Appeal details
Counselvise Citation
[2014] 140 COUNSELVISE.COM (IT) 84004 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 year(s) 5 month(s) 19 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
29-10-2014
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
H
Next Hearing Date
07-10-2014
Assessment Year
1992-1993
Appeal Filed On
10-05-2010
Judgement Text
, IN THE INCOME TAX APPELLATE TRIBUNAL H BE NCH, MUMBAI BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./I .T.A. NO. 3699/MUM/2010 ( / ASSESSMENT YEAR : 1994-95 LATE SHRI HARSHAD S. MEHTA THROUGH L/H SMT. JYOTI H. MEHTA, 32, MADHULI, DR. ANNIE BESANT ROAD, WORLI, MUMBAI-400 026 / VS. THE DCIT, CENTRAL. CIR.23, MUMBAI ./ ! ./ PAN/GIR NO. : N.A. ( ' / APPELLANT ) .. ( #$' / RESPONDENT ) ' % / APPELLANT BY: SHRI VIJAY MEHTA SHRI DHARMESH SHAH #$' & % / RESPONDENT BY: SHRI G.C. SRIVASTAV, SPECIAL COUNSEL & '( / DATE OF HEARING :07.10.2014 )* & '( / DATE OF PRONOUNCEMENT :29.10.2014 +, / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST T HE ORDER OF THE LD. CIT(A)-40, MUMBAI DT.24.3.2010 PERTAINING TO A. Y.1992-93. 2. THE ASSESSEE HAS RAISED AS MANY AS 27 GROUNDS OF APPEAL. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE STATED THA T THE ENTIRE ISSUE REVOLVES AROUND THE FACT THAT THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED BY ITA NO. 3699/M/2010 2 THE REVENUE AUTHORITIES. IT IS THE SAY OF THE LD. COUNSEL THAT IF THE BOOKS OF ACCOUNTS HAVE BEEN PROPERLY EXAMINED, THE PICTUR E WOULD HAVE BEEN DIFFERENT. 3. REBUTTING TO THIS, THE LD. DEPARTMENTAL REPRESEN TATIVE STRONGLY SUBMITTED THAT THE BOOKS OF ACCOUNTS HAVE BEEN PROP ERLY EXAMINED AND THEREAFTER REJECTED BY THE LOWER AUTHORITIES. 4. THE ASSESSMENT IN THIS CASE WAS ORIGINALLY COMPL ETED ON 27.3.1995 AT A TOTAL INCOME OF RS. 214 CRORES. THE FIRST APP ELLATE AUTHORITY PASSED HIS ORDER ON 28.2.2003 UPHOLDING THE ASSESSMENT ORD ER. THE MATTER TRAVELLED UPTO THE TRIBUNAL. THE MAIN CONTENTION B EFORE THE TRIBUNAL WAS IN RESPECT OF THE ADMISSION OF ADDITIONAL EVIDENCE IN THE FORM OF BOOKS OF ACCOUNTS. THE TRIBUNAL VIDE ITS ORDER DT. 11.7.200 8 IN ITA NO. 3664/M/03 AND C.O. NO. 211/M/03 SET ASIDE THE APPEA L AND THE CROSS OBJECTION TO THE FILES OF THE LD. CIT(A) FOR ADJUDI CATING THE ISSUES AFRESH AFTER CONSIDERING THE BOOKS OF ACCOUNTS OF THE ASSE SSEE. ADMITTEDLY, THE TRIBUNAL WAS PLEASED TO ADMIT THE ADDITIONAL EVIDEN CE IN THE FORM OF BOOKS OF ACCOUNTS AND RESTORE THE MATTER TO THE FIL ES OF THE LD. CIT(A) TO EXAMINE THE SAME. 4.1. IN TERMS OF THE DIRECTIONS OF THE TRIBUNAL, TH E 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 HONBLE SPECIAL COURT DT. 16.10.2003 O N THE CUSTODIANS REPORT DT. 1ST OCTOBER, 2003, THE SPECIAL COURT (TR IAL OF OFFENCES RELATING TO TRANSACTIONS IN SECURITIES) ACT, 1992 A PPOINTED M/S. VYAS & VYAS, CHARTERED ACCOUNTANTS FOR PREPARING AND AUDIT ING THE ACCOUNTS FOR MR. HARSHAD S. MEHTA AND M/S. HARSHAD S. MEHTA WHO WERE NOTIFIED ITA NO. 3699/M/2010 3 ENTITIES UNDER THE SPECIAL COURT (TORTS) ACT, 1992 FOR THE FINANCIAL YEAR ENDED 31.3.1991, 31.3.1992 AND FOR THE PERIOD ENDIN G 8.6.1992. 5. THE LD. CIT(A) CONSIDERED THE REPORT OF THE SPEC IAL AUDITORS AND THE OBSERVATIONS OF THE AO AND FORMED A BELIEF THAT 1) THE BOOKS OF ACCOUNTS ARE NOT CONTEMPORANEOUS AND INORDINATELY BELATED 2) THE BOOKS OF ACCOUNTS ARE UNAUDITED. 3) THE BOOKS OF ACCOUNTS ARE NOT COMPLETE. 4) THE BOOKS OF ACCOUNTS OF THE TRANSACTING PARTIES AL SO SUFFER FROM SEVERAL INFIRMITIES. 5) THE BOOKS OF ACCOUNTS ARE NOT BACKED BY PRIMARY DOC UMENTARY EVIDENCE. 6) THE BOOKS OF ACCOUNT SHOW IMPROBABLE ENTRIES 7) THE BOOKS OF ACCOUNT ARE ALSO REJECTED BY M/S. VYAS AND VYAS, CHARTERED ACCOUNTANTS APPOINTED BY THE HONBLE SPEC IAL COURT. 6. THE LD. DR STRONGLY SUBMITTED THAT THE LD. CIT(A ) HAS NOT ACCEPTED THE BOOKS OF ACCOUNTS AFTER GIVING COGENT REASONS BASED ON THE EXAMINATION OF THE SPECIAL AUDITORS AS WELL AS THE AO. 7. THE LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY SUBM ITTED THAT THE BOOKS WERE NOT EVEN LOOKED UPON BY THE LOWER AUTHOR ITIES AND THEREFORE REJECTION OF THE SAME IS NOT PROPER IN THE EYES OF LAW. 8. THE LD. DR CONTINUED TO SUBMIT THAT THE REASONS GIVEN FOR REJECTING THE BOOKS OF ACCOUNTS ARE ONLY AFTER THOR OUGH EXAMINATION OF THE BOOKS AND THEREFORE THE REJECTION OF THE BOOKS DESE RVES TO BE UPHELD. ITA NO. 3699/M/2010 4 9. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. WE HAVE ALSO CAREFULLY PERUSED THE ORDERS OF THE LO WER AUTHORITIES, THE EARLIER ORDER OF THE TRIBUNAL AND THE RELEVANT RELA TED DOCUMENTS BROUGHT ON RECORD BEFORE US. IT IS NOT IN DISPUTE THAT IN THE FIRST ROUND OF LITIGATION, THE TRIBUNAL HAS ADMITTED THE BOOKS OF ACCOUNTS AS ADDITIONAL EVIDENCE AND THE MATTER WAS RESTORED TO THE FILES OF THE LD. CIT(A) FOR PROPER EXAMINATION OF THE BOOKS. 9.1. LET US NOW EXAMINE THE REASONS GIVEN FOR REJEC TING THE BOOKS OF ACCOUNTS. THE FIRST REASON IS THAT THE BOOKS OF AC COUNTS ARE NOT CONTEMPORANEOUS. IN OUR UNDERSTANDING OF THE FACTS OF THE CASE IN HAND THERE IS NO DENIAL THAT THE BOOKS OF ACCOUNTS ARE N OT CONTEMPORANEOUS. IT IS AN UNDISPUTED FACT THAT THE BOOKS OF ACCOUNTS HA VE BEEN PREPARED MUCH AFTER THE CLOSE OF THE ACCOUNTING YEAR. THIS FACT IS ALSO ADMITTED BY THE SPECIAL COURT, JANKIRAMAN COMMITTEE, JOINT PARLIAME NTARY COMMITTEE AND ALSO BY THE ASSESSEE. MERELY BECAUSE THE BOOKS ARE NOT CONTEMPORARY CANNOT BE A REASON TO REJECT THE BOOKS. ALL THAT H AS TO BE SEEN IS WHETHER THE BOOKS HAVE BEEN PREPARED ON THE BASIS OF THE CO NTEMPORANEOUS DOCUMENTS. AT THIS STAGE, IT IS PERTINENT TO MENTI ON THAT THE BOOKS HAVE BEEN PREPARED FROM THE DOCUMENTS/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 O F THE SEARCHES IN 1990 OR IN 1992 WHICH MEANS THAT THE ASSESSEE WAS N EVER MAINTAINING CONTEMPORARY PROPER BOOKS OF ACCOUNTS. THIS OBSERV ATIONS 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 UND ER: DURING THE COURSE OF SEARCH AT VARIOUS PREMISES OF THE ASSESSEE IN 1990 AND 1992 NO BOOKS OF ACCOUNTS WERE ITA NO. 3699/M/2010 5 PRODUCED BY HIM. IT WAS FOUND THAT MOST OF THE DET AILS OF TRANSACTIONS WERE MAINTAINED BY THE ASSESSEE ON A NUMBER OF COMPUTERS. HENCE THE DATA FROM THE COMPUTERS W ERE COPIED AND SEIZED. ONE COPY OF SUCH SEIZED DATA HA S BEEN PROVIDED TO THE ASSESSEE. THE SEIZED DATA WAS ANA LYSED BUT IT WAS FOUND THAT COMPLETE SHARE MARKET TRANSACTION S WERE NOT AVAILABLE IN THE SEIZED DATA. MOREOVER, THE DA TA AFTER THE DATE OF THE SEARCH WAS NOT THERE. HENCE, COMPLETE BOOKS OF ACCOUNTS COULD NOT BE GENERATED FROM THE SEIZED DAT A. IN THE ABSENCE OF COMPLETE BOOKS OF ACCOUNT AND VA LID RETURN OF INCOME, THE TOTAL INCOME OF THE ASSESSEE IS COMPUTED U/S. 144 OF THE I.T. ACT ON THE BASIS OF I NFORMATION AVAILABLE IN THE SEIZED COMPUTER DATA AND OTHER REC ORDS AND INFORMATION GATHERED FROM VARIOUS SOURCES. THEREFORE, REJECTING THE BOOKS OF ACCOUNTS ON THIS GROUND IS NOT JUSTIFIED BECAUSE THE BOOKS HAVE ACTUALLY BEEN PREP ARED MUCH AFTER THE CLOSE OF THE ACCOUNTING YEAR. WHAT HAS TO BE KEPT IN MIND IS THAT THE BOOKS OF ACCOUNTS HAVE BEEN PREPARED ON THE BASIS O F THE DOCUMENTS WHICH ARE STILL IN THE POSSESSION OF THE AUTHORITIE S. 10. THE SECOND REASON IS THAT THE BOOKS OF ACCOUNTS ARE UNAUDITED. AT THE OUTSET, WE HAVE TO SAY THAT THE BOOKS CANNOT BE REJECTED MERELY BECAUSE THEY ARE UNAUDITED. ALL THAT HAS TO BE SEE N IS THAT WHETHER THE BOOKS OF ACCOUNTS GIVE A TRUE AND FAIR VIEW OR NOT. THERE ARE SEPARATE PROVISIONS IN THE INCOME TAX ACT TO PENALIZE THE A SSESSEE FOR NOT GETTING ITS BOOKS OF ACCOUNTS AUDITED, MERELY BECAUSE THE AUDIT REPORT IS NOT THERE, THE BOOKS CANNOT BE REJECTED. 11. THE THIRD REASON IS THAT THE BOOKS OF ACCOUNTS ARE NOT COMPLETE. IF THE BOOKS OF ACCOUNTS HAVE NEVER BEEN EXAMINED HOW CAN THE REVENUE AUTHORITIES SAY THAT THE BOOKS ARE NOT COMPLETE. T HE REVENUE AUTHORITIES SHOULD HAVE SPECIFICALLY POINTED OUT WHICH PART OF THE BOOKS IS NOT ITA NO. 3699/M/2010 6 COMPLETE. WITHOUT POINTING OUT ANY SPECIFIC/DIRECT MISTAKE, A GENERAL STATEMENT STATING THAT THE BOOKS ARE NOT COMPLETE W OULD NOT DO ANY JUSTICE. THE LD. CIT(A) HAS OBSERVED THAT ALL THE BANK ACCOUNTS HAVE NOT BEEN CONSIDERED IN THE BOOKS OF ACCOUNTS. IT IS TH E SAY OF THE LD. COUNSEL THAT ALL THE BANK ACCOUNTS HAVE BEEN CONSIDERED WHI CH CAN BE VERIFIED WITH THE INFORMATION FROM THE CUSTODIAN AS ALL THE BANK ACCOUNTS OF THE ASSESSEE ARE ATTACHED UNDER THE ORDERS OF THE SPECI AL COURT. WE FIND THAT THE OBSERVATION OF THE LD. CIT(A) IS VERY GENERAL. THE LD. CIT(A) SHOULD HAVE POINTED OUT WHICH BANK ACCOUNT IS NOT I NCORPORATED IN THE BOOKS OF ACCOUNTS. THIS REASON IS ALSO NOT ACCEPTA BLE. 12. THE FOURTH REASON GIVEN IS THAT THE BOOKS OF AC COUNTS OF THE TRANSACTING PARTIES ALSO SUFFERED FROM SEVERAL INFI RMITIES. THE LD. CIT(A) OBSERVED THAT MOST OF THE ENTRIES IN THE BOOKS OF A CCOUNTS ARE IN THE FORM OF JOURNAL ENTRIES IN THE NAMES OF RELATED PERSON. WE FAILED TO UNDERSTAND HOW CAN THIS BE A REASON FOR REJECTING THE BOOKS OF ACCOUNTS. WHEN A PERSON IS MAINTAINING BOOKS OF ACCOUNTS ON MERCANTI LE SYSTEM OF ACCOUNTING, OBVIOUSLY, MOST OF THE ENTRIES WOULD BE IN THE FORM OF JOURNAL ENTRIES. FURTHER, WE FIND THAT IN THE CASES OF OTH ER 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 ACC OUNTS. 12.1. THE LD. DR HAS NOT BROUGHT ON RECORD THE REJE CTION 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 MENT IONED ELSEWHERE, THE ITA NO. 3699/M/2010 7 BOOKS OF ACCOUNTS HAVE BEEN PREPARED ON THE BASIS O F THE EVIDENCES WHICH ARE SEIZED BY THE AUTHORITIES WHICH MEAN THAT THEY ARE STILL IN THE POSSESSION OF THE DEPARTMENT/CUSTODIAN. THERE IS N O SPECIFIC INSTANCE POINTED OUT WHICH IS NOT BACKED BY ANY PRIMARY DOCU MENTARY EVIDENCE. IT IS ALSO NOT CLEAR WHETHER THE ASSESSEE WAS EVER CALLED FOR TO EXPLAIN ANY OF THE TRANSACTIONS RECORDED IN THE BOOKS OF ACCOUN TS. IN THE ABSENCE OF THE VERIFICATION OF PRIMARY DOCUMENT VIS--VIS ENTR IES IN THE BOOKS, ASSESSEES ACCOUNTS CANNOT BE TREATED AS UNRELIABLE . 14. THE SIXTH REASON IS THAT THE BOOKS OF ACCOUNT S HOW IMPROBABLE ENTRIES. THE LD. CIT(A) HAS OBSERVED THAT THE ASSE SSEE HAS SHOWN UNIFORM WITHDRAWAL OF RS. 10,000/- AT EVERY MONTH E ND WHICH IS HIGHLY IMPROBABLE . NOW AGAIN THIS CANNOT BE A REASON FOR REJECTING THE BOOKS BECAUSE IT IS A COMMON PRACTICE TO DEBIT THE CAPITA L ACCOUNT FOR PERSONAL DRAWINGS EVERY MONTH. THE REVENUE AUTHORITIES SHOU LD HAVE BEEN MORE SPECIFIC IN ELABORATING THE ENTRIES WHICH WERE IMPR OBABLE IN THEIR EYES. 15. THE LAST REASON IS THAT THE BOOKS OF ACCOUNT AR E ALSO REJECTED BY M/S. VYAS & VYAS, CHARTERED ACCOUNTANTS APPOINTED B Y THE SPECIAL COURT. WE HAVE ALSO PERUSED THE SPECIAL AUDITORS R EPORT. THE SPECIAL AUDITORS HAVE GIVEN TWO REPORTS (1) REPORT ON REVIE W OF UNAUDITED ACCOUNTS OF M/S. HARSHAD S. MEHTA AND (2) REPORT O N REVIEW OF UNAUDITED ACCOUNT OF LATE SHRI HARSHAD S. MEHTA. WITHOUT GO ING INTO MUCH DETAIL, LET US SEE THE CONCLUDING REMARKS OF THE AUDITORS. (I) IN RESPECT OF MR. HARSHAD MEHTA WE WERE APPOINTED TO AUDIT OF THE ACCOUNTS OF HSM & M/S. HSM BY THE ORDER OF THE HON'BLE SPECIAL COURT DT. 16.10.2003. IMMEDIATELY AFTER GETTING THE APPOINTMENT LETTER WE TRIED TO CONTACT JHM/ASM : THE CONCRNED PERSON:OF HSM BUT WE FAILED TO CONTACT ITA NO. 3699/M/2010 8 THEM. WE WROTE SEVERAL LETTERS TO JHM BUT THEY RESPONDED NOT A SINGLE LETTER. WE WERE LEFT WITH NO OTHER ALTERNATIVE EXCEPT TO PREPARE ACCOUNTS FROM THE INFORMATION AVAILABLE IN THE COMPUTERS HANDED OVER TO US BY CUSTODIAN, WHICH WERE LYING IN THE OFFICE PREMISES OF HSM. WE CONTACTED COMPUTER EXPERTS AND RETRIEVED DATA FROM COMPUTERS, WHICH WERE CHECKED BY US. WE ALSO PREPARED BOOKS IN RELAT ION TO SHARE TRANSACTION ENTERED BY M/S. H5M. WE FURTHE R WROTE LETTERS TO ALL CONCERNED BANKS, AND FINANCIAL INSTITUTION, MOST OF THEM RESPONDED. WE FOUND HUGE DIFFERENCES IN THE TRANSACTION REPORTED BY PARTIES AND RECORDS AVAILABLE PERTAINING TO HSM, WHICH HAS BEEN REPORTED BY US IN OUR REPORT. WE HAVE STUDIED JPC REPORT, JANKI RAMAN COMMITTEE REPORT AND CHARGE SHEETS FILED BY CBI. THE FACTS REPORTED IN JPC AND JANKI RAMAN COMMITTEE REPORTS WERE FURTHER VERIFIED WITH THE BOOKS OF ACCOUNTS, W HICH WERE NOT FULLY TALLIED. WE HAVE ALSO WRITTEN LETTE RS TO THE CONCERNED PARTIES, WHICH WERE RESPONDED BY SOME PARTIES/BANKS AND SOME PARTIES/BANKS HAVE NOT RESPONDED. THE BANKS WHO RESPONDED HAVE CONFIRMED THE CONTENTS OF SAID REPORTS. WE HAVE REPORTED THE RESPONSES OF CONCERNED PARTIES IN OUR REPORT. AS REGARDS CHARGE SHEET FILED BY CBI. WE HAVE TRIED T O VERIFY FACTS AND FIGURES IN THE BOOKS PROVIDED IN T HE COMPUTERS BUT NOT OFFERED ANY COMMENTS, AS THE MATT ER IS SUBJUDICE BEFORE THE HONBLE 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 PARTIE S SHOWED HUGE DIFFERENCES IN TRANSACTION IN HSM'S BOO KS. 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 ITA NO. 3699/M/2010 9 AVAILABLE TO US AND OTHER INFORMATION GATHERED AS REPORTED IN OUR REPORT, THE LIABILITIES APPEAR IN THE BALANCE SHEET AS 8 L 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 A ND ALSO FILED SUITS, WHICH HAVE BEEN DECREED AGAINST HSM. THE LIABILITY AGAINST INCOME TAX HAS TO BE CONSIDERED. IN OUR OPINION THERE ARE TWO MAJOR LIABILITY OF HSM I.E. INCOME TAX LIABILITY AND CLAI MS DECREED AGAINST HSM. 19.5 WE HAVE COMMENTED UPON HUGE PAYMENTS MADE BY HSM TO HIS FAMILY MEMBERS AND ASSOCIATE CONCERNS. WE ARE OF STRONG OPINION THAT ALL MOVABLE AND IMMOVABLE ASSETS ACQUIRED BY FAMILY MEMBERS AND ASSOCIATES COMPANIES THROUGH FUNDS PROVIDED BY HSM, BELONGED T O HSM/ M/S. HSM ONLY. DUE TO THE COMPELLING NATURE OF LIMITATIONS ON OUR WORK AND UNRELIABLE NATURE OF THE BOOKS OF ACCOUNTS WE ARE NOT UNABLE TO ACCEPT RESPONSIBILITY FOR THE ACCURACY AND COMPLETENESS OF THE INFORMATION/PARTICULARS PROVIDED TO US NOR DO WE ACCEPT SUCH RESPONSIBILITY. THEREFORE, WE ARE UNABLE TO COMMENT ABOUT THE TRUE AND FAIR STATE OF AFFAIRS OF HSM AND M/S HSM FOR TH E ENDED 31' MARCH 1991 , 31 ST MARCH, 1992 AND FOR THE PERIOD ENDED AS ON 8TH JUNE 1992: (II) IN RESPECT OF LATE SHRI HARSHAD S. MEHTA WE WERE APPOINTED TO PREPARE AND AUDIT THE ACCOUNTS OF MR. HSM AND M/S. HSM FOR THE YEAR ENDED 31.3.1991, 31.3 .1992 AND ALSO FOR THE PERIOD ENDED AS ON 8.6.1992 BY THE ORDER OF THE HONBLE SPECIAL COURT DT. 16.10.2003. IMMEDIATELY AFTER GETTING THE ORDER OF APPOINTMENT WE ITA NO. 3699/M/2010 10 TRIED TO CONTACT MRS JHM, THE LEGAL LEIR OF MR HSM FOR GETTING INFORMATION AND EXPLANATIONS BUT SHE DIDN'T RESPONDED ANY OF OUR , LETTERS AND TELEPHONE CALLS. WE ALSO REQUESTED TO PROVIDE SOFT COPY OF THE ACCOUNTS BUT NOTHING WAS PROVIDED TO US. THEREAFTER, WE WROTE SE VERAL LETTERS TO JHM BUT NOT A SINGLE LETTER WAS RESPONDE D. ANNEXURE NO.3A IS ENCLOSED HEREWITH IN THE REPORT REGARDING LIST OF LETTERS WRITTEN TO JHM & ITS PURP OSE. FOR THE PURPOSE OF OUR REVIEW OF THE ACCOUNTS OF MR . HSM, WE HAVE RELIED ON THE UNAUDITED COMPUTER PRINTED BOOKS OF ACCOUNT. IN CERTAIN AREAS, WHEREVER POSSIB LE WE HAVE INDEPENDENTLY VERIFIED THE INFORMATION GATHERE D FROM THE THIRD PARTIES AS CONTAINED IN THIS REPORT. OUR REVIEW HAS BEEN CARRIED OUT WITH THE OBJECTIVE OF COVERING THE SPECIFIC AREAS MENTIONED IN THIS REPORT AND DOES NOT CONSTITUTE THE STATUTORY AUDIT OR OTHERWIS E ANY AUDIT OF THE ACCOUNTS OF MR. HSM. WE TRIED HARD AND TOOK THE HELP OF EXPERTS TO RETR IEVE THE DATA FROM SOME OF THE COMPUTERS, WHICH WERE PRO VIDED BY THE CUSTODIAN PERTAINING TO HSM. WE WERE ALSO PR OVIDED HARD COPIES AND SOME FILES RELATING TO SHARES AND S ECURITIES TRANSACTIONS OF HSM. WE COMPARED THE HARD DATA WITH THE DATA RETRIEVED FROM COMPUTERS AND FOUND HUGE DIFFERENCES 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) ITA NO. 3699/M/2010 11 31.3.91 1,04,73,245 8,04,52,271 -1,88,63,81 9 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 AVAILAB LE TO US AND IS SUBJECT TO MATTERS FOR WHICH RESPONSES HAVE NOT BEEN RECEIVED BY US TILL DATE. OUR REPORT IS BASED ON TH E INFORMATION REVIEWED/PRESENTED TO US ON OR BEFORE 31 OCTOBER 20 05, AND REFLECTS MATTERS AS THEY EXISTED DURING THE PER IOD OF OUR REVIEW OF ACCOUNTS FOR THE YEAR ENDED 31 T MARCH 1991, 31 MARCH 1992 AND FOR THE PERIOD ENDED 8' JUNE 1992. AS ON 1/4/1990 MR. HSM WAS HAVING CAPITAL OF RS. 9,37,03,54,391/- WHICH WAS INCREASED TO PS.48,98,70 ,15,550/- ON 8/6/1992 BASED ON OUR CALCULATION OF PROFIT IN P OINT NO. 8.16 ( COLUMN NO. 3 ).FROM THE BOOKS OF ACCOUNTS, WHICH WERE PRODUCED BEFORE US AND AS PER OTHER INFORMATION, WE CAN CONCLUDE THAT MR. HSM WITHDRAW FUNDS WITHOUT PROVID ING ANY SUPPORTING DOCUMENT FROM PUBLIC SECTOR BANKS AND FI NANCIAL INSTITUTIONS WERE USED BY HSM FOR PURCHASE OF SHARE S IN THE NAME OF HIS FAMILY MEMBERS AND ALSO FOR PURCHASE OF IMMOVABLE PROPERTIES. THE MODES OPERANDI ADOPTED BY HSM WAS T O TRANSFER FUNDS TO HIS FAMILY MEMBERS AND ASSOCIATE COMPANIES IMMEDIATELY AFTER RECEIVING FUNDS FRAUDUL ENTLY FROM PSU BANKS AND FINANCIAL INSTITUTIONS. THIS WAS PROBABLY DONE BY HSM TO AVOID TAXES AND IN CASE HE GETS EXPO SED THAN HIS FAMILY MEMBERS MAY BE ESCAPED. WE HAVE STUDIED JANKIRAMAN COMMITTEE REPORT WITH REFERENCE TO HSM AND ACCORDINGLY MADE CORRESPONDENC E WITH THE CONCERNED PARTIES. MOST OF THE PARTIES HAV E RESPONDED AND WE HAVE REPORTED THE SAME IN OUR REPO RT. WE HAVE STUDIED JANKIRAMAN COMMITTEE AND JPC REPORT. ITA NO. 3699/M/2010 12 WE HAVE ALSO GONE THROUGH THE CHARGE SHEET FILED BY THE CBI AGAINST HSM AND IN THIS RESPECT NO COMMENTS ARE OFF ERED BY US AS THE SAME IS SUB JURISTIC BEFORE THE HONBLE SPECIAL COURT. AS REGARDS THE TOTAL LIABILITY OF MR. HSM THE SAME IS REPORTED IN OUR AUDIT REPORT OF M/S. HSM. OUR SCOPE OF WORK DOES NOT ENABLE US TO ACCEPT RESP ONSIBILITY FOR THE ACCURACY AND COMPLETENESS OF THE INFORMATION/PA RTICULARS PROVIDED TO US NOR DO WE ACCEPT SUCH RESPONSIBILITY . THEREFORE, WE ARE UNABLE TO COMMENT ABOUT THE TRUE AND FAIR STATE OF AFFAIRS OF HSM 16. A PERUSAL OF THE ORDERS BROUGHT TO OUR NOTICE S HOWS THAT THE AUDITORS WERE APPOINTED ON 5.11.2003 ABOUT TWO YEAR S AFTER THE DEATH OF SHRI HARSHAD S. MEHTA WHO EXPIRED ON 30.12.2001. T HE WIDOW SMT. JYOTI MEHTA HAD ALREADY INFORMED THE CUSTODIAN AND THE SPECIAL COURT THAT SHE HAD NO KNOWLEDGE OF THE BUSINESS OF HER DE CEASED HUSBAND THEREFORE WILL NOT BE ABLE TO MEET ANY QUERIES. TH E AUDITORS COMMENTED THAT THERE WAS NON-COOPERATION ON THE PART OF THE A SSESSEE FOR THE PURPOSE OF AUDIT AND THAT DUE TO LACK OF VERIFICATION, THE RELIABILITIES OF THESE BOOKS COULD NOT BE VERIFIED DOES NOT HAVE ANY FORCE FOR T HE SIMPLE REASON THAT IN A CASE OF SUCH HUGE MAGNITUDE EXPECTING THE WIDOW T O ANSWER EACH AND 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 DRAWIN G THE STATEMENT OF AFFAIRS OF M/S. HARSHAD MEHTA, THE AUDITORS HAVE D ETERMINED THE NET PROFIT EARNED DURING 1.4.1990 TO 8.6.1992 AT RS. 12 35321902 OR SAY RS. ITA NO. 3699/M/2010 13 123.53 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 AC COUNT IS THAT THE BALANCES IN THE ACCOUNT OF THE ASSESSEE AND THE BAL ANCES IN THE BOOKS OF RELATED ENTITIES DO NOT TALLY. A PERUSAL OF THE OR DERS OF THE AUTHORITIES BELOW DO NOT SHOW ANY SPECIFIC ENTRY/BALANCE WHICH IS NOT TALLIED. MOREOVER, IF THE REVENUE AUTHORITIES WERE OF THE OP INION 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 D OING THIS EXERCISE, THE BOOKS COULD NOT HAVE BEEN REJECTED. 16.3. HAVING SAID ALL THAT, IN OUR CONSIDERED OPINI ON AND IN OUR UNDERSTANDING OF THE FACTS, THE BOOKS OF ACCOUNTS H AVE BEEN REJECTED ON FLIMSY GROUNDS WITHOUT THOROUGHLY EXAMINING EACH AN D EVERY ENTRY AND WITHOUT CONFRONTING SPECIFIC DISCREPANCY, IF ANY, T O THE ASSESSEE. IN OUR CONSIDERED OPINION, WE HAVE TO RESTORE THIS ISSUE T O THE FILE OF THE AO. THE AO IS DIRECTED TO VERIFY/EXAMINE EACH ENTRY IN THE BOOKS OF ACCOUNTS WITHOUT GETTING PREJUDICE BY THE FACT THAT BOOKS OF ACCOUNTS ARE NOT CONTEMPORANEOUS. THE AO IS FURTHER DIRECTED TO CON FRONT THE ASSESSEE IN RESPECT OF ANY SPECIFIC ENTRY WHICH IN HIS OPINION IS IMPROBABLE, IF IT IS FOUND THAT CERTAIN BALANCES ARE NOT TALLYING WITH R ELATED PARTY TRANSACTIONS, THEN IT IS EXPECTERD THAT THE AO WOULD CONFRONT THO SE ACCOUNT BALANCES TO THE ASSESSEE GIVING HIM AN OPPORTUNITY TO RECONCILE THE DIFFERENCE. 17. BEFORE PARTING, WE HAVE TO REITERATE THAT THE B OOKS OF ACCOUNT HAVE BEEN PREPARED AFTER THE DATE OF SEARCH BUT FROM THE SEIZED DOCUMENTS SHOULD NOT HAVE BEEN REJECTED WITHOUT GOING THROUGH /EXAMINING EACH AND ITA NO. 3699/M/2010 14 EVERY ENTRY. THE AO IS THEREFORE DIRECTED TO EXAMI NE EACH AND EVERY ENTRY. THE ASSESSEE IS DIRECTED TO EXPLAIN EACH AN D EVERY ENTRY WITH DEMONSTRATIVE EVIDENCE. THE AO IS FURTHER DIRECTED TO ALLOW THE ASSESSEE AN OPPORTUNITY TO RECONCILE EACH AND EVERY ACCOUNT WHERE IN HIS OPINION THE BALANCES DO NOT TALLY WITH THE THIRD PARTY BALA NCES. THE ASSESSEE IS DIRECTED TO RECONCILE EACH AND EVERY SUCH ENTRY AS BROUGHT TO HIS NOTICE. THE AO IS FURTHER DIRECTED TO EXPLAIN SPECIFICALLY WHICH ENTRIES ACCORDING TO HIM APPEAR TO BE IMPROBABLE AND ALLOW THE ASSESS EE AN OPPORTUNITY TO EXPLAIN THE SAME. THE ASSESSEE IS DIRECTED TO CO OP ERATE WITH THE REVENUE IN GETTING HIS ACCOUNTS EXAMINED AND FURNISH NECESS ARY DETAILS AS AND WHEN CALLED FOR. THE ASSESSEE IS ALSO DIRECTED TO GIVE A COMPLETE RECONCILIATION STATEMENT WHEREVER DIFFERENCES IN TH IRD PARTY ACCOUNTS ARE BROUGHT TO HIS NOTICE. 18. AS WE HAVE RESTORED THE MATTER RELATING TO THE BOOKS OF ACCOUNT TO THE FILE OF THE AO, WE DO NOT FIND IT NECESSARY TO DECIDE OTHER GRIEVANCES OF THE ASSESSEE AS THEY ARE ALL INTER RELATED WITH THE BOOKS OF ACCOUNTS. THE AO IS DIRECTED TO DECIDE THE ISSUE AFRESH AFTER EXAMINING THE BOOKS OF ACCOUNTS OF THE ASSESSEE. 19. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH OCT.2014 SD/- SD/- ( JOGINDER SINGH ) (N.K. BILLAIYA) + / JUDICIAL MEMBER + / ACCOUNTANT MEMBER MUMBAI; -+ DATED : 29/10/2014 . . ./ RJ , SR. PS ITA NO. 3699/M/2010 15 +, +, +, +, & && & #'. #'. #'. #'. /.' /.' /.' /.' / COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. #$' / THE RESPONDENT. 3. 0 ( ) / THE CIT(A)- 4. 0 / CIT 5. .12 #' , , / DR, ITAT, MUMBAI 6. 23 4 / GUARD FILE. +, +, +, +, / BY ORDER, $.' #' //TRUE COPY// 5 55 5 / 6 6 6 6 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI
