TMI Blog2008 (4) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... 142 (2A) of the Income Tax Act, 1961 (in short 'the Act') for special audit of the accounts of the assessee, there has to be a pre-decisional hearing and an opportunity has to be granted to the assessee for the purpose. A close reading of the decision shows that the observations in this regard appear to have been made in the context of the assessments in terms of Section 158 BC (Block Assessment) of the Act. Such assessments are relatable to a case when raid has been conducted at the premises of an assessee. Had that been so, limited to the facts involved in that case, we would have negatived the contentions of learned counsel for the petitioner. But, certain observations of general nature have been made. The effect of these observations appear to be that in every case where the Assessing Officer issues a direction in terms of Section 142 (2A) of the Act, the assessee has to be heard before such order is passed. This does not appear to us to be the correct position of law. Therefore, we refer the matter to a larger Bench. The records be placed before Hon'ble the Chief Justice of India for constituting an appropriate Bench." 3. Although no specific question has been for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see to get the accounts audited by an accountant, as defined in the Explanation below sub-section (2) of Section 288, nominated by the Chief Commissioner or Commissioner in this behalf and to furnish a report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed and such other particulars as the Assessing Officer may require. *[Provided that the Assessing Officer shall not direct the assessee to get the accounts so audited unless the assessee has been given a reasonable opportunity of being heard.] (2B) The provisions of sub-section (2A) shall have effect notwithstanding that the accounts of the assessee have been audited under any other law for the time being in force or otherwise. (2C) Every report under sub-section (2A) shall be furnished by the assessee to the Assessing Officer within such period as may be specified by the Assessing Officer. [Provided that the Assessing Officer may, on an application made in this behalf by the assessee and for any good and sufficient reason, extend the said period by such further period or periods as he thinks fit; so, however, that the aggregate of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in Section 142 (2A) is not defined or explained in the Act. As observed in Swadeshi Cotton Mills Co. Ltd. Vs. C.I.T. , it is a nebulous word. Its dictionary meaning is: "The state or quality of being intricate or complex or that is difficult to understand. However, all that is 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 not be really so if one tries to understand it carefully." Thus, before dubbing the accounts to be complex or difficult to understand, there has to be a genuine and honest attempt on the part of the Assessing Officer to understand accounts maintained by the assessee; appreciate the entries made therein and in the event of any doubt, seek explanation from the assessee. But opinion required to be formed by the Assessing Officer for exercise of power under the said provision must be based on objective criteria and not on the basis of subjective satisfaction. There is no gainsaying that recourse to the said provision cannot be had by the Assessing Officer merely to shift hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause of the pecuniary prejudice as also on account of severe inconvenience caused in his business by virtue of the intrusion of the special auditor. Besides, even the vested right of limitation is affected by the appointment of special auditor inasmuch as the period of limitation thereby stands extended. In this behalf, reference is made to the decisions of this Court in Ramlal Motilal Chhotelal Vs. Rewa Coalfields Ltd. and M.K. Prasad Vs. P. Arumugam . In nutshell, the stand of the learned counsel was that an order under Section 142 (2A) of the Act entails serious civil consequence and, therefore, the principles of natural justice have to be complied with before an order under the said provision is made. 9. Mr. P.P. Malhotra, learned Additional Solicitor General of India appearing on behalf of the respondent/revenue, on the other hand, has contended that the power under the said provision, which is found in Chapter XIV of the Act, prescribing procedure for assessment, relates to the inquiry before the assessment and the special audit is to facilitate the assessment to protect the interests of the revenue, which is of paramount consideration and cannot be defeated or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., Calcutta ). 12. In Swadeshi Cotton Mills Vs. Union of India , R.S. Sarkaria, J., speaking for the majority in a three-Judge Bench, lucidly explained the meaning and scope of the concept of "natural justice". Referring to several decisions, his Lordship observed thus (SCC p.666; Headnote): "Rules of natural justice are not embodied rules. Being means to an end and not an end in themselves, it is not possible to make an exhaustive catalogue of such rules. But there are two fundamental maxims of natural justice viz. (i) audi alteram partem and (ii) nemo judex in re sua. The audi alteram partem rule has many facets, two of them being (a) notice of the case to be met; and (b) opportunity to explain. This rule cannot be sacrificed at the altar of administrative convenience or celerity. The general principle as distinguished from an absolute rule of uniform application seems to be that where a statute does not, in terms, exclude this rule of prior hearing but contemplates a post-decisional hearing amounting to a full review of the original order on merits, then such a statute would be construed as excluding the audi alteram partem rule at the pre-decisional stage. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt said : "Concept of natural justice has undergone a great deal of change in recent years. Rules of natural justice are not rules embodied always expressly in a statute or in rules framed thereunder. They may be implied from the nature of the duty to be performed under a statute. What particular rule of natural justice should be implied and what its context should be in a given case must depend to a great extent on the fact and circumstances of that case, the frame-work of the statute under which the enquiry is held. The old distinction between a judicial act and an administrative act has withered away. Even an administrative order which involves civil consequences must be consistent with the rules of natural justice. Expression 'civil consequences' encompasses infraction of not merely property or personal rights but of civil 'liberties, material deprivations, and non-pecuniary damages. In its wide umbrella comes everything that affects a citizen in his civil life." 15. Thus, it is trite that unless a statutory provision either specifically or by necessary implication excludes the application of principles of natural justice, because in that event the Court would not ign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner the power to act without notice, the Legislature intended that the power should be exercised sparingly and in cases of urgency which brook no delay. In all other cases, no departure from the audi alteram partem rule ('Hear the other side') could be presumed to have been intended. Section 314 is so designed as to exclude the principles of natural justice by way of exemption and not as a general rule. There are situations which demand the exclusion of the rules of natural justice by reason of diverse factors like time, place the apprehended danger and so on. The ordinary rule which regulates all procedure is that persons who are likely to be affected by the proposed action must be afforded an opportunity of being heard as to why that action should not be taken. The hearing may be given individually or collectively, depending upon the facts of each situation. A departure from this fundamental rule of natural justice may be presumed to have been intended by the Legislature only in circumstances which warrant it. Such circumstances must be shown to exist, when so required, the burden being upon those who affirm their existence." 19. Again in C.B. Gautam Vs. Union of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said statutory provision. It has been observed that on account of the special audit, the assessee has to undergo the process of further accounting despite the fact that his accounts have been audited by a qualified auditor in terms of Section 44AB of the Act. An auditor is a professional person. He has to function independently. He is not an employee of the assessee. In case of mis-conduct, he may become liable to be proceeded against by a statutory authority under the Chartered Accountants Act, 1949. Besides, the assessee has to pay a hefty amount as fee of the special auditor. Moreover, during the audit of the accounts again by the special auditor, he has to answer a large number of questions. Referring to the decision of this Court in Binapani Dei (supra) wherein it was observed that when by reason of an action on the part of a statutory authority, civil or evil consequences ensue, the principles of natural justice are required to be followed and in such an event, although no express provision is laid down in this behalf, compliance with the principles of natural justice would be implicit, the learned Judges held that by virtue of an order under Section 142 (2A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial audit. 22. We shall now deal with the submission of learned counsel appearing for the revenue that the order of special audit is only a step towards assessment and being in the nature of an inquiry before assessment, is purely an administrative act giving rise to no civil consequence and, therefore, at that stage a pre-decisional hearing is not required. In Rajesh Kumar (supra) it has been held that in view of Section 136 of the Act, proceedings before an Assessing Officer are deemed to be judicial proceedings. Section 136 of the Act, stipulates that any proceeding before an Income Tax Authority shall be deemed to be judicial proceedings within the meaning of Sections 193 and 228 of Indian Penal Code, 1860 and also for the purpose of Section 196 of I.P.C. and every Income Tax Authority is a court for the purpose of Section 195 of Code of Criminal Procedure, 1973. Though having regard to the language of the provision, we have some reservations on the said view expressed in Rajesh Kumar's case (supra), but having held that when civil consequences ensue, no distinction between quasi judicial and administrative order survives, we deem it unnecessary to dilate on the scope of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accordingly, we reiterate the view expressed in Rajesh Kumar's case (supra). 25. It is pertinent to note that by the Finance Act, 2007, a proviso to Section (2A) has been inserted with effect from 1 st June, 2007, which provides that no direction for special audit shall be issued without affording a reasonable opportunity of hearing to the assessee. 26. In the light of the afore-noted legal position, we may now advert to the facts of both the cases to consider the validity of orders dated 14 th March, 2006, requiring the appellants to have their accounts for the assessment year 2003-04 audited by a chartered accountant, named in the order. 27. Indubitably, before passing the said orders, no show cause notice was given to the appellants. On the contrary, it appears from the record that on 9 th March, 2006, the appellants were required to furnish by 20 th March, 2006 details/explanation in respect of queries raised vide order sheet entry dated 16 th February, 2006 but in the meanwhile, the impugned orders were passed on 14 th March, 2006 itself. It is manifestly clear that when the impugned orders were made, the Assessing Officer had no occasion to have even a glimps ..... X X X X Extracts X X X X X X X X Extracts X X X X
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