TMI Blog2006 (10) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... isation. According to the Petitioner, it follows the mercantile system of accounting and maintains regular books of accounts including a cash book, bank book, journal book, general ledger, debtors ledger, creditors ledger, etc. It follows the directions issued by the Reserve Bank of India from time to time and in accordance therewith it maintains a register of deposits, and investment ledger and stock register of securities. It has its accounts audited from time to time and according to the Petitioner neither its business nor the maintenance of statutory records by it has been adversely commented upon. 4. The Petitioner filed its return of income on November 30, 2003 declaring a total income of about Rs. 53 crores for the financial year 2002-2003. This was subsequently revised on March 31, 2005 and the total income was reduced to about Rs. 51 crores. The return was accompanied by a statutory audit report, tax audit report and statement of accounts. 5. During the course of assessment proceedings, commenced pursuant to a notice under Section 143(2) of the Act, an order was passed under Section 127(2) of the Act on July 29, 2005 whereby jurisdiction over the assessee was trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Co., Chartered Accountants were appointed to conduct the special audit. It is these orders that are challenged before us. 11. Learned counsel for the Petitioner raised two principal contentions. It was firstly contended that the principles of natural justice have not been complied with inasmuch as the Petitioner was not heard before the order under Section 142 (2A) of the Act was passed and secondly that there was no application of mind by the Assessing Officer before issuing the impugned orders. 12. One of the arguments in support of the second contention was (and it has been stated in para 18 of the writ petition) that the Petitioner understands that the records of its case were received by Respondent No.2 from Lucknow in the first fortnight of March, 2006. When we put this to learned counsel for the Respondents, he denied it and we recorded his statement on May 30, 2006 to the effect that the records were received in February, 2006. Learned counsel for the Respondents also placed the record before us and we find that it is recorded therein that the Assessing Officer in Delhi received the case record on 20 th February, 2006. 13. The first contention of learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT [2002] 255 ITR 268, a challenge was made to an order passed under Section 142 (2A) of the Act and this Court noted that the Assessee had filed voluminous details running approximately into 500 pages to explain the queries raised by the Assessing Authority. Further details running into about 1000 pages were also filed by the Assessee and this prima facie supported the opinion of the Assessing Authority of the need to have a special audit. An SLP filed against the order passed by this Court was dismissed by the Supreme Court. From a reading of the facts of this case, it appears there was prima facie justification, considering the voluminous records that a special audit was warranted. 19. In M.C. Mehta vs. Union of India, [1999] 6 SCC 237, the Supreme Court held, "It is, therefore, clear that if on the admitted or indisputable factual position, only one conclusion is possible and permissible, the Court need not issue a writ merely because there is violation of the principles of natural justice." 20. In coming to this conclusion, the Supreme Court relied, inter alia, on the following passage from S.L. Kapoor v. Jagmohan, [1980] 4 SCC 379 (page 245) : "As w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The complexity arises from the nature of the business activities and transactions carried out by the Petitioner, which has remained unchanged over the years. 25. We may also note that a direction to conduct a special audit under Section 142 (2A) of the Act is not a final order and does not determine any right, obligation or liability of any of the parties. As mentioned in Yum Restaurants, it is a step towards completion of the assessment proceedings taken by the Assessing Officer to completely and fully understand the accounts of the Assessee. Viewed in this context, there need not be such a rigid compliance with the principles of natural justice as is sought to be contended by learned counsel for the Petitioner. As long as there is some material that stares in the face of the Assessing Officer which more or less compels an order of special audit, he can pass an appropriate order without necessarily having any interaction with the Assessee. If the material before the Assessing Officer is not so obvious as would warrant the passing of an order under Section 142 (2A) of the Act, it is only then that the Assessing Officer would need to have an interaction with the Assessee, as re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng employed in the previous year, the auditor states that mercantile system of accounting is adopted. However, he qualifies the same by stating "expenditure beside contractual are booked and crystallized on its approval by management". Such a system is not permissible under the Income Tax Act. There are various other similar lacunas in the tax audit report and we do not consider it necessary to deal with each one of them at this stage. Suffice it to say that we have gone through the detailed proposal and are satisfied that there is due application of mind in the formation of the proposal by the Assistant Commissioner of Income-tax. The proposal of the Assistant Commissioner of Income-tax has been duly considered by the Commissioner of Income Tax as is evident from his detailed note. The Commissioner of Income Tax also notes that there is substantial intermingling of accounts with the accounts of other concern of the same group and that the accounts of the petitioner/assessee have been maintained in such a manner that the number of deposits received in the same name, of the same depositor are shown as separate deposits. He also observes that on the tax audit report furnished by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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