2003 (6) TMI 436 - AT - Income Tax

Summary

Issues Involved:
1. Reopening of assessment under section 147 of the Income Tax Act.
2. Addition of Rs. 78,52,619 based on alleged suppressed stock.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147:

The department contended that the reopening of the assessment was based on the assessee's failure to disclose fully and truly all material facts necessary for assessment, specifically regarding the closing stock as on 31-3-1989. The Assessing Officer (AO) believed that the assessee had suppressed stock worth Rs. 86,22,567, which was not accounted for in the original assessment. The AO issued a notice under section 148 based on this belief.

The assessee argued that the reopening was invalid as it was based on a mere change of opinion. The AO had thoroughly examined and verified the closing stock during the original assessment for the assessment year 1989-90, which included an addition of Rs. 7,69,948 on account of valuation of closing stock. The assessee also contended that the AO had examined each purchase and sale in detail during the assessment for the subsequent year (1990-91) and found no discrepancies.

The CIT(A) observed that the reopening was based on presumptions and surmises without any new evidence. The CIT(A) noted that the AO had examined the books of account, including the stock register, during the original assessment and found no discrepancies. The reopening was deemed to be based on a change of opinion, which is not permissible under the law. The CIT(A) concluded that the reopening of the assessment under section 147 was improper and without jurisdiction.

2. Addition of Rs. 78,52,619 Based on Alleged Suppressed Stock:

The department argued that the assessee had undisclosed stock of Rs. 86,22,567 as on 31-3-1989, which was sold in the subsequent year (1990-91). The AO made a net addition of Rs. 78,52,619 after giving credit for the earlier addition of Rs. 7,69,948. The AO estimated the closing stock as on 30-6-1989 at Rs. 30,00,000 and added the stock lying with the customs bonded warehouse (Rs. 40,60,398) to this figure, arriving at a total closing stock of Rs. 70,60,398. The AO then calculated the suppressed stock based on the gross profit rate and other figures.

The assessee contended that the addition was made without understanding the nature of its business and the method of recording purchases. The assessee explained that goods were recorded in the stock book upon receipt and in the purchase register upon receipt of purchase invoices, which could be 30 to 45 days later. The assessee argued that the stock lying with the customs bonded warehouse was accounted for in the books and was not undisclosed.

The CIT(A) found that the AO's estimation of closing stock as on 30-6-1989 was not based on any evidence and was merely an arithmetical exercise. The CIT(A) noted that the gross profit rate shown by the assessee was consistent with previous years and that the addition would result in an improbably high gross profit rate. The CIT(A) concluded that the addition of Rs. 78,52,619 was not justified and deleted it.

Conclusion:

The Tribunal upheld the CIT(A)'s findings, noting that the reopening of the assessment was based on a change of opinion and was therefore improper and without jurisdiction. The addition of Rs. 78,52,619 was also found to be unjustified as it was based on presumptions and not supported by any evidence. The departmental appeal was dismissed.