M/S. MEENAKSHI R SUNDRAM PROP M/S. R M SUNDARAM CATERERS & DECORATORS, MUMBAI V. THE ACIT 23(1), MUMBAI

ITA 3196/MUM/2008

• Counselvise Citation: 319619914 RSA 2008
• Duration Of Justice: 3 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2011
• Appeal Filed By: Assessee
• Bench Allotted: I
• Next Hearing Date: 25-05-2011
• Assessment Year: 1998-1999
• Appeal Filed On: 08-05-2008
• Court: TRIBUNAL
• Department Lawyers: GOLI SRINIWAS RAO
• Assessee Lawyers: M SUBRAMANIAN
• Keywords: Presumptive income; Search and seizure; Opportunity of being heard; Principle of natural justice; Corroborative evidences; Non compliance; Revised return
• Section: 44AD; 40A(3); 143(3); 153A; 234B

Judgement Text

PIN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI, J. SUDHAKAR REDDY, ACCOUNTANT MEMBER A ND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 3196 TO 3202/MUM./2008 (A.YS : 1998-99 TO 2004-05 ) DATE OF HEARING: 25.5.2011 MS. MEENAKSHI R. SUNDARAM PROPRIETOR, M/S. R.M. SUNDARAM CATERERS & DECORATORS 4/4 SADAN WADI CHS LAKE ROAD, L.B.S. MARG BHANDUP (W), MUMBAI 400 078 PAN AAAPI5558D .. APPELLANT V/S INCOME TAX OFFICER, RANGE-23(1) C-10, PRATYAKSHAKAR BHAVAN BANDRA KURLA COMPLEX BANDRA (E), MUMBAI 400 051 .... RESPONDENT ITA NO. 3641 AND 3642/MUM./2008 (A.YS : 2002-03 AND 2003-04 ) MR. A.S. RAJASHEKHAR, PROPRIETOR M/S. ASR CATERERS, 4/4 SADAN WADI CHS LAKE ROAD, L.B.S. MARG BHANDUP (W), MUMBAI 400 078 PAN AAAPI5558D .. APPELLANT V/S INCOME TAX OFFICER, RANGE-23(1) C-10, PRATYAKSHAKAR BHAVAN BANDRA KURLA COMPLEX BANDRA (E), MUMBAI 400 051 .... RESPONDENT MR. A.S. RAJASHEKHAR [ M/S. ASR CATERERS ] MS. MEENAKSHI R. SUNDARAM [ R.M. SUNDARAM CATERERS & DECORATORS ] 2 ITA NO. 3636 TO 3640 & 3643/MUM./2008 (A.YS : 1998-99 TO 2002-03 & 2004-05 ) MR. A.S. RAJASHEKHAR, PROPRIETOR M/S. ASR CATERERS, 4/4 SADAN WADI CHS LAKE ROAD, L.B.S. MARG BHANDUP (W), MUMBAI 400 078 PAN AAAPI5558D .. APPELLANT V/S INCOME TAX OFFICER, RANGE-23(1) C-10, PRATYAKSHAKAR BHAVAN BANDRA KURLA COMPLEX BANDRA (E), MUMBAI 400 051 .... RESPONDENT ASSESSEE BY : MR. M. SUBRAMANIAN REVENUE BY : MR. GOLI SRINIWAS RAO O R D E R PER BENCH FIRST WE TAKE UP APPEALS IN ITA NO.3636 TO 3640 & 3 643/MUM./2008 . IN THE CASE OF MR. A.S. RAJASHEKHAR AS HE IS THE MA IN PERSON SEARCHED. THESE APPEALS PREFERRED BY THE ASSESSEE, ARE DIRECT ED AGAINST THE IMPUGNED COMMON ORDER DATED 10 TH MARCH 2008, PASSED BY THE COMMISSIONER (APPEALS)-XXIII, IN APPEALS AGAINST AS SESSMENT ORDER PASSED UNDER SECTION 143(3) R/W SECTION 153A OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) FOR ASSESSMENT YEARS 1998-99 TO 2002-03 AND 2004- 05 RESPECTIVELY. 2. BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE IS A N INDIVIDUAL AND WAS CARRYING ON THE BUSINESS OF PROVIDING CATERING SERV ICES FOR RELIGIOUS AND MARRIAGE FUNCTIONS IN THE NAME AND STYLE OF M/S. AS R CATERERS. THE ASSESSEE MR. A.S. RAJASHEKHAR [ M/S. ASR CATERERS ] MS. MEENAKSHI R. SUNDARAM [ R.M. SUNDARAM CATERERS & DECORATORS ] 3 WAS ALSO EXECUTING LABOUR CONTRACTS SUCH AS ERECTIO N ETC. IN CONNECTION WITH THE MARRIAGE FUNCTIONS. A SEARCH ACTION, UNDER SEC TION 132(1) OF THE ACT, WAS CONDUCTED ON 25 TH 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 U NDISCLOSED BANK ACCOUNTS FOUND AND SEIZED DURING THE COURSE OF SEAR CH, THE ASSESSEE PREPARED YEAR-WISE INCOME AND EXPENDITURE ACCOUNT A LONG WITH STATEMENT OF AFFAIRS AND FILED THE REVISED RETURN OF INCOME ON 2 6 TH MARCH 2004 ENCLOSING THEREWITH INCOME & EXPENDITURE ACCOUNT, STATEMENT O F AFFAIRS AND SCHEDULES. HE ALSO FILED SUMMARY OF BANK ACCOUNTS, SUMMARY OF CASH ACCOUNT, ETC. 3. THEREAFTER, NOTICE UNDER SECTION 153A OF THE ACT WA S ISSUED ON 5 TH APRIL 2004. THE ASSESSING OFFICER, VIDE ORDER DATED 27 TH 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 FURNI SHED THE AUDIT REPORT UNDER SECTION 142(2A) OF THE ACT. THE ASSESSING OFF ICER COMPLETED THE ASSESSMENT UNDER SECTION 143(3) R/W SECTION 153A OF THE ACT ON 29 TH SEPTEMBER 2006. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL, WHEREIN THE FIRST APPELLATE AUTHORITY DISMISSED ALL THE APPEALS. FURTHER, AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRI BUNAL, ON THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE ASSESSMENT ORDER PASSED U/S 143(3) R/W SECTION 153A OF THE ACT IS INVALID AND BAD IN LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF TH E A.O. IN ISSUING DIRECTION U/S 142(2A) OF THE ACT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF TH E A.O. IN DISALLOWING AN AMOUNT OF ` 12,000 AS OUT OF LABOUR CHARGES FOR A.Y. 1998-99, ` 39,272 FOR A.Y. 1999-2000, ` 88,698 FOR A.Y. 2000-01, ` 1,50,207 FOR A.Y. 2001-02, ` 1,72,525 FOR A.Y. 2002-03 AND ` 4,92,468 FOR A.Y. 2004-05. MR. A.S. RAJASHEKHAR [ M/S. ASR CATERERS ] MS. MEENAKSHI R. SUNDARAM [ R.M. SUNDARAM CATERERS & DECORATORS ] 4 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF A. O. IN DISALLOWING AN AMOUNT OF ` 12,658 AS OUT OF DIRECT EXPENDITURE FOR A.Y. 1998- 99, ` 12,137 FOR A.Y. 1999-2000, FOR ` 1,50,207 FOR A.Y. 2001-02 AND ` 7,85,552 FOR A.Y. 2004-05. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF A. O. IN DISALLOWING AN AMOUNT OF 23,859 AS OUT OF INDIRECT EXPENDITURE FOR A.Y. 2000-01, ` 39,196 FOR A.Y. 2001-02, ` 1,81,297 FOR A.Y. 2002-03, ` 1,74,754 FOR A.Y. 2004-05. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF A. O. IN DISALLOWING AN AMOUNT OF ` 30,000 AS OUT OF CASH PAYMENT IN CONTRAVENTION OF RULE 40A(3) FOR A.Y. 1998-99 AND ` 45,480 FOR A.Y. 2004-05. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF AS SESSING OFFICER IN DISALLOWING AN AMOUNT OF ` 25,000 AS OUT OF UNEXPLAINED CASH BALANCE. GROUNDS IN A.Y. 1999-2000 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF A. O. IN DISALLOWING AN AMOUNT OF ` 2,34,086 AS OUT OF REPAIRS. 6, 7 & 8 ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE INTEREST CHARGED UNDER SECTION 234A, 234B A ND 243C IS INVALID AND BAD IN LAW. GROUNDS IN A.Y. 2000-01 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF AS SESSING 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 T HE CASE AND IN LAW THE INTEREST CHARGED UNDER SECTION 234A, 234B A ND 243C IS INVALID AND BAD IN LAW. GROUNDS IN A.Y. 2001-02 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF AS SESSING 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 CAS E AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF AS SESSING OFFICER IN MR. A.S. RAJASHEKHAR [ M/S. ASR CATERERS ] MS. MEENAKSHI R. SUNDARAM [ R.M. SUNDARAM CATERERS & DECORATORS ] 5 DISALLOWING AN AMOUNT OF ` 1,79,308 AS OUT OF OFFICE RENOVATION CHARGES. 8, 9, & 10. ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW THE INTEREST CHARGED UNDER SECTION 234A, 234B A ND 243C IS INVALID AND BAD IN LAW. GROUNDS IN A.Y. 2002-03 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF AS SESSING OFFICER IN DISALLOWING AN AMOUNT OF ` 81,2581 AS UNRECORDED INVESTMENT. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF AS SESSING OFFICER IN DISALLOWING AN AMOUNT OF ` 89,868 AS OUT OF LTCG. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF AS SESSING OFFICER IN DISALLOWING AN AMOUNT OF ` 40,850 AS OUT OF PURCHASE OF FIXED ASSETS. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF AS SESSING OFFICER IN DISALLOWING AN AMOUNT OF ` 2,31,000 AS OUT OF DEPOSITS. 9, 10 & 11 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE INTEREST CHARGED UNDER SECTION 234A, 234B A ND 243C IS INVALID AND BAD IN LAW. GROUNDS IN A.Y. 2004-05 6 & 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTI ON OF ASSESSING OFFICER IN DISALLOWING AN AMOUNT OF 20,900 AND ` 15,210 AS OUT OF JEWELLERY. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF AS SESSING OFFICER IN DISALLOWING AN AMOUNT OF `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` 6,50,000) ON THE AUDIT WORK AND THIS ITSELF INDICATES NECESSITY OF SPECIAL AUDIT. H E SUBMITS THAT THE ASSESSING OFFICER TOOK LESS THAN SIXTY DAYS TIME TO COMPLETE THE ASSESSMENT AFTER RECEIVING THE SPECIAL AUDIT REPORT AND THAT THE SAI D AUDIT REPORT WAS FILED ON 11 TH AUGUST 2006, AND THE ASSESSMENT WAS COMPLETED ON 2 9 TH SEPTEMBER 2006 AND, HENCE, THE SAME IS IN TIME. ON THE ISSUE OF ADDITIONS, HE SUBMITS THAT THE ASSESSEE HIMSELF HAS FILED, THOUGH MARGINA LLY, 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 T HAT, 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 D EPARTMENTAL REPRESENTATIVE SUBMITS THAT 12% OF THE LABOUR CHARG ES, DIRECT EXPENSES AND INDIRECT EXPENSES WERE DISALLOWED AND THAT THE SAME IS REASONABLE. 9. ON THE LEVY OF INTEREST UNDER SECTION 234A, 234B AN D 234C OF THE ACT, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITS THI S IS MANDATORY AND CONSEQUENTIAL IN NATURE. 10. RIVAL CONTENTIONS WERE HEARD. ON A CAREFUL CONSIDER ATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAPERS ON RECORD, AS WELL AS THE CASE LAWS CITED BEFORE US, WE HOLD AS F OLLOWS:- I) THE ASSESSEE IS A SMALL TIME CATERING CONTRACTOR. H E ALSO UNDERTAKES LABOUR CONTRACTS FOR MARRIAGE FUNCTIONS OF MIDDLE C LASS FAMILIES SUCH AS PENDAL ERECTION ETC. FROM THE FACTS ON RECORD, IT C AN BE SEEN THAT EVEN AFTER CARRYING OUT THE SEARCH, IT IS FOUND THAT ONLY FOR THE ASSESSMENT YEAR 2002- MR. A.S. RAJASHEKHAR [ M/S. ASR CATERERS ] MS. MEENAKSHI R. SUNDARAM [ R.M. SUNDARAM CATERERS & DECORATORS ] 9 03 AND 2003-04, THE TURNOVER OF THE ASSESSEE HAS EX CEEDED ` 40,00,000. FOR ALL THE EARLIER ASSESSMENT YEARS, THE TURNOVER IS MUCH BELOW ` 40,00,000. THE REVENUE HAS NOT FOUND ANY INCRIMINAT ING MATERIAL DURING THE COURSE OF SEARCH. HUGE IMMOVABLE ASSETS OR ASSETS I N THE FORM OF GOLD AND JEWELLERY, INVESTMENTS IN SHARES ETC. WERE NOT FOUN D. ONLY CERTAIN CASH WAS FOUND DURING THE COURSE OF SEARCH. THE ASSESSEE FIL ED ITS REVISED RETURN OF INCOME ON 17 TH APRIL, 2004. IN RESPONSE TO THE NOTICE UNDER SECT ION 153A THERE REVISED RETURN OF INCOME WERE TREATED AS RETU RN FILED. AS THE SEARCH HAD TAKEN PLACE ON 25 TH JUNE 2003, THE TIME LIMIT FOR COMPLETION OF ASSESSMENT WAS 31 ST MARCH 2006. THE ASSESSING OFFICER ORDERED SPECIAL AUDIT UNDER SECTION 142(2A). THE ASSESSING OFFICER, IN THE ORDER PASSED U/S.142(2A) ON 27 TH FEBRUARY, 2006 AT PARA-2, STATED THAT IN VIEW OF T HE NATURE AND COMPLEXITY OF THE ACCOUNTS AND IN THE IN TEREST OF REVENUE, IT IS NECESSARY THAT BOOKS OF ACCOUNT WITH COMPUTER BACK- UPS SHOULD BE AUDITED. TIME OF 120 DAYS WAS GIVEN. A FURTHER EXTENSION OF 45 DAYS HAD BEEN GRANTED ON 22 ND JUNE 2006. THE SPECIAL AUDIT WAS COMPLETED ON 10 TH AUGUST 2006 AND ON 11 TH AUGUST 2006, THE SPECIAL AUDIT REPORT WAS FURNISHE D BEFORE THE ASSESSING OFFICER. THE ASSESSMENT WAS COMPLETED ON 29 TH SEPTEMBER 2006. THE INITIAL PERIOD OF 120 DAYS EXPIRED ON 27 TH JUNE 2006. THEREAFTER, THE ADDITIONAL TIME OF 45 DAYS FOR COMPLETION OF SP ECIAL AUDIT EXPIRED ON 10 TH AUGUST, 2006. THE SPECIAL AUDITORS SUBMITTED THEIR REPORT ON 10 TH AUGUST 2006 AND, THEREAFTER, THE ASSESSMENT WAS COMPLETED ON 29 TH SEPTEMBER 2006. II) ON EXAMINATION OF NATURE OF BUSINESS OF THE ASSESSE E, 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 T HE OPINION THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN COMING TO A CONCLUSION THAT THERE IS A COMPLEXITY IN THE ACCOUNTS OF THE ASSESSEE REQUIRIN G SPECIAL AUDIT UNDER SECTION 142(2A) OF THE ACT. WE EXTRACT BELOW RELEVA NT PORTION OF SPECIAL AUDIT REPORT FOR READY REFERENCE. MR. A.S. RAJASHEKHAR [ M/S. ASR CATERERS ] MS. MEENAKSHI R. SUNDARAM [ R.M. SUNDARAM CATERERS & DECORATORS ] 10 2. A BRIEF NOTE ON THE BUSINESS AND ACCOUNTING OF T HE 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 AMENI TIES LIKE PHOTO / VIDEO SHOOTING, HALL ARRANGEMENT AND DECORATION, PR INTING OF CARDS, PROVIDING ICE CREAMS AND SWEETS, ETC. THE ASSESSEE HAVE CONTRACT LABOURERS TO UNDERTAKE CATERING SERVICES. AS EXPLAI NED TO US, BASED ON ENQUIRIES FROM THE CUSTOMERS, ESTIMATES ARE PREPARE D WHICH INTER-ALIA COVERS CHARGES TOWARDS PROVISIONS, VEGETABLES, MILK , ETC. AS WELL AS FOR OTHER AMENITIES AS PER CUSTOMERS REQUIREMENT. AFTE R THE EXECUTION OF THE CONTRACT / CATERING SERVICES UNDERTAKEN, BASED ON ACTUAL NUMBER OF THE PERSONS CATERED, NATURE OF SERVICES RENDERED AN D AMENITIES PROVIDED, BILLS ARE RAISED ON PARTIES AND PAYMENTS ARE RECEIVED. PAYMENTS ARE MADE TO THE SUPPLIERS / LABOURERS. THE ASSESSEE IS NOT MAINTAINING REGULAR BOOKS OF ACCOUNT ON DAY TO DAY BASIS . AFTER FINAL SETTLEMENT OF THE CATERING / LABOUR CONTRACTS UNDER TAKEN, DETAILS ARE FORWARDED PERIODICALLY FOR WRITING COMPUTERIZED BOO KS OF ACCOUNT. WE HAVE OBSERVED IN ORIGINAL ACCOUNTS AS WELL AS IN CONSOLIDATED ACCOUNTS THAT ASSESSEE HAS NO SYSTEM OF MAINTAINING REGISTER WITH REGARD TO THE CATERING SERVICES PROVIDED / LABOUR C ONTRACTS UNDERTAKEN. FURTHER, CATERING BILLS ARE PREPARED ON PLAIN PAPER (NOT PRE-PRINTED) HAND-MADE, WITHOUT BEARING BILLS NO. BUT MENTIONING NAME OF THE PARTY, VENUE, FUNCTION DATE ETC. HOWEVER, COMPLETE POSTAL ADDRESSES OF THE PARTIES ARE NOT AVAILABLE IN THE SAID BILL. AS EXPLAINED TO US, DATE OF BILL READ IN REVERSE ORDER IS BILL REFERENCE NO. IN BOOKS OF ACCOUNT AND CAN BE CORRELATED IN SUCH MANNER. FURTHER, EXPE NSES ARE ACCOUNTED ON THE BASIS OF SHEET PREPARED AND ATTACH ED WITH BILLS BY CREDITING SUPPLIERS / LABOURERS ACCOUNT. FURTHER, PAYMENTS ARE MADE FOR PROVISIONS IN MAJORITY OF THE CASES THROUGH CHE QUES WHEREAS LABOUR PAYMENT IS MAJORITY CASES ARE PAID IN CASH AND ON A CCOUNT BASIS. SUCH LABOUR CHARGES PAID ARE SUPPORTED BY SELF-MADE VOUC HERS AND LACKS SUPPORTING EVIDENCES. FURTHER, VOUCHERS IN RESPECT OF MAJORITY OF THE INDIRECT EXPENSES PAID IN CASH AND CLAIMED IN THE I NCOME AND EXPENDITURE ACCOUNT ARE NOT MADE AVAILABLE. WITH SPECIFIC REFERENCE TO CERTAIN CATERING / LABOU R INCOME BOOKED, LABOUR CHARGES PAID AND OTHER DIRECT AND INDIRECT R EVENUE EXPENSES BOOKED AND CLAIMED IN REVISED ACCOUNT ON PERCENTAGE BASIS (EXCEPT THOSE WHICH ARE BOOKED ON THE BASIS OF BANK STATEME NTS AND SEIZED RECORDS), IT IS STATED THAT NO BILLS / VOUCHERS / E VIDENCES HAVE BEEN MADE AVAILABLE TO VERIFY THEIR GENUINENESS AND ACCO RDINGLY, SUCH TRANSACTIONS REMAINS UNVERIFIABLE. MR. A.S. RAJASHEKHAR [ M/S. ASR CATERERS ] MS. MEENAKSHI R. SUNDARAM [ R.M. SUNDARAM CATERERS & DECORATORS ] 11 III) FROM THE ABOVE, IT IS CLEAR THAT THE CONCLUSION ARR IVED AT BY THE ASSESSING OFFICER THAT THERE IS A COMPLEXITY IN THE ACCOUNT IS NOT CORRECT. THE ASSESSEE HAS FILED ALL THE DETAILS, DOCUMENTS, INFO RMATION AND EXPLANATION INCLUDING REVISED STATEMENTS BEFORE THE ASSESSING O FFICER. HE PRODUCED STATEMENT OF ACCOUNT AND ALSO EXPLAINED THE MANNER IN WHICH THE INCOME WAS ARRIVED. THIS IS A SIMPLE CASE OF ESTIMATION O F INCOME BASED ON THE DOCUMENTS AND STATEMENTS FURNISHED. THERE ARE NO C OMPLEX ACCOUNTS. THE ASSESSING OFFICER CANNOT OUTSOURCE THIS FUNCTION OF ESTIMATION OF INCOME UNDER THE GUISE OF SPECIAL AUDIT. THE SPECIAL AUDI TORS, 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 ASSE SSING OFFICER HAS ONLY MADE AD-HOC DISALLOWANCE OF VARIOUS EXPENDITURE FOR VARIOUS YEARS ON THE GROUND THAT THEY ARE CASH EXPENSES. THE RECORD REVE LS THAT THE ASSESSING OFFICER HAS NOT EVEN CONSIDERED THE ACCOUNTS BEFORE ORDERING SPECIAL AUDIT 30 DAYS PRIOR TO TIME BARRING PERIOD. NO SPECIAL S KILL OR EXPERTISE IS REQUIRED AND THERE IS NO COMPLEXITY IN THE ACCOUNTS. KEEPI NG THESE FACTS IN VIEW, WE HAVE NO HESITATION TO CONCLUDE THAT THE REFERENCE B Y 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 GA IN ADDITIONAL TIME TO COMPLETE THE ASSESSMENT. THIS IS NOT AN HONEST EX ERCISE OF POWERS. IT IS IN FACT MISUSE OF A PROVISION OF LAW. THE ASSESSING OFFICER HAS NOT MADE AN EFFORT TO EXAMINE THE CASE, BEFORE REFERRING TO SPE CIAL AUDIT. HAD HE APPLIED HIS MIND, HE COULD COME TO AN EASY CONCLUSION THAT THIS IS JUST A CASE OF ESTIMATION OF INCOME. IV) HONBLE GUJARAT HIGH COURT IN ALIDHARA TEXPRO ENGIN EERING P. LTD. (SUPRA), HAS HELD AS FOLLOWS:- HELD : IN THE SHOW-CAUSE NOTICE THERE IS NO WHISPE R, LEAVE ALONE ANY FINDINGS, AS TO ANY COMPLEXITY OF THE ACCOUNTS OF E ITHER FFPL OR GTPL, AND THEREFORE, THERE WAS NO QUESTION OF FORMATION OF AN Y OPINION. IN THE CIRCUMSTANCES, THE ENTIRE EXERCISE COMMENCING FROM SHOW-CAUSE NOTICE DT. MR. A.S. RAJASHEKHAR [ M/S. ASR CATERERS ] MS. MEENAKSHI R. SUNDARAM [ R.M. SUNDARAM CATERERS & DECORATORS ] 12 24TH DEC., 2007 AND CULMINATING IN ASSESSMENT ORDER DT. 31ST MARCH, 2008 IS BAD IN LAW AND WITHOUT JURISDICTION. THE AO HAS NOT BEEN ABLE TO SHOW, AS THE RECORD REVEALS, THAT INSOFAR AS THE SAID TWO COMPAN IES, NAMELY FFPL AND GTPL ARE CONCERNED, THE ACCOUNTS OF THE SAID TWO COMPANI ES WERE EVER CONSIDERED BY THE AO, AND THEREAFTER HAVING REGARD TO COMPLEXI TIES OF SAID ACCOUNTS HE HAD FORMED AN OPINION TO HAVE THE SAID ACCOUNTS SPE CIALLY AUDITED. IN ABSENCE OF THE PREREQUISITE CONDITIONS OF THE PROVISION BEI NG FULFILLED, THE ACTION OF THE RESPONDENT AUTHORITY INSOFAR AS FFPL AND GTPL ARE C ONCERNED, CANNOT BE SUSTAINED. IN THE RESULT, INSOFAR AS SPECIAL CIVIL APPLN. NOS. 7252 OF 2008 AND 7253 OF 2008 ARE CONCERNED, SHOW-CAUSE NOTICE DT. 2 4TH DEC., 2007 AND CONSEQUENTIAL ORDER DT. 31ST DEC., 2007 UNDER S. 14 2(2A) ARE HEREBY QUASHED AND SET ASIDE, AS BEING WITHOUT JURISDICTION. AS A CONSEQUENCE, THE AUDITORS REPORT DT. 10TH MARCH, 2008 AND THE CONSEQUENTIAL A SSESSMENT ORDERS DT. 31ST MARCH, 2008 ALSO ARE BAD IN LAW AND CANNOT SURVIVE. [EMPHASIS OWN] IN THE CASE ON HAND ALSO THE ASSESSING OFFICER HAS NOT CONSIDERED THE MATERIAL BEFORE COMING TO THE CONCLUSION THAT A SPE CIAL AUDIT IS REQUIRED. V) THE HON'BLE SUPREME COURT IN RAJESH KUMAR & ORS. (S UPRA), OBSERVED AS FOLLOWS:- AUDITSPECIAL AUDIT UNDER S. 142(2A)OPPORTUNITY OF BEING HEARD PROCEEDINGS OF ASSESSMENT BEFORE THE AO ARE JUDICIA L PROCEEDINGSAN ORDER UNDER S. 142(2A) WHICH UNDISPUTABLY IS RESORTED TO IN AID OF THE ULTIMATE ORDER OF ASSESSMENT WITHOUT ANY STATUTORY INTERDICT CANNO T BE SAID TO BE AN ADMINISTRATIVE ORDERASSESSEE SUFFERS CIVIL CONSEQU ENCES AS A RESULT OF AN ORDER UNDER S. 142(2A) AND SAME IS PREJUDICIAL TO H IM THEREFORE, THE PRINCIPLES OF NATURAL JUSTICE MUST BE HELD TO BE IM PLICIT IN THE PROVISIONS OF S. 142(2A)IF THE PRINCIPLES OF NATURAL JUSTICE ARE TO BE EXCLUDED, THE PARLIAMENT COULD HAVE SAID SO EXPRESSLYAN ORDER OF APPROVAL I S ALSO NOT TO BE GRANTED MECHANICALLY EXPLANATION GIVEN BY THE ASSESSEE, IF ANY, WOULD BE A RELEVANT FACTORTHEREFORE, 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 SINC E 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 GIVE N REASONABLE OPPORTUNITY OF BEING HEARD BEFORE THE ASSESSING OFFICER PAS SES THE ORDER UNDER SECTION MR. A.S. RAJASHEKHAR [ M/S. ASR CATERERS ] MS. MEENAKSHI R. SUNDARAM [ R.M. SUNDARAM CATERERS & DECORATORS ] 13 142(2A) OF THE ACT, AS IT LEADS TO SERIOUS CIVIL CO NSEQUENCES. THIS CASE LAW ALSO APPLIES TO THE FACTS OF THE CASE AND AS NO OPP ORTUNITY WAS GIVE THE ORDER PASSED U/S.142(2A) IS BAD IN LAW. VII) THE HONBLE CALCUTTA HIGH COURT IN BATA INDIA LTD. & ANR. (SUPRA), HELD AS FOLLOWS:- HELD CONTENTION THAT AS THE COURT IN THE EARLIER W RIT APPLICATION BY ITS ORDER DT. 12TH JULY, 2001, GRANTED LIBERTY TO THE R ESPONDENT, THE INSTANT WRIT APPLICATION QUESTIONING THE IMPUGNED O RDER IS NOT MAINTAINABLE IS NOT SUSTAINABLE. IN ITS EARLIER ORD ER THE COURT QUASHED AND SET ASIDE THE ORDER PASSED UNDER S. 142(2A). TH E LIBERTY GRANTED TO THE RESPONDENTS WAS 'TO GIVE A HEARING TO THE PE TITIONERS IF THE RESPONDENTS WANTED TO TAKE ANY STEPS UNDER S. 142(2 A) OF THE ACT'. IT WAS MADE CLEAR THAT THE COURT HAD NOT GONE INTO THE MERITS OF ANY POINTS AS HAD BEEN PLEADED IN THE PETITION. THEREFO RE, THE POINTS RAISED IN THE INSTANT WRIT APPLICATION HAD NOT BEEN DISPOSED OF ON THE MERITS IN THE EARLIER WRIT APPLICATION SO AS TO FOR ECLOSE CONSIDERATION ON THE MERITS OF THE CONTENTIONS RAISED IN THE INST ANT WRIT APPLICATION. IT MUST BE STATED THAT MERELY BECAUSE NO SPECIAL AU DIT UNDER S. 142(2A) WAS DIRECTED IN THE PAST OR EVEN THEREAFTER FOR THE ASSESSMENT YEARS SUBSEQUENT TO 1988-89 IT CANNOT BE SAID THAT THE ASSESSING AUTHORITY IS DENUDED OF ITS POWER TO ORDE R SUCH SPECIAL AUDIT IF THE FACTS AND CIRCUMSTANCES WARRANT A SPEC IAL AUDIT UNDER S. 142(2A). THE AO/APPROVING AUTHORITY COULD HAVE ARRI VED AT A SATISFACTION AS TO COMPLEXITY OF THE ACCOUNTS ONLY AFTER SEEING THE ACCOUNTS OR IF THE REQUISITIONS MADE BY THE AO WERE NOT FULLY AND DULY COMPLIED WITH. ALL REQUISITIONS MADE BY THE AO WERE FULLY COMPLIED WITH AND, THEREFORE, THERE WAS NO MATERIAL BEFORE T HE AO OR THE APPROVING AUTHORITY (CIT) ON THE BASIS OF WHICH IT CAN BE SAID THAT THERE HAS BEEN NON-COMPLIANCE WITH THE REQUISITIONS MADE UPON THE ASSESSEE. THE BOOKS OF ACCOUNT HAVE NOT BEEN LOOKED INTO. NO FAULT HAS BEEN FOUND WITH THE TWO AUDIT REPORTS THAT HAVE BEEN FURNISHED BY THE ASSESSEE ALONG WITH THE RETURN. IT IS NOT EV EN THE CASE OF THE REVENUE THAT THE ASSESSEE HAS NOT COMPLIED WITH THE REQUISITIONS MADE UPON IT BY THE AO OR THAT THE COMPLIANCE IS EI THER INCOMPLETE OR INADEQUATE. NO REQUISITION WAS MADE BY THE AO WITH RESPECT TO THE PARTICULARS WHICH HAVE BEEN MADE THE FOUNDATION AND THE BASIS OF THE IMPUGNED ORDER OF APPROVAL PASSED BY THE CIT. THE T WO PRE- CONDITIONS JUSTIFYING ACTION UNDER S. 142(2A) ARE T HE NATURE AND COMPLEXITY OF THE ACCOUNTS AND THE INTERESTS 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 CON DITIONS. THE SATISFACTION IS TO BE BASED UPON OBJECTIVE CONSIDER ATIONS. 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 TH E CASE OF THE AO THAT BECAUSE OF THE COMPLEXITY OF THE ACCOUNTS THE PARTI CULARS ARE NOT ASCERTAINABLE FROM THE ACCOUNTS SUBMITTED. IF SOME VITAL INFORMATION CANNOT BE ASCERTAINED FROM THE ACCOUNTS THE AO COUL D HAVE CALLED FOR PARTICULARS FROM THE ASSESSEE, WHICH HE IS ENTITLED TO DO. THE POWER MR. A.S. RAJASHEKHAR [ M/S. ASR CATERERS ] MS. MEENAKSHI R. SUNDARAM [ R.M. SUNDARAM CATERERS & DECORATORS ] 14 TO APPOINT A SPECIAL AUDITOR CANNOT BE LIGHTLY EXER CISED. 'COMPLEXITY' OF THE ACCOUNTS CANNOT BE EQUATED WITH DOUBTS BEING ENTERTAINED BY THE AO EITHER WITH REGARD TO THE CORRECTNESS THEREO F OR THE NEED FOR OBTAINING CERTAIN VITAL INFORMATION NOT ASCERTAINAB LE FROM THE ACCOUNTS. THE AO CONSIDERED IT NECESSARY TO APPOINT A SPECIAL AUDITOR TO EXAMINE ALL RELATED SUPPORTING VOUCHERS IN RELAT ION TO THE EXPENSES UNDER VARIOUS HEADS SPECIFIED THEREIN. IN THE ABSEN CE OF REASONS BASED ON WHICH IT CAN BE SAID THAT THE ACCOUNTS ARE COMPLEX, MERE ASSUMPTION THAT THEY ARE COMPLEX WOULD NOT SATISFY THE TEST NOR WOULD THE APPOINTMENT OF A SPECIAL AUDITOR MERELY F OR THE PURPOSE OF EXAMINATION OF RELATED SUPPORTING VOUCHERS BRING TH E MATTER WITHIN THE AMBIT OF S. 142(2A). FOR ALL THE AFORESAID REAS ONS, THE IMPUGNED ORDER RELATING TO SPECIAL AUDIT IN THE PETITIONER S CASE CANNOT BE SUSTAINED AND IS ACCORDINGLY QUASHED AND SET ASIDE. PEERLESS GENERAL FINANCE & INVESTMENT CO. LTD. VS. DY. CIT ( 1999) 156 CTR (CAL) 512 : (1999) 236 ITR 671 (CAL) AND JOINT CIT VS. ITC LTD. (1999) 156 CTR (CAL) 61 : (1999) 239 ITR 921 (CAL) FOLLOWED; SWADESHI COTTON MILLS CO. LTD. VS. CIT (1987) 63 CT R (ALL) 335 : (1988) 171 ITR 634 (ALL) AND MUTHOOTTU MINI KURIES VS. DY. CIT (2001) 166 CTR (KER) 180 : (2001) 250 ITR 455 (KER) RELIED ON. [EMPHASIS OWN] IN THE CASE ON HAD ALSO, THE ASSESSING OFFICER, NOR THE C.I.T. HAVE APPLIED THERE MIND. WHAT IS THE COMPLEXITY IS NOT KNOWN . VIII) THE HONBLE CALCUTTA HIGH COURT IN PEARLESS GENERAL FINANCE & INVESTMENT CO. LTD. (SUPRA), HAS HELD THAT THE COMM ISSIONERS ORDER NOMINATING A PARTICULAR FIRM FOR CONDUCTING AUDIT D OES NOT AMOUNT TO SANCTION CONTEMPLATED UNDER SECTION 142(2A). IX) APPLYING THESE PRINCIPLES TO THE FACTS OF THIS CASE , WE HOLD THAT THE ASSESSING OFFICER HAS ERRED IN NOT GIVING OPPORTUNI TY TO THE ASSESSEE BEFORE ORDERING SPECIAL AUDIT UNDER SECTION 142(2A). FURTH ER, A SMALL TIME OUT-DOOR CATERER HAS BEEN SEARCH AND AS ALREADY STATED, THE CONCLUSION ARRIVED AT BY THE ASSESSING OFFICER THAT THERE IS A COMPLEXITY IN THE ACCOUNTS WITHOUT FIRST ATTEMPTING TO EXAMINE WAS NOT AT ALL JUSTIFIED. T HE FEES PAID TO SPECIAL AUDIT I.E. RS.6,50,000/- WAS EXORBITANT WITH REFERENCE TO THE NATURE OF THE CASE. IN THIS FINANCIAL CAPITAL OF THE COUNTRY, WE ARE SURPR ISED THAT SUCH A SMALL OUT- DOOR CATERER AND MARRIAGE PARTY LABOUR CONTRACTOR H AVING NOT MUCH MARGIN, WAS SEARCHED AND THE ACCOUNTS HAVE BEEN ORDERED FOR SPECIAL AUDIT AT THE FAG END OF THE TIME BARRING PERIOD WITHOUT EVEN EXA MINING THE ACCOUNTS AND MR. A.S. RAJASHEKHAR [ M/S. ASR CATERERS ] MS. MEENAKSHI R. SUNDARAM [ R.M. SUNDARAM CATERERS & DECORATORS ] 15 TAX AUDIT FEE OF ABOUT ` 6,50,000 WAS DIRECTED TO BE PAID BY THE ASSESSEE T O THE TAX AUDIT FIRM. ULTIMATELY, THE ASSESSING OFFI CER COMPLETES THE ASSESSMENT BY MAKING CERTAIN AD-HOC DISALLOWANCE ON PERCENTAGE BASIS, ON THE GROUND THAT THE VOUCHERS ARE SELF-MADE VOUCHERS AND THE PAYMENTS ARE MADE IN CASH. WE EXPRESS OUR DISAPPOINTMENT AND ANG UISH ON SUCH ASPECTS. IN THE CASE OF LABOUR CONTRACTORS, THE ACT ITSELF P ROVIDES 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 HU GE 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 31 ST MARCH 2006 AS THE ASSESSING OFFICER DOES NOT SET THE BENEFIT OF EXPLANATION (II ) TO SEC. 158B(1). AS THE ASSESSMENT WAS COMPLETED ON 29 TH SEPTEMBER, 2006, WE HOLD THAT THE SAME IS BARRED BY LIMITATION. X) EVEN THOUGH WE HAVE HELD THAT THE ASSESSMENT IS TIM E BARRED AND AS WE HAVE HEARD THE MATTER ON MERITS, WE FIND THAT TH E 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 A RE PRODUCED. KEEPING THESE IN VIEW, WE ARE OF THE OPINION THAT THE ASSES SING OFFICER OUGHT TO HAVE ESTIMATED THE PROFIT, TAKING GUIDANCE FROM THE PROV ISIONS OF SECTIONS 44AD OR 44AF. AS THE PROFITS DISCLOSED BY THE ASSESSEE IS I N ACCORDANCE WITH THE PERCENTAGE & INDICATED IN THESE TWO SECTIONS, THE D ISALLOWANCE CANNOT BE SUSTAINED. CONSEQUENTLY, WE SET ASIDE THE ORDERS OF THE COMMISSIONER (APPEALS) IN ALL THE YEARS UNDER ASSESSMENT AND ALL OW ALL THE GROUNDS RAISED BY THE ASSESSEE IN ALL THE APPEALS. XI) INSOFAR AS ON THE LEVY OF INTEREST UNDER SECTION 23 4A, 234B AND 234C OF THE ACT, IS CONCERNED, THIS IS MANDATORY AND CON SEQUENTIAL IN NATURE. THEREFORE, NO SEPARATE ADJUDICATION IS NEEDED. MR. A.S. RAJASHEKHAR [ M/S. ASR CATERERS ] MS. MEENAKSHI R. SUNDARAM [ R.M. SUNDARAM CATERERS & DECORATORS ] 16 11. IN THE RESULT, ASSESSEES APPEALS IN ITA NO.3636 TO 3640 & 3643/ MUM./2008, ARE ALLOWED. NOW WE TAKE UP APPEALS IN ITA NO.3196 TO 3202/MUM./ 2008 . THESE APPEALS PREFERRED BY THE ASSESSEE, ARE DIRECT ED AGAINST THE IMPUGNED COMMON ORDER DATED 25 TH FEBRUARY 2008, PASSED BY THE COMMISSIONER (APPEALS)-XXIII, CONFIRMING THE ASSESS MENT ORDER PASSED UNDER SECTION 143(3) R/W SECTION 153C OF THE ACT FO R ASSESSMENT YEARS 1998-99 TO 2004-05 RESPECTIVELY. 12. BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE IS A N INDIVIDUAL, CARRYING OUT PROPRIETARY BUSINESS OF EXECUTING SMALL LABOUR CONTRACTS AND PROVIDING CATERING SERVICES FOR RELIGIOUS AND MARRIAGE FUNCTI ONS IN THE NAME AND STYLE OF M/S. R.M. SUNDARAM CATERERS & DECORATORS. A SEAR CH ACTION, UNDER SECTION 132(1) OF THE ACT, WAS CONDUCTED ON 25 TH JUNE 2003 AT THE PREMISES OF ASSESSEES FATHER MR. A.S. RAJSHEKHAR. THE ASSESSIN G OFFICER, IN HIS ORDER, VIDE PARA-5, STATES AS FOLLOWS:- 5. DURING THE COURSE OF SEARCH AND SEIZURE ACTION I N THE CASE OF A.S. RAJSHEKHAR, PROP. ASR CATERERS, FOLLOWING DOCU MENTS PERTAINING TO THE ASSESSEE WERE ALSO SEIZED. ACCORDINGLY, NOTI CE UNDER SECTION 153C, DATED 31.8.2005, WAS ISSUED AND SERVED ON THE ASSESSEE. IN RESPONSE TO THIS THE ASSESSEES REPRESENTATIVE STAT ED THAT THE ASSESSEE HAS ALREADY FILED RETURN OF INCOME DECLARING INCOME OF ` 47,400 ON 22.4.2004. NOTICES UNDER SECTION 143(4) DATED 19 TH DECEMBER 2005 WAS ISSUED AND DULY SERVED ON THE ASSESSEE. [EMPHA SIS ADDED ] 13. THOUGH THE ASSESSING OFFICER REFERS TO FOLLOWING DOCUMENTS , NO SUCH LIST FINDS PLACE EITHER IN THE ASSESSMENT ORDER OR IN THE ANNEXURE THERETO. NOTICE UNDER SECTION 153C OF THE ACT WAS ISSUED TO THE ASSESSEE. THIS IS A COMMON NOTICE FOR ALL THE ASSESSMENT YEARS. SPECIAL AUDITORS REPORT WAS SUBMITTED ON 11 TH AUGUST 2006. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT UNDER SECTION 143(3) R/W SECTION 153A OF THE ACT BY MAKING DISALLOWANCE ON VARIOUS EXPENDITURES. AGGRIEVED, TH E ASSESSEE CARRIED THE MR. A.S. RAJASHEKHAR [ M/S. ASR CATERERS ] MS. MEENAKSHI R. SUNDARAM [ R.M. SUNDARAM CATERERS & DECORATORS ] 17 MATTER IN APPEAL, WHEREIN THE FIRST APPELLATE AUTHO RITY DISMISSED ALL THE APPEALS. FURTHER, AGGRIEVED, THE ASSESSEE IS IN APP EAL 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 CAS E AND IN LAW THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) R/W SE CTION 153C IS INVALID AND BAD IN LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF TH E ASSESSING OFFICER IN ISSUING DIRECTION UNDER SECTION 142(A) OF THE AC T. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF TH E 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 CAS E AND IN LAW THE INTEREST CHARGED UNDER SECTION 234A AND 234B OF THE ACT. GROUND RAISED IN ASSESSMENT YEAR 1998-99 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF TH E ASSESSING OFFICER IN MAKING AN ADDITION OF ` 25,500 AS UNAPPROVED CASH CREDIT. GROUND RAISED IN ASSESSMENT YEAR 2000-01, 2001-02, 2003-04 AND 2004-05 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF TH E ASSESSING OFFICER IN MAKING AN ADDITION OF AN AMOUNT OF ` 2,013 FOR A.Y. 2000-01, ` 6,305 FOR A.Y. 2001-02, ` 1,959 FOR A.Y. 2003-04 AND ` 46,554 FOR A.Y. 2004-05. 14. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE AS WELL AS THE LEARNED DEPARTMENTAL REPRESENTATIVE, HAVE MADE THEIR RESPEC TIVE RIVAL CONTENTIONS WHICH ARE, MORE OR LESS, SIMILAR TO THE CONTENTIONS MADE IN THE APPEALS OF THE FATHER OF THE ASSESSEE MR. A.S. RAJSHEKHAR FOR ASSESSMENT YEARS 1998- 99 TO 2002-03 AND 2004-05. HENCE WE DO NOT REPEAT THE SAME. MR. A.S. RAJASHEKHAR [ M/S. ASR CATERERS ] MS. MEENAKSHI R. SUNDARAM [ R.M. SUNDARAM CATERERS & DECORATORS ] 18 15. RIVAL CONTENTIONS WERE HEARD. ON A CAREFUL CONSIDER ATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAPERS ON RECORD, AS WELL AS THE CASE LAWS CITED BEFORE US, WE HOLD THAT THE GROUNDS RAISED IN ALL THESE APPEALS ARE MUTATIS MUTANDIS IDENTICAL TO THE GROUNDS RAISED IN THE CASE OF MR. A.S. RAJSHEKHAR FOR THE ASSESSMENT YEAR S 1998-99 TO 2002-03 AND 2004-05. AS WE HAVE HELD THAT THE ASSESSING OFF ICER WAS NOT JUSTIFIED IN ORDERING SPECIAL AUDIT ON THE GROUND THAT THERE WAS COMPLEXITY IN THE ACCOUNT, WE TAKES THE SAME VIEW AS FACTS ARE IDENTI CAL AND HOLD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN ORDERING SPE CIAL AUDIT. AS WE HAVE HELD THAT THE SPECIAL AUDIT REFERENCE IS BAD-IN-LAW , THE ASSESSMENT OUGHT TO HAVE BEEN COMPLETED ON OR BEFORE 31 ST MARCH 2006. AS IT IS DONE ON 29 TH SEPTEMBER 2006, IT IS BARRED BY LIMITATION. OUR DIR ECTIONS AND VIEWS EXPRESSED BY US VIDE PARA-10(I) TO 10(IX) ABOVE, WI LL SQUARELY APPLY TO ALL THE APPEALS UNDER ASSESSMENT. WE ORDER ACCORDINGLY. 16. IN THE RESULT, ASSESSEES APPEALS IN ITA NO.3196 TO 3202/MUM./2008 ARE ALLOWED. NOW, WE TAKE UP APPEALS IN ITA NO.3641 AND 3642/MUM ./2008 . 17. THESE APPEALS PREFERRED BY THE ASSESSEE, ARE DIRECT ED AGAINST THE IMPUGNED COMMON ORDER DATED 17 TH MARCH 2008, PASSED BY THE COMMISSIONER (APPEALS)-XXIII, UNDER SECTION 271(B) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) FOR ASSESSMENT YEARS 2002-03 AND 2004-05 RESPECTIVELY. 18. THE ASSESSEE DISPUTES IN THIS APPEAL, THE LEVY OF P ENALTY U/S.271B. THE ASSESSING OFFICER LEVIED THE PENALTY ON THE GRO UND THAT THE TURNOVER OF THE ASSESSEE EXCEEDED RS.40,00,000/- FOR THE ASSESS MENT YEAR 2002-03 AND 2003-04. THE ASSESSEE FAILED TO GET HIS ACCOUNT A UDIT U/S.44AB OF THE ACT. MR. A.S. RAJASHEKHAR [ M/S. ASR CATERERS ] MS. MEENAKSHI R. SUNDARAM [ R.M. SUNDARAM CATERERS & DECORATORS ] 19 19. WE HEARD BOTH THE SIDES. WHILE DISPOSING OFF TH E ASSESSEES CASE ON MERIT, WE FOUND THAT SPECIAL AUDITOR HAVE STATED TH AT 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 S HRI 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 F ACT THAT THE ASSESSEE DID NOT MAINTAIN ANY BOOKS OF ACCOUNT FOR THE YEAR UNDER CONSIDERATION. CONSEQUENTLY, WHEN TH ERE ARE NO ACCOUNT BOOKS, THE QUESTION OF THEIR AUDIT D OES NOT ARISE. THE REQUIREMENT OF AUDIT ENSHRINED IN SECTIO N 44AB OF THE ACT IS IN RELATION TO THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. IN CASE THE ASSESSEE HA S NOT MAINTAINED THE BOOKS OF ACCOUNT, QUESTION OF AUDIT WOULD NOT ARISE. IN THE INSTANT CASE, THERE IS NO DENIAL TO THE ASSERTION OF THE ASSESSEE THAT HE HAS NOT MAINTAINE D BOOKS OF ACCOUNT FOR SEVERAL YEARS IN PAST ALSO. UN DER THESE CIRCUMSTANCES, IN OUR VIEW, THE PARITY OF REA SONING LAID DOWN BY THE HONBLE GAUHATI HIGH COURT IN THE CASE OF SURAJMAL PARSURAM TODI V CIT (SUPRA) AND HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT V BISAULI T RACTORS (SUPRA)IS CLEARLY ATTRACTED. THE HONBLE ALLAHABAD HIGH COURT HAS OBSERVED AS UNDER: IF A PERSON HAS NOT MAINTAINED THE ACCOUNTS BOOK O R ANY ACCOUNTS THE QUESTION OF ITS AUDIT DOES NOT ARI SE. IN SUCH AN EVENT THE IMPOSITION OF PENALTY UNDER THE PROVISION CONTAINED IN S.271A OF THE ACT FOR THE AL LEGED NON COMPLIANCE OF S. 44AA OF THE ACT MAY ARISE BUT THE PROVISIONS OF S. 44AB OF THE ACT DO NOT GET VIOLATE D IN CASE WHERE THE ACCOUNTS HAVE NOT BEEN MAINTAINED AT ALL AND, THEREFORE, PENAL PROVISIONS OF S. 271B OF THE ACT WOULD NOT APPLY. 7. FOLLOWING THE AFORESAID OBSERVATIONS, WHICH ARE SQUARELY APPLICABLE TO THE PRESENT FACT SITUATION, WE FIND NO JUSTIFICATION TO UPHOLD THE ORDER OF THE COMMISS IONER OF INCOME-TAX (APPEALS) SUSTAINING THE PENALTY UNDE R SECTION 271B OF THE ACT. WE, THEREFORE, SET ASIDE T HE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) A ND DIRECT THE ASSESSING OFFICER TO DELETE THE PENALTY IMPOSED UNDER SECTION 271B OF THE ACT AMOUNTING TO ` 40,940/-. MR. A.S. RAJASHEKHAR [ M/S. ASR CATERERS ] MS. MEENAKSHI R. SUNDARAM [ R.M. SUNDARAM CATERERS & DECORATORS ] 20 20 RESPECTFULLY FOLLOWING THE SAME WE CANCEL THE PE NALTIES LEVIED FOR BOTH THE ASSESSMENT YEARS U/S.271B. 21. IN THE RESULT, ASSESSEES APPEALS IN ITA NO.364 1 AND 3642/MUM./2008 ARE ALLOWED. 19. ULTIMATELY, ALL THE APPEALS FILED BY THE ASSESSEE A RE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JUNE, 2011. SD/- /- VIJAY PAL RAO JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 29.06.2011 COPY TO : (1) THE ASSESSEE (2) THE RESPONDENT (3) THE CIT(A), MUMBAI, CONCERNED (4) THE CIT, MUMBAI CITY CONCERNED (5) THE DR, H BENCH, ITAT, MUMBAI TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI