TMI Blog2014 (11) TMI 403X X X X Extracts X X X X X X X X Extracts X X X X ..... ld have specifically pointed out which part of the books is not complete - Without pointing out any specific/direct mistake, a general statement stating that the books are not complete would not do any justice - CIT(A) observed that most of the entries in the books of accounts are in the form of journal entries in the names of related person – it could not be understood as to how can this be a reason for rejecting the books of accounts - When a person is maintaining books of accounts on mercantile system of accounting, obviously, most of the entries would be in the form of journal entries - the books of accounts have been prepared on the basis of the evidences which are seized by the authorities which mean that they are still in the possession of the department/custodian - There is no specific instance pointed out which is not backed by any primary documentary evidence - It is also not clear whether the assessee was ever called for to explain any of the transactions recorded in the books of accounts - In the absence of the verification of primary document vis-à-vis entries in the books, assessee’s accounts cannot be treated as unreliable - The books were rejected by the Revenue aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer on account of profit on sale of shares in shortage amounting to ₹ 367,29,96,372/- is incorrect and unjustified. 8. The learned Commissioner of Income-tax (Appeals) has erred in law and in facts in confirming the addition on account of profit on sale of shares in shortage without excluding the shares purchased by the appellant for clients. 9. The learned Commissioner of Income-tax (Appeals) has erred in law and in facts in not granting credit in respect of shares sold by the appellant between the period 01.04.1992 and 08.06.1992. 10. The learned Commissioner of Income-tax (Appeals) has erred in law and in facts in not granting credit in respect of shares for which the deliveries are yet to be received. 11. The learned Commissioner of Income-tax (Appeals) has erred in law and in facts in not granting credit in respect of shares which are placed as security with the lenders. 12. The learned Commissioner of Income-tax (Appeals) has erred in law and in facts in not granting credit in respect of unregistered shares disclosed by Late Shri Harshad S. Mehta to the Custodian on 31.01.1995. 13. The learned Commissioner of Income-tax (Appeals) has erred in law and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and thereby violating the principles of natural justice while making enhancement of income of the appellant. 26. The Learned Commissioner of Income-Tax (Appeals) has erred in law and in facts in making enhancement of income of the appellant amounting to ₹ 164,60,46,992/- on account of alleged difference in the books of accounts of Late Shri Harshad S. Mehta and that of the appellant. 27. The Learned Commissioner of Income-Tax (Appeals) has erred in law and in facts in confirming the levy of interest u/s. 234A and 234B of the Act. 2. The first ground raised by the assessee is that the ld. First Appellate Authority did not appreciate the facts and thus there is violation of principle of natural justice. During hearing the ld. Counsel for the assessee Shri Vijay Mehta, did not press this ground, being general in nature, therefore, this ground is dismissed as not pressed. 3. The next ground pertains to not determining the income based on final books of account and thus confirming the manner of determination of income as done by the Assessing Officer. It was contended that the ld. Commissioner of Income tax (Appeals) ought to have accepted taxable income as disclosed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rshad S. Mehta and M/s. Harshad S. Mehta who were notified entities under the Special Court (TORTS) Act, 1992 for the financial year ended 31.3.1991, 31.3.1992 and for the period ending 8.6.1992. 5. The Ld. CIT(A) considered the report of the Special Auditors and the observations of the AO and formed a belief that 1) The books of accounts are not contemporaneous and inordinately belated 2) The books of accounts are unaudited. 3) The books of accounts are not complete. 4) The books of accounts of the transacting parties also suffer from several infirmities. 5) The books of accounts are not backed by primary documentary evidence. 6) The books of account show improbable entries 7) The books of account are also rejected by M/s. Vyas and Vyas, Chartered Accountants appointed by the Hon ble Special Court. 6. The Ld. DR strongly submitted that the Ld. CIT(A) has not accepted the books of accounts after giving cogent reasons based on the examination of the Special Auditors as well as the AO. 7. The Ld. Counsel for the assessee vehemently submitted that the books were not even looked upon by the lower authorities and therefore rejection of the same is not pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere not available in the seized data. Moreover, the data after the date of the search was not there. Hence, complete books of accounts could not be generated from the seized data. In the absence of complete books of account and valid return of income, the total income of the assessee is computed u/s. 144 of the I.T. Act on the basis of information available in the seized computer data and other records and information gathered from various sources. Therefore, rejecting the books of accounts on this ground is not justified because the books have actually been prepared much after the close of the accounting year. What has to be kept in mind is that the books of accounts have been prepared on the basis of the documents which are still in the possession of the authorities. 10. The second reason is that the books of accounts are unaudited. At the outset, we have to say that the books cannot be rejected merely because they are unaudited. All that has to be seen is that whether the books of accounts give a true and fair view or not. There are separate provisions in the Income tax Act to penalize the assessee for not getting its books of accounts audited, merely because the audit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c instance pointed out which is not backed by any primary documentary evidence. It is also not clear whether the assessee was ever called for to explain any of the transactions recorded in the books of accounts. In the absence of the verification of primary document vis- -vis entries in the books, assessee s accounts cannot be treated as unreliable. 14. The sixth reason is that the books of account show improbable entries. The Ld. CIT(A) has observed that the assessee has shown uniform withdrawal of ₹ 10,000/- at every month end which is highly improbable . Now again this cannot be a reason for rejecting the books because it is a common practice to debit the capital account for personal drawings every month. The revenue authorities should have been more specific in elaborating the entries which were improbable in their eyes. 15. The last reason is that the books of account are also rejected by M/s. Vyas Vyas, Chartered Accountants appointed by the Special Court. We have also perused the Special Auditors report. The special auditors have given two reports (1) report on review of unaudited accounts of M/s. Harshad S. Mehta and (2) report on review of unaudited account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce sheet as 8l June1992 are not verifiable. Therefore the liability appearing in the Balance Sheet cannot be relied upon and has to be ignored. The Bank and financial institution have lodged claims and also filed suits, which have been decreed against HSM. The liability against income tax has to be considered. In our opinion there are two major liability of HSM i.e. Income tax liability and claims decreed against HSM. 19.5 We have commented upon huge payments made by HSM to his family members and associate concerns. We are of strong opinion that all movable and immovable assets acquired by family members and associates companies through funds provided by HSM, belonged to HSM/ M/s. HSM only. Due to the compelling nature of limitations on our work and unreliable nature of the books of accounts we are not unable to accept responsibility for the accuracy and completeness of the information/particulars provided to us nor do we accept such responsibility. Therefore, we are unable to comment about the true and fair state of affairs of HSM and M/s HSM for the ended 31 March 1991, 31st March, 1992 and for the period ended as on 8th June 1992: (i) In respect of Late Shri Harshad S. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 66,611 (1) Profit calculated by HSM in his books. (2) Profit compiled out of Vallan and DBF Files (3) Profit compiled by us from Books of HSM Our report is based on the information made available to us and is subject to matters for which responses have not been received by us till date. Our report is based on the information reviewed/presented to us on or before 31 October 2005, and reflects matters as they existed during the period of our review of accounts for the year ended 31t March 1991, 31 March 1992 and for the period ended 8 June 1992. As on 1/4/1990 Mr. HSM was having capital of ₹ 9,37,03,54,391/- which was increased to Ps.48,98,70,15,550/-on 8/6/1992 based on our calculation of profit in point no. 8.16 ( column No. 3 ).From the books of accounts, which were produced before us and as per other information, we can conclude that Mr. HSM withdraw funds without providing any supporting document from Public Sector Banks and Financial Institutions were used by HSM for purchase of shares in the name of his family members and also for purchase of immovable properties. The Modes Operandi adopted by HSM was to transfer funds to his family members ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the authorities below do not show any specific entry/balance which is not tallied. Moreover, if the Revenue authorities were of the opinion that certain account balances are not getting tallied, then they should have confronted those specific balances to the assessee seeking his explanation/asking the assessee to get the accounts reconciled. Without doing this exercise, the books could not have been rejected. 16.3. Having said all that, in our considered opinion and in our understanding of the facts, the books of accounts have been rejected on flimsy grounds without thoroughly examining each and every entry and without confronting specific discrepancy, if any, to the assessee. In our considered opinion, we have to restore this issue to the file of the AO. The AO is directed to verify/examine each entry in the books of accounts without getting prejudice by the fact that books of accounts are not contemporaneous. The AO is further directed to confront the assessee in respect of any specific entry which in his opinion is improbable, if it is found that certain balances are not tallying with related party transactions, then it is expected that the AO would confront those accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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