9911796707
TMI Blog2004 (3) TMI 706X X X X Extracts X X X X X X X X Extracts X X X X ..... he audit report, the block assessment was completed. We may mention here that this is an undisputed fact that on the basis of audit report obtained under section 142(2A) of the Act only, the block assessment was completed, which fact has not been disputed by the learned Departmental Representative Shri D.S. Zala. Against block assessment, the assessee went in appeal before the learned CIT(A), who after considering the arguments of the assessee-appellant gave a part relief to the assessee. The assessee is in appeal before us against the sustained additions and the Department is in appeal against the relief granted to the assessee. 3. At the time of argument, the learned Authorised Representative Shri Amit Kothari, at the very outset took a legal plea that the assessment order in question is barred by limitation and that the special audit which was referred to under section 142(2A) of the Act by the Assessing Officer was a modus which was applied by him to gain time for completion of assessment in question. The grounds of appeal raised in ground Nos. 1(a) to 1(h) can be summarised as follows. 4. The reference to special audit report under section 142(2A) is bad in law and on facts, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors were also asked to prepare the books of account in the form of cash book, ledger on the basis of documents and papers seized during the course of search. The auditors were also required to prepare the trading, P&L A/c. which were not recorded in the regular books of account to determine the undisclosed income of the block period. 8. When one goes through the provisions of section 142(2A) of the Act, it becomes clear that the work which is delegated to the auditors under this section is only to take the opinion of the auditors and it is not the function of the auditors to compute the undisclosed income. The auditors are not to prepare trading, P&L A/c. The auditors have to give the opinion, that too when the accounts of the assessee are complex. 9. The learned Departmental Representative has submitted in his arguments in this regard that a search was carried out on 20th Nov., 1997 and notice under section 158BC was issued on 7th Sept., 1998 in compliance to which return was filed on 20th Oct., 1998 declaring undisclosed income at Rs. 2,44,000 for the block period. The Assessing Officer issued directions to getting the assessee's accounts audited on 29th Sept., 1999, when only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t at the fag end of the time when the limitation was to expire but he sought requisite approval before referring the matter to special auditor. There is no doubt that the Assessing Officer can refer to special auditors in case of block assessment as well after seeking requisite approval from the concerned authorities but the fact remains that in what conditions the Assessing Officer can refer the matter to special auditor-is it in each and every case where there are voluminous documents or where the accounts are complex ? 12. There are no two opinions about the fact that only when the accounts of the assessee are complex, in that situation under this provision, reference to the special auditor can be made because the other requirement, namely, interest of the Revenue in question is always there. It would be worthwhile to reproduce the provisions of section 142(2A) of the Act as under : "If at any stage of the proceedings before the Assessing Officer having regard to the nature and complexity of the accounts of the assessee and the interests of Revenue, is of the opinion that it is necessary so to do, he may with the previous approval of the CCIT or CIT direct the assessee to get ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned, there is not much evidence on record, which can establish that the accounts of this assessee were complex in nature. Simply the accounts/documents being voluminous in nature, it cannot be said to be a complex situation. Furthermore, we agree with the learned Authorised Representative that the reference to the special auditor was made with the direction that the special auditor was to prepare the books of account in the form of cash book, ledger on the basis of documents/papers seized during the course of search. The auditors were also required to prepare trading, P&L A/c., which were recorded in the regular books of account and further to determine the undisclosed income of the block period. This is evident from the letter dated 29th Sept., 1999 of the Assessing Officer written to the auditors M/s. Anil Rakesh Gupta & Co. We agree with the learned Authorised Representative that this is not within the scope of reference under section 142(2A) of the Act that the trading, P&L A/c. can be prepared by the special auditors. This indirectly means that the assessment was got completed through a special auditor. The intention to the special auditor is to audit the accounts and not to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecial audit. The other objection taken by the learned Authorised Representative that the auditor has to submit his report in a prescribed format, does not bear much merit, because it is the substance and the contents of the audit report which matter and not the format, although the auditor may have committed a technical mistake in not giving the report in a particular format, as the report of the auditor in such cases is to be in the format attached to section 142(2A) of the Act. But the other objection by the learned Authorised Representative is very much important and goes to the root of the matter, that the Assessing Officer cannot make reference to the auditor to prepare the books of account on the basis of the seized records or to compute the undisclosed income of the different years. It is very much clear from the provisions of section in question that a reference by the Assessing Officer can be made only for making audit of accounts of the assessee. The Act nowhere authorises the Assessing Officer to make reference to the auditor to prepare the books of account on the basis of seized records or to make reference to the auditors to compute the undisclosed income of the diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Representative that the assessment order in question is time barred and also that reference to the special audit is only to gain further time for completion of the assessment and no complexity of accounts is established. It is also held that the special auditor cannot compute the income of the assessee in the manner it has been done by it. So special audit report in itself cannot be sustained. To that extent, we accept the ground taken in ground Nos. 1(a) to 1(h). The other portions of the ground are rejected. 18. The next ground relates to trading additions sustained by the learned CIT(A). The learned Authorised Representative has submitted that the learned CIT(A) has erred in sustaining the addition of Rs. 19,82,004 as alleged undisclosed business income for assessment years 1988-89 to 1998-99 as estimated by the Assessing Officer as per Annex. P, which is outside the purview of the block assessment. He has further argued that the estimation of sales and addition on the basis of application of profit rate is not justified because no addition can be made on the basis of suspicion and surmise. To substantiate his argument, the learned Authorised Representative has further submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be estimated on the basis of gross profit rate as disclosed by the assessee on the basis of books of account and not on the basis of profit rate as declared by the assessee, because the assessee might have claimed deduction of all the expenses in the regular return filed by him and against undisclosed business, no such expenses are to be allowed. The Assessing Officer made addition of Rs. 28,85,701 as income of the assessee for the block period holding it as undisclosed income. The working of the same is given by the Assessing Officer as Annex. P to the assessment order which is reproduced as under : A.Y. Accounted sales Unaccounted sales GP % as per assessee Profit as estimated on the basis of g.p. % Exp. on unacc- ounted sales Addition made by A O 1988-89 46,21,578 46,00,000* 5.30 2,43,800 nil 2,43,800* 1989-90 50,83,425 5,05,030* 5.30 2,67,650 nil 2,67,650* 1990-91 40,93,418 45,49,618 5.31 2,41,585 63,660 1,77,925 A.Y. Accounted sales Unaccounted sales GP % as per assessee Profit as estimated on the basis of g.p. % Exp. on unacc- ounted sales Addition made by A O 1991-92 56,88,181 53,94,664 5.30 2,85,917 79,387 2,06,530 1992- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lude only undisclosed income which is found as a consequence of search. Where no evidence is found, no addition can be made because that cannot be the subject-matter of block assessment. If the material is found for some years only, the block assessment has to be made only for those years where such evidence is found. With the above direction, we order to delete the addition in toto and only that much addition shall be sustained, as we have directed above. This finding of the Bench will dispose of the ground taken by the assessee as well as the ground taken by the Department. 22. In the result we partly allow the issue raised by the assessee and dismiss the ground raised by the Department in this regard. 23. The next issue pertains to the addition of Rs. 4,450 in respect of sale of motor cycle and Rs. 200 in respect of sale of cycle. The Assessing Officer made addition of Rs. 4,450 in the hands of the assessee the surplus received on the sale of motor cycle has been found recorded in the diaries and the same is required to be taxed in the year of receipt. So it is not the correct submission of the learned Authorised Representative that the addition has only been made on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Vimla Devi 70,000 (c) Shankarlal 50,000 (d) Trilokchand 50,000 (e) Balchand 55,000 (f) Lalit Kumar 1,00,000 4,55,000 As per Annex. I found from the residence of Shri Bajranglal, the following loans were taken by the appellant firm: Name of the parties Amount (Rs.) (a) Puneet Kumar 50,000 (b) Brijlalji 50,000 Brijlalji 1,00,000 Bhagwati Devi 1,30,000 Smt. Vimla Devi 70,000 (c) Shankerlal 50,000 (d) Kataria ji 15,000 (e) Trilokchand 50,000 (f) Balchand 55,000 (g) Lalit Kumar 1,00,000 1,25,000 7,45,000 The Assessing Officer accepted the loan deposit in the case of Katariaji for Rs. 15,000 and Rs. 1,25,000 in the name of Shri Laxmichand Verma, which were already appearing in the regular books of account. The amount of Rs. 50,000 standing in the name of Shri Punit Kumar which was disclosed in the case of Shri Ramlal was also excluded. An amount of Rs. 3 lakhs stated to have been received from Shri Brij ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the diaries and accepting part of them cannot be sustained and when the Assessing Officer has estimated the income, he cannot again make additions on any count in this regard. The provisions of section 68 are not applicable to the loans taken by the assessee and which are mentioned in the diaries found during the course of search. If in the seized diaries, there is any material to suggest that this is the undisclosed income of the assessee, then and only then addition can be made. But on the contrary, the seized material in this case suggests that this is not the undisclosed income of the assessee. In block assessment, there is no scope of any further enquiry or examination of creditors. Only income is to be judged in the light of the records found and seized during search. 31. Now on merits, it is the case of the assessee that Shri Brijmohan was examined under section 131 in respect of deposit of Rs. 3 lakhs in the name of different family members. He had given Rs. 1 lakh in his own name, Rs. 1,30,000 in the name of his mother Smt. Bhagwati Devi and Rs. 70,000 in the name of Smt. Vimla Devi. After his examination under section 131 an amount of Rs. 1 lakh was accepted by the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck period. The case of the assessee is justified and in the result we accept this ground raised by the assessee. 36. The next issue pertains to addition of Rs. 5,740 in assessment year 1988-89 as business profit. In the assessment order the observations of the Assessing Officer are at p. 20, para 12 and learned CIT(A)'s order the same are at p. 28, para 11.1. Addition of Rs. 5,740 in assessment year 1998-99 was sustained as business profit of the assessee. This addition was made on the basis of some loose papers fround from the residence of the partners of the firm in addition to certain diaries found and seized in the course of search which represented the outstanding diaries for assessment year 1998-99. On the basis of these loose papers, the Assessing Officer concluded that the amount of Rs. 1,76,000 found part of the sales of assessment year 1998-99, so income Rs. 5,740 was estimated by applying gross profit rate of 5.70 per cent. 37. The learned Authorised Representative has submitted that the finding of the Assessing Officer is apparently contrary to the findings of the Assessing Officer himself. The Assessing Officer has already included this income of the assessee and the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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