TMI Blog2019 (7) TMI 1324X X X X Extracts X X X X X X X X Extracts X X X X ..... on hand, the Assessing Officer had applied his mind to various aspects like the nature of accounts, method of maintaining accounts, entries recorded etc. and reached to the conclusion that the accounts were complex and it was in the interest of the Revenue that the special audit u/s 142(2A) should be directed. It will be too much for this Court to try and understand the complexity for and on behalf of the AO. We are of the view that we should not disturb the order passed by the AO in exercise of his powers u/s 142(2A). Writ-application fails and is hereby rejected. The interim order earlier granted stands vacated forthwith. Applicability of law and scope of amendment in Section 142(2A) - HELD THAT:- There has been substantial expansion of scope and ambit of Special Audit u/s 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporated under the Companies Act, 1956. However, without going into any other technicality, we thought fit to examine the matter on merits. 3. Article 226 of the Constitution of India confers extraordinary jurisdiction on the High Court to issue high prerogative writs for the enforcement of the fundamental rights or for any other purpose. The legal position is that a juristic person such as a company is not entitled to any of the freedoms guaranteed by the Constitution of India. The company is the sole petitioner before us. It is a company incorporated under the Companies Act. The fundamental rights as enshrined under the Constitution of India are guaranteed to a citizen. The writapplicant, not being a citizen, is not entitled to complain of breach or violation of any of its fundamental rights ( see Divisional Forest Officer v. Bishwanath Tea Company Limited, AIR 1981 SC 1368 ) 4. The writ-applicant is a public limited company duly incorporated under the Companies Act, 1956. The company is running a hotel in the name 'Cama Hotels' at Khanpur, Ahmedabad, and a resort in the name 'Cama Rajputana Club Resorts' at Mount Abu. According to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed by the Dy. Commissioner of Income Tax (OSD) Range-1, Ahmedabad under Section 142(2A) of the Act, there was no reference of the reply filed by the assessee. Even it is not clear whether the order was passed even before filing of the reply on that date. These facts are not controverted by the learned counsel for the Revenue. Considering these facts, which are not in dispute, we set aside the order dated 18.12.2006 passed by the Dy. Commissioner of Income Tax (OSD) Range-1, Ahmedabad. However, liberty is given to the Dy. Commissioner of Income Tax (OSD) Range-1, Ahmedabad, to pass a fresh and reasoned order after considering the reply filed by the assessee and after giving reasonable opportunity of being heard to the assessee. The Petition stands disposed of with the aforesaid directions. 7. Later, the writ-applicant was served with the impugned order dated 11th May 2007 passed by the respondent no.1, directing for the special audit under Section 142(2A) of the Act on or before 12th June 2007. In such circumstances, the writapplicant came before this Court with the present writapplication with a prayer that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vatia submitted that for the purpose of invoking the provisions of Section 142(2A) of the Act, the following three conditions are required to be fulfilled : ( i) the nature of accounts ( ii) complexity of the accounts, and ( iii) the interest of the revenue. 14. According to Mr.Divatia, none of the aforesaid three conditions could be said to have been fulfilled in the present case. Mr.Divatia submitted that the expression 'complexity' would mean, the state or quality of being integrate or a complex or that it is difficult to understand. Mere difficulty in understanding is not sufficient to come to the conclusion that the accounts are complex in nature. According to Mr.Divatia, such special audit causes a lot of inconvenience to the assessees. According to Mr.Divatia, the respondent no.1 has tried to justify the special audit on the following grounds : ( a) Head-wise income earned from room rent and food, beverages served in the restaurant were not furnished. (b) In absence of detailed break-up of the purchases it was not possibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n admitted fact that for any hotel the principal head of income is room rent and food beverages sold in the restaurant. It is noticed that the assessee has not furnished headwise income earned by it from room rent and food beverages served in the restaurant. In absence of this break up in the P L Account, the Assessing Officer is not able to ascertain a true picture of the business of the assessee. ( b) The assessee did not furnish a clear picture of purchases in the case of Cama Hotels, Khanpur. In its P L Account, the assessee has mixed up all purchases under the head of purchases . In absence of specific details of purchases of each item, it is not possible for Assessing Officer to verify the facts and to arrive at logical conclusion. Further, in the case of flight catering division, the assessee did not furnish separate accounts and these are clubbed with accounts of H.O. However, on perusal of the P L Account of Cama Hotels, Khanpur, it can be seen that the assessee has not separately shown income received from Indian Air Lines to which it is providing catering services. At the same time, the assessee has submitted that raw material is supplied by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the same be rejected. 22. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the only question that falls for our consideration is, whether the impugned order of special audit deserves to be quashed and setaside. 23. At the outset, it is required to be noted that the impugned order of special audit has been passed by the Assessing Officer in exercise of powers under Section 142(2A) of the Income Tax Act and, therefore, while considering the legality and validity of the impugned order passed under Section 142(2A) of the Act, Section 142 of the Act (including Section 142(2A) of the Act) is required to be referred to and considered, which reads as under : 142. Inquiry before assessment. - (1) For the purpose of making an assessment under this Act, the Assessing Officer may serve on any person who has made a return under section 115WD or section 139 or in whose case the time allowed under sub-section (1) of section 139 for furnishing the return has expired a notice requiring him, on a date to be therein specified, ( i) where such person has not m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hief Commissioner or Principal 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 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 that the Assessing Officer shall not direct the assessee to get the accounts so audited unless the assessee has been given a reasonable opportunity of being heard. ( 2B) The provisions of sub-section (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. ( 2C) Every report under sub-section (2A) shall be furnished by the assessee to the Assessing Officer within such period as may be specified by the Assessing Officer : Provided that the Assessing Officer m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It has come into force with effect from 1.4.1976. Under sub-section (2A), the IT0 has been empowered to direct an assessee in a case where the nature and complexity of the accounts and the interests of the revenue so require, to get his accounts audited by a Chartered Accountant and furnish a report of such audit in the prescribed manner. Such a direction can be issued only with the prior approval of the Commissioner. The Chartered Accountant, for the purposes of conducting the special audit, is also to be nominated by the Commissioner. The expenses of and incidental to, including the remuneration of the special auditor, must be paid, by the assessee. The report of such audit has to be submitted in the prescribed form duly signed and verified by such auditor. 25. Sub-section (2B) of Section 142 provides that special audit could be directed even though the accounts of the assessee have already been audited in accordance with law. 26. Under sub-section (3) of Section 142, the assessee is entitled to an opportunity of being heard in respect of a material collected under special audit, if it is to be relied upon for assessment. 27. The ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Accountant. The two requirements were conjunct and not disjunct and these were the essential pre-requisites. The object being the special audit should be directed, if it assists and succours, the Assessing Officer in framing correct and proper assessment based on the accounts maintained by the assessee, i.e., the Assessing Officer must reach a finding that the accounts of the assessee were complex and in order to protect the interest of the Revenue, recourse to the said provision should be made. The expression or word 'complexity' it was observed refers to state of quality of being intricate or difficult to understand but the Supreme Court observed that what would be the complex to one, might be simple to another and, therefore, an Assessing Officer must make a genuine attempt to understand the accounts, appreciate the entries, in the event of doubt, seek explanation and then form the required opinion based upon objective criteria and not purely on the basis of subjective satisfaction. The provision did not entitle the Assessing Officer to pass the buck to the Special Auditor as it was the Assessing Officer's responsibility to scrutinise the accounts. However, the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, (i) nature of accounts, (ii) complexity of accounts, and (iii) interest of revenue and opinion on the said aspects must be formed. Special audit should not be ordered for an underlined purpose which was not bonafide. It should not be ordered and approved mechanically and certainly not for unauthorised purpose of extension of limitation to complete the assessment. The petitioner in support of their contentions have referred to decisions of Calcutta High Court in Bata India Ltd. v. CIT, (2002) 257 ITR 622/125 Taxman 808, West Bengal State Co-operative Bank Ltd. v. Jt. CIT, (2004) 267 ITR 345/138 Taxman 238 (Cal.) and decision of Kerala High Court in Muthoottu Mini Kuries v. Dy. CIT, (2001) 250 ITR 455/115 Taxman 216 (Ker.). In these decisions, it was held that the Assessing Officer should normally have workable skill and idea of accounting because of the nature of duty entrusted to them. An Assessing Officer was not a layman or one with no experience in dealing with the accounts. He was supposed to be acquainted with the method of accounting and with comprehensive knowledge with regard to matters required to be examined. 32. Aforesaid rulings, when appraised and r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erned with whether or not keeping in view the nature and complexity of accounts and the interest of the Revenue direction for special audit is justified for the reasons set out in the order dated 11th May 2007. 34. The powers under Section 142(2A) of the Act have to be exercised in terms of the legislative provisions. The object and purpose behind the legislation is to facilitate investigation and proper determination of the tax liability. The importance and relevancy of the legislation cannot be underestimated and it is a power available with the Assessing Officer to aid and assist him. The accounts should be accurate and provide real time record of the financial transactions of the assessee. The preparation of the accounts is the work of the Accountant on the 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 the Companies Act, 1956, or when stipulated by the Act and the accounts have to be audited by a qualifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt accountant, i.e. a Chartered Accountant, a person who is academically qualified and has practical experience to understand accounts and unearth tax evasion or furnishing of inaccurate particulars etc. The provision balances the right of the Revenue with the inconvenience which the assessee may face. The Assessing Officers are not Chartered Accountants and when required and permissible, therefore, can take help and assistance from the qualified specialists to complete the assessment and determine the taxable income of an assessee. ( see DLF Ltd. v. Additional Commissioner of Income-Tax ) 36. A Division Bench of this Court, in the case of Asharam Thaumal Harplani (Asaram Bapu) v. Deputy Commissioner of Income-Tax, reported in (2017)82 taxmann.com 265 (Gujarat), explained in details the scope of Section 142(2A) of the Act. Justice M.R.Shah (as His Lordship then was) speaking for the bench, observed as under : 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be audited through Special Auditor under Section 142(2A) of the IT Act. With this, challenge to the impugned order is required to be considered. 6.4 Now, so far as the contention on behalf of the petitioner - assessee that one of the requirement for exercising the powers under Section 142(2A) of the IT Act that the Assessing Officer must be satisfied in interest of revenue, the account is required to be audited by the Special Auditor is concerned, it is required to be noted that considering the amended provision of Section 142(2A) of the IT Act which has come into force w.e.f. 01.06.2013, the Special Auditor can be appointed if at any stage of the proceedings before him, the Assessing Officer having regard to the nature and complexity of the account of the assessee and the interest of the revenue, is of the opinion that it is necessary so to do, he may direct the account to be verified by the Special Auditor. Therefore, having regard to the nature and complexity of the account, if the Assessing Officer is satisfied and / or is of the opinion that accounts are required to be verified by the Special Auditor, he may pass such order. Therefore, on the afores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee was directed was submission of the separate Profit Loss accounts of different units by the assessee. The assessee has produced separate profit loss accounts of the different units as called for. Minute scrutiny of the P L accounts submitted by the assessee reveals the following facts : 8.1 In P L A/s. of the Cama Rajputana Club Resorts, Mt. Abu the assessee has shown Room Income of ₹ 1,23,27,597/- similarly in P L A/s. of Cama Hotels, Khanpur the assessee has shown Lodging Income of ₹ 6,14,98,575/-. It is a fact that for any hotel the principal head of income is Room rent and food and beverages sold in the restaurant apart from income of other services provided by the hotel. It can be seen that the assessee has not furnished head wise income earned by it from room rent and food and beverages served in the restaurant. The basic purpose of referring the case to special audit as mentioned in the show-cause issued by this office on 12/12/06 was to prepare detailed P L account of each of the unit considering them as separate profit center and then ascertain profit or otherwise of particular unit and then group as a whole. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he basic expenses like Telephone Expenses, Building Repairs and Maintenance, Conveyance Expenses, Swimming Pool Expenses, Commission to Travel Agents, Security Expenses, Garden Expenses, Bank Charges, Postage etc. are not shown in the P L A/c. furnished by the assessee. It is needless to say that the assessee has claimed all these expenses in P L A/c. of Cama Rajputana, Mt.Abu. It is very surprising that without incurring all these expenses how the assessee is able to run its hotel at Ahmedabad. It is possible that the assessee might have clubbed all these expenses in some of the head appearing in the P L A/c. submitted by it due to mixing up of the accounts, the accounts have become very complex and we are not in a position to ascertain these expenditure separately. 8.6 It will not be out of place to mention that for last couple of year the assessee failed to get its books of accounts audited and submit the audit report to the department in time. Accordingly department levied penalty also for late submission of the audit report. This fact also indicates towards improper maintenance of books of accounts by the assessee. 9. All the above facts sho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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