2008 (10) TMI 31 - HC - Income Tax

Survey - Re-opening of the assessments - additions on account of unaccounted expenditure on renovation of premises as also in respect of unexplained credits u/s 68 - reason to believe - 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 - Assessing Officer was not justified in re-opening the assessment order of tribunal is totally justified

Summary

Issues:
Re-opening of assessments under Section 147 of the Income-tax Act, 1961 based on discrepancies found during a survey operation, objections by the assessee, additions made by the Assessing Officer, appeals before the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal, justification of re-opening assessments, and the legal interpretation of reasons to believe that income chargeable to tax had escaped assessment.

Analysis:
The judgment pertains to three appeals under Section 260A of the Income-tax Act, 1961, challenging the order related to assessment years 1999-2000, 2000-2001, and 2001-2002. The Assessing Officer initiated proceedings under Section 147 after a survey operation revealed discrepancies in stock and unaccounted expenses on renovation. The objections raised by the assessee were overruled, leading to additions in the assessments. The Commissioner of Income Tax (Appeals) upheld the re-opening of assessments and additions, prompting the assessee to appeal before the Income Tax Appellate Tribunal.

The Tribunal concluded that the Assessing Officer lacked justification to re-open the assessments as there was no evidence of income escapement in the years in question. The Tribunal emphasized the necessity of material possession by the Assessing Officer to establish a reason to believe that income had escaped assessment. It highlighted that the reasons recorded did not indicate discrepancies in stock or renovation expenses in the relevant assessment years, rendering the re-opening unjustified.

Upon review, the High Court concurred with the Tribunal's findings, emphasizing the distinction between suspicion and belief as required under Section 147. The Court noted that the survey conducted post the assessment years could not serve as a basis for inferring income escapement in those years. The reasons recorded by the Assessing Officer were deemed insufficient to establish a valid reason to believe that income had escaped assessment, as they were founded on mere suspicion rather than concrete evidence.

Ultimately, the High Court dismissed the appeals, affirming the Tribunal's decision and ruling that no substantial question of law arose for consideration. The judgment underscores the critical requirement of a valid reason to believe, supported by material evidence, for re-opening assessments under Section 147 of the Income-tax Act, 1961.