TMI Blog2017 (7) TMI 810X X X X Extracts X X X X X X X X Extracts X X X X ..... any. It is a settled proposition of law that Income Tax is imposed on real income. As mentioned elsewhere, the entire entries in the books of accounts of the assessee were found to be fudged and fictitious. In our 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. 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 - Decided in favour of assessee. - ITA. No: 784/AHD/2014 - - - Dated:- 3-4-2017 - SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER For The Appellant : Shri P. F. Jain, AR For The Respondent : Shri K. Madhusudan, Sr. D.R. ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. With this appeal, the Assessee has challenged the correctness of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entions were heard at length. Having heard the rival contentions, we have carefully perused the orders of the authorities below. We have also gone through the Audit Report obtained u/s. 142 (2A) of the Act. 6. Before proceeding further, we need to understand the background of the case in hand. The return of income was filed on 27.03.1998 declaring total income of ₹ 1,16,020/-. The assessment was framed u/s. 144 of the Act in which the A.O. made addition of ₹ 2,68,94,000/- as unexplained cash credit. The assessee assailed the assessment order before the First Appellate Authority wherein it was strongly contended that the books of accounts were fudged and, therefore, the books of accounts were re-casted and prayed the First Appellate Authority to consider the facts of the case in the light of the re-casted books of accounts. The contention of the assessee did not find any favour with the ld. CIT(A) who confirmed the assessment order. The assessee carried the matter before the Tribunal and the Tribunal vide order dated 31.03.2005 in ITA No. 4471/Ahd/2003 confirmed the findings of the First Appellate Authority. Subsequently, the assessee preferred a miscellaneous applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Director, the assessee company re-casted the books of accounts. Since the entries amounting to ₹ 232.60 lacs made for the increase of share capital account were fictitious, they were erased in the re-casted books of accounts. As the credit entries were erased in the re-casted books of accounts, the corresponding debit entries were also erased from the accounts. 13. The bone of contention is the re-casted books of accounts. It is the recasted books of accounts which were subjected to the special audit u/s. 142(2A) of the Act. In their special Audit Report, the auditors have explained in detail the reasons for fudging the original books of accounts and subsequently re-writing the books of accounts. The auditors have made a comparison between the balance sheet drawn as per original audited accounts and the balance sheet drawn as per re-casted books of accounts and also the corresponding profit and loss account. BALANCE SHEET AS AT 31/03/1997 No. Account head/ Group As per Original Audited accounts (Rs. In Lacs) As per recasted books of accounts (Rs. in Lacs) Difference (Rs. In Lacs) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The brief fact of the case is as under: ( a) The assessee has filed its return of income for A.Y. 1997-98 on 27/03/1998 declaring total income of Rs.l,16.020/-. The same was assessed u/s 144 of the IT. Act with addition of ₹ 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 rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osition of law that Income Tax is imposed on real income. As mentioned elsewhere, the entire entries in the books of accounts of the assessee were found to be fudged and fictitious. In our 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee at this stage is a direct consequence of the said enquiries made by this office. As such, the complexity of the accounts are no way to be doubted and the same needs to be compulsorily audited u/s.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 ₹ 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. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
