TMI Blog2003 (1) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. - - - - - Dated:- 7-1-2003 - Judge(s) : D. K. JAIN., MAHMOOD ALI KHAN. JUDGMENT The judgment of the court was delivered by D.K. JAIN J.-Two orders, both dated August 27, 2001, passed by the Deputy Commissioner of Income-tax, Circle 17(1), New Delhi, under section 142(2A) of the Income-tax Act, 1961 (for short "the Act"), ordering special audit of the accounts of the petitioners are under challenge in these two writ petitions. Since the orders are in identical terms, passed in the cases of two group concerns, for the sake of convenience, both the petitions are being disposed of by this common judgment. However, we shall treat the facts of C.W.P. No. 7883 of 2001 as illustrative. The petitioner, a proprietary concern, is the sole selling agent for and on behalf of an organising agent authorised by the State Government to conduct the lottery business. It sells lottery tickets on consignment basis to the stockists in different States of India. Assessments for the Assessment years 1995-96 to 1998-99 were completed under section 143(3) of the Act. From January, 1997 to December 1999, residential and business premises of the proprietor of the petitioner were subjected to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain important grounds and prayers had not been incorporated in the petition. Hence, the present petition. The impugned order is challenged on various grounds namely: (i) as per the scheme of section 142(2A) the objective analysis of the existence of preconditions and necessity of special audit should be evident not only from the order made by the Assessing Officer but also from the approval granted by the Commissioner, but in the instant case no such analysis of pre-conditions of the said section is visible either from the impugned order or the approval granted by the Commissioner; (ii) though the petitioner was required to produce the books of account on August 27, 2001, but on the very same day the impugned order was passed; (iii) the impugned order was not made on account of nature and complexity of accounts but for extraneous reasons to save the limitation which was expiring on August 31, 2001; (iv) a fire having broken out at the business premises of the petitioner on May 23, 2000, most of his books of account were destroyed and, therefore, it is a case where complete books of account do not exist and as such the respondents have failed to apply their minds as to the necess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Commissioner, who was satisfied after going through the records, appraisal report and seized material and the order sheets in both the cases that these were fit cases for special audit under the said provision. We have heard learned counsel for the parties. On our directions, the assessment records pertaining to both the petitioners have also been produced. It is strenuously urged by Mr. Vimal Goel, learned counsel for the petitioner, that on the facts of both the cases, special audit in terms of section 142(2A) of the Act was not warranted particularly when the Assessing Officer has not found any fault with the statutory tax audit report, submitted under section 44AB of the Act; no complexity in the accounts had been found by any of the Assessing Officers for the past ten years and there has been no challenge to the accounting system thereafter. It is asserted that the special audit has been ordered without application of mind by the Assessing Officer as well as by the Commissioner, and without the existence or satisfaction of the conditions precedent for forming the requisite opinion, just to save limitation, as the assessment was getting barred by limitation within a few d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r has to be formed only by having regard to: (i) the nature and complexity of the accounts of the assessee; and (ii) the interests of the Revenue. The word "and" signifies conjunction and not disjunction. In other words, the twin conditions of "nature and complexity of the accounts" and "the interests of the Revenue" are the pre-requisites for exercise of power under section 142(2A). Although the object behind enacting the said provision is to assist the Assessing Officer in framing the assessment when he finds the accounts of the assessee to be complex and is to protect the interests of the Revenue recourse to the said provision cannot be had by the Assessing Officer merely to shift his responsibility of scrutinising the accounts of an assessee to determine his true and correct income, on to an auditor. True that an order under the said provision cannot be passed on the ipse dixit of the Assessing Officer merely because he finds some difficulty in understanding the accounts. There has to be a genuine and honest attempt on his part to understand the accounts of the assessee, appreciate the entries therein and if in doubt, seek explanation from the assessee or his representative, ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed on objective criteria and an honest and sincere effort should be made to understand the accounts of the assessee since an order under the provision not only entails heavy monetary burden on an assessee, it causes a lot of inconvenience to him as well. In the light of it all, we shall now consider the validity of the impugned orders. As noted above, the records of the petitioners have been made available to us. The relevant portion of the proposal of the Deputy Commissioner to the Commissioner, on which his satisfaction had rested, reads as follows: "Interest of the Revenue: From the above trading results it is clear that despite the net sales being in hundreds of crores the gross profit shown is very low. In fact it is lower by 1.5 per cent. to 2.00 per cent. from the gross profit percentage of other lottery agencies of M.S. Associates group, which has been calculated and found from seized material of the M.S. Associates group and reflected in the appraisal report of the DDI. Thus, clearly the possible gross profit suppression taken cumulatively over the years for the block period for both the concerns might run into hundreds of crores of rupees. This calls for a comprehens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... worth Rs. 13,52,78,74,671 (Rs. 1,352 crores) on March 31, 1997 (last day of the financial year) to M.S. Associates. In his reply, Sri S.K. Sethi has accepted that the return of PWTs might have been on various dates but voucher entry was passed on March 31, 1997. He was further asked if M.S. Associates were acknowledging the receipt of PWTs. To this his reply was evasive, that he will have to check his accounts. However, the receipts of PWTs from M.S. Associates were never produced either in post search or block assessment proceedings. 5. Treatment of minimum guaranteed sale proceeds cancellation of draw Bhagya Rekha has shown a gross profit 0.27 per cent. of sales in the assessment year 1997-98 and Gurunanak Enterprises has shown a gross profit of 0.34 per cent. in 1998-99. The unsold tickets for these years have been shown to be as high as 70 per cent. and 90 per cent., respectively. The high unsold tickets is reportedly on account of cancellation of draws. This implies that payment of minimum guaranteed sale proceeds given to organiser should have been reversed on account of cancellation of draw. However, the assessee's accounts do not reflect such a reversal. The Revenue impli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsion of the accounts of an assessee. We also do not find any substance in the submission of learned counsel for the petitioners that merely because no special audit under the said provision had been directed in the past several years or that their accounts had already been subjected to statutory audit Linder section 44AB of the Act and the petitioners' assessments were completed without noticing any complexity in the accounts, the Assessing Officer is denuded of his power to order special audit subsequently, even though the nature of business and the method of accounting adopted by the assessee had remained the same as in the past. If the facts and circumstances so warrant, a special audit under section 142(2A) may be ordered in respect of any year. We, however, hasten to add that in those cases where the accounts have already been compulsorily audited under section 44AB, the approving authority is expected to be circumspect in according the approval for special audit. The decisions of the Calcutta and Kerala High Courts, heavily relied upon by counsel for the petitioners, though succinctly explain the scope and the principles governing an order under section 142(2A) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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