2008 (12) TMI 240 - AT - Income Tax

Tribunal ruling on assessment period extension and adjustments under IT Act, 1961

Jai Bhawani Concast (P) Limited. Versus Deputy Commissioner Of Income-Tax.

The Tribunal held that the assessment was not time-barred under Section 142(2A) read with Section 153 of the IT Act, 1961, despite the special audit ... Direction For Special Audit Issues Involved:1. Limitation of assessment order under Section 142(2A) read with Section 153 of the IT Act, 1961.2. Addition of Rs. 31,21,041 for alleged unaccounted purchase of ferro chrome.3. Jurisdiction of CIT(A) to make additions for the assessment year 1992-93 while adjudicating for the assessment year 1993-94.4. Addition of Rs. 8,67,559 for alleged difference in stock of M.S. Steel.5. Addition of Rs. 2,31,960 for alleged closing stock of runners and risers.6. Justification for referring the matter to special audit under Section 142(2A).7. Addition of Rs. 5,60,054 for credits lying in two creditors' accounts.8. Levy of interest under Section 234B.Detailed Analysis:1. Limitation of Assessment Order:The assessee contended that the assessment order was barred by limitation as per Section 142(2A) read with Section 153 of the IT Act, 1961. The AO issued a letter on 18th March 1996 for a special audit, which was received by the auditors on 19th March 1996. The assessment would become time-barred by 31st March 1996, but the special audit extended the date. The assessee argued that the extension was invalid as it was not sought by the assessee. The Tribunal held that the assessment was not time-barred, as the period for framing the assessment was governed by the provisions as they stood for the relevant year. The Tribunal rejected the contention that the AO exceeded his powers by extending the time for the special audit.2. Addition for Unaccounted Purchase of Ferro Chrome:The AO observed a discrepancy in the stock of ferro chrome between the closing stock as on 31st March 1992 and the opening stock as on 1st April 1992. The assessee explained it as a clerical error, but the AO did not accept this explanation and added Rs. 35,89,411 to the income. The CIT(A) reduced the addition to Rs. 31,21,041 and directed the AO to add this amount to the income for the assessment year 1992-93 instead of 1993-94. The Tribunal found no justification for shifting the addition to the earlier year and directed the AO to consider the addition in the assessment year 1993-94.3. Jurisdiction of CIT(A):The CIT(A) directed the AO to make an addition for the assessment year 1992-93 while adjudicating the appeal for the assessment year 1993-94. The Tribunal found no merit in this direction as the discrepancy was found in the audited balance sheet of the current year, and the assessment for 1992-93 was already completed without noting any difference in stock.4. Addition for Difference in Stock of M.S. Steel:The AO added Rs. 8,67,559 for a difference in the stock of M.S. Steel, alleging that the stock was sold outside the books. The CIT(A) restored the matter to the AO for re-examination, considering the assessee's contention that the calculation was incorrect. The Tribunal upheld the CIT(A)'s decision to re-examine the issue.5. Addition for Closing Stock of Runners and Risers:The AO found a difference in the stock of runners and risers and added Rs. 2,31,960 to the income. The CIT(A) confirmed the addition based on the AO's remand report, which stated that these items were not included in the inventory of the closing stock as per the balance sheet. The Tribunal found no reason to interfere with this addition.6. Justification for Special Audit:The assessee argued that the special audit under Section 142(2A) was unjustified as there was no complexity in the accounts. The Tribunal rejected this contention, relying on the Supreme Court's decision in Sahara India (Firm) vs. CIT, which held that the validity of the initiation of proceedings under Section 142(2A) cannot be challenged in an appeal.7. Addition for Credits in Creditors' Accounts:The AO added Rs. 7,18,680 for credits lying in the accounts of two creditors, which the CIT(A) reduced to Rs. 5,60,054. The CIT(A) directed the AO to consider this addition if no addition was made for the discrepancy in the closing stock of M.S. ingots. The Tribunal upheld the CIT(A)'s decision to restore the issue to the AO with specific directions.8. Levy of Interest under Section 234B:The Tribunal found no infirmity in the CIT(A)'s order directing the AO to charge interest under Section 234B as it was consequential in nature.Conclusion:Both the appeals of the assessee and the Revenue were allowed in part, with specific directions provided by the Tribunal on various issues.