real purpose of the commercial arrangements and transactions to reach the truth and the transactions having the sole purpose of tax avoidance, will have no effect on the actual tax liability of the taxpayer. Accordingly, for assessment year 2013-14, the AO proceeded to compute the income of the assessee by making an addition of Rs.1,56,56,37,000/- and the total income under section 143(3) read with 147 of the Act was assessed at Rs.1,87,46,50,100/-, as under: Detail Amount (Rs.) Sales not included as it has been claimed relating to UBL brand (A) 3,57,65,45,000.00 Consumption of raw materials and packing materials not included as it has 1,13,84,87,000.00 ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 11 of 61 been claimed relating to UBL brand (B) Other expenses not included as it has been claimed relating to UBL brand (C) 58,83,21,000.00 Income not considered for computation D=A-B-C` 1,84,97,37,000.00 Charges received by the assessee in the name of Bottling Fees (E) 28,41,00,000.00 Escapement of Income (D-E) 1,56,56,37,000.00 3.3 Similar additions were made in assessment years 2014-15, 2015-16, 2016-17 and 2017-18 by the AO. For the sake of completeness, they are being reproduced hereunder: Assessment year 2014-15: Detail Amount (Rs.) Sales not included as it has been claimed relating to UBL brand (A) 4,75,64,54,000.00 Consumption of raw materials and packing materials not included as it has been claimed relating to UBL brand (B) 1,41,48,86,000.00 Other expenses not included as it has been claimed relating to UBL brand (C) 74,57,45,000.00 Income not considered for computation 2,59,58,23,000.00 ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 12 of 61 D=A-B-C` Charges received by the assessee in the name of Bottling Fees (E) 35,75,00,000.00 Escapement of Income (D-E) 2,23,83,23,000.00 Assessment year 2015-16: Detail Amount (Rs.) Sales not included as it has been claimed relating to UBL brand (A) 4,81,88,21,000.00 Consumption of raw materials and packing materials not included as it has been claimed relating to UBL brand (B) 1,44,45,78,000.00 Other expenses not included as it has been claimed relating to UBL brand (C) 77,99,18,000.00 Income not considered for computation D=A-B-C` 2,59,43,25,000.00 Charges received by the assessee in the name of Bottling Fees (E) 41,70,03,000.00 Escapement of Income (D-E) 2,17,73,22,000.00 Assessment year 2016-17: ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 13 of 61 Detail Amount (Rs.) Sales not included as it has been claimed relating to UBL brand (A) 5,02,72,95,000.00 Consumption of raw materials and packing materials not included as it has been claimed relating to UBL brand (B) 1,64,93,33,000.00 Other expenses not included as it has been claimed relating to UBL brand (C) 80,57,50,000.00 Income not considered for computation D=A-B-C` 2,57,22,12,000.00 Charges received by the assessee in the name of Bottling Fees (E) 42,64,38,000.00 Escapement of Income (D-E) 2,14,57,74,000.00 Assessment year 2017-18: Detail Amount (Rs.) Sales not included as it has been claimed relating to UBL brand (A) 2,18,82,36,000.00 Consumption of raw materials and packing materials not included as it has been claimed relating to UBL brand (B) 65,66,34,000.00 Other expenses not included as it has been claimed relating to UBL brand (C) 33,99,05,000.00 ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 14 of 61 Income not considered for computation D=A-B-C` 1,19,16,97,000.00 Charges received by the assessee in the name of Bottling Fees (E) 30,12,13,000.00 Escapement of Income (D-E) 89,04,84,000.00 4. Aggrieved, the assessee approached the Ld. First Appellate Authority challenging the five assessments, wherein the assessee challenged the reopening of the assessments and also challenged the quantum additions. 4.1 The Ld. First Appellate Authority upheld the reopening in all the captioned years. However, on the merits of the case, the Ld. First Appellate Authority observed that having regard to the terms of the Agreement, Excise License, Sale Invoices, Gate Passes, Bank Accounts, etc. it was evident that the assessee- company was a contract manufacturer for UBL and that the sales belonged/pertained to UBL only and thus the same constituted income of UBL by overriding title. The Ld. First Appellate Authority concluded that the assessee had rightly accounted for only bottling charges received as its revenue and further the cost and expenditure incurred towards manufacture and supply of UBL products and the revenue derived therefrom pertained to ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 15 of 61 UBL and not to the assessee. Accordingly, the addition of Rs.1,56,56,37,000/- was deleted by the Ld. First Appellate Authority in assessment year 2013-14. 4.2 The Ld. First Appellate Authority passed similar orders for assessment years 2014-15, 2015-16, 2016-17 and 2017-18also by deleting the addition on merits, but upholding the validity of reassessment proceedings. 5. Aggrieved, the Department has now approached this Tribunal challenging the deletion of addition by the Ld. First Appellate Authority, whereas the assessee has approached this Tribunal supporting the order of the Ld. First Appellate Authority in C.Os insofar as deletion of quantum additions is concerned, but has challenged the action of the ld. CIT(A) in upholding the initiation of reassessment proceedings in above captioned assessment years. 6. The Revenue has raised the following ground of appeal for assessment year 2013-14: 1. The Ld. CIT(A) has erred in (i) Deleting the addition of Rs.156,56,37,000/-, holding the same as 'distributable surplus' paid by the assessee M/s Wave Distilleries and Breweries Limited to M/s United Breweries Limited, India in pursuance of agreement dated 04.11.2011. (ii) Ignoring the fact that the assessee has paid brand charges to the UBL ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 16 of 61 and merely that the sale was made in the name of UBL under the arrangement of the agreement thereby treating the reimbursement as 'distributable surplus' without appreciating the fact that profit and gains from the business of manufacture and sale of liquor by assessee were assessable in its hands. (III) Holding the 'application of income' as reimbursement to M/s United Breweries Limited, India on the ground that sale proceeds were deposited in the bank account of the M/s United Breweries Limited, India and M/s United Breweries Limited, India would be providing necessary funds to the assessee for meeting all direct expenses. 7. The Revenue has raised following common grounds of appeal, except the difference in amount, for assessment years 2014-15 to 2017-18: 1. The Ld. CIT(A) has erred in 1. Deleting the addition of Rs.2,23,83,23,000/- (in A.Y. 2014-15), Rs.2,17,73,22,000/- (in A.Y. 2015-16), Rs.2,14,57,74,000/- (in A.Y. 2016-17) and Rs.89,04,84,000/- (in A.Y. 2017-18), holding the same as 'distributable surplus' paid by the assessee M/s Wave Distilleries and Breweries Limited to M/s United Breweries Limited, India in pursuance of agreement dated 04.11.2011. 2. Ignoring the fact that the assessee has paid brand charges to the UBL and merely that the sale was made in the name of UBL under the arrangement of the agreement thereby treating the reimbursement as 'distributable surplus' without appreciating the fact that profit and gains from the ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 17 of 61 business of manufacture and sale of liquor by assessee were assessable in its hands. 8. The assessee has raised following common grounds of Cross Objection for assessment years 2013-14 and 2014-15: 1. That, in view of the facts and circumstances of the case, and in law, the CIT(A)/NFAC has erred in not appreciating that the assessment order dated 29.03.2022 passed under Section 147 read with Section 144B of Act is liable to be set aside and quashed as the proceedings initiated under section 148 of the Act are invalid for want of jurisdiction as the pre-conditions for initiation of the said proceedings as stipulated under the provisions of Section 147 of the Act are not satisfied. 2.That in view of the facts and circumstances of the case and in law, the notice issued under Section 148 of the Act is illegal, bad in law and without jurisdiction as the purported reasons to believe recorded by the Assessing Officer (AO) for issuing the said notice are on the dictate of higher authority. That there is no independent application of mind of the Assessing Officer while recording the purported reasons to believe and the same is solely based on audit objections. Therefore, the requirement of Section 148 of the Act is not fulfilled. 3.That in view of the facts and circumstances of the case, the reason to believe as to escapement of income is not formed by the Assessing Officer but the notice under section 148 of the Act is issued on the directions of Higher Authority/Audit ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 18 of 61 Party and the same is illegal, bad in law. and in violation of the provisions of the Act. 4. That in view of the facts and circumstances of the case and in law, the notice issued under Section 148 of the Act is illegal. bad in law, without jurisdiction, and barred by time limitation as the reopening in the instant case has been done after expiry of four years from the end of the relevant assessment year without any failure on the part of the Assessee to disclose fully and truly all material facts. 5. That in view of the facts and circumstances of the case and in law, the notice issued under Section 148 of the Act is illegal, bad in law and without jurisdiction as there is no fresh tangible material on the basis of which the purported reasons have been recorded and therefore, there are no valid reasons to believe in the eyes of law. 6. That in view of the facts and circumstances of the case and in law, the notice issued under Section 148 of the Act is illegal, bad in law and without jurisdiction as the same has been issued without a valid approval as required under the provisions of Section 151 of the Act. That the sanction u/s 151 of the Act is illegal, bad in law and not sustainable in law as there is no application of mind while granting the approval. 7. That in view of the facts and circumstances of the case and in law. the assessment order dated 29.03.2022 passed pursuant to the notice under Section 148 of the Act is illegal, bad in law and without jurisdiction as the reopening in instant case is only on account of change of opinion which is ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 19 of 61 based on re-appreciation of facts and material already on record. 8. Without prejudice to the above, the notice under section 148 of the Act. the assessment order dated 29.03.2022 passed under Section 147 read with Section 144B of Act and the additions made therein are illegal and bad in law as the alleged escaped income is not the income of the appellant at and all and as such the allegation of escapement of income is incorrect and frivolous. The notice under section 148 of the Act and the assessment order dated 29.03.2022 are liable to be quashed on this ground alone. 9. That, in view of the facts and circumstances of the case and in law, the addition made vide assessment order dated 29.03.2022 is based on mere surmises and conjectures and is made without appreciating the explanations given, evidence produced and material placed and made available on record. 10. That, in view of the facts and circumstances of the case, the additions made are illegal, highly excessive, based on incorrect assumption of facts, and unjust. 9. The assessee has raised common grounds i.e. grounds No.1 to 9 as reproduced above, for assessment years 2015-16, 2016-17 & 2017-18. 10. At the outset, the Ld. Authorized Representative for the assessee (Ld. A.R.) sought permission of the Bench to first argue the assessee’s Cross Objection for assessment year 2013-14 in ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 20 of 61 CO No.23/LKW/2023. The Bench, with the consent of the Ld. D.R., accepted the request of the Ld. A.R. 11. The Ld. A.R. submitted that the provisions of section 147 of the Act mandate reason to believe to be that of the Assessing Officer only, however, in the present case of the assessee, the reason to believe was never formed by the AO, therefore, the re-opening was illegal, bad in law and without jurisdiction. The Ld. A.R. further submitted that admittedly notice under section 148 of the Act had been issued on the basis of audit objection, meaning thereby that the reason to believe was never formed by the AO on his own, whereas it was only on the basis of audit objection. He further submitted that the notice under section 148 of the Act issued by the AO was without formation of belief by the AO on his own and, therefore, such notice issued by the AO was illegal, bad in law and without jurisdiction. 11.1 The Ld. A.R. submitted that it is evident from the records obtained by the assessee through RTI application dated 15.09.2021 that the independence of the AO was compromised in the instant case. The AO had sent a report dated 22.01.2020, wherein after due application of mind, the AO had clearly stated that the audit objections were not acceptable in the light of the ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 21 of 61 fact that the sales made by the Assessee on behalf of the UBL was duly recorded in the books of accounts of the UBL and that the assessee had only received bottling charges from UBL for such services which had been duly recorded in its books of account of the assessee. Thereafter, another report dated 20.02.2020 was submitted by the AO to the Pr. CIT, wherein the AO had recorded a finding that the procedure adopted by the assessee that where total sale proceeds was actually received by the UBL directly and then UBL had reimbursed various costs and bottling charges to the assessee, would not have any adverse effect on the income of the assessee. The Ld. A.R. submitted that the AO had also rightly noted that the said procedure had been followed by the assessee year-after-year and undisputedly, a note in this regard had also been given in the assessee’s balance sheet. It was submitted that more importantly, it had been categorically and rightly stated by the AO that this has not resulted any suppression of revenue. The Ld. A.R. also submitted that the Ld. Pr. CIT, vide letter dated 17.06.2020 had directed the JCIT/AO to resubmit the report dated 20.02.2020 in view of certain decisions, thereby influencing the independent satisfaction of the AO. The ld. AR submitted that in response to the letter dated 17.06.2020 of the PCIT, the AO, in a complete volte face, had resubmitted his proposal to initiate reassessment ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 22 of 61 proceedings on the very same set of facts. It was further submitted that thereafter, the Ld. Pr. CIT, through JCIT, issued another letter dated 13.11.2020, directing the AO to take suitable action with regard to initiation of proceedings under section 147 of the Act. The Ld. A.R. further submitted that the flow of correspondence between the Revenue authorities clearly showed that the AO had acted upon the dictates of higher authorities and thus, the satisfaction was borrowed satisfaction. The sequence of correspondence leading to issuance of Notices under section 148 of the Act are as under: DATE EVENT PAGE NO. (REFER PAPERBOOK FILED FOR AY 22.08.2019 Office of Indian Audit & Accounts Department addressed a letter to the Principal Chief Commissioner of income Tax (CCA) Lucknow whereby the AO was asked to take suitable action on the observations made in the report of audit objections. 126-140 22.01.2020 Report by AO in reply to the Audit Objections 243-261 20.02.2020 Second Report by AO in reply to the Audit Objections 294-299 17.06.2020 Letter issued by Pr. CIT addressing JCIT directing the AO to resubmit the report on Audit Objections 312 22.06.2020 AO resubmits proposal in light of letter dated 17.06.2020 315-322 ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 23 of 61 13.11.2020 Pr. CIT, through JCIT, issued another letter directing the AO to take suitable action (being initiation of proceedings under section 147 of the Act) 335 11.2 In support of the above arguments, the Ld. A.R. has placed reliance on the judgements of Hon'ble High Court of Bombay in the cases of CIT v. Smt. Vyjayanthimala Bali 155 ITR 662 (Bombay), Adani Exports v. DCIT 240 ITR 224 (Bombay) and the judgement of Hon'ble High Court of Madhya Pradesh in the case of Yeshwant Talkies v. CIT 157 ITR 103 (M.P). The Ld. A.R., accordingly, submitted that the reassessment proceedings were void and in contravention to the provisions of section 148 of the Act and that consequently, the reassessment proceedings are to be quashed and the additions are liable to be deleted on this count alone. 11.3 The Ld. A.R. further submitted that with specific reference to Assessment years 2013-14 & 2014-15, the assessee had also raised the ground that impugned notices for the respective Assessment years were barred by limitation in terms of first proviso to section 147 of the Act. The Ld. A.R. submitted that the impugned notice under section 148 of the Act was issued on 27.03.2021 for Assessment year 2013-14 and on 30.03.2021 for Assessment year 2014-15, therefore, these notices were issued ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 24 of 61 beyond the prescribed period of 4 years. The Ld. A.R. also submitted that as per section 147 of the Act, the Assessing Officer has the power to re-open a case even beyond 4 years, when there is failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for the relevant assessment year. The Ld. A.R. submitted that proviso to section 148 of the Act placed fetters on the powers of the Assessing Officer to initiate reassessment proceedings beyond the period of 4 years from the end of the relevant assessment year, where the assessment has been completed under section 143(3) of the Act unless the income has escaped assessment by reason of the failure of the assessee to disclose fully and truly all material facts necessary for assessment. The Ld. A.R. submitted that the Hon’ble Courts have consistently held that where there was no case of any failure on the part of the assessee to fully disclose all material facts and it was only a question of drawing an inference from these facts, reopening of assessment beyond four years period is invalid. The Ld. A.R. further submitted that the Revenue, in cases falling under the aforesaid proviso, must prove that the assessee had failed to disclose fully and truly all material facts required for assessment of its income. It was submitted that in the instant case, the AO had merely made a bald allegation that the assessee has failed to disclose fully and ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 25 of 61 truly all material facts. The Ld. A.R. submitted that since all the facts, documents, details and material records were submitted/filed before the AO and examined by him in detail, the assessee was at a loss to understand as to what more was left to be disclosed by it for assessment years under consideration. The Ld. A.R. submitted that, at least, specific instance of failure ought to have been spelt out in the reasons recorded by the AO. Only bald statement alleging failure to disclose, in the reasons recorded, was not enough. In this regard, the Ld. A.R. placed reliance on the decision of Hon'ble Bombay High Court in the case of Hindustan Lever Limited Vs. Asstt. Commissioner of Income Tax: (2004) 268 ITR 332 (Bom). 11.4 The Ld. A.R. further submitted that it was undisputed that no new fresh material had come to light and that the assessee vide S. No. 6 of Note 25 annexed to its Balance Sheet, had categorically stated that Sales and Income relating to UBL products have not been accounted for by it in its books of account. The assessee had also provided a copy of the B&D agreement during the original assessment proceedings and further that during the course of assessment; the issue in question was specifically examined and rightly accepted by the AO. Therefore, there has been no failure on the part of the ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 26 of 61 assessee to make full and true disclosure in the instant case. In this regard, the Ld. A.R. placed reliance on the judgment of Hon'ble Supreme Court of India in the case of ITO v. Mewalal Dwarka Prasad, 176 ITR 529 and submitted that in this case, the Hon’ble Apex Court had held that where assessee had disclosed all material facts and the AO had accepted the documents produced and had treated the transaction to be genuine and on that footing had completed the assessment, then it was no open for the AO to re-open the assessment on the ground that there was failure on the part of the assessee to disclose all material facts. 11.5 The Ld. A.R. also placed reliance on the judgement of Hon'ble Supreme Court of India in the case of Indian Oil Corporation vs. Indian Tax Officer, Central Circle V, Calcutta and Ors: [1986] 159 ITR 561 (SC) and submitted that in this case the Hon’ble Apex Court had ruled that there must be materials to come to the conclusion that there was 'omission or failure to disclose fully and truly all material facts necessary for the assessment of the year. 11.6 The Ld. A.R. further placed reliance on the judgement of Hon'ble Supreme Court of India in the case of Income Tax Officer vs. Lakhmani Mewal Das: [1976] 103 ITR 437 (SC), wherein their ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 27 of 61 Lordships held that the duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the Income-tax Officer to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the Income-tax Officer with regard to the inference which he should draw from the primary facts. If an Income-tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment. 11.7 In light of the above facts and the legal position, the submission of the Ld. A.R. was that for assessment years 2013- 14 and 2014-15, the AO had failed to satisfy the prerequisite conditions to issue notice under section 148 of beyond the prescribed period of 4 years from the end of the relevant assessment years. It was also submitted by the Ld. A.R. that in the order passed by NFAC, disposing of the objections, it is clearly mentioned in para 15 that \"... The facts just came out through the mist of agreements and books of accounts\". The Ld. A.R. submitted that this itself shows that there was no failure on part of the assessee to disclose material and true facts and that the reassessments were initiated only on the basis of the Audit ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 28 of 61 Report. The Ld. A.R. submitted that the Hon'ble Supreme Court in the case of Lakhmani Mewal Das (supra) unequivocally held that \"If an Income-tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment.\" 11.8 The Ld. A.R. further submitted that reassessment was not permitted solely on the basis of 'Change of Opinion' and in absence of 'fresh/new material'. He submitted that it is amply clear from the reasons recorded that the reopening was solely based on the audit objection which, in turn, was based on the disclosure made by the assessee in its Audited Financial Statements [Sl. No. 6 of Note 25 in Notes to Accounts] and, therefore, there was no new or fresh material before the AO prompting him to reopen the assessment. 11.9 The Ld. A.R. also submitted that it is well settled through catena of judgments that Section 147 of the Act does not allow reassessment of an income merely on the ground that the AO has a change of opinion with regard to the interpretation of law differently on the facts that were well within his knowledge even at the time of assessment. In this regard, the Ld. A.R. placed ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 29 of 61 reliance on the judgment of Supreme Court in the case of CIT vs. Kelvinator of India Ltd. (2010) 320 ITR 561(SC). 11.10 The Ld. A.R. submitted that in the instant case, proceedings for reopening had been initiated with respect to alleged profit generated on account of sale made on behalf of UBL. The disclosure in this behalf had been categorically made by the assessee in its Notes to Accounts attached to the Balance Sheet which were before the AO during the regular assessment proceedings. Therefore, neither there was any failure to disclose fully and truly all material facts nor there was any new tangible material which could justify the reopening of the present case. The reasons recorded were primarily based on the audit objection report which in turn is based on the records which were already part of the earlier assessment and, therefore, the same was available with the AO and would tantamount to change of opinion. The Ld. A.R. submitted that for assessment year 2013- 14, the Assessing Officer posed a specific question with respect to the agreement with UBL and justified details of amounts received from UBL with specific reference to Point no. 6 of note 25 to the Audited Financial Statements furnished by the assessee during the course of original assessment proceedings, vide notice dated 22.09.2014. Moreover, for assessment year 2012-13 also, books ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 30 of 61 of accounts were examined and vide Assessment Order dated 22.10.2014 passed under section 143(3) of the Act, no adverse inference was drawn against the assessee. 11.11 The Ld. A.R. further submitted that with reference to Assessment years 2015-16 and 2016-17, the law relating to \"change of Opinion\" will equally apply in light of the judgment of Hon'ble High Court of Delhi in the case of CIT vs. Orient Craft Ltd.: 354 ITR 536, wherein the reasons for reassessment was that AO reached on a belief that there was escapement of income on going through the return of income filed by assessee after he accepted return u/s. 143(1) of the Act without scrutiny, and nothing more. On these facts, it was held by the Hon'ble Delhi High Court that it was nothing but review of earlier proceedings and abuse of power by AO. It was further held that since there was no whisper in reasons recorded, of any tangible material which came into possession of the AO subsequent to the issue of intimation, the same was an arbitrary exercise of power conferred under section 147 of the Act. He further submitted that an SLP filed by the Department against the judgment of Hon'ble High Court of Delhi (supra) came to be dismissed by the Hon'ble Supreme Court, vide order dated 20.01.2014. ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 31 of 61 11.12 The Ld. A.R. further contended that reassessment cannot be initiated solely on the basis of Audit Objections. He submitted that in the instant cases, the reassessment has been solely initiated on the basis of audit objections. It was submitted that possession of information contained in audit report vis-a-vis formation of belief by the Assessing Officer, the existence, which is a condition precedent for initiating proceedings under section 147 of the Act, has been succinctly stated by the Hon'ble Supreme Court of India in the case of Indian and Eastern Newspaper Society v. CIT: [1979] 119 ITR 966 (SC), wherein it was held that part alone of the note of an audit party which mentions the law which escaped the notice of the Income-tax Officer constitutes 'information' within the meaning of section 147(b); the part which embodies the opinion of the audit party in regard to the application or interpretation of the law cannot be taken into account by the Income-tax Officer. 11.13 In the light of the above facts, the Ld. A.R. submitted that initiation of reassessment proceedings for the captioned Assessment years was void-ab-initio, illegal and in contravention to the provisions of section 148 of the Act. Consequently, the proceedings under section 148 of the Act and the assessment orders passed are liable to be quashed. ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 32 of 61 11.14 On merits of the case, the Ld. A.R. submitted that as per the agreement, the assessee has received remuneration in terms of the bottling charges only and the same was offered to tax for all the concerned Assessment years. The allegation that the proceeds of sales were the income of the assessee is entirely baseless. Firstly, UBL procured License FL-3A (for contract manufacturing) and License FL-1A (for sale) from Uttar Pradesh Excise Department. The FL-1A License makes it apparent that the right to sell Beers manufactured in the premises of the assessee (by virtue of FL-3A license) exclusively rested with UBL and that the assessee cannot sell Beers manufactured by it while acting as a contract manufacturer for UBL. Further, it is also evident from FL-36 (i.e. gate pass issued for removal of goods from premise of manufacturer), that it is drawn in the name of UBL and not the assessee, since excise duty on sales of Beer from the premises of the assessee was paid by UBL itself. It was further submitted that the sale proceeds from the sale of Beer were directly paid to the Bank Account of UBL as is evident from confirmations given by purchasers He submitted that in light of the these facts as well as the fact that the assessee has disclosed the accounting treatment of its arrangement with UBL vide Point No. 6 of Note 25 to the Audited Financial Statements, there was no occasion to treat the sales of Beer by UBL as income earned ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 33 of 61 by the assessee. It was further submitted that the Assessing Officer has entirely misconstrued the facts of the case and relied upon the decision of Hon'ble High Court of Karnataka in the case of PCIT v. Chamundi Winery & Distillery [2018] 408 ITR 402 (Karnataka) without any appreciating the facts of the case. In this regard, the Ld. A.R. furnished before us a table detailing the distinguishing factual aspects present in the case of the assessee and that formed the basis of the decision in Chamundi Winery & Distillery, which is being reproduced below: s. No. FACTS IN CHAMUNDI WINERY & DISTILLERY’S CASE FACTS IN ASSESSEE’S CASE FINDING IN CIT(A)’s ORDER FOR AY 2013- 14 PAGE No. (REFER PAPERBO OK FILED FOR AY 2013-14) 1. The assessee in the instant case was the Excise Licensee under the provisions of the Karnataka Excise Act, 1965 and Diageo India had no Excise Licence in its name from the State during the relevant assessment period. UBL holds license for contract manufacturing of its brand of beer issued by the UP State Excise Department which is evident from Form FL- 1 A and Form FL-3 A Para 8.3 at page 49 426-431 2. Sale Proceeds were deposited in the bank accounts of the Assessee Sale Proceeds were directly paid to the bank accounts of UBL Para 8.3 at page 49 105-106 ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 34 of 61 3. Gate passes authorising movement of goods from out of Assessee’s premise is issued in the name of UBL, Compliance with Excise/VAT regulations is made by UBL. i Para 8.3 at page 49 432-436 11.15 It was further submitted that in the case of Chamundi Winery & Distillery (supra), it was an admitted fact that the assessee therein distributed surplus income in favour of the other party to the agreement, whereas in the instant case, the assessee had never received any money on account of manufacture/sale of UBL’s Brand and the same accrued to UBL only. 11.16 The Ld. A.R. concluded his submission by stating that the assessee had merely acted as a contract manufacturer and was only entitled to the agreed contract charges as per the agreement which had been duly offered for tax and that the assessee had neither recognized the sales, manufacturing expenses, purchase and other expenses incurred by them in its books, nor any loss for non-payment of bills, discounts, selling expenses which were made by UBL had been claimed by the assessee and, thus, the ld. CIT(A) has rightly appreciated the ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 35 of 61 facts of the case and deleted the additions made by the AO in the captioned assessment years. 12. In response to the arguments advanced by the Ld. A.R., the ld. CIT (DR) defended the action of the ld. CIT(A) in upholding the validity of reassessment proceedings. It was submitted that the reopening was based on suppression of sales by the assessee and that such suppression in quantum was more that Rs.1 lakh and, therefore, the reopening could be validly made within six years and therefore, the argument of the Ld. A.R. that reopening after expiry of four years was invalid was incorrect. It was further submitted that the Department had noticed variation in figures as appearing in Form No.26AS and the financial statements submitted by the assessee and this constituted additional information which could be validly utilized by the Department for the purpose of issuance of notice under section 148 of the Act. 12.1 The ld. CIT (DR) referred to Proviso (1) to section 147 of the Act in this regard. Referring to the letter issued by the Office of the Asstt. Commissioner of Income Tax, Circle 1, Bareilly to the Principal Commissioner of Income Tax, Bareilly, vide dated 08.12.2020 and placed at pages 36 to 43 of the assessee’s paper book, it was submitted that in assessment year 2014-15, suppression of sales had resulted in short computation of income ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 36 of 61 to the tune of Rs.901.61 crores thereby resulting in short charge of tax to the tune of Rs.376.95 crores. It was further submitted that the argument of the Ld. A.R. that the reassessment proceedings were initiated on change of opinion was also incorrect inasmuch as the same was based on information gathered and pointed out by the CAG Audit Team and such information validly constituted information for the purposes of issuance of notice for reassessment in terms of section 148 of the Act. The ld. CIT (DR) also refuted the argument of the Ld. A.R. that reliance on the Report of CAG demonstrated non-application of mind and submitted that the AO was duly acting under the guidance received from the PCIT in this regard. The ld. CIT (DR) placed reliance on the judgment of the Hon'ble High Court of Kerala in the case of Sree Narayana Guru Memorial Educational and Cultural Trust vs. ACIT reported in 160 taxmann.com 727 (Kerala) and submitted that the Hon'ble High Court of Kerala in this case has held that audit objection can be one of the valid reasons for reopening of assessment. It was submitted that as per this judgment if the revenue audit raised an objection that the assessment was not completed in accordance with the provisions of the Act, it cannot be treated as a change of opinion because this is a statutory ground for reopening of assessment. ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 37 of 61 12.2 The ld. CIT (DR) also referred to the order of the AO dated 25.01.2022 wherein he had disposed of the objections raised by the assessee to the reassessment proceedings and submitted that the audit objection constituted a proper reason to believe. The ld. CIT (DR) also referred to the case of PCIT, Bangalore vs. M/s Chamundi Winery & Distillery (supra) and submitted that in this case also Chamundi Winery & Distillery was the Excise Licensee and was undertaking entire business activity of manufacture and sale of liquor in its name and ownership. It only purchased raw materials from market, sold the entire liquor in the open market and to other purchasers under its own invoices, collected all gross sale receipts, met day-to-day expenses, met all sales tax, excise duty, VAT, labour charges, etc. as its operating cost and the Hon'ble Karnataka High Court had concluded that whatever income was generated out of liquor business, had to be first taxed in the hands of excise licensee, i.e. Chamundi Winery & Distillery and after payment of income tax, distribution of surplus between the two parties was at their discretion. The ld. CIT (DR) submitted that the Hon'ble Karnataka High Court went on to hold that the distributable surplus paid to Indian subsidiary was nothing but application of income by the assessee and that the same was neither an allowable expenditure under section 37(1) of the Act nor a trade loss and that further the ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 38 of 61 same did not amount to diversion of income at source by overriding title because the entire business belonged to Chamundi Winery & Distillery only. 12.3 The ld. CIT (DR) submitted that essentially and undisputedly the assessee was itself carrying out the business of brewery and in terms of excise license issued to it by the State Government and therefore income had to be taxed in the hands of the assessee only, as rightly done by the AO. 12.4 On merits of the case, the ld. CIT (DR) submitted that the ld. CIT(A) had erred in deleting the addition for the reason that he did not appreciate the observations made by the AO while making the impugned addition. The ld. CIT (DR) submitted that the source of income is from manufacture and sale of liquor under the excise license where the UBL had no privity or locus and therefore whatever income is generated out the said business has to be taxed in the hands of the excise licensee and thereafter, only after payment of income tax would arise the question of distribution of surplus. It was submitted that whether the licensee thereafter chose to part take in the profits or only took bottling charges was at the discretion of the contracting parties and that the distribution would have no effect or any overriding impact on the taxability part of the entire income arising or ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 39 of 61 accruing firstly in the hands of the assessee i.e. excise licensee. The ld. CIT (DR) re-emphasized that the distribution of surplus by the assessee after retaining bottling charges was only an application of income and not diversion of income at source by overriding title. 13. In rejoinder, the Ld. A.R. submitted that the ld. CIT(A) had raised various queries during the course of appellate proceedings and the assessee had duly responded to the same and which have been duly reproduced at pages 41 to 46 of the impugned order and it was submitted that it is only after considering these submissions of the assessee that the ld. CIT(A) had rightly come to the conclusion that the impugned addition was to be deleted. The Ld. A.R. also sought to distinguish the judgment of the Hon'ble Karnataka High Court in the case of PCIT, Bangalore vs. M/s Chamundi Winery & Distillery (supra) from the case of the assessee and submitted that in that particular case, not only was excise license under the name of M/s Chamundi Winery & Distillery, the entire business was also carried out under its own name by booking sales and purchases in its name. It was pointed out by the Ld. A.R. that in that case, M/s Chamundi Winery & Distillery had been assessed under the Sales Tax/ VAT provisions, as the principle owner of the liquor products ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 40 of 61 manufactured and sold and it was under these set of facts that it was consequently held that M/s Chamundi Winery & Distillery was responsible to pay income tax on such income as well. Whereas in the present case, the assessee was only having a license for contract manufacturing of brand of Beer owned by UBL which was evident from Form FL-3A issued by the State Excise Department. It was pointed out that UBL could do its brand of Beer manufactured on contract basis from the assessee’s facility. It was further submitted that in order to sell their products in the State of U.P., UBL was required to obtain license under the excise law and accordingly UBL had also obtained excise license FL-1A and had also furnished sample sales invoices which would show that these were not issued by the assessee but by UBL. It was further submitted that even the excise gate passes in relation to UBL were issued in the name of UBL. The Ld. A.R. drew our attention to the copies of sample invoices and licenses No. FL-3A and FL-1A placed in the paper book in this regard to substantiate his arguments. Our attention was also drawn to confirmation from UBL placed at page 104 of the paper book, vide dated 19.02.2020 wherein it has been confirmed that for financial years ending on 31.03.2012, 31.03.2013 and 31.03.2014, all the collections from the debtors with regard to sale of their brands of Beer made from the ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 41 of 61 assessee’s unit have been received directly by UBL in their account and further that as per the terms of the agreement, UBL had provided funds to the assessee for payment to creditors who had supplied material for production and packing of Beer brands of UBL. Our attention was also drawn to pages 105 and 106 of the paper book, which were confirmations from two of the buyers, namely M/s Aakruty Beverages Pvt. Ltd. and M/s Alpha Beverages Pvt. Ltd., wherein it has been mentioned that they had purchased King Fisher brand of Beer of UBL which was supplied to them through its bottler, M/s Wave Distilleries and Breweries Limited, i.e., the assessee. 13.1 In as far as the difference between Form No.26AS and the sales reported by the assessee-company was concerned, it was submitted that the assessee had to collect TCS and deposit the same with the Government in terms of the excise license and subsequently the amount of TCS so deposited is reimbursed by UBL. The Ld. A.R. also drew our attention to pages 73 to 75 of the paper book and submitted that initially vide letter dated 20.02.2020 even the AO had accepted assessee’s contention and in response to query raised by the Audit Team, it mentioned in paragraph 6 that the proceeds actually debited by the assessee will not have any adverse effect on the income of the assessee ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 42 of 61 and that the assessee has to retain the amount of expenses incurred by it on behalf of UBL after deducting various expenses and bottling charges out of total sale proceeds or whether it receives reimbursement of various expenses and bottling charges in case sale proceeds were directly received by UBL will give the same revenue result to the assessee. The Ld. A.R. pointed out that the AO has concluded specifically that this practice adopted by the assessee has not resulted in any suppression of revenue as far as accounting of revenue from bottling activity was concerned. 13.2 The Ld. A.R. prayed that the C.O.s of the assesse deserved to be allowed and the appeals of the Department deserveed to be dismissed. 14. We have heard the rival submissions and have also perused the material on record. We have also gone through the paper books filed by the assessee in support of its contentions and have also duly considered the implications of the factual matrix of the appeals as is clear from the records. First of all, we proceed to deal with the assessee’s challenge to the validity of reassessment proceedings as taken in grounds in the C.O.s. 14.1 As assessment year 2013-14 was argued as the lead case by the Ld. A.R., we will take the facts of this assessment year for ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 43 of 61 disposing of the assessee’s Cross Objections in this regard. The basic facts for assessment year 2013-14 are undisputed. The return of income for assessment year 2013-14 was filed on 30.11.2013 and was finalized in terms of the provisions of section 143(3) of the Act, vide order dated 22.10.2014 and the returned income of Rs.30,90,13,100/- was accepted by the Department. It was only on 27.03.2021 that notice under section 148 of the Act was issued by the Department seeking to reopen the assessment by mentioning that there was an escapement of income to the tune of Rs.15,656.37 lakhs in the reasons recorded for reopening. A perusal of the reasons recorded would show that the reasons behind reopening was the audit objection raised by the CAG Audit as well as the judgment of the Hon'ble High Court of Karnataka in case of Principal Commissioner of Income Tax, Bangalore Vs. M/s Chamundi Winery & Distillery (supra). In the show cause notice, it was contended by the Department that the assessee was manufacturing, bottling and selling Beer on its own account under the facade of UBL and in view of the agreement entered into between the assessee and UBL, the assessee was in effect the actual dealer and the effect of the transaction was that the assessee was earning profits on its own account although it was trying to portray the same as diversion of income by overriding title. In the show cause notice, it was the allegation of ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 44 of 61 the Department that the assessee had not disclosed fully and truly all material facts and thus there was omission and failure on the part of the assessee to disclose all material facts necessary for the purpose of assessment. 14.2 However, before we proceed to analyise the validity of reassessment proceedings, it will be worthwhile to understand the factual matrix leading to the issuance of notice under section 148 of the Act. As stated above, the assessment for assessment year 2013-14 was completed on 22.10.2014 by passing order under section 143(3) of the Act, wherein the returned income of the assessee was accepted. Thereafter, it was only on 22.08.2019 that the office of the Indian Audit and Accounts Department addressed a letter to the Ld. Principal Chief Commissioner of Income Tax (PCIT), requiring the AO to take suitable action on the observations made in the Audit Report submitted by the Audit Team. A copy of this letter has been placed at pages 126 to 140 of the paper book submitted by the assessee and it was pointed out in this Report that there were suppression of sales resulting in short computation of income and short charging of tax. The AO, vide letter dated 22.01.2020 responded to the audit objections. The response of the AO is placed at pages 243 to 261 of the paper book filed by the ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 45 of 61 assessee. A perusal of the response of the AO shows that the AO has categorically dealt with the objections and has pointed out that the difference in sales as per 26AS Statement and the sales shown in the profit and loss account has been reconciled and that in view of the facts available in the case records and after getting the required information from the assessee under section 133(6) of the Act, the audit objection was not acceptable. There were as many as 14 objections raised by the CAG Team and in his reply, the AO did not accept any of the objections and in the concluding paragraph of the reply, submitted that the Audit Party had made sweeping and generalized observations which had no bearing on the income of the assessee and that in view of the detailed facts enumerated in the reply, the various audit objections made by the Special Revenue Auditor were not acceptable. Thereafter, the AO submitted another Report dated 20.02.2020 dealing with the audit objections which has been placed at pages 294 to 299 of the paper book submitted by the assessee and in this report also the AO reiterated that the procedure actually adopted by the assessee will not have any adverse effect on the income of the assessee. It was also mentioned by the AO that the procedure/methodology has been followed by the assessee year-after-year and Note to this effect has also been given in the assessee’s audited Balance Sheet and ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 46 of 61 final accounts and that the practice adopted by the assessee had not resulted in any suppression of revenue or income and that the audit objection raised by the audit party was not based on any proper appreciation of facts of the case and thus the audit objections were not acceptable and that they should be dropped. Thereafter, on 17.06.2020, the Office of the Ld. PCIT wrote to the Joint Commissioner of Income Tax, Range 2, Bareilly (JCIT), requiring examination of assessment of the assessee and re- submit the report/proposal after considering the judgment of the Hon'ble Karnataka High Court in the case of M/s Chamundi Winery & Distillery (supra) as well as three other cases. This letter emanating from the Office of the Ld. PCIT, Bareilly is placed at page 312 of the paper book. Thereafter, on 22.06.2020, the AO submitted another Report to the Ld. PCIT, Bareilly, wherein the AO stated that the practice adopted by the assessee had resulted in suppression of turnover or income. This Report of the AO is placed at pages 315 to 322 of the paper book filed by the assessee. Thereafter, on 13.11.2020, the Ld. PCIT through JCIT issued a communication directing the AO to take suitable action in the case of the assessee. 14.3 Thus, the factual matrix as stated above, from the date of receipt of audit objection on 22.08.2019 to the direction being ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 47 of 61 issued by the Ld. PCIT for initiating proceedings under section 147 of the Act, vide communication dated 13.11.2020 would clearly show that on two earlier occasions, the AO had clearly stated in his reports that there was no suppression of sales or income by the assessee and that the accounting procedure being followed by the assessee had not resulted in any loss of revenue. It was only on third occasion when the AO was asked to re- examine the case of the assessee that the AO submitted his third Report that the transactions entered into by the assessee had resulted into suppression of sales and income. Thus, it is very clear that the AO on two earlier occasions had categorically stated that there was no loss to the Revenue, but on being again guided by the Ld. PCIT did a complete volte face and submitted a Report stating that there was suppression of sales and income. A perusal of the records would show that there was no new set of facts which came into possession or knowledge of the AO between the period 20.01.2020 and 22.06.2020, i.e., the dates of the first and third Report respectively, which would prompt the AO to submit before the Ld. PCIT that there was suppression of sales and income. Even the judgment of the Hon'ble Karnataka High Court in the case of M/s Chamundi Winery & Distillery (supra) is of year 2018 and thus, apparently there was no justifiable reason for the AO to reach a conclusion that there has ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 48 of 61 been suppression of sales or income except the continued prompting by the Office of the Ld. PCIT to draft the Report in a particular manner. Thus, we, in no uncertain terms, hold that the final conclusion reached by the AO regarding the assessee having suppressed sales/income, vide Report dated 22.06.2020 was not based on an independent exercise of the mind, but was rather borrowed satisfaction at the behest of the Office of the Ld. PCIT, Bareilly and for this very reason, the re-assessment proceedings initiated cannot be held to be legally sustainable. There are a plethora of judgments on the issue of objective recording of satisfaction in the case of re-assessment proceedings. It is very obvious from the factual matrix leading to the issuance of notice under section 148 of the Act that the assessee had made all necessary disclosures before the AO during the course of initial assessment proceedings and thereafter had also stated very categorically in response to the audit objections that there was no suppression of sales or income and, therefore, without there being any recording of fact, duly evidenced by a document or noting evidencing suppression of material facts, which came later within the possession or knowledge of the AO, would not justify reopening of the assessment. In our considered view, the action of the AO is a change of opinion and that too apparently under the guidance of ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 49 of 61 the Office of the Ld. PCIT, Barielly and, therefore, such reopening cannot be held to be legally valid. 14.4 At this juncture, it will be very relevant to refer to the judgment of the Hon'ble Apex Court in the case of CIT, Delhi vs. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC), wherein the Hon'ble Apex Court was examining the issue as to whether the concept of ‘change of opinion’ stood obliterated w.e.f. 01.04.1989, i.e., after substitution of section 147 of the Act by the Direct Tax Laws (Amendment) Act, 1987. In this regard, the Hon'ble Apex Court categorically held that although post 01.04.1989, the power to reopen was much wider, but even then section 147 does not give extra-ordinary powers to the AO to reopen the assessments on mere change of opinion. The Hon'ble Apex Court went on to hold that the concept of ‘change of opinion’ is to be treated as an inbuilt test to check abuse of power by the AO and, therefore, after 01.04.1989, the AO has power to reopen, provided there is a tangible material to come to the conclusion that there was escapement of income from assessment. In the present case, we are afraid that such tangible material is not present. Although the Department has argued vehemently that the Report of the CAG is tangible material and there are numerous judicial precedents which now also support this view. ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 50 of 61 However, on the facts of the present case, it is seen that the AO had already twice refused to accept the audit objections as being material enough for reopening the case and had stated in no uncertain terms that the observations/objections of the Audit Report were merely sketchy and without any substance. Thereafter, revising the opinion by the AO in his third Report would only tantamount to change of opinion and the audit objections of the CAG would lose the character of tangible material. 14.5 It is also seen that although the AO has, in his third Report, stated that there was failure on the part of the assessee to disclose the material facts necessary for the purpose of assessment, he has not mentioned as to what those material facts were and what new facts had come in his possession/knowledge between the period of the first Report and the third Report. Therefore, in the absence of any specific instance being pointed out about suppression of material facts and their non-disclosure by the assessee, the statement of the AO regarding suppression of material facts is just a bald statement and would not help the case of the Revenue. It is also to be noted that the final accounts of the assessee duly disclosed by way of a Note, the agreement between the assessee and UBL ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 51 of 61 and the revenue which would accrue to the assessee as a result of the said Agreement. As far as the difference in sales figures between Form 26AS and final accounts of the assessee were concerned, the AO has himself in the second Report categorically stated that the accounting treatment and the procedure being followed by the assessee would not result in any loss of revenue. Therefore, we have no hesitation in hold that the reopening of assessment for assessment year 2013-14 was without any basis and was based on mere change of opinion and was evidently at the behest of the superior authorities and thus, such initiation of reassessment proceedings do not have any foot to stand out and are hereby quashed. 14.6 It is seen that the reassessment proceedings for assessment years 2014-15, 2015-16, 2016-17 and 2017-18 were also initiated on identical lines and similar set of audit objections were raised for the above mentioned assessment years and thereafter, reassessment proceedings were also initiated after the AO refused to accept the audit objections on earlier two occasions. The reasons recorded for reopening are also almost identical and the factual matrix is also identical with the AO first refusing to accept the audit objections on two occasions and thereafter in his third report, stating that there has been ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 52 of 61 suppression of sales and income, prompting the Office of the Ld. PCIT to direct the AO to initiate appropriate action (initiate reassessment proceedings). Accordingly, following our reasoning for quashing the re-assessment proceedings for assessment year 2013-14, the re-assessment proceedings for assessment years 2014-15, 2015-16, 2016-17 and 2017-18 are also liable to be quashed. 14.7 At this juncture, it would also be worthwhile to refer to the judgment of the Hon'ble High Court of Gujarat in the case of Adani Exports vs. DCIT reported in [1990] 240 ITR 224 (Guj.), wherein the Hon'ble Gujarat High Court has held that as far as ‘belief’ within the meaning of section 147 of the Act is concerned, the AO has no authority to surrender or abdicate his function to his superiors nor can the superior arrogate to themselves such authority. In this case also, the Audit Report had pointed out defects and had raised audit objections and the Hon'ble Gujarat High Court had held that in every case, it is the AO who must determine for himself as to what was the effect and consequence of the law mentioned in the Audit Report and that whether any consequence of the law, which comes to his notice through the Audit Report, can he reasonably believe that income has escaped assessment. The Hon'ble Gujarat High Court also referred to the ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 53 of 61 Head Note in the judgment rendered by the Hon'ble Apex Court in the case of Indian and Eastern Newspaper Society vs. CIT reported in [1979] 119 ITR 966 (SC) and reiterated that the opinion rendered by the Audit Party in regard to the law cannot, for the purpose of such belief, add to or colour the significance of such law and that true evaluation of the law in its bearing on the assessment must be made directly and solely by the Income Tax Officer. Thus, based on the above judicial precedents also, we are of the considered opinion that the AO did not hold independent belief at any point of time that the income of the assessee had escaped assessment for five years under appeal. 14.8 Thus, to sum up, the issue of validity of reassessment proceedings, section 147 of the Act does not allow reassessment of income on change of opinion. It is worthwhile to point out that reopening was initiated with respect to alleged profit generated on account of sales made on behalf of UBL. Disclosure to this effect had categorically been made by the assessee in its Notes to Accounts attached with the Balance Sheet which were duly before the AO during the course of regular assessment proceedings. Thus, apart from the audit objections and the judgment of the Hon'ble Karnataka High Court in the case of M/s Chamundi Winery & Distillery (supra), the AO had no new ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 54 of 61 tangible material which could justify the reopening. However, as stated by us also in the preceding paragraphs, the AO had specifically refused to accept the audit objections and even the judgment of the Hon'ble Karnataka High Court in the case of M/s Chamundi Winery & Distillery (supra) was accepted by the AO as having a bearing on the sales and income of the assessee only after being pointed out by the Office of the Ld. PCIT, Bareilly, which again would demonstrate that the opinion of the AO was not an independent opinion, but was borrowed and that it was a change of opinion. Therefore, in view of the settled judicial precedents and specially the factual matrix in this case, we have no hesitation in holding that the reopening in all the five years was based on mere change of opinion by the AO and, therefore, such reopening is invalid in the eyes of law and, therefore, we quash the reassessment proceedings in all the five years under appeal. Accordingly, grounds No.1, 2, 3 and 4 of the Cross Objections of the assessee are allowed and grounds No.5, 6, 7, 8 and 9 of the assessee’s Cross Objections become infructuous. 14.9 Thus, in effect, all the Cross Objections filed by the assessee, as captioned above, are partly allowed. 15. Coming to the appeal of the Department, wherein the Department has challenged the deletion of various additions ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 55 of 61 confirmed by the ld. CIT(A), a perusal of the order of the Ld. First Appellate Authority would show that the Ld. First Appellate Authority has examined the Brewery and Distillery Agreement entered into between the assessee and UBL and has specifically pointed out to Clause 2.2 of the Agreement, wherein UBL has given non-exclusive, non-assignable and non-transferable right to the assessee to manufacture UBL products. The Ld. First Appellate Authority has also referred to Clause 2.3 of the Agreement which states that the assessee shall sell, dispose of the UBL products as instructed by UBL. Further, the Ld. First Appellate Authority has also referred to Clause 6.1 of the Agreement, wherein it has been specifically stated that UBL would pay bottling cost to the assessee at the prevailing market rates. It has also been stated by the Ld. First Appellate Authority that during the course of hearing a confirmation certificate from UBL was taken on record which confirmed that all the sale proceeds were deposited in the bank account of UBL and that UBL would be providing to the assessee necessary funds for meeting all the direct expenses to be incurred on behalf of UBL. After analyzing these Clauses, the Ld. First Appellate Authority has reached the conclusion that the nature of Agreement was empirical to that of a job work and that the right, title and interest over receipts/expenses attributable to such Agreement/ ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 56 of 61 arrangement was exclusively belonging to UBL. The Ld. First Appellate Authority had also required the assessee to clarify with supporting evidence its contention that the sale proceeds were received directly by UBL and in this regard also the assessee had furnished confirmation of the same, which has also be duly reproduced in the impugned order. Thereafter, the Ld. First Appellate Authority went on to examine the nature of License Fee and the assessee duly demonstrated that UBL was having License for contract manufacture of its brand of Beer issued by the U.P. State Excise Department and placed on record the License in Form FL-3A issued by the State Excise Department. Copy of this License has also produced before us and a perusal of this License shows that UBL can get its brand of Beer manufactured on contract basis from the assessee’s facility. Clause 5 of this Certificate also mentions that in order for UBL to sell their products in the State of U.P., it is required to obtain License under Excise Laws and the assessee has furnished copy of Excise License FL-1A as well, which has been taken on record and which specifically mentions the name of M/s United Breweries Ltd. (UBL) as the License holder. This FL-1A License grants License to UBL to vend foreign liquor other than denatured spirit to Wave Distilleries and Breweries Limited. Thus, effectively both the Excise Licenses, i.e., FL-1A and FL-13 ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 57 of 61 are in the name of UBL and this fact has been duly noted by the Ld. First Appellate Authority also while allowing relief to the assessee. Similarly, the assessee has also furnished sample invoices – both before us as well as before the Ld. First Appellate Authority and which have been taken on record, which demonstrate that these invoices are also issued in the name of UBL and not in the name of the assessee. Even the Excise Gate Passes in relation to UBL products manufactured by the assessee have been issued in the name of UBL and not in the assessee’s own name. Thus, it is evident that for all practical purposes, it was UBL who was entering into various transactions and the assessee was only acting as its agent. The assessee has also demonstrated with evidence that the sale proceeds were also being directly deposited in the bank accounts of UBL and that UBL would only be reimbursing the assessee towards expenses incurred by the assessee on behalf of UBL and the agreed bottling charges in terms of Brewery and Distillery Agreement. 15.1 Thus, having regard to various terms of the Agreement, Excise Licenses, Sales Invoices, Gate Passes, Bank accounts as well as conduct of both the parties, it becomes very clear that the assessee is only a contract manufacturer for UBL and in effect the sales alleged to have been effected by the assessee were in ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 58 of 61 fact sales of UBL and would, thus, constitute the income by overriding title, as far as the case of the assessee is concerned. Although the concept of diversion of income by overriding title is not explicitly defined in the Act, however, it is more or less well established through various judicial decisions. The core principle on diversion of income is the presence of overriding title that causes income to be re-directed before it reaches the hands of the assessee. The Hon'ble Apex Court had an occasion to elaborate on the concept of diversion of income in the case of CIT vs. Bijli Cotton Mills (P) Ltd. [1979] 116 ITR 60 (SC) and the Hon'ble Apex Court held that for an income to be considered diverted at source, there must be an overriding title that diverts the income before it reaches the assessee and that if such title exists, the income never becomes the property of the assessee and, therefore, does not become taxable in their hands. Similarly, in the case of CIT vs. Imperial Chemical Industries India Pvt. Ltd. Reported in [1969] 74 ITR 17 (SC), the Hon'ble Apex Court differentiated between diversion of income by overriding title and application of income and ruled that where the income is diverted before it is earned due to overriding obligation, it does not form part of assessee’s total income. Thus, the primary difference would lie the timing and nature of income allocation. In the present case, undisputedly, the assessee has only acted as a ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 59 of 61 manufacturing agent for other party, i.e., UBL and as per terms of the Agreement and various documents, which are on record, nothing more than being a contract manufacturer can be attributed to the assessee. Here, in the present case, the assessee has been obligated by virtue of Agreement to divert the income/revenue at source and is entitled only towards reimbursement of expenses and bottling charges and nothing less nothing more. Therefore, on the facts of the case and the documents produced before us, we have no hesitation in concurring with the order of the ld. CIT(A) insofar as holding of assessee as a contract manufacturer is concerned. The Ld. First Appellate Authority has rightly deleted the impugned additions on merits by holding that UBL was the de facto earner of income arising from manufacture and sale of its brands of liquor manufactured and bottled at the facility of the assessee. 15.2 The assessee has also sought to distinguish the facts of its case and the facts in the case of Chamundi Winery & Distillery (supra), on which Department has placed reliance. In this regard, it is seen that in the case of Chamundi Winery & Distillery (supra), the Excise License was held in the name of Chamundi Winery & Distillery and not in the name of other party, i.e. Diago India, whereas in the present case, it is UBL ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 60 of 61 which holds the License for contract manufacturing as is evident from Licenses FL-1A and FL-3A. Similarly, in the case of Chamundi Winery & Distillery (supra), the sale proceeds were deposited in the accounts of Chamundi Winery & Distillery only, whereas in the assessee’s case, it has been demonstrated and established that the sale proceeds were directly being deposited into the Bank accounts of UBL. Further, in the present case, the assessee has also demonstrated through Gate Passes that these Gate Passes are issued in the name of UBL and not in the name of the assessee. Therefore, we agree with the contentions of the Ld. A.R. that the facts of the case in the case of Chamundi Winery & Distillery (supra) are diametrically opposite to the facts of the present case and, therefore, the ratio of the judgment as laid down by the Hon'ble Karnataka High Court in the case of Chamundi Winery & Distillery (supra) would not apply in the present group of appeals. 15.3 Therefore, on an overall view of the matter and duly considering the documents produced before us as well as the detailed and categorical findings recorded by the Ld. First Appellate Authority, which the Department could not negate before us, we give our concurrence to the findings recorded by the Ld. First Appellate Authority while deleting the impugned ITA Nos.153 to 157/LKW/2023 C.O. Nos.23, 24, 21,22 and 25/LKW/2023 Page 61 of 61 additions in assessment year 2013-14 as well as in assessment years 2014-15, 2015-16, 2016-17 and 2017-18 on identical set of facts. Accordingly, all the five appeals of the Department stand dismissed. 16. In the final result, all the five appeals of the Department stand dismissed whereas all the five Cross Objections of the assessee stand partly allowed. Order pronounced on 28.02.2025 under Rule 34(4) of the ITAT Rules, 1963. Sd/- Sd/- [NIKHIL CHOUDHARY] [SUDHANSHU SRIVASTAVA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:28/02/2025 JJ: Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. DR By order Assistant Registrar "