TMI Blog2016 (9) TMI 558X X X X Extracts X X X X X X X X Extracts X X X X ..... umber of years. This, in our opinion, was simply impermissible. We are doubtful whether while processing the return of an assessee for a particular year, in exercise of powers under section 142(2A) of the Act, the Assessing Officer can call for special audit of a financial year other than one which is relevant to the assessment year in question. In any case, no such direction could have been issued without any proposal in the show cause notice. We may recall the only proposal in the show cause notice was that the Assessing Officer upon failure of the assessee to satisfy him otherwise, would call for special audit for the financial year 2012-13. There was no further proposal that he may expand the scope of special audit for any other years as well. His recording of background facts of multiple transactions in earlier years, must be seen as demonstrating the nature of complexity in accounts and without there being any specific proposal in this respect, cannot be read as giving a reasonable opportunity to the petitioner to oppose why special audit for other years should not be called for. Same logic would apply in respect of the direction for special audit in case of other enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer noted as under: 4. It is seen that at the time of formation, or at a later date some of the partners brought land into the firms as their capital contribution. Before conversion to companies, the firms got the lands available in the books revalued and the amounts were credited in the current capital accounts of the partners. Consequent to amalgamation, the company has issued 6,00,000 equity shares at a fare price of ₹ 10/and a premium of ₹ 390/per share against the unsecured balances of ₹ 24 crore, treating the same as share application money and share premium. The fair market value of shares has been arrived by the company on 'Discounted Cash Flow' (DCF) method. The basis for free cash flow to equity is randomly taken by the company. 5. Conversion of 5 firms into companies, after revaluation of lands, merger of 5 companies with Takshashila Gruh Nirman Pvt. Ltd. Later with issue of equity shares against the balances of revaluation credits at a premium. Valuation of shares as Discounted Cash Flow method by estimating cash flows and adopting a random discounted rate for valuation. There is complex web of transactions in the group of fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions in support of such contentions. 5. This principle show cause notice and the petitioner's replies to the same were followed by further communications between the two sides. Eventually, by the order dated 31.03.2016, the Assessing Officer directed as under: 2. In connection with ongoing assessment proceedings in the case of the company, M/s. Takshashila Gruh Nirman Pvt. Ltd. (now known as Takshashila Realties Pvt. Ltd.) for A.Y. 2013-14, the Principal Commissioner of Income tax Ahmedabad4, Ahmedabad vide his letter No.Pr.CIT4/HQ/142(2A)/201516/ 4600 dated 30.03.2016 has approved Special Audit u/s. 142(2A) of the Act of accounts of following concerns. 1. Takshashila Gruh Nirman Pvt. Ltd. for the AYs. 2013-14 and 2010-11 2. Firms[Chanakya Infrastructure, Chanakya Buildcon, Takshashila Gruh Nirman and Youngstar Infrastructure (Naroda)] for AY 2009-10 and 3. Companies [Chanakya Infacon Pvt Ltd, Chanakya Buildcon Pvt. Ltd., Takshashila Properties Pvt. Ltd. and Youngstar Infracon Pvt. Ltd.] for AYs 2009-10 and 2010-11 For this purpose, the Principal Commissioner of Income tax Ahmedabad4, has appointed M/s P.K Ajmera Co., Chartered Accountant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issions, we may refer to the decision of the Supreme Court in case of Rajesh Kumar and others v. Deputy Commissioner of Income-Tax and others reported in [2006] 278 ITR 91 (SC) cited by the counsel for the petitioner. In such decision, the Supreme Court held that direction issued under section 142(2A) of the Act for special audit is not administrative in nature, but is in exercise of quasijudicial powers. Any order which is likely to result in adverse civil consequences, must be proceeded by a show cause notice and a reasonable opportunity to the person likely to be so affected. It was further observed that the expression having regard to in section 142(2A) of the Act would indicate that the factor enumerated in the said section are not exhaustive. The Court held that such powers cannot be lightly exercised and the satisfaction of the authority should not be a subjective satisfaction, it should be based on objective assessment regard being had to the nature of accounts. 9. We may notice that this judgment was rendered when the provisions concerning special audit did not specifically provide for hearing the assessee before passing such an order. By insertion of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer passed the impugned order. In such order, however, he provided for special auditor, not only concerning financial year 2012-13 of the assessee, but also for the financial year 2009-10 and significantly also called for special audit of various other firms and companies, which ultimately, as noted above, amalgamated into a single company. 12. Insofar as the direction for auditing the company's account for the assessment year 2012-13, we see the same is backed by proper materials on record and reasons recorded by the Assessing Officer. Even during the course of the assessment, multiple queries had exchanged between the Assessing Officer and the assessee concerning the accounts of the assessee. It was eventually that the Assessing Officer was prompted to issue notice dated 08.03.2016. His formation of the belief that looking to the complexity and volume of the accounts, a special audit was called for, therefore, cannot be faulted. 13. The matter however does not rest here. In the impugned order, he expanded the scope of special audit and directed the special audit not only for the financial year 2009-10 in case of the assessee, but also called for special a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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