TMI Blog2019 (11) TMI 1191X X X X Extracts X X X X X X X X Extracts X X X X ..... n 142(2A) of the Act stands vitiated. While it is true that some of the directions contained in the terms of reference to the Special Auditors are not germane, it appears that such directions are issued in some standard format. In the opinion of this court, merely because the terms of reference contain some irrelevant directions, the same would not vitiate the entire process as is sought to be contended on behalf of the petitioner. Needless to state that the Special Auditors would confine the inquiry only to the relevant directions. Insofar as the contention regarding separate assessment year wise show cause notices not having been issued for different assessment years is concerned, the same is beyond the scope of the present petition, wherein the subject matter of challenge is the direction to get the accounts audited by an accountant as envisaged under sub-section (2A) of section 142 of the Act and further proceedings pursuant thereto. Upon verification of it bank statement, the Assessing Officer found that the money credited in the bank has either been withdrawn in cash immediately or transferred to other bank accounts and then withdrawn and was of the view that this prove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Tax Act, 1961. A search operation came to be conducted at the residence and office premises of the petitioner herein on 29.11.2016. Pursuant thereto, the notices under section 153A of the Act dated 12.5.2017 came to be issued for assessment years 2011-12 to 2016-17. In response to the said notices, the petitioner filed his returns of income for assessment years 2011-12 to 2016-17 on 10.06.2017. 2.1 Thereafter, on 19.9.2017, the petitioner received notices under section 143(2) of the Act for assessment years 2011-12 to 2016-17. The petitioner gave his reply to such notices on 29.9.2017. 2.2 For assessment year 2017-18, the petitioner filed return of income on 31.10.2017. Notices under sections 143(2) and 142(1) of the Act came to be issued by the first respondent on 3.4.2018 for assessment year 2017-18 requiring the petitioner to furnish certain information. The petitioner received another notice under section 143(2) of the Act, whereby the petitioner was informed that his case was selected for limited scrutiny for assessment year 2017-18. 2.3 The petitioner received separate notices dated 25.9.2018 under section 142(1) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act, which was received by the first respondent on 27.12.2018. The first respondent disposed of the objections raised by the petitioner against the proposal to special audit under section 142(2A) of the act for assessment years 2011-12 to 2016-17 and assessment year 2017-18 by a communication dated 26.12.2018. On the same day, that is, 26.12.2018, the petitioner requested the second respondent Principal Commissioner of Income Tax Central, to provide an opportunity of personal hearing before granting any approval for the action under section 142(2A) of the Act. On 27.12.2018, the second respondent informed the petitioner that personal hearing was fixed on 28.12.2018. On 28.12.2018, the petitioner wrote a letter to the second respondent requesting him to drop the show cause notice issued for proposal of special audit under section 142(2A) of the Act. 2.8 On 30.12.2018, the first respondent informed the petitioner that M/s T.R. Chadha Co., LLP was appointed as a Special Auditor within the meaning of section 142(2A) of the Act and that the petitioner was required to get the accounts audited for financial years corresponding to assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f complexity in account does not arise and that the Assessing Officer has not even called for the books of account at any point of time. In this regard, the attention of the court was invited to the reply dated 26.11.2018 of the petitioner to the show cause notice dated 21.12.2018 for proposal for special audit under section 142(2A) of the Act. It was contended that the bank pass book/bank statement can never be equated with the books of account. In support of such submission, the learned advocate placed reliance upon the decision of the Bombay High Court in the case of Commissioner of Income Tax v. Bhaichand N. Gandhi , [1982] 11 Taxman 59 (Bom.) , wherein the court referred to the decision of the Supreme Court in the case of Baladin Ram v. Commissioner of Income Tax , 71 ITR 427 (SC) , for the proposition that the only possible way in which income from an undisclosed source can be assessed or reassessed is to make the assessment on the basis that the previous year for such an income would be the ordinary financial year. Even under the provisions embodied in section 68 of the said Act, it is only when any amount is found credited in the books of the assessee for any previo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt, he has never called for the books of account for verification. It was submitted that the petitioner, in the personal discussion had given in writing and brought to the notice of the Principal Commissioner of Income Tax, Central that he is not maintaining the books of account; however, the Principal Commissioner of Income Tax, Central has granted the approval in a mechanical manner to get the books of account audited by special auditors. It was submitted that therefore, the Principal Commissioner of Income Tax (the second respondent herein) has mechanically granted approval to the proposal for appointment of special auditor which is contrary to the settled legal position of law rendering the proceedings a nullity in the eyes of law. 3.4 In support of such submission, the learned advocate placed reliance upon the decision of the Supreme Court in the case of Rajesh Kumar v. Deputy Commissioner of Income Tax , [2006] 157 Taxman 168 (SC) , wherein the court has held that an order of approval is not to be mechanically granted, but the same should be done having regard to the materials on record. The explanation given by the assessee, if any, would be a relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income Tax , [2004] 138 Taxman 238 (Cal.) , for the proposition that the Commissioner of Income Tax should not give any approval mechanically and if he finds that there is no examination of the books of account by the Assessing Officer before sending the proposal, he will not certainly give any approval. Under this section, the Commissioner of Income Tax does not exercise the jurisdiction of the appellate authority rather the approving authority. Approval means and connotes supporting and accepting of an act and conduct done by another person. Therefore, it would be his duty to examine on receipt of his proposal, whether the Assessing Officer has correctly done it or not, if he finds that this requirement has not been fulfilled, then he must not approve of the same. It was submitted that in this case, the Principal Commissioner of Income Tax has mechanically granted the approval and hence, the approval stands vitiated as being contrary to the settled principles enunciated by the different courts, including the Supreme Court. 3.7 Next, it was submitted that a consolidated reference for special audit for seven assessment years involving section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch submission, the learned advocate placed reliance upon the decision of the Supreme Court in the case of Rajesh Kumar v. Deputy Commissioner of Income Tax (supra), wherein the court has observed thus: 49.Assuming that two sets of accounts were being maintained the same would not mean that the nature of accounts is difficult to understand. It could have furthermore not been shown that the power is sought to be exercised only for an unauthorised purpose, viz., for the purpose of extension of the period of limitation as provided for under Explanation 2 to section 158BE of the Act. 3.9 Reference was also made to the decision of this court in the case of Alidhara Texpro Engineering (P.) Ltd. v. Deputy Commissioner of Income Tax (supra), to submit that the entire exercise of invoking powers under section 142(2A) of the Act was a mala fide exercise only to buy time as the assessments were otherwise getting barred by limitation. Reference was made to the decision of the Delhi High Court in the case of DLF Commercial Projects Corporation v. Assistant Commissioner of Income Tax (supra), wherein the assessment proceedings were getting barred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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 payments, receipts or expenditure in the books for the purposes of taxation. The special auditor cannot go into and examine the said legal issue or question regarding taxability. This has to be determined and decided by the Assessing Officer. This determination/decision requires passing of the assessment order. However, at this stage, the Assessing Officer should indicate his prima facie or tentative view on why the legal issue requires examination of accounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the power is not in dispute; it is the exercise of power, which is in dispute and question. The exercise of power must withstand and meet the requirements prescribed. Failure to exclude irrelevant and extraneous matters negates the opinion as the said matters should not cloud or dent formation of opinion. Reasons recorded must be genuine and have a nexus with the twin statutory requirements i.e. complexity of accounts and interest of the Revenue. 3.11 Reliance was also placed upon the decision of the Calcutta High Court in the case of West Bengal State Cooperative Bank Ltd. v. Joint Commissioner of Income Tax (supra), wherein the court has held that primarily the Assessing Officer should examine either by himself or to get the accounts examined by some other official subordinate to him and then apply his mind to form opinion about the nature and complexity of the accounts. The said section leaves ample scope for the Assessing Officer to abuse or misuse power conferred thereunder by appointing a special auditor, to be more precise the task of the Assessing Officer of examining accounts can be shifted to the third party at the cost of the assessee. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment years, which itself renders the proceedings invalid. 3.14 It was further submitted that the petitioner has alleged mala fides right from the response to the show cause notice for reference to special audit and has further informed the Principal Chief Commissioner of Income Tax, as well as the Director General of Income Tax (Investigation), to check the laptops of the auditors since they are not conducting audit work of the petitioner, but are carrying out professional work of their firm. In this regard, the attention of the court was invited to the communication dated 19.2.2019 of the petitioner addressed to the Principal Commissioner of Income Tax as well as the Director General of Income Tax (Investigation), Ahmedabad. 3.15 Alternatively and without prejudice to the above contentions, the learned advocate submitted that even when section 142(2A) of the Act talks of audit for specialized nature of business activities of assessee , the pre-requisite condition of maintenance of books of account as per statutory requirement, is a must. To bolster his submission, the learned advocate placed reliance upon the decision of this court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by special auditor. That, the 5 Companies, which have amalgamated with Takshashila Gruh Nirman Pvt. Ltd., have their beginning as partnership firms, which were already doing the real estate and construction business and were executing various projects like Takshashila Residency at Naroda Dehgam Road, Takshshila Colonials at Maninagar and Takshshila Habitat at Vastral, apart from hotel and commercial projects. Hotel projects with shops were earlier executed by Chanakya Buildcon, later by Chanakya Buildcon Pvt. Ltd. and now after amalgamation the present Takshshila Gruh Nirman Pvt. Ltd. has completed project and entered into sale agreement. Chanakya Infrastructure commenced construction of Takshshila Habitat and in the middle of the construction, the firm was converted into Company viz., Chanakya Infracon Pvt. Ltd. under chapter IX of Company Act. Now, the Chanakya Infracon Pvt. Ltd. has been amalgamated with Takshshila Gruh Nirman Pvt. Ltd. Similar is the case with Takshshila Gruh Nirman, a firm converted into company Takshshila Properties Pvt. Ltd. and amalgamated with Takshshila Gruh Nirman Pvt. Ltd. The 80IB project Takshshila Colonials, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the revenue, am of the opinion that it is necessary to get the accounts audited by a Special Auditor from the point of view of taxation of capital gains and accounting of stockin- trade at each stage of transfer so that there is no loss to the revenue out of the complex web of transactions involved. 20. Considering the aforestated facts and circumstances of the case and having regard to the multiplicity and specialized nature of transactions and in the interests of the Revenue, when the Assessing Officer has passed the impugned orders of special audit under Section 142 [2A] of the Act, the same cannot be faulted with. 3.16 It was submitted that even if the Special Auditor is to be appointed in connection with the business of the petitioner in relation to multiplicity of transactions and various materials, still it can be done only if the books of account are to be statutorily maintained, in the absence of which invocation of section 142(2A) of the Act is not justified. Reliance was placed upon the decision of this court in the case of Asharam Thaumal Harplani (Asaram Bapu) v. Deputy Commissioner of Income Tax , [2017] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt to sub-section (2A) of section 142 of the Act, to submit that the same is in two parts. The first part talks of accounts, whereas the second part does not refer to accounts and refers to specialized nature of business activities of the assessee. It was submitted that therefore, the contention that in the absence of any duty cast upon the assessee to maintain the accounts statutorily, sub-section (2A) of section 142 of the Act cannot be invoked, is misconceived and does not merit acceptance. 4.1 Reference was made to sub-section (12A) of section 2 of the Act, which defines books or books of account to include ledgers, day-books, cash books, account books and other books, whether kept in the written form or as print-outs of data stored in a floppy, disc, tape or any other form of electromagnetic data storage device. It was submitted that in subsection (2A) of section 142 of the Act, the legislature has consciously used the words accounts and not books of account and that the expression accounts has a wider meaning than the expression books of account . Reference was made to the decision of the Supreme Court in the case of Central Bureau of Investigati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions or a reckoning of money transactions; a written or printed statement of business dealing or debits and credits; or a certain class of them. It is thus seen that while the former definitions give the word account a restrictive meaning the latter give it a comprehensive meaning. Similarly is the above word defined, both restrictively and expansively, in Black s Law Dictionary (Sixth Edn.) to mean: A detailed statement of the mutual demands in the nature of debit and credit between parties, arising out of contracts or some fiduciary relation. A statement in writing, of debits and credits, or of receipts and payments; a list of items of debits and credits, with their respective dates. A statement of pecuniary transactions; a record or course of business dealings between parties; a list of statement of monetary transactions, such as payments, losses, sales, debits, credits, accounts payable, accounts receivable, etc., in most cases showing a balance or result of comparison between items of an opposite nature. 22. Mr Altaf Ahmed relied upon the wider definition of the word account as mentioned above to contend that MR 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this case, the search came to be conducted on 29.11.2016; notice under section 153A of the Act came to be issued on 12.5.2017, in response to which the returns of income came to be filed by the petitioner on 10.6.2017, whereafter the notice under section 143(2) of the Act came to be issued on 19.9.2017. It was submitted that therefore, it is not as if no notice was issued prior to the notice dated 25.9.2018. It was pointed out that during the course of search, voluminous documents and materials came to be seized and the returns filed by the petitioner were not in consonance with the seized material. It was submitted that considering the voluminous documents as well as the nature of such documents, the Assessing Officer. after clearly recording detailed reasons, was of the view that having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts, specialized nature of business activity and the interest of revenue, it was necessary to get the accounts of the petitioner for assessment years 2011-12 to 2017-18 audited by an accountant as defined under sub-section (2) of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer under section 142(2A) of the Act. The attention of the court was invited to the averments made in the affidavit-in-reply filed on behalf of the respondents, to submit that based on the record referred to, there is enough material to form a satisfaction as mandated under section 142(2A) of the Act. 4.5 It was urged that it is not at the fag end of the period of limitation that the Assessing Officer has woken up. It was submitted that the first notice was issued on 19.9.2017 and that in response thereto, on 29.9.2017 and 4.12.2017, the petitioner had stated that he is not required to maintain the books of account and therefore, such books are not maintained. It was submitted that therefore, prior to issuance of the notice under section 142(2A) of the Act, there was an earnest effort on part of the Assessing Officer to understand the seized documents. It was pointed out that in the show cause notice, it has been specifically mentioned that the assessee is engaged in a specialized business of providing accommodation entries through the conduit of various trusts etc. and hence, the requirement of sub-section (2A) of section 142 of the Act is duly satisfied. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an accountant. The court further held that as opposed to an ordinary accountant, a Chartered Accountant with his experience and academic background is in a better position to investigate, examine and scrutinize entries and records of financial transactions. The court further held that it is also a fact that business transactions have become more complicated and accounting entries more complex than ever before. This may be one of the causes why possibly frauds could not be detected in some cases. Indeed such cases have made the audit work more comprehensive, intrusive and investigative. The court further observed that the Assessing Officers are not Chartered Accountants and when required and permissible, therefore, can take help and assistance from the qualified specialists to complete the assessment and determine the taxable income of an assessee. 4.9 Reference was also made to the decision of this court in the case of Takshashila Realties (P.) Ltd. v. Deputy Commissioner of Income Tax, Circle-4(1)(2) (supra), wherein the court held that as per the amended section 142(2A) of the Act, apart from the nature and complexity of the accounts, etc., even in case of mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re multiplicity of transactions, for which, accounts are required to be audited through special auditor. The court further observed that as per sub-section (3) of section 142 of the Act, ample opportunity shall be available to the assessee to make submission/comments on the report of the special auditor and therefore, there shall not be any prejudice caused to the assessee if the accounts are ordered to be audited through special auditor under section 142(2A) of the Act. 4.11 Reliance was also placed upon an unreported decision of this court in the case of Cama Hotels Ltd. v. Samir Vakil or his successor Dy. CIT (OSD) , rendered on 12.7.2019 in Special Civil Application No.13445 of 2007, wherein the court has held that the question of complexity of accounts has to be judged applying the yardstick or test; whether the accounts would be complex and difficult to understand to a normal Assessing Officer who has basic understanding of accounts etc., without the aid, assistance and help of a Special Auditor. Thus, due regard has to be given to nature and character of transactions, method of accounting, whether actuarial were adopted for making entri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g before AO also indicates that AO did go into the material seized as also the books of accounts in the course of assessment proceedings and then passed the impugned order. It cannot, therefore, be contended by the petitioner that there was no material on record for forming an opinion, or that there was no application of mind to the facts of the case before passing the impugned order. I am supported by authorities reported in Kumar Films (P) Ltd. v. CIT, (2002) 258 TTR 257 (Pat), Shivkant and Bros. v. Union of India and Living Media v. CIT, (2002) 255 ITR 268 (SC). 11. In my opinion, it is the subjective satisfaction of the authority concerned to decide on the basis of material on record, as to whether the accounts are complex in nature, or not? The word complex is not defined in the Act and hence, it has to be given its wide and liberal meaning. As in this case, if the authority noticed that large number of transactions are executed in Benami by the petitioners and that none of them are reflected in books of accounts and that the books of accounts maintained by the petitioner contains several discrepancies, erasures and overwritings, etc. then certainly such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther noted that in the facts of the said case, the Assessing Officer had thought it fit to get the accounts audited by the Special Auditor as requisitioned material were to the extent of 40,000 papers in 45 gunny bags, which were found during the search conducted of the premises of Asharam Bapu and others. The court found that when large number of papers were required to be considered/verified vis - vis the assessee and other persons whose names figured in the requisitioned papers, and when considering section 142(2A) of the Income Tax Act, the Assessing Officer thought it fit to exercise powers under section 142(2A) of the Act, it cannot be said that the Assessing Officer has committed any error and/or illegality. Mr. Bhatt submitted that in the facts of the present case, the extent of papers found during the course of search are around two lakh pages and the documents are more voluminous than in the cited decision. 4.14 The attention of the court was invited to the first sub-paragraph of paragraph 4 of the affidavit-in-reply filed on behalf of the respondents, wherein it has been averred that during the search proceedings, several documents and digital evidences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar books of account at various places, to submit that therefore, even according to the respondents books of accounts are necessary for conducting special audit. It was submitted that in this case, the auditor is doing the job of an Assessing Officer. 5.1 Next, it was submitted that the decision of the Supreme Court in the case of Central Bureau of Investigation v. V. C. Shukla and others (supra) is rendered in the context of section 34 of the Evidence Act, whereas this matter relates to the provisions of the Income Tax Act, 1961, wherein it is section 2(12) which provides for the scope and ambit of accounts. The attention of the court was also invited to Form 6B prescribed under rule 14A of the Act, to point out that it is in this format that the Special Auditors are required to submit their report. It was pointed out that the accountant has to state therein that they have examined the balance sheet as well as the profit and loss account of the assessee. It was submitted that in the present case, in the absence of any liability to maintain books of account or balance sheet or profit and loss account on the part of the petitioner, it would not be possible for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . V. Doshi v. Commissioner of Income Tax , [1978] 113 ITR 22 , wherein it has been held that the legal position about waiver of such a mandatory provision created in the wider public interest to operate as fetter on the jurisdiction of the authority is well settled that there could never be waiver, for the simple reason that in such cases, jurisdiction could not be conferred on the authority by mere consent, but only on conditions precedent for the exercise of jurisdiction being fulfilled. If the jurisdiction cannot be conferred by consent, there would be no question of waiver, acquiescence or estoppel or the bar of res judicata being attracted because the order in such cases would lack inherent jurisdiction unless the conditions precedent are fulfilled and it would be a void order or a nullity. 5.5 Reliance was placed upon an unreported decision of this court in the case of Nitin Babubhai Rohit or his successor in office v. Ashok Bhavanbhai Patel rendered on 14.3.2018 in Special Civil Application No.22960 of 2017, wherein the court has held that in view of serious illegalities committed by the Commissioner of Income Tax in passing the revisional order, mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er evidence on which he may rely in support of the return filed by him. In continuation of the notice, the petitioner was called upon to produce the documents enumerated thereunder. The record produced before the court, does not indicate whether the petitioner responded to the said notice. While the petitioner had averred regarding receipt of such notice, he has not stated anything about his having filed any reply thereto. 7.2 Thereafter, a computer aided scrutiny notice dated 25.9.2018 came to be issued to the petitioner for assessment year 2017-18, wherein the issue identified for examination was Cash deposit during demonetization period . In response thereto, the petitioner gave a reply dated 28.9.2018 acknowledging receipt of the notice and stating that they understand that their case is selected for scrutiny assessment. 7.3 Notice under section 142(1) of the Act dated 25.9.2018 for assessment years 2011-12 to 2016-17 came to be issued to the petitioner stating that during the course of search at his residential premises, several incriminating documents as per Annexure A/1 of panchnama dated 1.12.2016 were found and seized; accordingly, procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 2017-18, inter alia , stating that in his reply dated 23.11.2018, which was received by the office on 10.12.2018 and 12.12.2018, no statement of the petitioner on specific issues emanating from the seized documents during the search has been supported by documentary evidence and, therefore, it is not to the satisfaction of the Assessing Officer. A final opportunity has been granted before taking any adverse view and making additions on the basis of the evidence seized during the search. 7.7 In response thereto, the petitioner, through his Chartered Accountants, gave a reply dated 17.12.2018 enclosing therewith opinion of the petitioner on the contents noting on the seized documents point-wise. It was also stated therein that this was the first notice whereby the petitioner was asked for specific points of the seized documents. 7.8 Thereafter, a Mazharnama came to be drawn on 20.12.2018 recording that the seal of the hard disc seized from the residential premises of the petitioner was removed and was connected to system for data retrieval. Back up of this disc was made and was taken on a 2TB external hard disc for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 24.12.2018 as is borne out from the endorsement on the said document. 7.11 In response to the show cause notice dated 21.12.2018 for proposal for specific audit under section 142(2A) of the Act, the petitioner gave his reply dated 26.12.2018, inter alia , contending that during the course of search action, no unaccounted investment was found; during the course of search action, several alleged incriminating papers were found and seized; while recording statement under section 132(4) of the Act during search operation, officer in-charge of search had not raised any questions relying on alleged incriminating documents considering that said seized material nothing but scribbling papers in the legal parlance known as dumb documents; even after post search operation, the petitioner has not been called upon to give explanations on the basis of the seized materials. It was further stated that even after initiation of assessment proceedings under section 153A of the Act, no further investigation was conducted for a period of eighteen months; when show cause notice dated 12.12.2018 was issued by the Assessing Officer in consensus with the JCIT, none of the authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , requested to drop the show cause notice for issue of proposal for special audit under section 142(2A) of the Act. 7.12 By an order dated 26.12.2018, the Assessing Officer disposed of the objections raised by the petitioner to the show cause notice. In paragraph 4 thereof, the Assessing Officer has referred to the assessee s letter dated 27.12.2018 and has dealt with the objections raised. It is, inter alia , stated that during the search and seizure action, several documents and mobile connections were recovered and confronted to the assessee, which pointed out that the assessee was engaged in the activity of converting black money into white money by misuse of bank accounts of trusts and charitable organizations. Some documentary evidence showing such activities are annexed to the application. It is stated that such specialized nature of activities require help of an auditor and for this reason, the case of the assessee was found to be fit for audit under section 142(2A) of the Act. It is also stated that the revenue shall be adversely affected if the special audit is not sought in this case. 7.13 Thereafter, the petitioner addressed a letter d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... increase billable hours. 7.18 In response to the notice dated 4.2.2019 of the Special Auditors, the petitioner addressed a reply dated 20.2.2019 to the Special Auditors expressing surprise at the level of their understanding as the Special Auditors which according to him, could be seen from the details which they had asked and stating that looking to the details mentioned therein without any doubt it is proved that they have lack of knowledge of their jurisdiction to conduct audit as required under section 142(2A) of the Act and alleging that they have for the reasons best known to them, without any authority, stepped into the shoes of the Assessing Officer to conduct the assessment. Various other allegations reflecting on the competence of the Chartered Accountants are made and dishonest motives have also been attributed to them. 7.19 By a letter dated 1.3.2019, the Special Auditors responded to the above letter dated 20.2.2019, denying the allegations and tabulating the relevance of the details asked vide their letter dated 4.2.2019. They have requested the petitioner to provide the details asked by them at the earliest and have further stated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mes of different persons. Most of these persons were either the employees of the petitioner, his associates or entities whose books the petitioner or his firm was auditing. The petitioner, in his statement recorded under section 132(4) during the search proceedings, admitted to having made all or most of the transactions in these bank accounts. It is further stated that several original documents belonging to a registered charitable trust, namely, Environment Research and Development Centre (ERDC) were also found from the possession of the petitioner. Further, from the bank statement of the trust, it was seen that one of the employees of the petitioner was making huge cash withdrawal from the bank account of the trust. This employee of the petitioner was also withdrawing cash from other bank accounts being operated by the petitioner. On being asked to explain, the petitioner, in his statement under section 132(4), had admitted that the employee was making withdrawals under his instructions and the money was received by him. He also stated that the money withdrawn from the bank accounts was either redeposited in any other account or used of. In his statement, the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imed to have invested rupees one crore in cash in a Joint Venture (JV) with his friend Shri Neil Master. However, no such details are available in his accounts or in the details submitted by him. 8.1 It is further averred that the very fact that several notices were issued before recording satisfaction that there were complexities in the petitioner s books shows that material available on record was gone through and verified in light of whatever partial, incomplete, cryptic and substantiated (sic. unsubstantiated) replies were filed. In the material seized from the petitioner s premises, there was huge amount of digital data running into 6 Hard Disc Drives of 1 TB capacity each. As can be seen from the annexure to the petitioner s petition, he never filed any detailed reply on this data despite being given repeated opportunities. On this huge data containing records of numerous transactions, the petitioner s cryptic reply was that it was either irrelevant or was related to his clients . The petitioner never made any attempt to identify before the Assessing Officer as to which data was related to his clients and which were his own transactions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him, on a date to be therein specified,- (i) where such person has not made a return within the time allowed under sub-section (1) of Section 139 or before the end of the relevant assessment year, to furnish a return of his income or the income of any other person in respect of which he is assessable under this Act, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed, or: Provided that where any notice has been served under this sub-section for the purposes of this clause after the end of the relevant assessment year commencing on or after the 1st day of April, 1990 to a person who has not made a return within the time allowed under sub-section (1) of Section 139 or before the end of the relevant assessment year, any such notice issued to him shall be deemed to have been served in accordance with the provisions of this subsection. (ii) to produce, or cause to be produced, such accounts or documents as the Assessing Officer may require, or (iii) to furnish in writing and verified in the prescribed manner information in such form and on s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (2-A) is received by the assessee. (2-D) The expenses of, and incidental to, any audit under sub-section (2-A) (including the remuneration of the accountant) shall be determined by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner (which determination shall be final) and paid by the assessee and in default of such payment, shall be recoverable from the assessee in the manner provided in Chapter XVII-D for the recovery of arrears of tax: Provided that where any direction for audit under subsection (2-A) is issued by the Assessing Officer on or after the 1st day of June, 2007, the expenses of, and incidental to, such audit (including the remuner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts of the 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 accounts and the interests of the Revenue are the prerequisites for exercise of power under Section 142(2-A) of the Act. Undoubtedly, the object behind enacting the said provision is to assist the assessing officer 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. 7. The word complexity used in Section 142(2-A) is not defined or explained in the Act. As observed in Swadeshi Cotton Mills Co. Ltd. v. CIT, (1998) 171 ITR 634, 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 unders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 13. 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. 14. However, with effect from 1st June, 2013, the words the nature and complexity of the accounts of the assessee and came to be substituted by the words the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialised nature of business activity of the assessee, and . 15. While prior to its amendment, sub-section (2A) of section 142 of the Act could be invoked only upon considering two factors, viz., the nature and complexity of the accounts of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessary so to do, he may, with the previous approval of the Chief Commissioner or the Commissioner, direct the assessee to get his accounts audited by an accountant and to furnish a report of such audit in the prescribed form. 35.3 Applicability: This amendment takes effect from 1st June, 2013. 18. Thus, it is the restrictive interpretation of the expression nature and complexity of the accounts by various courts that has occasioned the amendment, evidently, therefore, the intention of the legislature was to widen the scope and ambit of sub-section (2A) of section 142 of the Act. The scope and ambit of sub-section (2A) of section 142 of the Act has, therefore, become wider upon its amendment with effect from 1st June, 2013 and cannot be construed in the same restrictive manner as it was prior to its amendment. 19. As noted hereinabove, sub-section (2A) of section 142 of the Act can be invoked having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialised nature of business activity of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to construe the scope and ambit of the expression account . The Court held thus: 20. Mr Sibal, the learned counsel for the Jains, did not dispute that the spiral notebooks and the small pads are books within the meaning of Section 34. He, however, strongly disputed the admissibility of those books in evidence under the aforesaid section on the ground that they were neither books of account nor were they regularly kept in the course of business. He submitted that at best it could be said that those books were memoranda kept by a person for his own benefit. According to Mr Sibal, in business parlance account means a formal statement of money transactions between parties arising out of contractual or fiduciary relationship. Since the books in question did not reflect any such relationship and, on the contrary, only contained entries of monies received from one set of persons and payment thereof to another set of persons it could not be said, by any stretch of imagination that they were books of account, argued Mr Sibal. He next contended that even if it was assumed for argument s sake that the above books wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 71/91 fulfils the requirements of account as it records a statement of monetary transactions - such as receipts and payments - duly reckoned. Mr Sibal on the other hand urged that business accounts must necessarily mean only those accounts which record transactions between two parties, arising out of a contract or some fiduciary relations (a meaning accepted by the High Court). He submitted, relying upon the definition of memorandum as appearing in Words and Phrases, that MR 71/91 could at best be described as a memorandum of some transactions kept by a person for his own benefit to look into the same if and when the occasion would arise. 23. From the above definitions of account it is evident that if it has to be narrowly construed to mean a formal statement of transactions between two parties including debtor-creditor relation and arising out of contract, or some fiduciary relations, undoubtedly the book MR 71/91, would not come within the purview of Section 34. Conversely, if the word account is to be given wider meaning to include a record of financial transactions properly reckoned the above book would attract the definition of book of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s? In response thereto, the petitioner s answer is: I do acknowledge that during the course of search action under section 132 of the I.T. Act, 1961, cash of ₹ 7,14,700/- has been found from my residence. In this regard, I want to state that this cash is duly reflected in my books of accounts and in fact as date i.e. on 29.11.2016 I am having a cash balance of ₹ 2 crores less approx. ₹ 40 to 50 lakhs deposited in bank. Therefore, the same is duly reflected in my books of account. Thus, in his statement under section 132(4) of the Act, the petitioner has referred to his books of account; whereas subsequently, he has taken a stand that he does not maintain books of account. 24. Be that as it may, assuming that the petitioner does not maintain books of account as he is statutorily not mandated to do so, does it mean that merely by dint of this reason, subsection (2A) of section 142 of the Act cannot be invoked in his case? In the opinion of this court, such an intention cannot be attributed to the legislature while enacting the amended subsection (2A) of section 142 of the Act. As noted hereinabove, the sub-section came to be amended because of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eafter, another notice dated 12.12.2018 came to be issued by the Assessing Officer pointing out the issues in respect of which additions are required to be made and calling upon the petitioner to give a reply. The Assessing Officer has pointed out the contents of numerous seized documents and his opinion thereon. He has further called upon the petitioner to furnish the source of the cash deposits in his bank accounts, etc. and has called upon the petitioner to furnish his submission by 17.12.2018. The petitioner has given his reply on 17.12.2018; however, the Assessing Officer has found that the replies are not clear cut and that the petitioner s responses are partial, incomplete and unsatisfactory. The Assessing Officer was further of the opinion that the seized documents, inquiries conducted and statements recorded, revealed that the petitioner was engaged in the specified business of converting black money into white for various persons and has given certain details for forming such opinion. The Assessing Officer has found that the SMS chat and email communications pertain to money laundering and has given details thereof. He has also found that the petitioner i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded, which may have a bearing on the determination of income of the petitioner for the relevant assessment years, will be required to be examined for the purpose of computation of the correct income of the petitioner. 29. While it is true that the petitioner being an individual may not be required to maintain accounts statutorily, but that does not mean that he is not required to give a correct account of his income in his return of income. If the computation of his income as shown in his return of income is not commensurate with his real income or the evidence collected by the authorities during the course of the search, he is required to give a proper account of the same. When the voluminous documents seized during the course of search show that various financial transactions recorded in the seized material do not form part of the computation of income as reflected in the return of income, it means that the income is not properly accounted for and the petitioner can be called upon to state the correct accounts. Merely not maintaining accounts, or there not being any statutory obligation to maintain accounts, does not mean that the petitioner is discharged f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the Explanation below sub-section (2) of section 288 of the Act nominated by the Principal Commissioner of Income Tax in this behalf to furnish a report of such audit in the prescribed Form 6B and having regard to the fact that the other relevant parameters for referring the matter for special audit have been satisfied, no fault can be found in the action of the Assessing Officer in referring the matter for special audit under sub-section (2A) of section 142 of the Act. 32. The decisions on which reliance has been placed by the learned counsel for the petitioner may now be adverted to. 32.1 In Alidhara Texpro Engineering (P.) Ltd. v. Deputy Commissioner of Income Tax (supra), there were, in all four petitions. In case of two petitions, the court entertained them and granted relief for the reason that the entire notice granting opportunity of hearing for special audit under section 142(2A) of the Act proceeded on the footing that only two companies were involved though notice was addressed to all the four companies. Therefore, in view of the fact that in case of two companies, in the show cause notice, there was no whisper as regards any compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not become complex because merely there are large number of entries, e.g., a petrol pump may have substantial sales, to thousands of customers daily at prices fixed under law/Rules, but this by itself will not be the accounts complex. Similarly, an Assessing Officer is required 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration and non-application of mind, which constitutes an error in the decision making process. It is an easy and convenient manner to transfer the obligation of scrutiny and examination to the special auditor. It may be true and correct that certain aspects mentioned in the Notes of Accounts may, if required and necessary and after in depth examination, justify appointment of a special auditor but the Assessing Officer has to be cautious and careful to segregate them from others while recording the reasons. If such an exercise is undertaken, it will show due and proper application of mind and not exercise of power under section 142(2A) on the pretend or on the pretext that such power exists and, therefore, should be exercised. Existence of the power is not in dispute; it is the exercise of power, which is in dispute and question. The exercise of power must withstand and meet the requirements prescribed. Failure to exclude irrelevant and extraneous matters negates the opinion as the said matters should not cloud or dent formation of opinion. Reasons recorded must be genuine and have a nexus with the twin statutory requirements i.e. complexity of accounts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d nature of business of the petitioner, that the Assessing Officer has resorted to the provisions of section 142(2A) of the Act. 32.6 While it is true that in Asharam Thaumal Harplani (Asaram Bapu) v. Deputy Commissioner of Income Tax (supra) and Takshashila Realties (P.) Ltd. v. Deputy Commissioner of Income Tax (supra), the assessee was required to maintain the accounts, whereas there is no statutory duty cast upon the petitioner to maintain accounts statutorily, in the light of the reasoning adopted by this court hereinabove wherein the expression accounts has been given a wider meaning to bring within its scope record of financial transactions and computation of income, the said decision would also not come to the aid of the petitioner. 33. Out of the decisions relied upon by the learned counsel for the respective parties, majority of such decisions have been rendered prior to the amendment of sub-section (2A) of section 142 of the Act. However, four decisions of this court have been rendered in the context of the amended subsection (2A) of section 142 of the Act. These are the decisions in the cases of Ulhas Securities (P.) Ltd., Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. Therefore, while forming an opinion to get the accounts audited by special auditor; considering the specialized nature of business activities of the assessee, there need not be any books of account before the Assessing Officer. In the present case, having found that there are complex issues relating to introduction of land by the partners into the firms; revaluation of land; credit of partners in capital account equal to revalued amount of land; conversion of capital account to loan account of shareholders and issues relating to issuance of equity shares against the balances of revaluation credits at an unreasonable premium, and after having been satisfied that considering the specialized nature of business activities of the assessee, the Assessing Officer has passed an order of special audit in exercise of powers under Section 142 (2A) of the Act. 18. We see that the decision for audit of the assessees' account is backed by proper material on record and reasons recorded by the Assessing Officer. His formation of belief that looking to the multiplicity of the transactions in the accounts and specialized nature of business activities of the assessee, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y direct the account to be verified by the Special Auditor. Therefore, having regard to the nature and complexity of the account, if the Assessing Officer is satisfied and/or is of the opinion that accounts are required to be verified by the Special Auditor, he may pass such order. Therefore, on the aforesaid ground that the Assessing Officer has not stated that the accounts are required to be audited by Special Auditor in the interest of Revenue, the impugned order is not required to be quashed and set aside, more particularly, when it is stated in the order that looking to the complexity and the multiplicity of transactions, accounts are required to be verified by the Special Auditor. Considering the object and purpose of Section 142(2A) of the IT Act, it appears that the accounts are required to be audited by the Special Auditor under Section 142(2A) of the IT Act with a view to facilitate the Assessing Officer in passing the Assessment order and with a view to arrive at right conclusion. 33.4 In Cama Hotels Ltd. (supra), the court has not specifically dealt with the amended provisions of section 142(2A) of the Act. 33.5 On a plain reading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pproved by the Principal Commissioner of Income Tax. A perusal of the satisfaction note duly reflects proper application of mind on the part of the Principal Commissioner of Income Tax who has looked into the material on record and has independently arrived at the conclusion that a special audit is required. The contention that the Principal Commissioner of Income Tax has granted approval in a mechanical manner, therefore, does not merit acceptance. 35. It has also been contended on behalf of the petitioner that the reference to special audit has been made only with a view to buy time as the assessment was becoming time barred. In this regard, it may be noted that in the objections raised by the petitioner against reference to special audit under section 142(2A) of the Act, no such contention with regard to resort to the provisions having been made with a view to buy time has been made, nor has such contention been raised before the Principal Commissioner of Income Tax except that in the letter dated 26.12.2018 addressed to the Principal Commissioner of Income-tax requesting to provide personal hearing before granting any approval for the action proposed under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions are on the ground that as the petitioner had stated that he would complain against the Assessing Officer to the higher authorities, the Assessing Officer had resorted to special audit. In the opinion of this court, except for the bald allegations of mala fides, nothing substantial has been brought out so as to establish actual mala fides on the part of the Assessing Officer. Besides, if mala fides are alleged, the same have to be specifically spelt out in the petition so as to afford an opportunity to the Assessing Officer to deal with the same. 38. It has been also contended on behalf of the petitioner that for assessment year 2017-18, the petitioner has received a notice for limited scrutiny under CASS and hence, it is not permissible for the Assessing Officer to examine any other issue except as provided in such notice in view of the CBDT instructions dated 26th September, 2014, 29th December, 2015 and 30th November, 2017, copies whereof have been annexed along with the petition and therefore, for this assessment year, no reference could have been made for special audit. Before adverting to the merits of the contention, it may be noted that the CBDT instruc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out in the previous year 2016-17 and the corresponding assessment year is assessment year 2017-18. 40. As discussed hereinabove, the specific object behind enacting section 142(2A) of the Act is to assist the Assessing Officer in framing an assessment when he finds the nature of accounts of the assessee to be complex, finds the accounts to be voluminous, doubts the correctness of the accounts, finds multiplicity of transactions in the accounts or finds the business activity of the assessee to be of a specialized nature and in the interest of revenue, by having the services of a special auditor at hand. In this case, considering the specialised nature of the petitioner s business, which is not reflected in his returns of income, the Assessing Officer has, in the interest of the revenue, thought it fit to direct the petitioner to get his accounts audited by an accountant as envisaged under sub-section (2A) of section 142 of the Act, instead of merely making additions on the basis of the seized material in the absence of any explanation coming forth on the part of the petitioner. In the opinion of this court, considering the nature of the documents and other material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Auditor under section 142(2A) of the Act is that the petitioner is engaged in the business of accommodation entries of Trust, whereas in the case of the Trust the Assessing Officer has framed assessment orders on 28.12.2018 without making any reference under section 142(2A) of the Act and that in the orders of the Trust there is not even a whisper of any accommodation entry in the case of the Trust or involvement of the petitioner in any manner whatsoever. The petitioner has placed reliance upon the assessment orders passed in the case of Environment Research Centre, namely the Trust in question, copies whereof are placed on record along with the affidavit-in-rejoinder. In this regard, a perusal of the assessment orders made in the case of the Trust reveal that it is the consistent stand of the Trust that it is unaware of any transaction in its bank account, which has not been believed by the Assessing Officer. Upon verification of it bank statement, the Assessing Officer found that the money credited in the bank has either been withdrawn in cash immediately or transferred to other bank accounts and then withdrawn and was of the view that this proves that the donations received in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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