Assistant Commissioner of Income Tax, Central Circle -1, Vapi V. M/s. Krimpi Distillery, Nani Daman

ITSSA 1/SRT/2017

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 2437 (ITAT-SURAT)
• Duration Of Justice: 4 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 06-03-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 03-03-2022
• Assessment Year: 2008-2009
• Appeal Filed On: 16-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Sale consideration of property below Jantri Value; Search and seizure; Fair market value; Valuation report; Competent authority; Reason to believe; Capital Gains
• Section: 132; 143(3); 153A; 143(1); 143(2); 43; 72; 13; 153; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM &DR. A.L.SAINI, AM करअपीलसं./IT(SS)A Nos.01to 06/SRT/2017& आयकरअपीलसं./ITA No.47/SRT/2017 ᮧतयाᭃेयसं./Cross Objection Nos.02to 08/SRT/2017 [a/o in IT(SS)A Nos.01 to 06/SRT/2017 & ITA No.47/SRT/2017] (िनधाᭅरणवषᭅ / Assessment Years: (2008-09 to 2013-14& 2014-15) (Virtual Court Hearing) The ACIT, Central Circle-1, Vapi. Vs. Krimpi Distillery, Plot No.34-37, Supreme Ind. Estate, Bhimpore, Nani Daman- 396210. ᭭थायीलेखासं./जीआइआरसं./PAN/GIR No.: AAOFM6580H अपीलाथᱮ /Applicant ᮧ᭜यथᱮ/Respondent/ᮧतयाᭃेपक/Co- objector Assessee by Shri K. Gopal, Advocate Respondent by Shri H. P. Meena, CIT(DR) Date of Hearing 04/03/2022 Date of Pronouncement 07/ 03/2022 आदेश / O R D E R PER BENCH: Captioned seven appeals filed by Revenue and seven Cross Objections filed by Assessee, pertaining to Assessment Years (AYs) 2008-09 to 2014-15 are directed against the common order passed by the Commissioner of Income Tax (Appeals)-4, Surat [in short “the ld. CIT(A)”] dated 22.05.2017 which in turn arise out of separate assessment orders passed by the Assessing Officer under section 143(3) r.w.s 153A of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) all dated 29.02.2016. 2. Since, the issues involved in all the appeals and cross objections are common and identical; therefore, these appeals and cross objections have been heard together and are being disposed of by this consolidated order. First we shall take IT(SS)A Nos.01,02, 04,05 and 06 pertaining to assessment years 2008-09, 2009-10, 2011-12, 2012-13, 2013-14 and 2014-15. For the sake of convenience, the grounds as well as the facts narrated in IT(SS)A No.01/SRT/2017, and Page | 2 IT(SS)A.01-06& ITA No.47/SRT/17 CO.02-08/SRT/2017 AYs.2008-09 to 2014-15 Krimpi Distillery CO.No.02/SRT/2017, for assessment Year 2008-09, have been taken into consideration for deciding the above appeals en masse. Note: IT(SS)ANo.03/SRT/2017 and CO.No.04/SRT/2017 for A.Y. 2010-11, contain different issue, therefore, these are being adjudicated separately in this order. 3. First, we shall take Revenue’s appeals and assessee’s Cross Objections for Assessment Years 2008-09, 2009-10, 2011-12, 2012-13, 2013-14 and 2014-15. To adjudicate the Revenue’s appeals and assessee’s Cross Objections, we have taken the “lead” case in Revenue’s appeal in IT(SS)A No. 01/SRT/2017 and CO.No.02/SRT/2017, for AY.2008-09. The grounds of appeal raised by the Revenue in IT(SS)A No.01/SRT/2017 for AY2008-09 are as follows: 1) On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition made by the Assessing Officer on account of suppressed production / sales of IMFL and CL for the AYs 2008-09 to 2009-10 and from AY 2011-12 to 2014-15 as under:- A.Y Additions amount 2008-09 Rs.5,95,15,411/- 2009-10 Rs.3,97,24,836/- 2011-12 Rs.5,60,24,283/- 2012-13 Rs.4,46,96,976/- 2013-14 Rs.4,12,25,426/- 2014-15 Rs.8,97,56,470/- 2) On the facts and circumstances of the case, the Ld. CIT(A) has failed to appreciate the incriminating material found and seized during the course of search. 3) On the facts and circumstances of the case, the Ld. CIT(A) has failed to appreciate that the assessee-company has gained huge profit from suppressed sales. 4) On the facts and circumstances of the case, the Ld. CIT(A) has failed to appreciate that the determination of undisclosed income on account of unaccounted production / sales by the assessee company and the assessee has sworn on statement at the time of search u/s 132(4) of the IT Act. 5) On the facts and circumstances of the case, the Ld. CIT(A) has failed to appreciate that the determination of undisclosed income on account of unaccounted production is based on the co-relation of seized materials with the sales figures shown in the books of accounts of assessee found / seized during the course of search action u/s 132 of the IT Act. Page | 3 IT(SS)A.01-06& ITA No.47/SRT/17 CO.02-08/SRT/2017 AYs.2008-09 to 2014-15 Krimpi Distillery 6) On the facts and circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer.” 4. Cross Objections raised by the assessee in CO.No.02/SRT/2017, for AY.2008-09, are as follows: “1. The learned commissioner of Income Tax (Appeals)-4, Surat erred in upholding the validity of the assessment order dated 29.02.2016 passed u/s 153A r.w.s 143(3) of the Act without appreciating the fact that no valid action u/s 132(1) of the Act was initiated against the Respondent Assessee. The condition precedent to initiate action u/s 132(1) of the Act is not satisfied in the present case. The Competent authority did not have any information in his possession to have a reason to believe that the Assessee has the undisclosed income or property. Thus, the proceedings, initiated u/s 153A and the Assessment order passed pursuant to the same are void ab initio and the same may be quashed as bad in law. 2. The learned commissioner of Income Tax (Appeals)-4, Surat erred in upholding the validity of the assessment order dated 29.02.2016 passed u/s 153A r.w.s 143(3) of the Act without appreciating the fact that on the date of action u/s 132(1) dated 18.06.2013 no proceedings were pending. Thus, no abatement of the proceedings had taken place. In absence of any incriminating material re-determination of income u/s 153A is bad in law and the same may be quashed. 3. Your Respondent craves leave, to add to, amend, modify or alter, the aforesaid grounds and /or adduce further evidence, before or at the time of hearing.” 5. Brief facts as discernable from the orders of lower authorities are that assessee firm has filed its return of income on 10.10.2008 declaring total income of Rs.1,76,57,136/-. The case was selected for scrutiny under CASS and accordingly, assessment order u/s143(3) was passed on 25.03.2010 with assessed income of Rs.1,76,57,136/-. Further, a search action u/s 132 of the Income-tax Act, 1961 was carried out on the business and residential premises of the Tandel Group of Daman on 18.06.2013 and the premises of the said assessee was also covered in the aforestated search. Subsequently, a questionnaire and notice u/s142(l) was issued to the assessee on 09.04.2015 by DCIT Central Circle-1, Surat. In response to the said notices, Shri Anoop Pandya, C.A. and an authorized representative of the assessee alongwith Shri Kanjibhai B. Tandel, Partner of the firm and Harshad G. Patel, Accountant attended from time to time and filed written submissions before Assessing Officer. 6. M/s Krimpi Distillery (assessee) is involved in the manufacturing of India made foreign liquor (in brief ‘IMFL’) and Country Liquor (in brief ‘CL’). In this Page | 4 IT(SS)A.01-06& ITA No.47/SRT/17 CO.02-08/SRT/2017 AYs.2008-09 to 2014-15 Krimpi Distillery case a search action u/s.132 of the I.T. Act has been conducted on the assessee on 18.06.2016. During the course of search several documents and computer back up has been taken and seized. Based on the documents impounded/seized, the assessing officer observed thatassessee viz: M/s Krimpi Distillery purchases denatured alcohol (i.e. Rectified Spirit) from the various states and then reduces the strength of such alcohol with demineralized water to drinkable level. Thereafter requisite flavor is added to the reduced alcohol strength to create the IMFL beverage. The said IMFL beverage is kept for maturation (Marrying period) for 2- 20 days depending upon the type of brand. Then it is released for bottling and after bottling it goes to the bonded ware house where it is stored. There are five basic ingredients used in manufacture of alcoholic beverage viz: IMFL: (1) Rectified Spirit, (2) Extraneutral alcohol, (3) Malt Spirit, (4) Scotch Concentrate, (5) Demineralized Water. The assessing officer noted that demineralized water forms an important and the most basic part of alcoholic beverage viz: IMFL and is therefore an integral part of the entire manufacturing process.Based on the production and various documents and facts gathered during the search and post search proceedings the assessing officer observed the Mismatch in the DM Water consumption found and resultant production reported. 7. During the search proceeding, it was observed by search team that there was substantial mismatch in usages of DM (demineralized) water vis-a-vis the production reported therefrom. To verify the stated mismatch of DM Water consumption and to quantify the suppressed production therefrom, the Statement of the production manager in charge of DM Water, Shri Kamlesh Lad was recorded under oath u/s 132(4) at the premises of M/s Krimpi Distillery on 19.06.2013. Shri Kamlesh Lad has,(as part of his statement) provided detailed year-wise and month wise data on the production and consumption of DM Water for several Months. The statement of Shri Kamlesh Lad along with said year and month wise summary is reproduced by the assessing officer in his assessment order, vide page no.5 to 7 of the assessment order. Page | 5 IT(SS)A.01-06& ITA No.47/SRT/17 CO.02-08/SRT/2017 AYs.2008-09 to 2014-15 Krimpi Distillery 8. In response to question number no. 1 of statement u/s 132(4) dated 19.06.2013, Shri Kamlesh Lad has stated that there are two tanks of demineralized water of 5000 ltrs each, two RO Water tanks of 5000 ltrs each and a raw water tank of 10,000 Ltrs capacity. The DM water is stored in tanks and then it sent to the blending tank through fixed pipes. Whatever amount of D M water is needed for production is appropriated by the Production Department in the said manner. Further, in response to question no. 2 of the said statement, Shri Kamlesh Lad stated that apart from production around 1000 liters of DM water is also used for washing of DM water tank. Shri Kamlesh Lad also submitted DM plant summary of several years which are re-produced by Assessing Officer in his assessment order, vide page no.9 and 10 of assessment order. 9. Statement of Shri Kanjibhai B. Tandel recorded u/s 132(4) of the I.T. Act dated 18.06.2013 wherein in response to question no. 6, he stated that the rectified spirit is used as base material in all products manufactured by us. Roughly for manufacturing 9000 litres of finished product 4000 litres of rectified spirit and 5000 litres of Demineralized water and other flavours are used. DM water is normally used to reduce the strength of the alcohol. Then after, assessing officer calculated the ratio of actual production based on consumption of DM water, which is reproduced on page no.11 of the assessment order. The assessing officer was of the view that if more DM Water is used, in production it will directly increase production and would amount to unaccounted production and consequent unaccounted sales. The assessing officer also examined the variance in debtor balances as per the seized document and balances as shown in books of accounts and noted that it leads further credence to the findings of the assessment proceeding and further proves the incidence of unaccounted production. In view of the above facts, an addition of Rs.5,95,15,411/-was made by assessing officer on account of unaccounted production and added back to the total income of the assessee. 10. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has deleted the addition made by the Page | 6 IT(SS)A.01-06& ITA No.47/SRT/17 CO.02-08/SRT/2017 AYs.2008-09 to 2014-15 Krimpi Distillery assessing officer. Aggrieved by the order of ld CIT(A), the Revenue is in appeal before us and assessee is in cross objection before us. 11. Shri H. P. Meena, Departmental Representative (CIT-DR) for the Revenue pleads that during the course of search, the statement of the Production Manager, Shri Kamlesh Lad, was recorded on oath under section132of the Act at the premises of M/s Krimpi Distillery on 19.06.2013. Based on the documents impounded/seized it is observed that assessee purchased denatured alcohol (i.e. Rectified Spirit) from various states and then reduces the strength of such alcohol with demineralized water(DM) to drinkable level. Thereafter requisite flavour is added to the reduced alcohol strength to create the IMFL beverage. Thus, DM water formed an important and the most basic part of alcoholic beverage viz. IMFL and is therefore an integral part of the entire manufacturing process. It was observed by assessing officer that there was substantial mismatch in usages of DM (demineralized) water vis-a-vis the production reported therefrom. Shri Kamlesh Lad, as part of his statement, had provided detailed year-wise and month wise data of the production and consumption of DM Water for several Months. In response to question number no. 1 of statement, Shri Kamlesh Lad stated that DM water is stored in tanks and it is sent to the blending tank through fixed pipes. There is no leakage or exit point between the DM water tank and Blending Tank. Whatever amount of DM water is needed for production is appropriated by the Production Department in the said manner. Further, ld DR argues that in response to question no. 2 of the said statement, Shri Kamlesh Lad stated that apart from production (usage) around 1000 liters of DM water is also used for washing of DM water tank. In response to question no. 3, he has also stated that the apart from washing of DM water tank, there is no other wastage that he is aware of. Therefore, ld DR contends that the difference in the consumption of DM Water is a direct indicator of suppressed production. Hence, addition made by the assessing officer based on DM water consumption should be upheld. Page | 7 IT(SS)A.01-06& ITA No.47/SRT/17 CO.02-08/SRT/2017 AYs.2008-09 to 2014-15 Krimpi Distillery 12. Regarding cross objection raised by the assessee, ld DR argues that Tribunal does not have power to examine the validity of search action therefore ground raised by the assessee may be dismissed. 13. Shri K. Gopal, Learned Counsel for the assessee begins by pointing out that Assessee is engaged in the business of manufacturing Indian-made Foreign Liquor (IMFL) and Country Liquor (CL). The Assessee being manufacturer of alcoholic beverages needs to maintain the stock register, recording all the details of the material substantially used in the process of manufacturing. The DM water is one of the ingredients to be used in the manufacturing of alcoholic beverages i.e. IMFL and CL. The Learned Counsel pleads that there are various usages of DM water which are explained by the Assessee in the submission enclosed in the paper book at pages 439-494 of the paper book. The relevant extract is at pages 441 and 442. The assessing officer is not justified in assuming that the DM water is utilized only for the manufacturing of alcoholic beverages. The assessing officer did not appreciate the other usages of the DM water. The assessing officer has concluded that more use of DM water in the process of production will directly increase production of IMFL and CL and would amount to unaccounted production and consequent unaccounted sales. The said conclusion made by the assessing officer is without any basis and application of mind. The table showing year wise addition made by the Ld. A.O. is at page 11 para 5.5 in the assessment order. The ld Counsel strongly objected to the addition made by the assessing officer for all the year under consideration. The Ld Counsel pointed out that cost of DM water is very low in comparison to the total cost of production of liquor and the same can be substantiated from the Profit and Loss Accounts of the relevant assessment years. The Ld Counsel also stated that Revenue, neither in the process of search action, nor in the assessment proceedings, has pointed out any fault in the books of accounts maintained by the Assessee as well as stock register provided before the assessing officer. The ld Counsel further pleads that Assessee being manufacturer of alcoholic beverages needs to maintain the record of rectified spirit and finished goods of IMFL and CL under the strict supervision of the State Excise Department. The movement of rectified spirit and finished products are made under the Page | 8 IT(SS)A.01-06& ITA No.47/SRT/17 CO.02-08/SRT/2017 AYs.2008-09 to 2014-15 Krimpi Distillery signature of authorised person in the State Excise Department. The ld Counsel submitted before the Bench the copy of State Excise Audit Report, which is enclosed at pages 423-425 in the assessee`s paper book. Therefore, ld Counsel submits that addition was made by assessing officer without application of mind and without considering the documentary evidences and the submissions filed by the Assessee and that is way the ld CIT(A) has deleted the addition. Hence, ld Counsel defended the order passed by ld CIT(A) and argued that order passed by ld CIT(A) is a reasoned and speaking order and therefore the same may be upheld. 14. Learned Counsel further pleads that search action taken by the Department against the assessee is not valid and therefore assessee is in cross objections before this Tribunal. The Ld Counsel contended that no valid action u/s 132(1) of the Act was initiated against the Assessee. The condition precedent to initiate action u/s 132(1) of the Act is not satisfied in the assessee`s case. The Competent authority did not have any information in his possession to have a reason to believe that Assesseehas undisclosed income or property. Thus, the proceedings, initiated u/s 153A and the Assessment order passed pursuant to the same are void ab initio and therefore the same may be quashed. 15. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that assessing officer made the additions for the Assessment Years 2008-09, 2009-10 and 2011-12 to 2014-15, based of the consumption/use of demineralized water ( in brief, ‘DM-water’). On appeal, ld CIT(A) deleted the addition, holding that DM water has been used by the assessee for washing of tanks, besides, ld CIT(A) also observed that assessing officer has not considered opening stock of DM water, closing stock of DM water, DM water in process in pipes and DM water in blending tanks and other many uses of DM water for different other purposes. 16.Now the Revenue is in appeal before us. Though facts have been discussed in detail in the foregoing paragraphs, however in the succinct manner, the relevant Page | 9 IT(SS)A.01-06& ITA No.47/SRT/17 CO.02-08/SRT/2017 AYs.2008-09 to 2014-15 Krimpi Distillery facts and background are reiterated, in order to appreciate the controversy and the issue for adjudication. The Assessee is a partnership firm. Since 1996, it is engaged in the business of Bottling of Country Liquor (CL) (Loose as well as in cases) and Indian Made Foreign liquor (IMFL) (Whisky, Brandy, Rum, Gin etc. in cases only), Malt Whisky, Scotch Concentrate Whisky (in cases only). The Assessee bottles the above items in different brand names. The Assessee does not have any full-fledged manufacturing Plant to produce rectified sprit which is used as raw material in producing the above products. The Assessee is regularly filed its return of income. The Assessee's business premises and the Assessee's Partner's residences were subjected to a search and seizure action u/s 132(1) of the Income Tax Act, 1961.During the course of search, statement of one Mr. Kanjibhai B. Tandel, partner of the assessee was recorded u/s 132(4) which is compiled at page 35 to 46 of the paper book. The statement is recorded in Hindi and English translation of the same is at pages 51 to 72 of the Paper Book. Statement of Mr. Kamlesh Lad, who is in charge of the Water Plant operated within the premises of the assessee to generate de-mineralized water (D M Water), is at pages 47 to 50, which, is again in Hindi. The English translation of the same is at pages 72 to 78 of the Paper Book. These statements and the water reports prepared from the register were submitted by the assessee before the Bench. Mr. Ramesh Ramu Halpati's statement was recorded during the post search investigations at the Assessee's premises on 17/08/2013. He is one of the employees of the Assessee looking after the blending work carried out at the Assessee's plant. The statement recorded in Gujarati is at pages 131 to 136 and English translation of the same is at pages 121 to 130 of the Paper Book.During the course of the search, the register of Rectified sprit was verified by the departmental officers, who were part of the search team, and have placed their mark on the same. Sample copies of the same are compiled at pages 137 to 142 of the assessee`s paper book. Similarly, the Bottling Register, maintained by the Assessee, was also verified. The sample copies are compiled at pages 143 to 190 of the paper book. It is important to note that no discrepancy was found in the same. The Inspection Report by the Audit Officer of the Excise department is at pages 423 of the Paper Book. This report covers the period 01/04/2010 to 30/09/2011.Excise Returns are at page 425 of the paper book. Page | 10 IT(SS)A.01-06& ITA No.47/SRT/17 CO.02-08/SRT/2017 AYs.2008-09 to 2014-15 Krimpi Distillery 17. We note that in first ground of appeal, the Revenue has alleged that Assessee has suppressed the production/sales of Indian-made Foreign Liquor (IMFL) and Country Liquor (CL) for the assessment years 2008-09, 2009-10, 2011-12, 2012-13 and 2014-15. As we have noted above that Assessee is engaged in the business of manufacturing Indian-made Foreign Liquor (IMFL) and Country Liquor (CL). The Assessee being manufacturer of alcoholic beverages needs to maintain the stock register, recording all the details of the material substantially used in the process of manufacturing. The DM water is one of the ingredients to be used in the manufacturing of alcoholic beverages i.e. IMFL and CL. Learned Counsel submits before us that there are various usages of DM water which are explained by the Assessee in the submission enclosed in the paper book at pages 439-494 of the paper book. The relevant extract is at pages 441 and 442 of the paper book. The Learned Counsel submits that assessing officer was not justified in assuming that DM water is utilized only for the manufacturing of alcoholic beverages. The assessing officer did not appreciate the other usages of the DM water and alleged that the DM water produced during the years under consideration was utilized solely for the manufacturing of alcoholic beverages. Further, the Ld. A.O. referring to the answer of question no.6 of the statement of Shri Kanjibhai B. Tandel recorded under section 132(4) of the Act; dated 18.06.2013 applied the ratio 44.44:55.45 arbitrary basis for the production use of rectified spirit for blending with reference to DM water used. The ld Counsel draws our attention to the show causenotice issued by the Ld. A. O. dated 05/02/2016 compiled at pages 88 and 89 of paper book. The chart prepared on page 88 of paper book, relying on the register maintained by Mr. Kamlesh Lad will show that Ld. A. O. has made erroneous assumptions. In this show cause notice no addition has been proposed on account of alleged suppressed sales for the Financial Year 2009-10 i.e. Assessment Year 2010-11. The assumptions made by the Ld. A. O. leads to absurd results as explained in the detailed submissions filed in response to the above mentioned show cause notice vide letter compiled at pages 92 to 108 of paper book. 18.We note that entire production of DM water cannot be used for the purpose of manufacturing of IMFL and CL since the same has also been utilized for many Page | 11 IT(SS)A.01-06& ITA No.47/SRT/17 CO.02-08/SRT/2017 AYs.2008-09 to 2014-15 Krimpi Distillery other purposes. For manufacturing the alcoholic beverages, the substantial ingredient used is the rectified spirit and to make this alcoholic beverage to drinkable level, the Assessee uses DM water. The cost of DM water is very low in comparison to the total cost of production of liquor and the same can be substantiated from the Profit and Loss Accounts of the relevant years. The Assessee being manufacturer of alcoholic beverages needs to maintain the record of rectified spirit and finished goods of IMFL and CL under the strict supervision of the State Excise Department. The movement of rectified spirit and finished products are made under the signature of authorized person in the State Excise Department. The State Excise Audit Report is enclosed at pages 423-425 in the paper book. The Assessee maintains the register showing the details of opening balance, consumption and finished product and the same is enclosed at pages 137 -190 of the paper book. We note that the department (Revenue), neither in the process of search action, nor in the assessment proceedings, could point out any fault in the books of accounts maintained by the Assessee as well as stock register provided before the assessing officer. The Ld. CIT (A),in Appellate Order, has categorically observed that the department has failed to show any purchases of any main ingredient or unrecorded sale of liquor made out of books of accounts in spite of the thorough search action. Further, the Ld. CIT (A) at page 14 in para (i) of the Appellate Order has observed that in spite of search action, not a single instance of sale outside books, purchase of basic raw material or even packing material, or any instance of discrepancy in the stock of finished goods, spirit, bottles or even labels etc., was detected. 19. We note that in the second ground of appeal, and in fifth ground of appeal, the Department has alleged that during the course of the search, certain incriminating material was seized on the basis of which the addition was made. We note that assessee is regularly assessed to tax and has been subjected to the audit by State Excise Authorities. The search action was initiated on 18 th June,2013 at the business premises of the assessee and the residential premises of the partners. During the course of the search i.e. on 18 th June, 2013, Kanjibhai's statement was recorded which is compiled at pages 35 to 39 of the paper book. Recording of the Page | 12 IT(SS)A.01-06& ITA No.47/SRT/17 CO.02-08/SRT/2017 AYs.2008-09 to 2014-15 Krimpi Distillery statement was temporarily stopped and the same was resumed on 19 th June, 2013. The recording of statement was again temporarily suspended for a while and resumed on 20 th June, 2013. Finally, the recording of the statement was concluded on 21 st June, 2013.In the statement recorded on 19 th June, 2013, the assessee's partner Mr. Kanjibhai was confronted with various documents found seized during the course of the search action. The relevant part of the statement is at pages 40 to 42 of the paper book. The Assessee's partner was, for the first time, asked a question with respect to the demineralized water and its production during the course of the statement recording which took place on 20 th June, 2013. The relevant questions and answers are at page 43 to 45 of the paper book. We note that register found during the course of the search in which details of demineralized water produced are mentioned, is not an incriminating document. The said register was maintained merely for having a supervisory/administrative control over the demineralized water produced and used for several operations of the Assessee. The Assessee, right from the beginning has contended that the register which is maintained to have control over the demineralized water is not an incriminating document. The various documents found and seized during the course of the search, the register maintained to have control on demineralized water and the statements recorded during the course of the search do not point out any material evidence which shows that the manufacturing or sale of IMFL and CL was suppressed.The ld Counsel also submits that the register maintained for the production of demineralized water was not subjected to any audit or verification. Thus, relying on the same, the allegation of suppression of sales is totally unjustified. Thus it is abundantly clear that there was no incriminating material found by the department in the process of search action. The ld CIT(A) also observed that there is no incriminating material unearthed during the search. The Ld. CIT(A) has categorically observed that there is no substance in the allegations of the Ld. A.O. Even after a thorough search action under section 132, not a single instance of sale outside books, purchase of basic raw material or even packing material or any instance of discrepancy in the stock of finished goods, spirit, bottles Page | 13 IT(SS)A.01-06& ITA No.47/SRT/17 CO.02-08/SRT/2017 AYs.2008-09 to 2014-15 Krimpi Distillery or even bottles etc was detected. The relevant observations are at pages 29 and 30 in the appellate order. The Ld. A.O. had drawn an adverse inference merely relying on the register maintained by the Assessee to have control on demineralized water and the statements recorded during the course of search without pointing how the said material shows any suppressed production and sales on the part of the Assessee. The Ld. A.O. failed to demonstrate the nexus between the seized material and the addition made during the relevant years. Thus, the allegation of the Ld. A.O. that there was a suppressed production or sale was without any basis and merely on the basis of conjecture and surmises. 20. We note that in grounds of appeal No.3, the Department has alleged that assessee company has gained huge profit from suppressed sales. The ld Counsel, submits that Department has not been able to point out the evidence which they have come across during the course of the search action against the assessee or any evidence which shows that there is any suppression of sales. The allegation made by the Department is without any basis. We note that in grounds of appeal No. 4, the Department has alleged that the learned CIT (A) has failed to appreciate that the determination of undisclosed income on account of unaccounted production and the book sales by the assessee company and the assessee has sworn on the statement at the time of search u/s 132(4) of the Income Tax Act, 1961. In this regard ld Counsel submits that in none of the statements recorded during the course of the search the partner of the assessee and the employee of the assessee indicate any suppression of production or sales of IMFL and CL. The entire allegation is made on conjecture and surmises. 21. We note that issue for assessment years 2008-09, 2009-10, 2011-12 to 2013-14 and for assessment year 2014-15 are against the addition made for alleged suppression of production of liquor worked out on the basis of production of DM water. The arguments and the contentions of the ld Counsel in all the years are Page | 14 IT(SS)A.01-06& ITA No.47/SRT/17 CO.02-08/SRT/2017 AYs.2008-09 to 2014-15 Krimpi Distillery basically the same, except that in A.Y. 2014-15 the addition is being challenged against extrapolation too. The Assessing Officer has made the additions for alleged suppression of production of liquor work out on the basis of production of DM water, assuming that the entire production is used for blending with spirit, without any wastage, other usages claimed by the assessee. We note that in spite of thorough search action u/s 132 of the Act, not a single instance of sale outside books, purchase of basic raw material or even packing material, or any instance of discrepancy in the stock of finished goods, spirit, bottles or even labels etc. was detected. The ld CIT(A) observed that major and costly ingredients of production of IMFL and CL are Rectified sprit, malt spirit, scotch concentrate, colour and Essences. Obviously because of that the record of the Rectified Spirit, issue of spirit or malt or scotch concentrate for blending and the finished goods of IMFL and CL is required to be mandatorily maintained and under the strict supervision of the State Excise Department. Besides, there are significant items like bottles, boxes, caps, labels and gum tapes etc. which are essential for the manufacturing. Not a single evidence of any purchase or stock outside books of account of any of these has been detected even after a thorough search u/s 132 of the Act. No sale or movement out of books of IMFL or CL have been proved. The DM water is indeed a very minor ingredient in the production of the IMFL and CL cost wise. Thus, the record of production of DM Water is only an estimate and no record of actual consumption is there in the hands of the assessee. Thus, without even taking into account the other usages of DM water; it is totally wrong to take production of DM water as if it is consumption during the year. There is bound to be closing stock of DM water as on 31 st March in different forms, which is not adjusted/accounted for while assuming it as consumption of DM water. We note that closing stock of DM water, such as closing stock in DM water tanks and closing stock of DM water in pipes, have not been considered by the assessing officer, at all. The assessing officer has also not considered DM water in work in progress i.e. in the blending tanks where blended liquor is being used. Therefore, we are of the view that additions made by the assessing officer in different assessment years, are based on conjecture and surmises. Page | 15 IT(SS)A.01-06& ITA No.47/SRT/17 CO.02-08/SRT/2017 AYs.2008-09 to 2014-15 Krimpi Distillery 22. We note that in cross objection no.2, the assessee has raised the ground that in case of unabated assessment proceedings, the assessing officer can not make the addition without incriminating material. Learned Counsel argues that on the date of search action under section 132(1) dated 18.06.2013, no proceedings were pending, therefore in absence of any incriminating material, the assessing officer cannot make addition. In assessee`s case under consideration, no incriminating material was found, hence no addition should be made under section 153A r.w.s. 143(3) of the Act. We note that although section 153A of the Act does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the assessing officer which can be related to the evidence found, it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material. Obviously, an assessment has to be made under this section only on the basis of seized material. Assessments and reassessments pending on the date of the search shall abate. The total income for such assessment years will have to be computed by the assessing officer as a fresh exercise. In, absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. Completed assessments can be interfered with by the assessing officer while making the assessment under section 153A only on the basis of some incriminating material unearthed during the course of search. The completed assessments would mean those assessments which were not pending and have not abated due to the search. The completed assessments would include 143(1) orders, where time to issue notice u/s 143(2) has elapsed. In case of abated assessments and where the assessment has not become final due to time remaining for issue of notice u/s 143(2) under the Act; the entire income including that not unearthed as a result of search, can be and has to be assessed. We note that despite of thorough search action under section 132 of the Act, not a single instance of sale outside books, purchase of basic raw material or even packing material, or any instance of discrepancy in the stock of finished goods, spirit, bottles or even labels etc. was detected. The assessing officer made Page | 16 IT(SS)A.01-06& ITA No.47/SRT/17 CO.02-08/SRT/2017 AYs.2008-09 to 2014-15 Krimpi Distillery addition solely on the basis of consumption of DM water. We have already discussed the issue relating to DM water in our earlier para of this order and the same is not being repeated for the sake of brevity. The production of DM Water and consumption of DM water is only an estimate and therefore it is not an incriminating material. 23. We note that in assessee`s case no incriminating material was found or unearthed by the search team therefore no addition should be made. In this regard reliance can be placed on the judgment of Hon’ble Delhi High Court in the case of CIT vs Kabul Chawla reported in (2016) 380 ITR 573 (Del) held as under: “37. On a conspectus of section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: (i) Once a search takes place under section 132 of the Act, notice under section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. (ii) Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the LD AOs as a fresh exercise. (iii) The LD AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The LD AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". (iv) Although Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post- search material or information available with the LD AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." (v) In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to complete assessment proceedings. Page | 17 IT(SS)A.01-06& ITA No.47/SRT/17 CO.02-08/SRT/2017 AYs.2008-09 to 2014-15 Krimpi Distillery (vi) Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the LD AO. (vii) Completed assessments can be interfered with by the LD AO while making the assessment under section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment." 38. The present appeals concern AYs 2002-03, 2005-06 and 2006-07, on the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed.” 24. On identical facts, our view is fortified by the judgment of the Special Bench of ITAT, Mumbai, in the case of All Cargo Global Logistics Ltd. v. DCIT (2012) 147 TTJ 0513 (SB) wherein it was held as follows. “58. Thus, question No. 1 before us is answered as under: a) In assessment that are abated, the AO retains the original jurisdiction as well as jurisdiction conferred on him u/s. 153A for which assessment shall be made for each of the six assessment years separately; b) In other cases, in addition to the income that has already been assessed, the assessment u/s. 153A will be made on the basis of incriminating material, which in the context of relevant provisions means - (i) books of account, other documents found in the course of search but not produced in the course of original assessment, and (ii) undisclosed income or property discovered in the course of search." The Hon'ble ITAT Ahmedabad has followed the above judgments, in the cases of Saumya Construction Pvt. Ltd., ITA No. 3/Ahd/2014 dtd. 21.08.2015 and Desai Construction Pvt. Ltd. ITA No. 12 & 13/Ahd/2012 dtd. 22.07.2015 and has concluded that Completed assessments can be interfered with by the AO while making the assessment under Section 153A only on the basis of some incriminating material unearthed during the course of search. The Tribunal has held that the completed assessments would mean those assessments which were not pending and have not abated due to the search. The Tribunal has also held that the completed assessments would include 143(1) orders, where time to issue notice u/s 143(2) has elapsed. The Tribunal has concluded that in cases of abated assessments and where the assessment has not become final due to time remaining for issue of notice u/s. 143(2) under the Act; the entire income including that not unearthed as a result of search, can be and has to be assessed.” Page | 18 IT(SS)A.01-06& ITA No.47/SRT/17 CO.02-08/SRT/2017 AYs.2008-09 to 2014-15 Krimpi Distillery 25. The Hon'ble Jurisdictional Gujarat High Court has confirmed the above decisions of the ITAT in the recent cases of Desai Construction reported at 387 ITR 552 and Saumya Construction reported at 387 ITR 529. 26. In view of the aforesaid findings and respectfully following the judicial precedents relied upon hereinabove, we hold that in case of unabated / concluded assessment, on the date of search, deserves to be undisturbed in the absence of any incriminating material found in the course of search and accordingly the addition made by the assessing officer has been rightly deleted by the ld CIT(A). Thus, ground no.2 of cross objection no.02/SRT/2017 filed by the assessee is allowed. With similar observations, ground no.2 of other cross objections nos.03, 05, 06, 07 and 08/SRT/2017, are allowed. 27. At the cost of repetition, we state that the stock, consumption of basic material i.e. spirit, scotch and malt and production of finished productions both IMFL and CL are under statutory supervision. The consumption/production record of the Rectified Spirit and the finished goods of IMFL and CL are required to be mandatorily maintained under the strict supervision of the State Excise Department. The movements of the same are being monitored by the Sub-Inspector of the State Excise Department stationed at factory premises throughout the year and the movements of the Rectified Spirit and the Finished Products are made under his signature. We note that for assessment year 2014-15, the assessee took alternative ground before ld CIT(A) against the addition made by the extrapolation of production figures, for the period before search to the whole year. The ld CIT(A) held that once the entire addition has been deleted, such ground has become redundant and need not be decided. Based on the above facts and circumstances of the case, ground nos. 1 to 5 raised by the Revenue in IT(SS)A No.01/SRT/2017 for assessment year 2008-09 are dismissed. 28. We have adjudicated the issue by taking lead case in IT(SS)A No. 01/SRT/2017 for assessment year 2008-09. Since the facts and circumstances are identical in other assessment years, Viz: assessment years 2009-10, 2011- 12, 2012-13, 2013-14 and 2014-15 therefore, our decision in IT(SS)A No. Page | 19 IT(SS)A.01-06& ITA No.47/SRT/17 CO.02-08/SRT/2017 AYs.2008-09 to 2014-15 Krimpi Distillery 01/SRT/2017 for assessment year 2008-09 shall apply mutatis mutandis to other assessment years, Viz: assessment years 2009-10, 2011-12, 2012-13, 2013-14 and 2014-15. 29. In the result, appeals filed by the Revenue for assessment years 2009- 10, 2011-12, 2012-13, 2013-14 and 2014-15 are dismissed. 30. Now, we shall take cross objection no.1 raised by the assessee. In cross objection no.1, assessee has challenged the validity of search. Learned Counsel submit that commissioner of Income Tax erred in upholding the validity of the assessment order dated 29.02.2016 passed u/s 153A r.w.s 143(3) of the Act without appreciating the fact that no valid action u/s 132(1) of the Act was initiated against the Assessee. The condition precedent to initiate action u/s 132(1) of the Act is not satisfied in the present case. The Competent authority did not have any information in his possession to have a reason to believe that Assessee has undisclosed income or property. Therefore, search is invalid hence consequential proceedings will be invalid. 31. On the other hand, Learned DR for the Revenue submits that Tribunal does not have power to examine the validity of search. 32. We have heard both the parties. We note that Assessee has challenged the validity of the search action carried out against it on 13/06/2013. The Assessee submits that the department didn't have any valid information in their possession to have reason to believe to initiate search and seizure action u/s 132(1) of the Act. Thus, the condition precedent to conduct assessment proceedings u/s 153A of the Act are not satisfied. Hence, the assessment order passed on 29/02/2016 is bad-in- law and void ab-initio. We note that by the Finance Act, 2017 an explanation was inserted in section 132 of the Act with effect from 01/04/1962, which reads as follows: "Explanation- For the removal of doubts, it is hereby declared that the reason to believe, as recorded by the income-tax authority under this sub-section shall not be disclosed to any person or any authority or the Appellate Tribunal." Page | 20 IT(SS)A.01-06& ITA No.47/SRT/17 CO.02-08/SRT/2017 AYs.2008-09 to 2014-15 Krimpi Distillery 33. It is abundantly clear from the above explanation that Tribunal does not have power to examine the “reason to believe”, as recorded by the income-tax authority under section 132 of the Act. Therefore, ground no.1 of cross objection no.02 raised by the assessee is dismissed. With similar observations, we dismiss ground no.1 of other cross objections nos. 03,05, 06, 07 and 08/SRT/2017. 34. In IT(SS)A No.03/SRT/2017 for AY.2010-11 and CO. No.04/SRT/2017 for AY.2010-11. Now, we shall take IT(SS)A No.03/SRT/2017 for AY2010-11 and Cross Objection No.04/SRT/2017 for AY2010-11. Since, we have adjudicated all the grounds of cross objections raised by the assessee in above para no. 26 of this order. It is an admitted fact that in assessment year 2010-11, the assessee has disclosed the capital gain on the alleged property and paid the due taxes thereon, hence such property cannot be an incriminating material. Therefore, our above findings shall apply mutatis mutandis to the cross objection no.04 raised by the assessee. 35. The grounds of appeal raised by assessee in IT(SS)A No.03/SRT/2017, for assessment year 2010-11, are as follows: 1) On the facts and circumstances of the case, the Ld. CIT(A) has erred in determining the addition made by the AO on account of unaccounted capital gain of Rs.5,55,25,000/- from sale of immovable property for the AY 2010-11. 2) On the facts and circumstances of the case, the Ld CIT(A) has failed to appreciate the incriminating material found and seized during the course of search. 3) On the facts and circumstances of the case, the Ld CIT(A) ought to have upheld the order of the Assessing Officer.” 36. Succinct facts are that on perusal of documents impounded and inventorized as LF-1 during the course of survey proceedings at M/s Dhangra Hotels and Beach Resorts Pvt. Ltd., Plot No. 2/1-B and 2/1-C, Devka Beach Road, Marwad, Nani Dman, it was observed by assessing officer that a group viz: M/s. Dhangra Hotels & Beach Resorts Pvt Ltd, had purchased two plots of Non- agricultural land being (1) Survey No. 2/1-B admeasuring 1700.00 Square Meters in area and (2) Survey Page | 21 IT(SS)A.01-06& ITA No.47/SRT/17 CO.02-08/SRT/2017 AYs.2008-09 to 2014-15 Krimpi Distillery No. 2/1-C admeasuring 1850.00 Square Meters in area from the assessee viz: M/s. Krimpi Distillery. It is also observed by assessing officer that M/s Dhangra Hotels & Beach Resorts Pvt Ltd, purchased the said plot of land totaling upto 3550.00 Square Meter in sum of Rs.66,00,000/- on 17.02.2010.Further a valuation report dated 21.05.2012, prepared by M/s Space Architects (prop: Mr. Pankaj Mistry) for the purpose of M/s Dhangra Hotels & Beach Resorts Pvt Ltd, for getting a bank loan from ICICI Bank has been impounded, which mentions the market value of the said land is to the tune of Rs. 7,65,02,500/-. Further, the valuer who prepared the valuation report viz. Mr. Pankaj Mistry was examined u/s 131 of the Act and his statement has been recorded to establish the veracity of the said valuation report. In response to Ques. No. 4, Shri Pankaj Mistry has stated that the basis of the valuation is the area where the said land is situated and was made after studying the surrounding market area of that time. Further in response to Ques No. 10, Mr. Mistry has also stated that the party had agreed to the said valuation and had no objections to the valuation made by Shri Mistry.Also, in response to Question No. 14, Mr. Pankaj Mistry has stated that the prevailing market rates for the Devka Beach area for FY 2009-10 (period of sale) was 17,500/- per sq meter. Therefore, the fair value of consideration for the sale of the said immovable properties works out at Rs.6,21,25,000/-. Hence, assessing officer held that assessee has suppressed capital gains therefore made addition for difference amount at Rs.5,55,25,000/- (Rs.6,21,25,000- Rs.66,00,000). 37. On appeal, Learned CIT(A) deleted the addition made by the Assessing Officer. Aggrieved, the Revenue is in appeal before us. 38. Learned DR for the Revenue submits that addition was made by assessing officer based on incriminating material. Learned DR argues that a valuation report dated 21.05.2012, prepared by M/s Space Architects (prop. Mr. Pankaj Mistry) for the purpose of M/s Dhangra Hotels & Beach Resorts Pvt. Ltd., for getting a bank loan from ICICI Bank, which has also been impounded, by search team, which mentions the market value of the said land as Rs.7,65,02,500/-.The valuer, Mr. Pankaj Mistry, was examined u/s 131 and his statement was recorded to establish Page | 22 IT(SS)A.01-06& ITA No.47/SRT/17 CO.02-08/SRT/2017 AYs.2008-09 to 2014-15 Krimpi Distillery the veracity of the said valuation report, therefore, addition made by the assessing officer may be upheld. 39. On the other hand, Learned Counsel pleads that on the date of search action u/s 132(1) dated 18.06.2013 no proceedings were pending. Thus, no abatement of the proceedings had taken place. In absence of any incriminating material re- determination of income u/s 153A is bad in law. The assessee has disclosed the capital gain in his books of accounts, hence the item which is disclosed in the books of accounts can not be incriminating material. This way, ld Counsel defended the order passed by the ld CIT(A). 40. We have heard arguments on both side and we proceed to record our opinion. We note that assessee has shown capital gain in his books of accounts in respect of impugned property and we also observe that assessee has shown such capital gain in the computation of total income for the assessment year 2010-11. The assessee computed capital gain and paid the due taxes, therefore, the property which is disclosed in the books of accounts cannot be an incriminating material. Hence, admittedly the search team did not find any incriminating material. We note that in absence of incriminating material, addition should not be made under section 153A of the Act, hence we cannot take judicial notice about such unfounded allegation of the assessing officer. As we have already adjudicated the issue relating to incriminating material in above para of this order and opined that in assessee`s case the search team did not find any incriminating material, therefore, our above findings are applicable for assessment year 2010-11 also. 41. We note that property has been got valued by the bank for the purposes of loan applied by the purchaser. The valuation is for fair market value as on 21.05.2012 i.e., more than two years after the date of transfer. The ld CIT(A) observed that in these circumstances, without proving any out of books/undisclosed payments the actual consideration shown cannot be replaced on the basis of an estimate of fair market value that too obtained after more than two years of actual transfer, for the purposes of taking a loan from a bank by the purchaser. The ld CIT(A) further observed that no incriminating document showing transfer of Page | 23 IT(SS)A.01-06& ITA No.47/SRT/17 CO.02-08/SRT/2017 AYs.2008-09 to 2014-15 Krimpi Distillery money, above the consideration, shown has been found even after the search action. It is to be noted that even when the valuation is by departmental valuer u/s 50C(3); and the valuation of property referred according to the valuation officer comes out more than that taken by the Stamp Valuation Authority’s even then section 50C(3) mandates that maximum deemed consideration can be taken to be equal to the valuation adopted by the ‘stamp valuation authority’ only and not the higher value estimated by the departmental valuer. Therefore, even by the spirit of the Act, when the valuation is of the same property, for the date of transfer, that too for the purposes of taxation of capital gains only; the legislature does not intend even then to take the deemed consideration higher than the value adopted by the stamp valuation authority. In such circumstances, taking a different value (much higher than value adopted by Stamp Valuation Authority) as consideration just on the basis of a third-party valuation, done on the instances of a bank which is giving a loan, without even a reference to any comparative instances, cannot be justified. Based on this factual position, we note that ld CIT(A) has rightly deleted the addition. The conclusions arrived at by the CIT(A) are, therefore, correct and admit no interference by us. We, approve and confirm the order of the CIT(A). 42. In the result, appeals in IT(SS)A Nos.01 to 06/SRT/2017 and ITA No. 47/SRT/2017 filed by the Revenue are dismissed. Ground No.1 in CO. Nos. 02 to 08/SRT/2017 filed by assessee is dismissed whereas Ground No.2 in CO. Nos. 02 to 08/SRT/2017 are allowed. Order is pronounced on 07/03/2022 by placing result on Notice Board. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr/Surat ᳰदनांक/ Date: 07/03/2022 SAMANTA& DKP Out sourcing Sr. P.S Page | 24 IT(SS)A.01-06& ITA No.47/SRT/17 CO.02-08/SRT/2017 AYs.2008-09 to 2014-15 Krimpi Distillery Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. Pr. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order Assistant Registrar/Sr. PS/PS ITAT, Surat