TMI Blog2007 (12) TMI 303X X X X Extracts X X X X X X X X Extracts X X X X ..... noted by the Assessing Officer that the assessee had received reimbursement of various expenses from its Principal, Amway India Enterprises and was maintaining a separate account in the name of M/s. Amway India Enterprises. He noted that assessee had entered into an agreement with Amway India Enterprises according to which it received fixed monthly remuneration. He noticed that expenses were incurred under the head rent, manpower for house, security arrangements, electricity, diesel for generator set, telephone, annual maintenance, insurance and printing and stationery, repair and maintenance which were to be reimbursed by M/s. Amway India Enterprises. He noted that assessee had received the reimbursement of expenses to the tune of Rs. 90 lakhs. Taking into account the complexity of accounts, the matter was referred to the ld. CIT for grant of approval for special audit of the case under section 142(2A), in pursuance to which the ld. CIT, after considering the facts of the case, appointed Shri Mahendra Kumar Satya, FCA for getting the accounts audited and to submit his report within 60 days from the date of appointment. The report of the special auditor was submitted on 11-3-2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee was fully entitled to raise the question of validity of directions issued under section 142(2A) before ld. CIT (Appeals). In this regard, the ld. Counsel relied on the following case laws: Smt. Bhagwant Kaur v. CIT [1997] 223 ITR 242 (Punj. Har.). Mandal Ginning Pressing Co. Ltd. v. CIT [1973] 90 ITR 332 (Guj.). 6. He also referred to the following decisions to submit that the legality of directions under section 142(2A) has been considered by the Tribunal in the case of Asstt. CIT v. Ramesh Chand Soni [2003] 81 TTJ (Jodh.) 253. He pointed out that the Hon ble High Court in the case of CIT v. Vijay Kumar Rajendra Kumar Co. [2004] 271 ITR 337 (MP), inter alia, held that the Tribunal was not justified in holding that the directions issued under section 142(2A) of the Act for special audit were arbitrary or illegal. Thus, he pointed out that Tribunal can also examine the legality of directions issued for conducting special audit. The ld. Counsel further referred to pages 91 and 92 of the Paper Book wherein the decision of Hon ble Allahabad High Court in the case of Swadeshi Cotton Mills Co. Ltd. v. CIT [1988] 171 ITR 634, is contained and poin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... about the complexity of account without making any effort to examine the said accounts at all. He further pointed out that it was held by the Calcutta High Court that before sending proposal the Assessing Officer ought to have recorded reasons in the order after having examined the accounts by himself or getting the accounts examined by the subordinate official in support of his finding that the nature and complexity of the accounts was such that without special audit, proper assessment was not possible to protect the interest of the revenue and also that the CIT should not give any approval mechanically. 9. The assessee, vide ground No. 3, has further taken a ground that the impugned assessment order dated 29-4-2005 is barred by limitation having been made after the expiry of two years from the end of the assessment year as the Assessing Officer s directions under section 142(2A) being illegal and invalid, the Explanation 1 ( iii ) to section 153 would not be applicable to the appellant s case. Ld. Counsel submitted that the issue regarding order being within limitation or not can be raised at any stage of proceedings and for examining this issue the court has to examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. It was further held that no appeal would, therefore, lie unless it is provided by the statute. 3. CIT v. H.V. Mirchandani [1986] 161 ITR 800 (Kar.) In this case, it was held that the Tribunal was not right in law in entertaining the assessee s appeal against determination of interest under section 244(1A) because assessee had no right of appeal against determination of interest under section 244(1A). 4. CIT v. Perfect Pottery Co. Ltd. [1988] 173 ITR 545 (MP). 5. CIT v. S.C. Shah [1982] 137 ITR 287 (Bom.). In these cases, it was held that where the effect of rectification of order passed under section 154 was to reduce the refund by not allowing interest under section 214 then the said order is appealable. Similar view was taken in the case of CIT v. T.V. Sundaram Iyengar Sons Ltd. [1999] 236 ITR 524 (Mad.), wherein it was held that interest on refund is clearly a part of refund and interest and refund are not two different things. 6. Rajesh Kumar v. Dy. CIT [2006] 287 ITR 91 (SC) - wherein it has been, inter alia, held that there is no internal remedy provided against the direction under section 142(2A). The ld. DR further referred to secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessed or an order of assessment under sub-section (3) of section 143 where the assessee objects to the amount of income assessed or to the tax determined on income and therefore, while challenging the assessment order the assessee has right to challenge various actions and directions of the Assessing Officer which were taken or issued during the course of assessment proceedings ultimately leading to the completion of assessment. In our opinion, there is not much substance in this plea of assessee because reference to special auditors under section 142(2A) is only a part of assessment procedure for collecting necessary evidence in order to determine real income of assessee. This section is primarily for the benefit of revenue. Hon ble Supreme Court in the case of Pooran Mal v. Director of Inspection (Inv.) [1974] 93 ITR 505 held that an evidence obtained during a search which was in contravention to the provisions of section 132 can be used for purposes of assessment. Therefore, even if some illegality supervened in making reference still the same will not vitiate the proceedings, unless quashed by Hon ble High Court, and the evidence so obtained can be used for framing the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with regard to proceedings under section 143(3) is concerned, the same does not have much force in view of the decision in Rajesh Kumar s case ( supra ) because the challenge to section 143(3) is made only after the assessment is completed. 14. The assessee has tried to draw parity with the challenge which is taken to the issue of notice under section 148 while challenging the assessment proceedings. We do not find much substance in this plea of assessee for the reason that as far as the challenge to notice under section 148 is concerned that is jurisdictional issue and appellate authority has to decide whether the authority exercising the powers over the assessee had duly clothe itself with the necessary jurisdiction before issuance of notice or not. This goes to the very root of the assessment proceedings and, therefore, appellate authority has to first decide this issue. No jurisdictional issue is involved in the directions for issuance of special audit because it is only a part of assessment proceedings for examination of complex accounts. 15. Therefore, in our opinion, the challenge to legality of the directions issued for special audit under section 142(2A) cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted; ( b )a plaintiff or an applicant resisting an appeal shall be deemed to be prosecuting a proceeding; ( c )misjoinder of parties or of causes of action shall be deemed to be a cause of a like nature with defect of jurisdiction." 17. It is well settled principle of administrative jurisprudence that all the actions of authorities are in good faith unless proved otherwise. Therefore, reference for special audit cannot be said to be a mala fide action on the part of Assessing Officer if the same had been made after complying the due procedure laid down under the Act of obtaining necessary sanction of competent authority. Therefore, even if for argument sake, it is held that reference to section 142(2A) was illegal, still that will be of no consequence and will not affect the limitation under section 153 Explanation 1 ( iii ). We may further observe that it is well settled legal proposition that what cannot be directly done the same cannot be done indirectly. 18. Now, before concluding this issue, we would refer to various decisions relied upon by the ld. counsel for the assessee to plead that the Tribunal has considered the issue regarding special audit in variou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not in good faith. The Tribunal finally observed as under : "It is made clear by the umpteen judicial pronouncements by now that Chapter XIV-B of the Income-tax Act is a self-contained provision which is applicable to search cases and in that eventuality, it cannot be controlled by the provisions of section 153(3), Explanation ( iii ) of the Act. Moreover, the subsequent change in law or amendment in law cannot revive the dead time for limitation. Amended law applies only to surviving procedures. So, there is no merit in the department s appeal and, therefore, the same is dismissed." Thus, this decision was rendered with reference to search proceedings and it was found that even the sanction of competent authority was missing. Vellammal Educational Trust v. Asstt. CIT [2005] 4 SOT 280 (Chennai). In this case also the assessee s claim was that recourse to the provisions of section 142(2A) was taken merely as a ploy to gain time to complete the assessment. The Tribunal specifically considered this plea of assessee and rejected the same after concluding that sufficient complexity did exist in the accounts of assessee. The challenge of Assessing Officer s action regarding spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company from whom the security deposits had been taken which was later on refunded. The ld. CIT(A) had called for a remand report from the Assessing Officer on the submissions made by the assessee. The remand report dated 27-12-2005 has been reproduced in para 3.2 of ld. CIT(A) s order. After considering the remand report and taking note of the fact that confirmations were obtained in seven cases aggregating to the credit of Rs. 1,23,000 and for the remaining no reply was received, the ld. CIT(A) partly allowed the assessee s appeal granting relief of Rs. 1,23,000. 22. The ld. counsel submitted that Assessing Officer had only asked for addresses of creditors and did not ask for proving the genuineness of the credits. He submitted that assessee had supplied the addresses. In this regard, the ld. counsel referred to copy of order sheet entry dated 12-4-2005 filed by the department which is reproduced herein below : "12-4-2005 Sri Anoop Gupta, FCA attended alongwith Sri Amit Chatterjee accountant of the company attended and produced the books of account and other related vouchers. It was found that as per audit report of the Special Auditor certain expenses which were reimb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for statistical purposes. 26. Ground No. 5 against confirming the addition of Rs. 13,929 as not relatable to the business was not pressed at the time of hearing hence, the same is dismissed as not pressed. 27. Ground No. 6 reads as under : "On the facts and in the circumstances of the case, the CIT(A) erred in confirming the addition of Rs. 7,78,818 out of total addition of Rs. 20,06,980 made by the Assessing Officer on account of reimbursement of expenses." 28. Brief facts apropos this issue are that, as noted earlier, the assessee had entered into agreement with M/s. Amway India Enterprises for reim-bursement of expenses from them. The Special Auditors found that in the case of reimbursable expenses there were cases for which no supporting vouchers or payment details had been made available to them. He further observed that the company had taken reimbursement of some expenses which were not covered in the agreement. The assessee was required to clarify the position. The assessee s reply has been reproduced in page 6 of the assessment order in which it was primarily stated that the entire transaction of raising bills to the principal company and its reimbursement a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o page 1 of the Paper Book wherein the certificate dated 5-1-2006 received from Amway India Enterprises is contained certifying that all the vouchers were lying with them on the basis of which reimbursement had been claimed. He, therefore, submitted that the matter may be restored back to the file of Assessing Officer so that necessary vouchers may be placed before him after obtaining the same from Amway India Enterprises. 31. We have considered the rival submissions and have perused the record of the case. As noted earlier, the Assessing Officer had made specific disallowances on the basis of report of the Special Auditor whereas the ld. CIT(A) had reduced the disallowance by applying only the profit element as per provisions of section 44AD to the total reimbursed amount. The contention of ld. counsel is that Special Auditors have not pointed out any duplicacy of expenditure and Amway India Enterprises have duly certified that the vouchers are lying with them. The contents of certificate dated 5-1-2006 are reproduced herein below : "To whomsoever it may concern : This is to confirm that M/s. Professional Warehousing Co. Pvt. Ltd. engaged for both ADC as well as RDC to per ..... X X X X Extracts X X X X X X X X Extracts X X X X
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