Commissioner Of Income-Tax v. Gupta Abhushan P. Ltd.

Badar Durrez Ahmed, J.:— 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 September 21, 2007, in ITA Nos. 2236, 2237 and 2238.Del/2005 pertaining to the assessment years 1999-2000, 2000-01 and 2001-02, 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 the business premises of the assessee on March 7, 2002. At the time of sur-vey 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 rea-sons under section 148(2) thereof. A notice under section 148(1) was issued on May 15, 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 under section 133A of the Income-tax Act was conducted in the business premises of the assessee on March 7, 2002. During the course of survey discrepancies in the stock were noticed and excess stock to the extent of Rs. 5.55 lakhs 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 the ground floor has been com-pleted and renovation in the first floor was going on. But the assessee has not booked any expenses on account of renovation of the busi-ness premises. I am satisfied investments made in the renovation work has escaped assessment.”

3. The assessee objected to the reopening of the assessments. However, the objections were overruled by the Assessing Officer, who completed the assessments and made additions on account of unaccounted expenditure on renovation of premises as also in respect 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 reopening of the assessment as well as the additions made by the Assessing Officer.

4. 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 reopening 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.

5. The Tribunal noted that section 147 of the said Act empowered the Assessing Officer to reopen 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, on March 7, 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 1998-99, 1999-2000 and 2000-01. 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 reopening the assessment.

6. We have heard counsel for the parties. Before action under section 147 can be taken for reopening 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 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 133A in the business premises of the assessee on March 7, 2002, which falls within the financial year 2001-02 relating to the assessment year 2002-03. The years in question in the present appeals are the assessment years 1999-2000, 2000-01 and 2001-02. 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 lakhs was found. This excess stock is obviously relatable to the date on which the survey was conducted, that is, on March 7, 2002. On the basis of this fact, the Assessing Officer was of the view that dis-crepancy in the stock was also likely to occur in the years in questipn and that he was satisfied that income to that extent had escaped assessment. In Indian Oil Corporation v. ITO, [1986] 159 ITR 956, 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 March 7, 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.

7. The second part of the reasons recorded by the Assessing Officer indicate that during the course of the survey, it was noticed that extensive renovation work in the business premises of the assessee had been undertaken and that the renovation in respect of the ground floor had been completed and that the 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 March 7, 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 March 31, 2002, does not by itself indicate that the 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.

8. From the above discussion, it is apparent that the Tribunal has correctly appreciated the law on the subject and has arrived at the correct conclu-sions. No substantial question of law arises for our consideration. The appeals are dismissed.