TMI Blog2017 (6) TMI 784X X X X Extracts X X X X X X X X Extracts X X X X ..... on 142(2A) of the IT Act cannot be said to be invalid. Thus considering the scope and ambit of Section 142(2A) of the IT 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 IT Act. - Decided against assessee. - SPECIAL CIVIL APPLICATION NO. 4691 of 2017 - - - Dated:- 9-6-2017 - MR. M.R. SHAH, AND B.N. KARIA, JJ. For The Petitioner : Mr jp shah, Sr. Advocate With Mr Manish J Shah, Advocate For The Respondent : MR NITIN K MEHTA, ADVOCATE CAV JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) [1.0] By way of this petition under Article 226 of the Constitution of India, the petitioner assessee Takshashila Realties Pvt. Ltd. (formerly known as Takshashila Gruh Nirman Pvt. Ltd.) has prayed for an appropriate writ, direction and order to quash and set aside the impugned order dated 28.12.2016 passed by the Assessing Officer under Section 142(2A) of the Income Tax Act, 1961 (hereinafter referred to as IT Act ), by which in exercise of powers under Section 142(2A) of the IT Act, the Assessing Officer has directed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er revaluation of land, merger of five companies with M/s. Takshashila Gruh Nirman Private Limited; later with issue of equity shares against the balance 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 a 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 into companies which merged with 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 directors is involved, and therefore, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted by Shri Shah, learned Senior Advocate appearing on behalf of the petitioner that in the present case the petitioner submitted return of income for AY 2014-15 along with the Statutory Audit Report and Tax Audit Report. That the assessment for AY 2014-15 started with a notice under Section 142(1) of the IT Act dated 30.03.2016 by the Assessing Officer and the petitioner gave a reply thereto. It is submitted that thereafter various correspondences between the petitioner and the Assessing Officer took place and the last compliance was by letter dated 19.12.2016. It is submitted that after the petitioner s letter dated 19.12.2016, suddenly, the Assessing Officer issued a notice under Section 142(2A) of the IT Act dated 21.12.2016. It is submitted that the showcause notice dated 21.12.2016 was in respect of account for AY 2014-15, the assessment of which was getting time barred on 31.12.2016. It is submitted that thereafter by a letter dated 27.12.2016, the petitioner objected to the proposal of Special Audit under Section 142(2A) of the IT Act. That the Assessing Officer rejected the objections vide communication dated 28.12.2016. It is submitted that simultaneously the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s v. Deputy Commissioner of Incometax Anr . [2001] 250 ITR 455 [Kerala]; [iv] West Bengal State Cooperative Bank Ltd. v. Joint Commissioner of Incometax Ors. [2004] 267 ITR 345. [4.4] It is further submitted by Shri Shah, learned Senior Advocate appearing for the petitioner that as such the original assessment was subjected to scrutiny assessment under Section 143(3) of the IT Act, and therefore also, there was no need for special audit of the accounts. It is further submitted by Shri Shah, learned Senior Advocate that the reasons, or most of the events on which the Assessing Officer has placed reliance upon for forming an opinion for directing special audit under Section 142(2A) of the IT Act have not at all occurred in AY 2014-2015, and thus, the foundation of forming an opinion itself is not sustainable, making the direction and approval bad in law. It is further submitted by Shri Shah, learned Senior Advocate that even the Principal Commissioner of Incometax has accorded approval in mechanical manner and it does not reflect any proper application of mind by the said Commissioner in according the approval. It is submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated in the show cause notice and being satisfied that a case is made out for special audit under Section 142(2A) of the IT Act and only thereafter, the Assessing Officer has passed the impugned orders of special audit under Section 142(2A) of the IT Act and that too after getting the approval from the Principal Commissioner of Incometax, Ahmedabad IV. [5.3] It is further submitted by Shri Mehta, learned Advocate appearing for the Revenue that the impugned order for special audit under Section 142(2A) of the IT Act is absolutely in consonance with the provisions of Section 142(2A) of the IT 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 AY 2014-2015 may not be got audited through the Special Auditor, the reassessment proceedings were pending before the Assessing Officer, which were in the form of notice under Section 148 of the IT Act. It is submitted that Section 142(2A) of the IT Act confers power upon the Assessing Officer to order the accounts audited through Special Auditor, if at any stage of proceedings before him, the Assessing Officer, having regard to the nature a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 loan account of shareholders and issue relating to issue of equity shares against the balances of revaluation credits at a premium. The above issues are clubbed with multiple revaluation of properties over the years, starting from 2008 to 2013 and also includes the fact of valuation of shares by discounted cash flow method and allotment of shares against the amounts outstanding as unsecured loans at unreas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of the Revenue that in the case of the very petitioner for earlier years i.e. 2010-11 onwards and with respect to the very transactions / conversions, the Assessing Officer passed the orders under Section 142(2A) of the IT Act which were the subject matter of Special Civil Application No.2920/2017 and other allied petitions and by a detailed judgment and order the Division Bench of this Court had dismissed the said petitions. It is submitted that the present year under consideration i.e. AY 2014-15 is the subsequent year and the consequential effect of earlier transactions/conversions are required to be considered in detail and therefore, for which and considering the multiplicity of transactions, the Assessing Officer has rightly thought it fit to get the accounts even for 201415 audited by a Special Auditor. Making 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 IncomeTax [Special Civil Application No. 1266 of 2017] in which the Division Bench of this Court has considered the amended Section 142([2A) of the IT Act, it is requested to dismiss the present petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the accounts so audited unless the assessee has been given a reasonable opportunity of being heard. [8.2] Thus, considering the amended Section 142(2A) of the IT Act, if at any stage of the proceedings before him, the Assessing Officer, having regard to [a] the nature and complexity of the accounts; [b] volume of the accounts; [c] doubts about the correctness of the accounts; [iv] multiplicity of transactions in the accounts; or [v] specialized nature of business activity of the assessee and the interests of the Revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Principal Commissioner of Incometax, direct the assessee to get the accounts audited by an accountant [Special Auditor]. As per the proviso to Section 142(2A) of the IT 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. [8.3] In the present case, before passing the impugned Orders under Section 142(2A) of the IT Act, opportunity of being heard has been duly given to the assessee and show cause notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee and the interest of the Revenue, is of the opinion that it is necessary to so to do, he may pass an order under Section 142(2A) of the IT Act; subject to compliance with the procedure, as required under Section 142(2A) of the IT Act. Therefore, in the facts and circumstances of the case, it cannot be said that the impugned order is contrary to Section 142(2A) of the IT Act. [8.5] Now so far as submission made on behalf of the petitioner that the Assessing Officer cannot direct special audit under Section 142(2A) of the IT Act before calling for the accounts from the petitioner in the 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 IT 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 in 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 IT Act. Therefore, while forming an opinion to get the accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nirman, a firm converted into company Takshshila Properties Pvt Ltd and amalgamated with Takshshila Gruh Nirman Pvt. Ltd. The 80IB project Takshshila Colonials, for which approval was granted by Local Authority to erstwhile firm and stockintrade/ CWIP has changed hands and the 80IB deduction is being claimed in the present Takshshila Gruh Nirman Pvt. Ltd. (Takshshila Realities Ltd.) That, at the time of formation or at the later date some of the partners brought land into the firms as their capital contribution. Before conversation 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 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 compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 42(2A) of the IT Act is an enabling provision to help and assist the Assessing Officer to complete the scrutiny assessment with the assistance of an accountant. In paragraphs 10, 11, 26 27 of decision, Delhi High Court has observed as under :Page 10. Aforesaid rulings when appraised and reflected, state that while examining the question of complexity in accounts, we have to apply the test of reasonable man by replacing the word and qualities of a reasonable man, with the word and qualities of a reasonably competent Assessing Officer. The question of complexity of accounts has to be judged applying the yardstick or test; whether the 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 diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e payrolls or employed by the assessee. In order to ensure reliability and accuracy, enterprises resort to internal audit and an external audit which can be a statutory audit. Internal audits are normally conducted in house generally by acquainted or qualified accountants. Statutory audit is compulsory under WPC 2363/2013 Page 19 of 21 the Companies Act, 1956 or when stipulated by the Act and accounts have to be audited by a qualified Chartered Accountant. Chartered Accountants are not ordinary accountants but specialists who have successfully undergone academic study and have extensive practical experience and trained for the said work. Curriculum requires articleship 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 lat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. At this stage it is required to be noted that in the objection dated 27.12.2016 as such the petitioner raised the objection for AY 2010-11. Nothing is on record that any other further objections were raised for AY 2014-15. At this stage it is also required to be noted that in the objections the petitioner never pointed out that there is no consequential effect of the previous transactions in the year under consideration. It is the case on behalf of the Revenue / Department that effect of earlier transactions / conversions in the earlier years would have a direct bearing for AY 2014-15 also. Under the circumstances, after giving fullest opportunity to the petitioner and after dealing with the objections raised by the petitioner and thereafter having obtained the approval from the Principal Commissioner who has granted the approval after considering the material on record and thereafter when the Assessing Officer has passed the order of Special Audit considering the specialised nature of the business activities of the assessee and the multiplicity of transactions, it cannot be said that the Assessing Officer has committed any error. Now, so far as the submission on behalf of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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