Madhya Pradesh High Court
M.P. Audyogik Kendra Vikas Nigam ... vs Principal Commissioner Of Income Tax I on 7 November, 2020
1 W.P.No.2980/2020
HIGH COURT OF MADHYA PRADESH : JABALPUR
Heard through Video Conferencing
Writ Petition No.2980/2020
Madhya Pradesh Audyogik Kendra Vikas Nigam, Bhopal
vs.
Principal Commissioner of Income Tax-I, Bhopal & another
Jabalpur, dated : 07.11.2020
Shri Anurag Gohil, learned counsel for the petitioner.
Shri Sanjay Lal, learned counsel for the respondents.
Petitioner, Madhya Pradesh State Public sector undertaking being aggrieved by a decision to get its Books of Account audited under the provisions for compulsory audit under Section 142(2A) of the Income Tax Act, 1961 (for short 'IT Act'), communicated vide letter F.No.ITO- 2(4)/BPL/142 (2A)/MPAKVNL Bhopal/AY 17-18 dated 31.12.2019, has filed this writ petition seeking its quashment on the ground that the petitioner was not given an effective opportunity of hearing.
2. Evident, it is from impugned communication that scrutiny assessment proceedings under Section 143 of the Income Tax Act is pending against the petitioner. It is further borne out from record that notice under Section 143(2) of the IT Act was issued on 16.08.2018 for the following reasons :
"a. Low receipt from house property in ITR as compared to rental receipts in 26AS.
b. Low income in comparison to high loans/advances/investment in shares appearing in balance sheet.2 W.P.No.2980/2020
c. Sale consideration of property in ITR is less than sale consideration reported in Form 26QB. d. Expenses debited to P&L account for earning exempt income.
e. Large refund claimed out of advance tax. f. Large investment in property (Form 26 QB) as compared to total income."
3. That, a questionnaire was issued under sub-section (1) of Section
142. The reply was not found satisfactory for the reasons that the petitioner was not maintaining its books of account accurately and has not followed the accounting principles correctly and the nature of accounts being complex and bulky led the department to take recourse to compulsory audit.
4. Though the impugned action is questioned on the ground that effective opportunity of hearing was not given. However, the record reveals that before taking decision on 31.12.2019 a notice was issued on 30.12.2019 to the petitioner vide DIN & Letter No. ITBA/COM/F/17/2019-20/1023245419(1) dated 27.12.2019 was given the opportunity of hearing. The communication states :
"Government of India Ministry of Finance Income Tax Department Office of the Income Tax Officer ITO, 2(4), Bhopal To, The Managing Director, M.P.Audyogik Kendra Vikas Nigam, (Bhopal), Ist Floor, Tawa Complex, Arera Colony, Bhopal, Madhya Pradesh.
India
3 W.P.No.2980/2020
Dated 27.12.2019 DIN & Letter No.
ITBA/COM/F/17/2019-20/1023245249(1). Sir/Madam/M/s.
Subject: Pending Scrutiny, Assessment proceedings- Calling for explanation & providing opportunity for the A.Y.2017-18 reg.
Kindly refer to this office notice u/s 143(2) dated 16.08.2018, notice under Section 142(1) dated 15.11.2019, notice u/s 142(1) dated 20.12.2019 (final opportunity) and your reply in compliance to the above notices.
Vide your reply dated 23.12.2019, it is submitted that the tax audit filed by the company for the year 2016-17, has the lower effect on the profit of the company by Rs.12,79,90,420/- is due to change in accounting policy in the relevant year.
According to the audit report in Form 3CD for the AY 2017-18 the auditor has mentioned that "the accounts are prepared under mercantile system on historical cost & as per GAAP, applicable standards. There is change in the method of accounting as per Govt. of M.P.Govt. has directed to prepare its accounts of no profit & no loss basis and transfer or receive surplus/deficit in State Govt. account maintained with company. The net effect of such change is income is income is understated by Rs.12,79,90,420/-."
On perusal of the letter dated 31.03.2017 issued by the Govt. of M.P.State, it is seen that there is no significant change in the accounting standard for the year under consideration. It is found in the year under reference without paying tax, entire income has been diverted to the State Govt. account which is to be maintained by you separately for proper maintenance of income of your business. In fact no income is finally & permanently given to the State Govt. There is no major change in the nature of 4 W.P.No.2980/2020 the business and on these business activities you were hitherto filing correct return of income but this year all of a sudden entire income is reduced to Zero. So looking to the nature and complexity as observed from your replies given hitherto and on the examination of return of income, audit report, submissions given, it appear that your statutory CA had also made specific comments in the audit report itself that Rs.12,79,90,420/- net income is diverted & lowered and it is nothing but small change carried out by you in you internal accounting system. It is a cardinal rule that any private planning made by any assessee cannot over rule the provisions of Income Tax Act, 1961.
Hence looking to the volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts and also specialized nature of your business activity and keeping in mind the interest of revenue, it is imperative to cause the special audit in this case.
In view of the above and keeping in view of CBDT's instruction no.1078 regarding referring cases for special audit, you are requested to please explain as to why the case shall not be referred for special audit u/s 142(2A) of the Income Tax Act, 1961.
The case for compliance fixed on 30.12.2019 at 10:30 AM. The compliance may please be made on the stipulated date being limitation matter involved. This may be considered as an opportunity to be heard given to the assessee as per provisions of section 142(2A) of the Income Tax Act, 1961.
Govind Khandelwal ITO, 2(4), Bhopal"
5. These facts nullify the contention of the petitioner that they had no effective opportunity of hearing. That Section 142(2A) of IT Act contemplates that if, at any stage of the proceedings before him, the 5 W.P.No.2980/2020 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 Chief Commissioner or Commissioner, direct the assessee to get the accounts audited by an accountant, as defined in the Explanation below sub-section (2) of section 288, nominated by the Chief 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. Proviso to sub-section (2A) of Section 142 entails an opportunity of hearing.
6. In Rajesh Kumar vs. Dy.CIT & others (2007) 2 SCC 181 while dwelling on the scope and the expanse of hearing under Section 142 (2A) of the IT Act, it has been observed :
"61. The hearing given, however, need not be elaborate. The notice issued may only contain briefly the issues which the assessing officer thinks to be necessary. The reasons assigned therefor need not be detailed ones. But, that would not mean that the principles of justice are not required to be complied with. Only because certain consequences would ensue if the principles of natural justice are required to be complied with, the same by itself would not mean that the court would not insist on complying with the fundamental principles of law. If the principles of natural justice are to be excluded, the Parliament could have said so expressly. The hearing given is only in terms of Section 142 (3) which is limited only to the findings of the special auditor. The 6 W.P.No.2980/2020 order of assessment would be based upon the findings of the special auditor subject of course to its acceptance by the assessing officer. Even at that stage the assessee cannot put forward a case that power under Section 142(2A) of the Act 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) of the Act is not an appellate order."
7. In the case at hand, as adverted supra the petitioner was afforded an opportunity of hearing before taking recourse to sub-section (2A) of Section 142 directing the petitioner to get the accounts audited by an accountant.
8. In view whereof, no interference is caused. Consequently, petition fails and is dismissed. No costs.
(Sanjay Yadav) (Vijay Kumar Shukla)
Acting Chief Justice Judge
anand
Digitally signed by
ANAND KRISHNA SEN
Date: 2020.11.10
10:30:09 +05'30'