1988 (7) TMI 120 - AT - Income Tax

Summary

Issues Involved:
1. Validity of reopening the assessment.
2. Merits of the reassessment.
3. Alleged under-invoicing of exports.
4. Alleged connection with M/s Gemmes Du Monde.
5. Opportunity to cross-examine Mr. John Ashlyn.

Detailed Analysis:

1. Validity of Reopening the Assessment:
The primary issue was whether the reopening of the assessment for the assessment years 1967-68 and 1968-69 was valid. The original assessments were completed on 31st March 1969 and 11th April 1969. The reopening was based on a complaint by Mr. John Ashlyn, alleging under-invoicing of exported goods. The reopening was sanctioned by the CBDT on 3rd Feb. 1981. The Tribunal held that the material provided by Mr. John Ashlyn and the documents attested by the Consulate General of India were sufficient for forming a belief of income escapement. Therefore, the initiation of proceedings under Section 147(a) was valid. However, for the assessment year 1967-68, since a reassessment was already pending, issuing a fresh notice under Section 148 was invalid, making the reassessment proceedings void ab initio.

2. Merits of the Reassessment:
The reassessment was based on the allegation that the assessee exported goods at half the price and the goods were re-exported at double the price by M/s Salas S.A. The Tribunal found that the evidence provided by Mr. John Ashlyn, including invoices and statements, raised suspicion but did not conclusively prove under-invoicing. The Tribunal noted that a substantial quantity of goods returned by Salas was re-exported at the same value, contradicting the under-invoicing allegation. Additionally, the Enforcement Directorate did not find any violation of the Foreign Exchange Regulation Act (FERA), which further weakened the case against the assessee.

3. Alleged Under-Invoicing of Exports:
The Tribunal examined the invoices and other documents provided by Mr. John Ashlyn. The invoices raised by the assessee on Salas bore the Swiss Customs stamp, indicating they represented the full value. The Tribunal found no evidence of an agreement between the assessee and Salas for under-invoicing. The lack of consignment invoices and confirmation from the New York parties (Eastrade Inc. and Eastrade Emerald Corporation) further weakened the allegation. The Tribunal concluded that the evidence was insufficient to establish under-invoicing.

4. Alleged Connection with M/s Gemmes Du Monde:
The Tribunal examined the allegation that $110,000 was transferred to M/s Gemmes Du Monde on the instructions of the assessee. The Tribunal found no evidence connecting the assessee with M/s Gemmes Du Monde. The documents provided by Mr. John Ashlyn were not corroborated by independent evidence. The Tribunal noted that the Enforcement Directorate did not find any connection between the assessee and M/s Gemmes Du Monde, further weakening the allegation.

5. Opportunity to Cross-Examine Mr. John Ashlyn:
The assessee argued that they were not given an opportunity to cross-examine Mr. John Ashlyn. The Tribunal noted that the CIT(A) held it was the assessee's responsibility to produce Mr. John Ashlyn. The Tribunal disagreed, stating that the Revenue should have provided the opportunity for cross-examination. The lack of cross-examination further weakened the case against the assessee.

Conclusion:
The Tribunal found that the reopening of the assessment for the assessment year 1967-68 was invalid due to the pending reassessment. For the assessment year 1968-69, the Tribunal found that the evidence was insufficient to prove under-invoicing or any connection with M/s Gemmes Du Monde. The Tribunal quashed the reassessment for both years, allowing the appeal for the assessment year 1967-68 and partially allowing the appeal for the assessment year 1968-69.