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TMI Blog2005 (3) TMI 399X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed by the CIT(A) by his order dt.2nd Sept., 1998. In appeal, Bench 'D' of the Tribunal in ITA No. 5228/Del/1998 set aside the orders of the authorities below restoring the matter back on the file of the AO with the direction to decide the case afresh after giving due opportunity to the assessee. 3. The assessee was proprietor of a concern called Basera Exports, which was engaged in the business of exporting a variety of goods. A search was conducted on the office premises of the assessee on 24th/25th Aug., 1994under s. 132 of ,the Act. In the course of search, the authorised officer recorded a statement of Late Shri Vinod Grover, husband of the assessee, who also held her general power of attorney. It is an admitted position that Late Sh. Grover carried on the entire business of the assessee and the assessee was, therefore, not examined by the authorised officer. Subsequent to the search, the assessee in response to the summon under s. 131 of the Act issued by the ADI (Inv.), also endorsed her husband's statement. 4. On 13th Sept., 1994, i.e., about 21 days after the income-tax search, another search was conducted by the officers of the Enforcement Directorate under s. 37 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export receipts were not the receipts for exports in real sense, therefore, the deduction under s. 80HHC cannot be allowed to the assessee." 7. The CIT(A) upheld the order of the AO on the basis of the FERA statements of Shri Grover. He also did not accept the contention that in view of Shri Grover's retraction before the Magistrate on14th Sept., 1994, the FERA statement had no evidentiary value. The relevant observations of the CIT(A) are reproduced below: "regarding her contention that the statement of Sh. Grover recorded by the FERA authorities is not of any evidentiary value as the statement recorded was under duress when he was under heavy medication is not tenable as no such issue was raised earlier, therefore, it is an afterthought and it is not that uncommon, that a person who has made a confession against his interest during any interrogation before such an authority as FERA, he would try to retract from such admission by charging that such statement was recorded involuntarily/under duress. The Supreme Court, in one such case, has clarified that there need not be a presumption that such a statement recorded is always involuntarily. In the context of provisions of s. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned by you in these transactions? A. We would have made net profit of approximately Rs. 60,00,000 on an export of Rs. 5 crores. Q. Kindly furnish the details of goods being exported by you against which the payments were made. A. We were exporting tips for ball point pens. Q. You have made the payment during April, 1994 to September, 1994, on instructions on behalf of Manu of Dubai to Gurmeet Singh and Bhagwan and other parties onIndia. Please mention the amount paid to these persons. A. I have made payments of Rs. 3,50,00,000 to Gurmeet Singh on instructions of Manu of Dubai during the said period and also Rs. 1,50,00,000 to Bhagwan on the instruction of same person, Mr. Manu ofDubai. Regarding the payment to other persons I have paid amounts totaling of Rs. 4 lakhs on instruction of Manu. On inquiry I state that the persons of Gurmeet Singh used to come to me and speak at codes, i.e., Jai Jhulela, Jai Mata Di, etc. These codes I also used to get from Manu and in this manner all these payments were made in instalments on different occasions to these persons. Q. What was the source of funds for making these huge payments inIndia? It appears you have also received som ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tement of Sh. Grover, the general power of attorney (GPA) holder of the appellant show that he was carrying on the hawala transactions in the garb of export business of M/s Basera Exports. The claim of the appellant that all payments which were received fromDubaiwere on account of exports made by the appellant and the withdrawals were further used for the purpose of exports business of the appellant is not correct. The fact is, the payments were received fromDubaifor the purpose of disbursing the hawala money to the Indian contacts of Manu of Dubai. The reply to the last question mentioned above clearly shows that Sh. Grover himself used to make export orders on the pre-signed letterheads of the buyers. Thus, the genuineness of these orders itself is in doubt. The said orders have been fabricated for the purpose of soliciting export licenses and in turn to make inflated invoices to receive the hawala money fromDubai. The purchase of ball pen tips in cash, which was the only item of export shows that ball- pen tips may be of a sub-standard quality and were purchased only for the purpose of making export invoices which too, as per Sh. Grover's admission, were over-invoiced by 100.5 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heavy medication. It is contended that seen in this light the FERA statement has no evidentiary value. He also distinguished the decisions relied on by the CIT(A). According to him, the Supreme Court's decision in Ambalal vs. Union of India 1961 SCR 933 : AIR 1961 SC 264 is distinguishable as the retraction was made long after the statement under s. 40 of FERA was recorded and there was no allegation that the statement was not voluntary. The grievance of the accused in that case was that his statement was recorded in English, which he did not understand. He also argues that the decision in C. Sampath Kumar vs. Enforcement Directorate (1997) 8 SCC 358 : 1997 (96) ELT 511 (SC) in fact supports the assessee. 12. It is submitted that the assessee had produced before the AO all original documents in support of her claim and also filed their copies, which, inter alia, included purchase vouchers, bank statement indicating payments to vendors by pay orders, bank attested invoices, export promotion copies and port trust copies of the shipping bills, bills of lading, bank realisation certificates and DEEC pass book containing endorsement of Customs authorities. The Revenue was not justifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO even though the statement gives their telephone numbers and addresses. Further, no attempt was made by the AO to examine Shri Grover on his statement though he was alive till October, 1997. The AO seriously also erred in tarring all the export transactions by the same brush. He drew our attention to the export statements which clearly show that there were exports of about Rs. 10 lakhs toUSAandHong Kong. He alleges that this lapse is indicative of non-application of mind by the AO. It is submitted at the end that no corroboratory evidence has been adduced by the Revenue and their action in not granting relief under s. 80HHC is based on surmises and suspicion only. 15. The learned Departmental Representative vehemently supported the orders of the authorities below. He further states that a comparison of the liquid assets in the balance sheets of the assessee as on 31st March, 1994 and 31st March, 1995 clearly shows that at best the assessee could have mobilised funds of about Rs. 2 crores only, whereas she has shown purchases of as much as Rs. 6.5 crores worth of brass tips. He states that Shri Vinod Grover had admitted before the FERA authorities that he had made purchases i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rary, the view taken by the Revenue that what was received was not export sales but Hawala remittances, therefore, becomes untenable. There could be no question of his receiving Hawala monies and disbursing them according to instructions of 'Mr. Manu' during the period of his detention. 18. We also find that despite being aware that Vinod Grover had made an inculpatory statement before FERA authorities, the AO made no attempt to examine him though he was alive till17th Oct., 1997when he died of heart attack. We also note that though Vinod Grover in FERA statement mentions the names of certain persons and their addresses and telephone numbers to whom he admitted having paid sums on behalf of Manu of Dubai. However, no enquiry was made by the AO to contact those people and examine them with a view to testing this story. The assessee had also filed an affidavit, dt.10th March, 2003, with the CIT(A) stating that no prosecution has been initiated or is pending against Basera Exports. The CIT(A) has dismissed this affidavit saying that no documentary evidence has been filed. We are of the view that CIT(A) was not correct in dismissing the affidavit without ascertaining the factual posi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi High Court in the case of Director of IT vs. Degussa A.G. Germany (2004) 187 CTR (Del) 295 : (2004) 270 ITR 301 (Del). 20. We also do not agree with learned Departmental Representative that the opening and closing balances in the balance sheets as on31st March, 1994and31st March, 1995should be compared to find out the source of funds for purchases during the relevant financial year 1994-95. Such a method is contrary to the principles of accounting because it does not take into account financial transactions, both on the debit and the credit side, undertaken during the intervening year. The purchases were admittedly made on credit and the payments were made from the bank accounts of the assessee as and when she received the remittances on exports. 21. Coming to the question of evidentiary value of Sri Grover's FERA statement, it is now settled law that though a statement under s. 40 of FERA can be used against the assessee, the Courts must also take into account circumstances in which such a statement was made and the subsequent retraction. We have, gone through the Panchnama drawn up by the Enforcement Officer on conclusion of the FERA search and the statements of Shri G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act and cannot be in the nature of any evidence. In the case of R.R. Gavit vs. Smt. Sherbanoo Hasan Daya (1986) 55 CTR (Bom) 427 : (1986) 161 ITR 793 (Bom), the Bombay High Court has held that where "the caption of the statement was 'on oath/solemnly affirmed'. Neither of the two had been struck to prove beyond doubt that the statement was given on oath". It has also been held by the Supreme Court in the case of K.T.M.S. Mohammad Anr. vs. Union of India (1992) 108 CTR (SC) 84 : (1992) 197 ITR 196 (SC) that FERA and IT Act are two separate and independent special Acts operating in two different fields and, therefore, the significance of statement recorded under the provisions of FERA must be examined only qua the provisions of FERA and not with reference to the provisions of IT Act. Further, in absence of any examination by the AO it cannot be said that any inculpatory statement was made before the tax authorities. The Supreme Court also laid down that the Court must take both the statement under s. 40 as well as the retraction and give a finding about the nature of the repudiation and it was not legally permissible for the Revenue to bisect the two statements and make use of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that this money was earned from the business. While availing of the opportunity given under the provisions of Expln. 5 to s. 271(1)(c) r/w s. 132(4), Shri Grover made a surrender of Rs. 10 lakhs and the same was confirmed by the appellant vide her statement dt.7th Sept., 1994. In the appellate proceedings, it has been contended that at the time of surrender, Shri Grover had nowhere mentioned that this investment of Rs. 10 lakhs was made out of the unexplained resources. The investment of the said amount was duly reflected in the books of account. Hence, no addition should have been made on this account. The above contention of the appellant is not accepted, since Shri Grover, GPA holder of the appellant himself had surrendered this amount in response to the question No. 33 wherein, the authorised officer had asked him to avail of the opportunity under the provisions of Expln. 5 to s. 271(1)(c), and accordingly, was asked to make a disclosure of unaccounted income. In response to this opportunity only, Shri Grover had surrendered the said amount of Rs. 10 lakhs which was further confirmed/approved by the appellant vide her statement dt.7th Sept., 1994. The appellant cannot be all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned from business and the same has been invested in the renovation/alteration of the business premises No. B-62/14, Naraina Industrial Area,New Delhi. The disclosure has been made on behalf of M/s Basera Exports in the capacity of holder of general power of attorney from Smt. Sujata Grover, who is the proprietor of the firm." 26. It is urged that earlier in response to questions No. 27 and 28, Shri Grover had clearly stated that whatever investment made on the building has been duly accounted in the books of account. However, in response to question No. 33 his answer was contradictory and incoherent. That he states that he made the said investment out of business income of the assessee and yet he makes the surrender. It is argued that apparently, he remembered that he had made a payment of Rs. 10 lakhs in the current financial year which was accounted for in the earlier year. Our attention was drawn to the bills of interior decorators called Nirman, Noida, filed with the AO. It is seen from the bills that there was extensive renovation of the office premises during the financial year 1993-94. On5th Jan., 1994, the assessee received a bill of Rs. 21,93,340 which was passed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atement of Vinod Grover when she was examined under s. 131 of the Act by the ADI (Inv.) on7th Sept., 1994. We do not think that much importance can be attached to the statement of Mrs. Sujata Grover for the reason that she was not examined at the time of the search and the Revenue itself has taken the stand that she was not involved in the business affairs, which were entirely managed by her husband who also hold her general power of attorney. The CIT(A) has not accepted that the expenditure was duly reflected in the books of account on the ground that the books of account for the earlier year as well as current year were not found at the title of search. These were also not produced in the post-search inquiries and these were, therefore, not reliable. The learned counsel has drawn our attention to question Nos. 25-26 of Shti Grover's statement. Sh. Grover had explained to the authorised officers that the books of account for earlier year and current year were lying with the chartered accountant. It is contended that no attempt was made by the authorised officer or by the AO to either contact or issue summons to the chartered accountant for production of the books of account. In re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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