9911796707
TMI Blog2013 (7) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... urns were filed on 19th March 2013. Notices were issued by the Assessing Officer under section 142 (1) of the Act calling for various details regarding the accounts of the petitioner. Undisputedly for sometime, the petitioner did not comply with such notices. On 26th December 2012, the respondent no.1 issued a notice stating : "having regard to the nature of complexity of your accounts as mentioned above and in the interest of revenue, I hereby propose to refer your case for approval to the CIT, Central II, Ahmedabad for special audit u/s.142 (2A) of the Act. 4. In view of above, you are required to show cause why your case should not be referred for special audit u/s. 142 (2A) of the I.T Act, 1961..." In such notice, the respondent no. 1 gave detailed account why he believed prima facie that special audit in case of the petitioner was necessary. He conveyed to the petitioner, thus- "2. I have gone through the seized material and return of income filed u/s. 153A of I.T Act and other documents filed during the assessment proceedings. Plethora of papers essentially, bills and vouchers related to construction were found and seized from various premises co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny with complete details and supporting documentary evidences. In addition to above certain ledger accounts related to these transactions were also found. From the perusal of these accounts, it can be seen that the payment of Rs. 7,00,00,000/= has been shown to have been made by you to M/s. Palm Lagoon Backwater Resorts Pvt. Limited and Dr. V. Harikumar. Whereas as per the sale deed the amount was being paid to Ms. Gujarat Sysport Services Pvt. Ltd. against the purchase of the shares of the company M/s. Palm Lagoon Backwater Resorts Pvt. Ltd. Further, it is evident those bills cannot be found. In the case of Shri J.C Patel and Shri S.V Khant bills and vouchers were found and seized from Neesa Leisure Limited at Cambay Square, GIDC Electronic Estate, Sector No. 25, Gandhinagar. When the same was verified with the digital accounts seized/impounded from various premises, during the course of survey/search the entry in the books of account in the name of Shri J.C Patel could not be found. Similar is the case with Shri S.V Khant. It is also pertinent to note that Shri Bharat M. Shah, Prop. Of Kala Sales, Manu Enterprise and P.M Traders and Director of Asopalav Trades Priva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... You were given opportunity to furnish the above mentioned details vide various notices dated 25.09.2012, 18.10.2012, 07.11.2012, 27.11.2012 and 14.12.2012. But even after lapse of the stipulated time mentioned in the notice, this office has not received any details for the query. vi. You have sold commercial space on the first floor of the complex in your Gandhinagar Office for a total consideration of Rs. 2.14 Crores to M/s. Benefit Infomedia Limited. You were required to provide the complete documents for this transaction and evidence in support of the income arising out of this transaction being offered to tax. Neither you have furnished any information or documentary evidences, nor you have shown whether it has been offered to taxation. Despite of lapse of Three months from the issuance of first notice, no information has reached this office. You were required to explain the nature of such credits and explain the genuineness of the credits. You were given opportunity to furnish the above mentioned details vide various notices dated 25.09.2012, 18.10.2012, 07.11.2012, 27.11.2012 and 14.12.2012. But even after lapse of the stipulated time mentioned in the notice, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice, this office has not received any details for the query. ix. You were required to furnish the ledger accounts in the case of Shri S.V Khant and Shri J.C Patel as appearing in the books of accounts. No such details were submitted. The purchases were neither properly explained, nor their genuineness were confirmed by you. Further, even the identity of Shri J.C Patel has not been provided which was sought by this office vide letter dated 18.10.2012. You were required to explain the nature of such credits and explain the genuineness of the credits. You were given opportunity to furnish the above mentioned details vide various notices dated 25.09.2012, 18.10.2012, 07.11.2012, 27.11.2012 and 14.12.2012. But even after lapse of the stipulated time mentioned in the notice, this office has not received any details for the query." In response to such notice, the petitioner replied under communication dated 5th January 2013. The proposal for special audit was opposed on the ground that there were no complexities in the accounts nor such an action was necessary to protect the interest of the Revenue. It was contended that the resort to the special audit is being taken only t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce and during your personal hearing, CIT {Central} II, Ahmedabad has granted an approval for special audit u/s. 142 (2A) of the Act for A.Y 2005-06 to 2011-12 in your case vide letter no. CIT (C) II/ Neesa/Special Audit/2012/13 dated 11.02.2013. Relevant extract of the approval granted by CIT CentralII, Ahmedabad is reproduced hereunder : "Please refer to your letter dated 09/01/2013 in the above case requesting the undersigned to give approval to refer the case to Special Audit u/s. 142 (2A) of the Act. In the above referred letter, you have also enclosed the show cause notice issued by you to the assessee on 26/12/2012 and reply of the assessee on the show cause notice vide letter dated 05/01/2013. 2. The undersigned has gone through your letter dated 26/12/2012 addressed to the assessee asking it as to why its case should not be referred to special audit for A.Y 200506 to A.Y 2011-12. The discrepancy in date pointed by you in para 2 (i) of your show cause notice and other specific issues referred to in your show cause notice have also been noted. The undersigned has also noted your queries raised during the course of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court that order u/s. 142 (2A) of the Act without giving an opportunity of hearing to the assessee cannot be sustained. The Hon'ble Supreme Court has held that the Assessing Officer and the approving authority should observe principles of natural justice. It seems that the Assessing Officer had not provided any opportunity of hearing to the assessee before referring the case to the CIT in that case. The complexities in the accounts of the assessee were never disclosed to the assessee before order u/s. 142 (2A) of the Act. 7. The reply of the assessee dated 05/02/2012 has been considered. The perusal of the reply reveals that the assessee has not given reply on many issues of your show cause notice dated 26/12/2012. After going through the assessment records, the reply of the assessee during the assessment proceedings and your show cause notice for Special Audit, it cannot be said that you have not attempted to understand the accounts of the assessee in a fair and honest manner. Further, the complexities of accounts referred to you in your show cause notice for Special Audit are genuine and the assessee has not been able to given any satisfactory reply of your not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing issues for the consideration of special auditor. "4.3 You are directed to furnish the report of the Special Auditor in Form No. 6B as mentioned in the Rule 14A of Income Tax Rules, 1962. The Special Auditor is also specifically required to go through the following issues: (i) To take into account seized/impounded documents, seized/impounded documents, seized/impounded papers, seized/impounded books of accounts, material seized/ impounded in soft copies, document submitted during the course of search and survey proceedings and report. (a) Whether there is any discrepancy in entries in regular books of account visavis the seized / impounded material. (b) Whether transactions reflected in seized/impounded materials are shown in regular books of account. (c) Whether books of account of the assessee show true and correct picture of the affairs. If not, then the nature and quantum of discrepancies. (d) Whether some transaction shown in regular books of account need more investigation by the A.O. (ii) To verify whether proper records of income and expenditure are maintained, if not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her assessee had enough stock, when sale was effected. (xv) To ascertain whether entries in seized books of account/regular books of account have been made as per accepted accounting norms and practices. (xvi) Any other issue that may come to knowledge during the course of Special Audit, which has bearing on computation of total income/loss of the assessee." It is this order that the petitioner has challenged in the present petition. Learned counsel for the petitioner raised following contentions : [a] No personal hearing was granted to the petitioner by the respondent no. 1 before passing the impugned order. Counsel contended that hearing envisaged under Section 142 {2A} of the Act necessarily includes a personal hearing. In the present case, though a specific request was made for such personal hearing, the respondent no. 1 did not grant such hearing. [b] The order passed by the respondent no. 1 is not a reasoned order. Various grounds and objections raised by the petitioner in the reply to the show cause notice have not been dealt with. [c] Counsel lastly contended that the requirement of exercise of the powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s granted. [h] In case of Oriental Bank of Commerce & Anr. v. R.K Uppal, reported in (2011) 8 SCC 695 wherein, the Supreme Court in the context of requirement of hearing in appeal, revision and review arising in disciplinary proceedings made certain observations, with respect to requirement of personal hearing, to which we would advert to at a later stage. On the other hand, learned counsel Shri Manish R. Bhatt for the Department opposed the petition, raising following contentions : [a] requirement of personal hearing cannot be read into Section 142 (2A) of the Act. Whenever the Legislature desired that a personal hearing should be given, it has been specifically so provided. He drew our attention to Section 250 of the Act, in which, the procedure in appeal before the appellate Commissioner is provided. sub-section (2) of Section 250 provides that the appellant, either in person or by an authorized representative; and the Assessing Officer, either in person or by a representative, shall have a right to be heard at the hearing of the appeal. Likewise, Rule 23 of the Income Tax Appellate Tribunal Rules, 1963 provides that on the date fixed by the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In our opinion, the approach and test adopted in Karunakar case should govern all cases where the complaint is not that there was no hearing, no notice, no opportunity and no hearing but one of not affording a proper hearing that is adequate or a full hearing or violation of a procedural rule or requirement governing the enquiry." On the decision of the Supreme Court in case of Sahara India [Firm] v. Commissioner of Income Tax & Anr. [Supra] in which it was observed that the object behind enacting the provision of Section 142 (2A) is to assist the Assessing Officer in framing the correct and proper assessment based on the accounts maintained by the assessee and when he finds the accounts of the assessee to be complex, with a view to protect the interest of the revenue, recourse to said provision can be had. In case of Purvanchal Vidyut Vitran Nigam Limited v. Union of India & Ors., reported in (2010) 329 ITR 508 (All.), the Allahabad High Court upheld such order passed by the concerned authority with the approval of the Commissioner observing that on facts and circumstances of the case, approval granted by the Commissioner could not be said to be mechanical or without applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclude personal hearing. Even before insertion of said proviso, the Supreme Court in case of Rajesh Kumar & Ors. [Supra] had read such requirement as implicit in exercise of power under section 142 (2A) of the Act. It was observed as under :- "Justice, as is well known, is not only to be done but manifestly seem to be done. If the assessee is put to notice,he could show that the nature of accounts is not such which would require appointment of special auditors. He could further show that what the Assessing Officer considers to be complex is in fact not so. It was also open to him to show that the same would not be in the interest of the Revenue." Such decision was approved by the Supreme Court in a later decision in case of Sahara India [Firm] v. CIT & Anr. {Supra}, observing as under :- "...The upshot of the entire discussion is that the exercise of power under section 142 (2A) of the Act leads to serious civil consequences and, therefore, even in the absence of express provision for affording an opportunity of predecisional hearing to an assessee and in the absence of any expression provision in section 142 (2A) barring the giving of reasonable oppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh Mitter, reported in AIR 1971 SC 1093, the Constitution Bench of the Supreme Court observed as under:- "25. Article 217 (3) does not guarantee a right of personal hearing. In a proceeding of a judicial nature, the basic rules of natural justice must be followed. The respondent was on that account entitled to make a representation. But it is not necessarily an incident of the rules of natural justice that personal hearing must be given to a party likely to be affected by the order. Except in proceedings in Courts, a mere denial of opportunity of making an oral representation will not, without more, vitiate the proceeding. A party likely to be affected by a decision is entitled to know the evidence against him and to have an opportunity of making a representation. He however cannot claim that an order made without affording him an opportunity of a personal hearing is invalid. The President is performing a judicial function when he determines a dispute as to the age of a Judge, but he is not constituted by the Constitution a Court. Whether in a given case the President should give a personal hearing is for him to decide. The question is left to the discretion of the Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be accepted in the face of the very clear indications in the Constitution that the provisions which are applicable to all the civil cases are not applicable to cases of Armed Personnel. It is not a requirement of the principles of natural justice. Indeed when he was informed that the subsequent sentence passed on him had been sent to the Chief of the Army Staff for confirmation, it was open to the petitioner to have availed himself of the remedy provided under Section 164 of presenting a petition to the confirming officer, ie., the Chief of the Army Staff in this case. He does not appear to have done so." In case of Smt. Ambeydevi v. State of Bihar & Anr., reported in AIR 1996 SC 1509 in the context of contention of denial of opportunity of personal hearing before rejecting the prayer for dispensing with predeposit of the penalty, the Apex Court observed as under:- "5. The High Court has primarily considered the question as to whether denying an opportunity to the appellant to be heard before his prayer to dispense with the deposit of the penalty is rejected, violates and contravenes the principles of natural justice. In that connection, several judgments of this C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion raised before the Collector of Customs was of a complicated nature and for its proper appreciation required familiarity with the chemical composition and physical properties of nitrocellulose lacquers and of the substance produced by the appellant Company. The Collector in deciding the appeal wrote an order running into 18 typed pages. There were before the Collector conflicting opinions of the Chemical Examiner and the Silk Mills Research Association, Bombay. The Collector gave two personal hearings to the appellant Company. No personal hearing was given by the Government of India to the appellant Company even though the matter raised complex questions. It is true that the rules do not require that personal hearing shall be given, but, if in appropriate cases where complex and difficult questions requiring familiarity with technical problems are raised, personal hearing is given, it would conduce to better administration and more satisfactory disposal of the grievances of citizens. ..." In case of State of U.P & Ors. v. Maharaja Dharmander Prasad Singh, etc., reported in AIR 1989 SC 997, it was observed as under :- "29. On the point of denial of natural justic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinion that the accounts of the assessee were complex and in the interest of the Revenue, it was so required, directed that the accounts be audited by the special auditor. To our mind the proviso to Section 142 (2A) of the Act does not envisage any personal hearing before an order under sub-section (2A) can be passed. The said proviso only requires giving reasonable opportunity of being heard to the assessee. Such reasonable opportunity ordinarily would not include right of personal hearing. It may, in a given case, at the discretion of the Assessing Officer that the same may be granted. The same may even be either desirable or necessary in given set of circumstances where complex and technical questions of law and facts are involved. Such requirement, however, cannot be read into or fastened under the proviso to section 142 (2A) of the Act. In other words, in the context of the statutory provisions, such requirement cannot be seen as part of the scheme of the Act. In a given case, in special set of facts and circumstances it may be desirable or even necessary, but not in all cases. In case of Rajesh Kumar & Ors. {Supra}, the Supreme Court though read the requirement of hearing i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the word "may" should be interpreted as "shall". The requirement is mandatory and hearing must be granted wherever it is possible to do so. This clearly comes out from the conclusion of the court in para 18 of the judgment, where it was observed as under :- "18. In conclusion, therefore, we hold that the word "may" in section 127 should be read as "shall". The requirement of giving an assessee a reasonable opportunity of being heard wherever it is possible to do so, is mandatory. The discretion of the authorities is only as to what is a reasonable opportunity in a given case and on the question, whether it is possible in a given case to provide the opportunity." It is true that the order of the Income Tax authorities was quashed on the ground that no details were furnished as to when the petitioner's counsel were heard. However, the question whether such personal hearing was necessary or not was not answered. Such decision, therefore, cannot be seen as an authority to the proposition that requirement of personal hearing is inbuilt in Section 127 of the Act. The decision in case of Dr. N Rajkumar vs. Deputy Commissioner of Income Tax, [Supra] of the Madras High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ercise of his right to demand that the previous proceeding or part thereof may be reopened or that he may be rehead before a final order is passed in the proceeding. This is an opportunity of hearing at a predecisional stage." In case of Simple Vinoyog (P) Limited [Supra] , the learned Single Judge of the Calcutta High Court though quashed an order under Section 127 of the Act on the ground that no opportunity of hearing was given, the said case did not deal with the question of granting personal hearing at all as can be seen from the concluding portion of the judgment, which reads thus- "5. I find from para 5 of the order impugned that the respondent no. 1 had 'considered' the written objection. In the context of the case, consideration means taking into account and dealing with the materials on record leading to a decision. However, in the instant case, the order impugned is silent how the replies and enclosures on record were considered. Therefore, the logical conclusion would be that the materials on record were not considered at all. Further, section 127 of the Act postulates that the assessee should be given a reasonable opportunity of being heard in the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a complex question. This would have a bearing on whether personal hearing was necessary. In the result, the first contention is rejected. Coming to the question of validity of the order on the premise of complexity and the requirement of interest of revenue, we notice that the petitioner had been given previous notices under section 142 (1) of the Act with respect to its accounts. For a long time, the petitioner did not comply with such notices. The Assessing Officer, therefore, issued notice why considering the complexities in the accounts, the same may not be audited by the special auditor. The petitioner's detailed representation was considered. Approval by the Commissioner was obtained before passing the final order; after considering the objections. The authorities have highlighted several aspects of the matter to indicate that the accounts were complex and that interest of revenue would be served if the special audit report is obtained. The various points on which the Assessing Officer desired that the auditor should make a report itself would demonstrate that the accounts were complex. They were also of the opinion that it would be in the interest of Revenue to get the acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment year 199697, that the nature of the accounts were complex and the interests of the Revenue would suffer if a detailed audit is not directed. Even, according to the own showing of the petitioner, when it was asked to give explanation/reply to the various points raised in the notice dated January 29, 1999, it had taken a stand that it would take several months in compiling the information. The Commissioner of income-tax had applied his mind and had also come to the conclusion that it is essential to know the actual state of affairs of the Corporation as the books of account are complex and enormous anomalies and discrepancies have also been pointed out by the statutory auditors in their audit report. Thus, it cannot be said that the preconditions for appointment of the special auditor, as envisaged under section 142 (2A) of the Act, have not been fulfilled. The reasons are also contained in the communication letter dated March 8, 1999, appendix V, and therefore, the approval granted by the Commissioner of Income tax does not suffer from any infirmity. As held by this Court in the case of Jhunjhunwala Vanaspati Limited [2004] 266 ITR 657 and Uttaranchal Welfare Society [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... job. Therefore, direction to get the accounts audited and to prepare final balance sheet and profit and loss account cannot be said to be without jurisdiction or exceeding to jurisdiction or outside the ambit of the provision." In case of Central Warehousing Corporation v. Secretary, Department of Revenue & Ors., reported in (2005) 277 ITR 452 (Delhi), it was observed thus- "Learned counsel for the petitioner relied upon the judgments of the Calcutta High Court in the cases of West Bengal State Cooperative Bank Limited v. Joint CIT [2004] 267 ITR 345 and Bata India Limited v. CIT [2002] 257 ITR 622. There is no doubt that in both these cases the court had taken the view that the order under section 142 (2A) of the Act was not called for, but the acts of these cases are entirely different. In those cases, the Assessing Officer had not examined the books of account and had formed an opinion as contemplated under section 142 (2A) of the Act without proper application of mind. While in the case of Bata India [2002] 257 ITR 622 (Cal) the court found that it was only the doubt of the Assessing Officer which had been equate to the complexity of accounts and the satisfactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly stated the complexity in the accounts, the points which the special auditor should deal with in his report specifically and that the order was being passed in the interest of the Revenue." In case of Rajesh Kumar, Proprietor, Surya Trading v. Deputy Commissioner of Income-tax, reported in (2005) 275 ITR 641, Division Bench of Delhi High Court observed as under :- "The above enunciated principles clearly show that there has to be objective consideration and application of miswan.gov.in/SitePages/Default2.aspxnd by the Assessing Officer, based upon the material and proper examination of the books of account produced by the assessee, before a direction, as contemplated under section 142 (2A), can be issued to the assessee. In the present case, there was search and seizure on the premises of the petitioners on December 18, 2002. Large records alongwith the books of account were seized. During the pendency of the assessment proceedings, commenced upon issuance of notice under section 158BC of the Act for the block period April 1, 1996 to December 18, 2002, the return filed by the assessee was found to be unsatisfactory. After examination of the books of account and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a judicial proceeding and therefore, elaborate reasons are not required to be given. In Swadeshi Cotton Mills Company Limited v. Commissioner of Income Tax & Anr., 171 ITR 640, this Court held that the Inspecting Assistant Commissioner and the Commissioner of Income Tax with due regard to the nature of the account books were satisfied that the accounts of the company were of a complex nature and that it was necessary in the interests of the revenue that a special audit should be conducted. It was held that it could not said that there was any arbitrary exercise of the powers in directing the special audit under Section 142 (2A) of the Act. We also do not find any substance in the contention that in the present case, the CCIT has not examined the accounts in arriving at a conclusion that accounts books were not complex in nature for which the special audit is required. The satisfaction of the complexity of the accounts is not required to arrive at by discussing the accounts in meticulous details. Where the approving authority has considered the account books along with auditors reports and finds that there was a mala fide intention to avoid the verification of the book ..... X X X X Extracts X X X X X X X X Extracts X X X X
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