These are two appeals one filed by the revenue against the order of CIT(A), Ludhiana, dated 10-3-2003 for the assessment year 1988-89 and another filed by the assessee against order dated 20-3-2003 of CIT(A), Jammu, with headquarters at Amritsar for the assessment year 1989-90.
Since the issues in these appeals are common, these were heard together and are being disposed of by this consolidated order for the sake of convenience.
In the appeal filed by the revenue for the assessment year 1988-89, the following two effective grounds of appeal have been taken : "1. That the learned CIT(A)-I, Ludhiana, has erred in quashing the reassessment proceedings initiated vide notice under section 148, dated 24-3-1999 on the ground that earlier reassessment proceedings were still pending as a result of order of Hon'ble Tribunal Amritsar, dt.
20-3-1998 which was restored to the file of the assessing officer on a limited issue regarding admissibility of deductions under sections 32AB and 80HHC.2. That the learned CIT(A)-1, Ludhiana has also erred in observing that the basis of reassessment proceedings did not exist after the FERA proceedings were quashed by the Special Director (Enforcement) when there was independent evidence indicating underinvoicing of export by the assessee apart from confessional statement of partner Shri Ashok Sachdeva when on the similar facts and circumstances, the learned CIT(A), Amritsar, has upheld the order of the assessing officer in the case of the assessee for the assessment year 1989-90 vide his appellate order in Appeal No. A055/02-03, dated 20-3-2003." In the appeal filed by the assessee, for the assessment year 1989-90, the following grounds have been taken : "1. That the order passed by the worthy CIT(A) is illegal and is perverse.
2. That the CIT(A), Amritsar, has grossly erred in confirming the action of the learned Income Tax Officer, Ward-V(4), Amritsar, in reopening the case of the assessee under section 148 of the Income Tax Act, 1961, on the basis of alleged statement by Shri Ashok Sachdeva, partner of the assessee-firm before the Enforcement Directorate on 31-5-1997.
3. That the CIT(A), Amritsar, has grossly erred in not appreciating that the statement/-given on 31-5-1997 was made by Shri Ashok Sachdeva under duress and under pressure and that this statement had been retracted on 11-6-1997 and had no legal validity in the eyes of law.
4. That the CIT(A) has grossly erred in not appreciating that, the learned assessing officer has not lead any evidence against the assessee to independently show that the assessee has been indulging in underinvoicing of its goods to Rice and Food Stuff Trading Co., Dubai, except the statement dated 31-5-1997 which had been retracted by Shri Ashok Sachdeva himself.
5. That the learned CIT(A), Amritsar, has grossly erred in not appreciating that vide order dated 28-2-2002 passed by Special Director of Enforcement Directorate, all the charges levelled against the assessee in the show-cause notices issued by Enforcement Directorate have been dropped and that the Enforcement Directorate has failed to lead any evidence to show underinvoicing on the part of the assessee by any documentary proof.
6. That the CIT(A), did not appreciate that the rates at which the goods have been exported to Rice and Food Stuff Trading Co., Dubai, were the prevalent market rates at the time when the goods were actually exported.
7. That the finding of the worthy CIT(A), Amritsar, are perverse as the observations made by him are totally out of context and evidence relied upon by him does not pertain to year under consideration and was collected after assessment order and was never properly confronted to the assessee.
8. That the worthy CIT(A), Amritsar, has grossly erred in ignoring the direct decision of the jurisdictional High Court reported in CIT v.K.S. Bhatia (2002) 257 ITR 614 (P&H) relevant to the issue at hand.
9. That the learned assessing officer has grossly erred in treating the entire exports of Rs. 21,49,91,037 of the assessee as exports made to Rice and Food Stuff Trading Co., Dubai, for calculating alleged underinvoicing at 30 per cent whereas actual exports to this concern were Rs. 21,15,84,893 only.
10. That the learned assessing officer has grossly erred in not allowing deduction under sections 80HHC and 80-I on the alleged underinvoicing of exports as per calculation filed with the assessing officer.
11. That the learned assessing officer has grossly erred in charging interest under sections 234A and 234B at Rs. 10,44,195 and Rs. 6,78,72,670, respectively. That interest under section 234B(3) was chargeable with effect from 1-4-1990 and not with effect from 1-4-1989." The facts of the case for the assessment year 1988-89 are that the assessee filed a return of income on 5-8-1988 declaring therein income of Rs. 1,48,675. The assessment was completed under section 143(3) on 28-3-1989 determining income of Rs. 2,57,132. The assessee filed an appeal and the learned CIT(A) decided the same on 31-5-1989 allowing partial relief. The order for giving effect to CIT(A)'s order was passed on 15-6-1989 reducing the income to Rs. 1,72,432. Thereafter, the CIT, Amritsar, passed order under section 263 of the Income Tax Act, on 18-3-1991 setting aside the issue relating to deduction under section 32AB by including rental income of Rs. 2,62,200. The assessing officer also observed that the assessee had claimed deduction under section 80HHC by including rental income as business profit. He, therefore, initiated reassessment proceedings by issue of notice on 3-11-1992 and subsequently completed reassessment on 2-2-1993 and disallowed the claim of deduction under sections 32AB and 80HHC by including rental income. The assessee filed an appeal against the assessment order and the learned CIT(A) vide his order dated 28-2-1994 quashed the reassessment completed by the assessing officer. The revenue carried the matter in appeal before the Tribunal and the Tribunal vide its order dated 20-3-1998 reversed the findings of the CIT(A) for quashing reassessment and restored that of the assessing officer. However, the issue whether rental income was to be taxed as income from house property or income from business was restored back to the file of the assessing officer to determine the nature of income and then consider the allowability of deductions under sections 32AB and 80HHC of the Income Tax Act.
Subsequently, the assessing officer initiated reassessment proceedings by issue of notice under section 148 on 24-3-1999. The basis for initiating such action was that the assessee was carrying on the business of exporting rice to foreign countries. The FERA authorities carried out search and seizure action at the premises of Shri Ashok Kumar Sachdeva, partner, and several other places including the premises of the assessee and statement of Shri Ashok Kumar Sachdeva was recorded on 31-5-1997 in which he admitted that the assessee was underinvoicing the exports of the rice to foreign countries. In the reasons recorded, the assessing officer also observed that Shri Ashok Kumar Sachdeva admitted in his statement that a new firm named as Wani International was floated at Dubai and Shri Raj Sethia and Shri. Ramesh Sethia, maternal uncle of Shri Ashok Kumar Sachdeva, were sent to Dubai. Later, name was changed from Wani International to Rice and Food Stuff Trading Co., Dubai. Shri Ashok Kumar Sachdeva admitted before FERA authorities that invoices for the exports used to be raised @ 30 per cent less than the agreed price and the difference was received by Sethias in Dubai on behalf of the assessee. During the assessment year 1988-89, the export sales of the company were to the tune of Rs. 15,51,93,050. Since the assessee had admitted these were underinvoiced @ 30 per cent, the assessing officer observed that income of Rs. 6,65,11,307 had escaped assessment. The assessing officer observed that since foreign exchange equivalent to underinvoiced amount was not remitted to India, the assessee was also not entitled to deduction under section 80HHC in respect of the same. In response to notice issued under section 148, the assessee filed the return on 23-6-2000 disclosing therein income of Rs. 1,72,432. During the course of assessment proceedings, the assessing officer referred to the various statements of Shri Ashok Kumar Sachdeva recorded by FERA authorities on 30-5-1997, 31-5-1997, 9-6-1997, 4-7-1997, 7-7-1997, 4-8-1997, 11-8-1997, 12-8-1997 and 26-8-1997. He also referred to the statements of Shri Kranti Arora recorded by the FERA authorities on 30-5-1997, 31-5-1997, 5-8-1997 and 22-8-1997. By referring to such statements, the assessing officer came to the conclusion that the assessee had under invoiced income from export of rice to the extent of Rs. 6,65,11,307.
He further observed that since the assessee had not remitted foreign exchange equivalent to Rs. 6,65,11,307, it was not entitled to deduction under section 80HHC. While passing this order, the assessing officer also considered the claims of the assessee for deduction under sections 32AB and 80HHC in respect of rental income from property for which the matter was restored to the assessing officer vide Tribunal's order dated 20-3-1998 and disallowed the same on the ground that such income was not income from business. Accordingly, the assessment was completed on total income of Rs. 6,70,94,900 on 21-3-2001.
Being aggrieved, the assessee filed an appeal against the order of the assessing officer before the CIT(A). It was argued before the CIT(A) that reassessment completed by the assessing officer was illegal and bad in law. It was argued that earlier assessment completed by the assessing officer by issue of notice under section 148 on 3-11-1992 was restored by the Tribunal to the file of assessing officer vide its order dated 20-3-1998. The same was pending, with the assessing officer, when he issued a notice under section 148 on 24-3-1999. It was argued that initiation of reassessment proceedings under section 148 when the earlier assessment was pending were illegal and bad in law. It was also argued that reassessment order dated 21-3-2001 was barred by limitation in view of the provisions of section 153(2A). It was submitted before the CIT(A) that Tribunal,, Amritsar Bench, passed an order on 20-3-1998, i.e., in the financial year 1997-98 and served the same on CIT, Amritsar before 31-3-1998. Therefore., the assessment order should have been passed on or before 31-3-2000. However, the assessing officer completed assessment on 21-3-2001 and, therefore, the same had become time-barred. It was also argued that the assessment had been reopened purely on the basis of confessional statement of Shri Ashok Kumar Sachdeva, recorded on 31-5-1997. However, Shri Ashok Kumar Sachdeva had retracted on 11-6-1997 stating the earlier statement had been obtained by the FERA authorities under duress and pressure. The learned CIT(A) considered these submissions and quashed the reassessment on the ground that the same was illegal and bad in law because the same had been reopened when the earlier assessment was pending. The relevant findings recorded by the learned CIT(A) in paras 2,4 and 2.5 are as under : "2.4. I have considered the rival positions carefully in the matter, and I find force in the contentions of the learned Authorised Representative discussed in Income-tax Law by Chaturvedi and Pithisaria (p. 5252 of Vol. 3), law is well settled that, "If a notice for reassessment is served on an assessee, the machinery for reassessment is set in motion and the assessing officer has to adopt the prescribed procedure for making the reassessment. A return was filed in compliance to such a notice, whether within the prescribed period or beyond it, cannot be ignored and the reassessment has to be made in the same manner and under the same procedure as laid down in the Act for making an original assessment (see Parimisetti Seetharamamma v. CIT (1963) 60 ITR 450, 460 (AP), on appeal Adinarayana Murthy v. CIT (1965) 56 ITR 574 (AP), on appeal CIT v. Adinarayana Murthy (1967) 65 ITR 607 (SC)J.It follows, therefore, that when a return has been filed in pursuance to a valid notice of reassessment, it will not be competent for the assessing officer to ignore the return and initiate fresh proceedings by issue of a second notice (see, Adinarayana Murthy v. CIT (1965) 56 ITR 574 (AP), on appeal (1967) 65 ITR 607 (SC) (supra). But also, see, Atma Ram Bindra Ban v. CIT (1960) 31 ITR 418 (P&H); CIT v. Surendra Kumar Bhadani Where the reassessment proceedings initiated under section 147 have not been concluded to a logical end, a fresh reassessment notice is invalid and cannot be sustained. A reassessment order made in pursuance of such invalid notice is liable to be quashed (CIT v. Jaideo Jain & Co. (1997) 227 ITR 302, 303-04 (Raj)).
Since the earlier section 148 proceedings were still pending as a result of the order of the Hon'ble Tribunal, Amritsar Bench, dated 20-3-1998, the issuance of another notice for reassessment dated 40-4-1999 (sic-20-4-1999) during the pendency of the earlier proceedings makes the very issue of the second reassessment notice dated 30-3-1999 bad in law. I am, therefore, constrained to quash this reassessment notice in deference to the various judicial pronouncements and in view of the above discussion." The learned CIT(A) further considered the submissions of the assessee that assessment had become time-barred and observed that there was force in the contentions of the learned Authorised Representative that the order of the Tribunal passed on 20-3-1998 was served on the CIT, Amritsar, before 20-3-1998 and, therefore, the time frame for giving effect to the said order expired on 31-3-2000. He did not consider the submissions made by the assessing officer before him that the order was served on the CIT having jurisdiction over the case after 31-3-1998 and, therefore, the same was within time by observing that he had already quashed the assessment order for the reason that reassessment proceedings were initiated at a time when the earlier proceedings were pending. He', therefore, considered this issue as of an academic interest. The relevant findings recorded by the CIT(A) are as under: "2.6. The learned Authorised Representative has also contended that the time-limit provided as per section 153(2A) for giving effect to the order of the Hon'ble Tribunal, dated 20-3-1998 and expired on 31-3-2000, whereas the reassessment proceedings were completed on 21-3-2001 and hence, they were barred by limitation. There is force in the contentions of the learned Authorised Representative that the order of the Hon'ble Tribunal Amritsar Bench, Amritsar, passed on 20-3-1998 was served on the CIT, Amritsar, before 31-3-1998 and, therefore, the time frame for giving effect to the said order expired on 31-3-2000.
The assessing officer's successor has vide his letter dated 4-2-2000 tried to defend his predecessor's action by stating that the time-limit for completion has to be reckoned from end of the financial year in which the order of the Hon'ble Tribunal was served on the CIT having jurisdiction over the case, i.e., CIT (Central), Ludhiana. I have considered this matter carefully. To my mind, the objections raised by the successor Income Tax Officer are frivolous as the CIT concerned for the Hon'ble Tribunal was the CIT under whose jurisdiction the case was assessed. That the case came to centralized later on is an internal matter of the Department, and is none of the concern of the Hon'ble Tribunal. However, in view of my decision already delivered above quashing the reassessment proceedings, this question becomes infructuous and academic in nature. Therefore, I refrain from dilating upon it any further." While deciding the appeal on merits, the learned CIT(A) observed that the assessing officer has purely relied on the confessional statement of the assessee. The same statement stood retracted. Moreover, such statement was recorded by the FERA authorities for violation under FERA. But subsequently, Special Director (Enforcement), New Delhi, vide his order dated 28-2-2000 dropped an the charges and no appeal to CEGAT was reported to have been filed. Thus, he observed that there was absolutely no basis for making the impugned addition. The relevant findings recorded by the CIT(A) in paras 2.7 and 2.8 of the older are as under : "2.7. The above notwithstanding, the Special, Director Enforcement, New Delhi, has dropped all the charges against Shri Ashok Sachdeva vide his 58 pages order dated 28-2-2002, and no appeal to CEGAT has already been filed against the said order of the Special Enforcement. In that respect, the order of the Special Director, Enforcement, becomes final.
Since the bulwark of the reassessment proceedings by the assessing officer based on the so-called confessional statement of Shri Ashok Sachdeva has been quashed by the Enforcement authorities, there is no material left with the department to pursue the case further. In the case of CIT v. K.S. Bhatia (2002) 257 ITR 614 (P&H), the Hon'ble Punjab & Haryana High Court held, 'where the relevant additions were made on the basis of the order of assessment passed by the assessing authority under the Sales-tax Act, it is still further admitted position that the appeal filed by the assessee against the order of the assessing officer before the Jt. Excise and Taxation Commr. was accepted. The order, which was the basis for additions, was set aside. It is on this basis that the Tribunal has found that the additions were not sustainable.' 2.8. In deference to the above judgment, and in view of discussion as aforesaid, I find no justification in the colossal additions made in the reassessment proceedings. However, since I have quashed the reassessment proceedings themselves, this matter also becomes academic in nature." The revenue is aggrieved by the order of the CIT(A). Hence, this appeal before us.
As regards assessment year 1989-90, the facts of the case are that the notice under section 148 was issued on 29-3-2000. The basis for reopening the assessment was the same as for the assessment year 1988-89. The reasons recorded for reopening the assessments are on pp.
2 and 3 of the assessment order. Here also, the assessing officer observed that income liable to tax which had escaped assessment was Rs. 9,21,39,015, i.e., equal to 30 per cent of the total export turnover including the one disclosed in the books. In the reasons recorded, the assessing officer also observed that the assessee was not entitled to deduction under section 80HHC in respect of income which had escaped assessment because the corresponding amount had not been remitted to India in convertible foreign exchange. Here also, the assessing officer relied on the statement of Shri Ashok Kumar Sachdeva recorded by the FERA authorities. Ultimately, the assessing officer completed assessment under section 143(3) on 28-3-2002 by making an addition of Rs. 9,21,39,015.
Being aggrieved, the assessee carried the matter in appeal before the CIT(A). It was argued before the CIT(A) that the assessing officer had passed assessment order without placing any material on record that the assessee under invoiced exports for the assessment year under reference. It was also argued that the statement of Shri Ashok Kumar Sachdeva recorded by FERA authorities on 31-5-1997 was subsequently retracted. It was also argued that alternatively the statement made by Shri Ashok Kumar Sachdeva was in respect of Rice & Food Stuff Trading Co., Dubai, and not in respect of other parties. The sales made by the assessee to Rice & Food Staff Trading Co. were to the tune of Rs. 21,15,84,893 and sales to other parties were to the tune of Rs. 34,06,144. It was argued that the addition if sustained should be restricted only to transactions of Rs. 21,15,84,893. It was also argued that the assessee should be allowed deduction under sections 80-I and 80HHC in respect of enhanced income. Besides, the assessing officer had also challenged the legality of reassessment proceedings initiated under section 147. It was also argued that no addition was called for because the Special Director of Enforcement Directorate had dropped all the charges made under the FERA on the basis of underinvoicing of the exports. The learned CIT(A) considered these submissions and remanded the case to the assessing officer vide his order dated 29-5-2002 for both the assessment years, i.e., 1988-89 and 1989-90 directing the assessing officer to confront the documents referred to in the remand order. On the basis of remand order, the assessing officer issued a show-cause notice along with a chart of invoices on 30-7-2002. The assessee filed reply vide his letter dated 5-8-2002 and 14-8-2002 stating that it had no knowledge of file marked 'A' and copies of the documents were not supplied. It was also submitted that these documents have not been found from the premises of the assessee and were fabricated by one Shri Kranti Arora. Thereafter, the assessee also filed detailed submissions before the CIT(A) vide its letter dated 14-8-2002. The learned CIT(A) after taking into account the facts stated in the remand report, documents seized during course of search both from the premises of M/s Sachdeva & Sons and Shri Kranti Arora and written submissions of the assessee submitted before him upheld the order of the assessing officer, both on the point of reopening the assessment and for the addition made. The reasoning given by the learned CIT(A) on pp. 21 to 40 of the impugned order is as under : (i) The documents seized during the search from the premises of Shri Ashok Kumar Sachdeva and Shri Kranti Arora were in the form of various letters/loose papers, copies of bank account, annual reports including auditors' report by the chartered accountant which are genuinely original documents in respect of which it cannot be said that these were forged/planted with a view to implicate the assessee. Even under the law, presumption arises that. the contents of the documents seized during the search contained correct information and could be relied upon in the assessment/appellate proceedings. It was for the assessee to disprove the contents of these documents by leading evidence to show by producing its books of account and other relevant material. However, in the present case, the assessee failed to produce the books of account either during the course of assessment proceedings and even during the course of remand report sent by the assessing officer which was as per directions given by him and the remand order was duly served on the assessee. Thus, the assessee failed to discharge the onus to prove that the contents of these documents were either incorrect or did not relate to him.
(ii) Page 2 of file marked "B" contained quantities which tallied with 13 invoices referred to on p. 6, para 12 of the remand report. This indicated that the invoices in respect of which underinvoicing was alleged, are genuine and not forged or doubtful documents. This fact confirmed that the documents seized from the residence of Shri Ashok Kumar Sachdeva and Shri Kranti Arora represented true state of affairs.
(iii) The standard of proof required for the income-tax proceedings is much less as compared to criminal proceedings. In the case of criminal proceedings, the prosecution is required to establish the offerice beyond, any shadow of doubt. However, in the case of income-tax proceedings, the IT authorities could look into the surrounding circumstances and also apply the test of human probability while deciding the various issues arising before them. In the present case, the confessional statement (was) made by Shri Ashok Kumar Sachdeva on 31-5-1997 before FERA authorities wherein he admitted that his firm was underinvoicing the exports. This statement is further corroborated by large number of documents seized from his residential and business premises as well as from the residential premises of Shri Kranti Arora.
These documents further lend support to the fact that the assessee was underinvoicing exports by 30 per cent. This charge is further established by the fact that the assessee failed to produce the books of account during the course of assessment and remand proceedings even though such action was directed by the CIT(A) while remanding the case to the assessing officer.
(iv) On p. 4 of the remand report, the assessing officer had referred to loan raised by Shri Vinod Sachdeva, brother of Shri Ashok Kumar Sachdeva amounting to Rs. 7.5 lakhs US Dollars from Almaya Lal's group of companies, Dubai, for setting up of Rice Mill at Great Yeldham, in the year 1990-91 and the loan was being repaid through money obtained/generated by underinvoicing. This charge is supported by a letter of Shri Vinod Sachdeva to Shri Paqrani wherein he mentioned an amount of $ 9,65,000 already invested in the capital of the said mill indicated investment made by the assessee through Shri Vinod Sachdeva and $ 6,50,000 mentioned to have been invested from limited resources.
This fact clearly established large amount of investment made abroad and the money having been paid by underinvoicing. This letter was seized by the FERA authorities and is listed at p. 231 of file marked 'B' which clearly reveals that on 30-11-1991 underinvoicing amount aggregated to US $ 4,27,500 being difference in the amount as per invoice and actual amount for which 1140 MT of rice had been sold was to be adjusted against the loan account. In the said letter, there is also promise to clear the loan before March. This evidence confirmed that the assessee was indeed underinvoicing the exports.
(v) The learned CIT(A) also referred to his confessional statement made on 31-5-1997 wherein he stated that total exports during the period from 1982 to 1987 were to the tune of Rs. 600 to Rs. 650 crores. But in the books of account, exports during this period aggregated to Rs. 300 to Rs. 350 crores.
(vi) In October, 1991, Shri Ashok Kumar Sachdeva, partner and, his brother had invested $ 8 lakhs in a company. Shri Ashok Kumar Sachdeva was also one of the directors in M/s Greenock Holding Ltd. Investments therein were also made by M/s K.V. Trust and M/s Amalaya Lal's. Even though, the letter refers to investment made upto September, 1991, but the source therein must have been out of the income earned by way of underirivoicing of exports of the earlier years, This also lends support to the charge of underinvoicing against the assessee.
(vii) He referred to p. 230 of Annex. 6 which is a copy of declaration from Black Brings & Co., CA, Babri House-26-36, Old Street, London, dated 16-4-1997 addressed to Shri Kranti Arora stating that the funding of the company, i.e., M/s Greenocks Holding Ltd. was not done by Shri Kranti Arora rather the funding had been done by Sachdeva family of Amritsar. Neither during the course of remand proceedings nor in the appeal proceedings, the assessee placed any material or evidence to show that the investments in the said company, were made out of the funds reflected in the books of account. Not only this, M/s Greenocks Holding Ltd. had also made further investment in the companies, namely, M/s Basmati Rice UK Ltd., (85 per cent), M/s Pari Rice Ltd. (100 per cent) and M/s Rice & Food Stuff Trading Co. (100 per cent). He also observed that all the papers, correspondence, director's report, bank statements and other loose papers were seized from the premises of Shri Ashok Sachdeva/Shri Kranti Arora connected with the underinvoicing of rice and resultant profit earned therein was stashed/kept abroad and was utilised for the repayment of loans/making investments in various companies abroad.
(viii) The learned CIT(A) further observed that when the case was remanded to the assessing officer, a copy of the remand order was also served on the assessee and the assessing officer was directed to make necessary enquiries to ascertain the various issues raised in the remand order. However, the assessing officer repeatedly asked the assessee by issue of notice under section 143(2)/142(1) to produce books of account and to join investigation so that various issues raised in the remand report could be examined. But the assessee consistently refused to produce the books of account on the ground that the evidence collected during the search was not relevant to the assessee and that confessional statement of Shri Ashok Sachdeva had been retracted. He further observed that the perusal of the issues raised in the remand report based on the material seized from the residence of Shri Ashok Sachdeva and Shri Kranti Arora containing information sufficient to make out a prima facie case against the assessee and the onus was on the assessee to rebut the presumptions arising out of such documents seized during the search but the assessee failed to discharge such onus. He specifically referred to a letter from Shri Ashok Sachdeva contained in the file marked 'B' at p. 231 (this was found to be not correct) seized from the residence of Shri Kranti Arora where a reference is made to 4,27,500 US dollars earned as a differential amount through underinvoicing of specific invoice Nos.
357, 358, 359, 360, 372. Further, Shri Vinod Sachdeva also admitted at p. 231 of filed marked 'B' seized from the residence of Shri Kranti Arora during the course of search to be in his handwriting and the same was communication with Sh. Paqrani regarding import and export prices.
Thus, these seized documents clearly highlighted the modus operandi adopted by the assessee for underinvoicing the export of rice and the utilization of such money kept abroad.
(ix) The assessing officer was asked to verify 13 invoices furnished by Shri Ashok Sachdeva during the statement dated 11-8-1997 recorded by the FERA authorities and assessing officer after verification reported that some of these invoices had tallied with those of the assessee and rest of the invoices were not produced by the assessee during the remand proceedings. Thus, the learned CIT(A) observed that the assessee failed to discharge the onus and not even availed the opportunity provided to him during the remand proceedings.
(x) The file marked 'A' consisted of pp. 1 to 42 related to the business transactions, of Sachdeva & Sons. This file contained documents which showed clear cases of underinvoicing, manipulation of exports and adjustments and transfer of funds from Dubai to other countries. These documents were confronted to the appellant during the remand proceedings and the assessee has not been able to demolish the veracity of those documents by producing books of account and other relevant documents. He also referred to page Nos. 127, 136, 144, 147 and 231 contained in file marked 'B' which was recovered from the residential premises of Shri Kranti Arora and which are admittedly in the handwriting of Vinod Sachdeva and the same contained clear-cut evidence of underinvoicing done by the assessee-firm. These documents were confronted to the assessee during the remand proceedings, but the assessee failed to produce any evidence along with books of account except stating that these documents were not relevant. He also referred to file seized from the residence of Shri Kranti Arora during the course of search by FERA authorities containing documents pertaining to the transactions with overseas concerns of Sachdeva's which gave details of invoices of commoditios/items in which total underinvoiced value is worked out. Even in regard to the same, the assessee failed to respond to the queries raised and simply avoided the issue by saying that these were not relevant in the remand order. The assessing officer was directed to specifically verify whether there were similar instances of underinvoicing for the assessment years 1988-89 and 1989-90. However, during the course of remand proceedings, the assessee failed to produce the books of account and other documents so as to enable the assessing officer to carry out such verification. He further referred to the statement of Shri Kranti Arora wherein he had admitted that all exports made by Sachdeva & Sons during 1980 to September, 1983 to M/s Wani Internation were underinvoic and this fact was further corroborated by the evidence found during the course of search referred to above. He also observed that the failure on the part of the assessee to produce books of account including invoices lend further support to the fact that there was underinvoicing for the assessment year under reference also.
(xi) He also referred to the provisions of section 92 which refer to Income Tax Act, 1961 as per which if the business is carried on between a resident and non-resident and owing to close connection between them it appears to the assessing officer that course of business is so arranged that such business produces less than the ordinary profit, the assessing officer is required to determine the amount of reasonable profits and include such amount in total income of the resident. He observed that transactions of the assessee with M/s Rice & Food Stuff Trading Company, Dubai and other concerns like M/s Lal Trading Co., Dubai, M/s Skkud Finance Ind., Dubai, M/s Pari Rice UK Ltd. and M/s Great Yeldham (UK) made by assessee's brother Shri Vinod Sachdeva, maternal uncles S/Shri Raj Sethia and Ramesh Sethia and their associates were closely connected and business amongst them was so arranged that it produced to the appellant less than ordinary profit as earned by similar concerns in the same line of trade. He also referred to other cases engaged in the business of export of rice, namely M/s Amar Singh Chawalwala, Amritsar and M/s Deva Singh Sham Singh, where the GP shown was in the region 14 to 15 per cent. But in the present case, the GP shown by the assessee was only 10 to 11 per cent. Thus, he held that the provisions of section 92 were clearly applicable and coupled with the confessions of Shri Ashok Kumar Sachdeva and Shri Kranti Arora showed that the assessee failed to disclose correct income from business during the year under consideration. He also rejected the alternative contention of the assessee that underinvoicing should be considered only in respect of transactions with M/s Rice and Food Stuff Trading Co. Dubai. He observed that as the assessee had exported rice to other concerns and the modus operandi adopted was the same, the entire turnover was to be considered for the purpose of underinvoicing.
The assessee's submissions that the sales were made at a rate higher than fixed by the Government did not find favour with the learned CIT(A) for the reason that the minimum price fixed by the Government was only for the purpose of ensuring minimum limit of price and was certainly not the maximum price which the assessee could earn on the export of rice.
(xii) As regards the quantum of addition, he referred to the letter written by Shri Vinod Sachdeva to Shri Paqrani at p. 231 of file marked 'B' which indicated underinvoicing of 30 per cent supported by confessional statement of Shri Kranti Arora and Shri Ashok Kumar Sachdeva. He, therefore, held that the assessing officer was justified in estimating the income by taking the amount of underinvoicing at 30 per cent of the billed price.
(xiii) As regards the deduction under section 80HHC of additional income, the learned CIT(A) observed that the assessee had not brought sale proceeds from exports in convertible foreign exchange into India and further assessee was required to furnish audit report in the prescribed Form 10CCA which has not been done and the foreign exchange earned through underinvoicing was kept abroad. The learned CIT(A) held that the assessee was not entitled to deduction under section 80HHC in respect of the additions made and sustained. As regards deduction under section 80-I, the learned CIT(A) referred to the requirement of law of filing audit report and further amount earned through underinvoicing was not. included in the books of the account, therefore, the assessing officer held that the assessee was not entitled to such deduction.
The revenue is aggrieved with the order of the CIT(A) for the assessment year 1988-89 and the assessee is aggrieved by the order of CIT(A) for the assessment year 1989-90. Hence, these appeals before us.
The learned Departmental Representative filed written submissions vide two letters dated nil (copies placed at pp. 29 to 34 of the assessee's paper book containing pp. 1 to 66 filed on 20-5-2006). It was submitted that the first notice under section 148 for the assessment year 1988-89 was issued on 3-11-1992 only on a limited issue that the assessee was not entitled to deduction under section 80HHC in respect of rental income and the assessment was completed on 2-2-1993. In addition, the CIT had passed order under section 263 for reconsidering the claim for deduction under section 32AB in respect of rental income. On appeal, the learned CIT(A) annulled the assessment vide his order dated 28-2-1994. The department filed an appeal against the order of the CIT(A) and the Tribunal vide its order dated 20-3-1998 upheld the action of the assessing officer for initiating reassessment proceedings under section 147 and accordingly, the order of the CIT(A) was set aside. However, in regard to deduction under section 32AB and under section 80HHC in respect of rental income, the matter was restored to the file of the assessing officer for deciding the same afresh as to whether such income was part and parcel of the business income or not.
The learned CIT(A) had quashed the order for reassessment for the assessment year 1988-89 on the ground that the assessment completed earlier on the basis of first notice issued under section 148 on 3-11-1992 was still pending and, therefore, the reassessment completed on the basis of second notice during the pendency of assessment proceeding was illegal and bad in law. However, he submitted that the matter which requires to be considered by this Bench is as to which proceedings were pending before the assessing officer in the matter when the case was remanded by the Tribunal. It is to be considered whether the assessing officer while completing the reopened assessment could cover other items of income which had escaped assessment and the same was not subject-matter of earlier assessment or the powers of the assessing officer are limited only to those issues which have been specifically remanded by the Tribunal. The learned Departmental Representative submitted that it is settled position in law that the assessing officer had no powers to consider any fresh items of income or issue in the set aside proceedings other than the issues remanded by the appellate authority. He relied on the following judgments : , He submitted that the assessing officer initiated second reassessment proceedings by issue of notice under section 148 on the ground that the income chargeable to tax by way of underinvoicing of exports to the extent of 30 per cent had escaped assessment. It was submitted that the earlier assessment was not reopened on this issue. Therefore, there was no question of adjudicating this matter at the time of completing the set aside assessment remanded by the Tribunal. The Tribunal had set aside the assessment only for a limited purpose of deciding the issue as to whether the rental income formed part of the business income and hence entitled to deduction under sections 32AB and 80HHC or not. He submitted that the issue on which assessment was reopened was never subject-matter of assessment and adjudication by the CIT(A) or the Tribunal. The assessing officer had no authority to cover the present addition in appeal while deciding the set aside assessment. Therefore, the assessing officer had rightly reopened the assessment by issue of notice under section 148 on 24-3-1999. The reassessment completed was also within time allowed under the Act from the date of issue of the second notice. He, therefore, contended that no assessment was pending on the issue of bringing to tax income by way of underinvoicing of exports. Relying on the judgment of Hon'ble Allahabad High Court in the case of S.P. Kochhar v. ITO (1984) 145 ITR 255 (All), the learned Departmental Representative submitted that when the order is set aside by the Tribunal, the powers of the Income Tax Officer are confined to such matters only. He cannot take up the questions which were not subject-matter of appeal before the Tribunal and the assessing officer cannot travel beyond the directions given in the order. Thus, he submitted that the learned CIT(A) was not justified in quashing the reassessment on the ground that the same had been reopened when the earlier assessment was pending and therefore, such action was illegal and bad in law.
The learned Departmental Representative further argued that in para 2.6 of the impugned order for the assessment year 1988-89, the learned CIT(A) has held that there was force in the contentions of the learned Authorised Representative that the order of the Tribunal dated 20-3-1998 was served on the CIT before 31-3-1998 and, therefore, the time frame for giving effect to the said order had expired on 31-3-2000. The learned Departmental Representative submitted that during the course of appeal proceedings, it was brought to the notice of learned CIT(A) that the Tribunal had sent the order to CIT, Amritsar, where the assessee was earlier being assessed to tax.
However, subsequently the case was assigned to Central Circle.
Therefore, the learned CIT, Amritsar, had returned the order to the Tribunal vide letter dated CIT/Asr/Judicial/24, dated 2-4-1998 with the remarks that jurisdiction over the case rested with the CIT (Central), Ludhiana. Therefore, the Tribunal vide its-letter in ITA No.846/Asr/1993, dated 2-4-1998 sent the order to CIT (Central), Ludhiana, who had the jurisdiction over the case. This order was received by the CIT (Central), Ludhiana, on 6-4-1998. A copy of letter dated 2-4-1998 addressed to CIT (Central), Ludhiana, was also placed before us. A letter dated 25-5-2005 to the office of the CIT, Central, Ludhiana, stating that the order of the Tribunal, Amritsar Bench, for the assessment year 1988-89 was received by CIT (Central) on 6-4-1998. He submitted that this fact is duly noted by the CIT(A) in para 2.6 and such plea was taken before him during the course of appeal proceedings.
He submitted that the learned CIT(A) was wrong in accepting the service of the order of the Tribunal before 31-3-1998 though the same was served on the CIT (Central), Ludhiana, on 6-4-1998. He submitted that the learned CIT(A) was not justified in accepting the date of service before 31-3-1998 and then holding that the assessment completed by the assessing officer was time-barred. He submitted that if the date of service was taken as 6-4-1998, the present order is very much within time. He further argued by referring to para 2.6 of the impugned order that the learned CIT(A) has not quashed the order on this point as he mentioned that since he had already quashed the reassessment proceedings for the reasons that when the second notice under section 148 was issued, the assessment was pending and, therefore, reassessment proceedings initiated by him were illegal and bad in law. He submitted that such remarks by the CIT(A) could only be considered as obiter dicta.
As regards the merits of the case, the learned Departmental Representative has submitted that the learned CIT(A) has summarily deleted the same by recording that "I find no justification in colossal addition made in reassessment proceedings." He wrongly observed that the basis of reassessment proceedings did not exist after the FERA proceedings were quashed by the Special Director (Enforcement) when there was no independent evidence indicating underinvoicing of exports by the assessee. He submitted that the learned CIT(A) has summarily decided the appeal without applying his mind and considering the various aspects of the case including the confessional statement of Shri Ashoka Sachdeva and other evidence found during the course of search by FERA authorities. He submitted that on the basis of same evidence and material found and seized during the course of search, the learned CIT(A) for the subsequent assessment year 1989-90 remanded the case to the assessing officer and after obtaining remand report, upheld the additions for the subsequent assessment year. He strongly submitted that the order passed by the CIT(A) could not be considered as judicious order as the learned CIT(A) failed to record any finding on the merits of the additions. He submitted that the order is without any reasoning and deserves to be quashed.
As regards the assessment year 1989-90, the learned Departmental Representative filed written submissions which are at pp. 32 to 34 of the paper book. The learned Departmental Representative submitted that the assessment was reopened on the basis of statement of Shri Ashok Sachdeva, partner of the firm, recorded by the Enforcement Directorate on 31-5-1997. He submitted that the assessing officer has recorded detailed reasons on pp. 2 and 3 of the assessment order. In the reasons recorded, the assessing officer has referred to the information on the basis of which he formed a 'reason to believe' that income chargeable to tax had escaped assessment. He submitted that in the statement recorded by the FERA authorities, the assessee had explained the modus operandi by the assessee for underinvoicing the exports and besides the Enforcement Directorate had also issued show-cause notices for violation of the provisions of the FERA. The copies of the six show-cause notices issued on 29-5-1999, to six parties including the assessee were placed at pp. 3 to 30 of the departmental paper book.
Copies of these show-cause notices were sent to the CIT, Amritsar, vide Enforcement Directorate letter dated 29-5-1998 (copy placed at p. 1 of the paper book). Referring to p. 2 of the departmental paper book, the learned Departmental Representative submitted that this show-cause notice along with file in original containing 207 pages were forwarded to the assessing officer vide Dy. CIT (Central), Amritsar, confidential letter dated 28-9-1998. Thus, the learned Departmental Representative submitted that these assessment proceedings were initiated on the basis of such material and evidence and, therefore, the learned CIT(A) had rightly upheld such action of the assessing officer.
As regards merits of the additions, the learned Departmental Representative submitted that during the course of appeal proceedings, the case was remanded to the assessing officer on specific points listed in para 3.1 on pp. 2 to 4 of the order of the CIT(A). He submitted that in the remand order, the assessing officer was directed to submit its report on 16 points and a copy of the said order was also given to the assessee. However, during the course of remand proceedings, the assessee failed to produce the books of account, invoices and other material to substantiate its contention that there was no underinvoicing for the assessment year under reference and also to rebut the presumptions raised by the law that the contents of documents seized during the course of search should be accepted true and correct until proved otherwise. He submitted that the remand proceedings are as much part of the assessment proceedings as the learned CIT(A) is vested with full authority co-terminus with the assessing officer and the appeal proceedings are in continuation of the assessment proceedings. He submitted that the assessing officer submitted detailed remand report dated 1-10-2002, the copies placed at pp. 170 to 187 of the paper book. He submitted that the learned CIT(A) has taken into account the remand report, confessional statements of Shri Ashok Sachdeva and Shri Kranti Arora and the contents of the documents seized during the course of search by the FERA authorities which clearly spell out the modus operandi of the assessee for underinvoicing the exports and keeping 30 per cent of such amounts abroad and utilization thereof by the assessee and other family members. He submitted that such underinvoicing was done through M/s Wani International, Dubai, later changed to M/s Rice & Food Stuff Trading Co. which was also supported by a letter written by Shri Vinod Sachdeva to Shri Paqrani at p. 231 of the file marked 'B' seized from the residence of Shri Kranti Arora. He submitted that all these relevant details have been discussed by the CIT(A) on pp. 27 to 30 of the impugned order and the learned CIT(A) has given detailed reasons for upholding the addition. The learned Departmental Representative heavily relied on the findings given by the CIT(A) in his order.
As regards ground Nos. 6 and 7 of assessee's appeal, the learned Departmental Representative submitted that the learned CIT(A) has given detailed reasoning in para 7.8 on p. 32 of the impugned order wherein he has referred to the fact that the standard of proof required for income-tax proceedings is not the same as for criminal proceedings. He submitted that the learned CIT(A) has rightly observed that while deciding the issue arising before the IT authorities, the matter can be decided by taking into account the surrounding circumstances and by applying the test of human probability. He also submitted that various cases relied upon by the-assessee were distinguishable on the facts and were not applicable to the facts of the present case. Thus, he strongly supported the order of the CIT(A).
At the outset, the learned counsel for the assessee, Shri C.S.Aggarwal, drew our attention to the following paper books/documents filed before the Tribunal (i) One box file containing pp. 1 to 390 about searches conducted by FERA authorities, statements of Shri Ashok Sachdeva recorded by the FERA authorities on various dates, show-cause notices issued by the FERA authorities and replies filed to the show-cause notices.
(ii) Paper book-1 containing pp. 1 to 405 in two volumes, i.e., lst volume contained pp. 1 to 276 and the 2nd volume contained pp. 277 to 405,. This paper book contained details of various assessment orders, copies of notices issued, appeals filed, orders of the authorities below and submissions of the assessee made before the authorities below.
(iii) Paper book-2 containing pp. 406 to 440 with reference to notice under section 142(1) issued along with questionnaire calling for books of account for the purpose of remand report, copy of reply dated 9-9-2002 to the above'notice and remand report dated 1-10-2002 submitted before the CIT(A) for the assessment years 1988-89 and 1989-90.
(iv) Paper book-3 containing pp. 1 to 3 about the list of documents referred to by the CIT(A) in his order for the assessment year 1989-90 and assessee's submission in regard to the same.
(v) Paper book-4 containing pp. 1 to 168, wherein the assessee has given brief facts of the case, written submissions before the Tribunal and copies of some of the judgments relied upon by the assessee.
The learned counsel for the assessee, Shri Aggarwal. submitted that the basis for reopening the present assessments was a search carried out by the FERA authorities at the residential and business premises of the assessee along with many others for which details have been given in Annex. A to show-cause notice issued to the assessee by the FERA authorities (copy placed at pp. 44 to 51 of the box file). The charge made against the assessee was underinvoicing of exports to the extent of 30 per cent and the same was on the basis of statements of Shri Ashok Sachdeva, one of the partners, recorded by the FERA authorities on 31-5-1997 wherein he stated that there had been underinvoicing of 30 per cent of the rice exported by the assessee. He also stated that the exports made by the firm during the period 1986-87 to 1995-96 were to the tune of Rs. 600 to 650 crores. He submitted that his statement was very vague and nowhere Shri Ashok Sachdeva had stated that he had underinvoiced export for the assessment years under reference.
Subsequently, Shri Sachdeva also retracted from the statement on 11-6-1997. He submitted that subsequently Special Director of Enforcement vide his order dated 28-2-2002 dropped all the charges levelled against the assessee by FERA authorities, He drew our attention to a copy of adjudication order passed by the Special Director of Enforcement at pp. 320 to 377 of the paper book. He submitted that for the assessment year 1988-89, the learned CIT, Central, Ludhiana, quashed the reassessment on the ground that the initiation of reassessment proceedings, when the earlier proceedings initiated were pending, was illegal and bad in law, the assessment was barred by limitation and even on merits, the addition was deleted because the basis on which assessment had been reopened and additions were made ceased to exist after the Special Director of Enforcement Directorate dropped the charges levelled against the assessee. He emphatically submitted that no appeal can be filed against the order of the Special Director of Enforcement Directorate and the order has been accepted by the Government. He also submitted that even such order is binding on the Government. Relying on the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT v. K.S. Bhatia (2002) 257 ITR 614 (P&H), the learned counsel for the assessee submitted that in case addition has been made on the basis of order passed under Sales-tax Act and such order has been set aside in appeal by the sales-tax authorities, no addition under the Income Tax Act could be made (copy placed at pp. 116 to 121 of the paper book). He also relied on the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT v.Somani Pilldngtons Ltd. (2003) 133 Taxman 717 (P&H) where show-cause notices issued by the Central Excise, which contained annexures, which were made basis of show-cause notice issued by the IT department to assessee for making an addition to income had been set aside by the High Court, such annexures lost their validity. The High Court further held that when the very basis on which notice was issued to the assessee had already been quashed, nothing survived in the matter. He also submitted that similarly the very basis of initiating the reassessment against the assessee and for making addition was the order passed by the FERA authorities and since charges levelled against the assessee for underinvoicing of exports were dropped by the Special Director (Enforcement), no addition could be made under the Income Tax Act. He submitted that for the assessment year 1988-89, the assessing officer had first completed the assessment under section 143(3) on 28-3-1989 on a total income of Rs. 2,57,132, which was reduced in appeal by the CIT(A) vide his order dated 31-5-1989 to Rs. 1,72,432.
Thereafter, the learned CIT passed order under section 263 on 18-3-1991 setting aside the assessment on the ground that the issue regarding allowing of deduction under section 32AB by including the rental income required examination. In pursuance of such order, the Tribunal vide its order dated 27-11-1997 set aside the assessment and restored the issue to the file of the assessing officer for deciding the matter as to whether the rental income formed part of business income or not. The assessing officer initiated reassessment proceedings on 3-11-1992 by issue of notice under section 148 for the reason that the assessee was not entitled to deduction under section 80HHC in respect of rental income. The assessment was completed on 2-2-1993. On appeal, the learned CIT(A) quashed the assessment vide order dated 28-2-1994 (copy placed at pp. 24 to 26 of the paper book). On appeal filed by the department, the Tribunal set aside the order of the CIT(A) and upheld the action of the assessing officer for initiating reassessment proceedings under section 148. However, the issue whether the rental income formed part of business profit or not for the purpose of computing deduction under section 80HHC was restored by the Tribunal to the file of the assessing officer vide Tribunal's order dated 20-3-1998 (copy placed at pp. 32 to 34 of the paper book). Thus, the assessment reopened by issue of notice under section 148 on 31-11-1992 was still pending with the assessing officer as a result of the order of the Tribunal dated 20-3-1998 for restoring the limited issues of deduction under section 80HHC and under section 32AB to the file of the assessing officer. He submitted that the assessing officer initiated second reassessment proceedings by issue of notice under section 148 on 24-3-1999, i.e., when the earlier assessment was still pending. Such action of the assessing officer for initiating reassessment proceedings when the earlier assessment was pending is bad in law and void ab initio. He relied on the following judgmentsGhanshyam Das v. Regional Asstt. CST & Ors.
(4) Trustees of H.E.H. The Nizam's Supplemental Family Trust v. CIT (2000) 242 ITR 381 (SC) He further submitted that the provisions of section 147 have been amended w. e. f. 1-4-1989. Once the assessment has been reopened, the scope of reassessment is not only confined to income that had escaped assessment but also extends to any other income chargeable to tax which had escaped assessment. Thus, the learned Authorised Representative contended that while completing the first reopened assessment which was restored to the file of assessing officer by the Tribunal, the assessing officer could have also considered the present addition and there was no need for initiating reassessment proceedings. Thus, he contended that the learned CIT(A) was justified in quashing the reassessment proceedings initiated by the assessing officer while earlier assessment was pending. He submitted that the order of the CIT(A) does not warrant any interference on this account.
He further argued that the learned CIT(A) has quashed the assessment because it had become time-barred. He drew our attention to para 2.6 of the order of the CIT(A). He submitted that the revenue has not challenged the findings of the CIT(A) recorded in para 2.6. No specific ground has been taken before the Tribunal. He submitted that until such findings are challenged by way of specific ground of appeal, the revenue cannot argue this point in appeal. Such course of action is not permissible.
He. further submitted that the learned CIT(A) has also decided the appeal for the assessment year 1988-89 on merits. He referred to the findings recorded by the CIT(A) in para 2.7. While deleting the addition, the CIT(A) has referred to the order dated 28-2-2002 of the Special Director (Enforcement), Enforcement Directorate, against which no appeal to CEGAT was filed. He submitted that relying on the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT v. KS. Bhatia (supra), the learned CIT(A) held that if the very basis of making the addition by relying on the show-cause notices issued by the FERA authorities ceased to exist, no addition could be made under the Income Tax Act. Thus, he submitted that it was incorrect on the part of the revenue to contend that the learned CIT(A) has not decided the appeal on merits.
The learned counsel further submitted that the confessional statement could only be recorded by the Magistrate under the criminal law. In this case, confessional statement was not recorded by the Magistrate.
He further submitted that the confessional statement can also be retracted if the same is based on wrong facts and misconception of the law. For this proposition, he relied on the following two judgments :Pullangode Rubber Produce Co. Ltd. v. State of Kerala & Anr. (1973) 91 ITR 18 (SC)Krishan Lal Shiv Chand Rai v. CIT Now the issue whether for the relevant assessment year, there has been underinvoicing of exports or not and whether the same is corroborated by evidence is to be seen in the light of facts placed on record. Since the department has not been able to establish underinvoicing of exports for the assessment years under reference, the assessee had rightly retracted from the statement and in the absence of any supportive evidence, no addition could be made merely by relying on such statement.
He further referred to a copy of order dated 28-2-2002 of the Special Director of Enforcement Directorate (copy placed at pp. 102 to 167 of the paper book-1). Drawing our attention to pp. 101 to 105 of the paper book, the learned counsel for the assessee submitted that basis for initiating action under the FERA was the same, i.e., charge of underinvoicing of exports and keeping part of the income abroad. He submitted that all these details which have been referred to by the learned CIT(A) and the documents seized during the course of search at the various premises i.e., from the residence of Shri Kranti Arora and Shri Ashok Sachdeva have been referred to in the said order. Various statements recorded by the FERA authorities have also been referred to in the said order.
Drawing our attention to p. 119 of the paper book which deals with the show-cause notice-1 issued to the assessee, the learned counsel submitted that specific charge levelled against the assessee was that the amount of Rs. 144.3 crores of foreign exchange was kept abroad without any previous order or general permission of the RBI. Similarly, all the other show-cause notices issued have also been referred to. In the reply submitted by the assessee and referred to on pp. 124 and 125 of the paper book, the assessee had clearly stated that the statement was not voluntary and was recorded under duress. The charge of underinvoicing was denied. On p. 128 of the paper book, the Special Director referred to the ingredients required for proving underinvoicing which inter alia included whether the invoiced price was in conformity in the normal or minimum flooring price and proof of parking of the differential amount in the foreign exchange arising out of underinvoicing. The findings have been recorded on pp. 143 to 157 of the paper-book. He submitted that due cognizance was taken of the statement of Shri Ashok Sachdeva retracted on 11-6-1997. Referring to p. 146 of the paper book, the learned counsel submitted that the Special Director also took note of the facts about the minimum export price fixed by the Government of India and the price at which the assessee had exported rice during the period 1986-87 to 1995-96. He also observed that the rate at which the assessee had exported the rice was much higher than the minimum price fixed by the Government. Thus, Special Director observed that the charge of underinvoicing of rice has not been established and the charge was dropped against the assessee.
He further submitted that once the charges have been dropped by the Enforcement Directorate, there is no basis for making any addition in the hands of the assessee. He relied on the following judgments : He further submitted that the charge of the department is that the assessee had directly exported the rice to the parties abroad. However, invoices were made in the name of M/s Wani International, which was sister-concern of the assessee and managed by the relations of the assessee. The payments were routed through M/s Wani International.
While the buyers made full payment of the price at which they purchased the goods to M/s Wani International, but M/s Wani International remitted only 70 per cent of such receipts and remaining 30 per cent of funds were retained in Dubai for being utilized' for making investments abroad. However, he submitted that the department has not held that M/s Wani International was Benamidar concern of the assessee. No income earned by M/s Wani International has been included. Therefore, the learned counsel submitted that no addition could be made in the hands of the assessee.
The learned counsel for the assessee further argued that the evidence, if any, available with the Department and seized from the premises of Shri Kranti Arora related to the subsequent assessment years i.e., 1900-91, 1991-92, 1992-93, 1993-94 and 1994-95. He submitted that the revenue had issued notices under section 148 on 24-1-2001 and initiated reassessment proceedings for the assessment years 1990-91, 1991-92, 1992-93, 1993-94 and 1994-95. Copies of such notices were also placed on our file. However, the department has not made any additions for these assessment years and no assessment orders were passed. He submitted that all the evidence referred to by the CIT(A) in the impugned order for the assessment year 1989-90 relate to subsequent assessment years for which proceedings have already been dropped by the department. If no additions have been made for those assessment years to which the evidence referred to by the CIT(A) related to, no addition could be made for the assessment years under reference for which not even a single document is available with the department.
He further argued that the assessee was not, confronted with any material or basis, other than copy of statement recorded in respect of Shri Ashok Sachdeva. Even during the course of remand proceedings, the assessing officer confronted the assessee only with a chart of invoices where allegation of underinvoicing was made and these are placed at pp.
184 to 190 of the paper book. Further, the assessee was confronted with the copies of purported correspondence between M/s Basmati Rice and some other concerns. The assessee had clearly explained that it had no relation with the purported correspondence and these documents were not seized from the residence of assessee. The said correspondence was seized from the residence of Shri Kranti Arora. The statement of Shri Kranti Arora has never been confronted to the assessee nor any opportunity to cross-examine Shri Kranti Arora was allowed. The statement was recorded by the FERA authorities and not by the IT authorities during the course of assessment proceedings. No enquiry was made by the assessing officer with Shri Kranti Arora or any other concerned person. He, therefore, submitted that such evidence, which has not been confronted to the assessee is no evidence and cannot be acted upon. He relied on the following judgments (iii) R.B. Shreeram Durga Prasad & Fatechand Nursing Das v. 'Settlement Commission & Anr. (1989) 176 ITR 169 (SC).
where it was held that the order passed in violation of principles of natural justice was nullity. He also relied on the judgment reported in AIR 1981 SC 205 and AIR 1968 Bom 112 and Chiranji Lal Steel Rolling Mills v. CIT The learned Authorised Representative further argued that once the statement is retracted and the assessing officer, has neither made independent enquiry nor even cared to record the statement of the assessee or even the statement of Shri Kranti Arora was not recorded, during the course of assessment proceedings by the assessing officer and simply relied on the confessional statement of Shri Ashok Sachdeva and the statement of Shri Kranti Arora, for making additions. Such course of action would not justify any, addition, merely on the basis of relying on the confessional statement, He relied: on the following judgments/decisions : He further submitted that the learned CIT(A) has brought on records certain documents which were not in accordance with the provisions of law. He. relied on the judgment of Hon'ble Supreme Court in the case of Mahavir Singh v. Naresh Chandra & Anr.
The learned counsel for the assessee submitted that, the action of the assessing officer for initiating reassessment proceedings was without any basis, and arbitrary. He referred to the reasons recorded by the assessing officer in the assessment order where he has based his action merely on the basis of confessional statement recorded by the FERA authorities on 31-5-1997. This statement was subsequently retracted on 11-6-1997. Relying on the judgment of Delhi High Court, in the case of United Electrical Co. (P) Ltd, v. CIT (2002) 258 ITR 317, (Del), the learned counsel for the assessee submitted that the expression used in section 147, i.e., 'reason to believe' means facts must exist on the basis of which such belief is entertained. There should be rational nexus or relevant bearing to the formation of such belief and must not be extraneous or irrelevant. He referred to the confessional statement of Shri. Ashok Sachdeva (copy placed at pp. 1 to 3 of the box file), and drew our attention to answer to question No. 5 where he stated that invoices raised for the goods exported sometime used to differ from the actual price, but not always. He stated that nowhere, Shri Ashok Sachdeva has, stated that under invoicing was also for the assessment years. under reference., Relying on the judgment of Hon'ble Supreme Court in the case of Indian Oil Corpn. v. ITO (1986) 159 ITR 956 (SC), the learned counsel submitted that the 'reason to believe' is not reason to suspect'. He further referred to the judgment of Hon'ble Delhi High Court (Full Bench) in the case of CIT v. Kelvinator of India Ltd. (2002) 256 ITR 1 (Del)(FB) where it was held that mere change' of opinion could not be a ground for reassessment and amendment to section 147 with effect from 1-4-1989 has not altered the position. Relying on the judgment of Hon'ble Madras High Court in the case of CIT v. Khateeb Mahmood (1977) 109 ITR 408.(Mad), he submitted that, mere fact there was underinvoicing does not mean, that the assessee has earned such income. He also referred to the affidavit of Shri Kranti Arora made before the London Court, copy placed at the paper book, also referred to by the Special Director of Enforcement Directorate in his order, where he submitted that exports made the assessee were at a price higher than the price fixed by the Government. Thus, how could there be underinvoicing by the assessee. Therefore, he submitted that the action of the assessing officer for initiating reassessment process ding was illegal and bad in law. He also submitted that no addition could be made by relying on so called 'confessional statement which was subsequently retracted and in the absence of any document whatsoever relating to assessment year under reference.
The learned Departmental Representative stated in rebuttal that the assessing officer had recorded the reasons for initiating reassessment proceedings in both the assessment years. Relying on the judgment of Hon'ble Delhi High Court it the case of CIT v. ITAT & Anr. (2000) 245 ITR 659 (Del), the learned Departmental Representative submitted that the period of limitation for filing a reference under section 256 of the Income Tax Act, 1961, starts from the date of service of the order of the Tribunal on the CIT concerned having jurisdiction over the case of the assessee. In the present case also, the order of the Tribunal dated 20-3-1998 was sent to CIT, Amritsar, who did not have jurisdiction over the case of the assessee. Therefore, the said order was returned to the Tribunal and the Tribunal sent the order to CIT, Central, Ludhiana, having jurisdiction over the case and which was served on the CIT, Central, Ludhiana on 6-4-1998. Thus, the learned CIT(A) was not justified in holding that the assessment completed by the assessing officer was time, barred. He further submitted that since the Tribunal had set aside the order on limited issue, the assessing officer could have not covered the present case while completing the set aside assessment. Therefore, it cannot be said that assessment was pending with the assessing officer on the date when he issued second notice. The learned CIT(A) wrongly quashed the assessment for the assessment year 1988-89. He further relied on the judgment of Hon'ble, Punjab & Haryana High Court in the case of Bhajal Lal v. CIT (2001) 250 ITR 399 (P&H), where it was held that acquittal of the assessee from criminal proceedings does not mean that the assessee is absolved of its liability to explain the source of such amounts. He, therefore, submitted that the mere claim that the assessee was exonerated by the FERA authorities does not justify dropping of such action under the income-tax proceedings. He further submitted that the learned CIT(A) was within his powers in remanding the case to the assessing officer and direct the assessing officer to confront the assessee with the material seized during the course of search. However, assessee chose not to produce the books of account and furnished the copies of invoices. The learned CIT(A) has, therefore, rightly sustained the addition for the subsequent assessment year 1989-90. By relying on various documents seized during the course of search for which the assessee failed to. rebut the presumption raised under the law that contents of the documents seized were correct. He further referred to the provisions of section 92 of the Income Tax Act which was rightly invoked in the present case because of assessee's close connections With the foreign countries through whom transactions of underinvoicing were routed. Thus, he contended that the order of the CIT(A) for the assessment year 1988-89 requires to be set aside and that of the CIT(A) for the assessment year 1989-90, requires to be confirmed.
The learned Authorised Representative. joined the issue and stated that the department has not been able to place any document, on, record, to show that there was underinvoicing for the assessment year under reference.
Therefore, the action of the assessing officer for reopening the assessment was illegal and bad in law.
We have heard both the parties at length and given our serious considerations to the rival contentions, examined the facts, evidence, and material placed on record, gone through the orders of the authorities below, referred to the relevant pages of the paper book to which our attention was drawn by both the parties and also the judgments cited before us by both the parties. We have also taken into account the written submissions filed before us by both the parties.
Now the first issue that requires to be decided by this Bench is whether the learned CIT(A), Ludhiana, was justified in quashing the reassessment for the assessment year 1988-89 on the ground that the reassessment proceedings initiated by issue of notice under section 148 on 3-11-1992, were still pending in view of order of the Tribunal dated 20-3-1998. The claim, of the assessee is that since the assessment was set aside by the Tribunal and the same was pending with the assessing officer the assessing officer could have not initiated reassessment proceedings by issue of second notice under section 148 on 24-3-1999.
There is no dispute about the fact that the assessment proceedings initiated by issue of notice under section 148 on 3-11-1992 was only in respect of deduction under section 80HHC claimed by the assessee in respect of rental income which according to the assessing officer was not part of business income. The present issue regarding underinvoicing of exports was not the subject-matter of earlier reassessment. There is also no dispute about the fact that the Tribunal had set aside, the assessment vide its order dated 20-3-1998 only for a limited point of examination, whether the rental income formed part and parcel of business income and the assessee was entitled to deduction under sections 80HHC and 32AB (which was also set aside by the Tribunal vide its earlier order dated 27-11-1997). The provisions of section 147 have been amended by the Direct Tax Laws (Amendment) Act, 1987 w.e.f.
1-4-1989. . The amended provisions of section 147 confers wide powers on the assessing officer for reopening the assessment and also enlarges the scope of reassessment. In this connection, it would be relevant to refer to the amended provisions of section 147 which read as under : "147. If the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 and 153, assess or reassess such income and'also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section, and in sections 148 and 153 referred to as the relevant assessment year).
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year." A bare reading of the amended provisions would show that when the assessment is reopened on a specific point of escapement of income, the assessing officer can assess such income and also any other income chargeable to tax which had escaped assessment. Thus, his powers are not confined only to the point on which the assessment has been reopened. While completing such reopened assessment, the assessing officer could also cover any other income which had escaped assessment.
However, the assessing officer has no powers to consider those issues which were subject-matter of original assessment. In other words, the assessment cannot be reopened merely on the basis of change of opinion even under the amended provisions of the Act. Reliance in this regard is placed on the judgment of Hon'ble Delhi High Court (Full Bench) in the case of CIT v. Kalvinator of India Ltd. (supra) and also the judgment of Hon'ble Apex Court in the case of CIT v. Foramer France (2003) 264 ITR 566 (SC). But in the present case, the issue on which assessment had been reopened was never 'a subject-matter, of original assessment and even reassessment. This was also not subject-matter of action under section 263 by the CIT. Therefore, as per amended provisions the same issue could have been covered at the time of completed the reassessment, reopened earlier by issue of notice subject to the compliance with other provisions of the Act provided the Tribunal had not set aside the assessment only for a limited issue as to whether the rental income was business income or not for the purpose of deduction under section 32AB and under section 80HHC.It is trite law, when the assessment has been set aside on specific issues by the appellate authority, the scope of powers of the authorities concerned to whom the matter has been restored is limited only to issues on which the assessment was set aside by the Tribunal.
This view finds support from the judgment of Hon'ble Allahabad High Court in the case of Sri Vindhya Vasini Prasad Gupta v. CIT (supra), where it was held that in a case where matter is remanded by the Tribunal on a limited issue, the Income Tax Officer's jurisdiction is confined to such issue alone. The Income Tax Officer cannot enlarge the scope of proceedings. Even the jurisdictional High Court of Punjab & Haryana in the case of Kartar Singh v. CIT (supra) has expressed the same view that, when an assessment is set aside by the Tribunal and the case remanded to the Income Tax Officer, it is not open to him to introduce into the assessment new sources of income so as to enhance the assessment. The court further observed that any power to enhance is confined to the old sources of income which were the subject-matter of appeal to the Tribunal. This was also the view of the Hon'ble Calcutta High Court in the case of Kathiar Jute Mills (P) Ltd. v. CIT (1979) 120 ITR 861 (Cal), where it was also held that once an assessment is set aside by Appellate Assistant Commissioner and case remanded to Income Tax Officer, entire assessment does not become open. The power of the Income Tax Officer is confined to the point on which the case was remanded, Neither the Income Tax Officer can deal with such point nor the Appellate Assistant Commissioner on appeal can consider such point on remand. Even the Andhra Pradesh High Court in the case of Pulipati Subbarao & Co. v. AAC (1959) 35 ITR 673 (AP) has held that the scope of powers of the Income Tax Officer in a case where the matter is remanded by the appellate authority is confined only to consider only that issue which has been referred to him. In case the assessing officer covers some other issues not remanded to him he would certainly be transgressing the limits set down by the law. In the case of CIT v.Hope Textiles Ltd. (1997) 225 ITR 993 (MP), the Hon'ble Madhya Pradesh High Court has also held that when the matter is set aside by the appellate authority on a specific issue the assessing officer cannot make further additions on points which have not been restored to his file by the appellate authority. This issue also arose before the Hon'ble Allahabad High Court in the case of S.P. Kochar v. ITO (supra), where two questions were considered, i.e., whether, after remand of the case by the Tribunal, Income Tax Officer could have gone beyond the directions given in the remand order and look into the matters which were not subject-matter of appeal before the Tribunal and second whether a notice under section 148 could be issued when the assessment proceedings were still pending. The Hon'ble High Court held that where an assessment is set aside by the Tribunal and remanded to the Income Tax Officer, it is not open to him to introduce into the assessment new sources of income so as to enhance the assessment. Any power to enhance is confined to the old sources of income which were the subject-matter of appeal of the Tribunal. As regards the second issue the High Court held that so long the assessment is pending the assessing authority cannot have any such 'reason to believe' that income for the year has escaped the assessment. Thus the picture that emerges from the above discussion is that once the assessment is set aside by the Tribunal the scope of powers of the Income Tax Officer was confined only to issues which were remanded to him. When we apply the ratio of these judgment's to the present case it is clear that while completing the set aside assessment the assessing officer could have not covered the present addition made by the assessing officer by initiating the reassessment proceedings by issue of notice on 24-3-1999 as such course of action on the part of the assessing officer would have been illegal and beyond the scope of powers conferred under the Act.
Now, the next question that requires to, be, considered by this Bench is whether, it could be said that assessment was still pending with the assessing officer on the issue of underinvoicing of exports which was neither the subject-matter of earlier assessments nor considered and decided by the appellate, authorities. All the judgments which have been relied upon by the learned. counsel, are the cases where the assessments had not been set aside by the Tribunal. In other words, the powers of the assessing officer were not circumscribed to those issues alone because the orders in those cases had not been set aside by the appellate authority. Therefore, the rationale for the ratio laid down in those cases was that so long as the earlier assessment was pending, it cannot be said that any income had escaped assessment. But this is not the case here. In the present case, the issues under consideration were not subject-matter of the earlier assessments/appeals and the Tribunal had set aside the assessments on limited issues. Therefore, it cannot be said that the assessment in regard to underinvoicing of export was pending on the date when the assessing officer had issued second notice under section 148, because the assessing officer could have not covered the same at the time of completing the set aside assessment by the Tribunal.
As already stated above, in none of the cases, relied upon by the learned counsel, the issue involved related to set aside assessment.
However, the judgment of Hon'ble Allahabad High Court in the case of S.P. Kochhar v. Income Tax Officer (supra) relates to a case where the assessment was set aside. This deserves a special mention. The facts of this case were that the assessee was a coloniser and a dealer in real estate. The assessee purchased one property for Rs. 1,40,000. After the purchase, the assessee started repair and improvement of the property by levelling uneven ground and undertaking other development activities. During the accounting year relevant to the assessment year 1970-71, the assessee effected sales to certain persons, i.e., one was to Mrs. Sandhu for Rs. 40,000, second to assessee's wife for Rs. 732 and the third to Smt. Bawa for Rs. 31,000. The assessee filed return declaring therein loss of Rs. 28,672 after claiming development expenses of Rs. 1,03,785 incurred, right from the date of purchase. The assessing officer held that in regard to sale made to assessee's wife, agreed price was Rs. 15,000 and, therefore, difference in purchase shown and cost amounting to Rs. 2,268 was profit in the hands of the assessee. As regards the sale to Smt. Bawa, the assessee had shown profit of Rs. 900, but the assessing officer worked out at Rs. 2,420.
As regards the sale made to Smt. Sandhu, the learned Appellate Assistant Commissioner observed that this transaction had been entered into by the petitioner with a view to acquire residence for himself and there was no element of profit involved therein. Thus, he also deleted the third addition of Rs. 85,625. The revenue carried the matter in appeal before the Tribunal. The Tribunal observed that the assessee was carrying on business in purchasing the land and sale thereof after dividing into plots to his nominees. However, the Tribunal upheld the findings of the Appellate Assistant Commissioner in regard to deletion of additions in respect of sale to. assessee's wife and Smt. Bawa. As regards, third transaction of sale to Smt. Sandhu, the Tribunal observed that this transaction alone required to be considered because it took place in the accounting year under reference. For this purpose, the quantum of profit (is), required to be examined by estimating, the cost price of the plot by excluding the cost of the building and the plot retained by the assessee and rate at which the sale had been made.
The Tribunal, therefore, restored the matter to the file of the assessing officer for determination of profit only in regard to transaction of sale with Mrs. Sandhu. However, the assessing officer while giving effect to the order of the Tribunal issued notices under sections 142(1) and 143(2) requiring the assessee to produce the books of account and even details regarding sale of green park plots, relevant to the financial years 19687-69 and 1969-70 and also issued summons under section 131 of the Act. The assessee complied with the notices and also appeared before the Income Tax Officer, where his statement was recorded. However, the assessee filed a writ petition before the High Court and sought directions to the Income Tax Officer to confine himself to the directions issued by the Tribunal and to restrain from, holding enquiries in respect of matters other than profit earned on sale of properties to Mrs. Sandhu. The assessee was granted interim stay order though the Income Tax Officer was allowed to proceed with the: assessment proceedings. He was also directed not to communicate the same to the petitioner till further order of this Court. Pending these proceedings, the 'Income Tax Officer ' issued a notice under section 148 of the Act on 26-3-1979, for the assessment year 1970-71 in respect of the same income for which assessment on a limited issue, was restored by the Tribunal. The assessee challenged the action of the assessing officer by way of writ petition. The Hon'ble High Court considered two issues, whether, after remand of the case by the Tribunal, Income Tax Officer could have gone beyond the directions given in the remand order and look into the matters which were not the subject-matter of appeal before the Tribunal. The second question was as to whether a notice under section 148 could be issued when the assessment proceedings were still pending. The Hon'ble High Court considered the first question and referring to various judgments including those relied upon by the learned counsel held that once the case was set aside by the Tribunal and remanded to the Income Tax Officer, it is not open to him to introduce into the assessment new sources of income so as to enhance the assessment. Any power to enhance is confined to the old sources of income which were the subject-matter of appeal to the Tribunal. As regards the second issue, the High Court observed that expression used in section 'reason to believe' has to be with reference to the income that has escaped assessment. So long as the assessment is pending, the assessing authority could not have any such 'reason to believe' that income for that year has escaped assessment. It was, held that income cannot be said to have escaped assessment within meaning of this section if the assessment proceedings of that income, are still pending and have not yet terminated in a final order. Thus, from the above discussion, it is clear that in the aforesaid case, the assessing officer travelled beyond the scope of directions given by the Tribunal for remanding the case to the Income Tax Officer and also initiated reassessment proceedings in respect of the same income for which the matter was remanded to the Income Tax Officer. The facts of the present case are clearly distinguishable from the above case. In this case, the issue of underinvoicing of export was never the subject-matter of appeal before the Tribunal and the same has, not been covered while completing the original or reopened assessment, as the information for the same has been received subsequently, We have already discussed that the Tribunal had set aside the assessment only for asked issue. Even as per order of the Hon'ble Allahabad High Court, in the case of S.P. Kochhar v. CIT (supra), the assessing officer could not have considered the issue. for underinvoicing of exports, while completing the set aside assessment as it would have meant travelling beyond the scope of powers conferred on the assessing officer. Therefore, it cannot be said that the assessment in respect of this issue was pending on the date when the assessing officer had initiated reassessment proceedings by issue of second notice on 24-3-1999. In fact, during the course of hearing, the learned counsel was specifically asked if he could cite single authority on the issue where the assessment was set aside by the first appellate authority on a limited issue and the assessing officer had initiated reassessment proceedings in respect of new source of income and before completing the set aside assessment, the learned counsel conceded before us that this issue has, not come up before the Courts earlier.
Thus, in the light of these facts and circumstances of the case and the detailed discussions in the preceding paragraphs, we hold that the assessment was not pending in respect, of, item of income covered by the second reassessment at the time when the assessing officer had issued notice under section 148 on 24-3-1999 and, therefore, his.
action was in accordance with the provisions of the Act. The learned CIT(A) was not justified in quashing the assessment on this ground.
Accordingly, we set aside the order of the CIT(A) and restore that of the assessing officer. The first ground of the revenue's appeal is allowed.
The second aspect on which, the learned CIT(A) has quashed the assessment is that the same had been barred by limitation. The learned Departmental Representative submitted before us that the assessment was not quashed on this ground. It was only an obiter dicta. He drew our attention to para 2.6 of the order of the CIT(A) where he has mentioned that since he has already quashed the reassessment proceedings for the reason that the issue of second notice under section 148 was illegal and bad in law because the earlier assessment was pending. He, therefore, submitted had he did not quash the reassessment on this point. Now it is not in dispute that if the reopening of the assessment is held to be valid, reassessment would be in time Even otherwise, the learned Departmental Representative drew our attention to the fact that the Tribunal has sent the order of the CIT Amritsar, who: had no jurisdiction over the case. Therefore, the same was returned to the Tribunal and the Tribunal vide its letter dated 2-4-1998 sent the order to CIT, Central, Ludhiana on 2-4-1998 and the same was received by the CIT, Central, Ludhiana on 6-4-1998. In this regard, he placed a copy of Tribunal's letter dated 2-4-1998 and CIT, Central, Ludhiana's letter dt.,25-5-2005 stating that the order of the Tribunal was served on 6-4-1998. If the date of service is accepted as 6-4-1998, the present assessment order would be within time and the judgment of Hon'ble Delhi High Court in the case of CIT v. ITAT & Anr. (supra) supports the case of the revenue, where it was held that the date of service of the order of the Tribunal is the date on which the order was served on the CIT concerned having jurisdiction over the case, who alone has the jurisdiction to file the reference application. In this case, the jurisdiction over the case at the relevant time was with the CIT (Central). Therefore, the date of service for this purpose is to be reckoned from the date of service to CIT (Central) which was 6-4-1998 and the same falls within time. However, there is no challenge to such finding of the CIT(A). In fact, this appeal was heard by the earlier Bench on 2-4-2004 and subsequently by this Bench on 20-5-2005 and 27-5-2005. Thereafter, the case was heard for two days, i.e., on 20-6-2005 and 21-7-2005. But the department never considered it appropriate to move an application for admission of additional ground on this issue though this matter was within their knowledge. Since there is no challenge to the findings of the CIT(A) on this point by way of any additional ground, we decline to interfere in the matter.
This plea of the revenue is rejected.
The next aspect of the case that requires to be considered by this Bench is the deletion of addition by the CIT(A) in respect of underinvoicing of exports for the assessment year 1988-89. A bare reading of para 2.7 of the CIT(A)'s order shows that he has deleted the additions by relying on the 'order of Special Director (Enforcement), New Delhi, where all the charges made against the assessee were dropped. Since the same issue is involved in appeal for the assessment year 1989-90, this aspect will be discussed in detail in the subsequent paragraphs. For the present, we would like to mention that the learned CIT(A) decided the appeal in a summary manner without taking into account the fact that the learned CIT(A), Jammu, with headquarters at Amritsar, had passed a remand order on 29-5-2002 for both the assessment years 1988-89 and 1989-90. The learned CIT(A), Ludhiana, did not even wait for the remand report which was ordered by the learned CIT(A), Amritsar. In the said remand order, the learned CIT(A) had directed the assessing officer to examine the case on 15 points arising from the issues which were common to both the assessment years. This remand report was submitted by the assessing officer before the CIT(A), Jammu, with headquarters at Amritsar vide letter dated 1-1-2002 along with the relevant documents. In fact, for the assessment year under reference, the Assessing Officer was not even present before the CIT(A). Besides, the assessee had submitted the detailed submissions before the CIT(A), Ludhiana, vide two letters (copies of the same are placed at pp. 90 to 99 of the paper book). However, while deciding the appeal for the assessment year 1988-89, the learned CIT(A) has neither taken into account remand report nor detailed submissions submitted before him except relying on the order of the Special Director (Enforcement), Considering the fact that various issues were raised before him, the learned CIT(A) ought to have passed order dated 10-3-2003 dealing with various aspects of the case and after taking into account the facts stated in the remand report for which the remand order had already-been passed and issued. Be that as it may, the learned CIT(A) has decided the appeal by relying on the order of Special Director, Enforcement and the same is common to both the assessment years, i.e., 1988-89 and 1989-90. Therefore, the merits of the additions dealt by the CIT(A) would be discussed along With the findings for the subsequent assessment year.' Now the next aspect of the case that requires to be considered by this Bench relates to initiation of reassessment proceedings under section 141 for the assessment year 1989-90 by issue of notice under section 148 on 29-3-2000. Since the assessment year involved is 1989-90 and notice under section 148 was issued after a period of four years from the end of the relevant assessment year, the case of the assessee is covered under proviso to section 147 of the Income Tax Act. The amended provisions of section 147 and proviso thereunder have already been reproduced in the preceding paragraphs.
A bare reading of the section 147 and proviso thereto shows that for the purpose of initiating a reassessment proceeding under section 147 for the assessment year 1989-90, the assessing officer was required to establish that income chargeable to tax had escaped assessment for the assessment year under reference by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose, fully and truly all material facts necessary for assessment for the assessment year, 1989-90. The reasons recorded by the assessing officer for initiating such action are reproduced on pp. 2 and 3 of the assessment order. In the reasons recorded, the assessing officer has referred to the following facts : (i) The FERA authorities had carried out searches at the residential as well as business premises of the assessee at Amritsar, Shamgarh, Delhi, relating to the violation of FERA.(ii) Shri Ashok Kumar Sachdeva, partner in the firm has admitted that the firm was underinvoicing exports of rice to foreign countries.
(iii) Enforcement Directorate, New Delhi, had sent photocopies of show-cause notices and other statements which have been thoroughly studied. Statement of Shri Ashok Sachdeva, partner, recorded on 31-5-1997 shows that the assessee had sent Shri Raj Sethia, Ramesh Sethia, maternal uncles of Shri Ashok Sachdeva, to Dubai and new firm of M/s Wani International was floated at Dubai. A loan of one million US dollars was raised from Shri T.R. Gambhin who was residing at Bangkok and amount was sent from Bangkok to Dubai under instructions from Shri Ashok Sachdeva, partner of the firm. Later on, the name of M/s Wani International was changed to M/s Rice & Food Stuff Trading Co.
Dubai. The main purpose to float this company was to use these names for making transactions with overseas parties.
(v) All the export invoices were being raised on these parties and the goods were exported to the actual buyers. Shri Ashok Sachdeva admitted that all exports invoices were being raised on these companies and the "goods" were actually being exported to actual buyers. Export used to be invoiced @ 30 per cent (sic-less) than the actual agreed 'price and the difference was received by Mr. Sethia in Dubai on behalf of the assessee.
In the accounting year relevant to the assessment year 1989-90, the assessee had shown export turnover amounting to Rs. 21,49,91,037 and as per the statement of Shri Ashok Sachdeva admitting underinvoicing to the extent of 30 per cent, i.e., Rs. 9,21,39,015 income chargeable to tax had escaped assessment.
'Since the equivalent foreign exchange was not brought into India, the assessee was not entitled to deduction under section 80HHC in respect of the said amount. Thus, notice under section 148 was issued by the assessing officer after obtaining approval by the CIT concerned.
Briefly stated, the assessing officer had relied on the show-cause notices issued by the FERA, authorities, confessional statement of Shri Ashok Sachdeva, statement of Shri Kranti Arora and other statements recorded by the FERA authorities for the purpose of initiating action under section 147 of the Income Tax Act.
Now the issue that requires to be considered by this Bench is whether such material was sufficient for the assessing officer for initiating action of under section 148. The paper place before us do confirm that the Enforcement Directorate had forwarded to the CIT copies of six show-cause notices issued by FERA authorities including one to the assessee vide letter dated 29-5-1998. A letter dated 28-9-1998 of Dy.
CIT addressed to Shri Sham Lal Sabharwal, Assistant Commissioner, CCI, Jalandhar (copy placed before us by the revenue), further confirms that copies of these show-cause notices along with the said document in original containing 207 pages relied upon by the FERA authorities for the purpose of issuing show-cause notices were also forwarded to the assessing officer. In fact, during the course of, hearing before the Bench, the learned Departmental Representative produced before us the file containing 214 pages stating that the same had been received by the assessing officer along with copies of show-cause notices, before issue of notice under section 148 for the assessment year under reference. Copies of show-cause notices issued by FERA authorities including the first show-cause notice issued to M/s Sachdeva & Sons along with copies of statements of Shri Ashok Sachdeva on various dates are at pp. 1 to 82 of the paper book-1. In fact a copy of first show-cause notice issued by the FERA authorities is at pp. 44 to 51 of the paper book. A perusal of the same shows that in para 2 of the said show-cause notice, FERA authorities have referred to various documents seized and statements of various persons recorded under sections 38 and 49 of the Foreign Exchange Regulation Act, , 1973, on various dates. It has further been mentioned that on the basis of these documents and statements, the assessee had exported rice aggregating to Rs. 481 crores to various parties abroad and underinvoicing these exports by 30 per cent of the actual agreed price and parked these funds aggregating to Rs. 144.3 crores with persons outside India. The show-cause notice specifically refers to the period when underinvoicing was resorted, to during the period from 1980 to 1993, which also covers the assessment year under reference. It has also been stated that foreign exchange equivalent to Rs. 144.3 crores was not brought into India and thereby the assessee had violated the various provisions of the FERA, 1973.
Show-cause notice also referred to the fact that Shri, Vinod Sachdeva, brother of the assessee also abetted of the offence. Thereafter, on internal p. 3, it has been mentioned that failure of the assessee to bring into India for elvp exchange of Rs. 144.3 crores without any previous or general permission of the RBI amounted to. contravention of provisions of section 14 and section 8(1) of the FPRA. Annexure-A of the show-cause notice refers to the various premises of the assessee and other persons covered under the search. Annexure-B to the I show-cause notice refers to the statements of Shri Kranti Arora and Shri Ashok Sachdeva recorded on various dates, statements of Shri Vinod Sachdeva recorded on various dates, statements of Shri Ashok Sa6hdeva recorded on various dates and statements of Shri Tilak Raj Gambhir recorded on various dates. Annexure-C to the show-cause notice refers to the various documents relied upon by the FERA authorities which includes documents seized from the business premises of M/s Sachdeva & Sons, New Delhi, Shahabad, residential premises of Shri Ashok Sachdeva at Amritsar, business premises of M/s Sachdeva & Sons, at Karnal, factory of M/s Sachdeva & Sons, Tarn Taran Road, Amritsar, Bombay and others.
In addition to the same, the statement, of Shri Ashok Sachdeva recorded by the FERA authorities on 31-5-1997 is at pp. I to 3 of the box file.
In the statement, Shri Sachdeva admitted that the business for exporting rice stated from 1980. He admitted that the export turnover from 1980 to March; 1997 was about Rs. 600 to 650 crores. He has given specific details for the years from 1991-92-to 1997-98. He was specifically asked about the documents seized from the premises of Shri Kranti Arora to which he replied that he had seen 'the specific pages to which his attention was drawn, the signatures placed there were his.
These documents were in handwriting of his brother Shri Vinod Sachdeva and concerned with the business matters relating to their business of export of rice. He further confirmed contents of file marked "B" recovered from the residential premises of Shri Kranti Arora on 30-5-1997 and also the files marked A, B, C, D, and E' seized from Shri Kranti Arora. Thereafter, he was specifically shown file marked "A" of the documents seized from the premises of M/s Sachdeva & Sons, Amritsar on 28-5-1997 and he was asked to go through these 'documents and 'state to, whom these, related. To this he specifically replied as under : "I have gone through file pages. I have put my signatures on it. They relate to our business transactions. Certain documents 'also confirmed our noice manipulation, underinvoicing of exports and adjustments and transfers of funds from Dubai to other concerns. I further state that the statement of Shri Vinod Sachdeva and Shri Kranti Arora both dated 30-5-1997 disclosed the activities of our business in and outside India. I further state that day-to-day affairs of business abroad is being dealt by me and my brother, etc.' These submissions are true and correct." Thereafter, his. attention was drawn to section 40 of the FERA, which provides that the statement recorded under this section could be 'used against the assessee or anybody else or in any court of law.
Thereafter,, he refers to floating 'of company in Dubai through his maternal uncles, Shri Raj Sethia and Ramesh Sethia by obtaining loan of 1 million US dollars from, Shri T.R. Gambhir of Bangkok. The name of the said company was M/s Wani International which was later changed to M/s Rice & Food Stuff Trading Co., Dubai, He also admitted that the purpose of floating these companies was to use these names for making transactions with overseas buyers. All export invoices were being raised on these companies. The goods exported were actually sent to actual buyers 'and invoice for the export used to be raised (at) 30 per cent less than, actual agreed price.
The action of the assessing officer for reopening the assessment for the assessment year has to be seen in the light of these facts. The expression used in section 147 is reason to believe' that income chargeable to tax had escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. The expression used is not 'reason to suspect'. This obviously implies that the material or the information that comes into the possession of the assessing officer must have direct nexus with the escapement of income due to failure on the part of the assessee disclose all material facts necessary for the assessment. It is trite law that the assessment cannot be reopened merely on the basis of suspicion because the expression used in section 147 is 'reason to believe' and. not 'reason to suspect'. In the case of ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC), the Hon'ble Supreme Court has observed that the reasons for the formation of the belief contemplated by section 147(a) of the Act for the reopening of an assessment must have a rational connection or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income Tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. The court further observed that it was ,no doubt true that the court cannot go into sufficiency and adequacy of the material and substitute its own opinion or for that of the Income Tax Officer on the point as to whether the action should be initiated for reopening the assessment.
But at the same time, one has to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the from assessment. The reasons for the formation of the belief must be held in good faith and should not be mere pretence. In the case of United Electrical Co. (P) Ltd. v. CIT (supra), Delhi High Court has held that 'reason to believe' should be on the facts on the basis of which such belief is entertained. There should be rational nexus or relevant bearing. Thus, it is clear that the assessment cannot be reopened merely on the basis of vague and unspecific information. In the case of Chhugamal Rajpal v. S.P. Chaliha & Ors. (1971) 79 ITR 603 (SC), the facts were that, the assessing officer had initiated reassessment proceedings 'on the basis of vague feeling that there might be bogus transactions. The Hon'ble Supreme Court observed that the Income Tax Officer had even not come to prima facie conclusion that loan transactions to Which he referred were not genuine transaction. He appeared to have only a vague feeling that they might be bogus transactions. The Hon'ble Supreme Court observed that the assessing officer should have some prima facie grounds before him for taking action under section 147. This conclusion that there was a case for 'investigating the truth of the alleged transactions was not the same thing as saying that there were reasons for the issue of the notice. The learned CIT also accorded approval in a mechanical manner without applying his mind. Thus, notice under section 148 was held to be invalid.
In the case of Sheo Nath Singh v. AAC (1971) 82 ITR 147 (SC), the Hon'ble Supreme Court held that the expression 'reason to believe' means that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income Tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income Tax Officer would be acting without jurisdiction if the reason for his belief. that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the Court., In the present case, when seen in the light of various judgments referred to above, we find that in the show-cause notice issued by the FERA authorities the charge of underinvoicing the exports was made right from the years 1980 to 1997. The basis of FERA authorities for entertaining such belief was the documents seized during the course of search and the various statements recorded by the FERA authorities. The statements recorded of Shri Ashok Sachdeva which have been referred to by the assessing officer in the reasons recorded also were with reference to documents found during the course of search at the premises of the assessee and his residential premises. He also admitted that these transactions relate to the business of the firm. Besides, file marked 'B' containing pp., 1 to 231 seized from the premises of Shri Kranti Arora contained a letter in the handwriting of Shri Vinod Sachdeva', brother of the assessee, to Paqtani indicating underinvoicing of exports by the assessee. There is nothing ,in the statement of Shri Ashok Sachdeva which could suggest that such underinvoicing was resorted to only in the subsequent assessment years.
Even When Shri Ashok Sachdeva was asked about the papers found from the premises of Shri Kranti Arora, he never denied that these documents did not relate to assessee's business and the contents thereof were not correct. In fact he clearly admitted that such documents relate to his business and some of these were in handwriting of his brother Shri Vinod Sachdeva. It is true that subsequently even in the statement of Shri Kranti Arora, he stated underinvoicing of export right from 1980 to 1993 and this fact was duly recorded in the show-cause notice issued by the FERA authorities. Even if it is a fact that subsequently, Shri Ashok Sachdeva retracted from the statement, yet the fact remains that he was asked questions with reference to specific documents seized during the course of 'search including those related to the premises of the assessee in respect of which he admitted that this shows manipulations and underinvoicing of exports. At the time of initiating reassessment proceedings, the assessing officer has to apply his mind to the material that comes in his possession to see whether there was direct nexus' between the material and 'reason to believe', that income chargeable to tax had escaped assessment. At the time of initiating proceedings, what is required to be, seen is the prime facie evidence and material which enables the assessing officer to, come to a conclusion that that has been escapement of income. Such belief is of reasonable person based upon reasonable grounds on, the basis of direct or circumstantial evidence but should not be on, the basis of mere suspicion, gossip or rumour. We may further add that at the time of initiating reassessment proceedings, it is not necessary that the assessing officer must establish at that stage itself that the income has escaped assessment. After all the assessment cannot be made at the stage of reopening the assessment itself. Further process of assessment and allowing an opportunity to the assessee has to be allowed during the reassessment proceedings. If the assessing officer is satisfied during the reassessment proceedings that there is no income that has escaped assessment, proceedings initiated under section 147 can be dropped. The facts discussed in detail in the preceding paragraphs do show that the formation of 'reason to believe' by the assessing officer was not based on gossips or rumours or hearsay, rather the same was based on objective assessment of the material that came into his possession as a result of search by the FERA authorities and show-cause notices issued, documents seized and statements recorded. Now, underinvoicing of exports and parking the funds abroad has direct nexus with the escapement of income as to this extent, it can be said that income had escaped assessment due to failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment. It is not the claim of the assessee that these facts were available with the assessing officer at the time of completing the first assessment. Therefore, it cannot be said that action. taken by the assessing officer was, based merely on change of opinion. Further, the order passed by the FERA authorities dropping the charges against the assessee was passed on, a later date. In the case of Bhajan Lal v., CIT (supra), the Hon'ble Punjab & Haryana High Court has held that the acquittal against the criminal charges and under Prevention of Corruption Act does not absolve the assessee to explain source of payment. Thus, action of the assessing officer for reopening the assessment, was upheld. In the light of these facts and circumstances of the case and, the legal position discussed above, we are of the considered opinion that the assessing officer was justified in initiating action under section 147 as on the basis of overwhelming evidence and material on which he formed a 'reason to believe' that income chargeable to tax had escaped assessment. Accordingly, we confirm the order of CIT(A). This ground of appeal is accordingly rejected.
The next aspect of the case which requires consideration is the action of the learned CIT(A) in remanding the case to the assessing officer.
As mentioned, during the course of appeal proceedings before CIT(A), reliance was placed on the order of the Special Director, Enforcement Directorate, whereby all the charges levelled against the assessee in the show-cause notice more particularly relating to underinvoicing of exports were dropped. In fact, this order was specifically referred to in ground No. 4 taken before the CIT(A). The learned CIT(A) by referring to various documents seized during the course of search and the other issues arising from the assessment, remanded the case to the assessing officer for carrying out factual verification in respect of 15 points with a direction to obtain such material from FERA authorities, confront such material to the assessee and submit remand report after verifying these transactions from the books of account.
All the papers and documents referred to in the remand order were seized during the course of search by the FERA authorities. In the remand order, the learned CIT(A) also directed the assessing officer that the assessee should be given proper opportunity to produce all evidence, documents, material, etc.
Section 261 of the Act confers on the CIT wide powers for deciding the appeals. It would be relevant to reproduce herein the provisions of sub-section (1) to section 251 of the Income Tax Act, which read as under : "(1) In disposing of an appeal, CIT(A) shall have the following powers : (a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the reassessment; or he may set aside the assessment and refer the case back to the assessing officer for making a fresh assessment in accordance with the directions given by the CIT(A) and after making such further inquiry as may be necessary, and the assessing officer shall thereupon proceed to make such fresh assessment and determine, where necessary, the amount of tax payable on the basis of such fresh assessment; (b) in an appeal against an order imposing a penalty, he may confirm or cancel such order or vary it so as either to enhance or to reduce the penalty; (c) in any other case, he may pass such orders in the appeal as he thinks fit." Thus, it is clear that CIT(A) is vested with wide powers while deciding the appeal. The only restriction imposed on his powers in sub-section (2) of section 251 is that the CIT(A) shall not enhance an assessment or a penalty or reduce the amount of refund unless the assessee has been allowed a reasonable opportunity of being heard. Explanation to section 251 also empowers the CIT(A) to consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before the CIT(A) by the assessee. In the case of CIT v. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC), the Hon'ble Supreme Court has held that the first appellate authority has plenary powers in disposing of an appeal.
The scope of his powers is coterminous with that of the Income Tax Officer. He can do what the Income Tax Officer can do and can also direct him to do what he has failed to do. If the Income Tax Officer has the option to assess one or other of the entities in the alternative, the Appellate Assistant Commissioner can direct him to do what the Income Tax Officer should have done under the circumstances of the case. In the case of Keshav Mills Co. Ltd. v. CIT (1965) 56 ITR 365 (SC), the Hon'ble Supreme Court further held that at the appellate stage additional evidence may be taken and further enquiries may be made at the discretion of the first appellate authority. However, before admitting fresh evidence, the assessing officer must have allowed fresh opportunity. In the case of CIT v. Ahmedabad Crucible Company (1994) 206 ITR 574 (Guj), the Hon'ble Gujarat High Court has held that powers of the Appellate Assistant Commissioner are not confined to the subject-matter of the appeal, but extend to the subject-matter of the assessment. Now the action of the CIT(A) in remanding the case to the assessing officer in respect of the issues directly relating to the assessment was within powers conferred under the Income Tax Act.
The CIT(A) has also powers to admit fresh evidence subject to the provisions of r. 46A. The provisions of r. 46A read as under : (a) Where the assessing officer has refused to admit evidence which ought to have been admitted; (b) Where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the assessing officer; or (c) Where the appellant was prevented by sufficient cause from producing the evidence before the assessing officer any evidence which is relevant to any ground of appeal; or (d) Where the assessing officer has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal.
However, sub-rr. (2) and (3) of r. 46A provide that such fresh evidence shall be admitted by recording in writing reasons for its admission and further assessing officer should be allowed a reasonable opportunity to examine evidence or documents or cross-examine witness produced by the appellant or to produce any evidence or document or any witness in rebuttal. Sub-r. (4) of r. 46A further confers inherent powers on the CIT(A) for directing the production of any document, examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment. In the present case also, the learned CIT(A) has directed the assessing officer to obtain these documents which were seized during the course of search and confront the same to the assessee. The assessing officer was also directed to allow reasonable opportunity for producing any documents, evidence or material, etc. during the remand proceedings.
The learned CIT(A) had not directed the assessing officer to make some fishing or roving enquiries outside the scope of assessment. As mentioned earlier, it was on the basis of those documents seized from the various premises including from the premises of the assessee that Shri Ashok Sachdeva admitted the fact of underinvoicing of exports. It may further be mentioned that aims and objectives of the FERA are different from the Income Tax Act. The object of the FERA is to ensure that foreign exchange belonging to Indian party is brought back into India. If such compliance is made by the party concerned, even though the same is not accounted for in the books of account, it may not amount to violation of the FERA. However, in case the assessee brings into India the foreign exchange, but does not reflect in the books of account as part of the sale, it would result in addition to the income.
Thus, the very fact that FERA authorities had dropped the charges against the assessee was not itself enough for deleting the impugned additions. If the FERA authorities for that matter or any court drops charges made against the assessee under the FERA due to some technical reasons on the ground that search was illegal, yet the material seized during the course of illegal search can be made use of during the assessment proceedings. Considering the facts that assessing officer had completed the assessment without making proper enquiry, the learned CIT(A) thought it proper to exercise powers conferred under the Income Tax Act and to confront the seized material to the assessee and then refer to the books of account as to whether the assessee had properly accounted for its income or not. The action of the learned CIT(A) in remanding the case to the assessing officer is in conformity with the letter and spirit of the Income Tax Act and Income Tax Rules and, therefore, we are unable to accept the plea of the assessee that the learned CIT(A) exceeded its jurisdiction in directing the assessing officer to admit such evidence.
Before parting with this issue, we would like to mention that the learned counsel for the assessee has relied on the judgment of Hon'ble Rajasthan High Court in the case of CIT v. Rao Raja Hanut Singh (supra), where it was held that power of the Tribunal for admission of fresh evidence is circumscribed by r. 29 of the IT (Appellate Tribunal) Rules, 1963, and the same cannot be admitted as a matter of right of litigating party. This case deals with the powers of the Tribunal. In the case before us the issue relates to powers of the CIT(A) and that too with reference to documents seized during the course of search. The learned counsel further relied on the judgment of Hon'ble Supreme Court in the case of Mahajar Singh & Ors. v. Naresh Chandra & Anr. (supra).
In this case, the issue does not relate to provisions of r. 46A and the powers of the CIT(A) for dealing with the matters arising from the assessment. In this case, the issue in question related to powers of the appellate court conferred under section 107 of CPC relating to permission of additional evidence. As held above the issue involved in the case is in conformity with the powers conferred on the CIT(A) under the Act and, therefore, this decision is not applicable to the facts of the present case.
Thus, in the light of detailed discussions in the preceding paragraphs, we hold that the action of the CIT(A) in remanding the case and directing the assessing officer to submit remand report after confronting the documents to the assessee and after allowing a reasonable opportunity was in order and in conformity with the Act and Rules and, therefore, this plea is rejected.
The last aspect of the case which requires to be considered by this Bench is about the merits of the addition made by the assessing officer. The learned CIT(A) has observed that while deciding the matters, the assessing authority can take into account the surrounding circumstances as strict rules of evidence applicable to criminal prosecution/proceedings are not applicable to the income-tax proceedings. We agree with such proposition. In the case of CIT v.Durga Prasad More (1971) 82 ITR 540 (SC), the Hon'ble Supreme Court has observed that though apparent must be considered real until it was shown that there were reasons to believe that apparent was not real, in a case where the party relied on self-serving recitals in documents, it was for that party to establish the truth of those recitals, the taxing authorities were entitled to look into the surrounding circumstances to find out the reality of such recitals. In the case of Sumati Dayal v.CIT (1995) 214 ITR 801 (SC), the Hon'ble Apex Court has held that the authorities concerned under the Income Tax Act can take into account surrounding circumstances and decide the matter by applying the test of human probability. But at the same, it is a fact that the additions cannot be made merely on the basis of suspicion, surmises and conjectures and equally the finding recorded by the Special Director in the adjudication order cannot be totally overlooked. It is settled law that suspicion howsoever strong it may be, cannot form basis of additions. Since the learned CIT(A) had referred to certain documents while confirming the additions for the assessment year 1989-90, we tried to look into these documents as to whether there was any evidence to show that the assessee had resorted to underinvoicing of exports for the assessment years under reference. In fact, during the course of appeal proceedings before the Bench, clarifications were not given by either side in respect of some of the documents referred to by the CIT(A) for sustaining the additions. Therefore, the case was refixed on 23-8-2005 and the parties were asked to produce those documents in order to satisfy ourselves whether there was any evidence to show that the assessee had underinvoiced the exports for the assessment years under reference. The position that emerged after making such verification has been discussed in the succeeding paragraphs. 21.1 In the remand order, the learned CIT(A) has referred to file marked 'B' containing pp. 1 to 231 seized from the residence of Shri Kranti Arora which he mentioned contained a letter from Shri Ashok Kumar Sachdeva, where a reference was made to US dollars 4,27,500 being differential amount of underinvoicing relating to invoice Nos. 357, 358, 366 and 372. The revenue was asked to produce a copy of this letter. But revenue has replied in writing on 22-8-2005 that there was no letter from Shri Ashok Kumar Sachdeva, partner of the assessee-firm. There was a letter of Shri Vinod Sachdeva. The revenue has mentioned that the CIT(A) seems to have wrongly mentioned the name as Ashok Kumar Sachdeva. However, a letter of Shri Vinod Sachdeva on p. 231 was sent to the CIT(A) along with remand report. Thus, no letter of Shri Ashok Kumar Sachdeva, partner of the firm, was admitted to have been found from the place of Shri Kranti Arora.
Item No. 9 of the remand report on p. 3 of the impugned order refers to file marked "A" containing pp. 1 to 42 relating to business transactions of M/s Sachdeva & Sons, wherein certain documents indicating underinvoicing/manipulation of exports, adjustment and transfers of funds from Dubai to other countries was mentioned in the adjudication order of the Special Director. The learned CIT(A) had directed the assessing officer to obtain these documents, from FERA authorities, confront the same to the assessee and submit remand report on the same. These documents were also confronted to Shri Ashok Kumar Sachdeva while recording confessional statement by the FERA authorities. Copy placed on pp. 1 to 3 of box file wherein he admitted that these related to business transactions of assessee and show manipulation and underinvoicing. The revenue was asked to produce these documents. The learned Departmental Representative vide his letter dated 19-8-2005 submitted paper book containing only 3 to 18 pages.
However, the learned Departmental Representative was asked to submit all the pages of the file. Accordingly, these were submitted and we found that these are financial statements of M/s Greenock Holdings Ltd. (registered at Channel Island) for 16 months ended 30-9-1991. It also contained auditors' report dated 23-3-1992. There is report of the directors for the period ended 31-12-1992. Thus, all these documents relate to the subsequent period and not to the accounting, period under reference.
Item 4 on p. 2 of the remand order refers to file marked 'B'. Page 2 contained details of invoices, commodities and items exported through M/s Lal Trading Co., Dubai. The aggregate amount mentioned therein is US dollars 34,31,942. The photocopies of these documents/invoices are placed at pp. 385 to 392 of the paper book. All these invoices relate to the period 1991 and thereafter. Similarly, item-wise details of commodities exported and rates mentioned at SI. No. 4 aggregating to US dollars 34,31,942 appear at pp. 383 and 384 of the paper book. These relate to the period from 30-9-1991 to 30-9-1993. None of these documents relate to the assessment year under reference. We have also referred to various other documents referred to by the CIT(A) in the impugned order and none relates to assessment year under reference.
In fact, the assessee has also filed a small paper book containing documents referred to by the CIT(A) and its comments thereon. Besides, these have also been referred to at pp. 42 to 96 of the paper book No.4 submitted on 20-5-2006. None of these documents relate to the assessment year under reference. In fact, during the course of hearing of the appeal, the learned Departmental Representatives were specifically asked to separately furnish documents relating to assessment years under reference. The learned Departmental Representatives failed to furnish the same. Even, the learned CIT(A) in the impugned order for the assessment year 1991-92 has admitted that the seized documents do not relate to the assessment year under reference. However, he has taken into account the fact that the assessee failed to produce the books of account and referred to the seized documents, some of which include audited accounts of the company abroad indicating substantial investments of the Sachdeva's abroad. The CIT(A) has observed that the circumstantial evidence show that the assessee must have made these investments out of the earnings of the earlier period. Besides, he has referred to the statement of Shri Kranti Arora, wherein be stated that the assessee had resorted to underinvoicing of exports right from the year 1980 to 1993. Thus, it is clear that none of the documents seized during search by the FERA authorities relates to the assessment year under consideration. In the absence of any such direct evidence available on record, the addition cannot be made only on the basis of assumption that the assessee must have underinvoiced exports for the assessment years under reference as well.
Apart from the above, it is a fact that the search action was carried out by the FERA authorities. As per show-cause notice issued to the assessee, the case made out against the assessee was that during the period from 1980 to 1993, the assessee made exports aggregating to Rs. 481 crores to various parties abroad and underinvoiced these exports by 30 per cent of the actual agreed price and parked foreign exchange earnings aggregating to Rs. 144.3 crores abroad. However, as per adjudication order dated 28-2-2002 of the Special Director, Enforcement Directorate copy placed at pp. 100 to 157 of paper book-I), all the charges levelled against the assessee were dropped on the ground that the charge of underinvoicing of exports has not been established. While deciding the matter, the adjudicating authority has referred to all those documents which have been referred to by the CIT(A) in the impugned order for the assessment year 1989-90. However, even after taking into account all those documents, the' adjudicating authority has come to the conclusion that the charge of underinvoicing has not been established against the assessee. The IT authorities had purely relied on those very documents which were seized by the FERA authorities. Apart from the enquiries made by the FERA authorities, no further enquiries were made by IT department. Even the statements of Shri Ashok Kumar Sachdeva, Shri Kranti Arora and Shri Vinod Sachdeva and others were recorded by the FERA authorities. No such statements were recorded by the assessing officer either during the course of assessment proceedings or even during the course of remand proceedings.
Thus, by referring to the same evidence and material the Special Director had found that charge of underinvoicing has not been established against the assessee. It may, however, be added that at the time of hearing of the appeal, the learned Departmental Representative submitted a letter stating that Enforcement Directorate has filed a revision petition against the order of the Special Director and the same was pending with the Tribunal for Foreign Exchange. A copy of the same was also placed before us. But neither date on which such revision petition was filed mentioned nor the outcome of the same has been mentioned. In any case, the impugned order, is based on the investigation made by the FERA authorities alone and the competent authority has already recorded his finding that the charge of underinvoicing has not been established. In the case of CIT v. KS.Bhatia (supra), the Hon'ble Punjab & Haryana High Court has held that where the relevant addition was made on the basis of assessment order passed the sales-tax authorities and on appeal the said order has been set aside, the very basis of the addition made for the income-tax assessment disappears and such addition cannot be sustained. The same view was taken by the Hon'ble Punjab & Haryana High Court in the case of CIT v. Somani Pilkingtons Ltd. (supra), where it was held that in a case where the show-cause notice issued by the Central Excise authorities which contained annexure were made basis of show-cause notice issued by the IT department to assessee for making addition to income of assessee-company, had been set aside by the Hon'ble High Court, annexures to the show-cause notice had lost their relevance and validity and, therefore, addition could not be made in the hands of the assessee by relying on such show-cause notice. This is also relevant for the present case because here also, the assessing officer has relied on only documents and statements recorded by the FERA authorities which have not been accepted by the Special Director, Enforcement Directorate. Thus, the very basis of addition made by the assessing officer and sustained by the CIT(A) disappears in this case.
The other important aspect which goes in favour of the assessee is that the documents found during the course of search by FERA authorities relate to the subsequent assessment years 1990-91, 1991-92, 1992-93, 1993-94 and 1994-95. The assessing officer initiated reassessment proceedings for all these assessment years and issued notices under section 148 on 24-1-2001. Copies of the same had been placed on our file. The learned counsel for the assessee submitted that the department had not made any reassessment for these assessment years. In fact, on enquiry it was learnt that these assessment had become time-barred. When the department has not made additions for the assessment years when there was direct evidence in the form of seized documents indicating underinvoicing for those assessment years, there is no justification for making such additions when there are no documents relating to these assessment years indicating underinvoicing of exports.
In the remand order, the learned CIT(A) had given clear directions to the assessing officer that the documents seized by the FERA authorities referred to in the show-cause notices issued to the assessee and mentioned by the learned CIT(A) in the remand order should be obtained from the FERA authorities and confronted to the assessee. In fact, the learned counsel for the assessee drew our attention to repeated requests made to the assessing officer for furnishing copies of such documents so as to enable the assessee to rebut such contentions.
However, in the remand report, the assessing officer submitted that the assessee was not giving proper reply as such documents received from the FERA authorities could not be confronted rather the assessee does not want that it should be confronted with the documents. This is referred to in p. 7 of the impugned order where the remand report has been reproduced by the CIT(A). The learned CIT(A) has also mentioned on *p. 23 of the impugned order that the documents seized by the FERA authorities were already in possession of the appellant and assessee's counsel had admitted this fact. The learned counsel for the assessee vehemently contested such observations made by the CIT(A) in the impugned order. He submitted that repeated requests were made to the assessing officer for furnishing copies of the documents so as to enable the assessee to make effective representations on the same. He submitted that such request was never acceded to. It is settled position that if the department wants to rely upon certain documents for making additions against the assessee, the assessing officer must confront the same to the assessee, failing which such evidence cannot be used against the assessee. Assuming for a while that even if such documents were available, it was the duty of the assessing officer to furnish copy of the same before relying on such documents. In case of Kishan Chand Chellaram v. CIT (supra) it was held that before the IT authorities could rely upon certain documents, it was incumbent upon them to confront the assessee with such documents. Besides, the Hon'ble Supreme Court further held that before relying on any statement, the assessing officer was bound to confront such statements to the assessee and allow an opportunity to cross-examine the person whose statement was recorded and being relied upon, if it was also an evidence to be used against the assessee. If not confronted, the same was not admissible evidence. Similar view was taken by the Hon'ble Supreme Court in the case of R.B. Shreeram Durga Prasad & Fatechand Nursing Das v. Settlement Commission (supra). Thus, any reliance on the documents seized by the FERA authorities which were not confronted to the assessee violated the principles of natural justice and hence not admissible evidence.
The only evidence for making the addition for the assessment years under reference is the confessional statement of Shri Ashok Kumar Sachdeva recorded by the FERA authorities which was subsequently retracted. Once the statement was retracted by Shri Ashok Kumar Sachdeva, the assessing officer should have recorded his statement under the Income Tax Act. No such enquiry was made and statement of Shri Ashok Kumar Sachdeva or any other person was never recorded by the assessing officer. The other statement which is against the assessee is of Shri Kranti Arora where he stated that underinvoicing was resorted to by the assessee right from the year 1980 to 1993. But here also, the assessee was never confronted with the said statement and was not allowed an opportunity to cross-examine Shri Kranti Arora. Therefore, the same could also not be made use of against the assessee, more so when there is no independent evidence relating to the assessment years under reference, to establish that the assessee had resorted to underinvoicing of exports for the assessment years under reference.
Thus, the CIT(A) was not justified in sustaining the impugned additions for the assessment years only by relying on the statement of Shri Ashok Kumar Sachdeva which also stood retracted and statement of Shri Kranti Arora which was not supported by independent corroborative evidence relating to the assessment years under reference and was neither confronted to the assessee nor assessee was allowed an opportunity of cross-examination. Thus, in the light of these facts and circumstances of the case and the detailed discussions in the preceding paragraphs and the legal position discussed above, we are of the considered opinion that the learned CIT(A) was not justified in sustaining the additions for the assessment year 1989-90. Accordingly, we set aside the order of the learned CIT(A) and delete the impugned additions.
The order of the CIT(A) for the assessment year 1988-89, deleting addition on merits is upheld for the detailed reasonings given above.
Accordingly, the ground No. 2 of appeal of the revenue for the assessment year 1988-89 is dismissed. The grounds of appeal of the assessee for the assessment year 1989-90 relating to merits of the additions are allowed.
As regards other grounds relating to deductions under sections 80HHC and 80-I and charging of interest under sections 234A and 234B, these are consequential only. Since the addition made for the assessment year 1989-90 has been deleted, these grounds are only of academic interest.
Therefore, these grounds are disposed of in these terms.
In the result, the appeal filed by the revenue for the assessment year 1989-90 is partly allowed and the appeal filed by the assessee for the assessment year 1989-90 is also partly allowed.