TMI Blog2004 (2) TMI 712X X X X Extracts X X X X X X X X Extracts X X X X ..... cts of the case are that the petitioner is carrying on banking business after having been formed under the Co-operative Societies Act, 1912. The members and/or shareholders of the petitioner are the Government of West Bengal, holding about 38 per cent. shares and balance are being held by the different District Central Co-operative Banks and other co-operative societies. The petitioner is also a scheduled bank within the relevant provisions of the Banking Regulation Act and is being directly controlled by Reserve Bank of India and also by National Bank for Agriculture and Rural Development (NABARD). The books of account and documents of the petitioner are regularly and systematically audited by both the Co-operative Audit Directorate, Government of West Bengal, as well as by the auditor under Section 44AB of the said Act. 3. In almost all the relevant assessment years the petitioner has been enjoying exemption from paying tax on the income under the provision of Section 14(3)(i)(a) of the Indian Income Tax Act, 1922, then prevailing, now under Section 81(1)(a) of the present Act. When the petitioner was reasonably expecting refund of a sum of ₹ 1,40,27,398, ₹ 1,45,31 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t form an opinion having regard to the nature and complexity of the accounts of the assessee and, secondly, in the interest of the Revenue that it is necessary to appoint a special auditor, thereafter he must have a previous approval of the Chief Commissioner/Commissioner of Income Tax. 7. Before he comes to the conclusion, as to the nature and complexity of the accounts, he shall make a genuine and honest attempt to understand the accounts of the assessee and appreciate the entries therein and in case of doubt, he should seek explanation from the assessee or his representative. A cursory look at the books of account is not sufficient for formation of opinion by the Assessing Officer for exercise of power under Section 142(2A) of the said Act. His opinion must be based upon objective considerations and not on the basis of subjective satisfaction. Naturally the Assessing Officer must have occasion and opportunity to examine the accounts of the assessee to form his opinion as above. In support of his submission, he has relied on the following decisions : Peerless General Finance and Investment Co. Ltd. v. Deputy CIT [1999]236ITR671(Cal) ; Bata India Ltd. v. CIT [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly a notice was served upon the petitioner for settling the remuneration of the special auditor and not on the question of the appointment. 10. He contends that discarding, without reasons, the audit reports both under the co-operative law and the aforesaid provision of Section 44AB of the said Act the decision for appointment of special auditor has been taken ignoring enormous cost factor of the petitioner in a casual manner. Therefore, on that score also the aforesaid impugned order is invalid. 11. Mr. S. K. Kapoor, learned Additional Solicitor General of India, while opposing the writ petition submits that in this case there is no challenge against the power of the Assessing Officer as well as the Commissioner. When both the officers after having applied their respective minds and being satisfied with the nature and complexity of the accounts based on objective considerations have taken a decision for special audit, it is not open for the petitioner to challenge the same nor will the writ court interfere with the same. He submits that from the records it will appear that both the officials have examined the profit and loss account, balance-sheet and the returns submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 438(SC) and CIT v. Karnataka State Co-operative Apex Bank [2001]251ITR194(SC) 14. Having considered the respective contentions and submission of learned counsel it appears to me that the only point that needs to be decided before I hold the aforesaid impugned order of approval followed by direction for special audit under Section 142(2A) of the said Act being bad in law is whether the Commissioner of Income Tax as well as the Assessing Officer have exercised their jurisdiction as per the mandate of the aforesaid section or not. The said section is quoted hereunder : 142(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 (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee and the interests of the Revenue. The word 'and' signifies conjunction. Thus both nature and complexity of the accounts as also the interests of the Revenue are necessary ingredients for exercise of the said power. The word 'complexity' means the state or quality of being intricate or complex or that it is difficult to understand. The expression 'having regard to' indicates that in exercising the power, regard must be had to the factors enumerated in the provision. Where an authority is conferred with a power to exercise its discretion in a particular manner, such discretion has to be exercised bona fide and with a view to achieve the object laid down under the statute. No discretion is beyond the scope of judicial review. Principles of natural justice shall be presumed to be necessary unless there exists a statutory interdict. A prior approval is not an empty ritual. Before an approval is sought for, the Assessing Officer must form an opinion as regards the conditions laid down therein. It further envisages application of mind on the part of the Assessing Officer as also the Commissioner or Chief Commissioner as the case may be. 19. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. The satisfaction is to be based upon objective considerations. 21. In the case of Joint CIT v. I. T. C. Ltd. [1999]239ITR921(Cal) , the Division Bench of this court while dealing with an appeal from an interlocutory order has been pleased to observe that (headnote) : In cases where the 'nature and complexity' of accounts is such that it is not possible for the Assessing Officer to justify the correct assessment of the income and to examine the correctness of the accounts the Assessing Officer has power to appoint a special auditor with the approval of the Commissioner or Chief Commissioner. The power conferred on the Assessing Officer and the approval of the Commissioner and Chief Commissioner is not confined to any turnover, in business or profession. There is no limit or any bar on account of amount of receipts either in business or profession. This power has been conferred on the Assessing Officer to do justice to the assessee and also to protect the interest of the Revenue. 22. From an analysis of the aforesaid decisions, which are relevant on this point and upon careful reading of the aforesaid section it is clear as it has been rightly contended b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of account has formed their opinion regarding the nature and complexity and the Commissioner overlooking this serious legal lapse has mechanically approved. It is true they have material, but with these materials no one can reasonably and rationally form an opinion. I have examined the proposal dated March 28, 2003, of the Assessing Officer, namely, the Assistant Commissioner of Income Tax. It appears that he sought for various information to complete assessment correctly and such information could not be supplied by the petitioner, as the accounts are not maintained in such fashion. Moreover, the business transactions of the petitioner are huge and conducted through 48 branches in West Bengal. Because of this failure he has presumed the accounts of the assessee (petitioner) are very complex and the desired information cannot be collected easily. 26. In his proposal he has not stated how the interest of the Revenue will be subserved with such special audit. The Commissioner of Income Tax has recorded his approval mechanically as quoted above to cover up the aforesaid lapses. He recorded that he has applied his mind and he regarded that the nature of the accounts and its comple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or not. The petitioner is a body corporate, and formed under the statute and they are required to audit their accounts compulsorily under Section 44AB of the said Act which has been incorporated in the Act on and from April 1, 1985, by the Finance Act, 1984, whereas Section 142(2A), (2B) was incorporated much earlier than the aforesaid section with effect from April 1, 1976, by the Taxation laws (Amendment) Act, 1975. The difference between the aforesaid two sections is distinctly discernable. The provisions of Section 44AB of the said Act are applicable in the case of the classified assessee as mentioned therein having regard to the limit of the turnover in a particular year. But Section 142, Sub-section (2A) can be resorted to, irrespective of the limit of the turnover and in case, as mentioned in the said section. 30. Therefore, it is clear that before the insertion of Section 44AB, the only safeguard against incorrect and manipulated accounts that might be furnished with the return was Section 142, Sub-section (2A) read with Sub-section (2B). I find, Section 44AB, provides for a further safeguard, in case of amongst others, the corporate body. Dr. Pal has aptly pointed out t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e method is not effective. 33 The learned single judge of this court in the case of Peerless [1999]236ITR671(Cal) has observed that the exercise of special audit can only be resorted to sparingly and not in a whimsical and capricious manner. This observation is also supported by the judgment rendered by the Allahabad High Court in the case of Swadeshi Cotton Mills [1988]171ITR634(All) . In my view, while respectfully agreeing with the views of the Allahabad High Court, two learned judges of this court and the learned single judge of the Madras High Court, the Assessing Officer before sending the proposal ought to have recorded reasons in the order after having examined the accounts by himself or getting the accounts examined by his subordinate officials, in support of his findings that the nature and complexity of the accounts is such that without special audit proper assessment is not possible to protect the interest of the Revenue. In a case where the provision for special audit under the aforesaid Act is sought to be applied, the Assessing Officer concerned must record as to why the audit report if furnished by the assessee under Section 44AB of the Act is not accepted ra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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