1992 (12) TMI 82 - AT - Income Tax

Summary

Issues Involved:
1. Reopening of assessments under Section 148 based on information from foreign sources.
2. Additions for alleged unrecorded/suppressed sales to M/s Salas S.A.
3. Additions for unexplained credits in the books of M/s Salas S.A. in the account of the assessee.
4. Additions for alleged suppression of the value of closing stock with M/s Salas S.A.
5. Compliance with principles of natural justice and provisions of Section 142(3) of the IT Act.
6. Authenticity and reliability of documents and statements from foreign sources.

Detailed Analysis:

1. Reopening of Assessments Under Section 148:
The assessments for the three years were reopened based on information from foreign sources, specifically from a statement by John Ashlyn and documents related to transactions with M/s Salas S.A. of Geneva. The Tribunal noted that the reopening was based on photostat copies of transactions authenticated by the Indian Consulate General in Geneva and a statement from John Ashlyn recorded in the USA. The Tribunal found that the relationship between John Ashlyn and M/s Salas S.A. was unclear and his capacity in giving the statement was not established.

2. Additions for Alleged Unrecorded/Suppressed Sales:
The Assessing Officer made additions for alleged unrecorded/suppressed sales to M/s Salas S.A. for the assessment years 1973-74, 1974-75, and 1975-76. The Tribunal found that the assessee maintained regular books of account and all its purchases and sales were vouched. The assessee explained that all exports were on a consignment basis and were properly documented and verified by customs and banking authorities. The Tribunal noted that the documents used against the assessee were not provided to them, violating principles of natural justice and Section 142(3) of the IT Act.

3. Additions for Unexplained Credits:
The Assessing Officer made additions for unexplained credits in the books of M/s Salas S.A. in the account of the assessee. The Tribunal found that the documents did not clearly show the name of the party or the currency involved, and the entries were not in chronological order. The Tribunal held that these documents were not reliable and could not be the basis for rejecting the assessee's books of account.

4. Additions for Alleged Suppression of Closing Stock Value:
Additions were made for alleged suppression of the value of closing stock with M/s Salas S.A. The Tribunal found that the assessee's method of accounting treated goods as sold only when the sale amount was received. The Tribunal held that there was no justification for enhancing the valuation of the closing stock lying with the agent on a consignment basis.

5. Compliance with Principles of Natural Justice:
The Tribunal noted that the assessee was not confronted with the documents used against them, nor were they given an opportunity to cross-examine John Ashlyn or representatives of M/s Salas S.A. The Tribunal held that this was against the principles of natural justice and provisions of Section 142(3) of the IT Act. The Tribunal emphasized that proving the documents and providing their copies was part of the proper opportunity contemplated under Section 142(3).

6. Authenticity and Reliability of Documents and Statements:
The Tribunal found that the documents relied upon by the Revenue were photocopies of photocopies, not signed by any party, and not authenticated by any customs or postal authorities. The Tribunal also noted that the statement of John Ashlyn was casual and lacked credibility. The Tribunal observed that the Revenue failed to prove the authenticity of the documents and the veracity of John Ashlyn's statement. The Tribunal also referenced similar cases where FERA authorities dropped proceedings based on similar evidence, citing lack of authenticity and corroboration.

Conclusion:
The Tribunal concluded that the evidence relied upon by the Revenue was not credible and could not be used to make additions to the assessee's income. The Tribunal directed that all additions made by the lower authorities to the originally assessed income of the assessee for the three years be deleted. All three appeals were allowed.