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TMI Blog2008 (12) TMI 240X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1992-93 while adjudicating upon the appeal for the asst. yr. 1993-94. 4. That under the facts and circumstances of the case, the learned CIT(A) erred in law as well as on facts in not deleting the addition of Rs. 8,67,559 made for alleged difference in stock of M.S. Steel. 5. That under the facts and circumstances of the case, there is no justification for addition of Rs. 2,31,960 for alleged closing stock of runners and risers. 6. That the learned CIT(A) erred in upholding the action of learned AO for referring the matter to special audit under s. 142 (2A). Under the facts of the case, there is no justification for referring the matter for special audit under that section. 7. That under the facts of the case, the learned CIT(A) grossly erred in law as well as on merits in upholding the direction of the learned AO for an addition to the extent of Rs. 5,60,054 for the credits lying in the two creditors' account, namely, M/s Swastik Foundry & Engineering Works and M/s S.K. Trading Company. 8. That without prejudice to ground No. 7 above, under the facts of the case, no addition should be made on account of credits lying in the two creditors' accounts, namely, M/s Swastik Found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts raised on this ground and he also referred to the sequence of events. It was pointed out by learned Authorised Representative that the AO issued letter dt.18th March, 1996to the auditors to conduct special audit under s. 142(2A) and to furnish the report by31st July, 1996and the said letter of AO was received by auditors on19th March, 1996. Learned Authorised Representative contended that as per normal course, the assessment of the assessee will become time-barred by31st March, 1996. However, as AO issued instructions for special audit vide its letter dt.18th March, 1996then the said date of31st March, 1996will extend the date for framing the assessment as per provisions of s. 142(2A) r/w s. 153. He contended that if the time for rendering special audit by the auditors is not extended then the special auditors were required to submit the audit report by31st July, 1996. He contended that AO had power to extend the date of special audit as per proviso to sub-s. (2C) of s. 142. He contended that according to the said proviso as it stood at the relevant time, such extension of time could be granted by the AO only on an application made by the assessee, which should have good and suf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ording to letter issued by AO dt.18th March, 1996to the special auditor, the special auditor was required to fulfil following six tasks: "1. Confirmation of purchases of the raw material above Rs. 10,000 made by the company during the current year shall be obtained. 2. Confirmation of the debtors as on31st March, 1993from the parties shall be obtained. 3. Confirmation of the outstanding creditors as on31st March, 1993shall be obtained along with confirmation of the creditors' account squared up during the year. 4. Indication of the consumption of electricity for manufacturing one metric ton of steel ingots along with number of units consumed in each shot shall be given. 5. Details of the quantity of thyrestors consumed during the year, the source of its purchases and the total expenditure on this account shall be indicated in the report. 6. Reconciliation of the bank accounts of the assessee company with the cash book shall be prepared by the auditors. The auditors shall also indicate the date of the cash deposits in all the bank accounts of the company." 7. Then, learned Authorised Representative referred to the provisions of s. 142(2A). According to s. 142(2A), the special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings taken in respect of special audit should be held invalid and thus assessment order shall be set aside. He further placed reliance on the following decisions: (i) Gurunanak Enterprises vs. CIT (2003) 180 CTR (Del) 203 : (2003) 259 ITR 637 (Del)- There should be complexity in the accounts and for interest of Revenue special audit can be ordered. There should be genuine attempt to understand the accounts and seek the explanation of assessee. This task cannot be passed on to auditors. (ii) Bata India Ltd. vs. CIT (2003) 179 CTR (Cal) 147 : (2002) 257 ITR 622 (Cal)-Special audit cannot be ordered for collecting vital information not ascertainable from accounts. AO can call these informations himself. (iii) Dy. CIT vs. Muthoottu Mini Kuries (2003) 182 CTR (Ker) 315 : (2004) 266 ITR 213 (Ker) and Muthoottu Mini Kuries vs. Dy. CIT (2001) 166 CTR (Ker) 180 : (2001) 250 ITR 455 (Ker)-There should be satisfaction that accounts are complex. (iv) H.P. State Forest Corporation vs. Jt. CIT (2001) 170 CTR (HP) 133 : (2001) 252 ITR 833 (HP)-Failure to fulfil the conditions as mentioned in s. 142(2A) will render the order under s. 142(2A) invalid. (v) Yum Restaurants India (P) Ltd. vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report in a proper form and if it was not so done then for that reason alone assessment cannot be held invalid. Moreover, referring to the comments of the special auditor given in the audit report in place of Form No. 6B, learned Departmental Representative pleaded that the assessee did not provide adequate and sufficient details to comply with the directions of the AO to conduct the special audit and thus probably for that reason special auditors have not given the audit report in Form No. 6B. She contended that otherwise special auditors complied with the requirements of law. For the sake of convenience, the observations of special auditor while submitting their report are as under: "In accordance with the order referred to above, we have carried out a review of the transactions of Jai Bhawani Concast (P) Ltd. At the outset, we draw your attention to the following matters: 1. We have not carried out an audit in accordance with the generally accepted auditing standards and pronouncements issued by the ICAI and accordingly, do not express an opinion on the financial statements of the assessee for the assessment year taken as a whole or in part. 2. As only limited and photostat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report submitted under sub-s. (2A) of s. 142 of the Act." 13. Therefore, the contention of learned Authorised Representative that proceedings were not validly referred by the AO to the special auditor and on that ground assessment should be held invalid, we find no substance and the said contention of assessee is rejected. So far as it relates to the ease law referred to by the learned Authorised Representative and recorded in para 8, it is observed that in all those cases. assessee had challenged the validity or otherwise of issue of notice under s. 142(2A) by way of writ petition. Thus, the principles laid down therein governed the validity or otherwise initiation of proceedings under s. 142(2A) and they will not affect the validity or otherwise of the assessment framed by the AO in pursuance of directions given under s. 142(2A). Therefore, for deciding the present controversy, these cases have no relevance. 14. Now, considering the validity or otherwise of the assessment on the ground of limitation, it is noticed that cl. (iii) of Explanation to s. 153 states about exclusion of period commencing from the date on which AO directs the assessee to get his accounts audited which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Expln. 1, the period prescribed under sub-s. (1) of s. 153 will be further extended by a period of 60 days from29th Sept., 1996on which the said audit report was furnished. The assessment in the present case is completed on8th Nov., 1996, i.e., within the period of 60 days from29th Sept., 1996. Thus, it is held that the assessment framed in the present case is not time-barred. At the cost of repetition, we may mention here that cl. (iii) of Expln. 1 to s. 153 as it stood for the relevant year provides for exclusion of period commencing from the date on which the AO has directed the assessee to get his accounts audited under sub-s. (2A) of s. 142 and the said period will end with the date on which the assessee furnishes such report. Therefore, the issue that whether any extension was sought by the assessee or it was suo motu granted by the AO for furnishing audit report under s. 142(2A) becomes irrelevant as the limitation for framing assessment will be governed by the provisions as they stood for the relevant accounting year. It has also been pointed out in the earlier part of this order that Finance (No. 2) Act, 1996, has brought a change in cl. (iii) of Expln. 1 to s. 153 wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e prescribed under unamended cl. (iii) of Expln. 1 to s. 153 specifies about the date on which the assessee furnishes a report and in respect of amended clause which provides the exclusion of period upto the date on which the assessee was required to furnish audit report. The said case has no relevance to decide the issue of limitation in the present case. MadhuvanaHouseBuildingCo-operative Society vs. Asstt. CIT In that case also, the provisions of s. 158BE were considered and for the reasons stated above, the ratio in this case will also not be applicable. 18. In view of our discussion, it is held that assessment order passed in the present case is within the limitation period. The ground Nos. 1, 5 and 6 and additional ground Nos. 10, 11 and 12 of the assessee are rejected. 19. With regard to addition of Rs. 38,89,411 on account of investment in unaccounted purchase in ferro chrome and others, the AO in the course of scrutiny assessment observed that the closing stock of ferro chrome as on 31st March, 1992 was shown by the assessee at 8.900 MTs and the total value of inventory was shown at Rs. 46,34,400. In a subsequent letter dt.3rd Jan., 1995, which was filed in the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exclude the addition of Rs. 35,89,411 from the income of asst. yr. 1993-94, under consideration, however he directed the AO to add the difference of Rs. 31,21,041 in the asst. yr. 1992-93 alter having the following observations: "On going through the submissions made before me in this connection. I find that the contention of the assessee is not supported by corroborative evidences. The AO has clearly mentioned in the order that the discrepancy was not only noted in the opening stock of ferro chrome but also in other items like scrap, SS scrap, semi-finished goods, etc. The assessee has not given proper explanation for this. The discrepancy was noted as per the figures submitted by the assessee in course of the assessment proceedings and the same could not be properly explained by the assessee. When the figures were entirely different, it cannot be explained by attributing the discrepancies noted to a mere clerical error. Accepting the contention of the assessee that there was a mistake in calculation of difference in valuation of opening stock by Rs. 4,68,370. I direct the AO to reduce the addition to Rs. 31,21,041, rather than Rs. 35,89,411. However, it was further submitted be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame must be given before taking the decision in this matter." 23. We have considered the rival contentions and carefully gone through the orders of authorities below and found from the record that discrepancy in various items of stock was found by the AO during the course of scrutiny assessment not only in the balance sheet filed for the year ending on 31st March, 1992 but also as per the figure available as at the beginning of the current year under consideration, i.e., 1st April, 1992 as well as excise records. We also found that break up of closing stock both quantity and value-wise was also not given by the auditor of the company in Form 3CD of tax audit report, filed along with return of income. In the balance sheet also the assessee has not given quantitative details with regard to the opening stock. Contention of the assessee was merely that mistake was due to clerical error and he could not reconcile the difference even during the course of appellate proceedings. However, on the basis of calculation, difference given by the assessee during the course of appellate proceedings, the CIT(A) reduced the addition by Rs. 4,68,370 and the balance addition of Rs. 31,21,041 was sust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of factual errors and deciding the matter afresh. 26. The next grievance related to addition of Rs. 2,31,960 on account of difference found in the closing stock of runners and raisers. We found that during the scrutiny assessment the AO found difference in the stock of runners and raisers as per the details filed as on 31st March. 1992, in respect of asst. yr. 1992-93 vis-a-vis details filed for the asst. yr. 1993-94. The AO compared the closing stock of runners and raisers as per the excise record and it was found that stock of these items worked out to 28.995 MTs. The AO computed the amount of shortage at Rs. 2,31,960 by taking average rate at Rs. 8 per kg. Before the CIT(A) assessee submitted certain reconciliation and stated that on account of bona fide error on the part of accountant, the closing stock of the runners and raisers were not included in the stock entries but the same were reflected in the excise records. A remand report was called from the AO who vide his letter dt.3rd Sept., 1997submitted that these items did not figure in the inventory of the closing stock as per the balance sheet and P&L a/c. In view of this report, the CIT(A) confirmed the addition; we d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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