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TMI Blog2014 (10) TMI 795X X X X Extracts X X X X X X X X Extracts X X X X ..... ent stating that the books are not complete would not do any justice - CIT(A) observed that most of the entries in the books of accounts are in the form of journal entries in the names of related person – it could not be understood as to how can this be a reason for rejecting the books of accounts - When a person is maintaining books of accounts on mercantile system of accounting, obviously, most of the entries would be in the form of journal entries - the books of accounts have been prepared on the basis of the evidences which are seized by the authorities which mean that they are still in the possession of the department/custodian - There is no specific instance pointed out which is not backed by any primary documentary evidence - It is also not clear whether the assessee was ever called for to explain any of the transactions recorded in the books of accounts - In the absence of the verification of primary document vis-à-vis entries in the books, assessee’s accounts cannot be treated as unreliable. The auditors were appointed on 5.11.2003 about two years after the death of Shri Harshad S. Mehta who expired on 30.12.2001 - The widow Smt. Jyoti Mehta had already informed the cus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT(A) for adjudicating the issues afresh after considering the books of accounts of the assessee. Admittedly, the Tribunal was pleased to admit the additional evidence in the form of books of accounts and restore the matter to the files of the Ld. CIT(A) to examine the same. 4.1. In terms of the directions of the Tribunal, the 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 Hon ble Special Court dt. 16.10.2003 on the Custodian s Report dt. 1st October, 2003, the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 appointed M/s. Vyas Vyas, Chartered Accountants for preparing and auditing the accounts for Mr. Harshad S. Mehta and M/s. Harshad S. Mehta who were notified entities under the Special Court (TORTS) Act, 1992 for the financial year ended 31.3.1991, 31.3.1992 and for the period ending 8.6.1992. 5. The Ld. CIT(A) considered the report of the Special 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 acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no books of accounts were found during the course of the searches in 1990 or in 1992 which means that the assessee was never maintaining contemporary proper books of accounts. This observations 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 under: During the course of search at various premises of the assessee in 1990 and 1992 no books of accounts were produced by him. It was found that most of the details of transactions were maintained by the assessee on a number of computers. Hence the data from the computers were copied and seized. One copy of such seized data has been provided to the assessee. The seized data was analysed but it was found that complete share market transactions were not available in the seized data. Moreover, the data after the date of the search was not there. Hence, complete books of accounts could not be generated from the seized data. In the absence of complete books of account and valid return of income, the total income of the assessee is computed u/s. 144 of the I.T. Act on the basis of information available in the seized computer data and other records and information ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal has restored the matter to the files of the Ld. CIT(A) for verification of the books of accounts. 12.1. The Ld. DR has not brought on record the rejection 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 mentioned elsewhere, the books of accounts have been prepared on the basis of the evidences which are seized by the authorities which mean that they are still in the possession of the department/custodian. There is no specific instance pointed out which is not backed by any primary documentary evidence. It is also not clear whether the assessee was ever called for to explain any of the transactions recorded in the books of accounts. In the absence of the verification of primary document vis- -vis entries in the books, assessee s accounts cannot be treated as unreliable. 14. The sixth reason is that the books of account show improbable ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sheet filed by CBI. We have tried to verify facts and figures in the books provided in the computers but not offered any comments, as the matter is subjudice before the Hon ble 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 parties showed huge differences in transaction in HSM's books. 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 available to us and other information gathered as reported in our report, the liabilities appear in the Balance sheet as 8l 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 and 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 claims decreed against HSM. 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ures 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) 31.3.91 1,04,73,245 8,04,52,271 -1,88,63,819 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 available to us and is subject to matters for which responses have not been received by us till date. Our report is based on the information reviewed/presented to us on or before 31 October 2005, and reflect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be verified does not have any force for the simple reason that in a case of such huge magnitude expecting the widow to 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 drawing the statement of affairs of M/s. Harshad Mehta, the auditors have determined the net profit earned during 1.4.1990 to 8.6.1992 at ₹ 1235321902 or say ₹ 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 account is that the balances in the account of the assessee and the balances in the books of related entities do not tally. A Perusal of the orders of the authorities below do not show any specific entry/balance which is not tallied. Moreover, if the Revenue authorities were of the opinion 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 doing this exercise, the books could not have been rejected. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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