Gujarat High Court
Pratius Merchants (P) Limited vs Deputy Commissioner Of Income Tax on 26 April, 2017
Bench: M.R. Shah, B.N. Karia
C/SCA/4916/2017 CAV JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 4916 of 2017
For Approval and Signature:
HONOURABLE MR.JUSTICE M.R. SHAH Sd/
and
HONOURABLE MR.JUSTICE B.N. KARIA Sd/
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1 Whether Reporters of Local Papers may be allowed to see No
the judgment ?
2 To be referred to the Reporter or not ? No
3 Whether their Lordships wish to see the fair copy of the No
judgment ?
4 Whether this case involves a substantial question of law as No
to the interpretation of the Constitution of India or any
order made thereunder ?
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PRATIUS MERCHANTS (P) LIMITED....Petitioner(s)
Versus
DEPUTY COMMISSIONER OF INCOME TAX....Respondent(s)
=============================================
Appearance:
MR SN SOPARKAR, SR. ADVOCATE with MR BS SOPARKAR, ADVOCATE for the Petitioner(s)
No. 1
MR MANISH R BHATT, SR. ADVOCATE with MRS MAUNA M BHATT, CAVEATOR for the
Respondent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE M.R. SHAH
and
HONOURABLE MR.JUSTICE B.N. KARIA
Date : 26/04/2017
CAV JUDGMENT
(PER : HONOURABLE MR.JUSTICE M.R. SHAH) [1.0] By way of this petition under Article 226 of the Constitution of India, the petitioner - assessee - Pratius Merchants (P) Limited has prayed for an appropriate writ, direction and order to quash and set aside the impugned order passed under Section 142(2A) of the Income Tax Act, 1961 (hereinafter referred Page 1 of 25 HC-NIC Page 1 of 25 Created On Tue Aug 15 07:59:53 IST 2017 C/SCA/4916/2017 CAV JUDGMENT to as "IT Act") by which by a detailed and speaking order for AY 200910 to 201516, the Assessing Officer has ordered / directed to get the accounts of the assessee for the aforesaid assessment years to be audited by the Special Auditors.
[2.0] The facts leading to the present Special Civil Application in nut shell are as under:
[2.1] That the assessment proceedings under Section 153C of the IT Act for AY 200910 to 201516 is pending before the Assessing Officer. That the assessee is carrying on the business of trading in shares and securities as well as financing. That approximately 40,000 papers in 45 gunny bags in the case of Asaram Bapu and Narayansai Group were seized by the Police Authority. That the Income Tax Authority requisition in the said document under Section 132 of the IT Act in the case of Asaram Bapu and Narayansai Group on 09.03.2015 from Poilce Authorities, Surat. That on the basis of the same, the petitioner was served with the notice under Section 153 C of the IT Act for block period i.e AY 200910 to 201415 and the petitioner assessee was required to furnish return of income under Section 153 C of the IT Act for the aforesaid year. That the petitioner assessee was served with the questionnaire by way of notice under Section 142(1) dated 01.08.2016 on the basis of the requisitioned material, statements and loose papers etc. The petitionerassessee was also asked to furnish various details such as ledger accounts, bank statements, confirmatory letters from unsecured depositors etc. During the course of block assessment for the aforesaid period, Assessing Officer was of the opinion that looking to the complexity and multiplicity nature of material and the account of the assessee for the aforesaid period are required to be audited by the Special Auditor. Therefore, the Assessing Officer served with the show Page 2 of 25 HC-NIC Page 2 of 25 Created On Tue Aug 15 07:59:53 IST 2017 C/SCA/4916/2017 CAV JUDGMENT cause notice dated 18.11.2016 upon the petitionerassessee and was given the opportunity of being heard as required in proviso to Section 142(2A) of the IT Act and the assessee was called upon to show cause as to why the account for AY 200910 to 201516 may not be audited by the Special Auditor under Section 142(2A) of the IT Act. That the hearing for the aforesaid purpose was fixed on 22.11.2016. It appears that having been served with the aforesaid notice, the petitionerassessee vide communication dated 28.11.2016 requested for 15 days time to submit the reply. That the Assessing Officer granted time upto 05.12.2016 and the hearing was fixed on 05.12.2016. That thereafter, again the petitionerassessee asked for adjournment on 05.12.2016, which was granted upto 09.12.2016. The petitioner submitted the letter / communication dated 08.12.2016 stating that it already sent reply to the earlier letters of the respondent and it was made clear that the said replies dated 28.11.2016 and 05.12.2016 should be treated as replies to the queries raised by the Assessing Officer. That thereafter the Assessing Officer disposed of the objections vide order dated 08.12.2016 and made a proposal on 09.12.2016. That thereafter, Assessing Officer has passed impugned order dated 21.12.2016 appointing Special Auditor for AY 200910 to 201516.
[2.2] Feeling aggrieved and dissatisfied with the impugned order passed by the Assessing Officer passed under Section 142(2A) of the IT Act appointing Special Auditor for the AY 200910 to 201516, the assessee has preferred present Special Civil Application under Article 226 of the Constitution of India.
[3.0] Shri S.N. Soparkar, learned Senior Advocate has appeared on behalf of the petitioner assessee and Shri Manish Bhatt, learned Counsel Page 3 of 25 HC-NIC Page 3 of 25 Created On Tue Aug 15 07:59:53 IST 2017 C/SCA/4916/2017 CAV JUDGMENT has appeared on behalf of the Revenue.
[3.1] The impugned order is challenged by the petitioner on the following grounds.
(1) Insufficient opportunity.
(2) All the conditions for appointment of Special Auditor under
Section 142(2A) of the IT Act are not satisfied.
(3) The Special Auditor is directed only with a view to extend the
period of limitation to frame block assessment.
[3.2] Shri Soparkar, learned Senior Advocate for the petitionerassessee has vehemently submitted that in the facts and circumstances of the case, the impugned order of appointing Special Auditor is bad in law, contrary to the provision of Section 142(2A) of the IT Act and in breach of principles of natural justice as sufficient opportunity has not been given to the petitionerassessee.
[3.3] It is vehemently submitted by Shri Soparkar, learned Senior Advocate for the petitionerassessee that notice dated 11.11.2016 was served upon the petitionerassessee on 17.11.2016, thereafter petitioner assessee asked for 15 days time to respond to the same as a five years material was required to be considered. However, the Assessing Officer granted only 10 days time and therefore, the petitionerassessee could file their reply dated 31.11.2016 and the detailed reply could not be filed by the assessee. Itis submitted that thereafter the impugned order has been passed on 21.12.2016. It is submitted that therefore, it can be said that no sufficient opportunity has been given to the petitioner assessee. It is submitted that therefore, the impugned order can be said to be in breach of principles of natural justice.
Page 4 of 25HC-NIC Page 4 of 25 Created On Tue Aug 15 07:59:53 IST 2017 C/SCA/4916/2017 CAV JUDGMENT [3.4] It is further submitted by Shri Soparkar, learned Senior Advocate for the petitioner that the entire exercise of giving direction for Special Audit is aimed at seeking extension of time for finalizing the assessment proceeding as the period for framing the block assessment was likely to come to end.
[3.5] It is further submitted by Shri Soparkar, learned Senior Advocate for the petitioner that even otherwise all the conditions for special audit under Section 142(2A) of the IT Act are not satisfied in the present case.
[3.6] It is further submitted by Shri Soparkar, learned Senior Advocate for the petitioner that the respondent has directed the Special Auditor as per para 6 of the impugned order to verify various claims, purchase of assets, eligibility for exemptions etc. which are taken care of in the tax audit and do not require special audit. It is submitted that special audit cannot be directed for preparing new books of accounts as per the directions of Assessing Officer.
[3.7] It is further submitted by Shri Soparkar, learned Senior Advocate for the petitioner that during the block assessment and the Assessing Officer has served the questionnaire upon assessee for which, the Assessing Officer has passed the order of special audit, which have been answered by the assessee. It is submitted that therefore, the purpose for special audit will be taken care by the Assessing Officer during the block assessment.
[3.8] It is further submitted by Shri Soparkar, learned Senior Advocate for the petitioner that as such the petitionerassessee has nothing to do with 40,000 pages of documents requisitioned and / or has nothing to do with Sant Shri Asharamji Ashram and Shadahaks whose name figured Page 5 of 25 HC-NIC Page 5 of 25 Created On Tue Aug 15 07:59:53 IST 2017 C/SCA/4916/2017 CAV JUDGMENT in the requisitioned document. It is submitted that therefore, in absence of proving relevance of such material, respondent has materially erred in directing the special audit. It is submitted that the respondent has not reached to the satisfaction in objective manner of directing the special audit.
[3.9] Shri Soparkar, learned Senior Advocate appearing on behalf of the petitioner has submitted that as such the Assessing Officer granted the personal hearing on 09.12.2016 and therefore, before disposing of the objections and/or even sending the proposal to the Principal Commissioner, the Assessing Officer ought to have waited.
[3.10] It is further submitted by Shri Soparkar, learned Senior Advocate for the petitioner that even in the impugned order it is not stated by the Assessing Officer that in the interest of Revenue and / or to protect the interest of the Revenue again are required to be audited through special auditor. It is submitted that in absence of such case / claim, the impugned order under Section 142(2A) of the IT Act is not sustainable as the conditions for special audit under Section 142(2A) of the IT Act are not satisfied.
[3.11] It is vehemently submitted by Shri Soparkar, learned Senior Advocate appearing on behalf of the petitioner that for the purpose of invoking jurisdiction under Section 142(2A) of the IT Act, the Assessing Officer is required to form an opinion that having regard to the nature of complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialized nature of business activity of the assessee and the interest of revenue, it is necessary to have special audit. It is submitted that in the present case the Assessing Officer has failed to form any such Page 6 of 25 HC-NIC Page 6 of 25 Created On Tue Aug 15 07:59:53 IST 2017 C/SCA/4916/2017 CAV JUDGMENT opinion and record satisfaction in that effect. In support of his above submissions, Shri Soparkar, learned Senior Advocate appearing on behalf of the petitioner has heavily relied upon the decision of the Allahabad High Court in the case of Prateek Resorts and Builders (P) Ltd. vs. Assistant Commissioner of Income Tax, Central Circle, Meerut reported in 199 Taxmann.com 140 (Allahabad).
[3.12] It is further submitted that even otherwise the impugned order passed by the Assessing Officer is a nonreasoned / nonspeaking order. It is submitted that the respondent has failed to attribute a single circumstance / reason which leads to an opinion that account of the petitioner is required to be audited under Section 142(2A) of the IT Act.
[3.13] Shri Soparkar, learned Senior Advocate appearing on behalf of the petitioner has submitted that the Assessing Officer could not have directed special audit under Section 142(2A) of the IT Act beofre considering books of account of the petitioner and/or without verifying the accounts and/or considering the complexity in the accounts.
Making above submissions, it is requested to admit/allow the present petition and quash and set aside the impugned order passed under Section 142(2A) of the IT Act.
[4.0] Present petition is vehemently opposed by Shri Manish Bhatt, learned Counsel for the Revenue.
[4.1] It is vehemently submitted by Shri Bhatt, learned Counsel for the Revenue that in the facts and circumstances of the case and looking to the complexity and multiplicity of transaction visavis the requisitioned material i.e. 40,000 papers found from 42 gunny bags, in which, there is ample material with the Assessing Officer connecting the petitioner Page 7 of 25 HC-NIC Page 7 of 25 Created On Tue Aug 15 07:59:53 IST 2017 C/SCA/4916/2017 CAV JUDGMENT assessee that the requisitioned material and the persons / Sadhak whose names figured in the requisitioned material, the Assessing Officer is justified in passing the order under Section 142(2A) of the IT Act for special audit for AY 200910 to 201516.
[4.2] It is submitted that Section 142(2A) of the IT Act has been amended and all the conditions mentioned in the amended Section 142(2A) of the IT Act have been satisfied while passing the impugned order under Section 142(2A) of the IT Act.
[4.3] It is submitted that the impugned order has been passed after giving an opportunity to the petitionerassessee as per proviso to Section 142(2A) of the IT Act and after considering the reply submitted by the petitionerassessee thereafter the impugned order has been passed after getting approval from the higher authority. It is submitted that therefore, the impugned order cannot be said to be in breach of principles of natural justice as alleged. It is submitted that even in the memo of petition no such ground is taken that no sufficient opportunity has been given to the petitioner.
[4.4] It is submitted by Shri Bhatt, learned Counsel for the Revenue that object and purpose of special audit is to facilitate the Assessing Officer in arriving at right conclusion and to arrive at correct taxable income. It is submitted that even after the report is submitted by the special auditor considering Section 142 of the IT Act, thereafter the assessee shall be given the opportunity to make submission on the report of the special auditor and he shall be furnished copy of the report of the special auditor. It is submitted that therefore, as such no prejudice shall be caused to the assessee if the account for the period between the 200910 to 201516 are audited by the Special Auditor. It is further submitted Page 8 of 25 HC-NIC Page 8 of 25 Created On Tue Aug 15 07:59:53 IST 2017 C/SCA/4916/2017 CAV JUDGMENT that merely because the Assessing Officer can consider and / or verify the audited account and / or account of the assessee are audited again is no ground not to appoint special auditor under Section 142(2A) of the IT Act. It is submitted that if the Assessing Officer is of the opinion that books of account are complex in nature and there is multiplicity of transactions, Assessing Officer is justified in passing the order under Section 142(2A) of the IT Act.
[4.5] It is submitted that in the present case there are ample evidence in the requisitioned material (42000 objection recovered from the 45 gunny bags) connecting the petitionerassessee with the Shadahaks and rotation of fund and in flowing of funds through Shadahaks (brought in as unsecured loan by the petitionerassessee) also established the multiplicity of transaction and it also established the multiplicity of transaction and therefore, in order to arrive at correct taxable income and the extent of real fund flow and to identify the real persons whose funds are being rotated, the Assessing Officer is justified in passing the order of special auditor under Section 142(2A) of the IT Act.
[4.6] It is further submitted that in the present case detailed showcause notice was served upon the petitioner by which the petitioner was called upon to show cause why for the reasons mentioned in the said show cause notice the order of special audit under Section 142(2A) of the IT Act may not be passed. It is submitted that thereafter as the petitioner failed to respond to the showcause notice and thereafter as the assessment was time barred matter, after preparing a detailed satisfaction note the proposal was sent to the Principal Commissioner of Income Tax and the Principal Commissioner of Income Tax after careful consideration of the material on record, thereafter has granted the approval. It is submitted that therefore the impugned order cannot be Page 9 of 25 HC-NIC Page 9 of 25 Created On Tue Aug 15 07:59:53 IST 2017 C/SCA/4916/2017 CAV JUDGMENT said to be in breach of the principles of natural justice as alleged and/or as contended on behalf of the petitioner. It is further submitted by Shri Bhatt, learned Counsel that in the present case during the assessment proceedings for the year under consideration the petitioner was totally noncooperative. It is submitted that number of questionnaires were sent to the petitioner, however the petitioner was absolutely noncooperative and failed to answer the questions which were raised.
[4.7] It is submitted that based on the voluminous record, which did pertain to the petitioner also and since the petitioner never came forward to assist the Assessing Officer, detailed showcause notice was issued proposing special audit. It is submitted that showcause notice enumerates in great detail the above aspects, as also the nexus between the requisitioned documents and the case of the petitioner.
[4.8] It is further submitted by Shri Bhatt, learned Counsel appearing on behalf of the respondent that in view of the above, a clear opinion was formed by the Assessing Officer that having regard to the nature and complexity of the accounts, volume of the accounts, doubts about correctness of the accounts, multiplicity of transactions as also the specialized nature of business activity of the petitioner assessee and considering the interest of revenue, the matter was required to be referred under section 142(2A) of the IT Act. It is submitted that as mandated under the said provision, approval of the Principal, CIT (Central) was also obtained. It is submitted that the Principal (CIT) has not granted approval mechanically but has evaluated entire facts and in the notesheet has recorded independent satisfaction.
[4.9] It is further submitted that from the above stated sequence it is apparent that under the proviso to section 142(2A) of the IT Act, Page 10 of 25 HC-NIC Page 10 of 25 Created On Tue Aug 15 07:59:53 IST 2017 C/SCA/4916/2017 CAV JUDGMENT reasonable opportunity was also provided to the petitioner. It is further submitted by Shri Bhatt, learned Counsel that looking to the incriminating requisitioned material, had the case not been sent for special audit, it would have resulted into high pitched assessment on account of duplication which would also not have been in the interest of the petitioner. It is in these circumstances, a fair attempt has been made within the four corners of law, to determine and establish the true state of income of the petitioner.
[4.10] It is further submitted by Shri Bhatt, learned Counsel appearing on behalf of the respondent that in the present case as such the principles of natural justice has been complied with to the fullest. Requisite opinion has been formed based on the material available on record.
[4.11] Now, so far as the submission / contention of the petitioner that the impugned order does not disclose the recording of the opinion and/or it does not reflect that any opinion was formed by the Assessing Officer that the accounts for the year in consideration are required to be audited through the Special Auditor is concerned, it is vehemently submitted that as such the showcause notice itself notes in great detail the requirements relating to complexity etc. It is submitted that as such the impugned order is only a communication by the Assessing Officer directing the petitioner to have its books of account subjected to special audit. It is submitted that there is no requirement under the law / section that such intimation is required to contain reasons. It is further submitted that as such a detailed proposal was sent to the Commissioner.
It is further submitted that thereafter a satisfaction Note has been recorded by the Commissioner on the notesheet which can be seen Page 11 of 25 HC-NIC Page 11 of 25 Created On Tue Aug 15 07:59:53 IST 2017 C/SCA/4916/2017 CAV JUDGMENT from the file produced before the Court. It is submitted that after considering the detailed proposal and after having been satisfied by preparing a satisfaction note on the notesheet and thereafter having been satisfied that in the present case looking to the complexity and in the interest of revenue, accounts are required to be audited through Special Auditor, thereafter, the Commissioner has granted the approval which came to be subsequently communicated by the Assessing Officer to the petitioner. It is submitted that therefore the procedure as required to be followed under Section 142(2A) of the IT Act has been followed after giving opportunity to the petitioner and thereafter having been satisfied the requirement of special audit in the case of the petitoner for the AY 200910 to 201516 and thereafter a detailed proposal was sent to the Commissioner and thereafter having prepared a satisfaction note and having been satisfied, thereafter the proposal for speical audit has been approved.
Making above submissions and relying upon the following decisions, it is requested to dismiss the present petition.
1. Living Media vs. Commissioner of Income Taxmann.com 225 ITR 268 (SC)
2. Takshashila Realties Private Limited v. Deputy Commissioner of Income Tax (Spl. Civil Application No.2920/2017, Paras 16, 17)
3. Fedco (P) Limited vs. S.N. Bilgrami & Ors.
AIR 1960 SC 415 (Para 9)
4. Neesa Leisure Limited vs. Deputy Commissioner of Income Taxmann.com 35 Taxmann.com 216 (Paras 14, 21, 22)
5. U.P. Samaj Kalyan Nigam Limited vs. Commissioner of Income Tax, Lucknow 34 Taxmann.com 184 (paras 14, 20)
6. DLF Limited vs. Additional Commissioner of Income Tax 366 ITR 390 (Paras 7, 10, 26) Page 12 of 25 HC-NIC Page 12 of 25 Created On Tue Aug 15 07:59:53 IST 2017 C/SCA/4916/2017 CAV JUDGMENT
7. Ulhas Securities Private Limited vs. Deputy CIT Special Civil Application No.1266/2017 (Dated 13.02.2017)
(2013) 1 SCC 1
9. A.S. Motors Private Limited vs. Union of India & Ors. (2013) 10 SCC 114 [5.0] Heard learned Counsel appearing for respective parties at length. [6.0] At the outset it is required to be noted that the impugned order of special audit has been passed by the Assessing Officer in exercise of powers under Section 142(2A) of the IT Act and therefore, while considering the legality and validity of the impugned order passed under Section 142(2A) of the IT Act, section 142 of the IT Act (including section 142(2A) of the IT Act) is required to be referred to and considered, which reads as under:
"142. Inquiry before assessment. (1) For the purpose of making an assessment under this Act, the Assessing Officer may serve on any person who has made a return under section 115WD or section 139 or in whose case the time allowed under subsection (1) of section 139] for furnishing the return has expired a notice requiring him, on a date to be therein specified,
(i) where such person has not made a return within the time allowed under subsection (1) of section 139 or before the end of the relevant assessment year], to furnish a return of his income or the income of any other person in respect of which he is assessable under this Act, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed, or :
Provided that where any notice has been served under this subsection for the purposes of this clause after the end of the relevant assessment year commencing on or after the 1st day of April, 1990 to a person who has not made a return within the time allowed under subsection (1) of section 139 or before the end of the relevant assessment year, any such notice issued to him shall be deemed to have been served in accordance with the provisions of this Page 13 of 25 HC-NIC Page 13 of 25 Created On Tue Aug 15 07:59:53 IST 2017 C/SCA/4916/2017 CAV JUDGMENT subsection,
(ii) to produce, or cause to be produced, such accounts or documents as the Assessing Officer may require, or
(iii) to furnish in writing and verified in the prescribed manner information in such form and on such points or matters (including a statement of all assets and liabilities of the assessee, whether included in the accounts or not) as the Assessing Officer may require :
Provided that
(a) the previous approval of the Joint Commissioner shall be obtained before requiring the assessee to furnish a statement of all assets and liabilities not included in the accounts ;
(b) the Assessing Officer shall not require the production of any accounts relating to a period more than three years prior to the previous year.
(2) For the purpose of obtaining full information in respect of the income or loss of any person, the Assessing Officer may make such inquiry as he considers necessary. (2A) If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialised nature of business activity of the assessee, and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, direct the assessee to get the accounts audited by an accountant, as defined in the Explanation below subsection (2) of section 288, nominated by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in this behalf and to furnish a report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed and such other particulars as the Assessing Officer may require :
Provided that the Assessing Officer shall not direct the assessee to get the accounts so audited unless the assessee has been given a reasonable opportunity of being heard. (2B) The provisions of subsection (2A) shall have effect notwithstanding that the accounts of the assessee have Page 14 of 25 HC-NIC Page 14 of 25 Created On Tue Aug 15 07:59:53 IST 2017 C/SCA/4916/2017 CAV JUDGMENT been audited under any other law for the time being in force or otherwise.
(2C) Every report under subsection (2A) shall be furnished by the assessee to the Assessing Officer within such period as may be specified by the Assessing Officer :
Provided that the Assessing Officer may, suo motu, or on an application made in this behalf by the assessee and for any good and sufficient reason, extend the said period by such further period or periods as he thinks fit ; so, however, that the aggregate of the period originally fixed and the period or periods so extended shall not, in any case, exceed one hundred and eighty days from the date on which the direction under subsection (2A) is received by the assessee.
(2D) The expenses of, and incidental to, any audit under subsection (2A) (including the remuneration of the accountant) shall be determined by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner (which determination shall be final) and paid by the assessee and in default of such payment, shall be recoverable from the assessee in the manner provided in Chapter XVIID for the recovery of arrears of tax :
Provided that where any direction for audit under sub section (2A) is issued by the Assessing Officer on or after the 1st day of June, 2007, the expenses of, and incidental to, such audit (including the remuneration of the Accountant) shall be determined by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in accordance with such guidelines as may be prescribed and the expenses so determined shall be paid by the Central Government. (3) The assessee shall, except where the assessment is made under section 144, be given an opportunity of being heard in respect of any material gathered on the basis of any inquiry under subsection (2) or any audit under sub section (2A) and proposed to be utilised for the purposes of the assessment.
(4) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to Page 15 of 25 HC-NIC Page 15 of 25 Created On Tue Aug 15 07:59:53 IST 2017 C/SCA/4916/2017 CAV JUDGMENT those provisions as for the time being in force and applicable to the relevant assessment year."
[6.1] At this stage, it is required to be noted that Section 142(2A) of the IT Act has been amended w.e.f. 01.06.2013 and it provides that if at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialised business activity of the assessee, and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Principal Chief Commissioner or Chief Commissioner...., direct the assessee to get the accounts audited by an accountant, nominated by the Principal Chief Commissioner or Chief Commissioner... in this behalf. It also further provides that Assessing Officer shall not direct the assessee to get the accounts so audited unless the assessee has been given a reasonable opportunity of being heard. As per Section 142(2A) of the IT Act, the provisions of subsection (2A) shall have effect notwithstanding that accounts of the assessee have been audited under any other law for the time being in force or otherwise. Section 142(2C) of the IT Act provides that every report under sub section (2A) shall be furnished by the assessee to the Assessing Officer within such period as may be specified by the Assessing Officer. Section 142(2D) of the IT Act (as amended) also provide that the expenses of, and incidental to, such audit shall be paid by the Central Government. As per subsection (3) of Section 142, the assessee shall be given an opportunity of being heard in respect of any material gathered on the basis of any inquiry under subsection (2) or any audit under subsection (2A) and proposed to be utilised for the purposes of the assessment. Thus, from the aforesaid provision, it appears that object and purpose of special audit is as such to facilitate the Assessing Officer to arrive at Page 16 of 25 HC-NIC Page 16 of 25 Created On Tue Aug 15 07:59:53 IST 2017 C/SCA/4916/2017 CAV JUDGMENT correct taxable income and for which the Assessing Officer is authorized to direct the assessee to get books of account audited by the accountant authorized by the Assessing Officer, in case, Assessing Officer is of the opinion that books of accounts are complex in nature and there are multiplicity of transactions, for which, accounts are required to be audited through Special Auditor. As observed herein above and even as per subsection (3) of Section 142 ample opportunity shall be available to the assessee to make submission/ comments on the report of the Special Auditor and therefore, there shall not be any prejudice caused to the assessee if the accounts are ordered to be audited through Special Auditor under Section 142(2A) of the IT Act. With this, challenge to the impugned order is required to be considered.
[6.2] Identical question came to be considered by the Delhi High Court in the case of DLF Limited and Another (supra). In the said decision, the Delhi High Court has considered the scope,ambit and powers of the Assessing Officer while passing order under Section 142(2A) of the IT Act. In the said decision, it is observed that Section 142(2A) of the IT Act is enabling provision to help and assist the Assessing Officer to complete the scrutiny assessment with the assistance of an accountant. In paras 10, 11, 26 and 27, the Delhi High Court has observed as under:
"10. Aforesaid rulings when appraised and reflected, state that while examining the question of complexity in accounts, we have to apply the test of reasonable man by replacing the word and qualities of a reasonable man, with the word and qualities of a reasonably competent Assessing Officer. The question of complexity of accounts has to be judged applying the yardstick or test; whether the accounts would be WPC 2363/2013 Page 8 of 21 complex and difficult to understand to a normal assessing officer who has basic understanding of accounts etc., without the aid, assistance and help of a special auditor. Thus due regard has to be given to nature and character of transactions, method of accounting, whether actuarial were adopted for making entries, basis and effect thereof, etc., though mere volume of entries might not be a justification by themself as volume and Page 17 of 25 HC-NIC Page 17 of 25 Created On Tue Aug 15 07:59:53 IST 2017 C/SCA/4916/2017 CAV JUDGMENT complexity are somewhat different. Accounts should be intricate and difficult to understand. Every scrutiny assessment entails investigation and verification of the books of accounts, genuineness of the transactions or entries reflected in the books, computation of income etc. It is an exercise which demands expertise and a degree of skill to understand the accounts and decipher whether true and full income has been disclosed; whether there has been jugglery in the accounts or camouflage has been adopted. No undesirable assumptions should be made and a return filed is presumed to be correct, but a deep and in depth scrutiny depending upon the facts may be warranted. Section 142(2A) is an enabling provision to help and assist the Assessing Officer to complete scrutiny assessment with the help of assistance of an accountant.
11. There has been substantial expansion of scope and ambit of Special Audit under Section 142(2A) of the Act with effect from 1st June, 2013. The amended section has been widened to include volume of accounts, doubts about correctness of accounts, multiplicity of transactions in the accounts or specialised nature of business activity of an assessee. These amendments by Finance Act, 2013 with effect from 1st June, 2013, substitute the words "nature and complexity of accounts of the assessee". We are not concerned with the said amendment in the present case as the impugned order in question directing special audit was passed on 25th March, 2013, before the amendments became WPC 2363/2013 Page 9 of 21 effective. We are, therefore, primarily concerned with whether or not keeping in view the nature and complexity of accounts and the interest of Revenue direction for special audit is justified for the reasons set out in the order dated 25th March, 2013. (We have not examined the constitutional validity of the amended provisions and we express no opinion on the said aspect).
26. Powers under Section 142(2A) have to be exercised in terms of the legislative provisions. The object and purpose behind the legislation is to facilitate investigation and proper determination of the tax liability. The importance and relevancy of the legislation cannot be underestimated and it is a power available with the Assessing Officer to aid and assist him. Accounts should be accurate and provide real time record of the financial transactions of the assessee. Preparation of accounts is the work of the accountant on the payrolls or employed by the assessee. In order to ensure reliability and accuracy, enterprises resort to internal audit and an external audit which can be a statutory audit. Internal audits are normally conducted in house generally by acquainted or qualified accountants. Statutory audit is compulsory under WPC 2363/2013 Page 19 of 21 the Companies Act, 1956 or when stipulated by the Act and accounts have to be audited by a qualified Chartered Accountant. Chartered Accountants are not Page 18 of 25 HC-NIC Page 18 of 25 Created On Tue Aug 15 07:59:53 IST 2017 C/SCA/4916/2017 CAV JUDGMENT ordinary accountants but specialists who have successfully undergone academic study and have extensive practical experience and trained for the said work. Curriculum requires articleship under a mentor who is himself a Chartered Accountant with some years of experience. As opposed to an ordinary accountant, a Chartered Accountant with his experience and academic background is in a better position to investigate, examine and scrutinize entries and records of financial transactions. Calibre and competence of Chartered Accountants is of a high degree and should not and cannot be equated with the capability of an ordinary accountant or a normal person having knowledge or acquainted with accounts. Off late there has been demand for increased public scrutiny of accounts, inspite of statutory audit. Enron and other cases abroad and Satyams case in India have highlighted the need and necessity to have controls and system of checks, perhaps even beyond scope of traditional audit. Financial statements and accounts are being increasingly exiguously examined to rule out possibility of wrong doings, cover up or evasion of taxes. Financial statements and accounts are coming under increasing scrutiny and investigation. A Chartered Accountant is a financial investigator and prober, is required to be curious, tenacious and well conversant to identify and unearth frauds, misreporting and wrong claims in the accounts.
27. The aforesaid observations should not be construed as a general expression or opinion, that every account or statement of income must be viewed with suspicion, distrust and scepticism. The past instances are mere warnings, for closer and more indepth scrutiny. It is also a fact that WPC 2363/2013 Page 20 of 21 the business transactions have become more complicated and accounting entries more complex than ever before. This may be one of the causes why possibly the frauds could not be detected in some cases. Indeed such cases have made the audit work more comprehensive, intrusive and investigative. Ethical managements may at times regard such enquiries as an unwarranted intrusion or a hounding approach. Section 142(2A) does not permit fishing or roving inquiry approach or a witch hunt but is a regulated provision which accepts the need and necessity of the Assessing Officer to take help of an expert accountant i.e. a Chartered Accountant, a person who is academically qualified and has practical experience to understand accounts and unearth tax evasion or furnishing of inaccurate particulars etc. The provision balances the right of the Revenue with the inconvenience which the assessee may face. Assessing Officers are not Chartered Accountants and when required and permissible, therefore, can take help and assistance from the qualified specialists to complete the assessment and determine the taxable income of an assessee.
[6.3] In the present case, the Assessing Officer has thought it fit to get Page 19 of 25 HC-NIC Page 19 of 25 Created On Tue Aug 15 07:59:53 IST 2017 C/SCA/4916/2017 CAV JUDGMENT account audited by the Special Auditor as requisitioned materials are to the extent of 40000 papers found from the 14 gunny bags, which were requisitioned from Asharam Bapu and others. It appears that many of the persons with whom the petitioner assessee has transaction/ relation/ dealing are common and therefore, it cannot be said that the persons/ Shadahaks named in the requisitioned material are alien to the petitioner assessee. Under the circumstances, when large number of papers are required to be considered / verified visavis assessee and other persons whose names figured in the requisitioned papers and when considering Section 142(2A) of the IT Act, the Assessing Officer has thought it fit to exercise of powers under Section 142(2A) of the IT Act, it cannot be said that the Assessing Officer has committed any error and / or illegality. It is required to be noted that impugned order has been passed after giving an opportunity to the petitioner assessee and having satisfied with respect to the complexity and multiplicity of transactions.
[6.4] Now, so far as the contention on behalf of the petitioner assessee that one of the requirement for exercising the powers under Section 142(2A) of the IT Act that the Assessing Officer must be satisfied in interest of revenue, the account is required to be audited by the Special Auditor is concerned, it is required to be noted that considering the amended provision of Section 142(2A) of the IT Act which has come into force w.e.f. 01.06.2013, the Special Auditor can be appointed if at any stage of the proceedings before him, the Assessing Officer having regard to the nature and complexity of the account of the assessee and the interest of the revenue, is of the opinion that it is necessary so to do, he may direct the account to be verified by the Special Auditor. Therefore, having regard to the nature and complexity of the account, if the Assessing Officer is satisfied and / or is of the opinion that accounts are Page 20 of 25 HC-NIC Page 20 of 25 Created On Tue Aug 15 07:59:53 IST 2017 C/SCA/4916/2017 CAV JUDGMENT required to be verified by the Special Auditor, he may pass such order. Therefore, on the aforesaid ground that the Assessing Officer has not stated that the accounts are required to be audited by Special Auditor in the interest of Revenue, the impugned order is not required to be quashed and set aside, more particularly, when it is stated in the order that looking to the complexity and the multiplicity of transactions, accounts are required to be verified by the Special Auditor. Considering the object and purpose of Section 142(2A) of the IT Act, it appears that the accounts are required to be audited by the Special Auditor under Section 142(2A) of the IT Act with a view to facilitate the Assessing Officer in passing the Assessment order and to arrive at a right conclusion.
[6.5] Now, so far as the submission on behalf of the petitioner that the Principal Commissioner of Income Tax has mechanically granted the approval to the proposal made by the Assessing Officer is concerned, the same has no substance. Learned Counsel appearing on behalf of the Revenue has placed before the Court entire file from the office of the Assessing Officer as well as the Principal Commissioner of Income Tax. We have perused the same. It appears that a detailed proposal with reasons why in the present case the accounts of the petitioner required special audit has been sent by the Assessing Officer. The same was sent through the proper channel i.e. office of the Joint Commissioner of Income Tax and thereafter, after preparing a detailed satisfaction note, the proposal has been approved by the Principal Commissioner of Income Tax. The satisfaction note demonstrates application of mind by the Principal Commissioner of Income Tax agreeing with the proposal of the Assessing Officer for special audit. The proposal and the satisfaction note has been shown to the learned Counsel appearing on behalf of the petitioner. Under the circumstances, it cannot be said that while Page 21 of 25 HC-NIC Page 21 of 25 Created On Tue Aug 15 07:59:53 IST 2017 C/SCA/4916/2017 CAV JUDGMENT granting approval there is nonapplication of mind by the Principal Commissioner of Income Tax. By preparing a detailed satisfaction note and having been satisfied that in the present case looking to the multiplicity and complexity of transactions and in the larger interest of Revenue, the special audit is required, thereafter the proposal has been approved and thereafter the Assessing Officer has passed the impugned order.
[6.6] Now, so far as the submission on behalf of the petitioner that the approval does not reflect the satisfaction and except giving approval nothing is mentioned in the approval is concerned, at the outset it is required to be noted that what is produced on record is the forwarding letter / communication granting the approval of the Principal Commissioner of Income Tax. As observed hereinabove there is a detailed satisfaction note prepared by the learned Principal Commissioner of Income Tax which as observed hereinabove demonstrates the due application of mind.
[6.7] Now, so far as the submission on behalf of the petitioner for the directions issued in the impugned order of special audit under Section 142(2A) of the IT Act, special audit is not required and/or it is not the function of the auditor is concerned, it is required to be noted that the directions are required to be considered as a whole. The petitioner cannot pick and choose one or two directions. The reasons for special audit is multiplicity and complexity in the transactions and in the interest of Revenue. As observed hereinabove 40,000 papers / material contained in 45 gunny bags are required to be tallied and considered vis avis different persons and even the petitioner - assessee. At this stage it is required to be noted that the petitioner has not alleged any malafides.
Page 22 of 25HC-NIC Page 22 of 25 Created On Tue Aug 15 07:59:53 IST 2017 C/SCA/4916/2017 CAV JUDGMENT [6.8] Now, so far as the submission on behalf of the petitioner that once the Assessing Officer granted the personal hearing on 09.12.2016, the Assessing Officer ought to have waited and ought not to have disposed of the objections and/or ought not to have send the proposal to the Principal Commissioner is concerned, at the outset it is required to be noted that as such there is no requirement under the law to grant personal hearing. Under the law, the objections raised against the show cause notice are required to be considered, which have been considered and dealt with by the Assessing Officer while disposing of the objections raised by the petitioner. Under the circumstances, the impugned order cannot be said to be in breach of principles of natural justice.
[6.9] Considering the aforesaid facts and circumstances and the object and purpose of special audit under Section 142(2A) of the IT Act and considering the object and purpose of amending section 142(2A) of the IT Act and looking to the multiplicity and complexity of transactions found from 40000 papers / material requisitioned from 42 gunny bags, it cannot be said that the impugned order is absolutely illegal and/or contrary to section 142(2A) of the IT Act.
At this stage it is required to be noted that the impugned order has been passed on 21.12.2016 and the present petition has been filed on 22.02.2017. It is reported that there is a noncooperation on the part of the petitioner again and even he has not cooperated the Special Auditor also. It is reported that on the basis of the material available, the Special Auditor has as such prepared a report. However, because of the pendency of the petition, no further steps are taken. In any case as observed hereinabove, there is no illegality committed by the Assessing Officer in ordering the special audit under section 142(2A) of the IT Act.
[6.10] Now so far as submission made on behalf of the petitioner Page 23 of 25 HC-NIC Page 23 of 25 Created On Tue Aug 15 07:59:53 IST 2017 C/SCA/4916/2017 CAV JUDGMENT that the Assessing Officer cannot direct special audit under Section 142(2A) of the IT Act before calling for the accounts from the petitioner in the assessment proceedings and without doubting the accounts and/or considering the complexity in the accounts is concerned, it is required to be noted that as per amended Section 142(2A) of the IT Act, apart from the nature and complexity of the accounts, etc., even in case of multiplicity of transactions or otherwise nature of the business activity of the assessee and in the interests of the Revenue, the Assessing Officer can pass an order for special audit, in exercise of powers under Section 142(2A) of the IT Act. Therefore, while forming an opinion to get the accounts audited by Special Auditor; considering the specialized nature of business activities of the assessee, and/or while considering the multiplicity of transactions, there need not be any books of account before the Assessing Officer. In the present case, the Assessing Officer has thought it fit to get the account audited by the Special Auditor as requisitioned material are to the extent of 40,000 papers in 45 gunny bags, which were found during the search conducted of the premises of Asharam Bapu and others and the Trust. Under the circumstances, when large number of papers are required to be considered / verified visavis the assessee and other persons whose names figured in the requisitioned papers, and when considering section 142(2A) of the IT Act, when the the Assessing Officer has thought it fit to exercise powers under Section 142(2A) of the IT Act, it cannot be said that the Assessing Officer has committed any error and/or illegality. Specific reasons are given so mentioned in the showcause notice as to why and for what purpose the special audit is required. Therefore, in the facts and circumstances of the case, it cannot be said that the Assessing Officer has committed any error and/or illegality in passing the impugned order of special audit, in exercise of powers under Section 142(2A) of the IT Act.
At this stage it is required to be noted that with respect to other Page 24 of 25 HC-NIC Page 24 of 25 Created On Tue Aug 15 07:59:53 IST 2017 C/SCA/4916/2017 CAV JUDGMENT assessees who are alleged to be connected with Asharam Bapu and Narayan Sai Group, on the very ground order under Section 142(2A) of the IT Act has been passed by the concerned Assessing Officer and the petitions (Special Civil Application Nos.1266/2017 and other allied petitions) challenging the order of Special Audit under Section 142(2A) of the IT Act have been dismissed by this Court.
[6.11] In view of the above and for the reasons stated above, we see no reason to interfere with the impugned order passed by the Assessing Officer ordering special audit under Section 142(2A) of the IT Act in exercise of powers under Article 226 of the Constitution of India.
[7.0] In view of the above and for the reasons stated above, present petition fails and the same deserves to be dismissed and is, accordingly, dismissed. Notice is discharged.
Sd/ (M.R. SHAH, J.) Sd/ (B.N. KARIA, J.) Ajay Page 25 of 25 HC-NIC Page 25 of 25 Created On Tue Aug 15 07:59:53 IST 2017