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TMI Blog2014 (11) TMI 403X X X X Extracts X X X X X X X X Extracts X X X X ..... he Learned Commissioner of Income Tax (Appeals) has erred in law and in facts by failing to seek compliance with the order of Hon'ble Income Tax Appellate Tribunal. 4. The Learned Commissioner of Income Tax (Appeals) has erred in law and in facts in failing to appreciate that the presumption of sale made by the Assessing Officer for shares in shortage is contrary to facts and law and in any event, such a presumption of sale was not liable to be made in the relevant year. 5. The Learned Commissioner of Income-Tax (Appeals) has erred in law and in facts in upholding the additions made by the Assessing Officer relying on the various sources of information. 6. The Learned Commissioner of Income-Tax (Appeals) has erred in law and in facts in upholding the method of determination of income of the appellant by the Assessing Officer. 7. The learned Commissioner of Income-tax (Appeals) has erred in law and in facts in not appreciating that the entire addition made by the Assessing Officer on account of profit on sale of shares in shortage amounting to Rs. 367,29,96,372/- is incorrect and unjustified. 8. The learned Commissioner of Income-tax (Appeals) has erred in law and in facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication of such source based on telescoping theory. 21. The Learned Commissioner of Income-Tax (Appeals) has erred in law and in facts in confirming the disallowance of deduction on account of interest expenditure claimed by the appellant. 22. The Learned Commissioner of Income-Tax (Appeals) has erred in law and in facts in rejecting the claim of deduction of other expenses as per the books of account. 23. The Learned Commissioner of Income-Tax (Appeals) has erred in law and in facts in not granting deduction u/s. 48 of the Act while determining the income of the appellant. 24. The Learned Commissioner of Income-Tax (Appeals) has erred in law and in facts in confirming enhancement of income as proposed by the Assessing Officer, which is illegal, invalid and beyond his jurisdiction. 25. The Learned Commissioner of Income-Tax (Appeals) has erred in law and in facts in not considering all the submissions of the appellant 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 Rs. 164 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de its order dt. 11.7.2008 in ITA No. 3664/M/03 and C.O. No. 211/M/03 set aside the appeal and the cross objection to the files of the Ld. CIT(A) for adjudicating the issues afresh after considering the books of accounts of the assessee. Admittedly, the Tribunal was pleased to admit the additional evidence in the form of books of accounts and restore the matter to the files of the Ld. CIT(A) to examine the same. 4.1. In terms of the directions of the Tribunal, the books of accounts were submitted by the assessee which were forwarded to the AO by the Ld. CIT(A). It would be pertinent to mention here that pursuant to the order of the Hon'ble Special Court dt. 16.10.2003 on the Custodian's Report dt. 1st October, 2003, the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 appointed M/s. Vyas & Vyas, Chartered Accountants for preparing and auditing the accounts for Mr. Harshad 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /details which are in possession of the custodian/Revenue authorities. The Ld. CIT(A) has also mentioned that no books of accounts were found during the course of the searches in 1990 or in 1992 which means that the assessee was never maintaining contemporary proper books of accounts. This observations of the Ld. CIT(A) is against the facts of the case because the AO at para 3.4 on page-5 of his assessment order has observed as under: "During the course of search at various premises of the assessee in 1990 and 1992 no books of accounts were produced by him. It was found that most of the details of transactions were maintained by the assessee on a number of computers. Hence the data from the computers were copied and seized. One copy of such seized data has been provided to the assessee. The seized data was analysed but it was found that complete share market transactions were 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal entries. Further, we find that in the cases of other members of the Harshad Mehta group, the Tribunal has restored the matter to the files of the Ld. CIT(A) for verification of the books of accounts. 12.1. The Ld. DR has not brought on record the rejection of books of accounts by the Tribunal in any of the cases of the family members. Therefore, this reason is also not acceptable. 13. The fifth reason is that the books of accounts are not backed by primary documentary evidence. Once again, the Ld. CIT(A) observed that the books of accounts are not audited and are self certified therefore the accounts cannot be held as authentic . As mentioned elsewhere, 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said reports. We have reported the responses of concerned parties in our report. As regards charge sheet filed by CBI. We have tried to verify facts and figures in the books provided in the computers but not offered any comments, as the matter is subjudice before the Hon'ble Special Court. We have also checked in detail the transactions of money market entered into by HSM but could not verify the total transactions due to lack of information. The response given by concerned parties showed huge differences in transaction in HSM's books. Therefore. the correctness in such accounts cannot by ascertained. We have also studied the third party liabilities towards banks, financial institution and other notified parties etc. As per books/records made available to us and other information gathered as reported in our report, the liabilities appear in the Balance 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in figures. Thereafter we thoroughly checked both the data and corrected the figures wherever it was possible. We have also done accounting work relating to shares, which was major activity of HSM and found major variations which is reported as under: Period Ending As per HSM Book (Trading of Investment a/c) *(1) As per Annexure No. 4A, 4B, 4C (compiled out Vallan and DBP Files) *(2) As per Annexure No. 40, 4P, 4Q (Trading) and 4R, 4S, 4T(Investment as compiled by us from HSM Books. *(3) 31.3.91 1,04,73,245 8,04,52,271 -1,88,63,819 31.3.92 -84,45,42,966 12,76,82,935 7,05,83,523 8.6.92 10,56,29,006 3,93,78,662 34,44,46,907 Total -72,84,40,715 24,75,13,868 39,61,66,611 (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d every query was not possible. 16.1. If the report of the Special Auditors was so sacrosanct to the revenue authorities, then we find that while drawing the statement of affairs of M/s. Harshad Mehta, the auditors have determined the net profit earned during 1.4.1990 to 8.6.1992 at Rs. 1235321902 or say Rs. 123.53 crores, the assessment should have been made by bifurcating this income for the financial year under consideration. 16.2. Another reason for rejecting the books of account is that the balances in the account of the assessee and the balances in the books of related entities do not tally. A Perusal of the orders 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dt.29/10/2014, identical grounds were raised by the assessee and the entire issue revolves around principle of natural justice and not determining the income based on final goods of accounts. The books were rejected by the Revenue authorities. In the present appeal also identical grounds have been raised, therefore, following the reasoning contained in the aforesaid order and the facts available before us we find that the books have been rejected by the department on flimsy grounds without independently examining each and every entry and confronting specific discrepancy, if any, to the assessee . In the aforesaid order the Bench has already considered the earlier decisions also, therefore, keeping in view the totality of facts the ld. Assessing Officer is directed to verify/examine each and every entry in the books of accounts as we have discussed in the aforesaid order dated 29/10/2014. Consequently, on the same reasoning/direction we restore this appeal to the file of the Assessing Officer for adjudication afresh. Since, we have restored the matter relating to the books of accounts to the Assessing Officer we do not deem it necessary to decide other grievances of the asses ..... 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