|(Date of pronouncement)
|January 4, 2011 (Date of publication)
|Click here to download the judgement (hersh_win_chadha.pdf)
Despite lack of direct evidence, tax evasion can be assessed
The assessee, an agent of Bofors, was alleged to have received, through his alleged front company Svenska, Panama, commission of Rs. 52.60 crores for securing a defense deal for Bofors from the Government of India. The inference that the commission was paid was drawn on the basis of a report of the Swedish National Audit Bureau, certain correspondence and other documents that suggested that the assessee, in his capacity as a long-standing representative of Bofors was the beneficiary of the income. No direct evidence to link the assessee with the alleged commission was found. The AO assessed the said sum of Rs. 52.60 crores. For the subsequent years, the AO assessed notional interest at 5% p.a. on the said amount. The CIT (A) confirmed the addition. The assessee appealed to the Tribunal on the ground that there was no evidence to show that he had earned the alleged commission and the assessment was based on conjecture. HELD confirming the addition of Rs. 52.60 crores while deleting the addition of notional interest:
(i) Unlike criminal proceedings where the charge has to be proved beyond doubt, income-tax proceedings are quasi-judicial. Tax liability in cases of suspicious transactions has to be assessed on the basis of the material available on record, surrounding circumstances, human conduct and preponderance of probabilities;
(ii) Rules of evidence do not govern income tax proceedings and the AO is not fettered or bound by technical rules contained in the Indian Evidence Act and is entitled to act on material which may not be accepted as evidence in a court of law;
(iii) In clandestine transactions, it is impossible to have direct evidence or demonstrative proof of every move and when the assessee is not forthcoming with proper facts and chooses to be elusive and evasive, the AO has no choice but to take recourse to estimate. The only caveat is that it should be reasonable and based on material available on record. It should not be perverse or based merely on conjectures.
(iv) The Swedish Govt stated that commission was paid to the Indian agent of Bofors (though the assessee was not named). If the statement of a sovereign Govt is not acceptable as reliable evidence in Indian tax proceedings, no case of cross-border tax evasion can ever be detected or proved. No burden can be cast on the AO in impossible terms. Mere non-mentioning of names of recipients cannot be capitalized by Bofors or assessee to derail the tax liability;
(v) Though SNAB did not disclose the names of the beneficiaries due to some strategic consideration, the import of disclosure cannot be ignored or underestimated. It is the duty of the Revenue Authorities to be mindful of clues and coincidences and bring them to logical conclusions, otherwise clandestine tax evasion through shady economic deals, will go undetected, as appears to be the order of the day. India is neither a tax haven, nor a banana republic;
(vi) The I.T. Dept was carrying out investigations in difficult circumstances ascribable to the sensitive nature of inquiries, their ramification on national politics and public perception. It was very difficult to get information and documents and to examine concerned links due to the premeditated surreptitious cover up of transactions and smokescreen corporate jugglery;
(vii) There is no presumption in law that the AO is supposed to discharge an impossible burden to assess the tax liability by direct evidence only and to establish the evasion beyond doubt as in criminal proceedings. He can assessee on consideration of material available on record, surrounding circumstances, human conduct, preponderance of probabilities and nature of incriminating information/ evidence available on record;
(viii) Though the original documents were not given to the assessee (despite demand), no inference can be raised that the contents are fabricated or incorrect because the evidence was obtained by lawful means. Questioning their contents or veracity in income tax proceedings will amount to disbelieving the whole system. The assessee has not claimed that the documents are false or fabricated;
(ix) As regards the burden of proof, if the AO comes across material indicating accrual or receipt of income in the hands of the assessee, he is empowered to investigate the matter and ask relevant questions. The AO’s burden is initial in nature. Thereafter, the assessee has to give a proper explanation and disclose facts which are in his exclusive knowledge. The assessee has no option to remain selective, elusive, evasive or restrained in disclosure. After such explanation, the AO has to ascertain the correctness of the assessee’s submissions on the basis of material available on record, the surrounding circumstances, the conduct of the assessee, the preponderance of probabilities and the nature of incriminating information/ evidence available with him.
(x) Surprise expressed on why the department has taken no proceedings against the other parties including Bofors, the alleged payer, for failure to deduct TDS on payments to the assessee. Pointed out that inaction to take action against the others “may lead to a non-existent undesirable and detrimental notion that India is a soft state and one can meddle with its tax laws with impunity“.