1989 (2) TMI 140 - AT - Income Tax

Summary

Issues Involved:
1. Whether the CIT(A) was justified in annulling the assessment on the ground that it was barred by limitation.
2. Whether the case fell within clause (c) of sub-section (1) of section 271, thereby making the provisions of section 153(1)(b) applicable.

Issue-Wise Detailed Analysis:

1. Justification of CIT(A) in Annulling the Assessment on the Ground of Limitation:

The primary issue is whether the CIT(A) was justified in annulling the assessment on the ground that it was barred by limitation. The CIT(A) held that the case did not fall within clause (c) of sub-section (1) of section 271, and thus, the provisions of section 153(1)(b), which allow for an extended time limit of eight years for the completion of the assessment, were not applicable. The assessment year in question is 1979-80, and the return was filed on 4-11-1981. The normal period for completing the assessment would have been by 3-11-1982, but the assessment was completed on 30-7-1983. The CIT(A) concluded that since the case did not involve concealment of income, the extended time limit was not applicable, making the assessment barred by limitation.

2. Applicability of Section 153(1)(b) and Clause (c) of Sub-section (1) of Section 271:

The Department contended that the case involved concealment of income, thus falling within clause (c) of sub-section (1) of section 271, making the provisions of section 153(1)(b) applicable. Section 153(1)(b) allows for an extended time limit of eight years for completing an assessment in cases involving concealment of income. The Income Tax Officer (ITO) found that the assessee had suppressed the value of closing stock of raw cashew nuts, thereby understating his income. The ITO gathered information from the Cashew Special Officer, which revealed discrepancies in the stock declared by the assessee. The ITO concluded that the assessee had deliberately inflated the quantity of African raw nuts and deflated the quantity of local raw nuts to suppress the value of the closing stock. The ITO had initiated proceedings and brought material on record showing concealment of income before the normal period for completing the assessment expired.

Analysis of Arguments and Judicial Precedents:

The CIT(A) relied on various judicial precedents to support the view that an addition on account of revaluation of stock would not make the case fall within clause (c) of sub-section (1) of section 271. The assessee's representative cited cases such as CIT v. Rudrappan & Co., R. Madhavan Nair v. CIT, and CIT v. M. Bhuta & Co., where courts held that discrepancies in stock declarations were not sufficient grounds for imposing a penalty for concealment of income.

However, the Tribunal noted that the law of penalty applicable to the present proceedings is different from the law applicable to the cited cases due to the insertion of Explanation 1 to section 271(1)(c) effective from 1-4-1976. This Explanation deems the amount added or disallowed in computing total income as concealed income if the assessee fails to offer a bona fide explanation or is unable to substantiate it. The Tribunal found that the assessee's explanation regarding the discrepancy in stock was not bona fide and thus, the case fell within clause (c) of sub-section (1) of section 271, making the extended time limit of eight years applicable.

Conclusion:

The Tribunal concluded that the assessee had concealed income by suppressing the value of closing stock, thereby falling within clause (c) of sub-section (1) of section 271. As such, the provisions of section 153(1)(b) were applicable, and the assessment completed on 30-7-1983 was within the prescribed time limit. The Tribunal set aside the CIT(A)'s finding that the assessment was barred by limitation and directed the CIT(A) to deal with other grounds raised by the assessee in his appeal. The appeal of the Department was allowed.