TMI Blog2013 (6) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... tage on the petitioner responsible for such delay. Appointment of auditors u/s 142(2A) - Complexities of accounts - held that:- The principles on which accounts may be treated to be inaccurate or complex have been sufficiently explained in Sahara India [2008 (4) TMI 4 - Supreme Court] and do not require any reiteration. In the present case we are of the view that the petitioner companies are engaged in large scale tax evasion, and for that purpose it was adopting dubious methods in maintaining the accounts, which were examined and were found to be complex by the Assessing Officer. He made a genuine attempt to understand the method of calculation of the value of the flats, which were being changed frequently by the assessee and having failed to understand the manner and method in which accounts were maintained firstly required the petitioners to explain and having faced an uncooperative attitude directed special audit to be carried out by special auditor. We do not find any legal error in the order directing the petitioners to get their accounts audited by special audit or appointed by the Commissioner of Income Tax, for which the cost is now to be paid by the Central Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tandon Seth Co., Kanpur, nominated by the Commissioner of Income Tax (Central), Kanpur, and approved by him, communicated vide his letter dated 28.1.2010. The petitioner has also prayed for a direction in the nature of certiorari for holding that the limitation for completing assessment under Section 153B of the Act has set in, and therefore no assessment order under Section 153A could be passed after 31.12.2009. The petitioner company has prayed to set aside all the actions taken by respondent nos.1 and 2 pursuance to the impugned order dated 28.1.2010. 2. The Prateek Resorts Builders Private Ltd. (the petitioner) through its Director Mr. Getamber Anand has filed the other Writ Petition No.339 of 2010 against the order dated 18.2.2010 passed by the Asstt. Commissioner of Income Tax (Central Circle), Meerut (respondent no.1), directing the petitioner-company to get its accounts audited under Section 142 (2A) of the Income Tax Act, 1961 (the Act) for the financial years 2001-02 to 2007-08 relevant to assessment year 2002-03 to 2008-09 from M/s Tandon Seth Co., Kanpur, nominated by the Commissioner of Income Tax (Central), Kanpur, with his previous approval communicated vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the documents and accounts books as and when required by the income tax department and submitted their replies, documents and details till November, 2008. Their Directors also appeared before the investigation team. 6. The Asstt. Commissioner of Income Tax (Central Circle), Meerut initiated proceedings of assessment and issued notice to the ATS Infrastructure Ltd. under Section 153A/ 142 (i) (ii) and (iii) of the Act for the assessment years 2002-03 to 2008-09 (corresponding to financial year 2001-02 to 2007-08) vide notice dated 6.11.2009. 7. The Asstt. Commissioner of Income Tax (Central Circle) Meerut issued a show cause notice under Section 142 (2A) of the Act dated 7.12.2009 for the assessment year 2002-03 to 2008-09. The petitioner companies filed their reply to the notices on 14.12.2009. An order was, thereafter, passed on 18.12.2009 under Section 142 (2A) directing the petitioner to get the accounts audited by special auditor. The petitioner filed Writ Petition No.33 of 2010 on 11.1.2010 for setting aside the order. This High Court allowed the writ petition within two days at the stage of admission, and by its judgment dated 13.1.2010 set aside the order dated 18.12.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expiry of the financial year in which the authorization was issued. In the present case, the authorization was issued on 15.2.2008 and, therefore, the limitation of passing the order was only upto 31.12.2009. Since the period of passing the assessment order has been expired, therefore, the power under Section 142 (2A) of the Act could not be exercised. There appears to be a substance in the argument of learned counsel for the petitioner which requires consideration. Learned Standing Counsel prays for and is granted two weeks time to file counter affidavit. Rejoinder affidavit may be filed within two weeks thereafter. Connect with Writ Petition No. 339 of 2010. List in the week commencing 19.4.2010. Till the next date of listing, the operation of the order dated 28.1.2010 under Section 142 (2A) of the Act passed by the Assistant Commissioner of Income Tax, Central Circle, Meerut, Annexure-1 to the writ petition, and the assessment proceeding for the assessment years 2002-03 to 2008-09 shall remain stayed." 9. The Asstt. Commissioner of Income Tax Meerut, filed Special Leave to Appeal (C) No.6120 of 2011 from the judgment and order dated 13.1.2010 in Writ Tax No.33 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, to direct special audit. 11. Elaborating the first contention, regarding the limitation, Shri S.P. Gupta submits that the revenue cannot take the advantage of the observations in the judgments of the Division Bench dated 13.1.2010 and 18.1.2010. Neither of the observations can extend the period of limitation, nor can it be so extended in law. The observations, "however it will be open to the Asstt. Commissioner of Income Tax (Central Circle), Meerut to pass fresh order in accordance with law" will not extend the limitation curtailed by the Statute. In Rajendra Nath Ors. v. CIT, Delhi, (1979 4 SCC 282 (pp 11 and 12) the Supreme Court held that a direction by statutory authority is in the nature of order requiring positive compliance. When it is left at the discretion of the statutory authority, whether or not to take action, it can not be described as a direction. 12. In support of the bar of limitation Shri S.P. Gupta has relied on:- (i) Supdt. of Taxes, Dhubri and Ors. v. Onkarmal Nathmal Trust etc. etc. 1975 AIR 2065 (pp 14, 17, 18, 34 and 74). (ii) Sirajul Haq Khan and Ors. v. Sunni Central Board of Waqf-AIR 1959 SC 198 (pp 2, 3, 12, 19, 21, 22 and 24). (iii) Goka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts that the strict construction of law requires, that a citizen does not become liable to tax unless he comes within the specific words of statute. There is no equity to taxation and thus in view of nature of the proceedings under Section 132 (5) of the Act, the proceedings could not be initiated after the limitation had expired. 16. On the second point Shri S.P. Gupta submits that the word complexity has been explained in para 13 of the judgment in Rajesh Kumar Ors. v. Deputy CIT, (2007) 2 SCC 181, which would mean the state or quality of being intricate or complex or which is difficult to understand. The difficulty in understanding would however not lead the conclusion that the accounts are complex in nature. No order can be passed on whims or caprice of the income tax authorities. The Supreme Court has referred to Swadeshi Cotton Mills Co. Ltd. v. CIT, 171 ITR 634 (All.) and quoted the observations from that case, which state; "however, all that are 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercised. The power of framing assessment under Sections 142 to 145 is different and separate exercise of power, than the power of directing special audit under Section 142 (2A). Merely because the assessee is not satisfied about the correctness or completeness of the accounts of the assessee or where the method of accounting provided by sub-section (1) or accounting standards as notified under sub-section (2) have not been regularly followed, the Assessing Officer cannot resort to the powers under Section 142 (2A) of the Act. 19. Shri S.P. Gupta submits that even if the assessee does not comply with the notice under Section 142 (1) or Section 143 (2) or Section 144, the Assessing Officer can proceed to frame an assessment on the best of his judgment. In none of these situations he can exercise the powers directing special audit under Section 142 (2A). It is only in a case in which he finds that the accounts books are such that he cannot, or should not frame assessment, to the best of judgment, that he may resort to Section 142 (2A) of the Act. Such a situation will arise only when he has given an opportunity to the assessee to the account. He relies upon the observations in Sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. He requested the assessee to comply with the notice dated 3.11.2009, with the queries. It is submitted that the Assessing Officer, could not open the hard disc, as he did not have password, and also the accounting pages were not available on the computers of the department. The petitioner had filed print outs of some of the books of accounts, which would go to show that books of accounts were never examined by the Assessing Officer. He did not rely upon print outs and required original books of accounts. The petitioner has filed photocopy of the ordersheet entries of all the assessment years 2002-03 to 2008-09, which according to him were made available to him on 15.9.2010, and from these ordersheet entries, a strong case is sought to be made out that these entries, which are not countersigned by the authorized representative of the petitioner, would show that on none of the dates the authorized representative of the petitioner appeared or countersigned the entires and from this it is clear that the books of accounts were not examined by the Assessing Officer. He did not even examine the books of accounts of which print outs were provided by the petitioner in the presence of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer feels that he cannot understand them and comprehend them till he has help and assistance of special auditor. The interest of the revenue is the other consideration. The revenue did not submit in that case that test check of entries was undertaken, but anomalies and mistakes were detected. It was not necessary to take assistance of accounting experts to compute the taxable income. 25. Shri Bharat Ji Agrawal, learned Senior Counsel appearing for the income tax department submits that a search under Section 132 of the Act was conducted on 15th February, 2002 at the business premises of the petitioner-companies, in which the records were seized on 15/16th February, 2008. Following the search it is admitted in para 6 of the writ petition that the income tax department carried out extensive investigation for about ten months into the financial affairs of the companies and thereafter the records seized along with investigation report was handed over to the Asstt. Commissioner, Income Tax (Central Circle), Meerut, who is the Assessing Officer. The petitioner admits that the representative of the petitioner companies regularly participated in the proceedings and mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained by the assessee on computer are produced for verification and these print outs are also filed. On these documents the Assessing Officer applied its mind and sent a letter to the Commissioner of Income Tax giving detailed reasons regarding complexity etc. requiring special audit under Section 142 (2A). A show cause notice dated 7.12.2009 was issued to the assessee for getting the accounts audited under Section 142 (2A), to which written reply was given by the assessee on 14.12.2009, and after considering the reply, the proposal was sent by A.O. on 15.12.2009 to the Commissioner of Income Tax seeking approval for special audit. On 18.12.2009 the Commissioner of Income Tax gave his approval after which on the same day the letter was issued by the Assessing Officer directing the assessee to get its account audited under Section 142 (2A). Shri Agrawal submits that the assessee's audited books of accounts, print out of the accounts, the seized materials and all the account books namely cash book, bank book, purchase book, general ledger, special ledger, editor's ledger, creditors' book and journal book for the assessment year 2002-03 to 2007-08 were before the Assessing Officer, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounted for on the basis of sale declared in each year on the basis of percentage completion method. Further, while examining the Audit Report and Balance Sheet fro the A.Y. 02-03 filed by the assessed company, it is noticed that the closing inventory and work in progress as on 31/03/02 has been shown at Rs.24,37,84,049/-. However, in the Audited Balance Sheet filed for the A.Y. 03-04, it is noticed that it has shown opening inventory and work in progress as on 01/04/02 at Rs.23,42,84,049/-. Further, there is difference in other financial data/ figures also with respect to amount shown under the heads sundry creditors, advance from customers and material consumed (as on 31/03/02) as per Audited returns filed for the A.Y. 03-04 and 02-03 as these figures shown in the return for A.Y. 02-03 are different from that declared as comparative figures as on 31.3.02 in the return filed for A.Y. 03-04, the details of which is as under: As per return filed for A.Y. 03-04 As per return filed for A.Y. 02-03 Sundry Creditors 63,13,707/- 1,25,81,707/- Advance from Customers 11,28,26,305/- 11,60,58,305/- Material Consu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30 crores which is not recorded int he books found and seized. The Managing Director of the assessee company, Sh. Geetamber Anand, in his statement recorded in course of search, also admitted this fact by stating that "On money' taken from purchasers of flats were not recorded int he books. The statement has not only not been retracted till date, but return has also been filed voluntarily showing undisclosed income on this basis. In the situation, there cannot be any doubt that true income of the asssessee cannot be determined from the books, a fact which the assessee also admits by declaring undisclosed income int he return filed as mentioned above. In order to determine the correct income of the assessee for Assessment Years 02-03 to 08-09, it is therefore, necessary to recast the entire accounts and prepare fresh accounts which will reflect the true and correct financial results of the company. Such recasting of accounts form a defective set of accounts obviously involves complex accounting process which cannot be done without the help of an expert in the field. It is precisely to deal with such complexity of accounts that the provisions of sec. 142 (2A) has been incorporated in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee of Rs.9.30 crores in the return, filed by it for the assessment year 2008-09, which was not brought to tax, it was in the interest of revenue, to get the special audit made so that the complexities of the account could be unwinded for making a fair assessment of the income. 32. Shri Bharat Ji Agrawal has also relied upon Sahara India Ltd. v. CIT (Supra) in support of his arguments and submits that the submissions regarding limitation are wholly misplaced. He admits that the assessment had to be completed within 21 months. Where the Assessing Officer finds genuinely and honestly that the accounts are complex, and require special audit, the last date of limitation gets extended upto the period when the special audit is completed with an addition of 60 days for assessment. He submits that the principle that no one should suffer on account of the orders of the Court, and that no one should draw any unfair advantage, which is principle of natural justice, the assessment would not be barred by limitation. Any undeserved advantage drawn, in the circumstances, has to be nutralised. He submits that remand proceedings can proceed without affected by limitation and for this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the bar of limitation if, notwithstanding his immediate grievance against the notice under s. 142(1) of the Income-tax Act, he had permitted the assessment proceeding to go on after registering his protest before the Income-tax Officer, and allowed an assessment order to be made in the normal course. In an application under s. 146 against the assessment order, it would have been open to him to urge that the notice was unreasonable and invalid and he was prevented by sufficient cause from complying with it and therefore the assessment order should be cancelled. In that event, the fresh assessment made under s. 146 would not be fettered by the bar of limitation. Section 153(3)(i) removes the bar. But the appellant preferred the constitutional jurisdiction of the High Court under Article 226. If no order was made by the High Court directing a fresh assessment, he could contend as is the contention now before us, that a fresh assessment proceeding is barred by limitation. That is an advantage which the appellant seeks to derive by the mere circumstance of his filing a writ petition. It will be noted that the defect complained of by the appellant in the notice was a procedural lapse at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to complete the assessment which, but for the direction of the High court, would have been barred by limitation." 36. This Court examined the similar argument raised in M/s Indian Air Gases Ltd. v. State of U.P. (Supra), in which relying upon S.K. Traders v. Addl. Commissioner, Grade-1, Trade Tax, Ghaziabad Anr., 2007 NTN (34) 343, it was held that where proceedings have been set aside by this Court in exercise of powers under Art.226 of the Constitution of India, the period of limitation shall not apply, while initiating proceedings thereafter. 37. The petitioner had invoked the powers of the High Court under Art.226 of the Constitution of India in challenging the directions under Section 142 (2A) of the Act for special audit, on the ground that no reasons were given in the order. The petitioner relied on the principles of natural justice to challenge the order. Having invoked the equity jurisdiction of the Court in which the Court did not go into any other question, and examined the issue of recording of reasons alone, the petitioners cannot draw any unfair advantage. The petitioners were aggrieved by the non-recording of reasons. They have not challenged the observations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which decides the fate of the case. The petitioners did not annex this notice and deliberately omitted pages 442 and 443 marked as Annexure No.5 in the paper book. It was only when Shri Bharat Ji Agrawal mentioned about this paper in his counter arguments, a supplementary affidavit of Shri Tribhuvan Goyal, Asstt. General Manager in ATS Infrastructure Ltd. affirmed on 18.9.2012, was filed during the course of counter reply, stating in para 2 that due to inadvertence and oversight, the document indexed as Annexure No.5, and the covering page of Annexure No.6 could not be filed at the time of filing of the writ petition, and which is filed now with the supplementary affidavit. This document, which has material bearing on record was thus introduced after two and a half years of filing of the writ petition in which interim order was operating. The advantage gained by the petitioner by not filing this document can be easily noticed from the contents of this document, and which reads as follows:- "To, The Principal Officer M/s ATS Infrastructure Ltd. K-19, Sec-18, NOIDA Sir, Subject: Show cause notice for conducting Special Audit u/s 142 (2A) of the IT Act, 1961 in your case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee for the perusal of the Assessing Officer. 42. We find that Shri S.P. Guptra, a Senior Advocate of the Court has for the benefit of his client in the presence of Shri Deepak Kapoor, who was present all along the proceedings before the Assessing Officer and in this Court, made an attempt to mislead the Court in believing that the Assessing Officer did not have the occasion to go through the records. He did not succeed in his effort as Shri Bharat Ji Agrawal, on our request, produced the entire record before us, and from which we now find that not only in the first notice dated 7.12.2009, the large scale tax evasion as noticed, was attempted, which was sought to be concealed from this Court; the Assessing Officer had infact summoned the entire record, and had gone through the account books carefully before arriving at the findings that the accounts are complex, which he could not explain to the Court because the earlier writ petition was decided without calling for counter affidavit. He has now sufficiently explained these facts in the impugned order for special audit passed under Section 142 (2A) of the Act. 43. The petitioners are builders engaged in the construction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 45. The Assessing Officer is required to find out the income to be brought to tax. He has to apply the accepted methods of accounting and if there are any inaccuracies, he may direct the assessee to assist him in explaining and to reconcile such accounts. The Assessing Officer is not a specialist accountant or an auditor, to find out the methods adopted by the assessee for assessing the income to be taxed. He is not required to act as an investigator or a specialist auditor, nor does he have a team of assistants to enter into the web; decipher the codes, and to demystify the procedures adopted in accounting methods to find out and arrive at the aggregate income to be assessed to tax. 46. In Rajesh Kumar v. Dy. CIT Ors., (2007) 2 SCC 181 and in Sahara India (Firm), Lucknow v. CIT Central-I Anr., (Supra) decided on 11th April, 2008 the Supreme Court has relied on Swadeshi Cotton Mills Co. Ltd. v. CIT, 171 ITR 634 (Alld.). In this judgment Hon'ble Mr. Justice K.J. Shetty explained the import of Section 142 (2A) as follows:- "K.J. Shetty, J. in Swadeshi Cotton Mills Company Limited v. Commissioner of Income-Tax and Another [171 ITR 634] succinctly laid down the import of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the flats, which were being changed frequently by the assessee and having failed to understand the manner and method in which accounts were maintained firstly required the petitioners to explain and having faced an uncooperative attitude directed special audit to be carried out by special auditor. We do not find any legal error in the order directing the petitioners to get their accounts audited by special audit or appointed by the Commissioner of Income Tax, for which the cost is now to be paid by the Central Government and thus the exercise would not cause any prejudice to the petitioners. 48. We have examined the records produced by Shri Bharat Ji Agrawal and find that the assessee had filed reply dated 19.11.2009 before the A.O., in which the counsel appearing for the petitioners (Shri Deepak Kapoor) had produced print out of the accounts. This fact is mentioned in the ordersheet and thus the submissions that the books of accounts were not examined is not true. Besides the seized material was also available with A.O., which also form part of the accounts. The financial statements were also available with the A.O., which were also part of accounts of the assessee. The record f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, which was dismissed. Later on the jurisdiction of the Central Circle, Meerut was also challenged before Hon'ble the Supreme Court. The special leave petition was dismissed. Since the petitioner did not comply with the notice under Section 153A, a show cause notice under Section 271F and 276CC were issued on 11.9.2009. It is only thereafter that the returns were filed on 16.6.2009. After examining these returns and seized material a detailed questionire for all assessment years from 2002-03 to 2008-09 (block assessment period) were issued calling for the details to which only part replies were filed to these notices. 52. The A.O. has mentioned in his letter to the approving authority that the data in the seized hard discs/ CDs could not be accessed as the account books were stated to be on the FCA package, which could not be opened as all the files were password protected. The petitioners inspite of being repeatedly asked did not produce accounting package and correct password to enable the A.O. to open the accounting files. Passwords given by the petitioner on 25.11.2009 were found to be incorrect. The petitioner admitted that it was the mistake and promised that the correct p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny information on these points. The returns scrutinised by the A.O. demonstrated that the petitioner was adopting project completion method of accounting till assessment year 2003-04 and changed its accounting to percentage completion method from assessment year 2004-05. Accordingly in the questionire of the assessment year 2004-05 and subsequent assessment years he was asked to explain the reasons for change of the method, which was also not provided. The Managing Director of the company in his statement recorded under Section 132 (4) of the Act had accepted that 30% of the sale consideration was taken as on money for various projects on account of sale/ cancellation and renovation of flats. The amount accepted as on money was not disclosed. 54. We do not agree with the submission of Shri S.P. Gupta, learned counsel appearing for the petitioners that in such a case it was open to the A.O. to proceed with the best judgment assessment under Section 144 and that the submission of incomplete accounts or the refusal to disclose true and correct accounts cannot be a ground for special audit under Section 142 (2A) of the Act. It is not a case, where the accounts produced were not exami ..... X X X X Extracts X X X X X X X X Extracts X X X X
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