ITA/13/2003 of COMMISSIONER OF IT, UDAIPUR Vs MS. ROOPCHAND NAWAL CHAND GANDHI on 17 November 2003

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR -------------------------------------------------------- COMMISSIONER OF IT, UDAIPUR

Mr. KK BISSA, for the appellant / petitioner Mr. MAHENDRA GARGIEYA & Mr. ANIL JOSHI for Mr. SANJEEVJOHARI, for the respondent HON'BLE SHRI MUNISHWAR NATH BHANDARI,J.

These two appeals have been filed by the revenueagainst the judgment of the Income Tax Appellate Tribunaldated 25.6.2002 said to have been received by the revenueon 9.7.2002. Appeal No.11/2003 was admitted vide orderdated 17.7.2003 by formulating the following twosubstantial questions of law:

“1.Whether on the facts and in thecircumstances of the case, the I.T.A.T. wasjustified in upholding the action of the CIT(Appeals) in deleting the addition ofRs.3,46,879/- made by the Assessing Officeron account of under valuation of closingstock.

2. Whether on the facts and in thecircumstances of the case, the I.T.A.T. wasjustified in holding that investment in thepurchase of stock in trade required for thebusiness not recorded in the regular books,and as appearing in seized diary, pertainsto assessment year 1988-89 and not to 1987-88.”

While appeal No.13/2003 was admitted on 27.2.2003 withoutframing any substantial question of law.

The matters were argued with the understandingthat both the appeals involve the substantial question oflaw No.2 framed in appeal No.11/03 only, while the appealNo.11/03 involves the other question as well.

The brief facts of the case are that the assessment was made by the Assessing Officer, for twoassessment years, being assessment year 1987-88 andassessment year 1988-89. Against these assessment orders,appeals were filed, and the learned Commissioner, IncomeTax, partly allowed the appeals. Then the matter wascarried to Income Tax Appellate Tribunal by both theparties, inasmuch as, the assessee filed appeals beingappeals No.2606/94 & 2607/94, while two appeals were filedby the revenue being appeals No.2733/94 & 2734/94. All thefour appeals were decided together by the learned Tribunalby the impugned judgment.

The learned Tribunal while deciding the questionNo.1 framed in appeal No.11/03, relating to the deletion ofaddition of Rs.3,46,879/-, came to the conclusion relyingupon the judgment of Hon'ble the Supreme Court in CIT Vs.British Paints India Ltd. reported in (188) 1991 ITR 44,concurred with the conclusions of CIT and maintained thedeletion of the addition.

In our view, a reading of the judgment of Hon'blethe Supreme Court in British Paints India Ltd.'s case doesshow, that the finding recorded by the Tribunal, and theCommissioner in this regard do not require anyinterference, and the question No.1 framed in appealNo.11/03 is, therefore, answered against the revenue, andin favour of the assessee.

Coming to the question No.2, some facts arerequired to be gone into, inasmuch as, in the present case,the investments added as undisclosed investments were foundto have been made during the period 3.11.1986 to 31.3.1987,and the learned Assessing Officer, considering the turnover of the financial year 1987-88, for the purpose ofarriving at the investment, and gross profit, came to theconclusion that a sum of Rs.2 lac is required to be added,as unexplained investment in the assessment year 1987-88,and it was accordingly added. In appeal filed against theassessment, relating to assessment year 1987-88, it was

found, after undertaking certain calculations that theaddition required to be made is only of Rs.88,000/- insteadof Rs.2 lacs, for this purpose, the learned Commissionertook into account the turn over, the transactions in thediary, considered the gross profits, and thus, arrived atthe above figure. Then in the appeal filed by the assesseeagainst the assessment order for the assessment year 1988-89, the CIT found that since this investment has been takeninto consideration in the year 1987-88, there is no need tomake further addition of unexplained investment.Accordingly the addition of Rs.2 lacs made by the AssessingOfficer in the assessment for the year 1988-89 was deleted.

Since all the appeals were decided by the ITAT, bythe common order, and since the question canvassed beforeus, in both the appeals is only, as to whether the additionis required to be made in the assessment, for theassessment year 1987-88 or 1988-89, we examine thisquestion.

It appears that there has been good amount ofconfusion before the ITAT, inasmuch as, the addition madein the assessment year 1987-88 of Rs.2 lacs, or reduced bythe CIT to Rs.88,000/-, and the addition made by theidentical amount in the year 1988-89 was deleted by theCIT, on account of the amount having been added in the year1987-88, and the learned ITAT had considered the question only while deciding appeal No.2733 and 2606, which bothrelated to the year 1987-88, and found that the amountcould be added in the year 1988-89 only, and therefore,while deciding that appeal, deleted that amount. Then whatwe find is, that there is no discussion by the ITAT whiledeciding the appeal of the revenue, relating to the year1988-89 being appeals No.2734. Obviously in the appeal ofthe assessee being appeal No.2607, this question was notrequired to be agitated, as the amount had been deleted,with the result, that notwithstanding the finding recordedby the ITAT, as recorded about the amount being not capableof being added in the year 1987-88, and capable of beingadded only in the year 1988-89, the amount has gonedeleted. Be that as it may.

The fact does remain that the amount is requiredto be added, as the question of liability to add thisamount, is not under challenge on the side of the assessee.The question, therefore, appears is, only, as to whetherthe amount is capable of being added in the year 1987-88 or1988-89?

For examining the question, the relevant provisionof law is contained in Section 69 of the Income Tax Act,1961, which reads as under:- “S.69. Unexplained investments.-Where in the financial year immediately preceding theassessment year the assessee has madeinvestments which are not recorded in thebooks of account, if any, maintained by himfor any source of income, and the assesseeoffers no explanation about the nature andsource of the investments or the explanationoffered by him is not, in the opinion of theAssessing Officer, satisfactory, the value ofthe investments may be deemed to be the incomeof the assessee of such financial year.”

Thus, a look at this provision leaves no manner of

doubt that where in any financial year immediatelypreceding the assessment year, the assessee has madeinvestments, which were not recorded in the books ofaccounts, if maintained by him for any source of income,and no explanation is offered, then the value of theinvestment is to be deemed to be income of the assessee ofsuch financial year. Here the confusion appears to havearisen because the relevant previous year of the assessmentis on the basis of Dipawali to Dipawali, which in thepresent case was from 3.11.1986 to the Dipawali of 1987. Itmay be observed here, at the cost of repeation, that thetransactions relate to the period 3.11.1986 to 31.3.1987.

Since the word used in Section 69 is “deemed to bethe income of the assessee of such financial year” i.e. thefinancial year immediately preceding the assessment year,in which the assessee has made investments, which areunrecorded; obviously, the financial year for these entriesis to be taken to be from 1.4.1986 to 31.3.1987, and for that financial year, assessment year has to be 1987-88 andnot 1988-89.

That being the position, the finding recorded bythe ITAT holding that the amount is not capable of beingadded in the financial year 1987-88 cannot be sustained,and is set aside, and the question No.2 framed in appealNo.11/03 is accordingly answered. Obviously, since theamount being found liable to be added in the assessmentyear 1987-88, and is being so ordered to be added, itobviously need not be added again in the assessment year1988-89, with the result, that the order of the Tribunal aschallenged in appeal No.13/03, does not require anyinterference.

The net result of the aforesaid discussion is thatappeal No.11/2003 is allowed in part, and the order of theCIT for the assessment year 1987-88, reducing the additionfrom Rs.2 lacs to Rs.88,000/- in the assessment year 1987-88 is restored, and the corresponding part of the judgmentof the learned Tribunal is set aside, while the appealNo.13/2003 is dismissed.

( MUNISHWAR NATH BHANDARI ),J. ( N P GUPTA ),J.

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