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Income Tax Appellate Tribunal - Jodhpur

The A.C.I.T. vs Shri Badri Ram Choudhary on 25 October, 2007

ORDER

R.S. Syal, Accountant Member

1. These cross appeals - one by the assessee and the other by the revenue arise out of the order passed by CIT(A) on 11.09.2006 in relation to the Block period comprising of A.Ys. 1997-98 to 2003-04 and upto 06.02.2003.

2. Briefly stated, the facts of this case are that survey Under Section 133A was carried out which was ultimately converted into search and seizure action Under Section 132 at the residence of the assessee at Jodhpur and business places on 6.2.2003. During the course of search, various incriminating documents were found and seized. Cash of Rs. 30,825 was found at the time of search along with gold jewellery worth Rs. 7,60,468/- and silver utensils worth Rs. 39,197/-. Notice Under Section 158BC was issued on 28.4.2003 for filing return of block period within 35 days of receipt of the notice. Return was actually filed by the assessee on 31.3.2004 declaring undisclosed income of Rs. 26,94,040/-. Notice Under Section 143(2) was issued on 3.1.2005. A further fresh notice Under Section 143(2)/142(1) along with detailed questionnaire was issued on 11.1.2005 which was served on Shri Nagendra Soni, the AR of the assessee on 12.1.2005. Application for adjournment was received on 19.1.2005. The case was fixed on 3.2.2005. The assessee filed written submissions, which were examined with reference to the details filed vis a vis documents seized during the course of search. Vide his letter dated 3.2.2005, the assessee stated that the undisclosed income of Rs. 26,94,040/- was worked out on the basis of seized material by considering the net accretion in the assets less actual liabilities. It was further contended that the block return included income derived from M/s General Engineering Co., M/s Pipar Filling Station, Ws Choudhary Freight Carriers, Himmatnagar, M/s Mahadev Roadlines, Kariya Khangar and M/s Mahadev Travel Agency and from the buses and trucks which were not disclosed in the regular returns and which were owned and possessed by the assessee. The assessee also disclosed income in respect of expenditure incurred in construction of Hotel Mahadev Palace, which was not accounted for in the regular books of account maintained by M/s Kamini Construction Pvt. Ltd. It was further stated that the income from plying of vehicles, which were not disclosed in the regular returns was estimated by considering the information available in the seized record. The Assessing Officer observed that no regular books of account were maintained by the assessee. In paras 7.1 and 7.2 of the assessment order, the Assessing Officer had noted the concerns in which the assessee is interested as partner in individual capacity or as Karta of HUF. In para 7.3, the Assessing Officer mentioned 4 proprietorship concerns, which were doing transport business. Apart from that, the assessee was also running two petrol pumps in benami names, income from which was offered in the block return. In the return for block period, the assessee also included income derived from various sources, which have been enumerated in para 7.4 of the assessment order. The assessee admitted vide letter dated 3.2.2005 that he had not properly recorded income, expenditure and investment in the business of transport and petrol pumps in the books of account. The Assessing Officer noted that the assessee had not maintained books of account in regular manner in as much as the books maintained on computer recorded only sales and receipts and some bank transactions in respect of business of two petrol pumps. It was further noted that no proper record was maintained for recording business of buses and trucks. It was further observed vide para 8.6 of the assessment order tfiat there were several registers, in which receipts from various buses and trucks had been recorded ranging from Rs. 15 to Rs. 60 lakhs during a particular period of the year with petty details of expenditure of the corresponding period. - For these and other reasons so mentioned in para 8 of the assessment order, the Assessing Officer felt it necessary to direct the assessee to get his accounts audited Under Section 142(2A). After forming an opinion and having regard to the nature and complexity of accounts of the assessee and in the interest of revenue, a proposal was sent to the ld. CIT, Jaipur vide letter dated 16.2.2005 for finalizing the appointment of special auditor. A letter dated 18.2.2005 was written to the assessee in this regard for filing objection, if any, against the appointment of special auditor. Such objections were not received till 21.2.2005. A fresh proposal was sent to the ld. CIT on this date and the assessee was again reminded vide letter dated 22.2.2005 to file objections against his opinion of getting the accounts audited. The assessee filed objections on 23.2.2005, which were immediately faxed to the ld. CIT for consideration, who after examination of relevant material, granted his approval vide his letter dated 23.2.2005 and communicated it to the ACIT vide his office letter No. 2129. The ld. CIT also intimated vide letter No. 2129 dated 23.2.2005 to the JCIT of his approval Under Section 142(2A). Shri Shailendra Bardia was appointed as Special Auditor, who wrote several letters to the assessee to produce books of account, documents, etc., for the purpose of audit but the assessee did not comply with the request. A letter dated 12.4.2005 was written to the assessee to cooperate with the auditor. The assessee objected to the appointment of special auditor arguing that he had not maintained regular books of account and hence audit was not possible. He further raised several objections qua the legality of search, fees payable to the auditor, etc. The Assessing Officer vide his letter dated 26.5.2005 informed the assessee that his objections were considered by the ld. CIT as well as the Assessing officer before directing audit Under Section 142(2A) and that the issue was no more open to review. Copies of all the seized documents as required by the assessee were made available to him. As the assessee failed to extended cooperation to the Special auditor and was continuously arguing on one or the other legal issue, the Assessing Officer observed that he was wasting time allowed for the purpose of special audit. Since the time allowed to get the accounts audited from the C.A. within 120 days was expiring and there was no cooperation from the side of the assessee, the Assessing Officer invoked the provisions of Section 142(3) and made order Under Section 144 by computing undisclosed income at Rs. 13,13,31,267/-. In the first appeal, the assessee challenged the legality of such search as well as reference Under Section 142(2A) but without any success. However, on merits, some relief was allowed by the ld. CIT(A) and total income for block period was reduced to Rs. 5,94,75,076/-. Both the sides are in appeal against their respective stands.

3. Ground No. 1(b) deals with the challenge to the appointment of special auditor Under Section 142(2A).

3.1. The ld. Counsel for the assessee contended that the very reference to the special auditor Under Section 142(2A) was invalid on the ground that the assessee had not maintained regular books of account and the resultant block assessment order was illegal and barred by limitation as provided Under Section 158BE. It was contended that search was conducted on 6.2.2003 and hence the time limit available to the Assessing Officer for passing assessment order Under Section 158BE was upto 28.2.2005. It was submitted that the passing of block assessment order on 27.6.2005 was barred by limitation. It was contended that adequate opportunity of hearing was not granted by the authorities before granting approval to the proposal of the ACIT for ordering special audit. The action of the ld. CIT in according such approval was stated to be arbitrary and mechanical. It was further contended that there was no complexity in the accounts maintained and hence the Assessing Officer should not have validly made a reference to the special auditor. It was still further contended that no time limit was prescribed for filing audit report and hence Explanation 1(iii) to Section 158BE could not be invoked. He further referred to the fact that the fees payable to the auditor was not fixed and the auditor himself was not aware as td the name of the concerns which were required to be audited by him Under Section 142(2A). He also pointed out that the record was lying seized with the department and if at all the accounts were to be audited, then it was open to the Revenue to deliver the seized record to the auditor. It was contended that the motive behind reference Under Section 142(2A) was to gain time limit. He relied on trie judgment of the Hon'ble Jurisdictional High Court in the case of CIT v. Bajrang Textiles [2006] 205 CTR [Raj] 287 to contend that the direction for special audit was illegal and hence assessment was barred by time. He further relied on the judgment of the Hon'ble Supreme Court in the case of Rajesh Kumar and Ors. v. Dy. CIT and Ors. 287 ITR 91 [SC] in support of the proposition that the ld. CIT had not granted adequate opportunity to the assessee before according approval to the appointment of special auditor.

3.ii. Per contra, the ld. Senior Departmental Representative supported the impugned order on this point by stating that the assessee was maintaining books of account though those were not regularly maintained. He further invited our attention towards the fact that the assessee had filed returns on the strength of the Balance sheets and P & L accounts for the earlier years, which clearly evidenced that the Books of account were maintained. On a pertinent query from the Bench, the ld. A.R. placed on record a copy of the return for A.Ys. 2001-02 and 2002-03 filed by the assessee alongwith computation of income and also Balance sheets with all its Annexures including details of trade and financial creditors, debtors, loans and advances, schedule of fixed assets, capital account, etc and also Profit fit Loss accounts. The ld. D.R. further contended that there was absolutely no illegality in making reference to the special auditor in as much as the books of account so maintained by the assessee were so complex, hardly sufficient to determine the total undisclosed income and the assessee had also requested the Assessing Officer for making estimate of undisclosed income. It was further stated that the assessee continued to extend non-cooperation from day one as he had not produced books of account before the special auditor, copies of which were duly supplied to him. On a query raised from the Bench, the ld. A.R. conceded that copies of books of account and other documents found at the time of search were supplied to the assessee. Due to this non-cooperative attitude of the assessee, the ld. D.R. contended that the special auditor was not supplied with any information at all for the purpose of doing his duty. It was also pointed out that due process of law has taken place in a manner of appointing the special auditor Under Section 142(2A) for which adequate opportunity was allowed to the assessee for raising objections which were duly considered. The ld. D.R. further submitted that the non-cooperative attitude of the assessee can be judged from this fact that the computer in which some of the accounts were maintained were locked by passwords and despite repeated requests, the assessee had not supplied passwords to enable the departmental authorities to open the same and finding out the entries recorded therein. At this stage, the ld. A.R. submitted that the passwords were not known to the assessee and the department has sufficient expertise to open such data by clearing password which was not available with him. As regards the time limit Under Section 158BE, the ld. D.R. contended that in the original letter to the assessee the time for completing the audit was mentioned by way of reference made to the auditor specifying the time limit and this fact was clearly made known to the assessee once again which was evidenced by the letter dated 12.4.2005 of the Assessing Officer to the assessee, ft copy of which is placed at page 52 to 54 of the departmental PB in which it was clearly made known that the completion of audit was to be done within 120 days. Our attention was drawn towards the letters written by Shri Shailendra Bardia, the Special Auditor to the assessee for making available the books of account, records, documents, statements, etc for the purposes of special audit Under Section 142(2A). It was stated that despite various letters written by Special Auditor, the assessee had not extended any cooperation and stuck to his stand that the appointment of auditor was not valid and that he was not going to pay the audit fees. He further referred to the Special Auditor's letter dated 18.4.2005 addressed to the ACIT, Central, Jodhpur informing that no books of account or other record had been made available to him by the assessee for carrying out the audit. In this background of facts, the ld. D.R. contended that the Assessing Officer had no option but to complete assessment Under Section 144.

3.iii. We have heard both the sides and perused the relevant material on record. The ld. A.R. has raised mani-fold objections to the order appointing the Special Auditor, each of which we would deal separately.

3.1. Requisite Conditions of Section 142(2A) 3.1.1. At the outset, it is essential to take note of the requisite conditions under which the special auditor is appointed Section 142(2A). The first condition is that a proceeding should be pending before the Assessing Officer. Second condition is that the Assessing Officer should be of the opinion, having regard to the nature and complexity of the accounts of the assessee and interest of the Revenue, that it is necessary to issue direction to the assessee for getting accounts audited. The second condition further has two limbs. First is the complexity of the accounts and the second is the interest of the Revenue. If the Assessing Officer is of the opinion that interest of the Revenue would suffer if the accounts are not got audited, he would, on the basis of his objective assessment, order for a special audit after seeking approval of the Chief Commissioner or the Commissioner. At the same time, the accounts should be such which are complex in nature. Coming to the first condition there is no dispute that the search action was taken in this case and the Assessing Officer was in the process of finalizing assessment Under Section 158BC when reference for appointment of special auditor was made. This condition is fully satisfied. Second condition contains various sub-issues, which we would be addressing one by one infra.

3.2 Non-Application of The Mind By The Assessing Officer 3.2.i The ld. Counsel for the assessee contended that the Assessing Officer is duty bound to apply his mind to the accounts and it is only if he finds the accounts complex that he can resort to the provisions of Section 142(2A). By referring to the copy of order-sheet of the Assessing Officer, it was contended that he had not applied his mind to the accounts and material before him and in a way he delegated his authority to the special auditor for the calculation of undisclosed income. A great deal of stress was laid on the fact that on the receipt of information called for, the Assessing Officer, without applying his mind to the accounts/record proceeded to make reference for the appointment of special auditor. It was thus contended that it shows the inability of the A.O. who was not capable for completing assessment at his own and instead ordered for appointment of special auditor thereby shifting his duty. In the opposition, the ld. D.R. referred to the detailed query letter issued by the Assessing Officer for contending that the Assessing Officer had sufficient time to examine the books and seized documents and it was only after that he came to the conclusion that the accounts were complex and audit was required. It was on the completion of this exercise that he directed for the appointment of special auditor after complying with the necessary conditions.

3.2.ii. Having heard both the sides and perused the relevant material on record, we do not find any reason to dispute the point canvassed by the ld. A.R. that the Assessing Officer is duty bound to apply his mind to the accounts and seized documents before directing special audit. It is a settled legal position that the Assessing Officer should examine the accounts and seized documents objectively. If he finds such accounts to be complex only then he is empowered to make reference to the higher authorities for appointment of special auditor. Now let us examine as to whether the Assessing Officer had applied his mind or not before making reference for the appointment of special auditor. Here we note that notice Under Section 143(2) was issued on 3.1.2005. On 11/12.1.2005, a detailed query letter comprising of 61 queries was issued and served on the assessee. After taking adjournments, the assessee filed written submissions on 3.2.2005, a copy of which is available at pages 38-75 of the assessee's PB. The case was adjourned to 14.2.2005 when the Assessing Officer sought further details [at Sl. Nos. 1 to 5] of the order sheet entry. On 15.2.2005, the assessee appeared and filed written submissions. A further query was made and the case was adjourned to 16.2.2005. On this date, the Assessing Officer recorded a finding in the order sheet that the services of special auditor were required. Copies of the print-outs of the two CPUs were available with the Assessing Officer which contained balance sheets, ledgers and cash books of M/s General Engineering Company, Sirohi; cash books of Pipar Filling Station; ledgers and cash books M/s Choudhary Freight Carriers; ledgers and cash books of Shri Badri Ram Choudhary; Income and expenditure accounts, statement of affairs, ledgers and balance sheets of Shri Ram Jiwan Choudhary; trial balance and cash book of Smt. Mohini Devi; ledger and balance sheet Jugal Kishore Choudhary - all for different periods and the copies of the same were also made available to the assessee from CPUs in 2003. Therefore, it becomes apparent that after issuing notice Under Section 143(2) on 3.1.2005, time period of around one and a half months was with the Assessing Officer. It was only after examining the seized record that notice Section 143(2) was issued on 11.1.2005. Reply of the assessee was filed on 3.2.2005. After 11 days, the Assessing Officer required further information, which clearly shows that he had applied his mind to the accounts and seized material before him. It was only on 16.2.2005 that after examining the accounts and other seized material he formed opinion that the accounts were complex and the audit was required, giving several reasons, which have been discussed elsewhere in this order. The position, which, therefore, emerges is that the Assessing Officer had examined the accounts thoroughly and only thereafter, issued detailed letter which contained 61 queries covering seized documents, including the print-outs taken from six CPUs as per Panchnama dated 16.2.2003. Such a substantial time of more than one and half months fully justifies the stand of the ld. D.R. that the Assessing Officer had applied his mind. We are not convinced with the submission made by the ld. A.R. that since books were not examined in his presence, it meant that there was no examination. There is hardly any bar on the Assessing Officers to examine books and seized documents in the absence of the assessee. The sequence of events by which the Assessing Officer raised queries one after other on different dates goes to show that he was consistently looking into the accounts and other seized documents. We, therefore, do not endorse the view of the ld. A.R. that the Assessing Officer had failed to apply his mind to the accounts and mechanically ordered for appointment of special auditor.

3.3 Opportunity of Hearing 3.3.i. The ld. A.R. has strenuously argued that adequate opportunity was not granted to the assessee before ordering special audit. In support of this proposition, he has relied on the judgment of the Hon'ble Supreme Court in the case of Rajesh Kumar [supra]. The Hon'ble Apex Court in this judgment has laid down in unequivocal terms that the principles of natural justice must be applied to minimize arbitrariness. Thus it emerges that the opportunity of hearing has to be granted to the assessee before issuing direction Under Section 142(2A). Let us test the facts of the present case on the touchstone of the ratio decidendi of this decision. In view of the complexity of the accounts as mentioned, inter alia, in Para 8 of the assessment order and other relevant material, the Assessing Officer felt it necessary to get the accounts of the assessee audited Under Section 142{2A). Proposal was sent to the ld. CIT in this regard on 16.2.2005. The objections of the assessee to the proposed appointment of Special Auditor were called for on that very date. A letter dated 18.2.2005 was written to the assessee for filing his objections against the special audit. Though the objections were wanted by the evening of the same date, but the same was not received till 21.2.2005. The assessee was again requested vide letter dated 22.2.2005 to file objections, if any. It was only on 23.2.2005 that the assessee filed objections in the office of the ACIT, which were immediately faxed to the ld. CIT's office. The ld. CIT, after examining the assessment record and objections of the assessee directed the appointment of Special Auditor on 23.2.2005. Here we are at loss to appreciate as to how the assessee can contend that adequate opportunity of hearing was not provided to him before granting approval to the appointment of the Special Auditor. The sequence of dates noted above clearly shows that the assessee was given adequate opportunity of five days in total to raise objections against the said appointment and it was only after the consideration of the objections so taken by the assessee that the ld. CIT came to the conclusion that special audit was needful. Almost on similar lines, the petitioner in the case of Jt. CIT v. ITC Ltd contended that it had raised objections against the appointment of special auditor which were not properly considered. The Hon'bte High Court observed that once the objections have been raised in writing before the Chief Commissioner of Income-tax and those submissions were considered, it cannot be stated that the ld. CIT had not considered such submissions and had not given adequate opportunity to the assessee to make submissions against the order of approval for appointment of special auditor. In view of this decision and the facts of our case, we are satisfied that the authorities had applied proper mind to the objections of the assessee and it was only thereafter that the order appointing special auditor was passed.

3.4 Appointment of Auditor to Gain Time 3.4.i. The ld. Counsel for the assessee contended that the Assessing Officer was wholly unjustified in ordering the appointment of special auditor at the fag end of the time limit for completion of assessment. It was argued that the Assessing Officer has, by his action of appointing special auditor, adopted a device to extend time available with him for the completion of assessment. Per contra, the ld. D.R. submitted that the process of appointing special auditor was completed well before the limitation period and there cannot be any handicap on the power of the Assessing Officer to do so.

3.4.ii. After considering the rival submissions and perusing the relevant material on record, it emerges as an undisputed fact that the special auditor was appointed on 23.2.2005 for which process was initiated on 16.2.2005. As against it, the time available for completion of assessment was upto 28.2.2005. We note that the contention so raised cannot be accepted in view of the direct judgment of the Hon'ble Jurisdictional High Court in the case of Shiv Kant & Bros and Ors. v. UOI . In this case also, the petitioners pleaded that the appointment of special auditor was a device to save time barring assessment by bringing the case within the purview of audit. The Hon'ble High Court observed that the exercise of ordering audit was started on 10/11.2.2002 and the time limit was expiring on 30.4.2002. The view-point of the petitioner was not accepted on the ground that the shadow on the exercise of statutory powers can only be permissible if there is sufficient material. It was further held that the Assessing Officer had objectively considered the material available with him in reaching a bonafide conclusion on the nature of accounts placed before him in as much as there were admitted sales outside the books of account, stock of three firms was lying in common place. In view of these facts, it was held that the order of the Assessing Officer Under Section 142(2A) was justified and there was no foundation on record that the order was passed under the direction of the ld. CIT. The contention of the petitioner in that case that it was a device to save time barring assessment was held to be too presumptive to be accepted. On the perusal of this judgment, it clearly emerges that the facts of our case are more or less similar to those considered by the Hon'ble Jurisdictional High Court and hence the view of the ld. A.R. that the exercise of appointing special auditor was a device to save time barring assessment does not merit any acceptance. Similar view has been taken by the Hon'ble Delhi High Court in the case of Guru Nanak Enterprises v. CIT and Anr. . In that case also, the order for the appointment of special auditor was passed just four days before the completion of the time for making of assessment for block period Under Section 158BE of the Act. The petitioner protesting against the said order went to the Hon'ble High Court by way of writ petition claiming that the action of the Assessing Officer in appointment of special auditor was a device to save time as the assessment was going to be time barred very shortly. The Hon'ble High Court did not accept the petition and upheld the appointment of special auditor. In view of the aforenoted judgments of the Hon'ble High Courts, we do not find any substance in this contention raised on behalf of the assessee and hold it to be not maintainable.

3.5 Jurisdiction of the Tribunal to Examine Validity Under Section 142(2A) Order 3.5.i. The ld. A.R. has forcefully contended that the appointment of the special auditor be declared hull and void as the due process of law has not taken place. We are not inclined to go into this question for the reason that the Tribunal is not competent to examine the validity of the order appointing Special Auditor Under Section 142(2A). The scope of the appeals to the Tribunal has been set out in Section 253 from which it is discernible that the order of the ld. CIT appointing Special Auditor Under Section 142(2A) is hot subject matter of challenge before it. The assessee could have challenged such appointment by way of writ petition before the Hon'ble High Court. The ld. A.R. has stated that the validity of search including appointment of special auditor has been challenged by the assessee before the Hon'ble High Court, which is subjudice and no final order has been passed by the Hon'ble High Court so far. In our considered opinion, the assessee cannot assail the validity of the order passed by the ld. CIT appointing Special Auditor Under Section 142(2A) in the appellate proceedings before the-Tribunal. Our view is fortified by the judgment of the Hon'ble Supreme Court in the case of Rajesh Kumar [supra] in which it has been held that "the order of assessment would be based upon the findings of the special auditor subject of course to their acceptance by the Assessing Officer. Even at that stage the assessee cannot put forward a case that power Under Section 142(2A) had wrongly been exercised and he has unnecessarily been saddled with a heavy expenditure. An appeal against the order of assessment, as noticed hereinbefore, would not serve any real purpose as the appellate authority would not go into such a question since the direction issued Under Section 142(2A) is not an appealable order."

[emphasis supplied by us].

3.5.ii. It is further observed that the said decision in the case of Rajesh Kumar [supra] came up for consideration before the Hon'ble Supreme Court in a later decision in the case of Sahara India [Firm] v. CIT and Anr. [2007] 289 ITR 473 [SC] in which the said decision has been referred to a Larger Bench. Here it would be relevant to note the brief judgment in the case Sahara India [Firm] [supra], which is reproduced as under:

When the matter was taken up, the ld. Counsel for the petitioner placed reliance on a decision of this court in Rajesh Kumar v. Dy. CIT . According to the ld. Counsel for the petitioner, before any direction can be issued Under Section 142(2A) of the Income-tax Act, 1961 for special audit of the account of the assessee, there has to be a pre-decisional hearing and an opportunity has to be granted to the assessee for the purpose. A close reading of the decision shows that the observations in this regard appear to have been made on the context of the assessments in terms of Section 158BC [block assessment] of the Act, Such assessments are relatable to a case when raid has been conducted at the premises of an assessee. Had that been so, limited to the facts-involved in that case, we would have negatived the contentions of the ld. Counsel for the petitioner. But, certain observations of general nature have been made. The effect of these observations appear to be that in every case where the Assessing Officer issues a direction in terms of Section 142(2A) of the Act, the assessee has to be heard before such order is passed. This does not appear to us to be the correct position of law. Therefore, we refer the matter to a larger Bench. The records be placed before the Hon'ble Chief Justice of India for constituting an appropriate Bench.

3.5.iii. On a careful reading of this judgment, it is clearly deducible that the observations of the Hon'ble Supreme Court in the case of Rajesh Kumar [supra] qua the opportunity of pre-decisional hearing for appointment of Special Auditor has to be granted to the assessee before issuing direction in a search case has been held to be valid. What is found to be not a correct position of law are the observations about directions in terms of 142(2A) to be given in all cases only after the assessee is heard. In so far as discussion in this case regarding non-appealability of the direction issued Under Section 142(2A) before the Tribunal is concerned, the decision in the case of Rajesh Kumar [supra] is final and binding as that aspect has not been disturbed. Even otherwise, a simple and plain reading of the appealable orders as enumerated in Section 253 leaves nothing to doubt that the validity of the appointment of Special Auditor Under Section 142(2A) Cannot be questioned before the Tribunal in the disposal of the appeal on merits. On contention of the ld. A.R. that the observations of the Hon'ble Apex Court in the case of Rajesh Kumar [supra] qua the examination of validity of the appointment of auditor Under Section 142(2A) are "passing remarks" and hence should not be read as a substantive law, we are afraid that this submission deserves to be repelled at the very outset for the reason that even the obiter dicta of the Hon'ble Supreme Court is binding on the Tribunal. Almost similar contention was made before the Mumbai Bench of the Tribunal in the case of Dy. CWT v. Ashwin C. Shah . On page 103 it has been observed as under:

The question whether obiter dicta of the Hon'ble Supreme Court are binding on the High Courts may be one for consideration and there may even be divergent views. But so far as the Income-tax Appellate Tribunal is concerned, we have grave doubts whether it is at all open to it [the Tribunal] to consider certain observations of the highest court of the country as "obiter dicta" and proceed to disregard the same. In fact, our humble view is that it cannot do so.

3.5.iv. In view of the above discussion, it is amply clear that the Tribunal, being a much inferior authority is bound by the observations of the Summit Court, even if these are obiter and hence cannot look into the validity of order passed Under Section 142(2A) as has been held in the case of Rajesh Kumar [supra]. The scope of examining the issues by the Tribunal has been spelt in 253. The orders under the sections, which are not brought within the purview of Section 253 cannot be considered and adjudicated upon by the tribunal. There are various sections, the orders under which are not appealable. To cite a few, the order passed by the Commissioner Under Section 264 is not appealable before the Tribunal. Similarly, the order passed for transfer of case Under Section 127 is also precluded from examination by the Tribunal. All such orders are outside the ambit of the tribunal's jurisdiction. Our view is fortified by the recent decision in the case of Smt. Jaswinder Kaur Kooner v. CIT(A) . In this case the assessee raised a plea that the order of transfer of jurisdiction Under Section 127 being void, the entire assessment proceedings should be annulled on that ground. The Tribunal came to the conclusion that since the assessee had not challenged such order at the relevant forum, the assessment could not be set aside. When the matter finally traveled to the Hon'ble High Court, it was held that the scope of assessment proceedings under the Act is confined to determining the income of the assessee liable to tax. If the assessee is aggrieved by the order of transfer, the remedy of the assessee is to challenge such an order in independent proceedings either before the higher administrative authorities as per the Act or in any independent proceedings by way of writ petition. It is further observed "If no such challenge is made at the initial stage, the issue cannot be raised in appeal against the assessment order".

3.5.v. We are, therefore, not inclined to accept the submission made by the ld. A.R. in this regard and, therefore, hold that the Tribunal is incompetent to examine the validity of the order for appointment of special auditor Under Section 142(2A) in the course of appeal before it. Once the Tribunal is held to debarred from examining the validity of such order, there is no need to consider the aspects of complexity of accounts and other matters that weighed with the Assessing Officer before initiating the process of appointment of special auditor. Be that as it may, since both the sides have made arguments at length on these aspects, we will deal with them infra so as to provide completeness to our order.

3.6 Section 158BE - Time Limit 3.6.i. The ld. Counsel for the assessee also contended that the time granted for conducting of special audit Under Section 142(2A) should be excluded while computing the time limit stipulated Under Section 158BE. It was further argued that albeit he was not challenging the order passed Under Section 142(2A) before the Tribunal but was praying for the exclusion of 120 days as allowed to the special auditor for conducting audit, for computing the time limit on the ground that such an appointment was invalid. In the opposition, the ld. D.R. forcefully contended that the assessee cannot make such a prayer since a valid appointment of special auditor has been made.

3.6.ii. Having regard to the facts of the case, it is noted that we have repelled the assessee's contention on declaring the appointment of special auditor Under Section 142(2A) as void on the ground that it is not within the purview of the Tribunal to examine the validity of such an order. Vide the instant submission, the ld. A.R. is again challenging the same action in an indirect manner by contending that the time granted to the special auditor should be excluded for computing time limit Under Section 158BE. On this contention, we render our decision in an emphatic negative for the reason that an issue which cannot be challenged directly before the Tribunal cannot equally be challenged indirectly in the garb of computation of time limit. Once it is held that the appointment of special auditor is not challengeable before the Tribunal and the assessee's writ petition in this regard is still undisposed of by the Hon'ble High Court, meaning thereby, that appointment of special auditor is valid as on this date, there is no question of excluding the time granted to the special auditor while computing time limit as enshrined Under Section 158BE. It is austere that if the period of 120 days as granted to the special auditor is taken-into consideration, the completion of the assessment is within limitation period.

3.6.iii. The next inter-connected contention raised by the ld. A.R. is about the non-mentioning of the time limit of 120 days for completion of block assessment in the letter to the assessee. He contended that the ACIT in his letter dated 23.2.2005 appointing Special Auditor - Under Section 142(2A) has not prescribed any time limit for filing audit report, which is essence of reference and without any such time limit no default can be alleged on the part of the assessee. He has referred to such letter, a copy of which is placed at page 98 of the PB. It was, therefore, pleaded that the exclusion Clause as per Explanation 1(ii) to Section 158BE did not apply. In the opposition, the ld. D.R. has referred to various pages of the PB to contend that the auditor was required to submit the report within 120 days after receipt of letter of authority from Assessing Officer.

3.6.iv. After going through the relevant material on record and from the sequence of dates we find that search was conducted on 6.2.2003 and assessment was to be completed up to 28.2.2005. However, the Special Auditor was appointed on 23.2.2005 and the assessee was accordingly intimated about such appointment on this date itself. The auditor was given time of 120 days for completing audit and submitting report. If this period of 120 days is also taken into account, then the passing of assessment order on 27.6.2005 cannot be held to be barred by limitation. If, however, the said period is excluded, obviously the order is vitiated as having been passed beyond limitation period. Before proceeding further and to appreciate the contention of the ld. A.R., it would be apt to note Clause (ii) of Explanation 1 of Section 358BE, which, reads as under:

(ii) the period commencing from the day on which the Assessing Officer directs the assessee to get his accounts audited under Sub-section (2A) of Section 142 and ending on the day on which the assessee is required to furnish a report of such audit under that subsection;

3.6.v. From the perusal of the said provision, it is manifested that the period commencing from the day on which the Assessing Officer directs the assessee to get the accounts audited and ending oh the day on which the assessee is required to furnish a report, is to be excluded. In so far as starting period is concerned, there is no dispute as the assessee was communicated vide letter dated 23.2.2005 that a Special Auditor has been appointed in his case. The controversy is only regarding closing time for exclusion, which is the day on which the assessee is required to furnish report. The ld. A.R. has pleaded that since no time limit for furnishing of report was given by the ACIT in his letter dated 23.2.2005, hence the entire period has to be excluded. We are not at all convinced with the submission made in this regard for the reason that there is no dispute about the fact that the Special Auditor was appointed in the case of the assessee and this fact was, duly brought to his notice. Simply because the day on which the assessee was required to furnish report, even if it is presumed to have not been intimated to the assessee, is not mentioned, it does not mean that the entire period of the appointment of the auditor till the submission of the report would stand excluded. It is trite law that if no time limit has been prescribed in any Section for passing an order, then it cannot be held that the order passed is vitiated. But such order has to be passed within a reasonable time. Here we draw support from the order of the Bombay Bench of the Tribunal in the case of Raymond Woollen Mills Ltd v. ITO [1996] 57 ITD 536 [Bom] in which the subject matter for consideration was the period prescribed for taking action Under Section 201(1A). After considering various decisions, it was held that if no period has been prescribed then action has to be taken within a reasonable time. What is a reasonable time depends on situation to situation and fact to fact. Here we are confronted with a situation in which the section specifically provides the time limit of maximum 180 days for furnishing of report by auditor. The case would have been different if the Special Auditor had been given time of more than 180 days for furnishing of the report. Even if it is presumed for a moment that the assessee was not informed of the last date by which the report was to be submitted by the letter of the ACIT dated 23.2.2005, it would not mean that the entire proceedings would become invalid and no time would require exclusion for time limit within the meaning of Clause (ii) of Explanation 1 to Section 158BE. As the auditor was given time of 120 days for completing the audit, which is certainly within the stipulated period of 180 days, we are of the considered opinion that the view canvassed by the ld. A.R. for holding the block assessment to be barred by time limit on this score, is unfounded and not acceptable. Since the block assessment order in this case has been passed on 27.6.2005, and if the period of 120 days given to the special auditor for furnishing of the report is taken into account, we are of the considered opinion that the block assessment order is within time. This contention of the ld. A.R., therefore, fails.

3.6.vi. We further observe that though the assessee was not specifically intimated of the time allotted to the auditor for completing audit work by letter dated 23.2.2005 but the copy of this letter marked to the auditor clearly specified 120 number of days for completing the audit. The assessee was also subsequently made aware of the time limit for getting the accounts audited vide the letter of the ACIT dated 12.4.2005. Be that as it may, a simple initial non-intimation to the assessee of the time of 120 days allotted to the auditor, which is otherwise well within the time specified Under Section 142(2C) of 180 days, cannot make the entire proceedings null and void. At the best it is a procedural error and hence can not go to the root of the matter to upset the edifice of the otherwise valid order. A line of distinction is required to be drawn between an invalid and irregular action. It is a settled legal position that a procedural error, which crops up during the otherwise valid proceedings, cannot vitiate the very action. If a procedural error has come up, the remedy lies in correcting such error from that stage and then proceeding further. The Hon'ble Supreme Court in CIT v. Jai Prakash Singh has held that a defect in the procedural provision does not efface the liability to pay tax. It was further held that "any such omission or defect may render the order irregular depending upon the provision not complied with, but certainly not void or illegal". Similar view has been taken by the Hon'ble Apex Court in several judgments including Kapurchand Shrimali v. CIT and Guduthur Bros. v. Income-tax Officer . In this case penalty was validly initiated but the order of the penalty was set aside in appeal for not giving opportunity of hearing to the assessee. It was held that the non-compliance with Section 28(3) did not render the order to be illegal. It was further held that the Income-tax Officer was well within his jurisdiction to continue the proceedings after correcting the irregularity from the stage where it has occurred and to assess the appellants to a penalty, if any, which the circumstances of the case may require. Adverting to the facts of the instant case, we Observe that such a procedural irregularity in not initially intimating the time of 120 days allowed to the special auditor cannot render the entire proceedings invalid, which was eventually made good during the assessment proceedings itself by a later letter to the assessee.

3.7 Complexity of Accounts 3.7.i. The ld. A.R. has forcefully argued that the assessee had not maintained proper books of account and hence there was no question of auditing the same. Before we delve into this submission, it would be imperative to note the language of Section 142(2A) which refers to the" complexity of 'accounts' of the assessee. The ld. A.R. explained that the 'accounts' referred to in this subsection-meant 'books of account'. Here we would1 like to clarify that there is difference in 'accounts' and 'books of account'. Whereas Section 44AA has used the expression 'books of account', in contradistinction Section 142(2A) has employed the words 'accounts' and not 'books of account'. It is simple and plain that the 'books of account' refer to cash book, ledger, journal, etc. However the word 'accounts' has a much wider connotation to include all the other records also which are relevant for the purpose of making assessment. The Hon'ble Delhi High Court in the case of Central Warehousing Corporation v. Secretary, Department of Revenue and Ors. has held that "the expression 'accounts' cannot be given a limited interpretation so as to restrict to a ledger or cash book of the corporation but it would essentially include all other records which are before the Assessing Officer during the assessment proceedings". In the light of this precedent, we are not inclined to give a narrow meaning to the word 'accounts' as has been argued before us. Hence the accounts would include the entire material before the Assessing Officer on the basis of which assessment is to be framed. Such material positively includes also the documents found and seized during the course of search, etc. which are relevant for the purpose of making the block assessment.

3.7.ii. It was argued on behalf of the assessee that he had not maintained books of account and hence there was no question of auditing the same. In this regard, the ld. A.R. relied on the judgment of the Hon'ble Jurisdictional High Court in the case of Bajrang Textiles [supra]. We find that that the facts of Bajrang Textiles are distinguishable in as much as in that case the Assessing Officer had directed the Special Auditor to prepare the account books in the form of cash book and ledger on the basis of documents seized during the course of search and also prepare the trading account, and Profit £t Loss account and to determine the undisclosed income of the block period. On the other hand, in our case the terms of reference to the special auditor as per the letter of ACIT dated 23.2.2005 are quite different, which are reproduced as under:

1. To examine all the books of accounts, bills, vouchers, loose sheets, documents, bank statements, etc., which are seized and retained by the ACIT, Central Circle-1, Jodhpur at the time of carrying out search in February, 2003 or the documents summoned and impounded during the course of proceedings Under Section 15SBC with the aim to enable the department to arrive at true state of financial affairs of various concerns in which you are associated either as proprietor or partner [both in individual or HUF capacity] or a direction of the company or a sham or benami owner covering the block period 1.4.1996 to 6.2.2003.

1. To report any irregularities, illegal or unlawful transaction or transactions not permitted in the law if noticed in the accounts so recasted, reframed on the basis of the entries available in the books of account, loose sheets, documents, seized from your premises.

2. To state and report the instances of cash payments in contravention of Section 269SS, 269T and/or 40A(3) of the I.T. Act, 1961.

3. To report any facts and circumstances which come to the notice of the auditor and which have the bearing on your unaccounted income/loss or your undeclared assets or liabilities pertaining to the period falling in the block period.

4. To ascertain the capital employed by you in various business ventures and transactions including opening capital, capital introduced and closing capital.

5. To draw the list of creditors and debtors in respect of each business and pertaining to every financial year falling in the block period 1.4.1996 to 6.2.2003 which have a bearing over your income as well as assets belonging to you.

6. To examine entries of various bank accounts of various business concern, and individual to find out the nature of transactions which are not recorded or which have not executed through banking channels.

3.7.iii. On comparison of facts of our case with Bajrang Textiles, we find that they are mismatched and there is no similarity at all of the facts of these two cases. The auditor, in our case, was never; assigned the job of preparing accounts books, etc. Moreover, we find that the present assessee had been submitting his returns in the past on the basis of complete books of account by drawing P & L, Balance sheet, list of sundry debtors and creditors, etc. Now he cannot be allowed to turn around and contend that he was not maintaining books of account. Moreover, the assessee's letter to the Assessing Officer dated 3.2.2005 is clear indicator that the books of account were maintained but were incomplete. Thus it becomes apparent that it is not a case in which no books of account were maintained by the assessee and the auditor was called upon to prepare books of account in the form of cash book, ledger account.

3.7.iv. At this juncture it would be relevant to understand the meaning, of the word 'complexity' used in Section 142(2A). The Hon'ble Allahabad High Court in the case of Swadesh Cotton Mills Co. Ltd. v. CIT , after considering the dictionary meaning of the word 'complexity' as "the state of quality being intricate or complex 'or' that is difficult to understand", came to hold that "all that are difficult to understand should not be regarded as complex. What is complex to one may be simple to another. It depends upon one's level of understanding or comprehension. Sometime, what appears to be complex on the face of it, may not be really so if one tries to understand it carefully. Therefore, special audit should not be directed after a cursory look at the accounts. There should be honest attempt to understand the accounts of the assessee". This part of the judgment has been approved by the Hon'ble Supreme Court in the case of Rajesh Kumar [supra], which has been reproduced verbatim in the apex judgment. After going through this para, we find that the meaning of the word 'complex' is fairly settled.

3.7.v. Here it would be relevant to refer to the letter of the ACIT, Circle-I Jodhpur written to the ld. CIT, Central, Jaipur for the proposal of the appointment of special auditor Section 142(2A), contents of which are as under:

Sub: Proposal for special Audit Under Section 142(2k) of IT Act, 1961 in the case of Sh. Badri Ram Choudhary, Jodhpur, Block Period 01-04-96 to 06-02-03 -approval regarding.

A search Under Section 132(1) was conducted at the residence as well as several business premises of the assessee on 06/02/2003. A number of incriminating documents were seized from these places. The case was centralized to this Circle by CIT-II, Jodhpur vide notification No. 1 of 2003-04 Under Section 127(2) of the IT Act, 1961 dated 01/04/2003. Notice Under Section 158(BC) was issued on 28/04/2003 in the name of the assessee only. In compliance to the same he has filed block return declaring undisclosed income of Rs. 26,94,0401-. During the course of block assessment proceedings following facts have emerged.

1) That Shri Badri Ram in has individual capacity is a partner in the following firms:

a) M/s. Choudhary Freight Carrier, Solapur

b) M/s. Choudhary Road Carrier,

c) M/s. Shree Choudhary Freight Carrier, Sikka

d) M/s. Choudhary Road Lines, Khariya Khangar.

2) That the assessee is a partner in following firms in the capacity of karta of the HUF.

a) M/s. Choudhary Freight Carrier, Nayagaon

b) M/s. Choudhary Transport Co., Shambhupura

3) That the assessee has following proprietorship business:

a) M/s. Mahadev Roadlines, Khariya Khangar

b) M/s. Choudhary Freight Carrier, Himmat Nagar

c) M/s. Mahadev Travel Agency

d) M/s. Mahadev Travels

3) In the return for the block period the assessee has also included income derived from

a) M/s: General Engineering Company running petrol pump at Sirohi and Pali.

b) M/s. Pipar Filling Station, running petrol pump at Pipar, Distt. Jodhpur From the buses and trucks which were not disclosed in the regular returns and which were either owned or possessed by the assessee.

c) The assessee has also disclosed income in respect of expenditure incurred in construction of Mahadev Palace, Jaisalmer which was not accounted far in the regular books maintained by M/s. Kamini Construction Company (P) Ltd., a company controlled by the family members of assessee and which is the owner of the Hotel building at Jaisalmer.

4) In the regular return the capital of the assessee on the 1st day of the Block period i.e. 01/04/96 was Rs. 21,81,718/- whereas in the block return the assessee has enhanced the capital by Rs. 69,80,0001-claiming that the buses and trucks income of which have been disclosed in the block return were owned by him prior to the initiation of the block period. There are 22 such vehicles claimed existed prior to the block period with him either in his own name or benami which were not disclosed to the Department. The assessee has estimated the W.D.V. of these vehicles at his own convenience to claim higher depreciation and set-off of income by this mode.

5) As per details furnished during the course of block assessment proceedings a number of vehicles belonging to other (Benami) have been claimed belonging to the assessee which includes buses and trucks.

6) Documents relating to agriculture land and agriculture income have also been found along with papers relating to construction of shops.

7) Expenditure on social function including marriage in the family have been recorded in various annexure seized during search.

9) The assessee thus runs a fleet of trucks & buses and also runs traveling business with branches across the country. The most important thing is that no regular books of account of any business have been maintained by the assessee. The books maintained on computer recorded only sales/receipts and some bank transactions in respect of business of 3 petrol pumps. No books of ale have been maintained for recording business of buses and trucks. The assessee has raised loans for purchase of a number of vehicles but in absence of books of account the source of payment of installments is not properly ascertainable. In the loose papers cash amount in lacs of ruppies have been sent to Ahemedabad and other places where the offices of financers are located for payment of installments.

10) In the seized record there are a number of registers in which receipt from various buses and trucks have been recorded ranging from Rs. 15 lacs to Rs. 60 lacs during a particular period of the year with petty details of expenditure of the corresponding period. But the assessee has added over head expenses of running these vehicles on estimate basis to reduce the recorded figure in the block return while computing the undisclosed income.

11) The transaction in the bank accounts are not supported by regular books, therefore, source of deposit is not ascertainable.

12) (i) In the case of M/s. Pipar Filling Station, Pipar for FY 1997-98 falling during the block period only cash book is available and no ledger has been prepared. Therefore, in absence of ledger profits cannot be deduced.

(ii) For the FY 1998-99 in this case though ledger and cash book both are available in the form of computerized sheets the turn over is more than Rs. 6.42 crores but supporting vouchers are not available for purchase/sales and expenses. There is debit balance in cash in the cash book on several occasions which requires audit.

(iii) In the FY 2000-01 turn over upto 28-07-02 is Rs. 1.60 crores and for rest of the period ale are not available therefore the sales has to be determined on the basis of purchases made from Hindustan Petroleum Corporation.

(iv) For the accounting period starting from 01-04-01 and ending on 31-03-02. The assessee has introduced cash on several dates as and when cash shortage is found in the cash book in the name of various family members. Sales are not ascertainable as the same are not recorded in the ledger, on the basis of entries in the cash book and purchases made from Hindustan Petroleum Corporation.

(v) In this period turn over is shown at Rs. 3.78 crores but interesting thing is that there is debit balance of cash of more than Rs. 90 lacs as per trial balance prepared on the basis of computerized cash book. How, the debit balance of cash more than Us. 90 lacs was made good could be found out only by audit ofLsuch ale.

13)(i) The assessee also running another petrol pump at Sirohi and also at Palri Distt. Sirohi. Initially the sales of these petrol pumps were shown in the name of original owner of the petrol pumps as even after purchase of the two pumps by the assessee the ownership was not transferred.

(ii) These petrol pumps are run in the name of Mis. General Engineering Company. The assessee has both disclosed income from these petrol pumps in his block return but in the ale available Shri Ram Jivan s/o of the assessee has been shown as proprietor during some period falling in the block another son Shri Jugal Kishore has been shown as the proprietor.

(iii) Accounts are available for period from 01-04-99 whereas the block starts from 01-04-96. Therefore, turn over is to be Estimated on the basis of purchases made from Indian Oil corporation for both the pumps.

(iv) The sale during FY 1999-2000 are more than Rs. 10 crores but in the expenses capital expenditure on building of more than Rs. 6 lacs could be ascertain only by audit. Capital of Shri Ram Kishore Choudhary has been shown at Rs. 90,64,136 and the case available in the cash book as oh 01-04-99 is Rs. 45 lacs. However the capital of Shri Ram Kishore Choudhary at the end of year is Rs. (-) 1,10,77,4721-. Thus the plus figure of more than Rs. 90 lacs in the capital ale transformed into negative balance more than Rs. 1.10 crores could be ascertained by audit.

(v) in the FY 2000-01 the turn over is more than Rs. 8.40 crores (sic) gross profit Rs. 45,69,000/- and the net profit is Rs. 28,61,000/- after deducting expenses of about Rs. 17,00,000/- for which no vouchers are available.

(v) In FY 2001-02 turn over is Rs. 8.89 crores on purchase of Rs. 8.96 crores. GP is Rs. (-) 7.16 lacs and NP is Rs. 13.93 lacs. The discrepancies thus, could be sorted out by special audit Only. The closing balance of cash is more than Rs. 59 lacs at the year en which is unusual and requires audit.

(vii) The opening cash balance is Rs. 2.780 against closing balance more than Rs. 59 lacs on 31-03-02. The turn over is Rs. 5.91 crores on purchase of Rs. 5.75 crores and the net profit is Rs. 13.93 lacs upto 31-11-02. During this year the capital of Shri Jugal Kishore is Rs. 23.93 lacs who has been shown as proprietor but earlier his brother Shri Ram Kishore was shown as the proprietor. The cash in has as on 30-11-02 is Rs. 1,39,80,869/- which could only be reconciled after the audit.

14) In the last it is worth while to mention that the assessee owned a fleet of more than 150 buses and trucks and VOLVO Vehicles alone of more than Rs. 6 crores in value. The receipt from these vehicles is recorded only on loose-papers and diaries/registers without any corresponding entries in regular books though the same were never maintained.

15) In absence of audit multiple additions would be attracted on the basis of entries on loose papers/diaries/registers/incriminating documents. And the figure could be several times more than the actual profit of the assessee during the block period. As mentioned earlier in the opening para the assessee has declared undisclosed income of Rs. 26,94,040/- only for the entire block period whereas, the final figure would be many times more than the figure of income disclosed. This exercise would create a huge demand which would he difficult to recover as a substantial portion might be infructuous being on account of multiple additions. The same could be avoided by audit. It is therefore, suggested that looking to the nature & complexity of ale and documents involved & in the interest of the revenue, I am of the opinion that it is necessary to carry out special audit of the various documents I loose papers/diaries etc of the assessee to help in determination of the correct and true profits of the business. It is also emphasized that despite the nature of transaction including submission____money the a/c of the assessee have never been____even though the case falls with in the provision of Section 44 AB of the IT Act, 1961.

You are therefore, requested to kindly look into the matter and approve audit Under Section 142(2A) of the Act, 1961. For this purpose name of following CAs is recommended.

1. Nauratan Mal Mertia, Jodhpur

2. Shailendra Bardia, Jodhpur

3. Ajit Raj Bhansali, Jodhpur 3.7.vi. When we refer to the contents of the proposal sent by the ACIT to the CIT for appointment of special auditor in conjunction with the terms of reference to the special auditor, the position which comes out is that the Special Auditor was to examine the books of account, bills, vouchers and other documents etc with a view to determine the true state of affairs of various concerns in which the assessee was connected either as partner or as director, in individual or HUF capacity, so that his correct undisclosed income may be determined by the Assessing Officer. It is borne out from the record that the assessee had disclosed in the block return, his undisclosed income as earned/invested in the two petrol pumps held in benami names and also in a hotel run under the name of a company.

3.7.vii. The Hon'ble Supreme Court in the case of Living Media Ltd v. CIT and Anr. did not interfere in the action of the assessing authority directing special audit of the account of the assessee in view of the nature and complexity of the accounts as there was no reason to conclude that the order was made for any reason other than the complexity of the assessee's accounts. Here again we find that in our case also there does not appear to be any reason for concluding that the order was made for any reason other than the complexity of the assessee's accounts.

3.7.viii. In the case U.P. State Handloom Corporation v. CIT and Ors. assessee filed a provisional balance sheet and provisional P & L account before the IAC [Assessment] which implied that the assessee was not sure about the correctness of the account books. The Assessing Officer ordered for appointment of special auditor Under Section 142(2A), which was assailed by way of writ petition. The Hon'ble High Court observed that the very fact of filing provisional balance sheet and provisional P & L account implied that the assessee was not sure about the correctness of the books. Under these facts, it was held that the appointment of special auditor was in order. This decision has been considered by the Hon'ble Supreme Court in the case of Rajesh Kumar [supra]. Adverting to the facts of our case, we observe that the assessee had no proper basis for the income declared by him in the block return and had also requested the Assessing Officer, during the course of block assessment proceedings, that his income may be estimated.

3.7.ix. In V. Vishnudas Kini v. DCIT and Anr. [2000] 161 CTR [Ker] 70, the petitioner contended that there was no complexity in his accounts. The ld. CIT ordered for the appointment of special auditor under Section 142(2A) on the ground that the gross receipts were more than two crores and the expenses under various heads were huge and the volume of vouchers and bills was very big which would be required to be linked with the client's business account. The admissibility or correctness of the expenses was held to be a laborious task. The assessee assailed this order. The Hon'ble High Court did not find any reason to interfere in the order passed and hence petition was dismissed.

3.7.x. In the case of Sewa Ram Takhtani v. ACIT and Anr. the petitioner was subjected to search in which several incriminating documents indicating his own and also his associate's involvement in various types of benami transactions not reflected in the regular books of account, were found. It was also noticed that even the books of account maintained had several erasures/alterations and corrections. In this background of facts, the authorities felt that the books of account were complex in nature and needed to be scrutinized by special auditor. The Hon'ble High Court, while relying on the decision of Living Media [SC] [supra], upheld the appointment of special auditor on the ground that petitioner had indulged in several benami transactions with a view to evade tax. Adverting to the facts of our case, it is found as an undisputed fact that the assessee had also indulged in several benami transactions by way of purchase of vehicles and petrol pumps, etc., in respect of which he had himself offered some undisclosed income in the block period. It is another matter that the said income was not properly reflected and the assessee had himself requested the Assessing Officer for making estimate of undisclosed income for the purpose of completion of block assessment and thereby saying good bye to the material found and seized during the course of search.

3.7.xi. In the case of Ghaziabad Urban Cooperative Ltd. v. UOI and Ors. the petitioner was required to furnish details and other explanations and also produce the books of account and other documents. Several dates were fixed and proceedings were adjourned at the instance of the petitioner. The Assessing Officer took into consideration the voluminous nature of books of account and other documents maintained by the petitioner as also the complexity of its accounts. After considering the interest of the Revenue, he came to the conclusion that a special auditor was required to be appointed Under Section 142(2A). The petition filed against that order was dismissed by the Hon'ble High Court. Coming back to the facts of our case, it is observed that the books of account were not properly maintained by the assessee. Several incriminating documents were found at the time of search, which divulged that the assessee had entered into benami transactions. The assessee was engaged in several businesses and had undisclosed income in all of them which fact was unearthed by way of search. We, therefore, find that the Assessing Officer rightly ordered for the appointment of special auditor.

3.7.xii. After going through the guideline laid down by the aforenoted judicial pronouncements, now let us go through the relevant material for determining as to whether or not the accounts of the assessee were complex. Notice Under Section 158BC issued on 28.4.2003 for filing return of block period within 35 days of the receipt of the notice. Return was, in fact, filed on 31.3.2004, declaring undisclosed income of Rs. 26,94,040/-. Vide para 8 of assessee's letter dated 3.2.2005, it was stated that such undisclosed income was worked out on the basis of seized material and considering the net accretion in the assets less actual liabilities. It was further contended that the block return included income derived from M/s General Engineering Company, M/s Pipar Filling Station, M/s Choudhary Freight Carrier, M/s Mahadev Road Lines and M/s Mahadev Travel Agency and buses and trucks which were not disclosed in the return of income but owned and possessed by the assessee. The assessee further disclosed income in respect of expenditure incurred in construction of Mahalakshi Palace which was not accounted for in the regular books of account maintained by M/s Kamini Construction P. Ltd., beinglhe owner of the hotel building. In para 9 of the said letter, it was further stated that the income from plying of vehicles which were not disclosed in the return for the block period considering the material on record. Vide letter dated 15.2.2005, the assessee claimed that he had capital of Rs. 67,18,288/- at the beginning of the block period. Here it is important to mention that the assessee in his individual capacity is a partner in four concerns mentioned in para 7.1 of the assessment order. He is partner, in the capacity of karta of HUF, in the concerns mentioned in para 7.2 of the assessment order. Besides that, he has four proprietorship businesses as mentioned in para 7.3 of the assessment order. Apart from the above, he also derived income from two petrol pumps in benami names, viz. General Insurance Company and Pipar Filling Station. He was also having buses and trucks, which were not disclosed in the regular returns. He also disclosed undisclosed income in respect of expenditure incurred in the construction of hotel at Jaisalmer which investment was not accounted for in the regular books of account maintained by M/s Kamini Construction P. Ltd., a company controlled by the family members of the assessee. As against this undisclosed income of small magnitude in the block return, the assessee claimed that he had undisclosed opening capital as on the beginning of block period at gross level of Rs. 85,57,200/- The assessee further admitted vide letter dated 3.2.2005 before the Assessing Officer that the expenditure and investment of the assessee in business of transportation and petrol pumps was not properly recorded in the books of account. A prayer was made to the Assessing Officer for making a reasonable estimate of undisclosed income of the assessee. Thus it shows that the assessee himself was not interested in the determination of the correct undisclosed income as emerging from the accounts and other seized documents and consistently avoided furnishing of correct particulars necessary for such determination and insisted on the making of «Mi estimate of his undisclosed income in complete disregard to the relevant material. When copies of seized material were made available to him well in advance in the year 2003, it was his duty to complete books of account in all manners so that proper determination of income could be made. Nothing of this sort was done by the assessee. Further the assessee did not disclose the password of accounts of the CPU. We further observe from the block return that the opening balance of the opening capital as at the beginning of the block period has been taken at Rs. 85.57 lakhs, which is stated to be a balancing figure drawn from the value of undisclosed assets and liabilities as on 31.3.1996. When we further peep into such details, it comes to the fore that in order to enhance the opening capital of the block period, the assessee has resorted to showing the value of trucks on its original cost, which were purchased much earlier. However, when the question came of showing Income from such trucks for the block period, huge amount of depreciation has been claimed with a view to scale down the income. How the written down value of the vehicles cart remain at its purchase price for the purpose of making balance sheet, when the depreciation has been actually claimed for computing the income of the block period. Vehicles which are purchased in the years 1990-91 to 1996-97 have been consistently used for earning undisclosed income but when the matter comes to the determination of capital, such vehicles have been shown at original cost thereby boosting up the opening capital so as to obtain its higher benefit in the block period in the shape of opening capital and thus evading tax by showing less accretion to the undisclosed assets found at the time of search. The ld. A.R. has fairly conceded this fact that the opening capital has been calculated by taking the actual cost of the vehicles and not the WDV. We further note that the undisclosed income from vehicles has been shown in the block period with starting point of net receipts and thereafter depreciation and interest has been claimed. There is no explanation as to how the amount of net receipts has been calculated. In order to achieve the figure of net receipts, there should first be the figure of gross receipts and then the detail of expenses which are deducted there from. No such detail has emanated from the assessee's explanation. Here it is important to mention that in the regular return for A.Y. 2003-04 the assessee had declared more income without declaring, the due income in the return for the block period. Whereas in the block period from 1.4.2002 to 6.2.2003 the net receipts for the period of 10 months are declared at Rs. 13,55,000/- and for the remaining period of less than two months net receipts have been declared at a whopping sum in the regular return. It has been done with a view to reduce the income of the block period, which suffers tax at high rate.

3.7.xiii. It is further noted that the assessee is relying on a Cash Flow chart for computing the undisclosed income on Asset theory. When this Cash flow chart is perused, it comes to notice that no dates are given for the inflow and outflow of cash and the benefit has been taken in a consolidated manner. To put it simply, if the assessee has cash inflow of Rs. 50 in the first year and of Rs. 100 in the second year, and simultaneously he has invested. Rs. 100 in the first year, it means that in the first year he had earned at least Rs. 100, which was spent partly out of the declared cash inflow of Rs. 50 and the remaining amount of Rs. 50 was also undisclosed income which has not been declared. If however the cash inflow of Rs. 150 (100 + 50) is shown in consolidated manner without reference to the respective dates, the excess of Rs 50 spent in the first year out of the remaining undisclosed income not disclosed by way of cash flow statement would remain hidden and not come up for taxation. There can not be any question of drawing cash flow chart without reference to the respective dates of receipts and payments individually.

3.7.xiv. It is further noted that the assessee's capital as at the close of the block period on 6.2.2003 has been shown at Rs. 10224428/- and within a span of period of less than two months it had increased to Rs. 1,78,40,265/- as on 31.03.2003. What is the way for arriving at the figure of the opening capital for the block period and basis for showing the income for the block period is beyond understanding. A jugglery of figures has been made which is not properly substantiated so as to confuse the Revenue authorities in reaching the determination of correct undisclosed income of the block period. Such figures as adopted by the assessee are also devoid of any base as the net receipts from the vehicles are estimated for the block period and even the opening capital has been taken by adopting the cost of vehicles rather than their WDV. From the above discussion, it is more than clear that the accounts of the assessee were complex and the figures so declared were beyond the comprehension as no rational basis for the income disclosed in the block return was understandable. Neither the assessee extended any cooperation towards the completion of assessment nor had any force to support his figures declared as undisclosed income for the block period. If these accounts are not intricate and complex then which other accounts can be said to be complex, is anybody's guess. The complexity is overflowing as majority of important figures are clearly beyond the understanding of an Assessing Officer. The intricacies involved in the accounts which led to the vast difference in these figures along with other factors, as taken note of by the Assessing Officer for proposing the appointment of a special, auditor, could not have been sorted out without the help of an expert in this field, being a Chartered Accountant. In the light of these facts we are Satisfied that the accounts of the assessee were complex and the appointment of special auditor was sine qua non to determine the undisclosed income. The proposal sent by the Assessing Officer to the ld. CIT for the appointment of special auditor, as discussed in the earlier para, clearly brings out the complexity of accounts and resultant inability of the Assessing Officer to calculate the correct undisclosed income.

3.8.i Miscellaneous Aspects 3.8.i. The ld. Counsel for the assessee contended that direction given for conducting of special audit was vague in as much as it did not throw light on the entities whose books were to be audited. He further referred to the letter of special auditor vide which he had sought details about the concerns to be audited. A further submission was made that there was no occasion-with the Revenue to order the audit in respect of firms, etc. in which the assessee was interested as partner in individual or HUF capacity or the companies in which he was director. He submitted that the scope of the audit was unnecessarily extended to entities, which were not subjected to search. On the other hand, the ld. D.R. stated that the directions given for special audit was specific and precise as all the concerns in which the assessee was interested were liable to be considered for special audit in as much as the assessee had himself declared undisclosed income in respect of such concerns, such as, investment made in hotel at Jaisalmer, benami investments in two petrol pumps and in number of vehicles.

3.8.ii. Having regard to the facts of the case we find from the letter of the ACIT dated 23.2.2005 for appointment of special auditor, which has been reproduced elsewhere in this order, in which it was specifically mentioned that audit should be carried out of alt the books of account, bills/vouchers, loose sheets, documents, bank statements etc., which were seized-at £he time of search or the documents impounded during the course of assessment proceedings Under Section 158BC with a view to determine the true state of financial affairs of various concerns in which the assessee is associated either as proprietor or as partner, both in individual and HUF capacity or as director. We are unable to find any vagueness in this direction for the reason that the assessee had himself accepted the fact that he had invested undisclosed, income in two petrol pumps, which were not in his name; in the hotel building in which he is interested as director; and held various vehicles in the benami names, from which he was regularly earning undisclosed income. The purpose of the direction given by the ACIT is only to enable the department to determine the amount of undisclosed income invested by the assessee in various concerns in which he was interested either as proprietor or partner [in individual or HUF capacity] or as director. The entire purpose of this exercise was aimed at determining the total undisclosed income of the assessee, which was scattered in various concerns. The very admission of the assessee through block return showing undisclosed income having been invested in various concerns in which he is interested by other than as proprietor, is a clear indicator of his having undisclosed income invested in other concerns also in which he is interested. Hence it became imperative to get accounts audited of all such concerns in which the assessee was interested as taken note of by the Assessing Officer. We, therefore, do not find any irregularity in the direction of the department for conducting audit of various concerns in which the assessee is interested directly or indirectly with a view to determine his correct undisclosed income.

3.8.iii. A further contention was put forth that the audit work was to be done by Special Auditor from the material available with the department and the assessee could not have been ordered to assist in the completion of audit. In simple words his submission is that the Revenue should have got the audit work done in it's own office, instead of sending the auditor to his premises. We find this contention to be bereft of any force for the reason that the appointment of Special Auditor is governed by Section 142(2A), in which it is provided that a report of such audit, signed and verified by such Chartered Accountant shall be furnished in the prescribed form. Rule 14A states that such audit report shall be furnished in Form No. 6B. First two paras of the said report read as under:

I/We have examined the balance sheet of...[name and address of the assessee] Permanent Account No...as at.... And the profit and loss account for the year ended on that date which are in agreement with the books of account maintained at the head office at...and branches at....

I/We have obtained all the information and explanations, which to the best of my/our knowledge and belief were necessary for the purpose of the audit. In my/our opinion proper books of account have been kept by the head office and the branches of the assessee visited by me/us so far as appears from my/our examination of books and proper returns adequate for the purposes of audit have been received from branches not visited by me I us subject to the comments given below:

[Emphasis supplied by us] 3.8.iv. A bare perusal of the performa of this report makes the things clear that the auditor has to examine the books of account kept by the assessee at its Head Office and Branch Office, which premises are to be visited by him for doing the audit. It is further important to take note that the report of the auditor in Form No. 6B has to be furnished to the assessee as per law, who, in turn will furnish the same to the Assessing Officer within the time originally fixed -or as extended. From here it becomes clear that the audit has to be carried out at the premises of the assessee. It is naturally so for the reason that the audit cannot toe completed unless proper information is provided to the auditor about the facts of the case, which always remain in the knowledge of the assessee only. The contention of the ld. A.R. that the Special Auditor should have conducted audit at the I.T. department from the books of account and other documents seized by it is, therefore devoid of any merits. A reference by the ld. A.R. to the letter of the ld. CIT in which the ACIT was required to get the accounts audited has to tie seen in the context in which it was made, being the internal communication, in so far as the intimation to the assessee about the special audit is concerned/ the same was conveyed by the ACIT vide letter dated 23.3.2005rcopy of which has been placed at pages 43 and-44 of the departmental PB in which "it is clearly mentioned that "You are, directed to get the audit of your books, bills, vouchers, loose sheets, documents, bank statements, etc., seized and documents impounded during the course of search proceedings". From here it is clear that the direction was to the assessee for getting the accounts audited which obviously cannot be the other way, as the audit work has to be got conducted by the assessee and the assessee alone. It has been noted above that the ld. A.R. has fairly conceded that the copies of books of account and other relevant documents seized by the Department were duly supplied to the assessee. The plea of the ld. A.R. in this regard that since the books of account were seized by the department and hence audit could not be carried out is thus not maintainable because the assessee was having copies of all the record seized by the department. We are, therefore, not inclined to accept this contention of the ld. A.R. 3.9. To sum up we dismiss this ground of appeal by holding that all the requisite conditions of Section 142(2A) are fulfilled in this case and that the block assessment order passed is not barred by time limit in terms of Section 158BE.

4. As per Ground No. 1(c), it has been contended that the assessment order passed without providing any opportunity to the assessee was invalid and illegal. The ld. A.R. contended that no notice Under Section 143(2)/142(1) was issued to the assessee after appointment of the special auditor and hence the assessment order made without providing hearing opportunity to the assessee was invalid and illegal, ft "was put forth that the Assessing Officer ought to Wave" allowed adequate opportunity to the assessee for "participating in the assessment proceedings. Assessment so made, in the absence of giving opportunity of hearing was claimed to be null and void which deficiency cannot now be made good. It was also pointed out that the non-completion of the audit by the Chartered Accountant was due to the failure on the part of the Assessing Officer and not on the part of the assessee as the necessary documents and material for auditing Was available with the assessing authority, who could have got the account audited. He relied on certain decisions in support of his contention that the entire assessment exercise was to be quashed for want of proper opportunity of hearing given to the assessee. In the opposition, the ld. D.R. distinguished the cases relied by the ld. A.R. and submitted that there was complete non co-operation from the assessee ab initio as a result of which the Assessing Officer was left with no option but to make assessment Under Section 144.

4.ii. We have heard the rival submissions and perused the relevant material on record. Factual matrix of the case has been noted above from-where it can be seen that the assessee had, at no stage, extended co-operation to the Revenue to enable the making of assessment. Every time it kept on raising objections here and there challenging the appointment of the auditor despite the fact that the documents required by him were duly made available. If he had been really interested in the making of the proper assessment, he would have come clean and assisted in the completion of assessment notwithstanding his objection on the legal issue, which matter could have been sorted out side by side in the appropriate legal platform. We have noted above that the assessee was not interested in the completion of assessment on the basis of material seized and requested the Assessing Officer to ignore the material and make estimate of undisclosed income which request was not acceded to. It is still further noted that the special auditor also repeatedly requested the assessee for supplying him the necessary information with a view to conduct the audit, which request fell on the deaf ears. Letter of the special auditor dated 25.3.2005, copy placed at page 48 of the departmental PB, clearly brings out that he kept on requesting the assessee to make available necessary details etc. at the earliest, but without any success. Page 49 of the PB is the letter of the special auditor to the Assessing Officer intimating vide letter dated 8.4.2005 that the assessee had not made available any books of account, records, etc. for the purposes of special auditor till date. The Assessing Officer wrote a letter to the assessee dated 12.4.2005 with a request to cooperate with the auditor. The assessee stuck to his stand of not cooperating with the department and kept on questioning the validity of appointment of special auditor. When the time allowed to the assessee to get the accounts audited expired without any compliance, the Assessing Officer had no alternative but to invoke the provisions of Section 144 as was done by him. This is the extent of non-cooperation provided at assessment stage and now the assessee is making sky touching claims of not having been allowed any opportunity of hearing by the Assessing Officer. In our considered opinion the contention put forth through this ground is completely unfounded as the assessee had miserably failed to assist the Assessing Officer in completing the assessment. We are reminded of the judgment of the Hon'ble Jurisdictional High Court in the case of CIT v. Agro Engineers in which the assessee did not respond to several notices issued by the Assessing Officer Under Section 143(2) as a result of which assessment was framed Under Section 144. In that case the Assessing Officer committed a mistake by not issuing fresh notices for assessment Under Section 144. But the first appellate authority remitted the matter back to the Assessing Officer to make fresh assessment after affording opportunity to the assessee. However, when the matter went to the Tribunal, the entire assessment was annulled. Eventually the Hon'ble High Court restored the order of the first appellate authority with the following observations:

It is true that the proviso to Sub-section (1) of Section 144 requires that before framing the assessment under Section 144, an opportunity should be given to the assessee. As ten notices under Section 143(2) were issued to the assessee in spite of service he did not respond. Though the Assessing Officer has committed a mistake by not issuing the fresh notice for assessment under Section 144 of the Act that does not mean that the assessees is not liable for the, tax on its income. In case opportunity has not been given either as required under the statute or required under the principles of natural justice, it does not make any difference but the fact remains that when the income has not been assessed properly, the only proper course is that income should be assessed properly and in accordance with law.

We agree with the Commissioner of Income-tax (Appeals), he was justified in remitting the matter back to the Assessing Officer to make a fresh assessment after affording opportunity to the assessee for assessment under Section 144 of the Act. The Tribunal has committed error in annulling the assessment made by the Assessing Officer, if the statutory requirement has not been complied with, direction can be given to make a fresh assessment after complying with the provisions of Section 144, before framing the fresh assessment.

Considering the submissions of Mr. Singhi, we set aside the impugned order of the Tribunal and restore the view taken by the Commissioner of Income-tax (Appeals). We direct the Assessing Officer to afford opportunity to the assessee before framing the fresh assessment under Section 144 of the Act.

4.iii. We observe that the facts of the instant case are similar to those of Agro Engineers [supra] and relying on the judgment of the Hon'ble Jurisdictional High Court, we hold that assessment cannot be annulled. This ground, therefore, fails.

5. All the grounds taken by the Revenue and the remaining grounds of the assessee deal with the computation of undisclosed income on merits.

5.i. The assessee declared the undisclosed income at Rs. 26.94 lakhs against which assessment was completed at Rs. 13.13 crores and odd. The ld. CIT(A) reduced the income partly. Both the sides have come up in appeal before us on their respective stands. It is obvious that the assessment was completed Under Section 144 for the reasons discussed above. The ld. A.R. has argued that the-Assessing Officer had made additions both on account of 'Income theory' as well as 'Expenditure and Investment theory'. It is austere that there are different modes for computation of undisclosed income. One of the recognized modes is to determine the income on the basis of 'Income theory', under which the undisclosed income is computed as emanating from the relevant material exhibiting the income, which the assessee actually earned but did not disclose to the Revenue. The second alternative mode of computing the undisclosed income by 'Investment and Expenditure theory' comes into play when the undisclosed income cannot be computed by the 'Income theory' due to lack of the availability of complete information in this regard. In such alternative mode the total investments made and expenditure incurred by the assessee out of the books are clubbed and presumption is made that the assessee must have earned so much undisclosed income which is represented by the undisclosed investment/expenditure. The second mode is employed only when income cannot be computed as per first mode. However, both such modes cannot be pressed into service simultaneously to work out the undisclosed income? To put it simply, if the assessee had earned Rs. 100/- out of undisclosed sales out of which Rs. 60/- is invested and Rs. 40/- is either available or spent somewhere, the Assessing Officer cannot adopt income at Rs. 200/-. The income from sales at Rs. 100/- would be telescoped into the investment made out of such undisclosed income. In such a situation, only a sum of Rs. 100/-would be included in the undisclosed income of the assessee.

5.ii. We have held in an earlier para that the assessee had not extended cooperation as a result of which assessment was made Under Section 144. We further note that the ld. CIT(A) allowed substantial relief against which the Revenue is in appeal. This shows that a high pitched assessment was made. It was naturally so because the Assessing Officer did not have the assistance of the assessee for determination of the correct undisclosed income as the assessee was stuck to his stand that the income be computed on estimate basis without taking proper recourse to the material/documents found at the time of search, etc. It is trite that the purpose of making assessment is to compute the correct income, which the assessee has earned. The assessee cannot be saddled with frivolous additions. At the same time it is expected of the assessee to assist the department by furnishing necessary details required for the purpose of making a proper assessment. Primarily the act of making assessment falls in the domain of the A.O., which cannot ordinarily be discharged, especially in a search case, without the assessee's active participation. In our case the assessee had not fully participated in the assessment proceedings and the ld. CIT(A) was satisfied that proper assessment was not made. In such a situation, he ought to have set aside the assessment order and directed the Assessing Officer to finalize it afresh instead of embarking upon to entertain additional evidence from the assessee and calling remand report from the Assessing Officer. It is true that there is no embargo on the power of the first appellate authority to call for the remand report from the Assessing Officer and then decide the controversy. But it would not be justifiable to take recourse to this option, where the assessment in a search case has been made in the peculiar circumstances as are prevailing in the present case. The department is equally aggrieved with the reliefs allowed by the ld. CIT(A), as in the view of the ld. D.R. there was miscarriage of justice by the ld. CIT(A) in allowing reliefs without appreciating the material on record. In this backdrop of the facts, we are of the considered opinion that the ends of justice demand that the assessee should be allowed one more opportunity for the purpose of determination of the correct amount of undisclosed income, which he has earned. Since voluminous material is required to be examined in this case for the purpose of making block assessment, in our considered opinion, this exercise should be done at the end of the Assessing Officer.

We, therefore, set aside the impugned order and restore the matter to the file of the Assessing Officer for a fresh decision on merits as per law after allowing reasonable opportunity of being heard to the assessee. Needless to say the assessee will extend cooperation to the department in the determination of such total income, which is rightly taxable in his hands.

6. In the result, the appeals - of the assessee in part and that of the Revenue in full - are allowed for statistical purposes.