TMI Blog2005 (9) TMI 221X X X X Extracts X X X X X X X X Extracts X X X X ..... on a limited issue regarding admissibility of deductions under sections 32AB and 80HHC. 2. That the ld. 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 under-invoicing of export by the assessee apart from confessional statement of partner Shri Ashok Sachdeva when on the similar facts and circumstances the ld. 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." 3. 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 Commissioner of Income-tax (Appeals) is illegal and is perverse. 2. That the Commissioner of Income-tax (Appeals), 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 Sh. Ashok Sac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der sections 80HHC and 80-I on the alleged under-invoicing 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 w.e.f. 1-4-1990 and not w.e.f. 1-4-1989." 4. 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 ld. 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, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment. The Assessing Officer observed that since foreign exchange equivalent to under-invoiced 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 Sh. 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, 12-8-1097 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee, 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. 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. 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.). 2.5 Since the earlier 148 proceedings were still pending as a result of the order of the Hon'ble ITAT, Amritsar Bench dated 20-3-1998, the issuance of another notice for reassessment dated 4-4-1999 during the pendency of the earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he concern of the Hon'ble ITAT. 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." 8. While deciding the appeal on merits, the ld. 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 Act. But subsequently, Special Director (Enforcement), New Delhi vide his order dated 28-2-2000 dropped all 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 paragraphs 2.7 and 2.8 of the order are as under: "2.7 The above notwithstanding, the Special Director, Enforcement, New Delhi, has dropped all the charges against Sh. Ashok Sachdeva vide his 58 page 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 Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. If was also argued that the statement of Sh. Ashok Kumar Sachdeva recorded by FERA authorities on 31-5-1997 was subsequently retracted. It was also argued that alternatively the statement made by Sh. 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 Stuff 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 under-invoicin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents 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 page 6, para 12 of the remand report. This indicated that the invoices in respect of which under-invoicing was alleged, are genuine and not forged or doubtful documents. This fact confirmed that the documents seized from the residence of Sh. Ashok Kumar Sachdeva and Sh. 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 offence 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 made by Sh. Ashok Kumar Sachdeva on 31-5-1997 before FERA authorities wherein he admitted that his firm was under invoicing the exports. This statement is further corroborated by large number of documents seiz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up to September, 1991, but the source therein must have been out of the income earned by way of under-invoicing of exports of the earlier years. This also lends support to the charge of under-invoicing against the assessee. (vii) He referred to page 230 of annexure-6 which is a copy of declaration from Black Brings and Co. C.A. Babri House, 26-36, Old Street London dated 16-4-1997 addressed to Sh. Kranti Arora stating that the funding of the company i.e., M/s. Greenocks Holding Ltd. was not done by Sh. 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the opportunity provided to him during the remand proceedings. (x) The file marked 'A' consisted of pages 1 to 42 related to the business transaction of Sachdeva Sons. This file contained documents which showed clear cases of under-invoicing, 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, 135, 144, 147 and 231 contained in file marked 'B' which was recovered from the residential premises of Sh. Kranti Arora and which are admittedly in the handwriting of Vinod Sachdeva and the same contained clear cut evidence of under-invoicing done by the assessee-firm. These documents were confronted to the assessee during the remand proceedings, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 G.P. shown was in the region 14 to 15 per cent. But in the present case, the G.P. 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 Sh. Ashok Kumar Sachdeva and Sh. 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 under-invoicing 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 under-invoicing. The assessee's submissions that the sales were made at a rate higher than fixed by the Government did not find favour with the ld. CIT(A) for the reason that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer 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 ld. CIT(A) has 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. 11.1 The ld. DR further argued that in para 2.6 of the impugned order for the assessment year 1988-89, the ld. CIT(A) has held that there was force in the contentions of the ld. AR 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 ld. DR submitted that during the course of appeal proceedings, it was brought to the notice of ld. 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 ld. CIT, Amritsar had returned the order to the Tribunal vide letter 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.)/93 dated 2-4-1998 sent the order to CIT (Central), Ludhiana who had the jurisdiction over the case. This order was received by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... btaining 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 ld. 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. 11.3 As regards the assessment year 1989-90, the ld. DR filed written submissions which are at pages 32 to 34 of the paper book. The ld. DR submitted that the assessment was reopened on the basis of statement of Sh. 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 pages 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 under-invoicing the exports and besides the Enforcement Directorate had also issued show-cause notices for violation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee and other family members. He submitted that such under-invoicing was done through M/s. Wani International, Dubai, later changed to M/s. Rice and Food Stuff Trading Co. which was also supported by a letter written by Sh. Vinod Sachdeva to Sh. Paqrani at page 231 of the file marked 'B' seized from the residence of Sh. Kranti Arora. He submitted that all these relevant details have been discussed by the CIT(A) on pages 27 to 30 of the impugned order and the ld. CIT(A) has given detailed reasons for upholding the addition. The ld. DR heavily relied on the findings given by the CIT(A) in his order. 11.5 As regards ground Nos. 6 and 7 of assessee's appeal, the ld. DR. submitted that the ld. CIT(A) has given detailed reasoning in para 7.8 on page 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 ld. CIT(A) has rightly observed that while deciding the issue arising before the Income-tax Authorities, the matter can be decided by taking into account the surrounding circumstances and by applying the test of human probability. He also submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 600 to 650 crores. He submitted that his statement was very vague and nowhere Sh. Ashok Sachdeva had stated that he had under-invoiced export for the assessment years under reference. Subsequently, Sh. 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 pages 320 to 377 of the paper book. He submitted that for the assessment year 1988-89, the ld. CIT (Central), Ludhiana, quashed the reassessment on the ground that the initiation of reassessment proceedings, when the earlier proceedings initialed 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 ld. CIT(A) quashed the assessment vide order dated 28-2-1994. 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ld. CIT(A) has not decided the appeal on merits. 12.4 The ld. 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 in the same is based on wrong facts and misconception of the law. For this proposition, he relied on the following two judgments: (i) Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 (SC) (ii) Krishan Lal Shiv Chand Rai v. CIT [1973] 88 ITR 293 (Punj. Har.) Now the issue whether for the relevant assessment year, there has been under-invoicing 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 under-invoicing of exports for the assessment years under reference, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had exported the rice was much higher than the minimum price fixed by the Government. Thus, Special Director observed that the charge of under-invoicing 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: (i) CIT v. K.S. Bhatia [2002] 257 ITR 614 (Punj. Har.) (ii) CIT v. Somani Pilkington's Ltd. [2003] 133 Taxman 717 (Punj. Har.). 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment proceedings. No enquiry was made by the Assessing Officer with Sh. 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: (i) Kishinchand Chellaram v. CIT [1980] 125 ITR 713 (SC) (ii) CIT v. Rao Raja Hanut Singh [2001] 252 ITR 528 (Raj.) (iii) R.B. Shreeram Durga Prasad and Fatechand Nursing Das v. Settlement Commission [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 in AIR 1981 SC 205 (sic) and Sir Mohammed Yusuf v. D. AIR 1968 Bom. 112 and Chiranji Lal Steel Rolling Mills v. CIT [1972] 84 ITR 222 (Punj. Har.). 12.8 The learned AR 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 Sh. Kranti Arora was not recorded during the course of assessment proceedings by the Assessing Officer and simply relied on the confessional statement of Sh. Ashok Sachdeva and the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eb Mahmood [1977] 109 ITR 408, he submitted that mere fact there was under-invoicing does not mean that the assessee has earned such income. He also referred to the affidavit of Sh. 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 by the assessee were at a price higher than the price fixed by the Government. Thus, how could there be under-invoicing by the assessee. Therefore, he submitted that the action of the Assessing Officer for initiating reassessment proceeding 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. 12.10 The ld. DR 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 in the case of CIT v. ITAT [2000] 245 ITR 659 the ld. DR submitted that the period of limitation for filing a reference unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 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. 12.11 The learned AR joined the issue and stated that the Department has not been able to place any document on record to show that there was under-invoicing for the assessment year under reference. Therefore, the action of the Assessing Officer for reopening the assessment was illegal and bad in law. 13. 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 ld. CIT(A) Ludhiana was justified in quashing the reassessment for the assessment year 1988-89 on the ground that the reassessment proceedings initiated b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... int on remand. Even the Andhra Pradesh High Court in the case of Pulipati Subbaro Co. v. AAC [1959] 35 ITR 673, has held that the scope of powers of the ITO 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, 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. Kochhar v. ITO [1984] 145 ITR 225, where two questions were considered i.e., whether, after remand of the case by the Tribunal, ITO 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 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. 13.3 As already stated above, in none of the cases, relied upon by the ld. 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 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 properly 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 affected 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t proceedings. He was also directed not to communicate the same to the petitioner till further order of this Court. Pending these proceedings, the ITO issued a notice under section 148 of the Act on March 26, 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, ITO 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 ld. counsel held that once the case was set aside by the Tribunal and remained to the ITO, 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. 14. The second aspect on which the ld. CIT(A) has quashed the assessment is that the same had been barred by limitation. The ld. DR 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 that he did not quash the reassessment on this point. Now it is not in dispute that if the reopening of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 ld. CIT(A) decided the appeal in a summary manner without taking into account the fact that the ld. CIT(A), Jammu with Hqrs. 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 ld. 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 Hqrs. at Amritsar vide letter dated 1-1-2002 alongwith 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. However, while deciding the appeal for the assessment year 1988-89, the ld. CIT(A) has neither taken into account rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hok Kumar Sachdeva, partner in the firm was admitted that the firm was under-invoicing 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 Sh. Ashok Sachdeva, partner, recorded on 31-5-1997 shows that the assessee had sent Sh. Raj Sethia, Ramesh Sethia, maternal uncles of Sh. 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 Sh. T.R. Gambhir who was residing at Bangkok and amount was sent from Bangkok to Dubai under instructions from Sh. 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. (iv) All the export invoices were being raised on these parties and the goods were exported to the actual buyers. Sh. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities is at pages 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 Regulations 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 under-invoicing 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 under-invoicing 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 Foreign Exchange Regulations Act, 1973. Show-cause notice also referred to the fact that Sh. Vinod Sachdeva, brother of the assessee also abetted of the offence. Thereafter, on internal page 3, it has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... natures on it. They relate to our business transactions. Certain documents also confirmed our invoice manipulation, under-invoicing of exports and adjustments and transfers of funds from Dubai to other concerns. I further stated that the statement of Sh. Vinod Sachdeva and Sh. Kranti Arora both dated 30-5-1997 disclosed the activities of our business in and outside India. I further stated 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 any body else or in any court of law. Thereafter, he refers to floating of company in Dubai through his maternal uncles Sh. Raj Sethia and Ramesh Sethia by obtaining loan of 1 million US Dollars from Sh. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P.) Ltd. v. CIT [2002] 258 ITR 317, 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 [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 ITO had even not come to prima facie conclusion that loan transactions to which he referred were not genuine transactions. 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. His 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 ld. CIT also accorded approval in a mechanical manner without applying his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 Sh. 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 under-invoicing 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 prima facie evidence and material which enables the Assessing Officer to come to a conclusion that there 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 reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case which requires consideration is the action of the ld. 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 under-invoicing of exports were dropped. In fact, this order was specifically referred to in ground No. 4 taken before the CIT(A). The ld. 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, 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 ld. CIT(A) also directed the Assessing Officer that the assessee should be given proper opportunity to produce all evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Co. [1994] 206 ITR 574, the Hon'ble Gujarat High Court has held that powers of the AAC 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. 18. The CIT(A) has also powers to admit fresh evidence subject to the provisions of rule 46A. The provisions of rule 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) Wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zed 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 ld. 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. 19. Before parting with this issue, we would like to mention that the ld. 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 [2001] 252 ITR 528, where it was held that power of the Tribunal for admission of fresh evidence is circumscribed by rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963 and the same cannot be admitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 over-looked. It is settled law that suspicion, howsoever strong it may be, cannot form basis of additions. Since the ld. 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 under-invoicing 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 under-invoiced the exports for the assessment years under reference. The position that emerged after making such verifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd not to the accounting period under reference. 21.3 Item 4 on page 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 pages 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 Sl. No. 4 aggregating to US Dollars 34,31,942 appear at pages 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. 21.4 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 pages 42 to 96 of the paper book No. 4 submitted on 20-5-2005. None of these documents relate to the assessment year under referenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been established against the assessee. The Income-tax 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 Income-tax Department. Even the statements of Sh. Ashok Kumar Sachdeva, Sh. Kranti Arora and Sh. 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 under-invoicing has not been established against the assessee. It may, however, be added that at the time of hearing of the appeal, the learned DR 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 Appellate 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 impugne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for making such additions when there are no documents relating to these assessment years indicating under-invoicing of exports. 21.7 In the remand order, the ld. 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 ld. CIT(A) in the remand order should be obtained from the FERA authorities and confronted to the assessee. In fact, the ld. 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 could not be confronted rather the assessee does not want that it should be confronted with the documents. This is referred to in page 7 of the impugned order where the remand report has been reproduced by the CIT(A). The ld. CIT(A) has also mentioned on page 23 of the impugned order that the documents seized by the FERA authorities were already in possession of the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee right form 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 Sh. 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 under-invoicing 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 Sh. Ashok Kumar Sachdeva which also stood retracted and statement of Sh. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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