Income Tax Appellate Tribunal - Chandigarh
M/S Haryana State Industrial & ... vs Acit, Circle, Panchkula on 26 October, 2021
आयकर अपील य अ धकरण,च डीगढ़ यायपीठ "ए", च डीगढ़
IN THE INCOME TAX APPELLATE TRIBUNAL,
CHANDIGARH BENCH 'A', CHANDIGARH
BEFORE: SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER
AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA No.1369 /Chd/2019
नधा रण वष / Assessment Year : 2014-15
M/s Haryana State Industrial & बनाम The A.C.I.T.,
Infrastructure Dev. Corpn. Ltd., Circle Panchkula.
Panchkula.
थायी लेखा सं./PAN NO: AAACH4114R
अपीलाथ /Appellant थ /Respondent
नधा रती क ओर से/Assessee by : Shri A.K. Jindal, CA &
Smt.Rattan Kaur, CA
राज व क ओर से/ Revenue by : Smt.C.Chandrakanta, CIT
सन
ु वाई क तार"ख/Date of Hearing : 29.07.2021
उदघोषणा क तार"ख/Date of Pronouncement : 26.10.2021
(Hearing through Webex)
आदे श/ORDER
Per Annapurna Gupta, Accountant Member :
Th e p r e se nt a p pe a l h a s bee n p re fe r re d b y the ass e ssee a ga i n st th e o rde r of t he Le a r ne d C ommis si on e r of I n come Ta x( Ap p e a l s) -I , C h a n di ga r h [ (i n sh or t t he 'Ld . C I T(A )] dated 2 7 .0 8 .2 0 1 9 r e la tin g to a s se s sme nt y e a r 2 01 4 -1 5 , p a ss e d u/s ITA No.1369/Chd/2019 A.Y. 2014-15 Page 2 of 32 2 5 0( 6 ) of the I ncome Ta x Act , 1 9 6 1 (h e re i n a fte r re fe rre d to a s 'A ct') .
2. B ri e f b a ck gr ou nd o f t he ca se i s th a t a s se ssme nt for t he i mpu gn e d ye a r w a s c omp le te d u/s 14 3 ( 3) of the Act . D ur i ng a ss e s sme n t p r oce e d i ngs a re fe re nc e w a s ma d e b y t he Asse s si ng O ff i ce r ( AO ) f or a u di t o f a c cou nts of the a s se sse e u/s 14 2 ( 2A ) of th e Ac t ( he re ina f te r re fe r re d to a s "sp e ci a l a ud i t") a nd a fte r ob ta i ni n g t he rep or t of th e spe cia l a ud it or , a ss e ss me n t w a s f ra me d b y ma k i ng va r i ou s a dd i tio ns un d e r d iff e re n t he a ds a mou nti n g i n a l l to Rs .6 8 8 9, 0 6 ,6 9 ,1 0 0 /-, a s d e ta i le d in p a r a 2 of th e CI T( A) 's or d e r .
3. Th e a s se s se e cha ll e n ge d t he o rde r o f the A O be for e the Ld .C I T(A ) on v a r i ous gr oun d s, in cl ud i ng cha ll e n gi ng t he r e fe re n ce ma d e b y th e A O to s pe ci a l a u di t. Th e Ld .C I T( A) th e re a f te r a d j ud ica te d t he v a r ious gr ou nd s r a i se d a n d p a rt ly a l lo we d th e a sse ss ee ' s a p pe a l. Th e gr oun d s ra i se d re g a r di n g the ch a l le nge t o th e r e fe re n ce to sp e cia l a ud i t w a s d i s mi sse d b y t he Ld .C I T(A ) h ol d in g th a t th e s a id r e fe re n ce w a s not ap p e a l a ble b e f ore hi m.
4. Agg ri e ve d b y th e or de r of t he Ld .C I T(A ) th e a s se sse e ha s n ow co me u p i n a p p e a l be f ore us . B e si de s the gr ound s r a is e d i n i ts a p pe a l f ile d b e fo re u s in For m N o. 3 6, t he a ss e s see a l so ITA No.1369/Chd/2019 A.Y. 2014-15 Page 3 of 32 r a i se d a n a d d ition a l gr oun d vi d e i ts le t te r d a te d 07 . 12 . 2 02 0 , w hi c h re a d s a s un de r :
"That the assessment order passed u/s 143(3) is prima face illegal, bad in law, without jurisdiction, void ab-initio and is thus barred by time limitation as the very reference to the special audit u/s 142(2A) of the act is illegal and bad in law."
5. Th e Ld .C ou ns e l f or the a s se s se e pl e a de d th a t the g r oun d r a i se d be i ng a le ga l g r oun d a n d th e e n ti re fa c ts a n d de ta i ls r e q u ire d fo r a d jud ic a ti ng th e s a me be in g a ma tt e r of r e cor d a n d n o f ur th e r in ve sti ga ti on b e i n g re q ui r e d , the s a me b e a d mi tte d f or a d j ud i ca ti on . He re lie d up on the or de r of t he H on 'ble S up r e me C o ur t in the ca se of N a ti ona l Th e r ma l Po we r C or p or a ti on Vs . C I T, 2 2 9 I TR 3 8 3 ( SC ).
6. Th e Re ve n ue o n th e othe r ve he me nt ly op p ose d t he p r a ye r f or a d mi ss ion of th e a d d it ion a l gr oun d c on te n din g th a t t he a d d it ion a l gr oun d s c ha l l e n ge d th e re fe re nce t o sp e c i a l a u d it w hi c h it w a s s ett le d l a w w a s not a p p e a l a b le . I n th is r e ga r d Ld .D R r e l i e d he avi l y on the de ci si on of t he Hon 'b le Ape x C our t i n th e c a se of R a je sh Ku ma r & Ot he r s V s. D CI T 2 87 I TR 9 1( S C ).
7. To t hi s th e Ld . C oun se l f or the a ss e ssee c oun te re d by p la ci ng be fore us va r i ous de c is ion s of t he Tri b u n a l a nd H i gh C ou r ts hol d i ng to th e con tr a r y. Th e s ub mi ssi on s in wr i ti ng to ITA No.1369/Chd/2019 A.Y. 2014-15 Page 4 of 32 th is e f fe ct we re a l so fi le d a lo ngwi th th e c opie s of th e c a se la ws r e l ie d u p on b y t he Ld .C oun se l for th e a s se sse e .
8. We h a ve heard b oth th e p a rt ie s. We ha v e a ls o go ne th r oug h th e v a r iou s c a se l a w s r e lie d u pon b y th e m. W e f in d th a t the d e c is ion of th e H on 'b l e A p e x C our t i n the c a se of Ra j e s h Ku ma r (s u p r a ) , r e l ie d up on by the Ld. D R to s up p or t he r co nte nti on th a t the re fe re nce t o spe ci a l a ud i t is not a p p e a l a b le , h a s b e e n con si de re d in v a ri ou s de ci si on s of t he Tr ib u na l a n d H ig h C ou rt s w h e re the Re ve n ue h a d i d e n ti ca l ly op p os e d the a d j ud ic a ti on o f th i s i ssu e . We f ind th a t ta k i ng n ote of t he sa i d d e c is ion thi s a r gu me nt of t he Re ve n ue h a s b ee n di smi ss e d by th e I TA T, h ol di n g th a t tho ugh o rd e r d ire cti ng s pe ci a l a ud i t is oth e r w i se n ot a pp e a l a b le b ut w h il e c ha l le n gi ng t he a sse ssme nt or d e r a s be i ng ba r r e d b y li mi ta ti on, th e v a li d i ty of th e o rde r d ir e cti ng s pe ci a l a u d it u/s 1 4 2 (2 A ) ca n b e ch a l le nge d , a lbe it f or th is l imi te d p ur p os e a l one . I t h a s b ee n he l d tha t for c omin g t o a c onc lu si on th a t th e a s se ssme nt or de r is b a r re d b y l i mita tio n, a l l a sp e c ts i nte gr a l to th e pr oce ss a nd u l tima t e comp le ti on of a ss e s sme n t ca n b e c ha l le n ge d a nd con si d e re d fo r d e c id i ng t he sa me . The r e le v ant d e c is io ns a re :
1) U n it e c h L im it e d Vs AC IT i n ITA N o. 51 8 0 /D e l /2 01 3 d a te d 0 8 .0 4. 20 16 :ITA No.1369/Chd/2019
A.Y. 2014-15 Page 5 of 32 "Furthermore, the judgments relied upon by the revenue also do not lead us to take different view of the matter The first judgment relied upon is the case of Rajesh Kumar and Ors v CIT (supra). In this case the Hon'ble Court has held in para 34 that the order of assessment can be subject matter of an appeal; and not, a direction issued u/s I42(2A) of the Act. In this appeal there is no challenge to the directions u/s 142(2A) of the Act. The challenge is that order of assessment is barred by limitation which is a valid contention supported by the judgment of Hon'ble Supreme Court in the case of Sahara India (Firm) v CIT (supra). The challenging to the validity of order u/s 142(2A) of the Act is confined to the extent that order is barred by limitation and not to the extent of refunding the fees or any other consequence flowing out of the order u/s 142(2A) o f the Act. Further observation of Hon'ble Court that principles of natural justice arc required to be complied with has also been reaffirmed in the case of Sahara India (Firm) (supra). The judgment of AT&T Communication Services India (P) Ltd. v CIT (supra) is on facts and has no application to the case of appellant company. Also the judgment in the case of DLF Ltd. v Addl. CIT (supra), has no application as hereto none of the contentions raised before us have been decided to the contrary. The learned counsel for the revenue has not been able to point out any material so as to arrive at different view of the matter."
2) C o ns ul ti ng Eng i ne e r in g S e rvi c e s In d ia P vt .
L im it e d vs AC IT (2 01 9 ) 19 8 TTJ 0 1 21 ( D e l) :
"17. The quarrel before us is as to whether the assessment order framed u/s 143(3) is passed within the period of limitation period prescribed under the Act or not. In our considered opinion, for coming to such a conclusion, we can examine whether the order passed u/s 142(2A) of the Act is in accordance with law or not. It is true that the order passed u/s 142(2A) of the Act is not appealable but when an assessment order is challenged, then the different aspects, which are integral to the process and ultimate completion of the amount can be challenged in appeal and since the ground before us is challenged for assessment being barred by limitation, we are well within our rights to consider all material ITA No.1369/Chd/2019 A.Y. 2014-15 Page 6 of 32 aspects which were considered while framing the assessment order u/s 143(3) of the Act."
9. Fu r the r, the H on 'b l e De l hi H i gh C our t i n t h e c a s e o f Cons ulti ng Engine er in g Se rvice s Private Li mite d Vs. I TA T & Another in WP(C)7734/2017 dated 01.09.2017, has categorically held that it is well within the jurisdiction of the I TA T to ente rtain the grou nd s rel atin g to vali di ty of refere nce to special audit, after noting that the observation to the contrary by the Apex Court in the case of Sahara India ( sup ra) was speci fi c to those cases. The re lev ant f in di ngs are as under:
" 4. The Petitioner challenges an interim order dated 8th August, 2017 passed by the Income Tax Appellate Tribunal ('ITAT') in Petitioner's appeal being ITA No.1443/Del/2014 for the Assessment Year ('AY') 2008 - 2009. By the said impugned order, the ITAT has declined to permit the Petitioner to raise additional ground '22' which reads as under:
"22. That the assessment order passed on 25.06.2012 is illegal, bad in law, without jurisdiction & barred by time limitation as the reference & order under section 142(2A) of the Act is illegal and bad in law."
5. According to the ITAT in view of the decision in Sahara India (Firm) v CIT (2008) 169 Taxmann 328 (SC), it was impermissible to permit the ITAT to examine the validity of order passed under Section 142(2A) of the Income Tax Act, 1961 ('the Act') in order to hold that the assessment has been barred by limitation. In other words, the said decision of the Supreme Court was understood by the ITAT as holding that the challenge to the order under Section 142(2A) of the Act cannot be raised before the ITAT ITA No.1369/Chd/2019 A.Y. 2014-15 Page 7 of 32 while examining whether the assessment order has been barred by limitation.
6. The Court finds that the ITAT itself has been taking a different position in many other cases, the orders in which have been enclosed with the present petition. For instance, in its order dated 9th December, 2015 passed in ITA No. 2256/Del/2005 (PHI Seeds Ltd. New Delhi v. Dy. Commissioner of Income Tax, Circle 14(1), New Delhi), the ITAT after noticing the aforementioned decision of the Supreme Court in Sahara India (Firm) v CIT (supra) held: "7.4. In the present proceedings what we are examining, is whether the extended period of limitation as provided under Explanation l (iii) of Section 153 is available to the Assessing Officer for completion of assessment u/s 143(3), or not. The assessee contends that the order u/s 142(2C), extending the period granted for completion and submission of audit report is made without an application being made for W.P.(C) 7734/2017 extension by the assessee and for any good and sufficient reason, and hence the extension is bad in law and hence the AO would not get the benefit of the extended period of time to specified in Explanation l(iii) of Section 153 of the Act. In our view, the Tribunal has jurisdiction to adjudicate the issue as to whether an order of assessment 143(3), is passed within the period of limitation prescribed under the Act or not. For coming to such a conclusion, in our view the Tribunal can examine whether the order passed u/s 142(2A) or u/s 142(2C) is in accordance with law or not. The order passed u/s 142(2A) or u/s 142(2C) cannot be appealed separately. But when an assessment order is challenged, then the different aspects which are integral to the process and ultimate completion of amount can be challenged in Appeal. For example a notice u/s 148 or reasons recorded by the A.0 prior to re-opening of assessment cannot be challenged separately. But an assessment order can be challenged in an Appeal before the Ld. CIT(A) or the ITAT on the ground that the re-opening itself is bad in law, as the notice is illegal or not served or that there is no material based on which reasons were recorded etc. Every facet of an assessment can be ITA No.1369/Chd/2019 A.Y. 2014-15 Page 8 of 32 challenged in appeal to deny once liability to be charged to tax or to challenge the quantum of tax demanded. In the case of hand, the legality of the orders passed u/s 142(2A) or u/s 142(2C) can be challenged to demonstrate that the order of assessment has been passed beyond the period of limitation. Thus, we reject this contention of the Ld. CIT. DR."
7. A similar view was taken by the ITAT in Unitech Ltd. v.
Additional Commissioner of Income-tax, Range- [2016] 74 taxmann.com 121 (Delhi-Trib.). The order of the ITAT on the same lines was upheld by this Court in Principal Commissioner of Income-tax v. Nilkanth Concast (P.) Ltd. [2016] 70 taxmann.com 157 (Del).
8. The Court notices that the observation in Sahara India (Firm) v CIT (supra) was in the peculiar facts of that case and was not meant to be a general observation applicable across the board for all cases. This is W.P.(C) apparent from the observations in the following paras:
"24. The upshot of the entire discussion is that the exercise of power under Section 142 (2A) of the Act leads to serious civil consequences and, therefore, even in the absence of express provision for affording an opportunity of pre-decisional hearing to an assessee and in the absence of any express provision in Section 142 (2A) barring the giving of reasonable opportunity to an assessee, the requirement of observance of principles of natural justice is to be read into the said provision. Accordingly, we reiterate the view expressed in Rajesh Kumar's case (supra).
......
29. There is no denying the fact that the law on the subject was in a flux in the sense that till the judgment in Rajesh Kumar (supra) was rendered, there was divergence of opinion amongst various High Courts. Additionally, even after the said judgment, another two-Judge Bench of this Court had expressed reservation about its correctness. Having regard to all these peculiar circumstances and the fact that on 14th December, 2006, this Court ITA No.1369/Chd/2019 A.Y. 2014-15 Page 9 of 32 had declined to stay the assessment proceedings, we are of the opinion that this Court should be loathe to quash the impugned orders. Accordingly, we hold that the law on the subject, clarified by us, will apply prospectively and it will not be open to the appellants to urge before the Appellate Authority that the extended period of limitation under Explanation 1 (iii) to Section 153 (3) of the Act was not available to the Assessing Officer because of an invalid order under Section 142 (2A) of the Act. However, it will be open to the appellants to question before the appellate authority, if so advised, the correctness of the material gathered on the basis of the audit report submitted under sub-section 2A of Section 142 of the Act."
9. In the considered view of the Court, the ITAT ought to have permitted the Petitioner to raise the aforementioned additional ground and ought to have decided the said additional ground on its merits in accordance with law.
10. The writ petition is allowed and the impugned order dated 8th August, 2017 passed by the ITAT is set aside. The petitioner is permitted to urge the additional ground no.22 before the ITAT, which would decide the Petitioner's appeal including the above additional ground, in accordance with law, while passing the final order."
9 .1 I t is , the re f ore , e vi de nt f ro m th e a bo ve tha t th e val id i ty of r e fe re n ce u /s 1 4 2 (2 A ) of the A ct is a p p e a l a b le w he n it h a s b e en so c ha l l e nge d for th e pu r po se th a t th e a sse ssme nt or de r so p a ss e d , in con se q ue nce to t he e xte n de d time a v a i la b l e on a cc oun t of t he sa i d r e fe re n ce , wa s ti me b a r r e d . I n th e p re se nt ca s e the a d d it ion a l gr oun d ra i sed be fore us i s to t hi s e f fe ct on ly tha t the a sse ss me nt or de r w a s b a r re d by li mi tati on, on a cc oun t o f t he r e fe re n ce to spec ia l a u di t be in g il l e ga l . The ITA No.1369/Chd/2019 A.Y. 2014-15 Page 10 of 32 ob j e ct ion of t he Ld .D R the re fo re to the a d mi ss ion of t he a d d it ion a l gr ou nd s r a i se d b y t he a s se s see , a re d ismis se d .
10. Fu r the r co ns ider i n g t ha t th e add i ti on a l gr ou nd r a i se d b e f ore us ch a ll e n ge s the v a li d it y of t he a ss es sme n t o rd e r p a ss e d on a c cou nt of i t b e i ng b a r r e d b y l i mita ti on , the sa i d a d d it ion a l gr oun d is a le ga l g r oun d a nd con si d e r i ng t he d e c is ion o f t he H on 'bl e Ape x Cou r t i n th e c a se of Na ti onal Th e r ma l P ow e r C or p or a ti on (s up r a ) t he s a me i s be i ng a dmi tte d f or a d j ud i ca ti on .
11. We sh a ll no w p r oc ee d to a d j ud i ca te the a d d iti on a l g r oun d r a i se d , mor e spe c if i ca l ly w he ther r e fe re nce ma de f or s pe ci a l a u di t u/s 1 42 ( 2 A ) of th e Ac t w a s i n a cco rd a n ce w it h la w or n ot. D e ta i le d a r gume nt s w e re ma de by th e a sse ssee both o ra l l y a n d i n w r it in g b e fo re us on the a dd i ti ona l gr ou nd r a is e d , re fe r r i ng to v a r iou s d oc ume n ts pl a ce d be fore us in a p a pe r bo ok co mpi l a ti on o f 4 4 4 pa g e s a nd a lso re ly in g u p on v a r iou s c a se l a w s. Th e Ld. C ou ns e l f or t he a s se sse e con te nd e d that t he i ng re d ie nts /pr e con d iti on s for in v ok i ng th e p r ov is ion s of se cti on 1 4 2( 2 A) w e re no t s a ti sf ie d, no compl e x ity i n th e a c cou nts w a s p oi nte d ou t, or d e r w a s p a ss e d wi th out gi vi n g d u e o pp or tu ni ty of h e a r i ng t o t he a s se s se e , the a p p ro va l o f th e PC I T t o t he ITA No.1369/Chd/2019 A.Y. 2014-15 Page 11 of 32 sp e ci a l a ud it w as me ch a ni ca l , th a t th e e nti re e ffor t w a s on ly w i th th e moti ve to e xte nd the pe riod of l imi ta ti on .
12. Th e Ld. D R v e he me n tly co nte ste d a ll t he ch a rge s a nd co nte nti on s of the Ld. C ou ns e l f or t he a sse s see .
13. We ha ve he a r d b oth the p a rt ie s a n d ha v e a l so c a r e fu l ly gon e th ro ugh t he d oc ume n ts re fe r re d to be fore u s a s a ls o t he ca s e la w s re l ie d up on .
14. As p e r the p r ovi si on s of la w r e l a ti ng to r e fe re n ce by AO to sp e ci a l a udit of a cc oun ts of a n a s se s se e , a s p a r t o f t he p r oce ss of in q ui ry con du cte d d ur ing a ss e ss me n t, con ta i ne d u/s 1 4 2( 2 A) of th e A ct, the sa me ca n b e r e fe r re d only i f th e A O is of t he op i ni on tha t th e spe c ia l a ud i t i s n e ce ss ary a f te r ta k i ng i nto con si d e r a ti on th e n a tu re a nd comp l e xi ty of the a cc oun ts a n d the in te re st of the Re ve n ue . Th is i s e v id e nt fr om a b a re p e r us a l of se ction 14 2 ( 2 A) of t h e Ac t i tse l f w h ic h is b e i ng r e p r od uce d he re un de r :
"Section 142(2A) (2A) If, at any stage of the proceedings before him, the Assessing] Officer, having regard to the nature and complexity of the accounts 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 ITA No.1369/Chd/2019 A.Y. 2014-15 Page 12 of 32 (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."
15. Th e Hon 'b l e A pe x C ou r t h a s i nt e rp r e te d t he sa i d pr ovi si on i n t w o de ci si on s, r e pe a te d l y e mp h a si z in g th e re in th a t th e AO 's op i ni on ha s to b e b a se d on fu lf i ll me n t of th e tw in co nd i ti ons of th e ( i) n a ture a nd c omp le xi ty of a c c oun ts , a n d ( ii ) th e i nte re st of Re ve n ue , a nd h a s in te rp re te d th e te r m " co mp l e xi ty" to me a n st a te of be i ng i ntr i ca t e or comp l e x. I t we nt on to ho ld t ha t w ha t i s comp l e x d e pe nd s on e a c h p e r son s un d e r sta n d in g a nd w h a t is co mpl e x fo r on e ma y be si mpl e for a not he r. It was he l d th e re f ore , tha t the op in io n of the AO mus t be b a se d on ob j e ct ive cr i te ri a a n d not ju st a s ub j e ct ive sa t isfa c ti on. Tha t th e re fe re n ce ca n no t be ma d e me re l y f or s hi f ti ng his r e s po nsi b i li ty of s cr ut in i zi ng th e a cc oun ts to a s p e ci a l a ud i tor. I n the c a se of Sa ha r a I n d ia ( F ir m) v s C I T 30 0 I TR 40 3 ( SC ) t he Ap e x C o ur t a na lyz e d a nd i n te r p re te d the p ro vi si on s o f se c tion 1 4 2( 2 A) to t he a bov e e ffe c t a s u nde r:
"A bare perusal of the provisions of sub-s. (2A) of the Act would show that the opinion of the AO that it is necessary to get the accounts of assessee audited by an Accountant has to be formed only by having regard to : (i) the nature and complexity of the accounts of the assessee; and (ii) the interests of the Revenue. The word "and" signifies conjunction and not disjunction. In other words, the twin conditions of "nature and complexity of the ITA No.1369/Chd/2019 A.Y. 2014-15 Page 13 of 32 accounts" and "the interests of the Revenue" are the prerequisites for exercise of power under s. 142(2A) of the Act. Undoubtedly, the object behind enacting the said provision is to assist the AO in framing a correct and proper assessment based on the accounts maintained by the assessee and when he finds the accounts of the assessee to be complex, in order to protect the interests of the Revenue, recourse to the said provision can be had. The word "complexity" used in s. 142(2A) is not defined or explained in the Act. As observed in Swadeshi Cotton Mills Co. Ltd. vs. CIT (1987) 63 CTR (All) 335 : (1988) 171 ITR 634 (All), it is a nebulous word. Its dictionary meaning is : "The state or quality of being intricate or complex or that is difficult to understand.
However, all that is difficult to understand should not be regarded as complex. What is complex to one may be 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." Thus, before dubbing the accounts to be complex or difficult to understand, there has to be a genuine and honest attempt on the part of the AO to understand accounts maintained by the assessee; appreciate the entries made therein and in the event of any doubt, seek explanation from the assessee. But opinion required to be formed by the AO for exercise of power under the said provision must be based on objective criteria and not on the basis of subjective satisfaction. There is no gainsaying that recourse to the said provision cannot be had by the AO merely to shift his responsibility of scrutinizing the accounts of an assessee and pass on the buck to the special auditor. Similarly, the requirement of previous approval of the Chief CIT or the CIT in terms of the said provision being an inbuilt protection against any arbitrary or unjust exercise of power by the AO, casts a very heavy duty on the said high ranking authority to see to it that the requirement of the previous approval, envisaged in the Section is not turned into an empty ritual. Needless to emphasise that before granting approval, the Chief CIT or the CIT, as the case may be, must have before him the material on the basis whereof an opinion in this behalf has been formed by the AO. The approval must reflect the application of mind to the facts of the case."
16. I n the ca se o f R a je sh Kuma r & O r s vs DC I T & or s 2 8 7 I TR 9 1 (S C ) , the se c tio n w a s in te r p re te d l i ke wi se a s u nde r: ITA No.1369/Chd/2019
A.Y. 2014-15 Page 14 of 32 "Interpretation and application of s. 142(2A) of the Act, thus, falls for our consideration.
10. We may at the outset notice that the following are the relevant factors for invoking s. 142(2A) of the Act :
(i) The nature of accounts
(ii) Complexity of accounts and
(iii) Interest of the Revenue.
The formation of opinion of the AO must be on the premise that while exercising his power regard must be had to the factors enumerated therein. The use of the word 'and' shows that it is conjunctive and not disjunctive. All the aforementioned factors are conjunctively required to be read. The formation of opinion indisputably must be based on objective consideration.
11. The expression "complexity" 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. No order can be passed on whims or caprice."
1 7 . I n the fa c ts of th e p re se nt ca s e , a f te r pe rusi n g a ll t he d ocu me n ts r e fe r re d to be fore u s, w e a re i n a g re e m e n t w i th the Ld .C o un se l for t he a s se sse e th a t t he AO ha s n o t po in te d out a n y comp l e xi ty i n th e a cc oun ts of th e a sse ssee wh il e re fe r r i ng f or sp e c ia l a u d it a nd t he sole pu r po se of the AO f or t he r e fe re n ce w a s onl y to buy e xte n de d ti me to co ve r u p his sh or t c o min g of com me nc in g i nq u ir y a t th e f a g e n d of th e t ime p e r i od s ta tut or ily p r ovi d e d f or c omp le ti ng a ss es sme n t, and sh i ft h i s r e sp onsi b il i ty of scr u ti ni zi n g th e a cc oun ts to t he sp e ci a l a ud i tor . Th e f a ct s o f t he ca se cl e a r l y br i ng ou t the a f or e sa i d .
ITA No.1369/Chd/2019
A.Y. 2014-15 Page 15 of 32
18. Th e i mp ugn e d a s se s sme n t ye a r bef or e us is A. Y . 20 1 4-1 5 . As per se ct ion 15 3 of the Ac t, th e li mi ta ti on f or p a s si ng a ss e s sme n t o rde r i n thi s ca se w a s 3 1 . 12 . 20 1 6 . The re i s no q u a rr e l wi th re sp e ct to the a f ores a i d. Th e or d e r sh ee t e n tr ie s ma d e b y th e A O du r in g a s se ssme nt p ro cee di n gs, f il e d be fore us a t P .B 25 4 -2 7 9, re ve a l tha t w h ile th e a s se ssme nt p r ocee d in gs co mme nc e d on 3 1. 0 8 .2 0 1 5 w i th th e i ssu a n ce of n oti ce u/s 1 4 3( 2 ) of th e A ct, e xce pt fo r a s tand a r d q u e st ion nair e is sue d to th e a sse ssee on 2 6 .1 0 .2 0 1 5 , to w h ic h d ue r e p l y wa s f il e d by , no su b sta n ti a l q u e r ie s we re r a ise d till 1 6 .1 2 .2 0 1 6, i .e . a l most the f a g e n d of t he pe r iod f or p a ssi n g a s se s sme n t or de r u /s 1 4 3( 3 ) of th e Ac t, i.e . 3 1. 1 2 .2 0 1 6. The a sse ssee i n the i nte r ve n ing p e r i od , we ha ve n ote d fr om th e o rde r she et ,w a s a sk e d to f ur ni sh r e a son s f or r e vi si ng hi s r e tu rn a n d f ur nis h d e ta i ls of co mpu ta ti on of i nc ome f r om i n d u str i a l a n d fi n a nce ac tiv i ty, w hi c h r e p ly w a s f i le d on 1 1 . 07 . 201 6 . O n 1 6 .1 2 . 20 1 6 ,w h e n the a ss e s sme n t w a s g e tti ng ti me b a r re d on 3 1 .1 2 . 20 1 6 th e a sse ssee w a s a sk e d to a nsw e r a s le w of que r ie s , i n a ll 9 a s u nd e r , t he r e p l y be i n g re q uir e d to be f i le d w it hi n 4 d a ys b y 2 0 /1 2 /1 6 . The q u e r ie s r a ise d , as no te d in t he ord e r shee t a re a s un d e r :
16 /1 2 /16 S h .A K Jin d al , CA /AR a t ten d ed . He i s a sked to f u rn ish f ol l o win g d e ta i l s: -
( 1 ) Expl a in h o w f igu re s of Ind u str ial ITA No.1369/Chd/2019 A.Y. 2014-15 Page 16 of 32 are a ac ti v i ty s h o wn til l 3 1 /3 /1 3 have been in co r por a ted in B al an c e Sh ee t & P /L Ac f or 31 /3 /1 4.
( 2 ) D e ta il ed c al cu l a tion wi th ye ar wi se b if ur ca tio n of expen se s a nd rec overie s on Ind u str ial a rea ac tiv i ty .
( 3 ) Wh y c o mp an y f ro m Ind u str ial ar ea ac tiv ity sho ul d n o t be c o mpu ted in a man ne r ado p ted in e arl ie r A ss t ye ar s.
( 4 ) D e ta il ed of u n c lai me d r ef u n ds and wh y s ame be n o t di sal l o we d.
( 5 ) Wh y prof it on s ale of sh are s ma y no t be tre a ted a s bu sin e ss in co me. ( 6 ) D e ta il s of ho w in ve n tor y de ter m in ed as on 3 1 /3 /14 vis- a-v is pre v io u s ye ar.
( 7 ) Ho w P OCM me t h od a p pe al a ble to as se ssee on me e ts crit er ia un d er P OCM.
( 8 ) Ba is of asc er tai n in g rev en ue f rom oper a ti on s.
( 9 ) Sh o wc au se wh y n o t an a mo un t of Rs. 1 0 50 . 4 0 cr be add ed b ac k to th e re tu rn ed in c o me a s s ame h a s be e n red uc ed in rev ise d re tu rn .
Ad jo u rne d to 2 0 / 1 2/1 6 at A. M. Sd /-
19. On th e s a id d a te the a sse sse e fi le d re p ly a nd th e o rde r sh ee t e ntr y no tes "ca s e a d j ou rned to 2 3 /1 2 /1 6 ". B ut a no the r e n tr y on th e sa me da te su b se q uen tl y r e c or ds is su a nc e of show ca u se n oti ce to th e a sse ssee u /s 1 4 2 ( 2A ) of th e Ac t. On
2 6 /12 /2 0 1 6 th e a s se s se e fi le s rep ly to th e sh ow ca use n oti ce w hi c h, the or der sh ee t e n tr y note s a s "d i sc usse d w i th t he co un se l " a n d ther e a fte r on 2 9 /12 /2 0 1 6 th e s pe cia l a ud i tor is i ssu e d le tte r of ap p oin tme n t. Su b se q ue n tl y the p roc ee d i ng s are ITA No.1369/Chd/2019 A.Y. 2014-15 Page 17 of 32 co mpl e t e d a fte r c ons id e r i n g the re p or t of the s pe ci a l a ud i tor, on 21 /0 6 /2 01 7 , i .e . the e xte nd e d ti me pe r i od s ta tu tor i ly p r ovi d e d on a ccoun t of r e fe re nce ma de of the a ccou nts of t he a ss e s see to s pe cia l a u di t.
20. Th e a b ove f a cts r e ve a l t ha t i t w as on l y a t t he f a g e nd of th e l i mita tio n p e r i od f or fr ami n g th e a s ses sme nt tha t su b sta n ti a l q u e r ie s we re r a ise d f or the a sse ssee t o r e sp on d to. An d a f te r the a sse ssee ha d re s p ond e d t o the s a me , p r oce e d in gs f or i ni ti a ti ng r e f e re n ce f or s pe ci a l a u di t of a cc oun ts w ere co mme nc e d be ginn in g w it h is su a nc e o f sh ow c a use n oti ce . 2 1 . Go in g fu r the r, A pe r usa l of thi s s how c a us e n oti ce ( P .B 2 1 4- 22 1 ) re ve a l s tha t t he re is no c omp le xit y w o r th i ts w h i le p oi nte d ou t by the A O i n the a cc oun ts of the a sse s se e bu t on th e c ont ra ry p oin ts out ce rt a in de f ic ie nc y /s hor tc omi ngs i n the r e p l y of the a sse s se e to the que r ie s r a i se d on 1 6 . 12 . 2 01 6 , w hi c h we fi nd are p ri ma r i ly to t he e f fe c t th a t c e r ta in i nf or ma ti on /e xp la n a ti on r e ma i ne d to b e f i le d b y the a s se s se e .
22. Th e c ont e nt s of the noti ce cle a r ly r e ve a l in g the sa id f a cts a s un d e r :
ITA No.1369/Chd/2019
A.Y. 2014-15 Page 18 of 32 "GOVERNMENT OF INDIA MINISTRY OF FINANCE INCOME TAX DEPARTMEN T Office of the Deputy Commissioner of Income-tax Panchkula Circle, Aayakar Bhawan, Sector 2, Panchkula - 134 112 F.No.DCIT/Pkl/Cir/PKL/2016-17/ Dated:
20/12/2016 To M/s Haryana State Infrastructure Development Corporation Ltd., C-13 & 14, Sector 06, Panchkula.
Sub:- Notice u/s 142(2A) OF THE I t Act 1961 for the assessment for the A.Y. 2014-15 - reg. -
******* Please refer to the assessment proceedings for the A.Y. 2014-15 pending in this office.
2. In this regard, during the course of assessment proceedings you were asked to provide the information as per noting sheet entry dated 16.12.2016 vide your reply dated 20.12.2016 you have provide the following explanation:-
Sr.No. Information Reply/Explanation Desired
1.
Explain how figures It is submitted that the of IA Activity shown till Corporation has changed its system 31.03.2013 have been of accounting from cash to accrual incorporated in the w.e.f. Financial Year 2013-14 Balance Sheet and relevant to the Assessment Year Statement of Profit & 2014-15 and the cumulative effect Loss for 31.03.2014. of all the heads of revenue, expenditure, inventories, fixed assets etc., have been accounted for in the said assessment year. It is stated as under:
The books of the accounts of the Corporation were being maintained under "Cash System of Accounting" and all the cost of the Project & other expenditure incurred thereon were accounted for in one control account i.e. infrastructure and Industrial Area Development Expenses Recoverable" and recoveries from the allottees were netted in said control ITA No.1369/Chd/2019 A.Y. 2014-15 Page 19 of 32 account. Said control account reflects excess of developmental expenditure over recoveries and is disclosed in the financial statements under "Other Current Assets". A sum of Rs.5671.59 Crore (net of recoveries] was parked in the control account as at 31st March, 2013.
After review of the control account i.e. "Infrastructure and Industrial Area Development Exp. Recoverable", it has been bifurcated into various functional heads of accounting e.g.
- Inventories in the form of unsold land/plots
-Cost of the land acquired for existing projects as well as future projects.
-Developmental expenditure of the site e.g. Road construction, electrification cost, public utilities work, sewerage treatment plant, CETP and other direct capital expenditure.
-Cost of the Unsold plots i.e. Inventories. -Enhancement cost paid to land owners. -Annuity payment to land owner.
-Fixed Assets like office building, furniture & fixture, office equipment etc.
-Expenditures incurred on developmental activities out of matching grant received from State Govt.
-Recoveries from Allottees netted in control account bifurcated into relevant heads of accounting e.g. O Recoveries of the cost of the plot, enhancement cost and maintenance charges.
O Interest received on deferred
installment of cost of
lot/enhancement cost etc.
O Other recoveries e.g.
Processing fees
ITA No.1369/Chd/2019
A.Y. 2014-15
Page 20 of 32
Transfer fees.
Extension charges,
Leasing fees,
Surrender/resumption charges
Water and sewerage charges,
Misc. Income etc.
2.
Detailed calculation The bifurcation of expenses and
with year-wise recoveries of IA Activiity as on
bifurcation of expenses 31.03.,2013 is given as per Annexure-
and recoveries of IA 1.
Activity.
3.
Why income from IA We submit that the Corporation was
Activity should not be following cash system of accounting
computed in a manner for maintaining its accounts till F.Y.
adopted in earlier 2012-13 and had been showing
Assessment Year(s). certain income from Industrial Area
Activity by allocating expenses
between Industrial Area Activity and Finance Activity. However, the Corporation has changed its system of accounting from cash basis to accrual basis w.e.f. 01.04.2013 i.e. F.Y.2013-
14. Accordingly, the Finance Statements for the F.Y. 2013-14 have been prepared on Accrual Basis, in accordance with the generally accepted accounting principles in India and to comply with the Accounting Standards prescribed in the Companies Act and also in accordance with the Government Notification No.GSR 550 (E) dated 16.05.1989 and 770 (E) dated 10.09.1990 which provide for accounting of interest income on loans financed to industrial projects and interest on instalments due on the cost of industrial plots/sheds etc., on cash basis. In Assessment Year 2014-15, the Corporation has computed the income from Industrial Area Activity earned till 31.03.2014 in A.Y. 2014-15.
Due to change in the system of accounting from cash basis to accrual basis, the income from IA Activity should not be computed in a manner adopted in earlier Assessment Year(s).
4. Detail of how inventory We submit that the Corporation was determined as on following cash system of accounting ITA No.1369/Chd/2019 A.Y. 2014-15 Page 21 of 32 31.03.2014 viz-a-viz for maintaining its accounts till F.Y. 31.03.2013. 2012-13, therefore, no inventory was recognized in the books of accounts till 31.03.2013. However,, the Corporation changed its system of accounting from cash basis to accrual basis w.e.f.
01.04.2013 i.e. F.Y. 2013-14 and accordingly, inventory has been determined and accounted for in the books of accounts on the basis of "Percentage of Completion Method"
(POCM) read with Guidance Note on "Accounting for Real Estate Transactions" issued by Institute of Chartered Accountants of India (ICAI). Closing stock of land/work in progress is valued at lower of cost (Weighted Average Method) or net realizable value. Cost includes acquisition cost, enhancement compensation cost, annuity cost and internal and external development expenditure etc. incurred and other directly identified attributable expenses pertaining to projects.
5. How POCM is applicable The Corporation is a wholly owned to Assessee i.e. how Government Company (as defined meets criteria under under section 617 of the Companies POCM. Act, 1956) and was incorporated in 1967 with an objective of promoting industries in the State of Haryana Government.
The Corporation has been given the mandate to develop industrial infrastructure and thereby facilitate development and growth of industry in the State of Haryana. The Corporation has developed industrial estates/IMTs throughout the State in this process.
The process of development of
industrial infrastructure necessarily
involves acquisition of land, planning, exclusion of development works e.g. roads, water supply and electrical infrastructure. This is followed by provision of secondary level of facilities such as the STP/CETP, development of plantation/green belts, commercial and institutional sites common parking facilities, etc. The Income from Industrial Area Activity has been computed in ITA No.1369/Chd/2019 A.Y. 2014-15 Page 22 of 32 accordance with the Guidance Note on "Accounting for Real Estate Transactions" issued by ICAI which covers all forms of transactions in real estate. The transactions which are covered by this Guidance Note are as under: (a) Sale of plots of land (including long term sale type leases) without any development (b) Sale of plots of land (including long term sale type leases) with development in the form of common facilities like laying of roads, drainage lines and water pipelines, electrical lines, sewage tanks, water storage tanks, sports facilities, gymnasium, club house, landscaping etc. (c) Development and sale of residential and commercial units, row houses, independent houses, with or without an undivided share in land. (d) Acquisition, utilisation and transfer of development rights. (e) Redevelopment of existing buildings and structures. (f) Joint development agreements for any of the above activities.
Since the activities undertaken by the Corporation fall under the scope of transactions covered under the Guidance Note on "Accounting for Real Estate Transactions", therefore, the POCM is applicable to the Corporation.
6. Basis of ascertaining Revenue from Industrial Infrastructure revenue from activities is recognized in accordance operations. with the provisions of Accounting Standard (AS) 9 on Revenue Recognition, read with Guidance Note on "Recognition of Revenue by Real Estate Developers (Revised 2012)".
Revenue is computed based on the "Percentage of Completion Method (POCM)" when following conditions are satisfied:
- All critical approvals such as environmental clearances, approvals of plan and design, title to land or other development right have been obtained.
- The stage of completion of the project has reached reasonable level. A reasonable level of development is achieved if ITA No.1369/Chd/2019 A.Y. 2014-15 Page 23 of 32 expenditure incurred on construction and development cost (excluding cost of land cost) is not less than 25% of the estimated construction and development cost and
- At least 25% of the saleable project area is secured by the agreement or the allotment letter and
- At lease 10% of the total revenue as per agreement/allotment letter are realized in respect of these cases.
In case of sale/auction of sites of non- industrial area/infrastructure activity, the revenue is recognized when al the significant risks and rewards are transferred and also when all the requisite approvals are obtained by the Corporation as required under the agreement. Interest on non-industrial area projects is accounted for on accrual basis.
7. Show cause why not an It is submitted that the accounts of the amount of Rs.1050 Corporation were being maintained on crore be not added as cash basis till Assessment Year 2013- the same has been 14. The Corporation had been showing reduced in Revised certain income from Industrial Area Return of Income. Activity by allocating expenses between Industrial Area Activity and Finance Activity. The method of accounting had been accepted by the Income Tax Department till A.Y. 2004-
05. After that, the Department has computed income from Industrial Area Activity, the detail of which as under:
Assessment Year Amount(Rs.)
2005-06 354587944/-
2006-07 329359489/-
2007-08 1187882027/-
2008-09 2548011251/-
2009-10 1525532251/-
2010-11 1801666232/-
2011-12 1364170957/-
2012-13 351339526/-
2013-14 1041425872/-
ITA No.1369/Chd/2019
A.Y. 2014-15
Page 24 of 32
Total 10503975549/-
Thus, the Department has already
imposed tax on income of Rs.1050.40
crore between A.Y.2005-06 to A.Y.
2013-14. The appeals of the
Corporation have been dismissed by
CIT(A) and the Corporation is in appeal before ITAT.
In Assessment Year 2014-15, the Corporation has changed its method of accounting from cash to accrual and has computed the income from Industrial Area Activity earned since inception till 31.03.2014 (including the years during which income has been computed at Rs.1,050.40 Crore) in Assessment Year 2014-15 and the original return was filed showing entire income of Industrial Area Activity earned till 31.03.2014.
The Corporation has revised the return by reducing income of Rs.1,050.40 Crore out of total income for Assessment Year 2014-15 because tax has already been levied by the Department on the amount of Rs.1,050.40 Crore. In case, the said income is not reduced out of taxable income of Assessment Year 2014-15 it would amount to double taxation i.e. once paying tax in Assessment Year 2005-06 to Assessment Year 2013-14 on the basis of assessment made by the Department and again paying tax in Assessment Year 2014-15 on the basis of income declared in accounts.
In case at a later stage, the appeals of the assessee are allowed by ITAT and income assessed from Industrial Area Activity is deleted, in that case, assessee Corporation agrees to pay the tax in Assessment Year 2014-15 as the same can be done u/s 154/155 while giving appeal effect to the orders of ITAT for years in appeal.
Th e a b o ve e xp l an a t i on h a s be e n co n s i de re d an d e x a m i n e d a n d i s d i s c u s se d a s u n de r ITA No.1369/Chd/2019 A.Y. 2014-15 Page 25 of 32 R e ga r d i n g e xp l a n a t i o n N o. 1 & 2,
i) You have explained that cumulative effect of all head of revenue, expenditure, inventories, fixed assets etc. have been accounted for A.Y.2014-15. But no explanation was given as to how cumulative calculations were made
ii) You have shown a sum of Rs.5671.59 crore was parked in the control account as on 31.03.2016, further for determination of this amount various heads/details of expenditure and recovery upto 31.03.2013 has been shown as under:
Details of Expenditure upto 31.03.2013 S.No. Particulars Amounts
1. Land Cost (including Enhanced 1,11,66,13,67,007.00 Compensation
2. IA Development Expenditure 23,52,39,15,541.00
3. Development works(old) 7,77,90,292.00
4. Village development 7,46,08,195.00
5. Development Udyog Kund 2,92,68,338.00
6. Details of fixed assets 11,95,92,404.00
7. Deposit works 44,33,66,599.00
8. Annuity Land 76,73,92,038.00
9. Details of contribution 1,97,11,26,275.00
10. Details of incentive to allottees 11,34,21980.00
11. Expenses to be allocated 67,69,79,591.00
12. Advances to Parties 12,96,95,537.00
13. Details of SME R/Funds Accounts 1,00,00,000.00 Grand Total(A) 1,39,59,85,23,797.00 Details of Recovery upto 31.03.2013 S.No. Particulars Amounts
1. Allottees Account 65,23,39,11,006.00
2. Enhanced cost recovery 5,26,99,81,180.00
3. Interest on allottees 5,39,94,85,248.00
4. Rent 10,08,845.00
5. Misc. Income 5,87,50,28,173.00
6. Surrender/Resumption 21,67,66,905.00
7. Lease Rent 49,19,306.00
8. Processing Charges 17,13,22,463.00
9. EDC Charges (DATED & P-HR) 680935032
10. Internal Development Charges 19351482
11. Licence fee Karnal 6092.00
12. Contractor Accounts 98,81,231.00
13. Grand Total 1,00,00,000.00 Grand Total(A) 82,88,25,96,963.00 A Total Expenditure Control Account 1,39,59,85,23,797.00 ITA No.1369/Chd/2019 A.Y. 2014-15 Page 26 of 32 Recovery from allottees 82,88,25,96,963.00 Net Expenditure as on 56,71,59,26,834.00 31.03.2013 (A-B) No detailed breakup of Expenses recoverable and recoveries from allottees is proved. However no working/calculation of these amounts have been explained. Such as Rs.1,11,66,13, 67,007.
00/- Land cost, year when the land was acquired, amount of enhanced compensation, year-wise, site-wise breakup of the same is not furnished.
Infrastructure and Industrial Area Development Expenses recoverable has been bifurcated into various head of accounting eg. Cost of land acquired for existing projects as well as future projects, Infrastructure and industrial area development expenses recoverable. The bifurcation of expenses and recoveries of Ind. Area activity was given as annexure-i. But no year- wise, site-wise, head wise breakup is given e.g as per details of expenditure of Gurgaon site the cost of land is shown as 529,242, 907/-, but from this amount it is not verifiable that when the land was acquired, when the construction was begun and how much work is pending. No working and breakup has been provided on this point also.
Regarding explanation No. 3, no tenable reply regarding the reason of change of method of accounting by HSIIDC has been provided.
Regarding explanation No. 4, you have replied that valuation of closing stock/work in progress is valued at lower of cost or net relizable value. No detailed calculation/working has been given in support of amounts shown and where shown it is not substantive. For example the work in progress, the explanation of the same was not provided.
Regarding explanation No. 5, As the corporation was established in 1967 and it is developing Indl. Estates and IMTs throughout the State and the activities have been computed in accordance with the guidance note, then why the same method was not applied in the earlier years. You have also not explained treatment of books of previous years under POCM. Regarding explanation No. 6, revenue from operations is not verifiable as the projects passes from various stages and no specific information/no detailed working in this regard is provided.
Regarding explanation No. 7, you have replied that the corporation revised its return by reducing income of ITA No.1369/Chd/2019 A.Y. 2014-15 Page 27 of 32 Rs.1050.40 Cr. because tax has already been levied by the department on this amount it would be double taxation. In case at later stage the appeals of the assessee are allowed by ITAT the assessee agrees to pay tax in A.Y.2014-15, The explanation provide by you not seems to be contradictory On one side you are reducing the amount and other side the appeals also being contested.
In view of the above facts and circumstances of your case and considering the nature and complexity of accounts, volumes of accounts and multiplicity of transactions, your case is proposed for audit u/s 142(2A) of the IT Act, 1961. You are hereby given an opportunity of being heard in this regard and your case is fixed for 26.12.2016 at 11.00 AM."
23. A p e r us a l of the a bov e sh ow ca u se n oti ce r e ve a l s th a t on th e q ue r y r a i se d a sk in g e xp l a na tion of h ow f i gur e s o f I nd u str i a l a ct iv it y u p to 31 . 0 3. 2 01 3 w e re in cor p or a te d i n th e imp ug ne d ye a r s ba la n ce she e t, the a sse ssee h a d e xp la i ned tha t i t h ad sw i tc he d ove r fr om c a sh sy ste m of a cc oun ti n g d one up to 3 1 /03 /1 3 to a cc r ua l s yste m a n d h a d a l so e xp l a in e d the ma n ne r of d oi ng so a s a ls o f ur ni sh i ng ye ar w is e b i fu r ca ti on of e x pe nse s a n d r e cove r ie s i n t he I A a c cou nt a s on 31 . 0 3. 2 01 3 . T o th i s the AO n o te s th a t n o ex pl an a ti on h a s bee n f u rnishe d a s to h o w c umu l a tiv e c al cu l a ti on s we re m ade n o bre a k u p of cer tain de ta il s prov id ed an d si te wis e bre a k al so n o t pro v ide d.
24. Si mil a r l y th e a sse sse e e xp l a na t ion r e g a r di n g w h y i n come b e not c omp ute d a s i n e a r l ie r yea r s th e a sse ssee j us tif i e d t he ch a n ge i n s yst em of a cco un tin g a s be in g i n c omp li a n ce w i th a cc oun ti ng s ta nd a r d i ss ue d b y t he I C AI a n d a l so i n a cco rd a n ce w i th go ve r n me n t not if i ca ti on s, to wh ich the A O mere ly bru sh e s ITA No.1369/Chd/2019 A.Y. 2014-15 Page 28 of 32 a sid e the ex pl an a ti on as n o t be in g te n abl e wi th ou t a ssign ing an y re ason f or stati ng so .
25. On the q ue ry re ga r d in g me t hod va l u a ti on of cl osing stoc k f or ye a r e n d in g 31 /0 3 /2 01 3 a n d 3 1 /0 3 /2 0 1 4 th e a sse ssee r e p l ie d tha t u pt o 3 1 /0 3 /1 3 si nc e i t w a s fol l ow in g ca sh sy ste m of a cc oun ti ng no st ock w a s a c cou nte d for w h ile t he re a fte r it f oll ow e d t he Pe r ce nta ge C ompl e t ion Me tho d (P C O M) f or a cc oun ti ng for i nv e n tor y, va l ui ng it a t c ost or n e t re a li z a ble va l u e wh i ch e ver was le ss . To th i s th e AO n o te s th at no c alc u l a ti on of wo rk in g of inv en tor y h a s bee n pr o vide d b y the a sse ssee .
26. To the q ue ry ra is e d re ga r d i ng how P C O M me t hod w as a p p li ca b l e to t he a s se s se e , t he a s se sse e r e p lie d t ha t i ts a ct iv it ie s fe l l und e r the s cope of tr a ns a cti on s c ove re d B y t he gu id a n ce n ote issu e d b y I C AI on Ac cou nt in g f or re a l e s ta te tr a n sa ct ion s w hi ch re comme nd e d P C OM me t hod . I t w a s a l so e x pl a i ne d a s to h ow i ts a c ti vi ti es f e l l un de r the s a i d gu id a n ce n ote . T o th i s th e AO n o ted th a t wh y th i s me t h od wa s n o t ad o p ted in e arl ie r ye ar s al so.
27. On b e i ng a ske d to e x pl a i n ba s is of a sc e r ta i ni n g r e ve n ue f ro m op e r a ti ons , d u e re p l y e xp lai n in g th e s a me w a s fi le d . T o th i s th e A O n o te s s im pl y th at i t i s n o t ver if ia bl e sin c e a sse ssee ITA No.1369/Chd/2019 A.Y. 2014-15 Page 29 of 32 p a sse s th rou gh var iou s sta ge s a nd n o spe c if ic i nf ormati on /no d e ta il ed wo r k in g h a s been prov id e d b y th e a sse sse e .
28. To th e q ue r y a s to w hy Rs .1 0 5 0 c r or e s h a s bee n re d uce d f ro m th e i nc o me of th e a sse sse e in th e r e v ise d re tur n fi l e d .t he a ss e s see e xp l a i ne d in de ta i l th a t th e de p a rt me nt h ad a lr e a d y co ll e c te d ta xe s on th e sa me i n e a r lie r ye a rs when it had r e je c te d i ts ca sh b a si s of a ccou nt in g a n d ta xe d in come on a cc r ua l ba si s. T o th i s th e A O n o te s th at th e a sse sse e h as f il ed a p pe al ag a in st t h e sa id ad d i tio n s m ade b y the d ep ar tmen t an d the ref o re by rev e rsin g th e in c o me in th e i m pugn e d ye ar i t was tak i n g a c on tr ad i c tor y s ta n d .
29. Af te r so sta t in g th e AO no te s tha t con si d e r i ng the f a cts a n d c ir cu msta nc e s a nd the na t ure a n d c omp le xit y of a cc oun ts of th e a ss e s see , v ol ume o f tr a n sa c ti ons a nd m u lti p l ic ity of tr a n sa ct ion s, sp eci a l a u d it u /s 1 4 2 (2 A ) of th e Ac t is p r op ose d.
30. As i s e vi de n t f r om the a b ove the r e a son f or re fe rr i n g t he a cc oun ts of th e a s se s se e to s pe cia l a ud it , h ig hl i g ht e d a bo ve i n i ta l ic s b y u s, by the AO d oe s not p oin t ou t a si n gl e comp l e xi ty i n the a c cou nts of t he a sse s see . O n the c ontr a r y h e h a s on ly p oi nte d out ce rt a in i nf or ma ti on s ti ll l a ck i ng in th e re p ly su b mit te d b y the a ss e s see . W i th re ga r d to e a c h e xp la n a ti on he has sta t e d t ha t th e a sse s see has e i the r no t giv e n ce r ta i n ITA No.1369/Chd/2019 A.Y. 2014-15 Page 30 of 32 e x pl a n a tio n re q ui re d by hi m or ce r t a in w or ki n g or ca l cu l a tio ns h a d n ot b e e n e xpl a i ne d . I t i s n ot co min g out fr o m th e not ic e, th e re f ore , th a t the re w a s a n y c omp le xi ty i n th e na tu r e of t he a cc oun ts of t he a s se s see w h ic h h a d co me t o t he n oti ce of the AO . N or h a s the Ld .D R be e n a b le to e n li gh te n us a s to w ha t co mpl e xi ty w a s po in te d out b y th e AO i n th e a ccou nt s of t he a ss e s see f or e nab l i ng r e fe re n ce to a sp e c ia l a ud it .
31. Wh a t i s c le a rl y e vi de n t is th a t th e re fe re n ce for s pe ci a l a u di t w a s me r e ly ma d e for o bt a in i ng ce r ta i n e xpl a nat ion a n d i nf or ma ti on w h ic h w e re fu r the r r e q ui re d b y t he A O f or t he p ur p ose s of a ssess me n t of i n come of the a sse ssee . I n e f fe ct ,t he AO , wa s sh if ti ng h i s r e s pon si b i li ty to t he s pe ci a l a ud i tor . Th is i s su r e l y not th e p ur p ose for w hi ch sp e c ia l a ud i t ca n be r e fe r re d to u n de r l a w .
32. Fu r the r, we fi nd , th e a s se s se e f iled a d e ta i le d re p ly to the sh ow ca u se n otice e x pl a i ni n g a t l e n gth a ll d oub ts an d q ue r ie s r a i se d b y the AO in i ts p re viou s r e p ly a nd fu r ni sh i ng a l l i nf or ma ti on w h ic h h e fo un d l a ck ing (P . B 22 2 -2 5 2), bu t de sp ite th e s a me , the AO s ough t a p p r ova l of th e P CI T f or sp e c i a l a u d it on t he s a me d a y the re p ly w a s f ile d b y the a sse ss ee a n d a fte r ob ta i ni n g t he sa me o rd e re d s pe cia l a u di t on th e ve r y s a me d a y . ITA No.1369/Chd/2019
A.Y. 2014-15 Page 31 of 32
33. Th e on l y in fe re nc e w hi ch ca n po ssi b ly b e d r a w n i n t he f a cts of th e pr e se n t c a se as na r r a te d a b ove , is th at the r e fe re n ce to spe ci a l a ud i t wa s ma d e on ly to b uy fur th e r ti me for co mpl e t in g t he a sse ss me nt , h a vi ng b ee n ma de a t t he fa g e n d of th e pe r i od f or c omp le ti on of a s s e s sme n t th a t too me r e l y for ob ta i ni n g fu r the r d e ta i ls a n d in f or ma tio n a n d n ot b e c a use a ny co mpl e xi ty w a s n ote d in the a ccoun ts of th e a ssess ee . Th e r e fe re n ce to s p eci a l a u di t, th e r e f ore we ho ld , is an i nva li d r e fe re n ce , con tr ar y to la w .
34. Th e a ss e ss me n t o rd e r p a ss e d the re fore i n the e xte n de d p e r i od , a s a co ns e q ue nce of th e i n va l id r e fe re n ce , we h ol d, i s b a r r e d b y l imi ta ti on a n d h e n ce void .
35. Si nc e we h a ve he ld the a s se s sme n t or de r to be voi d on a cc oun t of an i nv a li d re fe re nce to spe c ia l a ud i t f or t he a f or e sa i d re a s ons, the re ma i n in g a r gu me n ts w ith r e s pe ct to t he sa me a r e n ot be in g d e a l t w i th b y us .
Th e a dd i ti ona l g r ou nd o f a p p e a l r a i se d by th e a sse s see i s, th e re f ore , a l l owed .
36. B oth th e p a r tie s w e re he a r d o nl y on t he a dd i ti on a l gr oun d r a i se d w h ic h h a s be e n a ll ow e d b y us a nd th e a s se ssme nt or de r p a ss e d ha s be en h e l d to be voi d . Th e re ma i ni ng gr oun d s, ITA No.1369/Chd/2019 A.Y. 2014-15 Page 32 of 32 r e l a ti ng to me r its of th e c a se , the re fore , a re re nde re d a ca de mic i n na t ur e .
37. I n the re su lt , the a p pe a l of the a s se sse e is , th e re f ore , a l lo we d i n a b ove te r ms.
Or d e r pr on ou nced o n 26 t h Oc tober , 2 0 2 1.
S d /- Sd /- (SATBEER SINGH GODARA) (ANNAPURNA GUPTA) ायिक सद /Judicial Member ले खा सद /Accountant Member िदनां क /Dated: 26th October, 2021 *रती*
आदे श क ( त)ल*प अ+े*षत/ Copy of the order forwarded to :
1. अपीलाथ / The Appellant
2. (?यथ / The Respondent
3. आयकर आयुCत/ CIT
4. आयकर आयुCत (अपील)/ The CIT(A)
5. *वभागीय ( त नKध, आयकर अपील"य आKधकरण, चNडीगढ़/ DR, ITAT, CHANDIGARH
6. गाड फाईल/ Guard File आदे शानुसार/ By order, सहायक पंजीकार/ Assistant Registrar