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2016 (9) TMI 558 - GUJARAT HIGH COURT

2016 (9) TMI 558 - GUJARAT HIGH COURT - TMI - Special audit - SCN for why for the financial year 2012-13, relevant to assessment year 2013-14 accounts of the petitioner not be audited by an accountant as defined under section 288(2) of the Act - Held that:- 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, mult .....

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ly for the financial year 2009-10 in case of the assessee, but also called for special audit of various other entities for number 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 .....

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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 entities. Here also, admittedly there was no proposal in the show cause notice. If the case of the Revenue is that, such entities having merged, it is the petitioner alone wh .....

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TION NO. 6810 of 2016 - Dated:- 6-9-2016 - MR. AKIL KURESHI AND MR. A.J. SHASTRI FOR THE PETITONER : MR MANISH J SHAH, ADVOCATE FOR THE RESPONDENT : MR NITIN K MEHTA, ADVOCATE ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. Petitioner, a private limited company, has challenged an order dated 31.03.2016 passed by the Deputy Commissioner of Incometax, petitioner's Assessing Officer. 2. For the assessment year 201314, the petitioner filed the return of income on 28.09.2013. The Asse .....

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12, under which, five companies viz. Chanakya Buildcon Pvt. Ltd., Chanakya Infracon Pvt. Ltd., Takshashila Properties Pvt. Ltd., Takshashila Realities Limited and Youngstar Infracon Pvt. Ltd., were amalgamated with the Takshashila Gruh Nirman Pvt. Ltd. It was noticed that these five companies were initially the partnership firms already doing the business of real estate and construction which were later on converted into companies. It was noticed that the project in relation to which deduction u .....

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t 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 f .....

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ent accounts of all partners, conversion of firms in to companies which merged with the existing company, valuation of share by discounted cash flow method and allotment of shares against the amounts outstanding as unsecured loans at unreasonable premium, clubbed with multiple revaluation or properties over the years starting from 2008 to 2013 in various entities involves application of provisions of the Companies Act, application of Accounting Standards and examination of provisions of capital .....

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ns and accounting of stockintrade at each stage of transfer so that there is no loss to the revenue out of the complex web of transactions involved. 3. Based on these facts, in the said notice, the Assessing Officer called upon the petitioner to show cause why for the financial year 2012-13, relevant to assessment year 2013-14 accounts of the petitioner not be audited by an accountant as defined under section 288(2) of the Act. 4. In response to such notice, the petitioner replied under letter d .....

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o, while passing the proposal for special audit, the petitioner contended that various transactions took place between the years 2008 to 2013 and that in any case, looking to the transactions, provisions of section 142(2A) could not be invoked. The petitioner relied on various 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 .....

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013-14 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 Accountants, Ahmedabad on the panel of the department in this .....

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ounts for all the financial years relevant to the above assessment years, to facilitate the work of special audit. The audit report prepared by the auditor should be as per Rule 14A and in the prescribed form No. 6B. In addition to same, the special audit should also consider the following … 6. The Assessing Officer raised several issues, on which, the special auditor would look into. It is this order the petitioner has challenged in the present petition. The counsel for the petitioner ra .....

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at in any case, the Assessing Officer could not have called for special audit for the other years in case of the assessee beyond the financial year 2012-13 and of other entities. 7. On the other hand, learned advocate Shri Nitin Mehta for the department opposed the petition contending that looking to the complex web of partnerships being converted into companies being ultimately amalgamated into one company, there was a need for special audit. The Assessing Officer after having given an opportun .....

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(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 th .....

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tion of the proviso to subsection (2A) of section 142 with effect from 01.06.2007, it is now recognized 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. Thus, the requirement of hearing is now statutorily included in subsection (2A) of section 142 of the Act. One more statutory change which needs to be noted is that prior to insertion of the proviso to section 142(2D) also with effe .....

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to call for a special audit in case of the petitioner for the financial year 2012-13. These reasons included, inter alia, the grounds that several partnership firms engaged in the business of construction and development of projects were from stage to stage converted into private limited companies. Five such private limited companies merged through amalgamation into one single company which was approved by the High Court. The projects concerning which deduction under section 80IB of the Act was .....

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ve the application of the provisions of the Companies Act and the accounting standards provided therein. He was therefore of the opinion that having regard to the nature and complexity of the accounts, volume of accounts etc, it was necessary to get the accounts audited by the special auditor. 11. It was on the basis of such reasons, after hearing the petitioner and considering the objections that the Assessing Officer passed the impugned order. In such order, however, he provided for special au .....

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ssment, 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 au .....

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