TMI Blog2004 (3) TMI 706X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act ). On the basis of the 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seized documents, diaries, loose papers etc. The auditors 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer did make reference for the special audit report 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 wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counts of the assessee to the special auditors. So far as this assessee is concerned, 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 au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards the intention of the Assessing Officer to gain more time under the guise of special 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 recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment order in question is clearly time barred. So we have accepted the plea of the learned Authorised 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss profit rate on account of unaccounted sales. The Assessing Officer concluded that profit on undisclosed sales should 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egular assessment, and the income earned therein is duly assessed. It cannot be presumed that the expenses for making such undisclosed sales would have been claimed in the regular returns filed by the assessee. If income is to be assessed as undisclosed income, only the net income has to be taxed as undisclosed income. We are of the opinion that the Assessing Officer should compute the net income as per the net profit disclosed by the assessee in different years and only in those assessment years where during the course of search, the material has been found to indicate the undisclosed sales being made by the assessee. The scope for making block assessment is very clear and it shall include 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lready there in the interest account for assessment year 1998-99. The submissions of the learned Authorised Representative are not convincing and hence this ground is also dismissed. 27. The next ground pertains to addition made in respect of cash credits. The Assessing Officer made observations in this regard at pp. 16 17 of his order. The learned CIT(A) has referred this issue at p. 26, paras 9.1 9.2 of his order. The case of the assessee-appellant is that the learned CIT(A) erred in sustaining the addition of Rs. 4,55,000 in respect of assessment year 1996-97 as unexplained cash credit in respect of the following parties: Name of the parties Amount (Rs.) ( a ) Bhagwati Devi 1,30,000 ( b ) Smt. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be ignored and what is apparent should be accepted as real and true unless contrary is proved. Second, the assessee has taken the plea that under the provisions of section 68, no additions can be made on the basis of the seized diaries because under this section only the credits which are entered in the books of account of the assessee maintained for any previous year and about which assessee does not offer any explanation regarding the nature and source thereof or the explanation offered by him, is not, in the opinion of the Assessing Officer satisfactory, the sum so credited may be charged to income-tax as income of the assessee of that previous year. So according to the learned Authorised Representative, this section does not apply to proceedings in block assessment under Chapter XIV-B of the IT Act, 1961. 29. On the other hand, the learned Departmental Representative relied on the orders of the authorities below. 30. After careful consideration of the material facts before us, we are of the opinion that the act of the Assessing Officer in rejecting a part of the diaries and accepting part of them cannot be sustained and when the Assessing Officer has estimated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of section 68 and on merits also, as we have explained above, these additions cannot be sustained. The result is that this ground of the assessee is allowed. 33. The next issue pertains to addition of Rs. 3,176 made on account of income from Maruti Van, relating to assessment year 1992-93. The facts on this issue are contained in p. 19, in para 11 of the assessment order and p. 27, para 10.1 of the learned CIT(A). 34. The appellant had purchased one vehicle on 15th June, 1991 for Rs. 1,30,000. As per the seized records, the receipt from such vehicle was Rs. 8,166 and the net income was Rs. 3,176. The Assessing Officer added this difference as undisclosed income of the appellant for assessment year 1992-93. 35. The contention of the learned Authorised Representative is that in case depreciation on vehicle purchased is allowed, there would be a loss and on this ground itself, no addition deserves to be made. On the other hand, it has been claimed that the loss arising on account of depreciation should be allowed to be set off against other income determined in the block period. The case of the assessee is justified and in the result we accept this ground rai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961. This ground being general in nature, does not require any adjudication. 41. The next issue relates to penalty under section 158BFA. The other grounds, namely, ground Nos. 11 and 12 do not require any adjudication on merits. 42. Now coming to the Departmental appeal raised by way of ITA No. 165/Ju/2001, ground No. 1 pertains to allowance of relief of Rs. 2,697. This ground stands disposed of in the appeal of the assessee. So this ground is dismissed. 43. Since the gross profit rate has already been applied, there cannot be any justification again for addition on the basis of some documents by taking recourse to audit report, once the records are rejected for all purposes. The assessee has relied various decisions which are contained in pp. 40-43 of the written submissions. We don t need to reproduce all the decisions cited and relied upon by the assessee because if any further addition is made to this income, it will lead to a conclusion that either the estimate so made for business income is not correct or the addition so made is not correct. In the result we uphold the finding of the learned CIT(A) in this regard. 44. In the result, the appeal of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
