JUDGMENT

1. Both these reference applications arise out of a common order passed by the Income-tax Appellate Tribunal, Jaipur, on July 29, 1988, allowing two appeals filed by the assessee against the orders passed by the Income-tax Officer, Central Circle-I, Jaipur, and the Commissioner of Income-tax (Appeals) and also a common order dated February 22, 1989, passed by the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, rejecting the applications filed by the Revenue for reference of the questions of law to this court. Income-tax Reference Application No. 63 of 1989 relates to the assessment year 1968–69 and Income-tax Reference Application No. 64 of 1989 relates to the assessment year 1967–68. Since these applications arise out of a common order, we consider it appropriate to decide both these applications by a common order.

2. The facts which are necessary for the purpose of deciding these two reference applications are that for the assessment years 1967–68 and 1968–69, the assessee was assessed on March 31, 1969, and April 11, 1969, on a total income of Rs. 12,32,429 and Rs. 9,69,936, respectively. A notice under section 147(a) was issued on March 30, 1976, in respect of the assessment year 1967–68. The assessee filed his return under protest. On March 27, 1980, assessment was completed on a total income of Rs. 12,82,429 by making an addition of a sum of Rs. 50,000 under section 69 of the Income-tax Act. This order was challenged by the assessee in appeal. The Commissioner of Income-tax (Appeals) set aside this order on June 11, 1980. A second notice under section 147(a) was issued on February 10, 1981, and was served on the assessee on February 12, 1981. The assessment based on the second notice was made on February 28, 1985. In the meanwhile, on an appeal filed by the assessee before the Tribunal against the order dated June 11, 1980, the matter was remanded to the Commissioner of Income-tax (Appeals) by the Tribunal, vide its order dated July 22, 1981. The Commissioner of Income-tax (Appeals), reheard the matter and the addition of Rs. 50,000 in the reassessment proceedings was deleted. In respect of the assessment year 1968–69, the Income-tax Officer, Central Circle-I, Jaipur, wrote a letter dated September 15, 1981, to the petitioner in which he was called upon to explain certain details in respect of the transactions made by the assessee during that year. The assessee submitted a reply to the same on October 22, 1981. The assessee also submitted several communications to the Income-tax Officer. On the basis of the show-cause notice dated September 15, 1981, the Income-tax Officer considered the matter and issued a final notice dated February 19, 1983, under section 142(3) of the Income-tax Act and ultimately passed an order of reassessment on February 28, 1985, and assessed the non-petitioner for Rs. 12,72,390. At the same time, he issued a notice for penalty under sections 271(1)(c) and 271(1)(a). The assessee filed an appeal before the Commissioner of Income-tax (Appeals) and the same was dismissed on November 28, 1986. Thereafter, the Income-tax Appellate Tribunal allowed the appeal of the assessee and set aside the orders of the Income-tax Officer as well as that of the Commissioner of Income-tax (Appeals).

3. On the second show-cause notice dated February 10, 1981, in respect of the year 1967–68 also, the Income-tax Officer passed an order of reassessment on February 28, 1985, and assessed the assessee for Rs. 17,84,560 and at the same time issued notice under sections 271(1)(c) and 271(1)(a) of the Income-tax Act, 1961, for imposition of penalty. The appeal filed by the assessee was dismissed by the Commissioner of Income-tax (Appeals) and the Tribunal has accepted the appeal filed by the assessee.

4. In assailing the order passed by the Tribunal, learned counsel for the Revenue has strenuously argued that the Income-tax Appellate Tribunal has committed a serious error of law in setting aside the orders passed by the Income-tax Officer and the Commissioner of Income-tax (Appeals). He urged that the Tribunal has failed to appreciate the distinction between assessment proceedings, penalty proceedings and prosecution and has completely overlooked the well-settled principle that the degree of proof required in the assessment proceedings is lesser than that of the penalty proceedings and the one required in the penalty proceedings is lesser than that required for prosecution. He submitted that the strict law of evidence is not applicable to proceedings before the Income-tax Officer. He submitted that the findings recorded by the Tribunal are wholly perverse and are contradictory. The Tribunal has failed to consider extremely important documents which are available on the record. He argued that the absence of initiation of F.E.R.A proceedings against the assessee is no ground for holding that the reassessment proceedings are bad. He invited the court's attention to paragraph 11 of the assessment order dated February 28, 1985, and submitted that the Tribunal has ignored this important aspect to which reference has been made by the Income-tax Officer. He made reference to the various documents filed before the Income-tax Officer and the Tribunal and submitted that the Appellate Tribunal has misread those documents and, therefore, its conclusions are perverse. The Tribunal has ignored the contents of the traveller's cheque and the telegram available on record and has ignored the impact of the consignment bill. He, argued that the findings recorded by the Tribunal cannot be treated as findings of fact. Learned counsel for the Revenue submitted that from the suit filed by one John Ashlyn, proprietor of Salas SA Geneva, it came to the notice of the Department that Golecha and other exporters from Jaipur were exporting goods in such a manner that half of the real value of the goods was retained in India. The exporters had been sending the invoice for the same goods one signed invoice at half value and the other unsigned for the full actual price. The assessee was named as one of the exporters who had adopted such a practice. The Departmental authorities made detailed investigation in the matter and then found that the assessee had also indulged in unfair practice. Thereafter, the Income-tax Officer considered the entire matter threadbare and came to the conclusion that the assessee has not made a correct declaration of his income. The Commissioner of Income-tax (Appeals) also gave sound reasons for upholding the orders passed by the Income-tax Officer and there was absolutely no justification whatsoever for the Income-tax Appellate Tribunal to have interfered with the orders passed by the Income-tax Officer or the Commissioner of Income-tax (Appeals). He invited the court's attention to State of Madras v. Ramalingam and Co., [1957] 8 STC 77 (Mad); Tvl. Kathiresan Yarn Stores v. State Of Tamil Nadu, [1978] 42 STC 121 (Mad) [FB]; Vimal Chandra Golecha v. ITO, [1982] 134 ITR 119 (Raj); Commissioner Of Income-Tax v. Navabharat Enterprises (P.) Ltd. (No. 2). (No. 2), [1988] 170 ITR 332 (AP); CIT v. Daulat Ram Rawatmull, [1973] 87 ITR 349 (SC); Omar Salay Mohamed Sait v. CIT, [1959] 37 ITR 151 (SC); Commissioner Of Income Tax, Punjab v. Indian Woollen Textiles Mills , [1964] 51 ITR 291 (SC); CIT v. S.P Jain, [1973] 87 ITR 370 (SC); CIT v. Radha Kishan Nandlal, [1975] 99 ITR 143 (SC) and Guduthur Bros. v. Income Tax Officer, Special Circle, Bangalore , [1960] 40 ITR 298 (SC).

5. Shri O.P Vaish, senior advocate, and Shri A. Kasliwal, counsel for the assessee, argued that the Income-tax Appellate Tribunal has considered the entire matter and has examined all the documents produced by John Ashlyn and came to the conclusion that there was no evidence to support the suspicion aroused by John Ashlyn's allegations. They argued that mere suspicion cannot constitute a valid basis for the passing of the assessment order. Suspicion cannot be the substitute for the proof which is required for passing an assessment order. Learned counsel for the assessee submitted that the statement of John Ashlyn, which was not recorded by the assessing authority, could not have been relied upon for the purpose of passing the impugned orders dated February 28, 1985, because John Ashlyn was not made available to the assessee for cross-examination. They placed reliance on the decisions of the Supreme Court in State Of Kerala v. K.T Shaduli Grocery Dealer Etc, [1977] 39 STC 478; Sona Electric Co. v. Commissioner Of Income-Tax., [1985] 152 ITR 507 (Delhi); Dhaheswari Cotton Mills Ltd. v. CIT, [1954] 26 ITR 775 (SC); Omar Salay Mohamed Salt v. CIT, [1959] 37 ITR 151 (SC); Lalchand Bhagat Ambica Ram v. CIT, [1959] 37 ITR 288 (SC); Sree Meenakshi Mills Ltd. v. CIT, [1957] 31 ITR 28 (SC); Sovachand Baid v. CIT, [1958] 34 ITR 650 (SC); Rameshwar Prasad Bagla v. Commissioner Of Income Tax, Lucknow, [1973] 87 ITR 421 (SC); Jiyajeerao Cotton Mills Ltd. v. CIT, [1958] 34 ITR 888 (SC); CIT v. Karam Chand Thapar and Brothers (P.) Ltd., [1989] 176 ITR 535 (SC). Learned counsel also argued that reassessment proceedings for the year 1967–68 were commenced, vide notice dated February 10, 1981. On that day, the assessment proceedings were pending before the Income-tax Officer on being set aside by the Commissioner of Income-tax (Appeals), vide his order dated June 11, 1980, and since the assessment proceedings were pending, issue of notice under section 148 was itself invalid and no proceedings could have been taken against the assessee on the basis of such an invalid notice. They argued that the issue of a valid notice under section 148 is a sine qua non in taking valid reassessment proceedings. Notice issued under section 148 during the pendency of the proceedings is wholly invalid. Reference in this context has been made to CIT v. Maharaja Pratapsingh Bahadur of Gidhaur, [1961] 41 ITR 421 (SC); Narayana Chetty (Y.) v. ITO, [1959] 35 ITR 388 (SC); CIT v. Thayaballi Mulla Jeevaji Kaposi, [1967] 66 ITR 147 (SC); CIT v. Kurban Hussain Ibrahimji Mithiborwala, [1971] 82 ITR 821 (SC); CIT v. Ranchhoddas Karsondas, [1959] 36 ITR 569 (SC); Ghanshyamdas v. Regional Asst. CST, [1964] 51 ITR 557 (SC); Karuppan Chettiar (A.M.K.M) (Estate of late) v. CIT, [1969] 72 ITR 403 (SC); (S.P) Kochhar v. ITO, [1984] 145 ITR 255 (All) and Commissioner Of Income Tax, Madras v. S. Raman Chettiar , [1965] 55 ITR 630 (SC).

6. Before we proceed to examine the order of the Tribunal in order to find out as to whether the Tribunal has committed any error of law, we may refer to the decision of the apex court in Sree Meenakshi Mills Ltd. v. CIT, [1957] 31 ITR 28, wherein the apex court made the following observations on the power of the High Court to interfere with the orders passed by the Tribunal (headnote):

“Findings on questions of pure fact arrived at by the Tribunal are not to be disturbed by the High Court on a reference unless it appears that there was no evidence before the Tribunal upon which they, as reasonable men, could come to the conclusion to which they have come; and this is so, even though the High Court would on the evidence have come to a conclusion entirely different from that of the Tribunal. In other words, such a finding can be reviewed only on the ground that there is no evidence to support it or that it is perverse.

When a conclusion has been reached on an appreciation of a number of facts established by the evidence, whether that is sound or not must be determined, not by considering the weight to be attached to each single fact in isolation, but by assessing the cumulative effect of all the facts in their setting as a whole.

Where an ultimate finding on an issue is an inference to be drawn from the facts found, on the application of any principles of law, there is a mixed question of law and fact, and the inference from the facts found is, in such a case, a question of law. But, where the final determination of the issue equally with the finding or ascertainment of the basic facts does not involve the application of any principle of law, an inference from the facts cannot be regarded as one of law. The proposition that an inference from facts is one of law is, therefore, correct in its application to mixed questions of law and fact, but not to pure questions of fact. In the case of pure questions of fact an inference from the facts is as much a question of fact as the evidence of the facts.”

7. The same principle has by and large been followed in almost all cases. In a recent decision in CIT v. Karam Chand Thapar and Bros. P. Ltd., [1989] 176 ITR 535 (SC), their Lordships observed (at page 540):

“It is equally settled that the decision of the Tribunal has not to be scrutinised sentence by sentence merely to find out whether all facts have been set out in detail by the Tribunal or whether some incidental fact which appears on the record, has not been noticed by the Tribunal in its judgment. If the court, on a fair reading of the judgment of the Tribunal, finds that it has taken into account all relevant material and has not taken into account any irrelevant material in basing its conclusions, the decision of the Tribunal is not liable to be interfered with, unless of course, the conclusions arrived at by the Tribunal are perverse.”

8. Keeping in mind these basic premises, we may examine the order of the Tribunal. In its detailed order the Tribunal has taken note of various proceedings taken against the petitioner. In paragraph 9 of its order, the Tribunal has referred to the paper book containing 110 pages, comprising the first reassessment order dated March 27, 1980, for the assessment year 1967–68, the order of the Commissioner of Income-tax (Appeals) dated June 11, 1980, setting aside the reassessment order, copy of the notice under section 148 dated February 10, 1981, copies of the inquiries made by the Income-tax Officer for the two assessment years, replies, submissions, objections to draft assessment order. Copy of the plaint filed by Shri John Ashlyn before the District Court, Jaipur, the order passed by the Deputy Director (Enforcement) in the case of Mali Ram Pooran Mal, balance-sheet and profit and loss account for the two assessment years. The Tribunal then referred to the second paper book containing 49 pages. This paper book contained documents which were provided by John Ashlyn to the Revenue and which constituted the basis for initiation of proceedings against the assessee for reopening of the assessment proceedings. In paragraphs 10 to 14, the Tribunal has taken note of the lengthy arguments advanced before it by counsel for the assessee and Senior Departmental Representative. The Tribunal then referred to the statement made by Shri John Ashlyn before the Additional Director of Enforcement and the Deputy Director (Inspection) on September 11, 1980. The Tribunal then referred to the questions which, according to it, arose out of the arguments advanced before it:

(i) Whether the various materials are sufficient enough for the formation of a belief of escapement of income or these are only in the nature of raising of suspicions?

(ii) The second question posed was, if it were in the nature of suspicions only, is the initiation of proceedings under section 147(a) valid?

(iii) For the assessment year 1967–68, since the reassessment was still pending after the reassessment was set aside by the Commissioner of Income-tax (Appeals), issuing of a fresh notice and proceedings with the reassessment was valid or not, as according to the assessee, the reassessment was void ab initio in view of the Supreme Court's decision in the case of Y. Narayana Chetty v. ITO, [1959] 35 ITR 388; CIT v. Thayaballi Mulla Jeevaji Kapasi, [1967] 66 ITR 147 (SC); CIT v. Kurban Hussain Ibrahimji Mithiborwala, [1971] 82 ITR 821 (SC) and Ghanshyamdas v. Regional Asst. CST, [1964] 51 ITR 557 (SC).

9. The Tribunal then referred to the decision of the Supreme Court in Ghanshyamdas v. Regional Asst. CST, [1964] 51 ITR 557 and observed that, if an assessment proceeding could be said to be pending, no notice for reassessment could be issued and if it is so then it would be a invalid notice. The Tribunal then referred to CIT v. Ranchhoddas Karsondas, [1959] 36 ITR 569 (SC) and also to the case of CIT v. Kurban Hussain, [1971] 82 ITR 821 (SC) and held that the reassessment proceedings for the year 1967–68 are invalid because of the pendency of the earlier reassessment proceedings at the time of issue of the notice to the assessee. The Tribunal then examined the facts which were brought on record and observed:

“Coming to the facts of the case, the copies of invoices as have been alleged to have been raised by Salas of Eastrade Inc. and Eastrade Emerald Corporation are not supported by consignment invoices raised by Salas on the two parties and are also not confirmed by the two parties as the copies raised on him, nor any enquiries were made from the said two parties, as to whether the allegation made by John Ashlyn was a fact, as the parties, according to John Ashlyn, happen to be the ultimate parties connected in the said transaction through the mediator, John Ashlyn. To our mind, this would be a necessary document in the light of the alleged letter from Eastrade Emerald Corporation dated March 17, 1967, addressed to Salas, which reads as under:

‘No. 73 was not accepted by the undersigned when examining the goods in Jaipur, whereas No. 84 was originally quoted at a lower price and several weeks later corrected, which turned out to be much more expensive than we would want to pay.’

The relevance to our mind can be appreciated when we look to Invoice No. F. 670.1 dated March 21, 1967, which is supposed to be the invoice covering the consignment Invoice No. Co-1102 dated February 1, 1967, to which reference has been made in the letter from Eastrade Emerald Corporation about items Nos. 73 and 84 returned as the prices quoted were lower in one case while the item itself was not accepted in the other case. In the said revised invoice raised by Salas, items Nos. 73 and 84 do not figure. If only the consignment invoices had been made available, the prices as raised by the invoices could have been compared, so as to determine about any possibility of there being some factual element in the allegation.”

10. It then referred to the various invoices and also to the letter dated June 13, 1967, written by the assessee and observed that the reading of the letter written by the assessee indicates that the assessee expressed his necessity about the recoveries of his dues of the goods. The Tribunal then referred to the statement of goods exported to Salas SA and also to the statement of the assessee showing the particulars of loss which were returned by Salas SA and which were re-exported to various parties and observed:

“This statement indicates that the goods have been re-exported at more or less the same value at which it was originally sent on consignment to Salas. The Revenue Department has accepted as a matter of fact that the goods received on its being returned by Salas, and their subsequent export was at its value and that there is no underinvoicing whatsoever.”

11. The Tribunal then referred to the fact that the invoices raised by the assessee on Salas bear the Switzerland Customs Stamp and also a letter from MEIE R. Switzerland and observed that the Swiss authorities required that the full value of the goods imported needs declaration with the Swiss custom authorities. The Tribunal took notice of the fact that the name of Veronica was suggested by Salas so that other dealers are not in the know of who was the customer. The Tribunal also took notice of the fact that Salas had no agreement with the assessee for allegedly re-exporting the goods for and on behalf of the assessee to the two New York parties. The Tribunal observed that the Revenue came to believe about the existence of such agreement only on the basis of the statement of Salas, but no documentary proof has been provided by Salas to show that such agreement at all existed. John Ashlyn tried to support his allegation by providing copies of invoices allegedly raised by him on two parties of New York, but again withheld the original consignment invoices. In this regard, the Tribunal observed:

“It is rather unfortunate that the Revenue Department did not consider it necessary to ask Salas to provide the copies of the consignment invoices as were originally sent to the two parties. The Department also did not feel it necessary to get the invoices counter-checked with the two parties as to whether the invoices as are said to have been raised on them represent the copies of the invoices raised on them. To our mind, these two steps were absolutely essential, which could only have gone to establish whether the allegation as made by Salas is really a fact or a mere allegation. From the records, it is also evident that no statements were recorded from the two parties in regard to the allegations preferred by Salas, as also no effort was made to obtain copies of invoices raised by Salas on them. If only all these informations were available this could have exposed Salas allegations. So far the fact remains that the invoices as were raised by the assessee were only on Salas against which the assessee had duly received remittances. The further exports were done by Salas. The assessee could not be held responsible for the Act of Salas unless there is clear evidence to indicate that it was done at the behest of the assessee.”

12. After making the aforesaid observations, the Tribunal observed that various correspondence do definitely give rise to serious doubts about a possibility but does not go to establish that it was really the doing of the assessee and the theory of Salas that the goods were under-invoiced is exploited by the fact that a substantial quantity of goods were returned and re-exported at the same value to other parties. The Tribunal observed that the assessee was justified in saying that if the goods could really fetch the double value then there was no occasion for it to export half of the value. The Tribunal also took note of the absence of any action taken by the Enforcement Directorate. In the conclusion, the Tribunal held that mere suspicion thrown on the transactions of the assessee is not enough to establish that the assessee was involved in exporting the goods by under-invoicing them. On that premise, the Tribunal set aside the order passed by the Income-tax Officer and the Commissioner of Income-tax (Appeals).

13. In its subsequent order dated February 22, 1989, the Tribunal has clearly observed that the finding recorded by it on the basis of evaluation of evidence is a pure finding of fact and no question of law arises warranting reference to the court.

14. We have carefully looked into the orders passed by the Income-tax Officer, the Commissioner of Income-tax (Appeals) and the Tribunal and, in our opinion, the Tribunal has not committed any error of law warranting interference by this court. Some of the most important aspects of the case which have been taken note of by the Tribunal are that John Ashlyn made this statement involving the assessee after a period of 12 years. He did not produce any document showing the modus operandi of the assessee in the export of the goods. John Ashlyn has not produced anything on record to show that the assessee was connected with Gemmes Du Monde. The assessee made a categorical denial before the Assessing Officer that he did not know the firm named Gemmes Du Monde and had no dealings with it.

15. John Ashlyn in his statement has alleged that the arrangement with the assessee was recorded by him in a confidential index card stated to be legalised Document No. 116. The so-called index card is stated by Ashlyn to have been maintained as contemporaneous record of the arrangement with the assessee.

16. The transactions with the assessee have been during the period February, 1967 to June, 1968. The alleged index card, however, mentions the telex number. The assessee has no telex till November, 1968. The alleged index card also records telephone number with the prefix 7. The prefix 7 was added in telephone numbers several years later. The so-called index card alleged to be recording instructions during February 1967, to June, 1968, is, therefore, clearly fabricated and is non-contemporaneous. The assessee had no dealings with Salas SA after June, 1968.

17. There is no evidence to show that the transfer of goods to Eastrade U.S.A was double the value of the goods and there is no evidence of any remittance being received from Eastrade as double the value of the goods. The most crucial feature is that about 60 per cent. of the goods exported by the assessee was received back and they were re-exported to various other parties with almost the same value at which they were earlier invoiced to Salas SA and the Department has accepted the re-export value. In Dhakeswari Cotton Mills Ltd. v. CIT, [1954] 26 ITR 775 (SC), Omar Salay Mohamed Sait v. CIT, [1959] 37 ITR 151 (SC) and Lal chand Bhagat Ambica Ram v. CIT, [1959] 37 ITR 288 (SC), it has clearly been held by the apex court that there must be something more than mere suspicion in support of an assessment and mere suspicion cannot take the place of proof for the purpose of passing an order of assessment. Having taken an overall view of the matter, we are fully satisfied that the Tribunal has not committed any error in allowing the appeals filed by the assessee and no question of law arises for consideration by this court. Various judgments referred to by learned counsel for the parties deal with different fact situations and general propositions of law and, therefore, we have refrained from discussing each one of them at length.

18. Consequently, both these reference applications are dismissed.