TMI Blog2011 (6) TMI 880X X X X Extracts X X X X X X X X Extracts X X X X ..... e and style of M/s. ASR Caterers. The assessee was also executing labour contracts such as erection etc. in connection with the marriage functions. A search action, under section 132(1) of the Act, was conducted on 25th June 2003 at the premises of the assessee, both at Mumbai and Chennai. Cash of ₹ 3,50,000 was seized at Mumbai and cash worth ₹ 3,00,000 was seized at Channai. Certain documents were also seized. On the basis of documents, which included undisclosed bank accounts found and seized during the course of search, the assessee prepared year-wise income and expenditure account along with statement of affairs and filed the revised return of income on 26th March 2004 enclosing therewith Income Expenditure account, statement of affairs and schedules. He also filed summary of bank accounts, summary of cash account, etc. 3. Thereafter, notice under section 153A of the Act was issued on 5th April 2004. The Assessing Officer, vide order dated 27th February 2006, directed the assessee to get his accounts audited as per the provisions of section 142(2A) of the Act. The assessee complied and furnished the audit report under section 142(2A) of the Act. The Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 2,34,086 as out of repairs. 6, 7 8 On the facts and in the circumstances of the case and in law the interest charged under section 234A, 234B and 243C is invalid and bad in law. Grounds in A.Y. 2000-01 5. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the action of Assessing Officer in disallowing an amount of ₹ 5,658 as out of self assessment tax. 6, 7 8 On the facts and in the circumstances of the case and in law the interest charged under section 234A, 234B and 243C is invalid and bad in law. Grounds in A.Y. 2001-02 6. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the action of Assessing Officer in disallowing an amount of ₹ 2,02,800 as out of foreign travel expenses. 7. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the action of Assessing Officer in disallowing an amount of ₹ 1,79,308 as out of office renovation charges. 8, 9, 10. On the facts and in the circumstances of the case and in law the interest charged under section 234A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 ITR (Trib.) 484 (Del.). He specifically submits that all the disallowance and additions which were made on ad-hoc basis, did not emanate from seized materials. 5. Learned Counsel submits that as the search action was carried out on 25th June 2003, the assessment ought to have been completed on / or before 31st March 2006, in accordance with the provisions of section 153B of the Act. He submits that the Assessing Officer instead of completing the assessment by 31st March 2008, referred the case for Special Audit under section 142(2A) of the Act on 27th Feb. 2006 i.e. just before time barring period and completed the assessment on 29th June 2006. He submits that the assessee being a small time out-door caterer, there was no complexity in the accounts and reference to Special Audit was made only with the intention to gain additional time to complete the assessment. He relied on the following case laws and submitted that such reference is bad in law. Alidhara Texpro Engineering P. Ltd. v/s DCIT, (2009) 21 DTR 252 (Guj.) Rajesh Kumar Ors. v/s DCIT Ors., (2006) 287 ITR 91 (SC); and Sahara India (Firm) v/s COT Anr., (2008) 300 ITR 403 (SC). 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er hand, opposed the contentions of the assessee and submits that the Special Audit had been ordered, as in the opinion of the Assessing Officer, there was complexity in the accounts. He submits that no such objection was raised before the Assessing Officer. For the completion of Special Audit work, a further period of 45 days has been granted. He submits that huge expenditure was incurred (approximately ₹ 6,50,000) on the audit work and this itself indicates necessity of Special Audit. He submits that the Assessing Officer took less than sixty days time to complete the assessment after receiving the Special Audit report and that the said audit report was filed on 11th August 2006, and the assessment was completed on 29th September 2006 and, hence, the same is in time. On the issue of additions, he submits that the assessee himself has filed, though marginally, additional income in the revised return of income filed after the search which is adopted in the response to notice under section 153A. He submits that, now arguing that no addition can be made, as there is no incriminating material has been found, is wrong. On the ad-hoc disallowance, the learned Departmental Represe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt was completed on 29th September 2006. ii) On examination of nature of business of the assessee, which is in the nature of undertaking, out-door caterers to middle class people and the type of documents and information furnished, we are of the opinion that the Assessing Officer was not justified in coming to a conclusion that there is a complexity in the accounts of the assessee requiring Special Audit under section 142(2A) of the Act. We extract below relevant portion of Special Audit report for ready reference. 2. A brief note on the business and accounting of the assessee is enclosed herewith as: The assessee is carrying on proprietary business of executing outdoor catering / labour contracts for marriage, parties, religious functions, etc. Further, the assessee also organizes for amenities like photo / video shooting, hall arrangement and decoration, printing of cards, providing ice creams and sweets, etc. The assessee have contract labourers to undertake catering services. As explained to us, based on enquiries from the customers, estimates are prepared which inter-alia covers charges towards provisions, vegetables, milk, etc. as well as for other amenitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. He produced statement of account and also explained the manner in which the income was arrived. This is a simple case of estimation of income based on the documents and statements furnished. There are no complex accounts. The Assessing Officer cannot outsource this function of estimation of income under the guise of Special Audit. The Special Auditors, after charging fee of ₹ 6,50,000, have only reported that certain vouchers are self-made vouchers. There is nothing new done by the Special Auditor. A petty assessee was made to pay such huge fees. The Assessing Officer has only made ad-hoc disallowance of various expenditure for various years on the ground that they are cash expenses. The record revels that the Assessing Officer has not even considered the accounts before ordering Special Audit 30 days prior to time barring period. No special skill or expertise is required and there is no complexity in the accounts. Keeping these facts in view, we have no hesitation to conclude that the reference by the Assessing Officer to conduct Special Audit under section 142(2A) at the fag and of the time barring period is done only with an intention to gain additional time to complete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under s. 142(2A) and same is prejudicial to him- Therefore, the principles of natural justice must be held to be implicit in the provisions of s. 142(2A)-If the principles of natural justice are to be excluded, the Parliament could have said so expressly-An order of approval is also not to be granted mechanically- Explanation given by the assessee, if any, would be a relevant factor-Therefore, principles of natural justice are required to be complied with before issuing a direction under s. 142(2A)-An appeal against the order of assessment would not serve any real purpose since the direction issued under s. 142(2A) is not appealable. In the case on hand, this case applies as no notice was given to the assessee. The ld C.I.T. has also granted approval mechanically. Hence the reference is bad in law. vi) The Larger Bench of Hon'ble Supreme Court in Sahara India (Firm) (supra), held that the assessee has to be given reasonable opportunity of being heard before the Assessing Officer passes the order under section 142(2A) of the Act, as it leads to serious civil consequences. This case law also applies to the facts of the case and as no opportunity was give the order pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the Revenue. There can, therefore, be no doubt that before an approval is sought for the AO must form an opinion as regards the said two conditions. The satisfaction is to be based upon objective considerations. There has to be an application of mind on the part of the AO. The said condition is not satisfied in the case on hand. It was not the case of the AO that because of the complexity of the accounts the particulars are not ascertainable from the accounts submitted. If some vital information cannot be ascertained from the accounts the AO could have called for particulars from the assessee, which he is entitled to do. The power to appoint a special auditor cannot be lightly exercised. Complexity of the accounts cannot be equated with doubts being entertained by the AO either with regard to the correctness thereof or the need for obtaining certain vital information not ascertainable from the accounts. The AO considered it necessary to appoint a special auditor to examine all related supporting vouchers in relation to the expenses under various heads specified therein. In the absence of reasons based on which it can be said that the accounts are complex, mere assumption th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of labour contractors, the Act itself provides presumptive taxation under section 44AD @ 8% and under section 44AF @ 5% in the case of retail business. The Assessing Officer was not at all justified in ordering Special Audit and also in imposing such huge fee on the assessee. As we have held that the tax audit itself is bad-in-law, the assessment ought to have been completed on or before 31st March 2006 as the Assessing Officer does not set the benefit of explanation (ii) to sec. 158B(1). As the assessment was completed on 29th September, 2006, we hold that the same is barred by limitation. x) Even though we have held that the assessment is time barred and as we have heard the matter on merits, we find that the entire additions are nothing but ad-hoc disallowance on the ground that the payments are made in cash and on the ground that self-made vouchers are produced. Keeping these in view, we are of the opinion that the Assessing Officer ought to have estimated the profit, taking guidance from the provisions of sections 44AD or 44AF. As the profits disclosed by the assessee is in accordance with the percentage indicated in these two sections, the disallowance cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in appeal, wherein the first appellate authority dismissed all the appeals. Further, aggrieved, the assessee is in appeal before the Tribunal, on the following grounds of appeal:- Following common grounds raided in assessment years 1998-99 to 2004-05 1. On the facts and in the circumstances of the case and in law the assessment order passed under section 143(3) r/w section 153C is invalid and bad in law. 2. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the action of the Assessing Officer in issuing direction under section 142(A) of the Act. 3. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the action of the A.O. in disallowing labour charges for ₹ 3051 in A.Y. 1998-99, ₹ 4,610 in A.Y. 1999-2000, ₹ 11,040 in A.Y. 2000-01, ₹ 66,260 for A.Y. 2001-02, ₹ 78,850 for A.Y. 2002-03, ₹ 40,510 for A.Y. 2003-04 and ₹ 14,004 for A.Y. 2004-05. 4. On the facts and in the circumstances of the case and in law the interest charged under section 234A and 234B of the Act. Ground raised in assessment year 1998-99 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -05 respectively. 18. The assessee disputes in this appeal, the levy of penalty u/s.271B. The Assessing Officer levied the penalty on the ground that the turnover of the assessee exceeded ₹ 40,00,000/- for the assessment year 2002-03 and 2003-04. The assessee failed to get his account audit u/s.44AB of the Act. 19. We heard both the sides. While disposing off the assessee s case on merit, we found that Special Auditor have stated that the assessee has not maintained books of account. When the assessee has not maintained books of account, in our opinion, they cannot be audit as contemplated u/s.44AB. The Pune B Bench of the I.T.A.T. in the case of Shri Ramchandra D. Keluskar in ITA No.668/PN/10, held as follows: 6. We have considered the rival submissions carefully. In the present case, it is an admitted fact that the assessee did not maintain any books of account for the year under consideration. Consequently, when there are no account books, the question of their audit does not arise. The requirement of audit enshrined in section 44AB of the Act is in relation to the books of account maintained by the assessee. In case the assessee has not maintained th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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