TMI Blog2020 (1) TMI 655X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid reasons are sufficient to sustain the action of the respondent to order a special audit in view of the limited and guarded scope of judicial review. AO has given several other opportunities to the petitioner by calling upon them to furnish their response along with documentary evidence. After issuing statutory notice dated 13.09.2019, another opportunity was given on 27.09.2019, when there was a change of the incumbent in office of the respondent No.1. Also, notices u/s 142(1) along with questionnaire were issued to the assessee on 02.08.2019, followed by a reminder on 26.08.2019. Despite aforesaid opportunities, the assessee was unable to answer the queries raised by the respondent to the satisfaction of the AO. In the impugned order, the AO has threadbare considered each response to the queries raised and concluded that the accounts of the petitioner are voluminous and complex. No substance in the petitioner s submission that the action of respondent No.1 is mala fide or is an outcome of failure to pay the advance tax to the lacking of respondents authority. Such submissions are based on conjectures and surmises and in absence of any cogent material to suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued another notice dated 26.08.2019 requiring the petitioner to expedite filing of details, pointing out that the proceedings were time barring. Petitioner states that in response thereto, it filed the reply dated 02.09.2019, giving explanation and evidence regarding 11 queries. With that, the first level response, and details in respect of almost all 53 queries raised by respondent No.1 stood answered. Since at petitioner s end, its personnel were engaged in compliances for the current year s filings, a letter dated 12.09.2019 was submitted seeking some time for submission of the residual particulars. 3. In the meantime, respondent No.1 had been enquiring from the petitioner of the reason for not filing advance tax. Frequent telephonic conversations were made and ultimately, an email dated 19.09.2019 was sent by respondent No.1 enquiring as to why advance tax deposited for the first quarter of the current year i.e. financial year 2019-20 was only ₹ 14 crores, while the corresponding amount for preceding year was ₹ 19 crores. This query was replied vide email dated 27.06.2019 and letter dated 16.08.2019, pointing out that the advance tax deposited in the preced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requisitioned by the Assessing Officer (hereinafter referred to as AO ) and proceedings under Section 142(2A) can be initiated by the Assessing Officer, who has taken such particulars on record and formed an opinion on the basis of such particulars, that reference to special audit is necessary. He then submitted that proviso to Section 142(2A) requires pre-decisional hearing based on the show cause notice. Since the AO was still requisitioning information and documents, he was in no position to confront the assessee with alleged complexity and volume of accounts. Thus, the opinion formed by the AO for ordering special audit without evaluation of the information is a misconceived action. He further submitted that the order dated 03.12.2019 referring to the notice under Section 142(2A) is wholly misplaced and is an attempt to create a record of a non-existent notice. Mr. Krishnan has then sought to canvass that respondent No.1 has attempted to interpolate the online interface maintained by Principal Director General of Income Tax (System) by making backdated reference to document dated 13.09.2019 through an upload on 03.12.2019. He referred to the copies of the screenshots annexed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough the queries raised by the AO, issue-wise, to explain that such queries had been either raised after the show cause notice dated 13.09.2019 or to say that the respondent No.1 has failed to exercise reasonable domain knowledge with correct intent. Closing his submissions, it was also argued that though the monetary cost of audit is statutorily to be borne by respondents, it would nevertheless cause severe prejudice to the petitioner as it would have a huge negative impact on the perception amongst institutions, investors, customers, stakeholders and general public. 5. We have given due consideration to the contentions urged by Mr. Krishnan. The object behind enacting the provision of Section 142(2A) of the Act is clear from a plain reading of its language and the said provision is to assist the AO in framing the correct and proper assessment based on the accounts maintained by the assessee, having regard to the nature and complexity of the accounts, its volume and the doubts about its correctness, multiplicity of the transactions or specialized nature of business activity of the assessee and the interest of the revenue. While testing the reasoning of the AO for making a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e correlated with the closing balance of advance from clients. There may be cases where the advance was received/settled at the yearend leading to increase/decrease in quantum of advances without a corresponding change in interest to clients. The Zone wise details of interest paid to clients is enclosed as Annexure C'. From the above reply of the assessee, it is evident that interest passed on to clients is complex in nature as well as is voluminous in terms of period of holding of advance, rate of interest and calculation of interest amount vis- -vis terms conditions of agreements with these clients . These issues needs in depth further verifications. Non specific reply of the assessee raises doubt about the correctness of these transactions. II. Department s query:- Assessee has claimed TDS of 73,69,98,262/- in respect of 501 parties in the return of income. As per the provision of the Section 199 of the Income-tax Act, 1961, read with the Rule 37BA of the Income-tax Rules, the assessee can take TDS credits only for the receipts disclosed as income in a particular assessment year. It is difficult for the A.O. to examine the correctness ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate business is ₹ 32.23crores in FY 2016-17. Whereas the profit margin as against sales turnover of ₹ 273.99 crores was ₹ 119.37 crores in Fy 2015-16. This clearly shows that the profit margin in real estate business was 43.57% to the sales in the FY 2015-16 which has come down to 17.40% in FY 2016-17 (AY 2017-18). Since you did not produce any evidence regarding the expenses claimed in the P LA /c in the real estate business. This aspect of the case remains unverified. Similarly as per the same detail given in the Part D1 of the Cost Audit Report, profit margin of ₹ 31.51 Crore has been shown against the sale of ₹ 534.08 Crores in infrastructure head in FY 2016-17. Whereas the profit margin of ₹ 31.36 Crores is shown against the sale turnover of ₹ 307.66 Crores only in FY 2015-16. Here again the profit margin in infra business was 10.19% in FY 2015-16 whereas the same has come down to a meagre of 5.90% in FY 2016-17 (AY 2017-18). Since neither accounts of expenses claimed under this head nor the credible evidences is produced despite of opportunity given to you. The same remains unverified. In response the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction. Thus assessee's contention is not acceptable as the AO has already asked for these details but due to non compliance on the part of the assessee this issue still remains unverified. IV. Department's query:- As per the note 19 of Balance Sheet as on 31.03.2017 the trade payables has been shown as ₹ 2534.54 Cr whereas the trade payables as on 31.03.2016 were 1784.87Cr. It means there is an increase of 42%of trade payables in this year. However on perusal of the works and consultancy expenses claimed in FY15-16 FY 16-17 were ₹ 5248.56 Cr. and ₹ 5703.54 Cr. Respectively means that there is a meager increase of 8.67% in the work and consultancy expense. Further, details were called vide above mentioned notices so as to ascertain the identity and genuiness of trade payables but the same were not furnished by the assessee to justify the increase in trade payable of 42% as against the increase in business expenses of just 8.67%. Assessee's submission in this regard:- on the aspect of the trade payable it needs to be noted that they do not lie in the field of revenue. They are items of current liabilities. Profit cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder SI. No. 28 of the questionnaire. The reply of the assessee cannot be accepted. The AO vide questionnaire dated 02.08.2019 has asked the assessee to submit the details regarding the inventories of the assessee. Here assessee instead of giving detail of the inventories, it has provided the relevant note from Financials which is already available with the AO. No other detail was ever submitted by the assessee. Therefore, this issue still remains unanswered. Further a reminder dated 04.10.2019 along with some further queries were issued to the assessee vide notice dt. 27.09.2019. Pointwise discussion where the assessee's reply is not found satisfactory is as under 1. Department's query:- On perusal of your annual report in Note-29 to the Financial Statement under head Employee benefits expenses, the auditor has reported as below:- The above expenses includes provision of ₹ 2201.32 lakhs on estimated basis on account of wage revision due to employees w.e.f January 1,2017. Clearly you have created a provision of ₹ 2201.32 lakhs in the current year and from perusal of computation of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of the assessee the independent auditor himself has considered it as estimated amount which is evident from the note 29. The relevant portion is reproduced once again as under:- The above expenses includes provision of ₹ 2201.32 lakhs on estimated basis on account of wage revision due to employees w.e.f January 1, 2017. Further, from reply submitted by the assessee it is not possible to ascertain what was the actual expense incurred by the assessee during the year (if any) or in subsequent year against this provision as no details have been submitted by the assessee. Further, with no specific reply received from the assessee it is difficult for the AO to understand how the difference (between provision created with the actual expense occurred) was treated in the subsequent years. In whole, this provision created by the assessee needs further verification and quantification and as on date this fact remains unverified. 1. Department's Query (iii) notice dated 27.09.219- On perusal of your annual report in Note-31 to the Financial Statement under head payment of Auditors the auditor has reported as below:- In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee, volume of the accounts and doubt about the correctness of the accounts and the interest of the revenue it is held necessary to get the accounts of the accounts of the assessee for AY 2017-18 audited by an accountant as defined in the Explaination below sub-section (2) of Section 288 r.w.s 142(2A) of the IT Act, 1961. (Emphasis supplied) 6. On perusal of the aforesaid order, it can be easily discerned that in the opinion of the AO, several queries and the corresponding replies of the assessee reveal the complexity in the accounts of the assessee. Say for illustration, the interest passed on to the clients, where the details furnished in terms of period of holding of advance, rate and calculation of interest amount vis- -vis terms and conditions of the agreement with the clients, are complex and voluminous. The non-specific reply of the assessee raised doubts about the correctness of the transactions and lead the AO to seek further verification. Similarly, in respect of the TDS claim of the Assessee, query was raised regarding difficulty faced by the AO in examining whether the TDS receipts have been disclosed in the accounts of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of an opportunity of hearing to the petitioner. The conclusion that the account books and the material furnished was complex in nature for which a special audit is required, as observed above, is the subjective satisfaction arrived at by the AO. It cannot be said that there was any arbitrary exercise of the power, in directing special audit under Section 142(2A) of the Act which would call upon this court to exercise judicial review so as to strike down the order. We, therefore, do not find any substance in the contentions of Mr. Krishnan that respondent No.1 has not examined the material and the response to the questionnaire furnished by the petitioner. We cannot hold that there is no application of mind on the part of the respondent No.1 for issuing the impugned directions. In our opinion, the satisfaction recorded by the AO is in consonance with the principles enunciated in Section 142(2A) of the Act. The doubts expressed by the AO are on the basis of the complexity of the accounts recorded upon objective considerations mentioned in the impugned order on each query. Though the petitioner has sought to explain all the queries so raised in the present petition, however, we feel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , this fundamental requirement is clearly met and the notice dated 13.12.2019 afforded an opportunity to the petitioner, as contemplated under the law. On perusal of Para 10 and 11 of the said notice, it becomes further evident that the same was a show cause issued to meet the statutory requirement of the provision by giving a reasonable opportunity of being heard to the assessee before passing the order to get the accounts audited under Section 142(2A) of the Act. The said portion is extracted herein below:- 10. In view of the facts and circumstances discussed above visa-vis issue involved in this case it can be seen that the details needs to be examined to ascertain the genuineness of the transaction are not only voluminous but complex in nature. Further, the multiplicity involved in the transactions and your failure in making compliance to the notices, issued earlier creates a doubt about the correctness of the accounts. Therefore, considering the interest of the revenue involved in this case as well as specified nature of certain transactions you are required to show cause as to why your case for AY 2017-18 shall not be audited from an Auditor as per the provision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd of Revenue was posted on 4th May 1954. The time to file the appeal, however, expired on 1st May 1954, so that even if the date of the posting is taken as the date of the appeal the petitioner was out of time. xxxxxxx 21. In the present case, therefore, we need to examine the provisions of the Act and the nature of order passed by the authority. As already noted, Section 142 (2A) of the Act empowers the Assessing Officer; with the previous approval of the Chief Commissioner or the Commissioner, during the pendency of an assessment proceedings, to get the accounts of the assessee audited by the special auditor. It is, of course, true that any such order that the Assessing Officer may pass would result into adverse civil consequences. We may, however, recall that post 2007, the requirement that the assessee must weigh the financial burden of special audit has been done away with. Once such special auditor submits his report, setting forth particulars; as may be prescribed, as also such as the Assessing Officer may require, further assessment would take place. 22. In the present case, the Assessing Officer had issued notices to the assessee under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principles of natural justice are to be excluded, Parliament could have said so expressly. The hearing given is only in terms of section 142 (3) which is limited only to the findings of the special auditor. The order of assessment would be based upon the findings of the special auditor subject of course to their acceptance by the Assessing Officer. Even at that stage the assessee cannot put forward a case that power under section 142 (2A) of the Act had wrongly been exercised and he has unnecessarily been saddled with a heavy expenditure. An appeal against the order of assessment, as noticed hereinbefore, would not serve any real purpose as the appellate authority would not go into such a question since the direction issued under section 142 (2A) of the Act is not an appealable order. It was this view, which the Supreme Court approved in Sahara India (Firm) (supra). In such decision also, the requirement of personal hearing was not read into the provision. (Emphasis supplied) 9. On perusal of the record, we also find that apart from the aforesaid show cause notice, the AO has given several other opportunities to the petitioner by calling upon them ..... X X X X Extracts X X X X X X X X Extracts X X X X
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