TMI Blog2017 (6) TMI 921X X X X Extracts X X X X X X X X Extracts X X X X ..... notice as to why and for what purpose the special audit is required. Therefore, it cannot be said that the Assessing Officer has committed any error and/or illegality in passing the impugned order of special audit, in exercise of powers under Section 142(2A) of the IT Act. We see no reason to interfere with the impugned order passed by the Assessing Officer ordering special audit under Section 142(2A) of the IT Act in exercise of powers under Article 226 of the Constitution of India. - SPECIAL CIVIL APPLICATION NO. 2705 of 2017 - - - Dated:- 26-4-2017 - MR. M.R. SHAH, AND MR. B.N. KARIA, JJ. For The Petitioner : Mr SN Soparkar, Sr. Advocate with Mr BS Soparkar, Advocate For The Respondent : Mr Manish R Bhatt, Sr. Advocate with Mrs Mauna M Bhatt, Caveator CAV JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) [1.0] By way of this petition under Article 226 of the Constitution of India, petitioner assessee Sant Asharamji Ashram has prayed for an appropriate writ, direction and order to quash and set aside the impugned order passed under Section 142(2A) of the Income Tax Act, 1961 (hereinafter referred to as IT Act ) by which by a detailed and speaki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Act and the assessee was called upon to show cause as to why the account for AY 2009-10 to 2015-16 may not be audited by the Special Auditor under Section 142(2A) of the IT Act. That the hearing for the aforesaid purpose was fixed on 25.10.2016. It appears that after having been served with the aforesaid notice, the petitioner assessee vide communication dated 24.10.2016 sought for the adjournment which was granted and the next date was fixed on 01.11.2016. That again the petitioner assessee asked for the adjournment. Again a last opportunity was granted to the petitioner and the next date of compliance was fixed on 07.11.2016. Again the petitioner filed adjournment application without any compliance. However, considering the endorsement made on the earlier letter/communication dated 01.11.2016 that this was the last opportunity, no further order adjourning the matter was passed. As it was found that the petitioner is totally noncompliant and noncooperative and trying to drag this matter to the last minutes and it was a time barred matter, the Assessing Officer made a proposal for special audit to Principal Commissioner of Income Tax for approval. That the petitioner again fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ahabad High Court in the case of Prateek Resorts and Builders (P) Ltd. vs. Assistant Commissioner of Income Tax, Central Circle, Meerut reported in 199 Taxmann.com 140 (Allahabad) . [4.2] It is further submitted that even otherwise the impugned order passed by the Assessing Officer is a nonreasoned / nonspeaking order. It is submitted that the respondent has failed to attribute a single circumstance / reason which leads to an opinion that account of the petitioner is required to be audited under Section 142(2A) of the IT Act. [4.3] It is further submitted by Shri Soparkar, learned Senior Advocate appearing on behalf of the petitioner that even otherwise some of the inquiry which is directed to be conducted vide impugned order under Section 142(2A) of the IT Act is completely unrelated to the account. It is submitted that the inquiries directed to be made in para Nos.6(v), (xxiv), (xxv), (xxxi), (xxxii)( xxxix), (x1x1iii) are completely unrelated to account aspect. It is submitted that therefore for the aforesaid the special audit is not warranted. [4.4] It is further submitted by Shri Soparkar, learned Senior Advocate appearing on behalf of the petitioner that even othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing any objections to the showcause notice. [5.2] It is further submitted that in the present case detailed showcause notice was served upon the petitioner by which the petitioner was called upon to show cause why for the reasons mentioned in the said showcause notice the order of special audit under Section 142(2A) of the IT Act may not be passed. It is submitted that thereafter as the petitioner failed to respond to the showcause notice and thereafter as the assessment was time barred matter, after preparing a detailed satisfaction note the proposal was sent to the Principal Commissioner of Income Tax and the Principal Commissioner of Income Tax after careful consideration of the material on record, thereafter has granted the approval. It is submitted that therefore the impugned order cannot be said to be in breach of the principles of natural justice as alleged and/or as contended on behalf of the petitioner. It is further submitted by Shri Bhatt, learned Senior Advocate that in the present case during the assessment proceedings for the year under consideration the petitioner was totally noncooperative. It is submitted that number of questionnaires were sent to the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rance as to how the same reached third parties. It is submitted that significantly, the petitioner also admitted that the information sought was voluminous. It is submitted that under letter dated 26.08.2016, the petitioner treated regular returns as returns filed pursuant to notice under Section 153C of the IT Act. It is submitted that though the notice under Section 153C was issued on 01.02.2016, returns pursuant thereto came to be filed only on 26.08.2016. It is submitted that under letter dated 09.09.2016, the petitioner expressed its inability to furnish details relating to Banking queries. It is submitted that under letter dated 12.09.2016, the petitioner stated that the statements supplied in CD were not readable and sought hard copies, though the hard copies of the statements was already provided under letter dated 16.09.2016. [5.6] It is submitted that based on the voluminous record, which did pertain to the petitioner also and since the petitioner never came forward to assist the Assessing Officer, detailed showcause notice dated 18.10.2016 was issued proposing special audit. It is submitted that showcause notice enumerates in great detail the above aspects, as also th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er that having regard to the nature and complexity of the accounts, volume of the accounts, doubts about correctness of the accounts, multiplicity of transactions as also the specialized nature of business activity of the petitioner assessee and considering the interest of revenue, the matter was required to be referred under section 142(2A) of the IT Act. It is submitted that as mandated under the said provision, approval of the Principal, CIT (Central) was also obtained. It is submitted that the Principal (CIT) has not granted approval mechanically but has evaluated entire facts and in the notesheet has recorded independent satisfaction. [5.9] It is further submitted that from the above stated sequence it is apparent that under the proviso to section 142(2A) of the IT Act, reasonable opportunity was also provided to the petitioner. It is further submitted by Shri Bhatt, learned Senior Advocate that looking to the incriminating requisitioned material, had the case not been sent for special audit, it would have resulted into high pitched assessment on account of duplication which would also not have been in the interest of the petitioner. It is in these circumstances, a fair att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... speical audit has been approved. Making above submissions and relying upon the following decisions, it is requested to dismiss the present petition. 1. Living Media vs. Commissioner of Income Taxmann.com 225 ITR 268 (SC) 2. Takshashila Realties Private Limited v. Deputy Commissioner of Income Tax (Spl. Civil Application No.2920/2017, Paras 16, 17) 3. Fedco (P) Limited vs. S.N. Bilgrami Ors. AIR 1960 SC 415 (Para 9) 4. Neesa Leisure Limited vs. Deputy Commissioner of Income Taxmann.com 35 Taxmann.com 216 (Paras 14, 21, 22) 5. U.P. Samaj Kalyan Nigam Limited vs. Commissioner of Income Tax, Lucknow 34 Taxmann.com 184 (paras 14, 20) 6. DLF Limited vs. Additional Commissioner of Income Tax 366 ITR 390 (Paras 7, 10, 26) 7. Ulhas Securities Private Limited vs. Deputy CIT Special Civil Application No.1266/2017 (Dated 13.02.2017) 8. Sahara India Real Estate Corporation Limited Ors. vs. Securities and Exchange Board of India and Anr. (2013) 1 SCC 1 9. A.S. Motors Private Limited vs. Union of India Ors. (2013) 10 SCC 114 [6.0] Heard learned Counsel appearing for respective parties at length. At the outset it is required to be noted that the impugned o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of obtaining full information in respect of the income or loss of any person, the Assessing Officer may make such inquiry as he considers necessary. (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 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 Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, direct the assessee to get the accounts audited by an accountant, as defined in the Explanation below subsection (2) of section 288, nominated by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in this behalf and to furnish a report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed and such other particulars as the Assessing Officer may require : Provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 (4 of 1988), shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year. [6.1] At this stage, it is required to be noted that Section 142(2A) of the IT Act has been amended w.e.f. 01.06.2013 and it provides that 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 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 Chief Commissioner or Chief Commissioner...., direct the assessee to get the accounts audited by an accountant, nominated by the Principal Chief Commissioner or Chief Commissioner... in this behalf. It also further provides that Assessing Officer shall not direct t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hi High Court has observed as under: 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner with others appear in the master ledger. A search and seizure action under Section 132(1) of the IT Act was conducted at various places including Ahmedabad, Surat, Vadodara and other cities across the country on beneficiaries of transactions uncovered from requisitioned material. A huge cash inflow and outflow were prima facie not found in the regular books of account. Large number of existing bank accounts in the name of Sadhaks, KYC documents of bank accounts and NSCs, KVPs revealed the address is that of Ashram Bapu. Use of 7 companies for laundering of cash and use of 5 proprietary concerns for laundering of cash are detected. Diversion of funds for real estate purpose has been detected. The books of account show receipts from donation and Dan Patra, however the donation receipts as per the books of account are found to be meager whereas the donation receipts as per the requisitioned material are found to be very huge. Therefore, from the requisitioned materials it has been prima facie revealed that the Trust had diverted its funds in making advances of cash loan and interest charged thereon. That thereafter the assessment proceedings under Section 143(3) of the IT Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner of Income Tax for approval by preparing a detailed note and submitting why in the case of petitioner assessee, there is a requirement of special audit. The same was sent through Joint Commissioner of Income Tax (through proper channel) and thereafter after preparing a detailed satisfaction note, the Principal Commissioner of Income Tax has approved the proposal of the Assessing Officer for special audit and thereafter the impugned order under Section 142(2A) of the IT Act has been passed. Therefore, in the facts and circumstances of the case, it cannot be said that reasonable opportunity of hearing was not granted to the petitioner and/or the impugned order under Section 142(2A) of the IT Act is in breach of principles of natural justice. At this stage the decision of the Hon ble Supreme Court in the case of A.S. Motors Private Limited (Supra) is required to be referred to. It is observed and held by the Hon ble Supreme Court in the said decision that the rules of natural justice are not rigid, immutable or embodied rules that may be capable of being put in straitjacket nor have the same been so evolved as to apply universally to all kind of domestic tribunals and en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oposal has been approved by the Principal Commissioner of Income Tax. The satisfaction note demonstrates application of mind by the Principal Commissioner of Income Tax agreeing with the proposal of the Assessing Officer for special audit. The proposal and the satisfaction note has been shown to the learned Counsel appearing on behalf of the petitioner. Under the circumstances, it cannot be said that while granting approval there is nonapplication of mind by the Principal Commissioner of Income Tax. By preparing a detailed satisfaction note and having been satisfied that in the present case looking to the multiplicity and complexity of transactions and in the larger interest of Revenue, the special audit is required, thereafter the proposal has been approved and thereafter the Assessing Officer has passed the impugned order. [6.6] Now, so far as the submission on behalf of the petitioner that the approval does not reflect the satisfaction and except giving approval nothing is mentioned in the approval is concerned, at the outset it is required to be noted that what is produced on record is the forwarding letter / communication granting the approval of the Principal Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foresaid facts and circumstances and the object and purpose of special audit under Section 142(2A) of the IT Act and considering the object and purpose of amending section 142(2A) of the IT Act and looking to the multiplicity and complexity of transactions found from 40000 papers / material requisitioned from 42 gunny bags, it cannot be said that the impugned order is absolutely illegal and/or contrary to section 142(2A) of the IT Act. At this stage it is required to be noted that the impugned order has been passed on 28.11.2016 and the present petition has been filed on 01.02.2017. It is reported that there is a noncooperation on the part of the petitioner again and even he has not cooperated the Special Auditor also. It is reported that on the basis of the material available, the Special Auditor has as such prepared a report. However, because of the pendency of the petition, no further steps are taken. In any case as observed hereinabove, there is no illegality committed by the Assessing Officer in ordering the special audit under section 142(2A) of the IT Act. [6.10] Insofar as the submissions on behalf of the petitioner that in the present case, Notice under Section 148 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an order for special audit, in exercise of powers under Section 142(2A) of the IT Act. Therefore, while forming an opinion to get the accounts audited by Special Auditor; considering the specialized nature of business activities of the assessee, and/or while considering the multiplicity of transactions, there need not be any books of account before the Assessing Officer. In the present case, the Assessing Officer has thought it fit to get the account audited by the Special Auditor as requisitioned material are to the extent of 40,000 papers in 45 gunny bags, which were found during the search conducted of the premises of Asharam Bapu and others and the Trust. Under the circumstances, when large number of papers are required to be considered / verified visavis the assessee and other persons whose names figured in the requisitioned papers, and when considering section 142(2A) of the IT Act, when the the Assessing Officer has thought it fit to exercise powers under Section 142(2A) of the IT Act, it cannot be said that the Assessing Officer has committed any error and/or illegality. Specific reasons are given so mentioned in the showcause notice as to why and for what purpose the speci ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
