TMI Blog2014 (2) TMI 1035X X X X Extracts X X X X X X X X Extracts X X X X ..... he approval was accorded by the CIT on 23.12.2011 - It cannot be said that the CIT did not apply his mind to the proposal for special audit - The assessing officer referred the matter to the Transfer Pricing Officer under Section 92CA of the Act on which the latter did make an addition on account of transactions with the petitioner’s associated enterprises and it was at that stage the assessing officer made a reference to special audit; the suggestion was that the exercise was uncalled for since the direction of the TPO was binding on the AO in any case - the AO is empowered to refer the accounts to the special auditor “at any stage of the proceedings” S.142(2A) - there is no bar, and there is nothing in the sub-section which makes its provisions subject to the powers of the TPO - The reference to special audit cannot be held to be contrary to law on that score – Decided against Assessee. - W. P. (C) 811/2012 - - - Dated:- 21-2-2014 - S. Ravindra Bhat And R. V. Easwar,JJ. For the Petitioner : Mr. Jayant K. Mehta, Advocate. For the Respondents : Mr. Balbir Singh, Sr. Standing Counsel with Shri Abhishek Singh Baghel, Adv. JUDGMENT R. V. Easwar, J. 1. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer under Section 142(1), calling upon the petitioner to submit information in respect of ten points raised by him which included the names and addresses along with ledger accounts in respect of the advances from customers as per Schedule 1 and details of transactions made with related parties along with the valuation of debtors together with copies of the ledger accounts. By this notice, the respondent called upon the petitioner to submit the information on 18.10.2011. However, since the notice was received by the petitioner only on 18.10.2011, it appears that a request was made to the Assessing Officer to take up the hearing of the case on 19.10.2011, which was accepted by him. 3. On 31.10.2011, the petitioner made detailed submissions in writing before the Assessing Officer through its letter of the said date. This letter referred to the notices issued by the Assessing Officer under Section 142(1) and Section 143(2) as well as the hearing which took place on 19.10.2011. The information was given under various heads. In paragraph 9 of the said letter, the petitioner referred to the request of the Assessing Officer on 19.10.2011 to show cause as to why a spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Global Network Services Pvt. Ltd. dealt with at point No.1 of this note. This assessee is an associated party of AT T Global Network Services Pvt. Ltd. and is engaged in same of line of business, hence, both the assesses are referred together for Special Audit. 5. In addition to the terms of reference made by the Additional CIT on 26.11.2011, which was itself based on the terms of reference for special audit as forwarded by the respondent no.2, which in turn was a joint reference in the case of the petitioner as well as in the case of AT T Global Network Services Pvt. Ltd., the following terms of reference regarding the special audit in the case of the petitioner were sent by the respondent no.2 to the respondent no.1 through proper channel. In this letter, the respondent no.2 stipulated the following terms of reference in the petitioner s case as under: 1. The assessee has shown revenue/income of Rs.16,39,22,134/-, Rs,1,02,31,081/- and Rs.25,91,859/- as sale of services to group concerns namely, M/s AT T Communication Services International Inc., USA, M/s AT T Solutions Inc., USA and M/s AT T Singapore Pte. Ltd. respectively. The auditor may identify the method/acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 432. 9. One subsidiary contention raised on behalf of the petitioner was that there was an interpolation in the order sheet relating to the proceedings before the Assessing Officer on 14.10.2011 and 19.10.2011 so as to make it appear as if there was an examination of the books of account by the Assessing Officer before proposing a special audit. The submission is that there was in fact no examination of the books of account of the petitioner. 10. The learned standing counsel appearing for the revenue submitted that Section 142(2A) refers only to ...............nature and complexity of the accounts of the assessee................. and it does not refer to books of account , and that the word accounts is broader than books of account as held by the Supreme Court in Rajesh Kumar (supra). He further submitted that the complexity of the accounts would be clear from the information supplied by the petitioner in its letter dated 31.10.2011 (Annexure P-13) written in response to the various notices issued by the Assessing Officer. He pointed out that the Assessing Officer in the terms of reference made vide letter dated 16.11.2011 has recognized the need to identify the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se to various notices issued by the latter and with reference to the subsequent discussions held in the course of the hearing which took place on 19.10.2011, the petitioner has submitted an elaborate reply in paragraph 9 of the letter under the caption show cause as to why special audit under Section 142(2A) of the Act should not be conducted in the instant case . This paragraph clearly refers to the request made by the respondent on 19.10.2011 to the petitioner to show cause as to why special audit should not be conducted because of the nature and complexity in the financial statements. The letter then proceeds to elaborately raise objections to the show cause notice, supported by case law. The objections run into more than five pages. The petitioner in these objections has harped that there was no complexity in its accounts and that the provisions of Section 142(2A) not only require complexity in the accounts, but also require that there must be some prejudice to the interests of the revenue. The petitioner also objected to the show cause notice on the ground that application of mind is required by the tax officer in order to reach an objective satisfaction and the requirement o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of account of the assessee; it could include the books of account, balance sheets and all other records which are available to the A.O. during the assessment proceedings. It refers to the other records available with the A.O. not only in the course of the assessment proceedings but also at any stage subsequent thereto. It was held that the expression accounts cannot be confined to books of account as submitted by the assessee, as it would amount to giving an interpretation which completely defeats the very object of the section. It was further held that the fact that the accounts of the assessee are subject to audit under some other statute is also no ground to hold that in such a case the A.O. cannot direct a special audit. It was observed that in addition to the books of account, the A.O. may also take into consideration such other documents related thereto and which would be part of the assessment proceedings. This judgment was followed by another Division Bench of this court in Central Warehousing Corporation (supra). In the light of these authorities, it is not possible to accept the contention that the A.O. cannot direct a special audit unless he examines the books of acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he inclusion of the last mile charges in the profit and loss account as a debit, when the capitalised infrastructure cost is eligible also to depreciation, may amount to double deduction. Whether this would amount to double deduction is an aspect which the special audit was required to examined. 16. The question whether the accounts and the related documents and records available with the A.O. present complexity is essentially to be decided by the A.O. and in this area the power of the court to intrude should necessarily be used sparingly. It is the A.O. who has to complete the assessment. It is he who has to understand and appreciate the accounts. If he finds that the accounts are complex, the court normally will not interfere under Article 226. The power of the court to control the discretion of the A.O. in this field is limited only to examine whether his discretion to refer the accounts for special audit was exercised objectively, as far as the accounts, records, documents and other material present before the A.O. would permit. There must be valid material before the A.O. from which he apprehends that there is complexity. As to what material would make the accounts complex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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