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TMI Blog2017 (6) TMI 784X X X X Extracts X X X X X X X X Extracts X X X X ..... re as under : [2.1] That, in the case of erstwhile firms viz., M/s. Chanakya Infracon Private Limited; M/s. Chanakya Buildcon [P] Limited; M/s. Takshashila Realties Private Limited; M/s. Youngstar Infracon [P] Limited and Takshashila Properties [P] Limited, the assessment proceedings for A.Y 20102011 were completed. That, pursuant to an order 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 20102011. Notices under Section 148 of the IT Act came to be issued a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired to be got audited by a Special Auditor from the point of view of taxation of capital gains 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. At this stage it is required to be noted that similar notices were issued for AY 2010-11 and after considering the objections submitted by the very petitioner and after obtaining the approval from the Principal Commissioner, the Assessing Officer passed an order of Special Audit under Section 142(2A) of the IT Act, which was the subject matter of Special Civil Application No.2920/2017 and by a detailed judgment and order the Division Bench of this Court has dismissed the said Special Civil Application confirming the order passed by the Assessing Officer of Special Audit for AY 2010-11. The dispute in the present petition is with respect to the special audit for AY 2014-15. [2.3] That, the petitionerassessee filed its objections, which came to be disposed of by the Assessing Officer. That thereafter, the Assessing Officer sent a proposal to the Principal Commissioner of Incometax, Ahmedabad IV for its approval. That the said Principal Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... except repeating the language used in section 142(2A) of the IT Act, no other reasons have been assigned. It is submitted that even the accounts were not examined by the Assessing Officer and therefore, the Assessing Officer cannot form an opinion without calling for the record and before examining the account that the accounts are complex and correctness thereof is doubtful and thus interest of the Revenue is compromised if the special audit is not ordered. It is submitted that therefore, the impugned order under Section 142(2A) of the IT Act is absolutely illegal and bad in law which requires to be quashed and set aside. [4.2] It is vehemently submitted by Shri Shah, learned Senior Advocate for the petitioner that the language used in Section 142(2A) of the IT Act is that, the Assessing Officer, having regard 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. [4.3] It is further submitted that even otherwise, the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Sahara India [Firm] v. Commissioner of IncomeTax & Anr., reported in [2008] 300 ITR 403 [SC] as well as a decision of Delhi High Court in case of DLF Commercial Projects Corporation & Anr. vs. Assistant Commissioner of Income Tax & Ors., reported in [2013] 357 ITR 211 [Delhi]. It is further submitted by Shri Shah, learned Senior Advocate for the petitioner that even otherwise, the directions for which special audit is ordered are mainly questions of law, which are required to be considered by the Assessing Officer, and therefore, for such accounts are not required to be got audited through Special Auditor. It is submitted that therefore also, the impugned order under Section 142(2A) of the IT Act deserve to be quashed and setaside. [4.5] It is further submitted by Shri Shah, learned Senior Advocate appearing on behalf of the petitioner that in the present case as the conditions mentioned in section 142(2A) of the IT Act for ordering special audit are not satisfied, it is requested to quash and set aside the impugned order. [4.6] Now, so far as the order passed by this Court in Special Civil Application No.2920/2017 and other petitions in case of very assessee but for earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is absolutely in consonance with the provisions of the Act. [5.4] It is further submitted by Shri Mehta, learned counsel for the Revenue that as per Section 142(2A) of the IT Act, apart from the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialized nature of business activity of the assessee and in the interest of the Revenue, if the Assessing Officer is of the opinion that it is necessary so to do, he may, with the previous approval of the Principal Commissioner, direct the assessee to get the accounts audited by an Accountant [Special Auditor]. It is submitted that in the present case, having found that looking to the multiplicity of transactions in the accounts and specialized nature of business activities of the assessee and in the interest of Revenue, it is necessary to get the accounts of the assessee audited by Special Auditor, the Assessing Officer has rightly passed an order under Sec.142(2A) of the IT Act. [5.5] It is further submitted by Shri Mehta, learned Advocate for the Revenue that in the present case, the complex issues involved in the erstwhile fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Principal Commissioner of Incometax has not applied his mind and/or that there is non application of mind on the part of the Principal Commissioner of Incometax in granting approval. It is submitted that against the show cause notice, objections were raised by the petitioners and the order disposing of the objections were placed before the Principal Commissioner of Incometax with other materials and only thereafter, after considering the above material, the Principal Commissioner has accorded the approval. [6.0] Now, so far as reliance placed upon a decision of Kerala High Court in the case of Muthoottu Mini Kuries [Supra] by the learned counsel for the petitioner, in support of his submissions that unless and until the books of account are before the Assessing Officer and after verification of the books of account, the Assessing Officer is of the opinion that there is a complexity in the account and/or he doubts the correctness of the accounts and then and then only the Assessing Officer can pass an order under Section 142(2A) of the IT Act is concerned, it is submitted by Shri Nitin Mehta, learned counsel for the Revenue that the said decision has been rendered prior to amendmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 40,000 papers in 42 gunny bags were collected during the search and seizure operation which were required to be verified and scrutinized, and therefore, there might be a justification for special audit under Section 142(2A) of the IT Act. It is submitted that therefore, the decision in the case of Ulhas Securities Private Limited [Supra] shall not be applicable to the facts of the case on hand. [8.0] Heard respective counsels appearing for the petitioner as well as Revenue at length. [8.1] At the outset, it is required to be noted that the impugned orders have been passed by the Assessing Officer of Special Audit in exercise of powers under Section 142(2A) of the IT Act. Therefore, while considering the legality and validity of the impugned orders passed under Section 142(2A) of the IT Act, 142(2A) of the IT Act is required to be referred to and considered, which read as under : "142(2A) If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialised nature of business activity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed objections in detail, which have been disposed of by the Assessing Officer by speaking order and only thereafter, after seeking approval from the Principal Commissioner of Incometax; as required under the Act, the Assessing Officer passed the impugned orders under Section 142(2A) of the IT Act. Therefore, as such, the procedure which is required to be followed, while passing the order under Section 142(2A) of the IT Act, has been duly followed by the Assessing Officer. [8.4] In so far as the submissions on behalf of the petitioner that in the present case, Notice under Section 148 of the IT Act for AY 2014-2015 was issued on 21st December 2016 and immediately after five days only, Notice under Section 142(2A) of the IT Act was given, and therefore, the impugned Order under Section 142(2A) of the IT Act is bad in law, as no opportunity has been given as per the decision of Hon'ble Supreme Court in the case of GKN Driveshafts [India] Limited [Supra] is concerned, it is required to be noted that the objections raised against the reassessment proceedings/notice under Section 148 of the IT Act is altogether a different proceeding. The notice under Section 148 of the IT Act and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 IT Act. [8.6] We see that the decision for audit of the assessees' account is backed by proper material on record and reasons recorded by the Assessing Officer. His formation of belief that looking to the multiplicity of the transactions in the accounts and specialized nature of business activities of the assessee, a special audit is called for, and therefore, it cannot be faulted. [8.7] At this stage, it is required to be noted that the following material weighed with the Assessing Officer, while forming an opinion that there is necessity for accounts of the assessee audited by Special Auditor. "That, the 5 Companies, which have amalgamated with Takshashila Gruh Nirman Pvt. Ltd., have their beginning as partnership firms, which were already doing the real estate and construction business and were executing various pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 gains in the hands of various partners, firms and directions is involved. Having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialized nature of transaction in the cases which finally of the assessee, and the interests of the revenue, am of the opinion that it is necessary to get the accounts audited by a Special Auditor from the point of view of taxation of capital gains 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." [9.0] Considering the aforestated facts and circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to help and assist the Assessing Officer to complete scrutiny assessment with the help of assistance of an accountant. 11. There has been substantial expansion of scope and ambit of Special Audit under Section 142 [2A] of the Act with effect from 1st June, 2013. The amended section has been widened to include volume of accounts, doubts about correctness of accounts, multiplicity of transactions in the accounts or specialised nature of business activity of an assessee. These amendments by Finance Act, 2013 with effect from 1st June, 2013, substitute the words "nature and complexity of accounts of the assessee". We are not concerned with the said amendment in the present case as the impugned order in question directing special audit was passed on 25th March, 2013, before the amendments became WPC 2363/2013 Page 9 of 21 effective. We are, therefore, primarily concerned with whether or not keeping in view the nature and complexity of accounts and the interest of Revenue direction for special audit is justified for the reasons set out in the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . A Chartered Accountant is a financial investigator and prober, is required to be curious, tenacious and well conversant to identify and unearth frauds, misreporting and wrong claims in the accounts. 27. The aforesaid observations should not be construed as a general expression or opinion, that every account or statement of income must be viewed with suspicion, distrust and scepticism. The past instances are mere warnings, for closer and more indepth scrutiny. It is also a fact that WPC 2363/2013 Page 20 of 21 the business transactions have become more complicated and accounting entries more complex than ever before. This may be one of the causes why possibly the frauds could not be detected in some cases. Indeed such cases have made the audit work more comprehensive, intrusive and investigative. Ethical managements may at times regard such enquiries as an unwarranted intrusion or a hounding approach. Section 142 [2A] does not permit fishing or roving inquiry approach or a witch hunt but is a regulated provision which accepts the need and necessity of the Assessing Officer to take help of an expert accountant i.e. a Chartered Accountant, a person who is academically qualified a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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