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TMI Blog1998 (12) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... d the petitioner to get the accounts audited in respect of points enumerated therein and furnish the report of the said special audit within a period of 150 days from March 18, 1998. It appears that prior thereto a proposal for special audit under section 142(2A) in the case of the petitioner was placed before the Chief Commissioner of Income-tax-II, on March 10, 1998, and he without granting any approval merely nominated Sri G. P. Agarwal, FCA, for the purpose of special audit on March 16, 1998. Section 142(2A) of the Income-tax Act reads thus: "If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts 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 Chief Commissioner or Commissioner, direct the assessee to get the accounts audited by an accountant, as defined in the Explanation below sub-section (2) of section 288, nominated by the Chief 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 particula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on (2A) shall have effect notwithstanding that the accounts of the assessee have been audited under any other law for the time being in force or otherwise. The aforementioned provision by necessary implication does not contemplate audit of the books of account of the assessee in terms of the provisions of the said Act itself. Sub-section (2D) of section 142 provides that the expenses of, and incidental to, any audit under sub-section (2A) including the remuneration of the accountant shall be determined by the Chief Commissioner or Commissioner and which determination shall be final and paid by the assessee ; and in default of such payment shall be recoverable from the assessee in the manner provided in Chapter XVII-D for the recovery of arrears of tax. Sub-section (3) of section 142 requires an opportunity of hearing to the assessee where any material gathered on the basis of any enquiry under sub-section (2) or any audit under sub-section (2A) is proposed to be utilised for the purposes of the assessment. Keeping in view the nature of the controversy, the respondents were directed to produce the records and give an inspection thereof to the petitioner. The proposal appears to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; Signature illegible 16-3-1998. Inform CIT-III, today. Signature illegible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's opinion as to the existence of a matter of law or fact upon which the validity of the exercise of the power is predicated. Administrative decisions are required to be made in good faith on relevant considerations. See M. A. Rasheed v. State of Kerala, AIR 1974 SC 2249. In CIT v. Mahindra and Mahindra Ltd., [1983] 144 ITR 225, the apex court has held that application of mind is a must before such an action can be taken. The apex court further held : "By now, the parameters of the court's power of judicial review of administrative or executive action or decision and the grounds on which the court can interfere with the same are well settled and it would be redundant to recapitulate the whole catena of decisions of this court commencing from Barium Chemicals' case [1966] 36 Comp Cas 639 ; [1966] Suppl. SCR 311 ; on the point. Indisputably, it is a settled position that if the action or decision is perverse or is such that no reasonable body of persons, properly informed, could come to or has been arrived at by the authority misdirecting itself by adopting a wrong approach or has been influenced by irrelevant or extraneous matters the court would be justified in interfering with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointment of a special auditor. The Chief Commissioner of Income-tax, therefore, did not apply his mind at all as regards the pre-requisite for grant of previous approval and mechanically appointed Sri G. P. Agarwal, as a special auditor. The said order depicts a total non-application of mind on the part of the Assessing Officer as also the Chief Commissioner of Income-tax. Furthermore, keeping in view the provisions of section 44AB of the Income-tax Act, the provisions of section 142(2A) have to be strictly construed. The power under the aforementioned provisions should not be lightly exercised and must be based on objective criteria. The word "complexity" means the state or quality of being intricate or complex or that it is difficult to understand. However, anything which is difficult to understand need not necessarily be complex as the same would depend upon the capability of the Assessing Officer himself. He, therefore, in certain circumstances is enjoined with the duty to discuss the matter with the assessee or his representative. Furthermore, such opinion has to be formed in the proceeeding itself. No order can be passed on whims or caprice. No order can be passed on the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d whatsoever to take recourse to the provisions of section 142(2A). The authority opined : "The special auditors are required to verify the correctness of the claim of various allowances made by the assessee in respect of above mentioned points and to work out the income, allowances and disallowances correctly with reference to the books of account maintained by the assessee and in accordance of the provisions of income-tax law." The aforementioned function is that of the Assessing Officer and not that of the special auditor. A business expenditure cannot also be a subject-matter of an audit. In CIT v. Walchand and Co. Pvt. Ltd. [ 1967] 65 ITR 381 (SC) and J. K. Woollen Manufacturers v. CIT [1969] 72 ITR 612 (SC), the apex court has held that in applying the test of commercial expediency for determining whether an expenditure was wholly and exclusively laid out for the purpose of the business, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the Income-tax Department. Without going into further details, a cursory glance at the directions made to the special auditor would show that most of them involve legal questions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious assessment. The power under section 142(2A) can be invoked when the assessing authority finds that the accounts are complicated and it must be stated that in view of section 44AB, the recourse to section 142(2A) is confined to assessees having turnover or transactions below Rs. 40 lakhs or gross professional receipts below Rs. 10 lakhs. The overlapping in certain situations does not render the provision invalid or superfluous and the contentions are untenable." It is correct to contend that this court is denuded from exercising its jurisdiction of judicial review unless an order reaches its finality. Even in a proceeding under section 148 of the Income-tax Act, a prior approval of the Commissioner is necessary. Dealing with a similar situation in Chhugamal Rajpal v. S. P. Chaliha [1971] 79 ITR 603 (SC), the apex court considered the report of the Income-tax Officer and held that where the report has been filed with a conclusion that a case for investigation as to the truth of alleged transaction has been made out, the same cannot be said to be a reasoned notice issued under section 148 as therefor, the Income-tax Officer must have reasons to believe that by reason of the omis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gandhi v. Union of India, AIR 1978 SC 597, the apex court has held : "Now, if this be the test of applicability of the doctrine of natural justice, there can be no distinction between a quasi-judicial function and an administrative function for this purpose. The aim of both administrative inquiry as well as quasi-judicial inquiry is to arrive at a just decision and if a rule of natural justice is calculated to secure justice, or to put it negatively, to prevent miscarriage of justice, it is difficult to see why it should be applicable to quasi-judicial inquiry and not to administrative inquiry. It must logically apply to both. On what principle can distinction be made between one and the other ? Can it be said that the requirement of 'fair play in action' is any the less in an administrative inquiry than a quasi-judicial one ? Sometimes an unjust decision in an administrative inquiry may have far more serious consequences than a decision in a quasi-judicial inquiry and hence the rules of natural justice must apply equally in an administrative inquiry which entails civil consequences." In Assistant Collector of Customs and Superintendent, Preventive Service Customs v. Charan Das M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order or determination is unchallengable as regards its substance, the court can at least control the preliminary procedure so as to require fair consideration of both sides of the case. Nothing is more likely to conduce to good administration.' Apart from the rules of audi alteram partem, which means that no one shall be condemned unheard, corollary of which is that he should be given reasonable notice of the nature of the case to be met, there are other rules of common law to the same effect. (see Franklin v. Minister of Town and Country Planning [1948] AC 87 [1947] 2 All ER 289 (HL) ; John v. Rees [1970] 1 Ch D 345. In case any person has acquired any right in any property or his right is being affected by the process he would be afforded reasonable opportunity of hearing and also to meet the cause against him. In De Smith's Judicial Review of Administrative Action, 5th edition, It page 403, the learned authors have referred to various decisions while emphasising the need to comply with the principles of natural justice in a case of forfeiture or deprivation of some right as also in the cases where applications are required to be filed as for example the cases of license." F ..... X X X X Extracts X X X X X X X X Extracts X X X X
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