Calcutta High Court
Narinder Singh Atwal vs Deputy Commissioner Of Income-Tax And ... on 28 January, 1998
Equivalent citations: [1998]231ITR641(CAL)
JUDGMENT M.H.S. Ansari, J.
1. Brief facts of the case are that the petitioner is a civil contractor carrying on construction work. On November 6, 1996, and January 24, 1997. the business and residential premises of the petitioner were searched under Section 132(1) of the Income-tax Act. A number of documents including account boks, computer floppies relating to the accounts of the assessee for various branches and various accounting periods were seized. Proceedings were initiated by the assessing authority for the block assessment period April 1, 1986 to January 24, 1997, under Section 158BC. The return for the block period was filed by the petitioner-assessee on October 13, 1997. Thereafter, the petitioner filed Writ Petition No. 72 of 1998 questioning the jurisdiction of the assessing authority to make the assessment under Section 158BC, when the time limit for completion of the said block assessment was said to have expired on November 30, 1997, under Section 158BE. This court, by an order dated January 8, 1998, directed the filing of affidavits and issued ad interim directions as under :
"Any assessment made by the Assessing Officer under Section 158BC of the Income-tax Act, 1961, shall not be given effect to except with the leave of the court. It is further directed that the said order for assessment shall be subject to such further order that may be passed on this application."
2. The present writ application is filed questioning the action of the assessing authority nominating an accountant to audit the accounts of the petitioner under Section 142(2A) of the Income-tax Act. An order in that behalf giving requisite approval for the action of the assessing authority was passed by the Commissioner by order dated January 8, 1998. This purported approval of the Commissioner in his order dated January 8, 1998, has been assailed in the above writ application.
3. According to the petitioner there is no warrant for nominating the accountant, that the condition precedent for the exercise of the said power, viz., formation of an opinion by the assessing authority is absent as the assessing authority has no occasion to examine the accounts for the relevant block period. The impugned approval, it is contended is mechanical and without application of mind besides being in violation of the principles of natural justice inasmuch as the petitioner was not heard at or before grant of approval. The further submission is that there is no necessity for nominating an accountant under Section 142(2A) as the petitioner's accounts have already been audited under Section 44AB. The order of approval passed by the Commissioner is mala fide and that the fixation of the fee of the accountant at Rs. 6 lakhs under Section 142(2D) is highly exorbitant besides being illegal. The main prayer, however, in the writ application is with regard to the constitutional validity of Section 142(2A) of the Income-tax Act.
4. Learned counsel for the respondent authority placed before this court a xerox copy of the letter dated December 29, 1997, of the assessing authority addressed to the Commissioner seeking approval for grant of sanction for special audit of the assessee's accounts. A prima facie perusal of the said letter shows that the assessing authority has considered and applied his mind to the facts of the case and also the appraisal report and noted that the genuineness of certain expenses running into lakhs is doubtful and the correctness of entries appearing in the account books has also not been found to be in order and that huge losses have been shown. It was further observed that the seized computer floppies have been prepared on different computer systems and the contents cannot be verified with the regular books of account and it is also not possible to state whether the accounts contained in the floppies have been reflected in the income-tax return filed by the petitioner for various years.
5. From the above, it is prima facie apparent that there has been a formation of opinion by the assessing authority and thereby the condition precedent has been complied with. The requisite approval of the Commissioner based on the report has also been granted. Whether the said approval suffers from the vice of violation of the principles of natural justice even though the statute does not warrant prehearing being granted to the assessee under Section 142(2A) is a matter which would require to be considered in depth in the light of the construction to be placed upon Section 142(2A) and in the light of the "prejudice test" enunciated in State Bank of Patiala v. S. K. Sharma .
6. In the light of the orders already passed by this court on January 8,1998, I am not prima facie satisfied that for finalisation of the assessment resort to Section 142(2A) as in the instant case is either illegal or without jurisdiction. Section 142(2A) enables the assessing authority to direct the accounts to be audited in the event of complexity of accounts. The power under Section 142(2A) can be invoked when the assessing authority finds that the accounts are complicated. The overlapping in certain situations with regard to Section 44AB and Section 142(2A) do not render the provision either void or superfluous, A. S. Sarma v. Union of India .
7. The question as to the constitutional validity of Section 142(2A) is a matter to be decided in the main writ application and until so determined its validity has to be presumed. In the circumstances, I am not inclined to stay the operation of the special audit pursuant to the orders passed under Section 142(2A).
8. It need only be clarified that the above are prima facie views in relation to the present application for stay of audit.
9. Learned counsel for the petitioner relied upon certain orders of learned single judges wherein interim stay was granted in proceedings where Section 142(2A) was invoked and their validity questioned before court.
10. I would have been inclined to follow the same course for the sake of conformity but for the fact that orders have already been passed by this court dated January 8, 1998, in W. P. No. 72 of 1998 permitting the assessment proceedings to proceed in accordance with law and subject to the condition that effect shall not be given to the assessment orders except with the leave of courts. Further, until the validity is determined the presumption as to its validity has to be given effect to. Thirdly, the instant case is one relating to assessment for a block period under Section 158BC unlike the cases in which interim stay was granted.
11. However, in so far as the fee of the nominated accountants is concerned the same is prima facie excessive and accordingly there shall be interim stay in respect thereof to the extent of 50 per cent. keeping in view that the audit is to be made for the block period comprising April 1, 1986, to Janaury 24, 1997. What would be the appropriate fee can be determined at the time of the final hearing of the writ petition.