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2021 (5) TMI 468 - AT - Income TaxSpecial audit u/s 142(2A) - CIT(A) upholding the exercise of jurisdiction u/s 142(2A) by the Assessing Officer by directing Special Audit without demonstrating the complexity in the books of accounts and holding that the assessment is not barred by limitation - assessee was selected under scrutiny and statutory notices were duly served to the assessee - HELD THAT:- The special audit under section 142(2A) of the Act has to be directed by the Assessing Officer only in the genuine cases where the Assessing Officer finds that he is not in a position to assessee the income of the assessee having regard to the complexities in the books of accounts. For the exercise of this power u/s 142(2A), it has been provided that the prior approval has been taken from the CIT which is a statutory safeguard provided in the Act against any unreasonable or arbitrary exercise of power by the Assessing Officer which has to be granted by the CIT after following the due process and after dule application of mind. The approval by the CIT should be granted after examining and after due application of mind to the proposal submitted by the Assessing Officer but in the present case it appears not to be so. The assessee filed objection to the show cause notice on 30.12.2020 and Assessing Officer after considering the reply of the assessee framed the proposal containing 16 issues in the draft order proposed under section 142(2A) of the Act and thereafter the same was sent to CIT through Addl. CIT and approval was accorded on the same day by the CIT. But as is apparent from the facts before us, the exercise of jurisdiction under section 142(2A) of the Act has been exercised in a mechanical, routine and perfunctory manner and so is the approval granted by the CIT as all the formalities were done on the same day. Therefore the assessment framed by the AO cannot be sustained as the same suffer from legal infirmities of improper exercise of jurisdiction on the part of the tax authorities u/s 142(2A) of the Act. We are not in agreement with the conclusion of ld. CIT(A) on the issue of upholding the assessment as the same is barred by limitation in view of the fact that order under section 142(2A) was directed only to extend the period of limitation under the Act. Accordingly, we set aside the order of the CIT(A) on the issue and quash the assessment framed by the Assessing Officer as being barred by limitation. Several adhoc additions/disallowances out of expenses and one main addition on account of valuation of closing stocks - HELD THAT:- The valuation as done by the assessee was disputed by the special auditor for the reasons that the same is not supported with evidences which was calculated on estimated realisable value by the assessee on some technical assessment of stocks. According to the assessee the estimated realisable value is based upon the realisation in the subsequent year. But the sales realisation was higher in the subsequent year due to depreciation in the value of rupees vis a vis foreign exchange. The assessee is in this trade for the last more than 50 years and has been following accounting policy consistently qua valuation of stocks which has duly been disclosed in audited accounts under significant accounting policies. We note that the cut and polished diamonds are valued on the basis of technical assessment only right from the beginning as per trade practices and the said method of valuation is in accordance with mandatory accounting standard AS-2 issued by ICAI. The method of valuation of stocks is accepted by the department right from the beginning in all the years. We have also examined the financial statements of various listed companies which are into the diamond manufacturing business besides experts opinions on valuation. Moreover any addition in closing stock is tax neutral as the closing stock of the current year will become the opening stock of the following year. Even the Hon’ble Apex Court in the case of Chainswarup Sampatram [1953 (10) TMI 2 - SUPREME COURT] has held that it is wrong to think that any profit rises out of valuation of stocks. Therefore even stock addition appears to wrong and fallacious and rightly been deleted by the ld CIT(A). - Decided against revenue.
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