9911796707
TMI Blog2003 (1) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... basis to the stockists in different States of India. Assessments for the Assessment years 1995-96 to 1998-99 were completed under section 143(3) of the Act. From January, 1997 to December 1999, residential and business premises of the proprietor of the petitioner were subjected to search and seizure proceedings on four different occasions and as a consequence thereof, assessments for different block periods were completed on different dates. According to the petitioner no addition on account of business activities/transaction was made in any of the earlier block assessments and in fact the alleged undisclosed income assessed vide orders dated February 26, 1999 and September 29, 2000, were only on account of alleged suppression of correct sale consideration of agricultural lands, investments in jewellery and travelling expenses incurred on foreign visits. In other words, no trading addition was made. The fourth search and seizure operation was carried out on August 20, 1999. Consequently, a notice under section 158BC, requiring the petitioner to file the return for the block period April 1, 1989 to August 20, 1999, was issued on November 17, 2000. Pursuant thereto a return declari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fire having broken out at the business premises of the petitioner on May 23, 2000, most of his books of account were destroyed and, therefore, it is a case where complete books of account do not exist and as such the respondents have failed to apply their minds as to the necessity to order special audit when it is incapable of being implemented; (v) the Commissioner has accorded his approval mechanically without independently applying his mind to the existence of pre-conditions prescribed in the said provision as no valid reason for the approval is discernible for invoking the provisions of the said section; and (vi) the petitioner's books of account were not only examined during the course of regular assessment proceedings under the Act but were also scrutinised in earlier block assessments and in none of these proceedings any adverse remarks as to the nature of books of account or complexity therein were made. The petition is resisted by the respondents, inter alia, on the grounds that the accounting of lottery business is very complex and the assessee has shied away from production of books of account and other details to substantiate its trading results despite repeated opport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout application of mind by the Assessing Officer as well as by the Commissioner, and without the existence or satisfaction of the conditions precedent for forming the requisite opinion, just to save limitation, as the assessment was getting barred by limitation within a few days. In support of the proposition that the Commissioner having granted the approval mechanically, without application of mind regarding pre-requisites for ordering special audit, the impugned orders are not sustainable, reliance is placed on two decisions of the Calcutta High Court in Bata India Ltd. v. CIT [2002] 257 ITR 622 and Peerless General Financc and Investment Co. Ltd. v. Dy. CIT [1999] 236 ITR 671 and a decision of the Kerala High Court in Muthoottu Mini Kuries v. Dy. CIT [2001] 250 ITR 455. Mr. R. D. Jolly, learned senior standing counsel for the Revenue, on the other hand, while seeking to support the impugned orders on the basis of the reasons contained therein as also on a detailed note submitted by the Assessing Officer to the Commissioner, would submit that merely because in the past special audit under section 142(2A) was not ordered or the assessments were completed on the basis of the statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y because he finds some difficulty in understanding the accounts. There has to be a genuine and honest attempt on his part to understand the accounts of the assessee, appreciate the entries therein and if in doubt, seek explanation from the assessee or his representative, rather than pass on the buck to the special auditor. A cursory look at the books of account is not sufficient. It needs little emphasis that the opinion required to be formed by the Assessing Officer for exercise of power under section 142(2A) must be based on objective consideration and not on the basis of subjective satisfaction. Similarly, the requirement of the previous approval of the Chief Commissioner or the Commissioner, being an in-built protection against any arbitrary or unjust exercise of power by the Assessing Officer, casts a very heavy duty on the said high ranking authority to see to it that the requirement of the previous approval, envisaged in the section, is not turned into an empty ritual. Needless to add that before granting approval, the Chief Commissioner or the Commissioner, as the case may be, must have before him the material on the basis whereof an opinion in this behalf has been formed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S. Associates group and reflected in the appraisal report of the DDI. Thus, clearly the possible gross profit suppression taken cumulatively over the years for the block period for both the concerns might run into hundreds of crores of rupees. This calls for a comprehensive and in depth examination of the books of account of Bhagya Rekha Enterprises and Gurunanak Enterprises so as to ascertain the correct gross profit... However, investigations during the course of search and during the post search operations reflect the following points regarding the assessee's business and the maintenance of accounts. 1. Furnishing of draw-wise details: The assessee was asked to furnish draw-wise details of- (i) Unsold tickets; (ii) Prize winning tickets received from vendors; (iii) Unclaimed P.W.T's; (iv) P.W.T's returned to M.S. Associates and the State Government. The above details are essential for examining the authenticity of accounts and ascertaining the correct gross profit. However, the same were never furnished despite repeatedly being asked vide order sheet entries dated July 13, 2001, July 20, 2001, August 20, 2001, August 22, 2001 and August 24, 2001. In fact the A.Rs. expres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of cancellation of draws. This implies that payment of minimum guaranteed sale proceeds given to organiser should have been reversed on account of cancellation of draw. However, the assessee's accounts do not reflect such a reversal. The Revenue implication of ever' this reversal will be millions of rupees. The above reasons clearly established the need for comprehensive and in depth examination of the assessee's accounts in both the concerns. The gross profit shown by the assessees is very low and the possibility of suppression of revenue is in crores of rupees. Considering the complexity of accounts in this highly specialised trade and the interest of the Revenue, it is proposed that the approval for the auditing of books of account for the block period April 1, 1989, to August 20, 1999, as per the provisions of section 142(2A) may be given in the case of: 1. Shri S.K. Sethi, proprietor, Gurunanak Enterprises. 2. Smt. Leela Sethi, proprietor Bhagya Rekha Enterprises." The Commissioner recorded his satisfaction and accorded approval to the proposal by noticing that he had seen the case records, appraisal report of the seized material as also the order sheets on the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cording the approval for special audit. The decisions of the Calcutta and Kerala High Courts, heavily relied upon by counsel for the petitioners, though succinctly explain the scope and the principles governing an order under section 142(2A) of the Act and we are in respectful agreement with the same, but on the facts none of the decisions is of any avail to the petitioners. In all these decisions, decided on their own peculiar facts, their Lordships have been pleased to observe that either no previous approval of the Commissioner was sought for or merely a proposal was placed for perusal of the Chief Commissioner and, therefore, the Chief Commissioner did not apply his mind at all as regards the prerequisites for grant of previous approval and mechanically appointed the special auditor (Peerless [1999] 236 ITR 671 (Cal)); or that the special auditor was not appointed because of the complexity of the accounts, for examining the related supporting vouchers in relation to the expenses in various heads specified therein (Bata India [2002] 257 ITR 622 (Cal)), or that the special auditor was appointed for want of response to notice under section 142(1) of the Act and not because of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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