1992 (11) TMI 55 - HC - Income Tax

Reassessment u/s 147(a) upheld; unexplained excess stock taxed as income u/s 69B, assessee's appeal dismissed

HC upheld the reassessment initiated u/s 147(a) on the basis of discrepancy between stock value shown in the assessee's books and higher stock value ... Validity of notice issued u/s 147(a) - Reassessment - failed to place truly and fully all the material facts before the Officer - difference between the stock value shown in the books of account of the assessee and the value disclosed to the bank - addition income u/s 69B - HELD THAT:- The Commissioner of Income-tax endorsed the argument of the assessee that there was such an immoral practice among the traders, without seeking any material or evidence in support thereof. In our opinion, it is not merely a question of morality ; such conduct may involve criminality also. The authority should be wary in accepting the self-serving explanation that the assessee deliberately inflated the stock in the declaration to the bank with a view to obtain higher loan facility. In any event, the mere statement of the assessee in that behalf could never be accepted. The Tribunal has considered all relevant materials in this behalf and its view is reasonable. There was no material before the Commissioner of Income-tax indicating that the bank did not exercise effective control. The assessee did not have any material to show that raw materials could not be obtained from the open market. He produced only a certificate from the Director of Industries given to a sister concern allegedly having similar business. The Commissioner of Income-tax did not take into consideration the possibility of the assessee obtaining raw materials from irregular sources. The grounds stated by the Commissioner of Income-tax are either not relevant, or if relevant, not based on acceptable materials. Thus, we are satisfied that the decision of the Tribunal that the action taken by the Income-tax Officer under section 147(a) was proper and valid is justified. Question has to be answered in the affirmative, i.e., in favour of the Revenue and against the assessee. The assessee in this case did not offer any satisfactory explanation before the Income-tax Officer and, therefore, the Income-tax Officer could not be found fault with for deeming the excess amount to be the income of the assessee for the year concerned. On the finding of the Income-tax Officer, the addition to the income was justified under section 69B of the Act. The Commissioner of Income-tax did not hold that, on the findings arrived at by the Income-tax Officer, section 69B of the Act could not be invoked. Such a contention was not raised before the Commissioner of Income-tax. We, therefore, reject the above contention. Apart from the difference in stocks of over Rs. 5 lakhs in the previous year relating to the assessment year 1972-73, there is no material to show that there was a similar excess during the next year also. Assuming that the value of goods pledged to the bank in the previous year relevant to the assessment year 1973-74 was in excess of the stock shown in the accounts for that year, the fact that the difference in value was not added to the income of that assessment year cannot be a ground to hold that an addition should not be made for the assessment year 1972-73. We do not think the observations in the above decisions relied on by the assessee have any application to the facts of the present case. Question has to be answered in the affirmative, that is, against the assessee and in favour of the Revenue. Issues Involved:1. Validity of action taken by the Income-tax Officer u/s 147(a) for the assessment year 1972-73.2. Justification for the addition of Rs. 5,04,137 representing the difference between the stock value shown in the books of account and the value disclosed to the bank.Summary:Issue 1: Validity of Action u/s 147(a)The Tribunal upheld the action taken by the Income-tax Officer u/s 147(a) for the assessment year 1972-73, finding it proper and valid. The Tribunal observed that the original Income-tax Officer did not form any opinion on the discrepancy between the stock value shown in the books and the value disclosed to the bank. The Tribunal referred to the Supreme Court decision in CIT v. T.S.PL.P. Chidambaram Chettiar [1971] 80 ITR 467, emphasizing that vague information before the Officer at the time of the original assessment was insufficient to bring the amount to tax. The Tribunal concluded that the successor Income-tax Officer's action was not based on a mere change of opinion but on new information obtained during the assessment proceedings for 1973-74, which revealed that the assessee had disclosed stock amounting to Rs. 9,21,507 to the bank, contrary to the stock value shown in the books. The court agreed with the Tribunal's view, stating that the assessee failed to disclose this information to the Officer who completed the original assessment, thereby justifying the reopening of the assessment u/s 147(a).Issue 2: Justification for Addition of Rs. 5,04,137The Income-tax Officer added Rs. 5,04,137 to the assessee's income u/s 69B, as the assessee did not offer any satisfactory explanation for the discrepancy between the stock value shown in the books and the value disclosed to the bank. The Tribunal disagreed with the Commissioner of Income-tax's view that the stock revealed by the accounts must be correct due to rigid control by Government agencies. The Tribunal found the assessee's explanation that the stock declaration to the bank was inflated to obtain higher overdraft facilities to be unsupported by any material. The Tribunal's view was that the assessee's self-serving explanation could not be accepted without evidence. The court upheld the Tribunal's decision, stating that the addition to the income was justified under section 69B of the Act.Conclusion:The court answered both questions in the affirmative, i.e., against the assessee and in favour of the Revenue. The assessee was ordered to pay the costs of the reference to the Revenue.