TMI Blog2017 (4) TMI 360X X X X Extracts X X X X X X X X Extracts X X X X ..... complex issues relating to introduction of land by the partners into the firms; revaluation of land; credit of partners in capital account equal to revalued amount of land; conversion of capital account to loan account of shareholders and issues relating to issuance of equity shares against the balances of revaluation credits at an unreasonable premium, and after having been satisfied that considering the specialized nature of business activities of the assessee, the Assessing Officer has passed an order of special audit in exercise of powers under Section 142 [2A] of the Act. Considering the scope and ambit of Section 142 [2A] of the Act, it cannot be said that in the facts and circumstances of the case, the respondent has committed any error and/or any illegality while passing the order under Section 142 [2A] of the Act. Under the circumstances, the present writ petitions deserve to be dismissed and are accordingly dismissed. - SPECIAL CIVIL APPLICATION No. 2920 of 2017 With SPECIAL CIVIL APPLICATION No. 4201 of 2017 With SPECIAL CIVIL APPLICATION No. 4202 of 2017 With SPECIAL CIVIL APPLICATION No. 4265 of 2017 To SPECIAL CIVIL APPLICATION No. 4266 of 2017 - - - Dated:- 27-3- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 22nd March 2011 passed by the High Court of Gujarat in Company Application No. 263 of 2011, five companies viz ., M/s. Chanakya Buildcon Private Limited; M/s. Chanakya Infracon Private Limited; M/s. Takshashila Properties Private Limited; M/s. Takshashila Realities Limited and M/s. Youngstar Infracon Private Limited came to be amalgamated with Takshashila Gruh Nirman Private Limited. Messrs. Takshashila Gruh Nirman Private Limited is subsequently named as M/s. Takshashila Realities Limited. It appears that in case of transferee companies viz ., M/s. Takshashila Gruh Nirman Private Limited; M/s. Chanakya Buildcon Private Limited; M/s. Chanakya Infracon Private Limited and M/s. Youngstar Infrastructure Private Limited, reassessment proceedings came to be initiated for A.Y 2010-2011. Notices under Section 148 of the Act came to be issued and served upon the respective assessees. The aforesaid transferee companies-original assessees preferred Special Civil Applications No. 13971 of 2016; 14018 of 2016; 14071 of 2016 and 14794 of 2016 before this Court challenging Notices under Section 148 of the Act and the reassessment proceedings. That, by a detailed judgment and order dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer. That thereafter, the Assessing Officer sent a proposal to the Principal Commissioner of Income-tax, Ahmedabad IV for its approval. That the said Principal Commissioner of Income-tax granted his approval and appointed respondent no. 3 as a Special Auditor. Thereafter, by two communications, the petitioner has been called upon to get the accounts audited for A.Y 2010-2011, as the successor of viz ., M/s. Chanakya Infracon Private Limited; M/s. Youngstar Infracon Private Limited; M/s. Chanakya Buildcon Private Limited and M/s. Takshashila Properties Private Limited by the Special Auditor. 6. Feeling aggrieved and dissatisfied by the impugned order passed by the respondent no. 1- Assessing Officer passed under Section 142 [2A] of the Act, the assessee has preferred by the present Special Civil Applications. 7. Heard Shri JP Shah, learned senior advocate appearing with Mr. Manish J Shah, learned advocate for the petitioner and learned advocate Mr. Nitin Mehta for the respondent-Revenue. 8. Shri JP Shah, learned counsel for the petitioner has vehemently submitted that the impugned order passed in exercise of power under Section 142 [2A] of the Act appointing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd to the nature and complexity of the accounts, .. . may pass an order for special audit. It is submitted that in view of the aforesaid language of the Section, the Assessing Officer cannot direct special audit under Section 142 [2A] before calling for the accounts from the petitioner in the assessment proceedings. 8.2 It is further submitted that even otherwise, the Assessing Officer cannot form an opinion without calling for the record and before examining the accounts that the accounts are complex and correctness thereof is doubtful, and thus, interest of the Revenue is compromised, if special audit is not called for. It is submitted that therefore, before calling for the accounts from the petitioner in the assessment proceedings, the Assessing Officer without even doubting correctness of the accounts could not have passed an order for special audit under Section 142 [2A] of the Act. In support of his above submissions, Shri JP Shah, learned counsel for the petitioner has relied upon the following decisions viz ., [i] Delhi Development Authority Anr. v. Union of India Anr., [2013] 350 ITR 432 [Delhi]; [ii] Peerless General Finance Investment Co. Ltd. v. Dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t petitions. 9. All these petitions are vehemently opposed by Shri Nitin Mehta, learned counsel appearing on behalf of the Revenue. 10. An affidavit-in-reply is filed on behalf of the Assessing Officer in each of the petition. 11. Shri Nitin Mehta, learned counsel for the Revenue has vehemently submitted that in the facts and circumstances of the case, more particularly for the reasons stated in the show cause notice and being satisfied that a case is made out for special audit under Section 142 [2A] of the Act and only thereafter, the Assessing Officer has passed the impugned orders of special audit under Section 142 [2A] of the Act and that too after getting the approval from the respondent no. 2 herein ie. , Principal Commissioner of Income-tax, Ahmedabad IV. 11.1 It is further submitted by Shri Nitin Mehta, learned counsel for the Revenue that the impugned order for special audit under Section 142 [2A] of the Act is absolutely in consonance with the provisions of Section 142 [2A] of the Act. It is submitted that at the time when the notice was issued by the Assessing Officer calling upon the assessee to show cause why the accounts for A.Y 2010-2011 may not be g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee are required to be audited by special auditor in the interest of the Revenue. 11.4 It is further submitted that there was conversion of four firms viz ., [i] Chanakya Infrastructure; [ii] Chanakya Buildcon; [iii] Takshshila Gruh Nirman; [iv] Yongstar Infrastructure into the four companies ie ., Chanakya Infracon Private Limited; Chanakya Buildcon Private Limited; Youngstar Infracon Private Limited and Takshishila Properties Private Limited and later merger of one more company Takshshila Realities Private Limited with four above mentioned companies into the Transferee company ie. , Takshshila Gruh Nirman Private Limited. The order of five companies merging into Takshshila Realities Private Limited was passed on 10th May 2012 by the High Court of Gujarat in Financial Year 2012-2013, relevant to Assessment Year 2013- 2014. There is a complex web of transactions in the group of firms and the conversion of firms into companies and their amalgamation/merger thereafter. The issues relate to introduction of land by partners into the firms, revaluation of land, credit of partners capital account equal to the revalued amount of land, conversion of capital account to lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue , the Assessing Officer may pass an order under Section 142 [2A] of the Act. It is submitted that with respect to specialized nature of business activities of the assessee, there need not be any books of account before the Assessing Officer at the stage of passing of the order under Section 142 [2A] of the Act. 12.1 Making the above submissions and relying upon recent decision of Division Bench of this Court in the case of Ulhas Securities Private Limited v. Deputy Commissioner of Income-Tax [Special Civil Application No. 1266 of 2017] in which the Division Bench of this Court has considered the amended Section 142 [2A] of the Act, it is requested to dismiss the present petitions. 13. In reply to the above, Shri JP Shah, learned counsel for the petitioner has submitted that the decision of Division Bench of this Court in case of Ulhas Securities Private Limited [Supra] shall not be applicable to the facts of the case on hand. It is submitted that in the case before the Division Bench, it was a case wherein requisitioned material comprising 40,000 papers in 42 gunny bags were collected during the search and seizure operation which were required to be verified and sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Principal Commissioner of Income-tax, direct the assessee to get the accounts audited by an accountant [Special Auditor]. As per the proviso to Section 142 [2A] of the Act, before passing an order of Special Audit and prior to directing the assessee to get the accounts so audited, the Assessing Officer is required to give a reasonable opportunity of being heard to the assessee. 16. In the present case, before passing the impugned Orders under Section 142 [2A] of the Act, opportunity of being heard has been duly given to the assessee and show cause notices were issued and served upon the petitioner calling upon the petitioner to show cause why, for the reasons stated in the said notice, the books of account may not be subject to audit by a special auditor. It is required to be noted that in the show cause notice, reasons were specifically mentioned pointing out the necessity to get accounts audited by the Special Auditor. That thereafter, the petitionerassessee raised objections in detail, which have been disposed of by the Assessing Officer by speaking order and only thereafter, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment proceedings and without doubting the accounts and/or considering the complexity in the accounts is concerned, it is required to be noted that as per amended Section 142 [2A] of the Act, apart from the nature and complexity of the accounts, etc., even in case of multiplicity of transactions in the accounts or specialized nature of business activity of the assessee and the interests of the Revenue, the Assessing Officer can pass an order for special audit in exercise of powers conferred under Section 142 [2A] of the Act. Therefore, while forming an opinion to get the accounts audited by special auditor; considering the specialized nature of business activities of the assessee, there need not be any books of account before the Assessing Officer. In the present case, having found that there are complex issues relating to introduction of land by the partners into the firms; revaluation of land; credit of partners in capital account equal to revalued amount of land; conversion of capital account to loan account of shareholders and issues relating to issuance of equity shares against the balances of revaluation credits at an unreasonable premium, and after having been satisfie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mounts were credited in the current capital accounts of the partners. Consequent to amalgamation, the Company has issued and allotted 6,00,000 equity shares at a fair price of ₹ 10/- and a premium ₹ 390/- per share against the unsecured balances of ₹ 24 Crores, 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. Conversation of 5 firms into companies, after revaluation of lands, merger of 5 companies with Takshshila 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 firms namely introduction of land by some of the partners, revaluation of lands and crediting of amounts in the current accounts of all partners, conversion of firms in to companies which merged with the existing company, valuation of share by discounted cash flow method ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he accounts would be WPC 2363/2013 Page 8 of 21 complex and difficult to understand to a normal assessing officer who has basic understanding of accounts etc., without the aid, assistance and help of a special auditor. Thus due regard has to be given to nature and character of transactions, method of accounting, whether actuarial were adopted for making entries, basis and effect thereof, etc., though mere volume of entries might not be a justification by themself as volume and complexity are somewhat different. Accounts should be intricate and difficult to understand. Every scrutiny assessment entails investigation and verification of the books of accounts, genuineness of the transactions or entries reflected in the books, computation of income etc. It is an exercise which demands expertise and a degree of skill to understand the accounts and decipher whether true and full income has been disclosed; whether there has been jugglery in the accounts or camouflage has been adopted. No undesirable assumptions should be made and a return filed is presumed to be correct, but a deep and in depth scrutiny depending upon the facts may be warranted. Section 142 [2A] is an enabling provision t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iculum requires article-ship under a mentor who is himself a Chartered Accountant with some years of experience. As opposed to an ordinary accountant, a Chartered Accountant with his experience and academic background is in a better position to investigate, examine and scrutinize entries and records of financial transactions. Calibre and competence of Chartered Accountants is of a high degree and should not and cannot be equated with the capability of an ordinary accountant or a normal person having knowledge or acquainted with accounts. Off late there has been demand for increased public scrutiny of accounts, inspite of statutory audit. Enron and other cases abroad and Satyams case in India have highlighted the need and necessity to have controls and system of checks, perhaps even beyond scope of traditional audit. Financial statements and accounts are being increasingly exiguously examined to rule out possibility of wrong doings, cover up or evasion of taxes. Financial statements and accounts are coming under increasing scrutiny and investigation. A Chartered Accountant is a financial investigator and prober, is required to be curious, tenacious and well conversant to identify an ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
