1989 (6) TMI 96 - AT - Income Tax

Summary

Issues Involved:
1. Initiation of proceedings under Section 147.
2. Adequacy of opportunity provided to the assessee.
3. Authenticity and evidentiary value of legalised documents.
4. Violation of principles of natural justice.
5. Protective assessment and substantive addition.
6. Examination and cross-examination of foreign nationals and original documents.
7. Independent enquiry by the Income Tax Department.
8. Overlapping of jurisdiction between IT Department and Enforcement Directorate.
9. Admissibility of photocopies as primary evidence.
10. Re-hearing and re-assessment directives.

Detailed Analysis:

1. Initiation of proceedings under Section 147:
The proceedings under Section 147 were initiated against the assessee based on information from M/s Salas S.A., Geneva, regarding violations of the Foreign Exchange Regulation Act (FERA) and income escapement. Notices under Section 147(a) were served, and enquiries were conducted. The Tribunal upheld the CIT(A)'s view that proper copies of documents should be supplied to the assessee, allowing them an opportunity to state their case.

2. Adequacy of opportunity provided to the assessee:
The assessee contended that the IAC did not provide adequate opportunity to meet the evidence in the photocopies supplied. The CIT(A) and the Tribunal agreed that the appellant should be given a fair chance to present their case after receiving proper copies of the documents. The Tribunal emphasized that the ITO must provide reasonable opportunity for the assessee to explain all transactions before making any assessment.

3. Authenticity and evidentiary value of legalised documents:
The ITO relied on photocopies of documents attested by the Consular Agent of India in Geneva. The assessee argued that these documents lacked evidentiary value. The AAC held that the legalised documents were used in accordance with the Indian Evidence Act, and the onus was on the appellant to establish their authenticity. The Tribunal noted that the AAC did not examine each document in light of the objections raised by the assessee.

4. Violation of principles of natural justice:
The assessee claimed a violation of natural justice, arguing that they were not given full opportunity to explain their case. The Tribunal observed that the authorities below were influenced by the Rajasthan High Court's observations in the Vimal Chandra Golecha case, which the Supreme Court had dismissed, emphasizing that the assessing authorities should not be guided by those observations.

5. Protective assessment and substantive addition:
The ITO made a protective assessment in the hands of the assessee, indicating substantive addition in the case of M/s Cosmopolitan Trading Corporation. The Tribunal directed the first appellate authority to examine whether any addition could be made on a protective basis, especially when there was no evidence of the assessee carrying on any business in an individual capacity.

6. Examination and cross-examination of foreign nationals and original documents:
The assessee requested the examination of the original books of M/s Salas and the cross-examination of Mr. John Ashlyn. The AAC and ITO did not facilitate this, citing practical difficulties. The Tribunal emphasized that Section 131 of the CPC, read with Sections 75 and 77, provides sufficient authority to summon a foreign national or issue a letter of request.

7. Independent enquiry by the Income Tax Department:
The Tribunal noted that there was no evidence that the Department had conducted an independent enquiry to verify the statements and accounts of M/s Salas. The Sr. Departmental Representative admitted that no such exercise was carried out, shifting the onus to the assessee to prove the evidence baseless.

8. Overlapping of jurisdiction between IT Department and Enforcement Directorate:
The Tribunal highlighted that the IT Department does not have jurisdiction to hold that the assessee violated FERA provisions. Such determinations fall within the purview of the Enforcement Directorate. The Tribunal observed that there was no evidence of any orders from the Enforcement Directorate against the assessee for FERA violations.

9. Admissibility of photocopies as primary evidence:
The Tribunal pointed out that the law of evidence requires certified copies to be admitted as primary evidence. In this case, only photocopies of attested copies were provided. The Tribunal directed the first appellate authority to adjudicate on the admissibility of these copies as primary evidence.

10. Re-hearing and re-assessment directives:
The Tribunal directed the first appellate authority to re-hear the appeal afresh, considering all observations and issues raised. The AAC must pass a speaking order, addressing each ground raised by the assessee, ensuring a fair and just determination of the case.

Conclusion:
The appeals were treated as allowed for statistical purposes, with directives for a comprehensive re-assessment and re-hearing, ensuring adherence to principles of natural justice and proper examination of all evidence and objections raised by the assessee.