TMI Blog2017 (4) TMI 1457X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. Whether 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 - 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 or otherwise nature of the 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 under Section 142(2A). 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, AO 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 oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [2.0] The facts leading to the present Special Civil Application in nutshell are as under: [2.1] That the assessment proceedings under Section 153C of the IT Act for AY 200910 to 201516 is pending before the Assessing Officer. That the assessee is carrying on the business of trading in shares and securities as well as financing. That approximately 40,000/papers in 45 gunny bags in the case of Asaram Bapu and Narayansai Group were seized by the Police Authority. That the Income Tax Authority requisition in the said document under Section 132 of the IT Act in the case of Asaram Bapu and Narayansai Group on 09.03.2015 from Poilce Authorities, Surat. That on the basis of the same, the petitioner was served with the notice under Section 153 C of the IT Act for block period i.e AY 200910 to 201415 and the petitioner assessee was required to furnish return of income under Section 153 C of the IT Act for the aforesaid year. That the petitioner assessee was served with the questionnaire by way of notice under Section 142(1) dated 01.08.2016 on the basis of the requisitioned material, statements and loose papers etc. The petitioner assessee was also asked to furnish various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That thereafter by impugned order dated 15.12.2016, the Assessing Officer has passed the impugned order directing the petitioner to get the audit through the Special Auditor. [2.2] Feeling aggrieved and dissatisfied with the impugned order passed by the Assessing Officer passed under Section 142(2A) of the IT Act appointing Special Auditor for the AY 200910 to 201516, the assessee has preferred present Special Civil Application under Article 226 of the Constitution of India. [3.0] Shri S.N. Soparkar, learned Senior Advocate has appeared on behalf of the petitioner assessee and Shri Manish Bhatt, learned Counsel has appeared on behalf of the Revenue. [3.1] The impugned order is challenged by the petitioner on the following grounds. (1) Insufficient opportunity. (2) All the conditions for appointment of Special Auditor under Section 142(2A) of the IT Act are not satisfied. (3) The Special Auditor is directed only with a view to extend the period of limitation to frame block assessment. [3.2] Shri Soparkar, learned Senior Advocate for the petitionerassessee has vehemently submitted that in the facts and circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been answered by the assessee. It is submitted that therefore, the purpose for special audit will be taken care by the Assessing Officer during the block assessment. [3.8] It is further submitted by Shri Soparkar, learned Senior Advocate for the petitioner that as such the petitioner assessee has nothing to do with 40,000 pages of documents requisitioned and / or has nothing to do with Sant Shri Asharamji Ashram and Shadahaks whose name figured in the requisitioned document. It is submitted that therefore, in absence of proving relevance of such material, respondent has materially erred in directing the special audit. It is submitted that the respondent has not reached to the satisfaction in objective manner of directing the special audit. [3.9] Shri Soparkar, learned Senior Advocate appearing on behalf of the petitioner assessee has further submitted that from the affidavit in reply it appears that the objections submitted by the petitioner dated 26/28.11.2016 came to be considered and overruled by the Assessing Officer on 28.11.2016 and thereafter the proposal was made to the Commissioner. It is submited that as such vide communication dated 25.11.2016, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot have directed special audit under Section 142(2A) of the IT Act beofre considering books of account of the petitioner and/or without verifying the accounts and/or considering the complexity in the accounts. Making above submissions, it is requested to admit/allow the present petition and quash and set aside the impugned order passed under Section 142(2A) of the IT Act. [4.0] Present petition is vehemently opposed by Shri Manish Bhatt, learned Counsel for the Revenue. [4.1] It is vehemently submitted by Shri Bhatt, learned Counsel for the Revenue that in the facts and circumstances of the case and looking to the complexity and multiplicity of transaction visavis the requisitioned material i.e. 40,000 papers found from 42 gunny bags, in which, there is ample material with the Assessing Officer connecting the petitioner assessee that the requisitioned material and the persons / Sadhak whose names figured in the requisitioned material, the Assessing Officer is justified in passing the order under Section 142(2A) of the IT Act for special audit for AY 200910 to 201516. [4.2] It is submitted that Section 142(2A) of the IT Act has been amended and all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of transaction and therefore, in order to arrive at correct taxable income and the extent of real fund flow and to identify the real persons whose funds are being rotated, the Assessing Officer is justified in passing the order of special auditor under Section 142(2A) of the IT Act. [4.6] 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 submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent that in the present case as such the principles of natural justice has been complied with to the fullest. Requisite opinion has been formed based on the material available on record. [4.11] Now, so far as the submission / contention of the petitioner that the impugned order does not disclose the recording of the opinion and/or it does not reflect that any opinion was formed by the Assessing Officer that the accounts for the year in consideration are required to be audited through the Special Auditor is concerned, it is vehemently submitted that as such the show cause notice itself notes in great detail the requirements relating to complexity etc. It is submitted that as such the impugned order dated 15.12.2016 is only a communication by the Assessing Officer directing the petitioner to have its books of account subjected to special audit. It is submitted that there is no requirement under the law / section that such intimation is required to contain reasons. It is further submitted that as such a detailed proposal was sent to the Commissioner. It is further submitted that thereafter a satisfaction Note has been recorded by the Commissioner on the note-sheet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act and therefore, while considering the legality and validity of the impugned order passed under Section 142(2A) of the IT Act, section 142 of the IT Act (including section 142(2A) of the IT 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 subsection (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 made a return within the time allowed under subsection (1) of section 139 or before the end of the relevant assessment year], to furnish a return of his income or the income of any other person in respect of which he is assessable under this Act, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed, or : Provided that where any notice has been served under this subsection for the purposes of this clause after the end of the relevant asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts so audited unless the assessee has been given a reasonable opportunity of being heard. (2B) The provisions of subsection (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 subsection (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 may, suo motu, or on an application made in this behalf by the assessee and for any good and sufficient reason, extend the said period by such further period or periods as he thinks fit ; so, however, that the aggregate of the period originally fixed and the period or periods so extended shall not, in any case, exceed one hundred and eighty days from the date on which the direction under subsection (2A) is received by the assessee. (2D) The expenses of, and incidental to, any audit under subsection (2A) (including the remuneration of the accountant) shall be determined by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner (w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess the assessee has been given a reasonable opportunity of being heard. As per Section 142(2A) of the IT Act, the provisions of subsection (2A) shall have effect notwithstanding that accounts of the assessee have been audited under any other law for the time being in force or otherwise. Section 142(2C) of the IT Act provides that every report under subsection (2A) shall be furnished by the assessee to the Assessing Officer within such period as may be specified by the Assessing Officer. Section 142(2D) of the IT Act (as amended) also provide that the expenses of, and incidental to, such audit shall be paid by the Central Government. As per subsection (3) of Section 142, the assessee shall be given an opportunity of being heard in respect of any material gathered on the basis of any inquiry under subsection (2) or any audit under subsection (2A) and proposed to be utilised for the purposes of the assessment. Thus, from the aforesaid provision, it appears that object and purpose of special audit is as such to facilitate the Assessing Officer to arrive at correct taxable income and for which the Assessing Officer is authorized to direct the assessee to get books of account audited by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books, computation of income etc. It is an exercise which demands expertise and a degree of skill to understand the accounts and decipher whether true and full income has been disclosed; whether there has been jugglery in the accounts or camouflage has been adopted. No undesirable assumptions should be made and a return filed is presumed to be correct, but a deep and in depth scrutiny depending upon the facts may be warranted. Section 142(2A) is an enabling provision to help and assist the Assessing Officer to complete scrutiny assessment with the help of assistance of an accountant. 11. There has been substantial expansion of scope and ambit of Special Audit under Section 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 assessee . We are not concerned with the said amendment in the present case as the impugned order in question di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... need and necessity to have controls and system of checks, perhaps even beyond scope of traditional audit. Financial statements and accounts are being increasingly exiguously examined to rule out possibility of wrong doings, cover up or evasion of taxes. Financial statements and accounts are coming under increasing scrutiny and investigation. A Chartered Accountant is a financial investigator and prober, is required to be curious, tenacious and well conversant to identify and unearth frauds, misreporting and wrong claims in the accounts. 27. The aforesaid observations should not be construed as a general expression or opinion, that every account or statement of income must be viewed with suspicion, distrust and scepticism. The past instances are mere warnings, for closer and more indepth scrutiny. It is also a fact that WPC 2363/2013 Page 20 of 21 the business transactions have become more complicated and accounting entries more complex than ever before. This may be one of the causes why possibly the frauds could not be detected in some cases. Indeed such cases have made the audit work more comprehensive, intrusive and investigative. Ethical managements may at times regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 aforesaid ground that the Assessing Officer has not stated that the accounts are required to be audited by Special Auditor in the interest of Revenue, the impugned order is not required to be quashed and set aside, more particularly, when it is stated in the order that looking to the complexity and the multiplicity of transactions, accounts are required to be verified by the Special Auditor. Considering the object and purpose of Section 142(2A) of the IT Act, it appears that the accounts are required to be audited by the Special Auditor under Section 142(2A) of the IT Act with a view to facilitate the Assessing Officer i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of special audit under Section 142(2A) of the IT Act, special audit is not required and/or it is not the function of the auditor is concerned, it is required to be noted that the directions are required to be considered as a whole. The petitioner cannot pick and choose one or two directions. The reasons for special audit is multiplicity and complexity in the transactions and in the interest of Revenue. As observed herein above 40,000 papers / material contained in 45 gunny bags are required to be tallied and considered visavis different persons and even the petitioner assessee. At this stage it is required to be noted that the petitioner has not alleged any malafides. [6.8] Now, so far as the submission on behalf of the petitioner that once the Assessing Officer vide communication dated 25.11.2016 closed the right of the petitioner to submit the objections / further objections, subsequent dealing with the objections on 28.11.2016 is with closed mind is concerned, the aforesaid has no substance. What is required to be considered is whether while making a proposal the Assessing Officer has dealt with the objections raised by the petitioner or not. Merely because ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 special audit is required. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
