2008 (4) TMI 424 - AT - Income Tax

Summary

Issues Involved:
1. Legitimacy of the receipt of Rs. 23,15,000 by the assessee.
2. Applicability of Section 69A of the Income Tax Act.
3. Compliance with Section 3(c) of the Foreign Exchange Management Act (FEMA), 1999.
4. Adequacy of evidence and independent enquiry by the Assessing Officer (AO).
5. Onus of proof and the right to cross-examine witnesses.

Issue-wise Detailed Analysis:

1. Legitimacy of the receipt of Rs. 23,15,000 by the assessee:
The Revenue concluded that the amount of Rs. 23,15,000 received by the assessee from Shri K. Mohd. Imran between November 2002 and January 2003 was escaped income for the assessment year 2003-04. The assessee claimed that the money was received on behalf of his brothers and brother-in-law for the construction of their houses. However, statements from his relatives, obtained by the AO, denied sending any money through non-bank channels. The CIT(A) held that the onus was on the assessee to explain the source of the funds, which he failed to do satisfactorily.

2. Applicability of Section 69A of the Income Tax Act:
The AO assessed the amount under Section 69A of the IT Act, which pertains to unexplained money, bullion, jewelry, or other valuable articles. The Tribunal found that the AO did not make any independent enquiry about the cash balance, investments, or assets owned by the assessee for the relevant assessment year. The only evidence relied upon was letters signed by Shri Abdul Hameed on behalf of his brothers and brother-in-law, which were deemed to lack evidential value. The Tribunal concluded that the AO was not right in law in assessing the amount under Section 69A.

3. Compliance with Section 3(c) of the Foreign Exchange Management Act (FEMA), 1999:
Section 3(c) of FEMA prohibits receiving any payment by order or on behalf of any person resident outside India otherwise than through an authorized person. The assessee was charged under this section and penalized by the Directorate of Enforcement for receiving Rs. 23,15,000. The Tribunal noted that the charge and penalty under FEMA indicated that the amount was received on behalf of the assessee's relatives abroad, not as his own income.

4. Adequacy of evidence and independent enquiry by the Assessing Officer (AO):
The Tribunal criticized the AO for not conducting an independent enquiry and relying solely on documents and statements obtained from the Directorate of Enforcement. The AO did not verify whether the amount received by the assessee was diverted to his relatives or appropriated for himself. The Tribunal emphasized that the Revenue must rely on the entire set of documents from another authority, not just parts of it.

5. Onus of proof and the right to cross-examine witnesses:
The Tribunal observed that the assessee was not given the opportunity to cross-examine the persons whose statements were relied upon by the AO. The assessee's counsel argued that the statements from his relatives denying receipt of money through non-bank channels were made out of fear of penal action by the Directorate of Enforcement. The Tribunal found that the Revenue's reliance on partial documents from the Enforcement Directorate was unjustifiable and that the assessee should not be taxed unless it was proved beyond doubt that the income was generated for him alone.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, concluding that the amount of Rs. 23,15,000 was not unexplained money belonging to the assessee for the assessment year 2003-04. The Tribunal found that the assessee acted as a conduit for the funds received on behalf of his relatives and that the AO's assessment under Section 69A of the IT Act was not in accordance with law. The Tribunal also highlighted the lack of independent enquiry and the improper reliance on partial evidence by the Revenue.