THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 20.10.2008
+ ITA 1079/2008, ITA 913/2008 & ITA 908/2008
THE COMMISSIONER OF INCOME
TAX DELHI -IV ... Appellant
- versus -
GUPTA ABHUSHAN PVT. LTD ... Respondent
Advocates who appeared in this case:
For the Appellant : Ms Prem Lata Bansal For the Respondent : Mr C. S. Aggarwal with Mr Prakash Kumar CORAM:- HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE RAJIV SHAKDHER
1. Whether Reporters of local papers may be allowed to
see the judgment ? YES
2. To be referred to the Reporter or not ? YES
3. Whether the judgment should be reported in Digest ? YES
BADAR DURREZ AHMED, J (ORAL)
1. These three appeals under Section 260A of the Income-tax
Act, 1961 (hereinafter referred to as the „said Act‟) are directed against
the order dated 21.09.2007 in ITA Nos. 2236, 2237 and 2238/Del/2005
pertaining to the assessment years 1999-2000, 2000-2001 and 2001-
2002, respectively. The assessee had filed returns for the aforesaid
years which were processed under Section 143 (1) of the said Act. A
survey operation was conducted under Section 133A of the said Act at
ITA Nos.1079/08, 913/08 & 908/08 Page No.1 of 7
the business premises of the assessee on 07.03.2002. At the time of
survey it was found that the business premises were under renovation
and that there was a discrepancy in the stocks. Proceedings under
Section 147 of the said Act were initiated by the Assessing Officer after
recording reasons under Section 148 (2) thereof. A notice under
Section 148 (1) was issued on 15.05.2002.
2. The reasons, as recorded by the Assessing Officer under
Section 148 (2) of the said Act, were as under:-
“1. In this case survey u/s 133A of the I. T. Act
was conducted in the business premises of the assessee
on 07.03.2002. During the course of survey
discrepancies in the stock were noticed and excess tock
to the extent of Rs 5.55 Lakh was found. Hence
discrepancy in the stock in this year also is likely to
occur and I am satisfied income to that extent has
escaped assessment.
2. During the course of survey it was noticed
that extensive renovation work in the business premises
of the assessee has been undertaken. Renovation in
respect of ground floor has been completed and
renovation in the first floor was going on. But the
assessee has not booked any expenses on account of
renovation of the business premises. I am satisfied
investments made in the renovation work has escaped
assessment.”
3. The assessee objected to the re-opening of the assessments.
However, the objections were over-ruled by the Assessing Officer, who
completed the assessments and made additions on account of
unaccounted expenditure on renovation of premises as also in respect
ITA Nos.1079/08, 913/08 & 908/08 Page No.2 of 7
of unexplained credits under Section 68 of the said Act. Being
aggrieved by the assessment orders, the assessee preferred appeals
before the Commissioner of Income Tax (Appeals), who upheld the
action of re-opening of the assessment as well as the additions made by
the Assessing Officer. The assessee filed appeals before the Income
Tax Appellate Tribunal. After considering the facts and circumstances
of the case as well as the rival contentions of the parties, the Tribunal
came to the conclusion that the Assessing Officer was not justified in
re-opening the assessments. Consequently, the Tribunal did not
consider it necessary to go into the merits with regard to the additions
made by the Assessing Officer in respect of each of the three years in
question.
4. The Tribunal noted that Section 147 of the said Act
empowered the Assessing Officer to re-open assessments, provided he
had reason to believe that any income chargeable to tax had escaped
assessment for any of the assessment years in question. The Tribunal
was of the view that a plain reading of Sections 147 and 148(2) made it
clear that there must be some material in the possession of the
Assessing Officer for coming to the conclusion that he had reason to
believe that any income chargeable to tax had escaped assessment. The
Tribunal was of the view that though the reasons recorded indicated
that there was a discrepancy in stock on the date of the survey, that is,
ITA Nos.1079/08, 913/08 & 908/08 Page No.3 of 7
on 07.03.2002, this did not indicate that such a discrepancy existed on
any date in the previous years. The Tribunal also noted that in the
course of the survey operations, renovation of the premises had been
noted, but this did not show as to whether any renovation was carried
out in the earlier years, that is, financial years 1998-1999, 1999-2000
and 2000-2001. The Tribunal, therefore, concluded that the reasons, as
recorded, do not show or indicate existence of any evidence regarding
escapement of income in the three years in question. Consequently, the
appeals were allowed on the ground that the Assessing Officer was not
justified in re-opening the assessment.
5. We have heard the counsel for the parties. Before action
under Section 147 can be taken for re-opening an assessment, the
Assessing Officer must have reason to believe that income chargeable
to tax had escaped assessment. Examining the reasons recorded under
Section 148 (2) of the said Act, we are unable to agree with the learned
counsel for the appellant/ revenue that the Assessing Officer had
reasons to believe that income chargeable to tax had escaped
assessment in respect of the years in question. The reasons recorded,
first of all, indicate that the survey was conducted under Section 133 A
in the business premises of the assessee on 07.03.2002, which falls
within the financial year 2001-2002 relating to the assessment year
ITA Nos.1079/08, 913/08 & 908/08 Page No.4 of 7
2002-2003. The years in question in the present appeals are assessment
years 1999-2000, 2000-2001 and 2001-2002. It is obvious that the
survey was not conducted in the years in question. In the said reasons,
which have been recorded by the Assessing Officer, it is observed that
in the course of the survey discrepancies in the stock were noticed and
excess stock to the extent of Rs 5.55 lacs was found. This excess stock
is obviously relatable to the date on which the survey was conducted,
that is, on 07.03.2002. On the basis of this fact, the Assessing Officer
was of the view that discrepancy in the stock was also likely to occur in
the years in question and that he was satisfied that income to that extent
had escaped assessment. In Indian Oil Corporation v. Income Tax
Officer: 159 ITR 956 (SC), the Supreme Court had observed that a
mere reason to suspect cannot be equated with a reason to believe.
What we note from the reasons recorded is that the Assessing Officer
had a mere suspicion that there was a likelihood of there being a
discrepancy in the stocks in the earlier years also based on the fact that
there was a discrepancy in the stock when the survey was conducted on
07.03.2002. This is merely a reason to suspect and cannot be the same
as a reason to believe which is a necessary pre-condition for any action
under Section 147 of the said Act.
6. The second part of the reasons recorded by the Assessing
Officer indicate that during the course of the survey, it was noticed that
ITA Nos.1079/08, 913/08 & 908/08 Page No.5 of 7
extensive renovation work in the business premises of the assessee had
been undertaken and that renovation in respect of the ground floor had
been completed and that renovation in respect of the first floor was
going on. It is further noted that the assessee had not booked any
expenses on account of renovation of the said business premises. On
the basis of these facts, the Assessing Officer noted that he was
satisfied that investments made in the renovation work had escaped
assessment. Here too, we note that the survey was conducted on
07.03.2002, which falls in the year subsequent to the three years in
question in these appeals. The fact that the renovation expenses had
not been booked in that year, i.e., financial year ending on 31.03.2002
does not by itself indicate that renovation work had been carried on in
the earlier three years and, if so, the expenses in respect of the same
had not been booked. The conclusion of the Assessing Officer, based
on what was noticed in the course of the survey, cannot be extrapolated
to other years. The purported belief of the Assessing Officer, on this
aspect of the matter, was not a belief at all but was merely a suspicion.
Such suspicion cannot take the place of a belief and that too a belief
which is based on reasons.
7. From the above discussion, it is apparent that the Tribunal
has correctly appreciated the law on the subject and has arrived at the
ITA Nos.1079/08, 913/08 & 908/08 Page No.6 of 7
correct conclusions. No substantial question of law arises for our
consideration. The appeals are dismissed.
BADAR DURREZ AHMED, J
RAJIV SHAKDHER, J
October 20, 2008
SR
ITA Nos.1079/08, 913/08 & 908/08 Page No.7 of 7