- (1.) This appeal was originally admitted on 20th February 2007 on the following substantial question of law:- "Whether on the facts and circumstances of the case the Income Tax Appellate Tribunal was justified in law in deleting the sales inflation figure from the assessee's income though the accounts were duly audited by the Auditor who never raised this point in the audit report and the management has certified the accounts as true and correct?"
(2.) Subsequently, a Coordinate Bench, while hearing the appeal on 11th May, 2016 formulated another point, which in the opinion of the Bench also involved substantial question of law. This question was formulated as:- "Whether the order directing the assessing officer to exclude the amount of Rs.2,90,43,971/- and Rs.5,90,21,000/- being the sales and fictitious income from the total income for the two block periods is perverse ?"
(3.) The Tribunal, in its decision under appeal had directed the assessing officer to exclude sums of Rs.2,90,43,971/- and Rs.5,90,21,000/- from the assessee's income. The Tribunal found the said sums were shown by the assessee in its account as fictitious income. The proceeding arose from a search and seizure operation conducted on 28th February and 23rd September 1996. In pursuance of such operations, two block assessment orders were made for two periods between 1986-87 to 1997-98 and 1987-88 to 1997-98. A special audit was conducted in the assessee's case for the period between 22nd December 1988 and 28th February 1996. The special auditor, according to the assessee had, indicated Rs.61,26,56,791/- to be sales inflation figure for the period between 1st April 1992 and 31st August 1995. For the inflated sum, claims for deduction were made by the assessee in the block assessments, which were turned down by the assessing officer. The assessing officer's main reasoning for rejecting the assessee's claim for exclusion was that the assessee's accounts were audited by chartered accountants and such qualified auditor did not find any discrepancy in the books of account of the assessee. In two appeals by the assessee, which were registered as I.T. (S.S.)A No. 65/Cal/1998 and I.T. (S.S.)A No. 18/Cal/1998, both decided on 17th October 2001 by a common order, the Tribunal, inter alia, held and directed:- "........................We are, therefore, decide the issue in principle that the amounts of bogus sales as well as other bogus credits, on account of spurious bill discounting facilities availed of by the assessee, be excluded from the total income of the assessee. The A.O. would, however, ascertain the amounts under consideration mainly from the report of the special auditors. The assessee should also be allowed ample opportunity to put forward its case with proper figures and evidences before the A.O. we direct accordingly. Following the said line, therefore, so far as this issue is also concerned, we restore the issue back to the file of the A.O. for the purpose of ascertaining the amounts of inflated sales included in the accounts of the assessee mainly from the report of Special Auditors and to deduct the same from the figure of sale. Needless to say that the assessee should be allowed ample opportunity to explain its case. Similar direction is also being given in respect of the bogus profit on bill discounting operation included in the accounts of the assessee.";