1991 (2) TMI 187 - AT - Income Tax

Issues Involved:
1. Validity of assessment framed by the ITO under section 153(1)(b) of the Income-tax Act, 1961.
2. Alleged concealment of income by the assessee through suppression of stock.
3. The necessity of giving the assessee an opportunity of being heard before invoking section 153(1)(b).
4. The jurisdiction of the ITO to extend the period of limitation for assessment.

Detailed Analysis:

1. Validity of Assessment under Section 153(1)(b):
The first issue concerns the validity of the assessment framed by the ITO by invoking section 153(1)(b). The assessee argued that the assessment was time-barred and thus invalid. The ITO recorded his satisfaction on 13-3-1987 that the assessee had concealed income of Rs. 17,17,819 through suppression of stock and furnishing inaccurate particulars of income, invoking section 153(1)(b) to extend the assessment period. The assessment was completed on 31-3-1987. The CIT (Appeals) found that the ITO had not considered the G.P. Sheets in transit, which were hypothecated to the Bank, leading to the deletion of the addition of Rs. 17,17,819. The Tribunal observed that the extended period of limitation under clause (b) of section 153(1) is applicable in cases of concealment of income, but the ITO must record a prima facie finding of such concealment after giving the assessee an opportunity to be heard. Since the ITO did not provide such an opportunity, the invocation of section 153(1)(b) was invalid, making the assessment time-barred and without jurisdiction.

2. Alleged Concealment of Income through Suppression of Stock:
The ITO alleged that the assessee had concealed income by undervaluing the closing stock. The assessee showed the closing stock of Rs. 16,34,076, whereas the stock hypothecated with the Bank was valued at Rs. 33,51,895. The CIT (Appeals) found that the ITO did not consider the G.P. Sheets in transit, valued at Rs. 20,92,500, which were included in the stock hypothecated with the Bank. Consequently, there was no discrepancy in the stock shown to the department and the Bank, leading to the deletion of the addition of Rs. 17,17,819. The Tribunal upheld this finding, noting that the ITO's basis for alleging concealment was incorrect and unsupported by the facts.

3. Necessity of Giving Opportunity of Being Heard:
The assessee contended that the ITO did not give an opportunity to be heard before recording his satisfaction for invoking section 153(1)(b). The Tribunal emphasized that principles of natural justice require the ITO to provide such an opportunity before recording a finding of concealment of income. The Tribunal cited several judicial precedents, including decisions from the Calcutta and Allahabad High Courts, supporting the view that the ITO must hear the assessee before extending the period of limitation under section 153(1)(b). Since the ITO failed to do so, the invocation of section 153(1)(b) was invalid.

4. Jurisdiction of the ITO to Extend the Period of Limitation:
The Tribunal examined whether the ITO had jurisdiction to extend the period of limitation for assessment under section 153(1)(b). The Tribunal noted that the ITO must record a prima facie finding of concealment of income and provide a basis for such a finding. The ITO's finding was based solely on the alleged suppression of stock, which was later found to be incorrect by the CIT (Appeals). The Tribunal concluded that the ITO did not have a reasonable or bona fide belief regarding concealment of income, and thus, the extended period of limitation under section 153(1)(b) was not available. Consequently, the assessment framed beyond the normal period of limitation was time-barred and without jurisdiction.

Conclusion:
The Tribunal annulled the assessment framed by the ITO under section 143(3) read with section 153(1)(b) due to the invalid invocation of section 153(1)(b) and the time-barred nature of the assessment. The appeal was allowed, and the assessment was annulled.

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