Madhya Pradesh High Court
Jabalpur Co-Op.Milk Producers Union vs The Union Of India & Ors on 18 March, 2010
(1)
HIGH COURT OF MADHYA PRADESH : JABALPUR
W.P. No. 2420/1997
Jabalpur Cooperative Milk Producers Union Ltd.
Vs.
Union of India and others
DB : Hon. Arun Mishra & Hon. Smt. S.Shrivas tav a, JJ.
Shri Sumit Nema, Advocate for petitioner.
Shri Sanjay Lal for respondents No. 1 to 3.
Shri Sapan Usrethe for respondent No. 4.
O R D E R
(18.3.2010) AS PER : ARUN MISHRA, J
1. This writ petition has been filed assailing order (P-1) dated 2.12.1994 passed under section 142 (2A) of the Income Tax Act, 1961 (hereinafter referred to as the Act) by respondent No. 3 Dy. Commissioner of Income Tax. Prayer has also been made to quash assessment order (P-3) dated 20.6.1995. The writ petition has been preferred in the year 1997.
2. Though the petitioner has prayed for quashment of order (P-1) passed under section 142(2A) and order of assessment (P-3), however Shri Sumit Nema, learned counsel appearing for petitioner has confined the challenge to the order (P-1) passed under section 142(2A) of the Act. Prayer has also been made to quash the bill.
(2)
3. It is averred in the petition that the order (P-1) passed under section 142(2A) is mechanical and without looking into the nature of accounts, accounts cannot be said to be complex. The assessment order passed on the report of Special Auditor is illegal, hence it be quashed. Only because there was difference between certain figures which required reconciliation, it could not be said that accounts were complex. Decision in Rajesh Kumar & others Vs. Dy. Commissioner of Income Tax and others- (2006) 287 ITR 91 (SC) has been relied upon.
4. Respondent No. 4 appointed as Special Auditor submitted report on 28.4.1995 under section 142(2A) of the Act and bill of Rs. 1,77,000/- was raised. Petitioner objected to the amount of fee on the various grounds. Vide order dated 21.4.1997, respondent No. 2 determined the fee payable at Rs. 1,77,000/- after adjustment of Rs. 30,000/- which was already paid. It is submitted that petitioner has been saddled with unnecessary financial burden. No notice has been received from respondent No. 3 to produce the books of accounts before referring the matter for audit. The accounts were already audited. The fee charged is excessive as it could not be the fee for 23 days. Log book maintained by the petitioner with respect to visit of the Chartered (3) Accountant ought to have been accepted as to the time consumed. It is also submitted that the finding recorded that visit was made for 59 days/5 hours per day is incorrect, hence petition has been preferred. 5. In the return filed by the respondents NO. 2 and 3 it is contended that direction for audit was made considering the complexity of the account and in the interest of revenue. Report (R-2) was submitted with respect to visit of Special Auditor on the basis of that remuneration was fixed at Rs. 1,77,000/- . Order was passed after affording opportunity of hearing. Time for special audit was extended upto 10.4.1995 as upto 23 visits work could not be completed. There was no illegality committed in extending the time. Wrong income tax return was filed.
6. Respondent No. 4 in its return has supported the stand of respondents No. 2 and 3 and has given the details with respect to visits made for the purpose of special audit.
7. Shri Sumit Nema, learned counsel appearing for petitioner has submitted that it is prerequisite for exercising of power under section 142(2A) of the Act that account should be complex. In that event only (4) in the interest of revenue, the special audit can be ordered not otherwise. In the instant case merely because reconciliation of the account was required, special audit could not have been ordered. Consequently extending the burden upon the petitioner of fee of special audit of Rs. 1,77,000/- was unwarranted. The order passed under section 142(2A) of Act is not amenable to judicial review however pre-existence of conditions for exercising such power is necessary, which were not available in the instant case. He has relied upon the decision of Apex Court in Rajesh Kumar & others Vs. Dy. Commissioner of Income Tax and others (supra) and Sahara India (Firm) Vs. Commissioner of Income Tax and another - (2008) 300 ITR 403 . Petitioner has also assailed the bill submitted by special auditor on the ground that log book maintained by the petitioner ought to have been accepted by the Dy. Commissioner while passing the order (P-6) with respect to fee for the period for which the Special Auditor had worked. The fees could not be to the extent of 1,77,000/- , thus fixation of fee by the Commissioner at Rs. 1,77,000/- is bad in law. He has further submitted that interest of revenue would not suffer in the instant case as assessment order has already been passed which takes care of the interest of revenue.
(5)
8. Learned counsel appearing for respondents have supported the order. They have submitted that petition has been filed belatedly. Order under section 142(2A) of the Act has been assailed after passing of the assessment order. Matter of fee has been determined on the basis of report (R-2) called by the Commissioner, Income Tax. The visits of special auditor have been found for 59 days/5 hours a day. Thus remuneration of Rs.1,77,000/- is appropriate. No case for interference is made out in writ jurisdiction of this Court. Even in the appeal interference cannot be made as held by High Court of Delhi in P.N. Mishra and another Vs. Union of India and others - 2005 (72) ITR 482.
9. Before dilating upon the merits of the order (P-1) passed under section 142(2A) of the Act, it is considered appropriate to refer to the decision rendered by the Apex Court in Rajesh Kumar & others Vs. Dy. Commissioner of Income Tax and others (supra), in which it has been laid down by the Apex Court that order under aforesaid provision is not administrative in nature, it is quasi judicial order. The expression 'having regard to' in section 142(2A) is significant. An opinion must be formed strictly in terms of the factors enumerated therein. (6) The expression indicates that in exercising the power regard must be had also to the factors enumerated therein together with all factors relevant for the exercise of the power. The factors enumerated in section 142(2A) are not exhaustive. Such order has to be passed in consonance with principles of natural justice. The expression "complexity" in section 142(2A) would mean the state or quality of being intricate or complex or that it is difficult to understand. Difficulty in understanding would, however, not lead to the conclusion that the accounts are complex in nature. The formation of opinion under section 142(2A) that the accounts of the assessee require an expert audit should indisputably be based on objective considerations. No order can be passed on whims or caprice. All that is difficult to understand should not be regarded as complex. What is complex to one may appear simple to another. It depends upon one's level of understanding or comprehension. Sometimes, 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 on a cursory look at the accounts. There should be an honest attempt to understand the accounts of the assessee. The power under section 142(2A) cannot be lightly exercised. The satisfaction (7) of the authorities should not be subjective satisfaction. It should be based on objective assessment regard being had to the nature of the accounts. No internal remedy is prescribed. Judicial review cannot be said to be an appropriate remedy in this behalf. At the same time, while, however, applying the principles of natural justice the court must also bear in mind the theory of useless formality and the prejudicial doctrine. The Apex Court has further considered the question of principles of natural justice in Sahara India (Firm) Vs. Commissioner of Income Tax and another (supra), it has been laid down that order under section 142(2A) entails civil consequences. The special audit is more or less in the nature of investigation and in some cases may even turn out to be stigmatic. It may carry civil consequences. Thus reasonable opportunity by observing principles of natural justice is to be read in the said provision. The Supreme Court held that the legal position as clarified above will apply prospectively. It would not open to the assessee to urge that the extended period of limitation under Expln. 1(iii) to S. 153 (3) is not available to the Assessing Officer on the ground that order under section 142(2A) is invalid. Correctness of the material can be subject matter of appeal. Their Lordship considered the proviso to (8) section 142(2A), it was added w.e.f. 2007.
10. Coming to the facts of the instant case, when we consider the legality of the order (P-1) passed under section 142(2A) of the Act, 1961, it is apparent that society had filed return of loss of Rs. 93,85,052/- . Society has also filed audit account and report of auditor under section 44AB. Assessee had disclosed the liability of Uco Bank as nil and State Bank of India Rs. 17,28,022/- . Uco Bank has submitted that there was credit balance of Rs. 9604/- , balance at nil thus was incorrect. State Bank of India reported the balance at Rs. 1,65,987/- . The State Bank of India submitted that it has not provided any credit facility to the society. Society was thus wrong in showing the liability at Rs. 17,28,022/- . Society was given opportunity to explain the difference. It filed reconciliation showing the ledger and there were incorrect posting under the wrong heads. The Chartered Accountant who audited the accounts was, therefore, requested to show cause how these lapses were not noticed while auditing the accounts. The Chartered Accountant who audited the accounts under section 44AB filed reply and submitted that he submitted quarterly reports and various irregularities were brought to the notice of the cooperative society. The quarterly (9) reports run into 11,13, 11 and 16 pages respectively for each quarter. Considering the complexity of the accounts and interest of revenue, it was considered necessary to get the account audited by the accountant. Commissioner of Income Tax was, therefore, requested to accord the approval under section 142(2A) who after approval appointed Shri R.P.Oswal, CA for this purpose.
11. In the instant case it is not the case that principles of natural justice were not followed. Objective satisfaction is necessary under section 142(2A) of the Act. It has been mentioned in the order that large number of items were not posted in the ledger properly and incorrect postings were made in the accounts which were filed. The report of Chartered Accountant was filed under section 44AB. On show cause being given to said Chartered Accountant, he had pointed out that he sent, for various quarters, reports running into large number of pages pointing out several irregularities to the cooperative society. Considering the aforesaid complexity in the interest of revenue, it was considered necessary to resort to the provision under section 142(2A) of the Act for which permission of Commissioner was sought. Commissioner had accorded the approval, is not in (10) dispute. Even there were wrong postings made with respect to the accounts of Uco Bank and credit balance of State Bank of India was shown to be 165987/- , whereas Bank had informed that it has not provided any credit facility to the society. The Apex Court in Rajesh Kumar & others Vs. Dy.
Commissioner of Income Tax and others (supra), has observed that factors enumerated in section 142(2A) are not exhaustive and has also explained the complexity and requirement of interest of revenue to be read together. Considering the wrong and improper postings made the account complex, thus it was considered necessary to resort to special audit. Even irregularities were pointed out by the Auditor who has submitted the report under section 44AB. Thus finding which has been recorded in Para-7 of order (P-1) that having regard to the nature and complexity of accounts and in the interest of revenue, it was considered necessary to direct the assessee to get the accounts audited by an accountant. Having reference to the provision under section 142(2A) of the Act, the order (P-1) is found to be based on sound reasoning. It was not a matter of mere reconciliation of account, the accounts were not at all properly maintained. For proper accounting it was considered necessary to appoint Special Auditor, thus following the aforesaid dictum (11) of Rajesh Kumar & others Vs. Dy. Commissioner of Income Tax and others (supra), it could not be said in the instant case that provision of section 142(2A) has been violated in any manner. We also place on record that the income tax return which was filed was found to be incorrect and out of deficit a sum of Rs. 1,40,00,000/- had been reduced. We do not comment finally on the aforesaid aspect as assessment order is not the subject matter of challenge in the petition and challenge to it has been withdrawn by the petitioner's counsel. However, petition has also been filed belatedly in the instant case to assail the order under section 142(2A) after order of assessment (P-3) was passed on 20.6.1995. The writ petition was filed in 1997 when special audit had already been completed.
12. It appears that petitioner was mainly aggrieved by the fixation of fee for which he has approached the Commissioner of Income Tax and Commissioner of Income Tax has passed order (P-6A) on 21.4.1997. The Commissioner had called the report and has given the finding that assessee had not taken the signatures of Chartered Accountant to confirm the period of 23 days for which it was claimed that Special Auditor has worked. The Asst. Commissioner of Income Tax, Special Range, Jabalpur was (12) requested by the Commissioner vide letter dated 26.7.1995 to state whether he is satisfied about the period claimed by Special Auditor who confirmed that for 59 days visits were made for 5 hours per day by the Special Auditor. On the basis of aforesaid the Commissioner has accepted the period of 59 days/5 hours per day and has ordered remuneration for the said period. Thus remuneration which has been fixed of Rs. 1,77,000/- is based on finding of fact and is not shown to be perverse in any manner.
13. Shri Sumit Nema, learned counsel appearing for petitioner has prayed that the fees may be suitably reduced. In our opinion, once the fee has been determined in objective manner after calling the report by the Commissioner, Income Tax, there is no question of reducing it. Thus, no case is made out to make interference in order (P-6) passed by the Commissioner of Income Tax.
14. Resultantly, writ petition being devoid of merit, deserves dismissal, the same is hereby dismissed. No costs.
(Arun Mishra) (Smt. Sushma Shrivastava)
Judge Judge
PB