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2016 (7) TMI 320 - ITAT DELHI

2016 (7) TMI 320 - ITAT DELHI - TMI - Validity of order u/s 142(2A) - special audit - whether assessment is barred by limitation which is based upon the audit report - Held that:- Despite the appellant seeking the basis on which directions for special audit is proposed to be issued, the learned CIT dispensed with that precondition and granted approval which itself vitiates the whole process of granting approval. It is thus apparent that neither the AO nor the learned CIT disclosed the basis of a .....

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assessee - ITA No. 5180/Del/2013, ITA No. 5718/Del/2013 - Dated:- 8-4-2016 - Shri I. C. Sudhir And Shri L. P. Sahu For the Assessee : Shri Salil Aggarwal, Adv., Gautam and, CA and Shjalesh Gupta, CA For the Department : Shri Dilip Shivpuri & Ruchir Bhatia ORDER Per I. C. Sudhir: Judicial Member These cross appeals preferred by assessee and revenue are directed against the order of learned CIT(A)-XXI, New Delhi dated 16.8.2013 and relate to assessment year 2009-10. 2. The appellant-assessee .....

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D/2013 the grounds of appeal raised are as under: 1 That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding an order of assessment dated 1.8.2012 framed under section 143(3) of the Act by learned Additional Commissioner of Income Tax, Range-18, New Delhi inspite of the fact that the same was barred by limitation and as such deserved to be quashed as such in light of various settled judicial pronouncements. 1.1 That the learned Commissioner of Income .....

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s no complexity involved with regard to the books of accounts and the directions for special audit could not have been issued for drawing legal inferences particularly having regard to the fact that the method of accounting and manner and mode of business stood accepted by the revenue in the preceding assessment years in respect of assessments framed under section 143(3) of the Act. 1.3 That the finding of the learned Commissioner of Income Tax that the assessee also fulfilled the conditions of .....

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77; 1750,89,48,710/- representing alleged capital gain on sale of shares of eight wireless companies by the appellant company. That in doing so, he has failed to appreciate that addition so made was beyond the scope of provisions contained in section 45 read with section 48 of the Act and therefore addition sustained is perse without jurisdiction and hence unsustainable. 2.1 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate the true and correct import of the provisio .....

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ares sold by the appellant company since issue of fresh share capital by eight wireless companies was in no manner comparable with transfer of existing shares by the appellant company. 2.3 That the learned Commissioner of Income Tax (Appeals) has overlooked that sale of shares by the appellant company of eight wireless companies and subscription of fresh equity shares of eight wireless companies by M/s Telenor Asia Pte Ltd. was non comparable for various reasons like there was time gap between t .....

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e addition on wholly irrelevant, extraneous and immaterial consideration that alleged real net worth of eight wireless companies increased substantially after the 2G license was granted by the DOT and as such, addition sustained is not in accordance with law. 2.5 That further finding of the learned Commissioner of Income Tax (Appeals) that assessee company has deliberately transferred the 75% stake in eight wireless companies at the face value of ₹ 10/- per share only when the real net wor .....

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addition is also illogical, devoid of merit and, unsupported by any material on record and, therefore not tenable. 2.7 That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts by overlooking the detailed submissions, arguments and materials furnished by the appellant company and judicial pronouncements relied upon the appellant company to support the aforesaid contention. 3 That the learned Commissioner of Income Tax (Appeals) has also erred both in law and on fac .....

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could not have proceeded to arbitrarily hold the same as business income on assumptions and presumptions which are factually and legally misconceived and therefore, unsustainable. 3.2 That mere fact that in the year under consideration, the appellant company had invested in shares and disinvested shares of various companies which were land owning companies could not be a ground much less a valid ground to suggest that income derived by the appellant company from disinvestment of shares had nexus .....

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s in the books of accounts, there could be no valid justification to suggest and conclude that income on disinvestment of investments was business income of the appellant company. 3.4 That the learned Commissioner of Income Tax (Appeals) has also failed to appreciate written submissions alongwith evidence placed on record to establish that gain on disinvestment of shares of subsidiary companies to M/s. Tata Realty and Infrastructure Ltd. was capital gain and the approach adopted to regard the sa .....

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ax (Appeals), in upholding the arbitrary addition. 4 That likewise the learned Commissioner of Income Tax (Appeals) has further erred in treating the capital gain of ₹ 478,50,42,117/- on disinvestment of shares of the following companies as business income of the appellant company: S.No. Name of the company Amount of gain (Rs.) 1. M/s. Mirik Developers Pvt. Ltd. 182,73,10,657 2. M/s Gibson Builders Pvt. Ltd. 181,94,71,146 3. M/s. Lurzon Developers Pvt. Ltd. 112,16,67,801 4. M/s. Tulip Scho .....

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at addition made by the learned Assessing Officer by enhancing the consideration received on sale of land rights from ₹ 98.54 lakh per acre to ₹ 4,35,00,000/- per acre by adopting the purported fair market value instead of actual consideration is without any justification and contrary to various judicial pronounce and as such, same is legally unsustainable. 5.2 That the learned Commissioner of Income Tax (Appeals) while upholding addition, has failed to appreciate that once the trans .....

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that, assessee is in the business of floating subsidiaries, purchasing of land, development of land and subsequent sale of land through the sale of shares of the subsidiary companies and as such, it is normal business income of the assessee evidently shows complete lack of appreciation on the part of the learned Commissioner of Income Tax (Appeals) of the factual matrix of the case of the appellant company and judicial position and therefore, the ground alone the addition sustained may kindly b .....

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ansaction and as such, beyond the scope of section 2(22)(e) of the Act. 6.2 That even otherwise, the learned Commissioner of Income Tax (Appeals) has failed to appreciate that since there were no accumulated profits at the beginning of the year in M/s. Shivalik Venture Pvt. Ltd., and as such the addition made by invoking section 2(22)(e) of the Act was wholly unjustified, misconceived and therefore, not taxable. 6.3 That the finding of the learned Assessing Officer that Memorandum of Understandi .....

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from the amount of ₹ 120 crores taxed as alleged deemed dividend in the instant year and as such, addition made in any case is excessive by ₹ 33.19 crores. 7 That the learned Commissioner of Income Tax (Appeals) has further erred both in law and on facts in upholding addition of ₹ 19,45,51,374/- representing the waiver of loan by M/s. Fortis Mutual Fund and held to be business income of the appellant despite the fact that the same was capital receipt in view of settled legal pr .....

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t waiver of ₹ 6,22,50,000/- in respect of interest already charged to Profit & Loss Account is taxable u/s 41(1) and waiver of principal amount of loan amounting to ₹ 13,23,01,374/- is chargeable as income u/s 28 of the Act 1961, is legally and factually misconceived and therefore, unsustainable. 8 That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding the addition of ₹ 92,116/- representing the purported difference between bal .....

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he books of creditors could not be a ground to invoke section 41(1) of the Act. 9 That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding disallowance of expenditure of ₹ 3,42,556/- out of advertisement expenses of ₹ 5,83,916/- incurred and claimed by the appellant company by making payment to M/s. Cross Section International, Delhi. 9.1 That the finding of the learned Commissioner of Income Tax (Appeals) that assessee has been unable to .....

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icable on alleged short deduction of income tax and as such, disallowance made is perse without jurisdiction. 10.2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that the allegation that there was short deduction of TDS on account of service tax is factually and legally misconceived and therefore, no disallowance was warranted under section 40a(ia) of the Act. 10.3 That even otherwise, in any case, no disallowance was warranted under section 40a(ia) of the Act as .....

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n of ₹ 35,10,000/- made by the AO on account of capital gain as business income on the buyback of shares of M/s Gurgaon Technology Parks Ltd. without appreciating the intention of the assessee in the said investment was not to earn dividend but to gain by selling the shares of the subsidiary companies. 2 On the facts and circumstances of the case and in law, ld. CIT(A) erred in deleting the addition of ₹ 11,57,47,608/- on account of interest free loan given to the subsidiaries, witho .....

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ed as a whole. 4 On the facts and circumstances of the case and in law, ld. CIT(A) erred in deleting and addition of ₹ 15,64,96,084/- wihich was made on the account of variation of rates of sale of flats without appreciating the prepondence of probability was against the assessee. 5 On the facts and circumstances of the case and in law, ld. CIT(A) erred in deleting and addition of ₹ 50 crores made by AO by holding the forfeiture of advance paid for purchase of hotels as a capital exp .....

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income was in the nature of business income and not income from house property. 8 On the facts and circumstances of the case and in law, ld. CIT(A) erred in deleting the addition of ₹ 1,68,54,000/- made on account of disallowance of processing charges on the loan taken by Unitech Power Transmission Ltd. (UTPL) without appreciating that the said loan was actually availed by UTPL and not by the assessee company. 9 On the facts and circumstances of the case and in law, ld. CIT(A) erred in de .....

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46,799/- due to disallowance of interest payment to Tata Reality & Infrastructure Ltd. without appreciating that there were not enabling clauses in the MOU between assessee and TRIL for such interest payment. 11 On the facts and circumstances of the case and in law, ld. CIT(A) erred in deleting the addition of ₹ 3,18,66,715/- being disallowance of prior period expenses. 12 The appellant craves leave for reserving the right to amend, modify, alter and or forego any ground(s) of appeal a .....

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ial counsel for the revenue appearing alongwith Shri Ruchir Bhatia did not have any objection to the aforesaid prayer made by the learned counsel for the appellant company. Accordingly, both the sides argued in respect of the aforesaid contention and written submissions alongwith paper book filed have been placed on record. No arguments on merits of the various issues raised in these appeals were either heard or are being disposed off by this order. 6 With this background, we now proceed to disp .....

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ce was without jurisdiction. In Ground 1.2 it has been further contended that learned CIT(A) failed to appreciate that there was no complexity involved with regard to the books of accounts and the directions for special audit could not have been issued for drawing legal inferences particularly having regard to the fact that the method of accounting and manner and mode of business stood accepted by the revenue in the preceding assessment years in respect of assessments framed under section 143(3) .....

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e. In essence the challenge in each of the above grounds is that the reference for special audit u/s 142(2A) of the Act was illegal and therefore consequently the order of assessment is barred by limitation. 8 The factual matrix emanating from record is that return of income for the instant assessment year was filed on 29.9.2009 declaring an income of ₹ 1334,87,70,381/- u/s 139(1) of the Act. The return of income was selected for scrutiny and various replies were furnished in response to n .....

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y having regard to the nature and complexity of accounts and in the interest of revenue, its accounts may not be audited u/s 142(2A) of the Act. The appellant filed replies dated 23.11.2011, 28.11.2011 and 1.12.2011 and subsequently directions u/s 142(2A) of the Act were proposed to be made on account of following reasons: i) An MOU was entered between Unitech Ltd., its subsidiaries and TRIL (Tata Realty Infrastructure Ltd.) for purchase of 517 Acre of non- agricultural land situated at village .....

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legedly utilized for giving advance to eight wireless subsidiaries of the Unitech Ltd. The assessee company transferred share of its 6 subsidiaries companies possessing lands to TRIL. Part of shares of these were purchased at cost of par values and other part was purchased at exorbitantly higher price prior to 3-7 days of sale and sold at approximately same consideration. Shares of these 6 companies were purchased by the assessee 3 to 7 days before the transfer of these shares to TRIL. The sourc .....

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companies by the assessee to Simpson Unitech Wireless (P). Ltd. What the assessee had received was much more than what had been accounted as income of the assessee. The nature of these transactions was to be ascertained to determine its taxability under the Act. The entire transaction was to be correlated with the fund flow and bank statement of the assessee. Similarly transactions of sale of shares of 8 Wireless Companies to M/s Cestos Unitech Wireless Pvt. Ltd. and Acorus Unitech Wireless Pvt. .....

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pers and held by Unitech Limited. Millennium construction Pvt. Limited purchases 100% shares holding of Mirik Developers from assessee company along with all assets (moveable and immoveable) and liabilities at a consideration of ₹ 1,97,97,60,693/-. As per clause 3.2 (a) of the agreement, it was mentioned that ₹ 1,82,78,10,657/- is towards purchase price of sale shares @ ₹ 36,556.21 per share. And at clause 3.2 (b) it was stated that a sum of ₹ 15,19,50,036/- is towards th .....

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consideration and profit arising from this transaction should be added as share profit and worked out accordingly. Even the A/R was unable to tally/ show the ledger account detailing the above transaction with corresponding bank entries. Similar, issues were also crept out in other transactions with SPA with Unitech Limited, Advance Techno Solutions Pvt. Limited, Advance Techno Solutions Pvt. Limited and Luzone Developers. iv) Assessee company had purchased 14,04,000 shares (purchased @ ₹ .....

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by the assessee company are routed through various group companies in a very intricate and complex manner. The same will have a substantial tax implication which is too complex to work out. Huge advance have been given to M/s Crimson Developers Pvt. Limited, Azors Properties Pvt. Limited, Zanskar Realty Pvt. Limited and M/s Unitech Realty Builders Pvt. Limited. Huge advance given to above subsidiaries and other subsidiaries factors needs thorough investigation and verification. Assessee company .....

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es elaborate and extensive search of accounting details under section 142(2A) of the I.T. Act 1961 to assist assessment proceedings to vindicate the interest of revenue. vii.) Assessee company has transferred 75% of its shares in 8 Unitech Wireless companies to three subsidiary companies viz. Simpson Unitech Wireless Pvt. Limited, Cestos Unitech Wireless Pvt. Limited and Acorus Unitech Wireless Pvt. Limited at par value of ₹ 10 on 30.01.2009. whereas Telenor Asia Pte (Singapore based compa .....

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t Management (India) Pvt. Ltd by treating it as capital receipt, there is no clarity in the transaction. Assessee s reply in respect of waiver of loan amounting to ₹ 19.45 crores is distorted, complex and untenable. ix) Assessee had claimed a deduction u/s 80IB amounting to ₹ 2,95,92,000/- in the year under consideration. Vide this office letter dated 01.08.2001, the assessee was asked to furnish the completion certificate of the project, No. of unites owned by assessee company and N .....

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ng land the assessee had not filed the relevant information after repeated requests made by the AO. 9 The proposal for conducting special audit u/s 142(2A) of the Act was sent to the CIT, Delhi-IV on 5.12.2011. The CIT, Delhi-IV vide his order dated 8.12.2011 granted approval for getting the special audit done u/s 142(2A) of the Act. Vide directions u/s 142(2A) of the Act dated 8.12.2011, it was held that accounts of the appellant were complex and necessary orders were issued for audit of its ac .....

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han High Court in the case of CIT v Bajrang Textiles 205 CTR 97. It was submitted that no directions u/s 142(A) can be made on whims or caprice and, more particularly in absence of any complexity in the books of accounts of the appellant company. It was submitted that the reference made was without jurisdiction in view of the following reasons: a) That there was no complexity in the books of accounts of the assessee company; b) That order for special audit was made with a motive to make fishing .....

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. 10. It was contended that the above submission now also finds support from the audit report of learned Special Auditor. It was submitted that, all what has been done is to draw adverse legal inferences on the facts as stated by the assessee company and recorded in the books of accounts of the appellant company. The AO however did not find any merit in the above contentions raised by the appellant company. It has been held that complexity of books of accounts is to be decided by the AO and not .....

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9 (Del). It has also been held that order for special audit was not the final order and it was a step towards completion of the assessment proceedings. It has been further held as under: I have perused the objection of the assessee company and found no merits in same due to the following reasons: That the prescribed form on which report u/s 142(2A) of the Income Tax Act 1961 has to be furnished is only in Form 6B and no other format on which auditor is required to give his report as per Rule 14A .....

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has to obtain all information and explanation as are necessary for the purpose of audit and verify as to whether the said accounts reflects a true and fair view of the state of affairs of the assessee and reflects true and correct profits/loss of the company alongwith the particulars desired in Annexure to Form 6B and such other particulars as to Assessing Officer may desire in addition to the above. Hence the legislation has given vast power to the special auditor to examine all aspects having .....

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is referred to him while reporting in resonse to special audit on reference u/s 142(2A) of the I.T. Act, 1962. It has also been held in the case of Rajesh Kumar, Prop. Surya Trading vs. Dy. CIT (2005) 275 ITR 641 (Del) that the expression accounts of the assessee covers not only the books of account of the assessee but also other documents which are available in the course of an assessment and at any stage subsequent thereto, that may become available to the Assessing Officer. 11 On appeal, the .....

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order that the audit report was received on 4.6.2012 and the assessment has been completed with the time limit of 60 days on 1.8.2012 as provided u/s 153 read with Explanation 1. The assessee also fulfilled the conditions of para 2(VI) of Instruction No. 1076 for selecting the case for special audit as there were allegations of tax evasion as the AO has received information from the investigation wing that the assessee was involved in 2G scam vide the remand reports of the AO dated 18.4.2013 an .....

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cording to section 153(1) of the Act, limitation period for framing an assessment is 21 months from the end of the relevant assessment year and, since the instant assessment is for assessment year 2009-10, the limitation date u/s 153(1) of the Act expired on 31.12.2011. It was submitted that 23 days prior thereto i.e. 8.12.2011, the directions were given for special audit u/s 142(2A) of the Act. It was submitted that the directions for special audit without satisfying the statutory provisions in .....

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16.11.2011 was issued to the appellant whereby the learned AO asked the appellant to submit reply as to why the books of accounts should not be audited u/s 142(2A) of the Act and the appellant filed his detailed reply on 23.11.2011. It was further submitted that subsequently the learned AO sent proposal to CIT, Delhi-V for conduct of special audit which was approved on 8.12.2011 and on the same date special auditor was appointed to conduct audit of appellant s books of account. It was submitted .....

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mpany for the subject year have been duly audited by the statutory auditors after verification of the books of account and other relevant documents maintained by the Company; and e) perusal of the notice issued for special audit would show that there is no complexity in the accounts of the assessee. 13 The learned counsel in support of the above submission further submitted that in the instant year, percentage of expenses claimed is the lowest and the profit declared in the instant year is the h .....

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lant company for the impugned assessment year have been duly audited by the statutory auditors after verification of the books of account and other relevant documents maintained by the company and there is no adverse remark/finding of the statutory auditors with respect to the books of account of the company or transaction entered into by company. It was submitted that the appellant company is maintaining its books of accounts in the same manner year after year in the past years also the appella .....

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foresaid principles laid down by the Indian judiciary with respect to the conduct of special audit under section 142(2A), it is humbly submitted that an order under section 142(2A) cannot be passed arbitrarily merely because Assessing Officer finds some difficulty in understanding the accounts of a particular assessee. There has to be genuine and honest attempt on the part of the Assessing Officer to understand accounts maintained by the assessee and obtain necessary explanations from the assess .....

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ed by the statutory auditors of Appellant Company and there has been no adverse remark/inference from the statutory auditors in this regard. Further, as stated earlier, all the income/expenses reporter therein are normal income/expenses earned/incurred by any person carrying on similar business activities and thus, the accounts of Appellant Company cannot be said to be complex merely on account of such income/expense heads. Therefore, since there is no complexity in the accounts of Appellant Com .....

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reby extend the period of limitation and as such, notice is issued only for collateral purposes. 16.3 Finally the appellant would like to submit that said appointment of special auditor is mere pretence so as to circumvent the period of limitation, particularly after finding that, assessee has furnished all replies to your questionnaire and, directions and also produced books of accounts. In fact all what has happened is that, after having received and, examined all relevant information/evidence .....

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.4 It is thus submitted that, reference made was without jurisdiction in view of the following reasons. a) There was no "complexity" in the books of accounts of the appellant company. b) The appellant has not changed it's method of accounting and following the same method from many years. c) The order for special audit was made with a motive to make fishing and roving enquires and with an ulterior motive to extend the period of limitation. 16.5 The appellant also submits that the m .....

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ation and not wait for the report to count the period of limitation from the date of receipt thereof. 16.6 Accordingly, it is prayed that assessment may kindly be quashed/annulled in view of the above submission. 15 It was emphasized that order passed for special audit u/s 142(2A) of the Act (at page 436 of Paper book) is a cryptic and non speaking order and no specific instance of complexity with regard to books of accounts to be pointed out in the said order. It was submitted that replies and .....

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s under the following propositions: Proposition 1: Non speaking order u/s 142(2A) of the Act is an order vitiated in the eyes of law and thus, deserves to be quashed i) Hind Samachar Ltd. v ACIT 335 ITR 277 (P&H) ii) Prateek Resorts & Builders (P) Ltd. v ACIT 199 Taxman 140 (Mag) Proposition 2: Order passed without recording reasons is unsustainable, since recording of reason is meant to serve the under principle, that justice must not only be done but it must also appear to have been do .....

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n.com 400 iii) CIT v Subboji Rao Ch. 355 ITR 320 (Kar) Part - II; Others i) Marc Bathing Luxuries Ltd. v ITSC 364 ITR 64 (Del) Proposition 4: Approval u/s 142(2A) by CIT should reflect application of mind and should not be mechanical i) Kaka Carpets v ACIT 224 Taxman 335 (All) Proposition 5: Validity of an order u/s 142(2A) can be challenged before the Hon ble Tribunal and once such reference is found to be invalid than the order of assessment is barred by limitation i) Sahara India (Firm) vs. C .....

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258 ITR 317 (Del) iii) Sahara India (Firm) vs. CIT 300 ITR 403 (SC ) 16 The learned special counsel Shri Dilip Shivpuri for the revenue on the other hand contended that submissions of the appellant are not maintainable. It was contended that order u/s 142(2A) of the Act was not an appealable order and therefore any submission to the effect that order u/s 142(2A) is an invalid order in the instant proceedings is not tenable. The judgment of Hon'ble Supreme Court in the case of Rajesh Kumar an .....

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essee there are no reasons that the order u/s 142(2A) is incorrect. He also made reference to proposal sent by the AO to CIT seeking approval for special audit and approval by CIT along with reasons for according approval for special audit u/s 142(2A) of the Act. It was further submitted that the contention of the assessee that no opportunity of being heard was granted is also contrary to record as both AO and CIT had granted necessary and adequate opportunity during the assessment proceedings. .....

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and on this proposition the learned counsel relied on the judgments in the cases of Sahara India Firm v CIT 300 ITR 403 (SC), CIT v Vijay Kumar Rajendra Kumar & Co. 271 ITR 57 (MP) and Bajrang Textiles v DCIT 83 TTJ 566 (Jodhpur) duly affirmed in 294 ITR 561 (Raj). It was submitted that order passed for special audit u/s 142(2A) of the Act should be a speaking order specifying the reasons for special audit i.e. satisfaction of AO should by objective and not subjective. He placed reliance on .....

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before us. The issue raised and agitated in the grounds is that the order of assessment dated 1.8.2012 u/s 143(3) of the Act is barred by limitation. Chapter XIV deals with procedure for assessment. Under the said Chapter, section 153 provides for time limit for completion of assessment and reassessments. Sub-Section (1) of Section 153 of the Act provides as under: 153 (1) No order of assessment shall be made under section 143 r section 144 at any time after the expiry of a) two years from the .....

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) shall have effect as if for the words two years , the words twenty-one months had been substituted:] 19 From the reading of the aforesaid section it is noted that no order of assessment shall be made u/s 143(3) or section 144 at any time after the expiry of two years from the end of the assessment year in which the income was first assessable. However proviso to the said sub section mandates that in case the assessment year in which the income was first assessable is the assessment year commen .....

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ons contained in section 153(1) of the Act read with proviso to the said section. Accordingly, the limitation for framing an order of assessment under the aforesaid provison for the instant assessment year is 31.12.2011; whereas the instant assessment has been made on 1.8.2012. The learned counsel for the assessee contends that the limitation expired on 31.12.2011 and hence the impugned order of assessment is barred by limitation. On the other hand the learned counsel for the revenue opposes the .....

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sessee to get his accounts audited under sub-section (2A) of section 142 and ending with the last date on which the assessee is required to furnish a report of such audit under that sub section or Shall be excluded Provided that where immediately after the exclusion of the aforesaid time or period, the period of limitation referred to in sub-section (1), [(1A), (1B)] [(2)], (2A), and (4) available to the Assessing officer for making an order of assessment, reassessment or recomputation, as the c .....

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eport of such audit under that sub-section or shall be excluded. Further proviso provides that where immediately after the exclusion of the aforesaid time or period, the period of limitation referred to in sub sections (1), [(1A), (1B)] [(2)], (2A), and (4) available to the Assessing officer for making an order of assessment, is less than sixty days, such remaining period shall be extended to sixty days. The revenue has submitted that in the instant case it is a matter of record that on 9.12.201 .....

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0 days from 9.12.2011) i.e. to 6.6.2012. Accordingly the special audit report was submitted by the appellant vide letter dated 4.6.2012 u/s 142(2A) of the Act. According to the revenue in computing the period of limitation the period commencing from 9.12.2011 i.e. the date on which the Assessing officer directed under sub-section (2A) of section 142 and till 6.6.2012 i.e. ending with the last date on which the assessee is required to furnish a report of such audit under that sub-section had to b .....

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d counsel of the assessee on the other hand opposes the aforesaid submission by contending that directions u/s 142(2A) were without jurisdiction and therefore such directions could not be a ground to extend the period of limitation. 21 The preliminary submission of the revenue viz-a-viz the aforesaid prayer of the appellant is that there can be no challenge to the directions u/s 142(2A) of the Act in this appeal and as such contention of the appellant company is misconceived. 22 To appreciate th .....

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] Chief Commissioner or [Principal Commissioner of] Commissioner], direct the asessee to get the accounts audited by an accountant, as defined in the Explanation below sub-section (2) of section 288, nominated by the [Principal Chief Commissioner or] Chief Commissioner or [Principal 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 .....

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to the [Assessing] Officer within such period as may be specified by the [Assessing] Officer : Provided that the [Assessing] Officer may, [suo motu, or] 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 period originally fixed and the period or periods so extended shall not, in any case, exceed one hundred and eighty days from the date on .....

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recovery of arrears of tax :] [Provided that where any direction for audit under sub-section (2A) is issued by the Assessing Officer on or after the 1st day of June, 2007, the expenses of, and incidental to, such audit (including the remuneration of the Accountant) shall be determined by the 6[Principal Chief Commissioner or] Chief Commissioner or 6[Principal Commissioner or] Commissioner in accordance with such guidelines as may be prescribed8 and the expenses so determined shall be paid by th .....

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that case the matter was placed before Bench in view of a common order dated 14.12.2006 passed by a two judges Bench to examine whether it is necessary to afford an opportunity of hearing to an assessee before ordering special audit in terms of section 142(2A) of the Act in view of the earlier judgment of Hon'ble Supreme Court in the case of Rajesh Kumar and Ors. vs. DCIT (supra). Their Lordships noted that in the case of Rajesh Kumar and Ors. vs. DCIT it has been held that principles of nat .....

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ensue if the principles of natural justice are required to be complied with, the same by itself would not mean that the court would not insist on complying with the fundamental principles of law. If the principles of natural justice are to be excluded, the Parliament could have said so expressly."[Underlined by us) 24 Having regard to the above, Their Lordships interpreted section 142(2A) of the Act to conclude that the twin conditions of nature and complexity of the accounts and the intere .....

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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 . It was further held that 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 AO to understand accounts maintained by .....

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ck to the special auditor. In regard to the approval of CIT it was held that such an approval is an inbuilt protection and is not an empty ritual. It was thus observed before granting approval the Chief Commissioner or the Commissioner, as the case may be, must have before him the material on the basis whereof an opinion in this behalf has been formed by the AO and the approval must reflect the application of mind to the facts of the case. Thereafter the question whether the principles of natura .....

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tion 142(2A) of the Act leads to serious civil consequences and, therefore, even in the absence of express provision for affording an opportunity of pre-decisional hearing to an assessee and in the absence of any express provision in section 142(2A) barring the giving of reasonable opportunity to an assessee, the requirement of observance of principles of natural justice is to be read into the said provision. Accordingly, we reiterate the view expressed in Rajesh Kumar s case (supra). 25. It is .....

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se notice was issued to the assessee and thus the same did not satisfy the principle of audi alteram partem. Concluding the above discussion, it was held as under: 28. The next crucial question is that keeping in view the fact that the time to frame fresh assessment for the relevant assessment year by ignoring the extended period of limitation in terms of Explanation 1( iii) to sub-section (3) of section 153 of the Act is already over, what appropriate order should be passed. As noted above, the .....

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another two-Judge Bench of this Court had expressed reservation about its correctness. Having regard to all these peculiar circumstances and the fact that on 14-12-2006, this Court had declined to stay the assessment proceedings, we are of the opinion that this Court should be loathe to quash the impugned orders. Accordingly, we hold that the law on the subject, clarified by us, will apply prospectively and it will not be open to the appellants to urge before the Appellate Authority that the ext .....

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leaving the parties to bear their own costs. 26 A reading of the aforesaid makes it apparent that Their Lordships agreed with the submission of the learned Additional Solicitor General that interpretation be given prospective effect as otherwise the interest of revenue will be greatly prejudiced because the time to frame fresh assessment for the relevant assessment year by ignoring the extended period of limitation in terms of Explanation 1(iii) to sub-section (3) of section 153 of the Act was .....

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t report submitted under sub-section (2A) of section 142 of the Act. 27 In other words it is quite apparent that the challenge to the validity of the orders u/s 142(2A) of the Act is maintainable before the appellate authority and it is opened to the appellant to urge before any appellate authority that the extended period of limitation is not maintainable because of an invalid order u/s 142(2A) of the Act. The above view finds support also from the judgment of Hon ble Karnataka High Court in th .....

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ences, as a result of an order under Section1 42(2A) of the Act and the same is prejudicial to him and therefore the principles of natural justice must be held to be implicit in the provisions of Section 142(2A) of the Act and an opportunity of hearing has to be given before issuing a direction under Section 142(2A) of the Act. When the matter was referred to a larger Bench of the Supreme Court, the larger Bench upheld the aforesaid judgment in Rajesh Kumar's case. However, in the meanwhile, .....

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y, in the instant case, the assessee was not heard before the order passed under Section 142(2A) of the Act. As rightly held by the Tribunal that, such a procedure was resorted to extend the period of limitation. Therefore viewed from any angle, the assessment order passed is void as being barred by limitation and the, Tribunal was justified in setting aside the order of the Appellate Authority .[underlined by us] 28 Further even in the case of CIT v Vijay Kumar Rajendra Kumar and Co. (MP) (supr .....

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ssment within the period of limitation but hereto it was neither challenged nor disputed that validly of directions cannot be challenged before the appellate authority so as to contend the assessment order is barred by limitation. 29 Similar view was expressed by Jodhpur Bench in the case of Bajrang Textiles v DCIT (supra). It was concluded in the said decision that accounts were not complex as required u/s 142(2A) of the Act and reference has been made with a sole motive to enhance the limit fo .....

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A) of the Income-tax Act in the circumstances was not for the purpose for which the provision was enacted but merely for getting the extended period for completing assessment, which is not permissible under law. On the basis of this finding, the reference to the special audit was held to be illegal and consequently, the assessment order was held to be barred by time. There is no dispute about it that if the period reckoned for special audit which was directed to be conducted a day before the exp .....

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irected the special auditor to prepare the books of account in the form of cash book, ledger, on the basis of documents/papers seized during the course of search as per his directions. The auditor was also required to prepare trading, profit and loss account, which were recorded in the regular books of account and further to determine the undisclosed income of the block period. Apparently the order was for preparing fresh books rather than to conduct a special audit. This was on the face of it b .....

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ficer. The findings given by the Tribunal are findings of fact based upon the relevant material. 30 Having regard to the above discussion we have no doubt in our mind that the contention raised by the appellant is maintainable in this appeal. In otherwords, the appellants are entitled to urge, argue and plead that order of assessment is barred by limitation on the ground that direction u/s 142(2A) of the Act were invalid and not legally sustainable. 31 Having held so, we now examine the validity .....

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complexity of your accounts and interest of the revenue and being of the opinion, it is necessary so to do I hereby direct you to get your accounts audited u/s 142(2A) of the Income Tax Act 1961 for f.Y. 2008-09 pertaining to A.y. 2009-10 by M/s Dass Gupta and Associates, B-4, Gulmohar Park, New Delhi and to furnish a report on such audit in the prescribed performa duly signed and verified by the CA. The audit report u/s 142(2A) should be furnished by you to the undersigned within a period of 12 .....

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ce attached herewith. Yours faithfully (Addl. Commissioner of Income Tax Range-18, New Delhi 32 It is not denied and disputed that the aforesaid directions is the only document communicated to the assessee u/s 142(2A) of the Act. According to the appellant the aforesaid direction is an order without recording reasons and therefore is a non speaking order u/s 142(2A) of the Act vitiated in the eyes of law and thus, deserves to be quashed. 33 The Hon ble Punjab and Haryana High court in the case o .....

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that once reasons are conspicuous by their absence in the impugned order u/s 142(2A) of the Act, the same does not meet the requirements of law. In the said case, the Hon ble Court held that subsequent production of file containing a letter written to the Commissioner giving reasons for necessity of special audit and defect in the accounts found during the course of special audit for the preceding assessment years 2003-04 to 2006-07 does not mitigate the requirement of speaking order u/s 142(2A) .....

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d when order reflects so by recording the reasoning. 7. The order is subject to scrutiny under Articles 136 and 226 of the Constitution. The order as such must be a speaking order, and the decision given must be supported by reasons, so that the superior Court is assured that it is in accordance with law and is not a result of caprice, whim, fancy, or reached on the basis of policy or expediency. Absence of reasons vitiates the conclusions. (See Mahabir Prasad Santosh Kumar v. State of U.P. AIR .....

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Court deprecated the practice of one word order of the type "rejected" or "dismissed". Similarly, in case of Dhondi Ba Gundu Proma Je v. State of MaharashtraAIR 1976 SC 1151, the High Court had dismissed a criminal appeal summarily under section 421 of the Code of Criminal Procedure by one word order "dismissed", it was held that some reasons should have been given by the High Court why no arguable case was made out on a perusal of the record. There is a vital diffe .....

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the officer concerned on the basis of the material available on record and in the absence of reasons in the order for the direction as contemplated under section 142(2)(a), the order vitiates in law and is not sustainable. [underlined by us] 35 The Hon ble Punjab and Haryana High Court in the case of Bal Kishan Dhawan (HUF) vs. UOI (supra) dealing with requirements of passing a reasoned order has relied upon the judgment of Hon ble Supreme Court in the case of Kranti Associates (P) Ltd. vs. Mas .....

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of reasons also operates as a valid restraint on any possible arbitrary exercise of judicial and quasi-judicial or even administrative power. e. Reasons reassure that discretion has been exercised by the decision maker on relevant grounds and by disregarding extraneous considerations. f. Reasons have virtually become as indispensable a component of a decision making process as observing principles of natural justice by judicial, quasi-judicial and even by administrative bodies. g. Reasons facil .....

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purpose which is to demonstrate by reason that the relevant factors have been objectively considered. This is important for sustaining the litigants' faith in the justice delivery system. j. Insistence on reason is a requirement for both judicial accountability and transparency. k. If a Judge or a quasi-judicial authority is not candid enough about his/her decision making process then it is impossible to know whether the person deciding is faithful to the doctrine of precedent or to princip .....

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ndor (1987) 100 Harward Law Review 731-737). n. Since the requirement to record reasons emanates from the broad doctrine of fairness in decision making, the said requirement is now virtually a component of human rights and was considered part of Strasbourg Jurisprudence. See (1994) 19 EHRR 553, at 562 para 29 and Anya vs. University of Oxford, 2001 EWCA Civ 405, wherein the Court referred to Article 6 of European Convention of Human Rights which requires, "adequate and intelligent reasons m .....

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ity of assessee s accounts and interest of the revenue, the AO was of the opinion that accounts are to be audited u/s 142(2A) of the Act. The order is silent as to on what basis and on what grounds, the accounts proposed to audit under section 142(2A) were considered complex and on what considerations it was arrived that it is in the interest of revenue to direct audit of accounts. Mere reference to a prior approval of CIT does not satisfy the precondition of a speaking order containing reasons .....

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ear and succinct reasons order u/s 142(2A) of the Act is held to be bad in law and without proper jurisdiction. 38 Also, even the approval u/s 142(2A) by learned CIT should reflect application of mind and should not be mechanical as held by the judgment of Hon ble Supreme Court in the case of Sahara India (Firm) vs. CIT (supra). The Hon ble Allahabad High Court in the case of Kaka Carpets v ACIT (supra) following the above judgment has held as under: 26. In view of the above discussion, the plea .....

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the Act after considering the objections of the assessee and affording a reasonable opportunity of being heard, in terms of Section 142 (2A) of the Act. It is only after the A.O. reaches to a fair conclusion after considering the reply given by the petitioner, and affording an opportunity of hearing, the CIT as approving authority will consider whether the special audit is required to be carried out for the purposes of understanding the accounts maintained by the assessee. The opinion must be fo .....

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, which was mandatory in terms of proviso to sub-section (1) of section 151 of the Act as the action under section 147 was being initiated after the expiry of four years from the end of the relevant assessment year. As highlighted above, the Legislature has provided certain safeguards to prevent arbitrary exercise of powers by an Assessing Officer, particularly after a lapse of substantial time from completion of assessment. The power vested in the Commissioner to grant or not to grant approval .....

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return was filed by the appellant company on 29.9.2009 declaring an income of ₹ 922.30 crores. Subsequent to the said return of income notice was issued on 23.8.2010 u/s 143(2) selecting the case for scrutiny. A reply enclosing the audited financial statements and other documents including tax audit report was furnished on 14.9.2010. Thereafter notices u/s 142(1)/143(2) dated 18.10.2010 along with questionnaire was served on the appellant company. Also, another questionnaire dated 3.11.20 .....

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see after seeking an adjournment on 4.5.2011 furnished another reply dated 16.5.2011. . At this stage it is noted that there was change in incumbent occupying the position of Addl. CIT, Range -18, New Delhi. A questionnaire was issued on 24.6.2011 and a reply thereto was furnished on 29.6.2011 by appellant company. Subsequently another questionnaire dated 1.8.2011 was issued and incompliance thereto reply was furnished on 9.8.2011 by the appellant company. Further questionnaires dated 23.8.2011, .....

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perly numbered therefore the appellant was directed to produce all books of accounts with original voucher on 28.10.2011. The assessee in compliance produced books of accounts on 28.10.2011 which were impounded by the AO. It is noticed thereafter on 31.10.2011 the appellant company furnished further information in the course of assessment proceedings. Later, replies dated 1.11.2011, 2.11.2011, 4.11.2011 were furnished by the appellant company. Another questionnaire dated 8.11.2011 was again issu .....

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rvations cannot be a ground to allege complexity in books of accounts of the appellant company. It was stated that appellant company has been regularly furnishing its returns of income and, has been assessed to tax u/s 143(3) of the Act, where identical manner of maintenance of accounts and method of accounting has been accepted and since there is no change in the manner of maintenance of accounts and method of accounting, there is no justification to resort to section 142(2A) of the Act. It was .....

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of abdication of responsibility. It was submitted that in the notice there is no specific allegation which either alleges or establish that there is complexity in books of accounts of the appellant company. A reference was drawn to the reply dated 16.11.2011 wherein the assessee had pointed out that books of accounts were already examined and verified and during the course of discussion either no explanation was sought or any adverse comments were made, since there was no complexity noted in th .....

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ny. Subsequently the appellant furnished a letter dated 5.12.2011 to the learned CIT praying that an opportunity may be granted to the assessee company by confronting the basis on which directions for special audit are proposed to be issued so as to enable the assessee company to furnish its reply and grant a personal hearing. It appears that no further communication or any notice was issued to the appellant company other than a hearing by the CIT on 8.12.2011 disposing of the objection raised b .....

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ce which itself suggest that, your goodself is able to determine the income of the assessee company. However just to overcome the period of limitation, a directioin is being issued for special audit u/s 142(2A) of the Act. It may be also relevant to state here that, each of the additions/disallowances proposed in the notice are otherwise too based on factual misconception and, misconstruction of statutory provision of law and thus, untenable. In any case, the submission is short that, there is n .....

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ny had appeared and got the entries in the books of accounts verified. The details of such entries in the books of accounts, as verified by you in the course of assessment proceedings have been separately stated as Annexure C to this Reply. Infact, it may be stated here that, one of the ledger account examined was of M/s CIG Unitech Properties (P) Ltd.. A copy of the ledger account is enclosed as Annexure D to this Reply. It is submitted that, a reading of the same will show that, it is clear an .....

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ntained in the computer and also from the vouchers of the assessee company. Accordingly, from the books of accounts, the bank account from which the the payment was either made or received was noted and, thereafter reconciled with the ledger and, the bank statements. No discrepancy was either then found on this ground or has now been stated in the notice. It is thus submitted that, your observation that, not even single entry could be cross checked is factually incorrect and, contrary to materia .....

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at, ledger accounts are maintained with no narration of entries is erroneous and is attempt to merely make arbitrary observations which, are contrary to record, so as to issue direction on willy-nilly basis u/s 142(2A) of the Act. Madam, you may please confront the assessee, the specific ledger accounts where either there is no narration and, details of which cannot be verified in ordinary manner. It may be stated here that, you may kind confront the assessee as to what you mean by ordinary mann .....

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have been made for simply extending the period of limitation. It is submitted that, you may kindly let the assessee know, which of the ledger accounts have been allegedly manufactured or fabricated. Mere general and vague observations are neither here and nor there. The number of bank account are the same in the earlier years and therefore the mere volume of bank accounts and alleged difficulty in verification of such bank accounts cannot be a basis to invoke the section 142(2A) of the Act It h .....

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shed vide reply dated 18.10.2011 are comprehensive detail giving complete particular as to the name of company, no. of shares, opening and, closing balance, purchase price, sale price, profit/loss thereon, Thus all necessary details as recorded in investment registers has already been furnished and on which there is no adverse observation. Infact in the entire show cause notice not a word has been stated in respect of detail, so maintained and furnished and yet adverse inference has been drawn f .....

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assessee is a public limited company having a turnover of ₹ 1837.08 crores, which has declared income of ₹ 956.44 crores and paid tax of ₹ 214.47 crores. The details of income declared and tax paid in the precedings five years is also tabulated hereunder: Amount (In Rupees Crores) S.No Assessment Year Turnover Declared Income (before Tax) Tax Paid Assessed Under section 1. 2008-09 2,802.28 1,365.50 327.31 143(3) 2. 2007-08 2,443.97 1,344.83 376.32 143(3) 3. 2006-07 674.75 108. .....

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hi to CIT-VI, New Delhi. This reference has not been confronted to the appellant before the issue of the order u/s 142(2A) of the Act. Also none of the reasons as stated therein form part of the directions dated 9.12.2011 u/s 142(2A) of the Act and thus the said reasons cannot be now read into the order dated 9.12.2011 which as held above do not certain any reasons for issue of directions for special audit u/s 142(2A) of the Act. 42 The revenue has also placed on record approval dated 8.12.2011 .....

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ny by confronting the basis on which directions for special audits are proposed to be issued, so as to enable the assessee company to furnish its reply and grant personal hearing. Since, the AO has already issued show cause notice in this respect to the assessee, it was not necessary to disclose the same to the assessee again. However personal hearing was granted, Shri Gautam Jain and Shri Ajay Rastogi, CAs appeared on behalf of the assessee on 8.12.2011. they were heard. 43 From the above it is .....

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rthermore, the judgments relied upon by the revenue also do not lead us to take different view of the matter The first judgment relied upon is the case of Rajesh Kumar and Ors v CIT (supra). In this case the Hon ble Court has held in para 34 that the order of assessment can be subject matter of an appeal; and not, a direction issued u/s 142(2A) of the Act. In this appeal there is no challenge to the directions u/s 142(2A) of the Act. The challenge is that order of assessment is barred by limitat .....

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