Fortune Industries Ltd., Ahmedabad V. The Income tax Officer,Ward-4(3), Ahmedabad

ITA 784/AHD/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6299 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 21-03-2017
• Assessment Year: 1997-1998
• Appeal Filed On: 18-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PF JAIN
• Keywords: Unexplained cash credit; Depreciation; Revised return
• Section: 143(3); 68; 148; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH (BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) ITA. NO: 784/AHD/2014 (ASSESSMENT YEAR: 1997-98) FORTUNE INDUSTRIES LTD. 814, GOLDEN TRIANGLE, STADIUM ROAD, POST NAVJEEVAN, AHMEDABAD V/S INCOME TAX OFFICER, WARD- 4 (3), AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAACF 7817M APPELLANT BY : SHRI P. F. JAIN, AR RESPONDENT BY : SHRI K. MADHUSUDAN, SR. D.R. ( )/ ORDER DATE OF HEARING : 21 -03-201 7 DATE OF PRONOUNCEMENT : 03 -04-2017 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. WITH THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE C ORRECTNESS OF THE ORDER OF THE LD. CIT(A)-XXI, AHMEDABAD DATED 24.02.2014 P ERTAINING TO A.Y. 1997- 98. ITA NO. 784/ AHD/2014 . A.Y. 1997-98 2 2. THE SUBSTANTIVE GRIEVANCE OF THE ASSESSEE READS AS UNDER:- 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE ASSESSMENT ORDER PASSED U/S. 143(3) OF THE ACT WHICH WAS SUBMI TTED TO BE BAD IN LAW AND WITHOUT ASSUMING PROPER JURISDICTION IN AS MUCH AS THAT THERE WAS NO VALID SERVICE OF NOTICE U/S. 143(2) OF THE ACT. 2. THE LEARNED CIT(A) WITHOUT PROPERLY APPRECIATING TH E FACTS , HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE RE-ASSESSED INCOME AT RS. 2,51,76,000/-AS AGAINST REVISED INCOME OF RS. 13,93,790/- DECLARED BY THE A SSESSEE AS PER THE RE-CASTED ACCOUNTS. 3. HE HAS ERRED 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 O BTAINED AS PER THE DIRECTIONS OF THE ITAT IN AS MUCH AS THAT THE FINDINGS AS PER SPE CIAL AUDIT HAS NOT BEEN CONSIDERED IN THE RIGHT CONTEXT. 4. HE HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE A SSESSMENT 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 T HE DEPARTMENT ITSELF AND THE RE-CASTED ACCOUNTS ON THE BASIS OF WHICH ASSESSEE H AS FILED THE REVISED RETURN OF INCOME 10/11/2003 VIDE RECEIPT NO. 351 WAVING THE N OTICE U/S. 148 OF THE ACT WHICH OUGHT TO HAVE BEEN ACCEPTED. 6. HE HAS ERRED IN LAW AND ON FACTS IN NOT PROPERLY AP PRECIATING 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 OT HER LAW. 7. ON THE FACTS AND CIRCUMSTANCES, THE REVISED INCOME OF RS. 13,93,790/- DECLARED BY THE ASSESSEE BASED ON RE CASTED ACCOUNTS SUBJECT ED TO SPECIAL AUDIT AS PER THE ORDER OF THE ITAT OUGHT TO HAVE BEEN ACCEPTED. 3. SINCE THE LD. COUNSEL DID NOT PRESS GROUND NO. 1, T HE SAME IS DISMISSED AS NOT PRESSED. 4. THE SUM AND SUBSTANCE OF THE OTHER GRIEVANCE OF THE ASSESSEE RELATES TO THE ADDITION CONFIRMED BY THE LD. CIT(A) AMOUNTING TO RS. 2,51,76,000/-. THE ASSESSEE STRONGLY CONTENDS THAT THE A.O. ERRED IN IGNORING THE SPECIAL ITA NO. 784/ AHD/2014 . A.Y. 1997-98 3 AUDIT REPORT OBTAINED U/S. 142(2A) OF THE ACT AND T HE FIRST APPELLATE AUTHORITY FURTHER ERRED IN CONFIRMING THE ASSESSMEN T ORDER. 5. RIVAL CONTENTIONS WERE HEARD AT LENGTH. HAVING HEAR D THE RIVAL CONTENTIONS, WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORI TIES BELOW. WE HAVE ALSO GONE THROUGH THE AUDIT REPORT OBTAINED U/S. 14 2 (2A) OF THE ACT. 6. BEFORE PROCEEDING FURTHER, WE NEED TO UNDERSTAND TH E BACKGROUND OF THE CASE IN HAND. THE RETURN OF INCOME WAS FILED ON 27. 03.1998 DECLARING TOTAL INCOME OF RS. 1,16,020/-. THE ASSESSMENT WAS FRAMED U/S. 144 OF THE ACT IN WHICH THE A.O. MADE ADDITION OF RS. 2,68,94,000/- A S UNEXPLAINED CASH CREDIT. THE ASSESSEE ASSAILED THE ASSESSMENT ORDER BEFORE THE FIRST APPELLATE AUTHORITY WHEREIN IT WAS STRONGLY CONTEND ED THAT THE BOOKS OF ACCOUNTS WERE FUDGED AND, THEREFORE, THE BOOKS OF A CCOUNTS WERE RE-CASTED AND PRAYED THE FIRST APPELLATE AUTHORITY TO CONSIDE R THE FACTS OF THE CASE IN THE LIGHT OF THE RE-CASTED BOOKS OF ACCOUNTS. THE C ONTENTION OF THE ASSESSEE DID NOT FIND ANY FAVOUR WITH THE LD. CIT(A) WHO CON FIRMED THE ASSESSMENT ORDER. THE ASSESSEE CARRIED THE MATTER BEFORE THE T RIBUNAL AND THE TRIBUNAL VIDE ORDER DATED 31.03.2005 IN ITA NO. 4471/AHD/200 3 CONFIRMED THE FINDINGS OF THE FIRST APPELLATE AUTHORITY. SUBSEQUE NTLY, THE ASSESSEE PREFERRED A MISCELLANEOUS APPLICATION CLAIMING THAT CERTAIN MISTAKES HAD CREPT IN THE ORDER DATED 31.03.2005. THE TRIBUNAL W AS PLEASED TO CONCUR WITH THE PRAYER OF THE ASSESSEE AND THROUGH THE ORD ER DATED 08.09.2006 IN M.A. NO. 127/AHD/2005 ARISING OUT OF ITA NO. 4471/A HD/2003. THE TRIBUNAL ITA NO. 784/ AHD/2014 . A.Y. 1997-98 4 AGREED THAT THE FOLLOWING ADDITIONAL GROUND WAS NOT CONSIDERED WHILE DISPOSING THE APPEAL IN ITA NO. 4471/AHD/2003. WHETHER CIT(A) WAS JUSTIFIED IN LAW AND ON FACTS I N NOT GRANTING PERMISSION FOR SPECIAL AUDIT U/S. 142(2A) WHEN THE A.O. IN HER REM AND REPORT CATEGORICALLY RECORDED SATISFACTION THAT LOOKING TO THE NATURE AN D COMPLEXITY OF THE ACCOUNTS OF THE ASSESSEE AND INTEREST OF REVENUE, SPECIAL AU DIT WAS REQUIRED. 7. PURSUANT TO THE DIRECTIONS OF THE TRIBUNAL, THE 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 OFFIC ER 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 WOR TH SHARES. THE ISSUED CAPITAL OF THE ASSESSEE COMPANY WAS AT RS. 135.03 L ACS 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 PROMOT ERS 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 NO T SUBSCRIBED AND AS PER SEBI GUIDELINES. THE SHARE APPLICATION MONEY OF THE APPLICANTS WAS REFUNDED BY THE BANK. THE SHARE APPLICATION MONEY W HICH WAS RECEIVED BY ITA NO. 784/ AHD/2014 . A.Y. 1997-98 5 THE BANK DIRECTLY WERE NEVER RECORDED IN THE BOOKS OF ACCOUNTS AND, THEREFORE, THE REFUND OF THE SAME WAS ALSO NOT RECO RDED IN THE BOOKS OF ACCOUNTS. 11. VIDE AN AFFIDAVIT DATED 14.02.2003 SHRI MRUGESH N. JANI, MANAGING DIRECTOR OF THE ASSESSEE COMPANY CONFESSED THAT THE CREDIT TO THE CAPITAL ACCOUNT TO SHOW THE PROMOTERS CONTRIBUTION WAS DON E THROUGH FICTITIOUS ENTRIES WHICH GENERATED HUGE CASH IN HAND THEREFORE CORRESPONDING DEBIT ENTRIES WERE MADE TO THE ACCOUNTS OF FIXED ASSETS, ADVANCE FOR CAPITAL WORK, ADVANCE FOR CAPITAL GOODS. 12. ON THE STRENGTH OF THE CONFESSION MADE BY THE MANAG ING DIRECTOR, THE ASSESSEE COMPANY RE-CASTED THE BOOKS OF ACCOUNTS. S INCE THE ENTRIES AMOUNTING TO RS. 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 O F ACCOUNTS, THE CORRESPONDING DEBIT ENTRIES WERE ALSO ERASED FROM T HE ACCOUNTS. 13. THE BONE OF CONTENTION IS THE RE-CASTED BOOKS OF AC COUNTS. IT IS THE RE- CASTED BOOKS OF ACCOUNTS WHICH WERE SUBJECTED TO TH E 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 ORI GINAL 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 ITA NO. 784/ AHD/2014 . A.Y. 1997-98 6 ACCOUNTS AND THE BALANCE SHEET DRAWN AS PER RE-CAST ED 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 RE - CASTED BOOKS OF ACCOUNTS (RS. IN LACS) DIFFERENCE (RS. IN LACS) 1 SHARE CAPITAL 403.97. 171.37 232.60 2 RESERVES & SURPLUS 12.75 25.22 (12.47) 3 SECURED LOAN 24.66 2.2.63 2.03 4 UNSECURED LOAN 3.36 1.10 2.26 TOTAL: ... 444.74 220.32 224.42 5 FIXED ASSETS (NET) 102.60 46.70 55.90 6 CAPITAL ADVANCE 215.61 81.17 134.44 7 PRE - OPERATIVE EXPENDITURE 67.86 25.73 42.13 8 INVENTORIES 37.12 55.31 (18.19) 9 SUNDRY DEBTORS 18.39 47.93 (29.54) 10 CASH AND BANK BALANCES 6.67 2.22 4.45 11 CREDITORS 10.23 38.74 (28.51) TOTAL: ... .438.02 220.32 217 .70 DIFFERENCE 6.72 6.72 PROFIT AND LOSS ACCOUNT FOR 31/03/1997 ITA NO. 784/ AHD/2014 . A.Y. 1997-98 7 NO. ACCOUNT HEAD / GROUP AS PER ORIGINAL AUDITED ACCOUNTS (RS. IN LACS) AS PER RE - CASTED BOOKS OF ACCOUNTS (RS. IN LACS) DIFFERENCE (RS, IN LACS) INCOME: 1 SALES 39.72 39.72 -- 2 INCREASE /(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 CLEAR LY SHOWS THAT THE SUBSTANTIAL INCREASE IN THE SHARE CAPITAL WAS ERASE D IN THE RE-CASTED BOOKS OF ACCOUNTS WHICH EXPLAIN THE CORRESPONDING EROSION OF DEBIT ENTRIES. ITA NO. 784/ AHD/2014 . A.Y. 1997-98 8 15. NOW, ALL THAT WE HAVE TO DECIDE IS WHETHER THE IN CREASE IN THE SHARE CAPITAL IN THE ORIGINAL BALANCE SHEET IS DUE TO UNE XPLAINED CASH CREDIT AND WHETHER THE SAME CAN BE ADDED AS SUCH U/S. 68 OF TH E 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 ACCOU NTS AND THE SPECIAL AUDIT REPORT. IT IS SAY OF THE LD. D.R. THAT IT IS NOT COMING OUT FROM THE ASSESSMENT ORDER WHETHER THE ASSESSING OFFICER HAS FOLLOWED THE PROCEDURE OF THE LAW FOR THE APPOINTMENT OF AUDITOR U/S. 142(2A) OF THE ACT. THE LD. D.R. FURTHER CONTENDED THAT THE ORIGIN AL BOOKS OF ACCOUNTS WERE APPROVED IN THE ANNUAL GENERAL MEETING OF THE COMPA NY AND THE SAME WERE MAINTAINED IN THE ORDINARY COURSE OF BUSINESS. THE LD. D.R. FURTHER STATED THAT THE RESULTANT FINANCIAL STATEMENTS WERE FILED WITH THE REGISTRAR OF COMPANY. THE LD. D.R. FURTHER CONTENDED THAT THE RE-CASTED BOOKS OF ACCOUNTS WERE NEVER APPROVED BY THE ANNUAL GENERAL MEETING AND THE RESULTANT FINANCIAL STATEMENTS WERE NEVER SUBMITTED BEFORE THE REGISTRAR OF COMPANY. THEREFORE, THE RE-CASTED BOOKS OF ACCOUNTS AND THE RE-FRAMED FINANCIAL STATEMENTS DO NOT HAVE ANY LEGAL SANCTITY . 17. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE OBJ ECTIONS RAISED BY THE LD. D.R. SO FAR AS THE FIRST OBJECTION OF THE LD. D.R. IS CONCERNED, THE FOLLOWING LETTER OF THE ITO, WARD-4(3), AHMEDABAD NEEDS SPECI AL MENTION:- TO, 31.12.2009 MULANI KAJREKAR & CO., 204 SHREEDHAR AVENUE,, ITA NO. 784/ AHD/2014 . A.Y. 1997-98 9 8, KAILASH SOCIETY, NEAR H K HOUSE, ASHRAM ROAD, AHMEDABAD. SIR SUB: REQUEST TO CARRY OUT AUDIT U/S 142(2A) OF THE IT. A CT,. IN THE CASE OF FORTUNE INDUSTRIES LTD. A.Y . 1997-98 2. I HAVE BEEN DIRECTED TO INFORM YOU THAT YOU HAVE BEEN APPOINTED AS INCOME TAX AUDITOR TO CARRY OUT SPECIAL AUDIT U/S. I42(2A) OF THE I T ACT OF FORTUNE INDUSTRIES LTD FOR A Y 1997-98. THE HOURLY FIXED CHARGES HAVE BEEN FIX ED BY COMMISSIONER AT RS 3750/- PER HOUR. YOU ARE REQUESTED TO MAINTAIN REGISTER OF HOUR CONSUMED FOR THE PURPOSE OF AUDIT OF THIS PARTY. 3. 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 ASSESSE D U/S 144 OF THE IT. ACT WITH ADDITION OF RS.2,68,94,000/- ON ACCOUNT OF UNEXPLAI NED 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 A SIDE THE ASSESSMENT COMPUTED BY THE A.O. U/S 144 OF THE I.T. ACT. BEFORE THE LD. CI T (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 RE FERENCE TO SHARE CAPITAL IN THE BOOKS OF ACCOUNTS. THE LD. CIT (A) HELD THAT THE SUBJECT MAT TER OF THE APPEALS IS NOT THE NEW RETURN FILED WITH RECASTED ACCOUNTS BUT THE ASSESSM ENT 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 REQ UIRED TO BE AUDITED U/S. 142(2A). HE ACCORDINGLY UPHELD THE ADDITION. (C) THE HONBLE 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 ITATS ORDER DATED 24.10.2008 IS ENCLO SED HEREWITH FOR READY REFERENCE. 5. YOUR ARE REQUESTED TO GET THE RECASTED ACCOUNTS AUDIT ON THE BASIS OF ORIGINAL ACCOUNTS AND FURNISH REPORT ON OR BEFORE 31.03.2010 . ITA NO. 784/ AHD/2014 . A.Y. 1997-98 10 18. IN THE AFOREMENTIONED LETTER, THE A.O. ADMITS THAT HE HAS BEEN DIRECTED TO INFORM THE AUDITORS THAT THEY HAVE BEEN APPOINTED T O CARRY OUT SPECIAL AUDIT U/S. 142(2A) OF THE ACT. THE ITO FURTHER WRIT ES THAT THE REMUNERATION HAS BEEN FIXED BY THE COMMISSIONER. THIS PROVES THA T SUFFICIENT COMPLIANCE OF THE RELEVANT PROVISION HAS BEEN MADE BY THE ITO. COMING TO THE OTHER OBJECTIONS OF THE LD. D.R., WE FIND THAT ALL THE OB JECTIONS RELATE TO THE VIOLATION OF THE RELEVANT PROVISIONS OF THE COMPANI ES ACT. WE FAIL TO UNDERSTAND HOW THE VIOLATION OF THE PROVISIONS OF C OMPANIES ACT WILL COME IN THE WAY OF INCOME TAX ASSESSMENT PROCEEDINGS. A PERUSAL OF THE RECORD SHOWS THAT NO COMPLAINT HAS BEEN MADE TO THE COMPAN Y LAW BOARD BY THE REVENUE AUTHORITIES. THEREFORE, WE DO NOT FIND ANY MERIT IN THE OBJECTIONS RAISED BY THE LD. D.R. 19. COMING BACK TO THE MERITS OF THE CASE, THE COMPANY CLAIMS THAT THE MANAGING DIRECTOR HAD FUDGED THE BOOKS OF ACCOUNTS AND HAS MADE FICTITIOUS ENTRIES TO SHOW PROMOTERS CONTRIBUTION TOWARDS THE SHARE CAPITAL. ASSUMING, YET NOT ACCEPTING, THE CASH WAS ACTUALLY RECEIVED BY THE COMPANY WHICH BELONGS TO THE UNACCOUNTED SOURCES OF THE PROMOTERS AND THE PROMOTERS HAVE INTRODUCED SUCH HUGE AMOUNT OF C ASH IN THE NAME OF FICTITIOUS SHAREHOLDERS. BUT THEN, WE DO NOT FIND A NY ACTUAL RECEIPT OF CASH BY THE COMPANY NOR ANY CASH WAS FOUND TO BE DEPOSIT ED IN THE BANK ACCOUNTS OF THE COMPANY. THE FICTITIOUS CREDIT ENTR IES WHICH RESULTED INTO THE EXORBITANT INCREASE OF CASH IN HAND WAS NEUTRAL IZED BY MAKING FICTITIOUS DEBIT ENTRIES UNDER THE HEAD FIXED ASSETS, ADVANCE S, INFLATION OF ITA NO. 784/ AHD/2014 . A.Y. 1997-98 11 EXPENDITURES ETC. NEITHER ANY CASH WAS RECEIVED BY THE COMPANY NOR ANY CASH WAS SPENT BY THE COMPANY. EVERYTHING WAS FICTI TIOUS AND FUDGED. 20. A PERUSAL OF THE RE-CASTED ACCOUNTS QUA THE SPECIAL AUDITORS REPORT SHOWS THAT THE ORIGINAL SET OF ACCOUNTS WERE DOCTORED AND SUBSEQUENTLY THE FICTITIOUS ENTRIES WERE ERASED TO BRING BACK THE RE AL ACCOUNT OF THE ASSESSEE COMPANY. 21. IT IS A SETTLED PROPOSITION OF LAW THAT INCOME TAX IS IMPOSED ON REAL INCOME. AS MENTIONED ELSEWHERE, THE ENTIRE ENTRIES IN THE B OOKS 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 RE- CASTED BOOKS OF ACCOUNTS AND THE OBSERVATIONS OF T HE SPECIAL AUDITORS APPOINTED U/S. 142(2A) OF THE ACT AND ALSO CONSIDER ING 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, A CCORDINGLY, SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE A.O. TO D ELETE THE ADDITION OF RS. 2,51,76,000/-. 23. BEFORE PARTING, IT WOULD NOT BE OUT OF PLACE TO MEN TION HERE THAT IN THE FIRST ROUND OF LITIGATION, WHEN THE FIRST APPELLATE AUTHO RITY WAS SEIZED WITH THE CLAIM OF RE-CASTED BOOKS OF ACCOUNTS, HE HAD CALLED FOR A REMAND REPORT ITA NO. 784/ AHD/2014 . A.Y. 1997-98 12 FROM THE A.O. THE ASSESSING OFFICER IN HIS REMAND R EPORT DATED 10.07.2003 HAS SPECIFICALLY REQUESTED THE LD. CIT(A) TO GET TH E ACCOUNTS OF THE AUDITED U/S. 142(2A) OF THE ACT. THE RELEVANT PART READS A S UNDER:- 'HOWEVER, IN THE ALTERNATIVE, AS PER YOUR HONOUR'S D IRECTIONS REGARDING VERIFICATION OF ORIGINAL BOOKS AND REVISED SET OF A CCOUNTS IS CONCERNED, IT IS TO BE SUBMITTED THAT THE ASSESSEE HAS NOT BEEN FILING COM PREHENSIVE DETAILS IN RESPECT OF CLARIFICATIONS SOUGHT BY THIS OFFICE, FOR YOUR H ONOUR'S READY REFERENCE THE REPLY FILED BY THE ASSESSEE IS ENCLOSED. YOUR GOODSELF WI LL APPRECIATE THAT THE ASSESSEE HAS CONVENIENTLY AVOIDED GIVING SPECIFIC REPLIES. I N VIEW OF THE SAME, THE REMAND REPORT HAS BEEN DELAYED. IT IS FURTHER SUBMITTED WI TH DUE RESPECT THAT LOOKING TO THE NATURE AND COMPLEXITY OF THE ACCOUNTS OF ASSESS EE AND THE INTEREST OF REVENUE, IT WOULD BE APPROPRIATE TO GET THE ACCOUNT S OF THE ASSESSEE AUDITED U/S. 142(2A) OF THE I.T. ACT. THE REASONS FO R INVOKING THE PROVISIONS OF SECTION 142(2A) ARE NARRATED BELOW FOR YOUR HONOUR' S KIND CONSIDERATION. AS PER INSTRUCTION NO.1076, THE CBDT HAS SPECIFICAL LY DIRECTED TO INVOKE THE PROVISIONS OF SEC. 142(2A) OF IT. ACT IN CASE OF CO MPANIES WHEN THERE ARE REPORTS OF MISFEASANCE, GROSS NEGLECT OR BREACH OF DUTY ON THE PART OF THE PRINCIPAL OFFICER OR THE DIRECTOR IN RESPECT TO THE AFFAIRS O F THE COMPANY. THE ASSESSEE HAS ADMITTED TO SUCH NEGLIGENCE AND MISFEASANCE IN HIS PETITION BEFORE YOUR HONOUR THAT THE ACCOUNTS WERE PREPARED PASSING FICTITIOUS ENTRIES. THE ASSESSEE HAS ALSO MADE DECLARATION THAT THE ENTRIES WERE PASSED WITHO UT RECEIVING MONEY EITHER IN CASH OR KIND, AND ALSO THE COMPANY HAS DEBITED VARI OUS ASSET ACCOUNTS WITHOUT THERE BEING ANY ASSETS. THE DIRECTOR HAS ALSO ADMIT TED TO PASSING OF SEVERAL JOURNAL ENTRIES TO DEBIT AND CREDIT OF VARIOUS PERS ONAL ENTRIES LIKE THE SUPPLIERS .AND CUSTOMERS WHICH HAD THE EFFECT OF REDUCING DEB TORS AND CREDITORS IN THE BOOKS OF THE COMPANY WITHOUT ANY TRANSACTIONS OR DO CUMENTARY EVIDENCE FOR THE SAME. THE FACTS ADMITTED BY THE ASSESSEE CLEARLY IN DICATE GROSS NEGLIGENCE ON THE PART OF THE DIRECTOR COUPLED WITH BREACH OF DUTY WH ICH CLEARLY CALLS FOR COMPULSORY AUDIT U/S.142(2A) OF IT. ACT AS PER THE GUIDELINES OF THE CBDT. (B) IN THIS CASE AS PER THE DIRECTIONS OF THE LD.CI T(A), BARODA A REMAND REPORT WAS CALLED FOR IN RESPECT OF VARIOUS SH AREHOLDERS. IN RESPONSE THEREOF, THE UNDERSIGNED ISSUED LETTERS TO THE SHAREHOLD ERS, MAJORITY OF WHICH WERE RETURNED UNSERVED. THE SUBMISSION OF THE ASSESSEE A T THIS STAGE IS A DIRECT CONSEQUENCE OF THE SAID ENQUIRIES MADE BY THIS OFFI CE. AS SUCH, THE COMPLEXITY OF THE ACCOUNTS ARE NO WAY TO BE DOUBTED AND T HE SAME NEEDS TO BE COMPULSORILY AUDITED U/S.142(2A) OF THE I.T. ACT IN THE IN THE' INTEREST OF REVENUE. ITA NO. 784/ AHD/2014 . A.Y. 1997-98 13 (C) THE ASSESSEE COMPANY HAS FILED ALONGWITH THE PE TITION 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 AC COUNTS. THE SAID CHART SHOWS SUBSTANTIAL VARIATIONS IN EXPENSES, INTEREST AND FI NANCIAL CHARGES, PROFITS, STOCK ETC. IN PROFIT AND LOSS ACCOUNT. SIMILARLY, THERE A RE SUBSTANTIAL VARIATIONS IN BALANCE SHEET PERTAINING TO SHARE CAPITAL, RESERVES AND SURPLUS, LOANS, ASSETS, CAPITAL ADVANCES, CURRENT ASSETS, LOANS AND ADVANCE S ETC. THE GROSS DIFFERENCE IN THE BALANCE SHEET WORKS OUT TO RS.2.22 CRORES. THES E FACTS ABOUT THE NEW ACCOUNTS CLEARLY INDICATE THE COMPLEXITY OF THE CAS E. IT ALSO SHOWS THE DIFFERENCE IN PROFITS. THUS, IT CAN BE EASILY CONCLUDED THAT T HE 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.199 6-97 RELEVANT TO A.YR. 1997- 98. HOWEVER, THE ASSESSEE COMPANY HAS SUBMITTED ONL Y THE TRIAL BALANCE WHICH CANNOT BE ACCEPTED WITHOUT PROPER AND CORRECT AUDIT . THE ACCOUNTS SUBMITTED THEREFORE CLEARLY INDICATE THAT THE ACCOUNTS ARE CO MPLEX AND NEED TO BE COMPULSORILY AUDITED U/S. 142(2A) OF THE I.T. ACT. (E) AS FAR AS THE POWER TO INVOKE SEC. 142(2A) IS CONCERNED, I MAY BE ALLOWED TO DRAW YOUR KIND ATTENTION TO THE DECISION RENDERED BY CALCUTTA HIGH COURT IN THE CASE OF SLID NARENDRASINGH ATWAL V S. D.C.I.T. AND OTHERS. IN THE SAID CASE, IT HAS BEEN CATEGORICALLY HELD THAT THE POWER U/S. 142(2 A) OF I.T. ACT CAN BE INVOKED WHEN THE ASSESSING AUTHORITY FINDS THAT THE ACCOUNTS ARE COMPLICATED. IN THIS CASE, THE DEPARTME NT HAS BECOME AWARE OF THE COMPLEXITY OF ACCOUNTS ONLY AT THIS STAGE AND T HE PROVISIONS OF SEC.L42(2A) OF I.T. ACT CAN BE INVOKED AT THIS S TAGE SINCE APPELLATE PROCEEDINGS ARE ONLY EXTENSION OF ASSESSMENT PROCEEDINGS. THE SUPREME COURT HAS IN THE CASE OF SWADESHI POLYT EX LIMITED VS. INCOME-TAX OFFICER SET ASIDE THE ENTIRE ASSESSMEN T ORDER PASSED U/S. 144 OF THE I.T. ACT ON THE GROUND THAT THE COMPULSORY AUDIT U/S. 142(2A) OF I.T. ACT WAS NOT UNDERTAKEN BEFORE FINALIZING THE ASSESSMENT. IN VI EW OF THE SAME, THIS CASE ALSO APPEARS TO BE A FIT CASE FOR UNDERTAKING AUDIT U/S. 142(2A) OF I.T. ACT. FROM THE REASONS STATED ABOVE, IT IS CLEAR THAT THE ACCOUNTS SUBMITTED BY THE ASSESSEE COMPANY REQUIRE EXPERTISE AND SKILL OF A P ROFESSIONAL CHARTERED ACCOUNTANT TO ARRIVE AT THE ACTUAL REAL INCOME OF T HE COMPANY. THEREFORE, BEFORE OFFERING ANY COMMENTS ON THE NEW SET OF ACCOUNTS, T HE UNDERSIGNED WOULD BE OBLIGED IF THE NEW SET OF ACCOUNTS ARE SUBJECTED TO COMPULSORY AUDIT U/S. 142(2A) OF THE I.T. ACT. YOUR HONOUR'S INSTRUCTIONS IN THIS REGARD ARE CITED.' ITA NO. 784/ AHD/2014 . A.Y. 1997-98 14 24. CONSIDERING THE AFOREMENTIONED REMAND REPORT OF THE A.O., WE DO NOT FIND ANY REASON WHY THE REVENUE SHOULD OBJECT TO THE ADM ISSION OF THE SPECIAL AUDITORS REPORT QUA THE RE-CASTED BOOKS OF ACCOUNT S. 25. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 03 - 04- 20 17 SD/- SD/- (RAJPAL YADAV) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 03/04/2017 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD