| SooperKanoon Citation | sooperkanoon.com/75887 |
| Court | Income Tax Appellate Tribunal ITAT Mumbai |
| Decided On | Sep-27-2007 |
| Judge | K Thangal, Vice, A Garodia |
| Appellant | Shri Rajendra C. Singh |
| Respondent | Joint Commissioner of Income Tax, |
2. IT (SS) A No. 225/Mum/2001: Assessee originally had taken eight grounds of appeal. Thereafter assessee filed the redrafted grounds of appeal, which read as under: 1. holding that the block assessment order was not barred by time.
He should have held that since the recourse to Section 142(2A) was not valid, the block assessment order was barred by time.
2. not accepting the opening balance of Rs. 4,50,000/- which had been received by the appellant in 1982 as compensation for vacating the tenanted premises.
3. without prejudice to Ground No. 2 above, confirming the addition of Rs. 1,90,000/- in respect of opening balance, which had been invested prior to the commencement of the block period.
4. confirming the addition of Rs. 1,20,000/- in respect of gifts received by the appellant from various relatives.
5. confirming the addition of Rs. 1,10,000/- on account of alleged low withdrawals.
6. confirming the addition of an amount of Rs. 2,50,000/- Under Section 41(1) of the Act.
7. confirming the action of the learned Assessing Officer that the amount received on the transfer of the right to development was taxable, ignoring the project completion method followed by the appellant.
8. confirming the inclusion of the income from "New Saurashtra Diamond Hall" as the income of the appellant.
3. Coming to the first ground of objection by the assessee, the contending parties conceded that if this issue is decided in assessee's favour, then all other grounds are academic.
There was action under Section 132 in the case of Shri Rajendra C Singh (assessee) and Shri Chandrama Singh by warrant dated 05.10.1997. The search action was completed on 15.11.1997. Notice under Section 158BC was issued and in response to the above notice, assessee filed the block return on 10.09.1998, offering undisclosed income only for four assessment years out of the block period, i.e.
assessment years 1992-93 to 1995-96.
5. Vide Para 3 of his order AO records the circumstances under which the audit under Section 142(2A) was got done from M/s Chokshi & Chokshi, CAs. It reads as under: 3. As recommended by the ADI in his Appraisal Report, audit Under Section 142(2A) of the Income Tax Act, 1961 was gone done from M/s Chokshi & Chokshi, CAs. The assessee was asked to have his case audited Under Section 142(2A) of the Income Tax Act, 1961 by this office letter No. JCIT/SR-43/40-M/99-2000 dtd. 05.05.1999 which was duly served on the assessee on 07.05.1999. The assessee went on asking for extension of period for completing his audit from M/s Chokshi & Chokshi. By letter dtd. 05.05.1999, the assessee was asked to get the case audited within 60 days on receipt of that letter directing him to get his case audited Under Section 142(2A). Before the end of this stipulated period of 60 days, the assessee applied for extension of the period of audit by two months by his letter dtd. 05.07.1999 which was granted by this office letter dtd.
05.07.1999. The assessee again asked for a further extension of two months by his letter dtd. 26.08.1999 which was also granted on the same date. Thus, the period of audit was spread over a span of 180 days from 07.05.1999. In the normal circumstance, the block assessment should have been completed by 20.11.1999. However, considering the Explanation (1) of Section 158BE, the period gets extended upto 31.05.2000.
6. Challenging the very legality of the block assessment, assessee approached the first appellate authority. CIT(A) decided this point against the assessee and proceeded to decide the issue on merit on other points.
7. The contention taken before the CIT(A) and the finding is briefly narrated below: The first objection of the assessee was that the assessment order has not been passed within the prescribed time limit. AO passed the order based on appraisal report of the ADIT, ignoring the evidence produced by the assessee, it was contended. It was further contended that the block assessment itself is illegal as copy of the appraisal report of the ADI was not furnished to the assessee. Assessee relied upon the following decisions in support of the above contention: (8) Peerless General Finance & Investment Co. Ltd. and Anr. 236 ITR 671 (Cal) 8. CIT(A), however, did not accept assessee's contention. He held that the AO has offered sufficient opportunity to the assessee of being heard and considered all the evidences and materials found during the course of action under Section 132. Assessment order, CIT(A) held, is not based on appraisal report of the ADI. Appraisal report, CIT(A) held, is not essentially to be supplied to the assessee as it is a confidential document. He further held that the AO applied his mind while invoking the provisions of Section 142(2A), i.e. special audit.
AO has taken prior permission of the CIT while referring the matter for special audit. Since the special audit was done in accordance with law, CIT(A) held, the assessment was completed within the time prescribed under Section 158BE of the Act. Aggrieved by the above order, assessee is in appeal before the Tribunal.
9. Since this is a jurisdictional ground, we proceed to decide the issue first.
10. Learned Counsel for the assessee especially brought our attention to Para 3 of the assessment order, which is reproduced hereinabove vide Para 5 of our order. Learned Counsel emphasized on the very first sentence of the assessment order, which reads: "as recommended by the ADI in his Appraisal Report, audit Under Section 142(2A) of the Income Tax Act, 1961 was got done from M/s Chokshi & Chokshi, CAs". Learned Counsel submitted, three dates are very crucial to appraise the legal implications properly. The search commenced on 05.10.1997. Even according to the AO, in the normal circumstances, the block assessment should have been completed by 30.11.1999. However, according to the AO, considering the Explanation 1 to Section 158BE, the period gets extended up to 31.05.2000. On the very same day the assessment order was passed. He further submitted, the audit ordered under Section 142(2A) is improper and it has no legal sanctity. As such, the stand of the AO that he got validly extended time to pass the order is incorrect. Learned Counsel submitted, AO has not passed an order directing the audit under Section 142(2A). He merely endorses the recommendation of the ADI. ADI is not the competent authority to direct the audit. Particularly he brought our attention to letter dated 25.02.1999 of the AO addressed to the CIT, with regard to audit under Section 142(2A). First he reproduced the material portion of the appraisal report in this letter, which reads as under: In fact, all the business activities are being undertaken without keeping any sort of records except rough accounts in the diaries and loose papers. It is suggested, therefore, that the AO may get the statutory audit done Under Section 144A before completing the assessments of the family members.
After reproducing the above vide Para 3 of his letter, AO requests the CIT: the proposal of the ADI in the appraisal report mentioned hereinbefore for getting the accounts of the assessee audited Under Section 142(2A) of the I.T. Act, 1961 may be approved and also a reputed firm of the Chartered accountants may be assigned the job of completing the audit Under Section 142(2A) of the I.T. Act, 1961".
Learned Counsel submitted, AO in fact is forwarding the recommendation of the ADI and he is not applying his mind at any time of the proceedings before him as contemplated under Sub-section (2A) of Section 142. Hence, the learned Counsel submitted, the finding of the CIT(A) that the AO gets extended time to pass the block assessment order, is devoid of merit. Learned Counsel also relied upon the following decisions: 11. On the other hand, the learned Departmental Representative supported the order of the CIT(A). Learned DR submitted that the AO applied his mind and he has gone through the letter of the ADI. AO recommended the audit under Section 142(2A) after applying his mind.
Mere quoting of some portion of the letter of the ADI does not mean that the AO had not applied his mind. In view of the above, learned DR submitted, the contention of the assessee on this point is liable to be rejected.
12. Considering the rival submissions, going through the decisions relied upon by the assessee and the relevant sections, we are of the view that the order of the AO is beyond time as contemplated under Section 158BE. 142(2A) If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts of the assessee and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Chief Commissioner or Commissioner, direct the assessee to get the accounts audited by an accountant, as defined in the Explanation below Sub-section (2) of Section 288, nominated by the Chief Commissioner or Commissioner in this behalf and to furnish a report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed and such other particulars as the Assessing Officer may require.
Reading of the above section makes it clear that the recommendation should come from the AO. The wording "if, at any stage of the proceedings before him, the AO, having regard to the nature and complexity of the accounts of the assessee and the interests of the revenue, is of the opinion that it is necessary to do so" clearly indicates that the initiation has to come from the AO while at some stage of the assessment proceedings. He has to form an opinion having regard to the nature and complexity of the accounts and also keeping in mind the interests of the revenue that a special audit is required. If he comes to such an opinion, then he has to seek the previous approval of the CCIT or CIT to get the accounts audited.
14. In the instant case of the assessee it is clear that the initiation was done by the ADI. AO is merely endorsing the above letter. It is all the more clear from Para 3 of letter dated 25.02.1999 from AO to CIT, which has been reproduced below: 3. It is, therefore, requested that the proposal of the ADI in the appraisal report mentioned herein before for getting the accounts of the assessee audited Under Section 142(2A) of the I.T. Act, 1961 may be approved and also a reputed firm of the Chartered Accountants may be assigned the job of completing the audit Under Section 142(2A) of the I.T. Act, 1961.
The underlined portion of the letter of the AO makes it very clear that he is requesting the CIT to accept the proposal of the ADI in the appraisal report. AO is not applying his mind. He is not making the recommendation after application of his mind with regard to the nature and complexity of the accounts of the assessee in the interests of the revenue. In fact, only the ADI had applied his mind with regard to nature and complexity of the accounts of the assessee. AO's opinion cannot be substituted by another Officer's opinion. 15. Hence, we are of the view that the finding of the CIT(A) that the assessment order was passed within time, is a finding devoid of merit. The order should have been passed by the AO on or before 30.11.1999 as he himself has held that in the normal circumstances that was the last date for passing the order. The appeal by the assessee on this ground is allowed.
16. Consequently, it is not necessary for us to decide the other grounds on merit since we have already held that the assessment order passed by the AO is beyond time.
17. IT (SS) A. No: 294/Mum/2001: The grounds urged by the revenue read as under: 1) The learned CIT(A) erred in law and fact in deleting addition of Rs. 60,0007- out of Rs. 1,80,000/- being unexplained cash gift added Under Section 68 during the AY 1993-94 and 1994-95 for the block assessment year holding that in view of family of close relative and source of income it can be reasonably held that donors were capable gifting Rs. 10,000/- each to the assessee, ignoring that the donors had no capacity to make gift.
2) The CIT(A) has erred in setting aside the addition of Rs. 21,64,784/- being addition on account of sale of - development rights to M/s Atul Construction and Housing Pvt. Ltd. and directing the Assessing Officer to examine the claim of the assessee incurring expenditure on acquisition and improvement of the land after verification, ignoring that there was no obligation cast on the assessee to incur such expenditure in view of the fact that as per agreement entered into by the assessee with the M/s Atul Construction and Housing Pvt. Ltd. there is no stipulation that the assessee should fill the land in question and no proof to this was adduced before the AO in the assessment proceedings.
3) The learned CIT(A) erred in law and fact in holding that surplus gained by the assessee by sale of two plots has to be assessed under the head "Capital gains" on the ground that the assessee has purchased the land in 1987 and sold it in 1993 after a gap of 5 or 6 years ignoring that the land is developed by the company in which the assessee is Director and in ignoring that the assessee has hot only purchased the land measuring 5112.25 sq. yds but also purchased another land measuring 3810 sq. yd from Krishna Rama Patil and other and also ignoring that land purchased is developed and converted into plots.
18. Since we have already held that the assessment itself is without jurisdiction, revenue's appeal is liable to be dismissed. It is dismissed. In the result, appeal by the assessee stands allowed and the appeal by the revenue stands dismissed.