TMI Blog2018 (6) TMI 1500X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 153(1) of the Act for passing assessment order observed that the assessment order in assessment year 2009-10 was to be passed before 31.12.2011 whereas, it was passed on 1.82012. The special auditor was appointed on 8.12.2011 just 23 days prior to expiry of limitation for passing the assessment order. Thus, in this given factual matrix, the Tribunal has considered that had the case was not referred for special auditor, the assessment would have become time barred and in order to gain time, a reference for appointment of special auditor was made. We allow the preliminary grounds of appeal raised by the assessee and hold that directions dated 26.03.2014 by the learned Addl. CIT, Range-18, New Delhi for special audit under section 142(2A) of the Act were illegal, invalid and not in accordance with the law; therefore, the assessment order impugned in the present appeal is barred by limitation and thus quashed. - Decided in favour of assessee. - ITA No. 6181/DEL/2015 With CO NO.376/DEL/2015 And ITA NO.6648/DEL/2015 - - - Dated:- 27-6-2018 - SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER For The Assessee : Shri Salil Aggarwal, AR For The R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d.CIT. This special auditor was pointed and accounts were audited. However, when the assessee challenged such an action of the AO before the ITAT, its grounds were allowed and it was held that the assessment order is time barred. Accoridng to the ld.cousnel for the assessee, there is no change in the facts in the present assessement year. Therfore, arguments were advanced only on this preliminaryissue by the ld.representatives. In view of the above, at this stage, we deem it appropriate to take note of ground nos.1.1 to 1.3 raised by the assessee in its appeal as under: Assessee s Appeal: 1.1 That the learned AO/DRP has failed to appreciate that since preconditions for invoking the provisions contained in section 142(2A) of the Act were not satisfied in the instant case and, the directions for issuance of special audit were with a mere motive to extend the period of limitation, therefore reference was without jurisdiction and order of assessment so made in pursuance thereto was barred by limitation. 1.2 That the learned AO/DRP ought to have appreciated that there was no complexity involved with regard to the books of accounts and the directions for special au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(2A) of the Act for appointment of special auditor were not available, then such an order would be vacated and the assessment order should be declared as time barred. This preliminary objection was entertained by the ITAT in ITA No.5180/Del/2013. The Tribunal after elaborate discussion on the issue accepted contention of the assessee and held that appointment of special auditor under section 142(2A) of the Act was not in consonance with the statutory provisions. Accordingly, the Tribunal has declared the assessment as time barred. The ld.counsel for the assessee contended that this order was pronounced on 8.4.2016. The department has accepted this order and did not challenge in further appeal. Therefore, according to him, the issue in dispute is squarely covered by the order of the ITAT passed in the assessment year 2009-10. For buttressing his contentions, he took us through the order of the Tribunal as well as other details i.e. chronology of events reproduced by the AO on page no.3 of the assessment order. He pointed out that in this chronology, the ld.AO failed to note replies given by the assessee. He has just noticed the events which are suitable to him and on which alleged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged in an appeal, and if it is unearthed that such exercise carried out was illegal, then such order can be declared invalid. Both aspects have been gone into by the Tribunal elaborately and only thereafter the order for appointment of special auditor was declared invalid. He took us through the order of the Tribunal in extenso. 8. We have duly considered rival contentions and gone through the record carefully. As observed earlier, the assessee has filed its return of income on 4.10.2010. Section 143(2) of the Income Tax Act contemplates that where return has been made under section 139, or in response to a notice under sub-section (1) of section 142, the AO or the prescribed income-tax authorities shall, as the case may, if consider it necessary to ensure that assessee has not understated income or has not computed excessive loss or has not under paid the tax in any manner, shall serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office of the AO or to produce any evidence on which the assessee may rely in support of the return. The provisio appended to this section further contemplates that no notice under this sub-sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted, the following aspects are observed : a. Returned Income is ₹ 704,98,92,290, Profit as per P L A/c is ₹ 715,43,52,024 and total turnover is ₹ 2221,71,45,986/-. b. Project in the P L A/c as under: Ongoing projects ₹ 23,11,48,045/- Completed projects ₹ 11,09,70,346/- Percentage of completion method Rs.909,10,21,242/- c. As per final accounts there is both secured unsecured loans and project in progress amounting to ₹ 96,06,78,88,151/-. The interest paid/payable needs to allocated to business activities of the company including various projects etc. But this has not been done and query in this regard during assessment proceedings has not been satisfactorily replied to. d. There was variation in selling prices of residential/Commercial units allotted/ booked in the immediately preceding year i.e. F.Y. 2008-09, which came to light during the special audit u/s. 142(2A). During the current year also there is sales of residential and commercial units. e. As per enclosure-VII V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for AY 2009-10. There are money movement between assessee company and its subsidiary companies and/or its associate group concerns and individuals on account of loans, advances and trade transactions, in a very intricate and complex manner. Assessee company has diverted huge interest bearing funds to subsidiary companies as interest free funds in the name of purchase of land/advances/ investment in shares/loan etc. All these transactions needs thorough investigation and verification w.r.t Business expediency or otherwise, for its effect on the total income and tax thereon. j. The assessee company has transferred shares of its subsidiary companies at par value of ₹ 10/- to both related and unrelated parties. In these subsidiary companies, share holders' are same as that of Unitech Limited .viz. Ramesh Chandra, Sanjay Chandra and Ajay Ghandra having substantial interest inter-alia. By such transfer assessee has passed on 100% shareholding of these companies and no profit have been shown. These voluminous transactions heeds proper audit/ verification, for decidingion the taxability aspect. k. Colourable device of transferring shares in subsidiaries instead of tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been shown to have been received from customers of 42 projects, but in details filed during assessment proceedings, income from percentage completion method there are only 21 projects. Similarly, Land in Balance Sheet is at ₹ 2834.85 Crores, but in reply to questionnaire it is stated to be around ₹ 3100 Crores. These discrepancies needs thorough probe. n. There are advances to subsidiaries amounting to ₹ 1953.12 Crores for purchase of land. But corresponding land right is not perceptible. Similarly, there are loans advances from subsidiaries, but there are no details of interest or service charges etc. on these accounts. Therefore, nature of transaction along with Business expediency for these loans to decide on allowability of interest u/s. 36(1), needs thorough verification, as from ledger A/c furnished, no details emanate including whether corresponding interest have been received or not. o. During the year the assessee company has issued 42,10,64,935 shares of ₹ 2/-at a premium which were ₹ 36.50 per share on 22-4-2009 ₹ 79 per share on 3-7-2009. The reason for difference in share premium which more than 100% in just a matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are hypothetical and are contrary to record and statutory provisions of law. It is submitted that, mere general observations without stating any basis thereof cannot be a ground to allege complexity in the books of accounts and thefeby issue directions for special audit u/s 142(2A) of the Act. The submission therefore is the assessee may kindly be confronted with the basis of the allegations/observations recorded in the said vague notice, so as to enable the assessee company to furnish a proper reply to such notice. Moreover no reference has been made to various information obtained, which has not yet been confronted to the assessee company and thus, a notice issued by relying on information, which has not yet been confronted to the assessee is contrary to principles of natural justice and thus, without jurisdiction. It may added here that, assessee company has been regularly furnishing its returns of income and, has been assessed to tax u/s 143(3) of the Act, where identical manner of maintenance of accounts and method of accounting has been accepted and since there is no change in the manner of maintenance of accounts and method of accounting, thus there is no justification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s supplied] 2.1 It is submitted that perusal of the aforesaid statutory provisions would show that it provides that if at any stage of proceedings, the Assessing Officer having regard to nature and complexity of accounts of the assessee and in the interest of the revenue is o' the opinion that it is necessary to do so may direct to assessee to get the accounted audited by an accountant with the previous approval of the Commissioner or Chief Commissioner of Income Tax. It is thus submitted that statutory precondition for invoking section 142(2A) of the Act is that, there must be complexity in the accounts of the assessee. It is submitted until and unless there is a complexity in the accounts, no aid can be resorted to the provisions of section 142(2 A) of the Act. 2.2 The assessee company seeks to place reliance on the judgement of Hon'ble Calcutta High Court in the case of West Bengal State Co-operative Bank Ltd. Vs. JCIT reported in 267 ITR 345, wherein it was held as under: Voluminous and the numbers of books of account or the plea of impossibility are no ground to abdicate his duty. If it is possible for an auditor or his team to examine the books o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the revenue. The word 'and' signifies conjunction and not disjunction. In other words, the twin conditions of 'nature and complexity of the accounts' and 'the interests of the revenue' are the prerequisites for exercise of power under section 142(2A). Although the object behind enacting the said provision is to assist the Assessing Officer in framing the assessment when he finds the accounts of the assessee to be complex and is to protect the interests of the revenue recourse to the said provision cannot be had by the Assessing Officer merely to shift his responsibility of scrutinising the accounts of an assessee to determine his true and correct income, on to an auditor. True that an order under the said provision cannot be passed on the ipse dixit of the Assessing Officer merely because he finds some difficulty in understanding the accounts. There has to be a genuine and honest attempt on his part to understand the accounts of the assessee, appreciate the entries therein and if in doubt, seek explanation from the assessee or his representative, rather than pass on the buck to the special auditor. A cursory look at the books of account is not sufficient ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the books. The assessee company has always co-operated during the assessment proceedings and would be happy to supply any information which may be desired by your goodself for the purpose of timely completion of the assessment. However, there is no sagacity in invoking section 142 (2A) without examining the books of account of the assessee company. It is axiomatic that power under section 142 (2A) is not to be used in a perfunctory manner, it is only after an honest and objective attempt is made to understand the accounts; this section can be invoked. It is respectfully submitted that section 142 (2A) of the Act requires complexity of accounts and not complexity of investigation.. (Peerless General Finance Investment Co. ITO [313 ITR 206(Cal)] In the present case, where the business of the assessee has been carried on in the same manner as in the preceding years; there is no cause to invoke provisions of Section 142(2 A) as the assessments of earlier years itself are exculpatory and now in the year under review special audit cannot be ordered without emasculating the principle laid down by the Apex Court and several High Courts. However without prejudice t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to regard that there is any complexity in the books of account of assessee company. Reply to Para 2 (d) With regards to variation in selling prices of residential / commercial units allotted / booked, it is submitted that your kind honour is raising the query on the basis of findings in previous year i.e. Assessment Year 2009-10 and there is no specific observation by your kind honour. In this regard its submitted that discount in the real estate business varies with various reasons such as location of the flats, payment schedules such down payment or installments, employee discounts, inaugural or festival discounts, size of the flats etc. the aggregate of all such discounts depending on viability of the projects and timing could vary from 25% to 35% of the average price, and that would be higher if it is compare with highest price. The price of any transaction depends upon various things including future business expectation, relationship with customer, negotiation with the customer, market condition, competition etc. and it would be completely wrong to say that if two transaction are taking place in same time period the price of the transaction should same-. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g proposed without looking into its accounts, without any proper investigations and merely on the basis of incorrect assumptions. In view of the aforesaid it is evident that the observation are based on factual misconception and thus cannot be taken as the basis to regard that there is any complexity in the books of account of assessee company. Reply to Para 2 (g) At the outset it is submitted your observation that foreign income from overseas projects have not been shown in the P L account is factually incorrect. We may submit that income from overseas projects at Libya, assessee has duly disclosed income of ₹ 27.52 crores in computation of income filed earlier. - It is further submitted that though income from Libya i.e. R.27.52 Crores was initially reduced in the computation of income but thereafter the same has been offered for tax separately as would be evident from computation of income enclosed(Annexure 3). Further to your observation with regard to assessee is having 32 100% foreign subsidiaries out of which 4 are appearing for the first time in the current year, investment and transactions with these companies needs a thorough check , we wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ign Subsidiaries, 30 joint ventures / associates having a common office address.. In this regard we submit that, each of the subsidiaries are regularly assessed to tax and particular of assessment of such subsidiaries has already been placed on record and the list is again enclosed (Annexure 4) herewith depicting therein name of subsidiary paid up capital, turnover and profit/loss during the year alongwith their; Permanent Account Numbers. We may also submit though the registered office of the subsidiaries is same but there are different directors in each subsidiary. It is also, placed, on records that as per Accounting. Policy, followed, .consistently mentioned at S. No. 12 of Significant Accounting Policy of the Audited Accounts, which states that interest is charged- to / from subsidiary companies (other than wholly owned subsidiary companies) at average borrowing cost on the loan advanced. In case of Inter Corporate Deposits to wholly owned subsidiaries, interest is charged considering commercial expediency and agreed stipulations. The details of Interest Income of ₹ 251.80 Crores has-been received from subsidiaries during the year under assessment for which c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Ajay Chandra are not common directors. As per the companies Act, any person can be director in maximum no. of 15 companies; therefore in most of the companies, employees of Unitech Limited are the director's acting as nominee to the shareholder i.e. Unitech Limited. On plain perusal of chart enclosed shows that shares to unrelated parties have not been sold at par and there is a capital gain of ₹ 691.83 crores on these shares declared during the year under consideration and Mr. Ramesh Chandra, Mr. Sanjay Chandra Mr. Ajay Chandra are not the directors of those companies/purchaser companies. As far as share sale to related entities/other subsidiaries there is no point to sell at above face value as the income is exempt u/s 47 of the I. Tax Act, 1961. In view of the aforesaid it is evident that the observation are based on factual misconception and thus cannot be taken as the basis to regard that there is any complexity in the books of account of assessee company. Reply to Para 2 (k) In this para, it has been observed that colourable device of transferring share in place of substantial transfer of landed properties, it is submitted most respectfull ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licy is 20% or more. In view of above we may explain with regards to your observation that the company may have launched 42 projects but as per policy of Percentage of Completion Method the is income recognized in the year under consideration is of only in 21 projects. Therefore the advance received from customers for the projects just lunched or not achieved 20% construction level shows the difference in your calculation as well as in detail submitted by the company The detail chart showing all the 42 projects status of revenue and advances is enclosed for your reference (Annexure 8). With regards to difference in land value it is placed on records that in reply to your questionnaire no. ACIT-C(18)72012-13 dated 31st January, 2013 we have submitted a reply on 13th February, 2013 wherein at Point No.26 we filed a detailed chart of land showing opening balance, addition / deletion and final balance at the close of year which also reflect a figure 2834.85 Crores which is as per Balance Sheet (Annexure 9). Therefore we would request your goodself to please provide the information/documents you have relied upon having difference with the audited balance sheet of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nge Board of India (Disclosure Investor Protection) Guidelines, 2000 ( July Issue ). So, there was no difference in the amount of premium on issue of 42,10,64,935 equity shares by Unitech Limited. The amount of premium per share for this issue was ₹ 36.50. It appears that your actual query is on basis of difference of premium of issue of 42,10,64,935 equity shares on April 22, 2009 and premium on issue of 34,43,61,112 equity shares on July 3, 2009. Assuming that is the query, we reply as under: The pricing of shares to be issued pursuant to chapter XIII-A of the Securities Exchange Board of India (Disclosure Investor Protection) Guidelines, 2000, was governed by the pricing formula specified in the said guidelines which is being reproduced here under for your ready reference: An issue of specified securities made under this Chapter shall be made at a price not less than the average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the two weeks preceding the relevant date. Explanation : a) relevant date for the purpose of this clause means the date of the meeting in which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EQ 08-Apr-09 39.35 UNITECH EQ 09-Apr-09 42.10 UNITECH EQ 10-Apr-09 _ 40.725 UNITECH EQ 11 -Apr-09 _ UNITECH EQ 12-Apr-09 - UNITECH EQ 13-Apr-09 41.75 39.35 In view of the base price of ₹ 38.46 per share calculated pursuant to pricing guidelines specified in chapter XIII-A of the Securities Exchange Board of India (Disclosure Investor Protection) Guidelines, 2000, the issue price was fixed at ₹ 38.50 per share. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77.00 UNITECH EQ 24-Jun-09 77.95 UNITECH EQ 25-Jun-09 82.00 77.00 In view of the base price of ₹ 81.00 per share calculated pursuant to pricing guidelines specified in chapter XIII-A of the Securities and Exchange Board of India (Disclosure Investor Protection) Guidelines, 2000, the issue price was fixed at ₹ 81.00 per share. Relevant Date for the April Issue was June 26,2009. Regarding your observation in respect of share premium in standalone balance sheet vi a viz consolidated balance sheet, we have earlier informed and urged to your good sel that the consolidated accounts are being prepared for the requirement of SEBI applied on listed companies, whereas the taxation issue only related to the standalone balance sheet of the company. In view of the aforesaid it is evident that the observation are based on factual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer during the course of assessment proceedings for the Assessment Year 2010-11. It is clear from the above submission that the aforesaid notice has been issued based on mere suspicion, and fishing and roving inquiry is being made to order the special audit of the Assessee. It is pertinent to mention that fishing or roving inquiry is not contemplated under Section 142(2A) of the Income Tax Act, 1961. No specific or cogent material has been provided along with the notice, and no specific transaction has been disclosed in the notice, which shows complexity of accounts of the Assessee. In Swadeshi Cotton Mills Co. Ltd. vs Commissioner of Income-Tax [1998 233 ITR 199 SC], the Hon'ble Supreme Court held that honest attempt to understand the accounts must first be made. Special Audit should not be directed upon a cursory look at the accounts. For an order of special audit, the Assessing Officer must scrutinize accounts and be satisfied about the complexity of the accounts. This decision would have to be made after looking into the accounts. Even if there was difficulty in appreciating entries, an explanation would have to be obtained from the assessee. In Bata Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 67. The assessee again filed a detailed reply which is available at page no.268 to 278. The reply reads as under: Dated: 18.03.2014 Before Hon'ble Commissioner of Income Tax -VI New Delhi . In the matter of: M/s Unitech Limited Subject: Assessment Proceedings for Assessment Year 2010-11 Respected Madam, 1. Kindly refer to your notice dated 13.03.2014 served on 14.3.2014 wherein it has been stated as under: 2 A reference has been received from DCIT, Circle-18 through Additional CIT, Range-18, New Delhi seeking approval for Special Audit u/s 142(2A) in the case of M/s Unitech Ltd. in the A. Y. 2010-11 3 You are hereby allowed an opportunity to appear before undersigned on 18.3.2014 at 11:00 AM in Room No. 243, C.R. Building, I.P. Estates, New Delhi. Please note that if you fail to take this opportunity it will be presumed that the assessee company has nothing to say I the matter and the reference will be decided on merits. 1.1 The assessee, in response to the above, respectfully submits as under: 2. At the outset, it is most respectfully submitted that, the assessee had been served with a show cause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis on which the learned Assessing Officer was not satisfied with the reason of the assessee stating that there is no complexity in the books of accounts of the assessee. The assessee seeks to rely upon the case of Full Bench of Delhi High Court in the case of J.T. (India) Exports and Anr. vs. UOI reported in 262ITR 269 wherein it has been held as under: 5. The adherence to principle of natural justice as recognised by all civilized states is of supreme importance . - when a quasi judicial body embarks on determining disputes between the parties. These principles are well-settled. The first and foremost principle is what is commonly known as audi alteram pattern rule. It says that none should be condemned unheard. Notice is the first limb of this principle- It must be precise and unambiguous. It should appraise the party determinatively the case he has to meet. Time given for the purpose should be adequate so as to enable him to make his representation. In the absence of a notice of the kind and such reasonable opportunity, the order passed against the person in absentia becomes wholly vitiated. Thus, it is but essential that a party should be put on notice of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erwords, the attempt is to not only abdicate his responsibility but also extend the period of limitation. At this juncture, the assessee reiterates that the show cause notice notice had been issued on 05.02.2014 without examining the books of account of the assessee company. . It is submitted that, the necessary and statutory precondition for invoking section 142(2A) of the Act is that Assessing Officer must necessarily examine the books of accounts before issuing a show cause notice to direct the assessee to get his accounts audited by the special auditor. The assessee in support seek to refer following judgments as under:- i) 233 ITR 199 (SC) Swadeshi Cotton Mills Co. Ltd. vs CIT the Hon'ble Supreme Court held that honest attempt to understand the accounts must first be made. Special Audit should not be directed upon a cursory look at the accounts. For an order of special audit, the Assessing Officer must scrutinize accounts and be satisfied about the complexity of the accounts. This decision would have to be made after looking into the accounts. Even if there was difficulty in appreciating entries, an explanation would have to be obtained from the assessee. ii) 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rily but honestly and only than reference would be valid. It is submitted that the learned Assessing Officer in the Show Cause Notice dated 05.02.2014 has proposed reference by observing as under: The above aspects render the accounts of assessee company very complex with voluminous transactions, thereby necessitating thorough investigation, by special audit u/s 142(2A) of the IT Act, 1961 for arriving at correct amount of total income. Accordingly, you are hereby given an opportunity to Show Cause, why your case should not be referred to Special Audit u/s 142(2A) of the I.T Act, 1961. 3.3 It is submitted that, since the proposal is based on allegedly complexity in accounts, it is apparent that the said proposal has not been made after making an honest attempt to examine the book of accounts, since books of accounts had neither been produced and nor examined by the Assessing Officer .prior to issue of show cause notice dated 5.02.2014. 3.4 It may be added and clarified that subsequent to the show cause notice and reply of the assessee, books of accounts were produced and compounded on 3.3.2014. Thereafter on 10.3.2014, the learned Assessing Officer has already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .18 35.76 6.78% 143(1) 2006-07 28.11.2006 674.75 106.68 15.81% 143(3) 2007-08 31.10.2007 2,599.65 1,218.53 46.87% 143(3) 2008-09 31.03.2009 2,969.73 1,334.88 44.95% 143(3) 2009-10 29.09.2009 2,454.91 922.30 37.57% 143(3) 2010-11 04.10.2010 2,221.71 704.99 31.73% - It is submitted having regard to the aforesaid principle laid down by the Hon'ble Court, the proposed reference apparently and evidently does not satisfy the statutory preconditions u/s 142(2A) of the Act. It is evident from the above, that the assessee has been maintaining the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... protect the interests of Revenue but recourse to the said provision cannot be had by the Assessing Officer merely to shift his responsibility of scrutinising the accounts of an assessed to determine his true and correct income, on to an auditor. True that an order under the said provision cannot be passed on the ipse dixit of the Assessing Officer merely because he finds some difficulty in understanding the accounts. There has to be a genuine and honest attempt on his part to understand the accounts of the assessed, appreciate the entries therein and if in doubt, seek Explanation from the assessed or his representative, rather than pass on the buck to the special auditor. A cursory look on the books of accounts is not sufficient. It needs little emphasis that the opinion required to be formed by the Assessing Officer for exercise of power under Section 142(2A) must be based on objective consideration and not on the basis of subjective satisfaction. Similarly, the requirement of the previous approval of the Chief commissioner or the Commissioner, being an in-built protection against any arbitrary or unjust exercise of power by the Assessing Officer, casts a very heavy duty on the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to scrutinize the entries and verify them, but this does not require services of a special auditor or a Chartered Accountant to undertake the said exercise. Section 142(2A) is not a provision by which the Assessing Officer delegates /his powers and functions, which he can perform to the special auditor. The said provision has been enacted to enable the Assessing Officer to take help of a specialist, who understands accounts and accounting practices to examine the accounts when they are complex and the Assessing Officer feels that he cannot' understand them and comprehend them fully, till he has help and assistance of a special auditor. Interest of the Revenue being the other consideration. In the present case, the Revenue has not submitted that test check of entries was undertaken, but anomalies or mistakes were detected. For proceeding further, and to compute the taxable income, help and assistance of an accounting expert was required. Secondly, we notice that the Assessing Officer, felt that special auditor is required for determining and deciding certain legal issues, i.e., nature and character of Nazul I and Nazul II land, payments received and the treatment of the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted. It is a principle of law that this cannot be permitted and there is abundant authority reiterating that principle. Thirdly, the same principle, namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken. [Emphasis supplied] 3.9 In view of the aforesaid, it is submitted that there is no complexity in the books of accounts. The attempt is to create complexity, when there is none. It is submitted that an action of assessing officer seeking reference to Special Auditor u/s 142(2A) of the Act for conducting special audit purportedly by invoking the provisions of section 142(2A) of the Act is invalid, obliterate and, without jurisdiction and, as such you are. requested not to accept the aforesaid proposal for initiation as well as the show cause letter dated 05.02.2014. Should your goodself, require any further information other than stated above, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment year 2009-10 and order of the Tribunal which has been accepted by the department deserves to be followed or not. We deem it appropriate to take note of the finding of the Tribunal in the assessment year 2009-10. First proposition, which was contested before the Tribunal for the assessment year 2009-10 was that order passed under section 142(2A) of the Act was cryptic and non-speaking order, because no specific instance of complexity with regard to the books of accounts were pointed out in the said order. It was also contended that objections raised by the assessee against appointment of such auditor were not considered or discussed in the order passed under section 142(2A) of the Act. The AO while exercising power under section 142(2A) was required to assign reason and it should be based on objective criterion and not on the basis of subjective satisfaction. In the words, the AO ought to have visualized the complexity of accounts and compelling circumstances for exercising such power. It was also contended that though while making a proposal for approval, an opportunity was provided to the assessee, but after submitting explanation no opportunity was granted to the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing] Officer may require: [Provided that the Assessing Officer shall not direct the assessee to get the accounts so audited unless the assessee has been given a reasonable opportunity of being heard] ( 2B) (2B) The provisions of sub-section (2A) shall have effect notwithstanding that the accounts of the assessee have been audited under any other law for the time being in force or otherwise. ( 2C) Every report under sub-section (2A) shall be furnished by the assessee to the [Assessing] Officer within such period as may be specified by the [Assessing] Officer Provided that the [Assessing] Officer may, [suo motu, or] on an application made in this behalf by the assessee and for any good and sufficient reason, extend the said period by such further period or periods as he thinks fit; so, however, that the aggregate of the period originally fixed and the period or periods so extended shall not, in any case, exceed one hundred and eighty days from the date on which the direction under sub-section (2A) is received by the assessee. ( 2D) The expenses of, and incidental to, any audit under sub-section (2A) (including the remuneration of the accountant) shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by itself would not mean that the court would not insist on complying with the fundamental principles of law. If the principles of natural justice are to be excluded, the Parliament could have said so expressly. [Underlined by us) 24. Having regard to the above, Their Lordships interpreted section 142(2A) of the Act to conclude that the twin conditions of nature and complexity of the accounts and the interests of the revenue are the prerequisites for exercise of power under section 142(2A) of the Act. It was held that the word complexity used in section 142(2A) is not defined or explained in the Act and therefore approving the interpretation of the Hon ble Allahabad High Court in the case of Swadeshi Cotton Mills Co. Ltd. vs. CIT 171 ITR 634 (All.), it was held that dictionary meaning of complex is The state or quality of being intricate or complex or that is difficulty 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for special audit shall be issued without affording a reasonable opportunity of hearing to the assessee. 25. Thereafter on application of the legal position to the facts their Lordships concluded that the order dated 14.3.2006 u/s 142(2A) of the Act was vitiated as neither AO had occasion to have a glimpse of the accounts and nor any show cause notice was issued to the assessee and thus the same did not satisfy the principle of audi alteram partem. Concluding the above discussion, it was held as under: 28. The next crucial question is that keeping in view the fact that the time to frame fresh assessment for the relevant assessment year by ignoring the extended period of limitation in terms of Explanation 1( iii) to sub-section (3) of section 153 of the Act is already over, what appropriate order should be passed. As noted above, the learned Additional Solicitor General had pleaded that if we were not inclined to agree with him, the interpretation of the provision by us may be given prospective effect, otherwise the interest of the revenue will be greatly prejudiced. 29. There is no denying the fact that the law on the subject was in a flux in the sense that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority and it is opened to the appellant to urge before any appellate authority that the extended period of limitation is not maintainable because of an invalid order u/s 142(2A) of the Act. The above view finds support also from the judgment of Hon ble Karnataka High Court in the case of CIT v Subboji Rao C.H (supra). In the said case the Tribunal held that there was no complexity in accounts requiring an audit u/s 142(A) of the Act and the same had been taken to avail of further time to complete the assessment, the assessment was hopelessly barred by limitation. On appeal by the revenue, the decision of ITAT was upheld by observing as under: 6. The Apex Court in the case of Rajesh Kumar v. Dy. CIT [2006] 157 Taxman 168 (SC) held that the assessee suffers civil consequences, as a result of an order under Section1 42(2A) of the Act and the same is prejudicial to him and therefore the principles of natural justice must be held to be implicit in the provisions of Section 142(2A) of the Act and an opportunity of hearing has to be given before issuing a direction under Section 142(2A) of the Act. When the matter was referred to a larger Bench of the Supreme Court, the large ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it has been observed as under: The Tribunal after taking into consideration the record of proceedings and material on record has come to the conclusion that reference to the special audit under section 142(2A) of the Income-tax Act in the circumstances was not for the purpose for which the provision was enacted but merely for getting the extended period for completing assessment, which is not permissible under law. On the basis of this finding, the reference to the special audit was held to be illegal and 30 the Tribunal found that it was abuse of process by the Assessing Officer. The findings given by the Tribunal are findings of fact based upon the relevant material. 30. Having regard to the above discussion we have no doubt in our mind that the contention raised by the appellant is maintainable in this appeal. In otherwords, the appellants are entitled to urge, argue and plead that order of assessment is barred by limitation on the ground that direction u/s 142(2A) of the Act were invalid and not legally sustainable. 31 Having held so, we now examine the validity of the direction issued u/s 142(2A) of the Act. In the instant case, directions dated 9.12.2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to nature and complexity of accounts and interest of the revenue that special audit was necessary. It was concluded that once reasons are conspicuous by their absence in the impugned order u/s 142(2A) of the Act, the same does not meet the requirements of law. In the said case, the Hon ble Court held that subsequent production of file containing a letter written to the Commissioner giving reasons for necessity of special audit and defect in the accounts found during the course of special audit for the preceding assessment years 2003-04 to 2006- 07 does not mitigate the requirement of speaking order u/s 142(2A) of the Act. 34. Also the Hon ble Allahabad High Court in the case of Prateek Resorts Builders (P) Ltd. v. DCIT (supra) following the judgment of Hon'ble Supreme Court in the case of Sahara India (Firm) v CIT has held as under: 6.2 In view of the above, it is clear that for the issue of direction for audit under section 142(2)(a) there should be application of mind and objective satisfaction on the basis of material. The application of mind and objective satisfaction can only be examined when order reflects so by recording the reasoning. 7. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Associates (P) Ltd. vs. Masood (supra) which had laid down as under: 51. Summarizing the above discussion, this Court holds: a. In India the judicial trend has always been to record reasons, even in administrative decisions, if such decisions affect anyone prejudicially. b. A quasi-judicial authority must record reasons in support of its conclusions. c. Insistence on recording of reasons is meant to serve the wider principle of justice that justice must not only be done it must also appear to be done as well. d. Recording of reasons also operates as a valid restraint on any possible arbitrary exercise of judicial and quasi-judicial or even administrative power. e. Reasons reassure that discretion has been exercised by the decision maker on relevant grounds and by disregarding extraneous considerations. f. Reasons have virtually become as indispensable a component of a decision making process as observing principles of natural justice by judicial, quasi-judicial and even by administrative bodies. g. Reasons facilitate the process of judicial review by superior Courts. h. The ongoing judicial trend in all countries committed to rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... complexity of assessee s accounts and interest of the revenue, the AO was of the opinion that accounts are to be audited u/s 142(2A) of the Act. The order is silent as to on what basis and on what grounds, the accounts proposed to audit under section 142(2A) were considered complex and on what considerations it was arrived that it is in the interest of revenue to direct audit of accounts. Mere reference to a prior approval of CIT does not satisfy the precondition of a speaking order containing reasons for invoking the provision of section 142(2A) of the Act. There is no reference to detailed replied furnished by the assessee during the proceedings. 37. Having regard to the above it is held that in the impugned order reasons are clearly invisible and conspicuous by their absence. In other words, order is bereft of any reason. It is stated here that reasons are heart and soul of an order, as they facilitate the process of judicial review and therefore in absence of any reason much less cogent, clear and succinct reasons order u/s 142(2A) of the Act is held to be bad in law and without proper jurisdiction. 38. Also, even the approval u/s 142(2A) by learned CIT should re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired to apply his mind to the proposal put up to him for approval in the light of the material relied upon by the Assessing Officer. The said power cannot be exercised casually and in a routine manner. We are constrained to observe that in the present case there has been no application of mind by the Additional Commissioner before granting the approval. 14. In the light of the above, let us examine the parity of facts between both the years. In para-31 ITAT has reproduced the order of the Addl. Commissioner dated 8.12.2011 vide which special auditor was appointed. At the cost of repetition we would like to take note of this order along with order dated 26.3.2014 passed in present assessment years. Both the orders are passed as under: Asstt.Year 2009-10 Asstt.Year 2010-11 F. No. Addl. CIT R-18/Spl.AuditUnitech Ltgd.,11-12/1093 Dated: 9.12.2011 To, M/s Unitech Ltd. 6, Community Centre, Saket, New Delhi Subject: Special Audit u/s 142(2A) of the I.T. Act 1961 in the case of M/s Unitech Limited. A.Y 2009-10-regarding Sir, Please refer to the subject cited above Having regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 014 Yours faithfully (Deputy Commissioner of Income Tax, Range-18(1), New Delhi Copy to: 1 The Commissioner of Income Tax, Delhi-VI, New Delhi 4 M/s Dass Gupta and Associates, B-4, Gulmohar Park, New Delhi with a direction to carry out the audit as per the terms of reference attached herewith 15. A perusal of the above would indicate that as far as the order appointing special auditor is concerned, there is no disparity on facts. Both orders are identically worded without taking cognizance of any of the submissions made by the assessee. The order passed by the learned Additional Commissioner does not spell out any reasons exhibiting complexity of the accounts and what prevented him for passing assessment order. This aspect has been elaborately considered by the ITAT in the assessment year 2009-10. It is also pertinent to note that after making an analysis of this order, ITAT took into consideration objection filed by the assessee on the alleged proposal for appointment of special auditor. We have taken cognizance of such objection in the present assessment year in para-10 of the order. In the light of the ITAT s finding in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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