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TMI Blog2017 (7) TMI 810X X X X Extracts X X X X X X X X Extracts X X X X ..... d in law and on facts in observing that the A.O. has considered the special Audit Report u/s. 142(2A) of the I.T. Act obtained as per the directions of the ITAT in as much as that the findings as per special Audit has not been considered in the right context. 4. He has erred in law and on facts in upholding the assessment order which was submitted to be based on surmises without any basis to support the same. 5. He has erred in law and on facts in not considering the fact that the A.O. has ignored the Audit Report u/s. 142(2A) directed by the Department itself and the re-casted accounts on the basis of which assessee has filed the revised return of income 10/11/2003 vide receipt no. 351 waving the notice u/s. 148 of the act which ought to have been accepted. 6. He has erred in law and on facts in not properly appreciating the provisions of section 142 of the act providing that the provision of section 2A shall have effect even though accounts have been audited under any other law. 7. On the facts and circumstances, the revised income of Rs. 13,93,790/- declared by the assessee based on re casted accounts subjected to special audit as per the order of the ITAT ought to have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he A.O. was to consider the special Audit Report for deciding the assessment. 8. The entire litigation before us revolves around the non-acceptance of the special Audit Report neither by the Assessing Officer nor by the First Appellate Authority. 9. A further probe in the facts show that the assessee company was contemplating a public issue of Rs. 927.94 lacs worth shares. The issued capital of the assessee company was at Rs. 135.03 lacs and out of the proposed public issue Rs. 268.94 lacs was reserved for allotment to promoters, directors, their friends and relatives. Rs. 125 lacs was reserved for NRIS and Rs. 534 lacs was for Indian Public. 10. To get the public issue a grand success, the promoters brought in capital in names of various persons and introduced cash in the books of accounts. But as the luck may have it the public issue was not subscribed and as per SEBI Guidelines. The share application money of the applicants was refunded by the bank. The share application money which was received by the bank directly were never recorded in the books of accounts and, therefore, the refund of the same was also not recorded in the books of accounts. 11. Vide an affidavit dated 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /(Decrease of stocks 26.84 26.85 0.01 2 Total:... 66.56 66.57 0.01 EXPENDITURE Materials 37.13 37.13 _. 4 Manufacturing & Other Expenses 2.58 0.00 2.58 5 Admn, selling and General expenses 13.32 3.23 10.09 6 Depreciation 5.40 5.37 0.03 7 Interest and Financial Charges 3.22 3.47 (0.25) 8 Profit before Taxation 4.91 17.37 (12.46) 9 Provision for Taxation 0.50 0.50 _ _ 10 Profit after Tax 4.41 16.87 (12.46) 14. A perusal of the aforementioned balance sheet clearly shows that the substantial increase in the share capital was erased in the re-casted books of accounts which explain the corresponding erosion of debit entries. 15. Now, all that we have to decide is whether the increase in the share capital in the original balance sheet is due to unexplained cash credit and whether the same can be added as such u/s. 68 of the Act. 16. Before adhering to the contentious issue mentioned hereinabove, we would like to address the objections of the ld. D.R. first. The ld. D.R. Vehemently objected to the re-casted books of accounts and the special Audit Report. It is say of the ld. D.R. that it is not comi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l,16.020/-. The same was assessed u/s 144 of the IT. Act with addition of Rs. 2,68,94,000/- on account of unexplained cash credit. (b) The assesses filed an appeal before the Ld. CIT(A) and stated that it has filed new return of income. and requested the CIT(A) to set aside the assessment computed by the A.O. u/s 144 of the I.T. Act. Before the Ld. CIT (A), the assessee stated that there were changes in the Directors and it was found that earlier Director had recorded --- various hypothetical and fictitious entries with reference to share capital in the books of accounts. The Ld. CIT (A) held that the subject matter of the appeals is not the new return filed with recasted accounts but the assessment completed on consideration of return filed originally. In response to the remand report called for by the ld.CIT(A) the then A.O. opined that, new sets of accounts are required to be audited u/s. 142(2A). He accordingly upheld the addition. (c) The Hon'ble ITAT, keeping in view the peculiar facts of the case regarding recasted accounts, set aside the assessment and directed to finalize the assessment after getting audit u/s. 142(2A) of the I.T. Act. 4. A copy of ITAT's order da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur understanding of the law, no addition should be made on the basis of fictitious credit entries where no real money was found to be involved. 22. Considering the nature of the original set of books of accounts and the recasted books of accounts and the observations of the special auditors appointed u/s. 142(2A) of the Act and also considering the factual matrix in totality, we do not find any merit in the impugned additions made solely on the basis of the fictitious entries admitted. We, accordingly, set aside the findings of the ld. CIT(A) and direct the A.O. to delete the addition of Rs. 2,51,76,000/-. 23. Before parting, it would not be out of place to mention here that in the first round of litigation, when the First Appellate Authority was seized with the claim of re-casted books of accounts, he had called for a remand report from the A.O. The Assessing Officer in his remand report dated 10.07.2003 has specifically requested the ld. CIT(A) to get the accounts of the audited u/s. 142(2A) of the Act. The relevant part reads as under:- "However, in the alternative, as per your honour's directions regarding verification of original books and revised set of accounts is co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 142(2A) of the I.T. Act in the in the" interest of revenue. (c) The assessee company has filed alongwith the petition before your honour Annexure-3 wherein comparison has been made between the accounts as per return of income filed and as per the new set of accounts. The said chart shows substantial variations in expenses, interest and financial charges, profits, stock etc. in Profit and Loss Account. Similarly, there are substantial variations in balance sheet pertaining to share capital, reserves and surplus, loans, assets, capital advances, current assets, loans and advances etc. The gross difference in the balance sheet works out to Rs. 2.22 crores. These facts about the new accounts clearly indicate the complexity of the case. It also shows the difference in profits. Thus, it can be easily concluded that the books of accounts do not allow the revenue to accurately work out the real profits of the assessee company. Thus, the accounts ought to be audited u/s. 142(2A) of I.T. Act. (d) Alongwith the petition filed before your honour the assessee company has submitted unaudited new set of accounts for F.Y.1996-97 relevant to A.Yr. 1997- 98. However, the assessee company has s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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