Madhya Pradesh High Court
Commissioner Of Income-Tax vs Vijay Kumar Rajendra Kumar And Co. on 4 October, 2004
Equivalent citations: (2005)193CTR(MP)245, [2004]271ITR337(MP)
Author: A.M. Sapre
Bench: A.M. Sapre
JUDGMENT A.M. Sapre, J.
1. This is a reference made under section 256(1) of the Income-tax Act, 1961, by the Tribunal to this court at the instance of the Revenue (Commissioner of Income-tax) to answer the following two questions of law :
"1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the direction issued by the Assessing Officer for special audit under section 142(2A) of the Income-tax Act, 1961, was arbitrary and illegal and, therefore, the time taken in special audit cannot be excluded ?
2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in cancelling the assessment on the ground that the same is barred by limitation ?"
2. Heard Shri R. L Jain with Ku. Mandlik, learned counsel for the applicant, and Shri Joshi, learned counsel for non-applicant.
3. The question arises out of the assessment year 1985-86 for which the previous year has ended on March 31, 1985.
4. In substance, the question is, whether the direction given by the Assessing Officer to the assessee to get the accounts audited in terms of section 142(2A) of the Act can be upheld in the facts of the case. In the opinion of the Commissioner of Income-tax (Appeals), the directions are legal, proper and were rightly issued by the Assessing Officer to the assessee. This is what the Commissioner of Income-tax (Appeals) held while upholding the directions :
"I have considered the above submissions of the assessee and do not agree with the contentions. Firstly, section 142(2A) does not provide for giving of any opportunity to the assessee before passing an order under the said section. It is purely the discretion of the Assessing Officer whether circumstances exist requiring action under section 142(2A) or not. This aspect has further to be verified by the Commissioner of Income-tax, who accords his approval for passing of an order under section 142(2A). As the order has been passed under section 142(2A), after taking prior approval of the Commissioner of Income-tax, Bhopal, it would not be proper for this authority to sit in judgment whether the approval given by the Commissioner of Income-tax, Bhopal, is proper or not. Therefore, this matter is not open for decision by me and the assessee's contention in this regard cannot be entertained."
5. The Tribunal did not agree with the view taken by the Commissioner of Income-tax (Appeals) and quashed the directions. In the opinion of the Tribunal, since no opportunity of hearing was afforded to the assessee before issuing the direction for getting the audit done and since the accounts did not involve any complexity, the assessment made is barred by limitation so too the direction for getting the audit done.
6. The question as to the interpretation of section 142(2A) was decided by this court (single Bench in W. P. No. 9515 of 2003) Sewaram Takhtani v. Asst. CIT [2004] 270 ITR 509 decided on April 5, 2004. In our view, the view taken by this court is in accord with the intention of the Legislature and we uphold it. By placing reliance on several authorities of the Supreme Court and the High Court, this court held as under (page 512) :
"The submission of learned counsel for the petitioner was that neither there was any material to form any such opinion nor any opinion was formed and hence, the impugned order is not sustainable. I do not agree. In the first place, it is dealt with supra and held against the petitioner. Secondly, mere perusal of assessment proceedings (annexure P4) pending before the Assessing Officer also indicates that the Assessing Officer did go into the material seized as also the books of account in the course of the assessment proceedings and then passed the impugned order. It cannot, therefore, be contended by the petitioner that there was no material on record for forming an opinion, or that there was no application of mind to the facts of the case before passing the impugned order. I am supported by the authorities reported in Kumar Films P. Ltd. v. CIT [2002] 258 ITR 257 (Patna); Shiv Kant and Bros. v. Union of India [2004] 270 ITR 499 (Raj) and Living Media Ltd. v. CIT [2002] 255 ITR 268 (SC).
In my opinion, it is the subjective satisfaction of the authority concerned to decide on the basis of the material on record, as to whether the accounts are complex in nature, or not. The word 'complex' is not defined in the Act and hence, it has to be given its wide and liberal meaning. As in this case, if the authority noticed that a large number of transactions are executed benami by the petitioners and that none of them are reflected in the books of account and that the books of account maintained by the petitioner contain several discrepancies, erasures and overwritings, etc., then certainly such accounts are not dependable for determining the exact tax liability. Indeed, the application of mind by the authority is also discernible when one peruses the impugned order. They need to be reaudited in accordance with law. In such circumstances, the authority's only option is to take recourse to the provisions of section 142(2A) ibid and issue necessary directions. It is not for the court to again examine whether the accounts in question are complex, or not, because, the writ court does not act as an appellate court over such decisions of the Assessing Officer."
7. Once we hold that the direction for getting the special audit under section 142(2A) is legally sustainable and was rightly issued then the provisions of section 153, Explanation l(iii) gets attracted. In other words, the period spent in special audit has to be excluded for making an assessment. In this case, it is not in dispute that once the directions under section 142(2A) are held to be legal/valid then the assessment made in question by the Assessing Officer on February 2, 1989, comes within limitation. It is accordingly held to be within limitation.
8. Accordingly and in view of the aforesaid, we answer both the questions in the negative, i.e., in favour of the Revenue and against the assessee. In other words, we hold that the Tribunal was not justified in holding that the directions issued under section 142(2A) of the Act for special audit are arbitrary or illegal and therefore, the time taken in special audit cannot be excluded. Instead, we hold that the Assessing Officer was justified in issuing a direction for special audit under section 142(2A) of the Act and that the time taken in special audit can be excluded. We also hold by answering the second question that the Income-tax Appellate Tribunal was not justified in cancelling the assessment on the ground that the/Same is barred by limitation. Instead, we hold that the assessment made is within limitation.
9. No costs.