TMI Blog1997 (2) TMI 164X X X X Extracts X X X X X X X X Extracts X X X X ..... audit report under section 142(2A) from the nominated C.As within 150 days of date of receipt of notice, i.e., from10-3-1989. The assessee was to pay 25% of audit fees to the above mentionedC.A.before start of the audit. The direction dated 10-3-1989 further required assessee to submit its comments, clarifications on various observations and conclusions arrived at by the nominated auditors to meet the requirement of section 143(2) of I. T. Act. As per the assessment orders, the assessee did not get its accounts audited nor furnished any report under section 142(2A) of I.T. Act. The assessee further failed to pay the audit fees to the auditors as directed. Other information sought from the assessee was also not supplied. The claim of the assessee that audit fees could not be paid on account of attachment of bank accounts of the assessee was held to be "lame excuse". In view of the failure of the assessee mentioned above, the Assessing Officer decided to proceed and complete the assessment under section 144(b) of I.T. Act on the basis of material available on record and past history of case. The Assessing Officer assessed assessee's income at Rs. 25,19,710 vide order dated25-8-1989. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s applicable in this case. In other words, the Assessing Officer and CIT before granting approval to Assessing Officer must hear the assessee. Shri Syali in this connection drew our attention to the following Supreme Court decisions : (i) M. Gopal Krishna Naidu v. State of MP AIR 1969 SC 240 wherein it was held that where the nature of the order is objective and not subjective, the principle of natural justice can be read even if they are not expressly provided in the section. (ii) The case of Smt. Maneka Gandhi v. Union of India AIR 1978 SC 597. In the above case in para 32 their Lordships have emphasised that a duty is cast to provide reasonable opportunity where proposed action of the officer would affect rights of the individuals. Shri Syali also drew our attention to paras 58 and 59 of above decision wherein it has been held that for applicability of principle of natural justice, there is no distinction between quasi judicial and administrative functioning. (iii) Case of Mahinder Singh Gill v. Chief Election Commissioner AIR 1978 SC 851 where in it was emphasised by theApex Courtthat onus to show that applicability of principle of natural justice was excluded was on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of assessee had come down from Rs. 54,99,058 to Rs. 52,79,880. In this connection, Shri Syali drew our attention to assessee's letter dated8-5-1989wherein besides objecting to the fixation of fees, the assessee requested that auditor can start audit with the impounded books lying with the Assessing Officer. However, the Assessing Officer had conveyed vide letter dated27-6-1989that auditor would not take up audit on their own without the presence of official of the company. It is contended that no audit was carried out although assessee went to the office several times for this purpose. In this connection, reference is invited to letters dated8-5-1989,27-6-1989, and6-7-1989available at pages 134, 138 and 139 of the paper book. The assessee further submitted that Special Audit was carried in assessee's case for assessment year 1985-86 and assessee has fully co-operated in that year. The books of account were not impounded and, therefore, assessee was in a position to furnish all details as required by the auditor. However, in the present case when the books stood impounded with the Assessing Officer the assessee was not in a position to furnish the desired information. It is furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reply. The assessment and addition in question are based on additions made in assessment year 1985-86 when through special audit discrepancies were pointed out in the accounts of the assessee. The D. R. also relied upon reasons given by the Assessing Officer for making assessment under section 144(b) of I.T. Act. The D. R. also objected to fresh evidence which was sought to be produced by the assessee in the shape of reconciliation figures of sundry creditors and justification for payment of technical fees to M/s Indian Refrigeration Industries and M/s Jagowal Pvt. Ltd. 7. We have given careful thought to rival submissions of the parties. The learned counsel for the assessee has given in writing that matter before the High Court does not pertain to the assessment year before us. It is for subsequent assessment year. Accordingly, we proceed to decide the case on merits. In order to appreciate arguments for the learned counsel for the assessee, it is necessary to consider provision pertaining to special audit as it existed in assessment year 1986-87 : " 142(2A) If, at any stage of the proceedings before him, the Assessing Officer having regard to the nature and complexity of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. To ensure that power under above section is not lightly exercised by the Assessing Officer, a further curb is placed and Assessing Officer is required to get previous approval of Chief Commissioner or Commissioner as the case may be before directing the assessee to get the accounts audited. A duty is thus cast on the Commissioner to see that conditions of sub-section (2A) are fully satisfied and that matter has been objectively considered by the Assessing Officer. The material on record is to be considered honestly and in a bona fide manner and audit is to be directed only when fully satisfied that the same is warranted by facts and circumstances of the case. This view is supported by decision of Allahabad High Court in the case of Swadeshi Cotton Mills Co. Ltd. 8. The connected question forcefully argued by Shri Syali is that having regard to quasi judicial function performed by the Assessing Officer and CIT(A), is it necessary for them to provide opportunity of being heard to the assessee before accounts are directed to be audited. The Legislature in its wisdom had not made any provision for hearing the assessee before directing special audit. Shri Syali argued that on accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the assessee. Even in the case of Swadeshi Cotton Mills, there is nothing to show that assessee was heard before special audit was directed in that case which was ultimately approved by the Hon'ble High Court. All the same it is proper for the revenue authorities to hear the assessee before directing a Special Audit. This would only advance cause of justice. 10. The proposition that it is not always necessary to provide opportunity of being heard to the subject when his rights are involved is well settled. We may usefully refer to the latest decision of the Hon'ble Supreme Court in the case of Sasa Musa Sugar Works v. State ofBihar AIR1997 SC 188. In that case, the State Government under Bihar Agricultural Product Markets Act was empowered to alter the Schedule to the Act so as to determine the area of control and goods to be controlled. The powers are delegated to the State Government. For drawing up the field of control by specifying agricultural produce in the Schedule so that control in respect of the same under other provision of the Act is made, no hearing has been prescribed by the Statute. However, sub-section (2) of section 4A provides that the State shall not order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot competent to go into the question of vires of the Statute. 11. Shri Syali further contended that Assessing Officer and learned CIT (Appeals) failed to record reasons for directing special audit. They merely quoted and reproduced provision of sub-section (2A) without showing material or giving reason or showing how above provision was applicable. We have no doubt that even an administrative action must be supported by reasons. This proposition is well settled by now. There is nothing in the provision to suggest that while conferring power under the above sub-section, the Legislature felt that it will not be desirable for the authority to give reasons. The scheme of the enactment does not suggest that by implication, requirement of recording of reasons has been dispensed with. The recording of reasons by an authority serves a salutary purpose, namely it excludes chances of arbitrariness and assures a degree of fairness in the process of decision making. It is not to be necessary that reasons should be so elaborate as in the decision of a Court of Law. What is necessary is that the reasons are clear and explicit so as to indicate that the authority has given due consideration to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority must ensure that its action is inspired by reason and not on arbitrary and extraneous consideration. The requirement of reasonableness and fair play are in essence emanates from doctrine of natural justice. In the present case, we are to hold that authorities below did not record reasons before directing special audit. 12. Shri Syali further contended that learned CIT was not justified in arbitrary fixing audit fees at Rs. 20,000 (inclusive of expenses of Rs. 5,000) against Rs. 5,000 fixed for the same purpose in the immediately preceding assessment year. Having regard to provision of sub-section (2D) of section 142, making determination of remuneration of Accountant as final, we would not like to enter into any controversy in this case and would not comment on the fee fixed. We may only say that legislative wisdom in burdening the assessee with payment of expenses incidental to compulsory audit directed by the Revenue is beyond our comprehension. One of the ground on which special audit can be directed is "interest of the revenue". If special audit is being directed to protect the interest of the revenue, it is not understandable as to why the assessee should be directed t ..... 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