TMI Blog2021 (8) TMI 1014X X X X Extracts X X X X X X X X Extracts X X X X ..... r is it possible for the Court to analyse each and every direction and come to the conclusion whether it is bad in law or not. The submission of Mr.Soparkar that if some of the questions, which seem to be bad in law cannot be segregated, the entire impugned order containing the directions be quashed and set aside, also cannot be accepted. It is axiomatic that when an authority has a jurisdiction to pass an order, the exercise of jurisdiction in wrongful manner in certain cases even though held to be illegal, would not necessarily render the order a nullity. All irregular or erroneous or illegal orders cannot be held to be null and void. In the instant case, as set out herein above the Assessing Officer does have the jurisdiction to give directions for a special audit under Section 142(2A). Even the impugned directions also do not suffer from any illegality or infirmity. In any case, even if two-three queries out of forty five queries are found to be unwarranted, as sought to be submitted by Mr.Soparkar, the entire order giving directions can not be set aside treating it to be a nullity. In that view of the matter, both the petitions being devoid of merits deserve to be dismis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ari or any other appropriate writ, direction or order and be pleased to: (a) quash and set aside the impugned order dated 8.4.2021 at Annexure-A to this petition; (b) quash and set aside the impugned directions of 22.4.2021 at Annexure-A to this petition; (c) pending the admission, hearing and final disposal of this petition, to stay implementation and operation of the notices at Annexure-A to this petition; 3. However, at the time of hearing, the learned Sr. Advocate Mr. S. N. Soparkar did not press for the challenge to the impugned order dated 8.4.2021 and confined himself to the challenge to the impugned directions dated 22.4.2021. The Court, therefore, while issuing notice to the respondent in both the petitions, had passed the following order on 14.6.2021:- 1. The Petitioner by way of present petition has sought to challenge the impugned order dated 8.4.2021 at Annexure-A as well as the impugned directions dated 22.4.2021, which are also part of Annexure-A. 2. After arguing for some time, learned Senior Advocate Mr. S.N. Soparkar for the petitioner confines himself to the challenge to the impugned directions dated 22.4.2021 (Annexure-A) and does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unity of hearing by fixing the hearing on 5.4.2021, however, petitioner neither collected the statements, nor remained present for personal hearing. 4.5 The petitioner instead challenged the said notice dated 19.3.2021 before this Court by filing a petition being SCA No.6033 of 2021, which subsequently came to be withdrawn as per the order dated 5.4.2021. 4.6 On 5.4.2021, the petitioner intimated the respondent that the copies of the statements were not provided. On 6.4.2021 the petitioner was provided with the copies of the statements of Mr. Bharat Padiya and Mr. Chirag Thakkar. On 7.4.2021, the petitioner wrote a letter, seeking copies of the seized material from Mr. Rajiv Shah and the findings of the Investigation Wing. 4.7 The respondent after considering the objections of the petitioner contained in the letter dated 27.3.2021 passed the impugned order on 8.4.2021 disposing of the said objections. Thereafter, the respondent issued the impugned directions on 22.3.2021 under Section 142(2A) of the said Act. 5. Both the petitions containing almost identical facts have been resisted by the respondent by filing the affidavits-in-reply, to which the respective petitioners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerned Assessing Officer and such report encompassed complete and thorough analysis done on the seized documents by the investigating team, and therefore, the Assessing Officer had sufficient assistance to understand the seized documents. Therefore, the delegation of the work of both - the investigating officer as well as of the Assessing Officer upon the Special Auditor is bad and illegal. 6.6 As regards the voluminous 50 TB of data and 22000 plus loose papers found during the search operation, it is submitted that during the post-search investigation proceedings, personal hearings were granted and exhaustive submissions were filed by the petitioners. On the basis of the same, the DDIT(Inv), Unit 1(3), Ahmedabad had quantified the undisclosed income to the tune of ₹ 3,959 crore, as reflected in the satisfaction note of the respondent. However, disregarding the said report, the respondent again intends to repeat the same exercise. 6.7 The respondent cannot make a reference under Section 142(2A) solely in the interest of revenue . The condition of interest of revenue is a joint condition with any one of the previous conditions. 6.8 Many queries raised in the terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticulars as may be prescribed and such other particulars as may be required by the Assessing Officer. 7.4 Form 6B is in three parts. The first part requires the special auditor to examine balance sheet, profit and loss account etc., the second part requires the special auditor to obtain all the information necessary for the purpose of audit, and the third part requires the opinion of the special auditor. It is submitted that the report by the special auditor in the form 6B is not restricted to the Annexure stated in the said form but would also contain such other particulars as were required by the Assessing Officer. This can also be culled out from the guidance notes of tax audit, issued by the institute of Chartered Accountant. 7.5 Insofar as the terms of reference are concerned, for each and every direction, respondent has offered comments in tabular form, in an excel sheet, separately filed. The directions issued by the Assessing Officer are strictly in consonance with Section 142(2A) read with Form 6B. 7.6 The arguments made by the petitioner during the course of hearing essentially pertained to the order dated 8.4.2021 directing the special audit, which as such has n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement. 7.12 Thus, the ingredients of Section 142(2A) with regard to the nature and complexity, volume, doubts about the correctness and multiplicity of transactions being found in existence and since it was in the interest of revenue, the special audit has been directed after complying with the requirement of principles of natural justice. Reliance is placed on the decisions in case of Ulhas Securities (P) Ltd. Vs. DCIT, reported in 393 ITR 514 (Guj), in case Cama Hotels Ltd. Vs. Samir Vakil for His Successor DCIT (OSD) Anr., reported in 418 ITR 109 and in case of Tehmul Burjor Sethna Vs. ACIT, reported in 418 ITR 596. 7.13 As per the proviso to Section 142(2C), the special auditor is required to give his report within 180 days, however, due to absolute non-cooperation by the petitioner assessee coupled with voluminous record as referred, and taking note of Supreme Court s decision in case of VLS Finance Ltd. Anr. Vs. CIT Anr., reported in (2016) 384 ITR 1 (SC), the period during which the petition remained pending be excluded for the purpose of calculating the limitation. 8. At the outset, it may be noted that though there is voluminous record produce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he accounts, multiplicity of transactions in the accounts or specialised nature of business activity 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 Principal Chief Commissioner or Chief 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. Rule 14A Form of audit report under section 142(2A) 14A The report of audit of the accounts of an assessee which is required to be furnished under sub-section (2A) of section 142 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether there isany change from the method of accounting employed in the immediately preceding previous year 3. (i) Method of valuation of opening and closing stock of (a) Raw materials (b) Stores (c) Work-in-progress (d) Stock-in-trade (ii) State whether there is any change in the method of valuation of any of the aforesaid items as compared to the method employed in the immediately preceding previous year (iii) If the answer to (ii) above is in the affirmative, specify the amount by which the profit or loss for the year has been affected by such change 4. In respect of items manufactured full quantitative details of raw materials and finished products as indicated below: Raw materials (a) Opening stock (b) Purchases during the year (c) Consumption during the year (d) Sales during the year (e) Closing stock (f) Yield of finished products (g) Percentage of yield (h) Shortage Finished products (a) Opening stock (b) Purchases during the year (c) Quantity manufactured during the year (d) Sales during the year (e) Closing stock at the end of the year (f) Shortage and percentage the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Whether any amount is borrowed on a hundi from, or anyamount due thereon (including interest on the amount borrowed) is repaid to, any person otherwise than through an account payee cheque? If so, give details. 11. (a) Particulars of proforma credits/drawback/refund of duties of customs or excise or both/refund of sales tax. Whether they have been credited to the profit and loss account? (b) Particulars of expenditure/income of any earlier year debited/credited to the profit and loss account of the relevant previous year (c) Particulars of any liability of a contingent nature debited to the profit and loss account 12. Particulars of each loan taken by the assessee (other than any loan taken from a bank or financial institution) in the following form: (i) Name, address and permanent account number of the lender Printed from (ii) Whether amount borrowed on hundi? (iii) Whether loan account squared up during the year? (iv) Maximum amount outstanding at any time during the year and rate of interest paid (v) Details of security including collateral security offered, if any (vi) Name and address of the guarantor, if any 13. Particulars o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they deserve to be reproduced and the same read as under:- 21. In the light of the aforenoted legal position, we are in respectful agreement with the decision of this Court in Rajesh Kumar (supra) that an order under Section 142 (2A) does entail civil consequences. At this juncture, it would be relevant to take note of the insertion of proviso to Section 142 (2D) with effect from 1st June, 2007. The proviso provides that the expenses of the auditor appointed in terms of the said provision shall, henceforth, be paid by the Central Government. In view of the said amendment, it can be argued that the main plank of the judgment in Rajesh Kumar (supra) to the effect that direction under Section 142 (2A) entails civil consequences because the assessee has to pay substantial fee to the special auditor is knocked off. True it is that the payment of auditor's fee is a major civil consequence, but it cannot be said to be the sole civil or evil consequence flowing from directions under Section 142 (2A). We are convinced that special audit has an altogether different connotation and implications from the audit under Section 44AB. Unlike the compulsory audit under Section 44AB, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e present purpose, read thus: 35. Direction for special audit under subsection (2A) of section 142 35.1 Sub-section (2A) of section 142 of the Income-tax Act, before its amendment by the Act, inter-alia, provided that if at any stage of the proceedings, 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 approval of the Chief Commissioner or Commissioner, direct the assessee to get his accounts audited by an accountant and to furnish a report of such audit in the prescribed form. The expression nature and complexity of the accounts has been interpreted in a very restrictive manner by various courts. 35.2 Sub-section (2A) of section 142 has been amended to provide that if at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialized nature of business activity of the assessee, and the interests of the revenue, is of the opinion tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrence. Thus, the expression account also takes within its ambit a statement of pecuniary transactions, a record or course of dealings with parties as well as computation. The expression accounts cannot be read to mean books of account which are statutorily required to be maintained by certain classes of assessees, but has to be given a wider meaning. 21. It is the case of the petitioner that he does not maintain any personal books of account as he is statutorily not required to maintain the same. In effect and substance, therefore, the petitioner seeks to equate the expression accounts with books or books of account as contemplated under section 2(12A) of the Act. However, as rightly submitted by the learned counsel for the respondents, the expression used in the subsection is accounts and not books of account , and had the legislature so intended, it would have employed the expression books of account instead of accounts . 22. In CBI v. V.C. Shukla (supra), the Supreme Court though dealing with a case relating to section 34 of the Indian Evidence Act, had occasion to construe the scope and ambit of the expression account . The Court held thus: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le the former definitions give the word account a restrictive meaning the latter give it a comprehensive meaning. Similarly is the above word defined, both restrictively and expansively, in Black s Law Dictionary (Sixth Edn.) to mean: A detailed statement of the mutual demands in the nature of debit and credit between parties, arising out of contracts or some fiduciary relation. A statement in writing, of debits and credits, or of receipts and payments; a list of items of debits and credits, with their respective dates. A statement of pecuniary transactions; a record or course of business dealings between parties; a list of statement of monetary transactions, such as payments, losses, sales, debits, credits, accounts payable, accounts receivable, etc., in most cases showing a balance or result of comparison between items of an opposite nature. 22. Mr Altaf Ahmed relied upon the widerdefinition of the word account as mentioned above to contend that MR 71/91 fulfils the requirements of account as it records a statement of monetary transactions - such as receipts and payments - duly reckoned. Mr Sibal on the other hand urged that business accounts must necessarily mean on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings under section 153A of the Act and pursuant to the notice for referring the matter for special audit that he does not maintain books of account. However, a perusal of the statement of the petitioner as recorded under section 132(4) of the Act, a copy whereof has been annexed by the petitioner along with his affidavit-in-rejoinder, shows that at item No.12, the following question has been posed to the petitioner: Please state where do you maintain and keep your books of accounts? In reply to which, the petitioner has stated All the books of accounts are maintained in TALLY program as is available at my office at 304, Akanksha Building, Opp. Vadilal House, Navrangpura, Ahmedabad. At item No.18, the question put to the petitioner is: During the course of search action under section 132 of the I.T. Act, 1961, cash of ₹ 7,14,700/- has been found from your residence. Please furnish whether the same has been reflected in your regular books of accounts? In response thereto, the petitioner s answer is: I do acknowledge that during the course of search action under section 132 of the I.T. Act, 1961, cash of ₹ 7,14,700/has been found from my residence. In this regard, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of the opinion that it is necessary to do so. 13. Having regard to the amended provision of Section 142(2A) in the light of the afore-stated observations, there remains no shadow of doubt that the Assessing Officer can exercise the powers under Section 142(2A) by directing the assessee to get his accounts audited by a special auditor, if in his opinion it is necessary to do so considering not only the nature, complexity, volume or correctness of the accounts but also considering the specialized nature of business activity of the assessee. As such, Section 142(2A) as amended w.e.f. 1.6.2013, could be broadly divided into three parts; (i) If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialised nature of business activity 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 Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, (ii) direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bed particulars, there is an Annexure below the said Form No.6B, i.e. the statement of particulars. 16. So far as the facts of the present case are concerned, the Court is not required to deal with the first and third part of Sub-Section (2A) of Section 142, inasmuch as the petitioners have not challenged the orders dated 8.4.2021 disposing of their respective objections raised against the proposed referral for special audit. Thus, the orders rejecting the objections of the petitioners with regard to the nature and complexity of the accounts, volume of accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts, or specialized nature of business activities of the assessee and with regard to the interest of the revenue, having not been challenged, the decision making process also remain unchallenged. Even otherwise, the petitioners were afforded the opportunity of hearing by the respondent by issuing the show-cause notices dated 19.3.2021 and also by supplying the note of satisfaction recorded for referring the case to an independent auditor. The said show-cause notices were sought to be challenged by the petitioners by filing the Specia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon by Mr.Soparkar, it has been clearly observed while considering the consequences which would follow to the order of special audit that the special audit is not limited to the production of the books and vouchers before the auditor and verification thereof. It would involve submission of explanation and clarification which may be required by the special auditor on various issues with relevant data, documents etc. It is more or less in the nature of an investigation. If the incriminating material seized during the search operations required some further information or particulars, the Assessing Officer can certainly direct the special auditor to examine the same and call for the explanation of the assessee as may be necessary to do. 19. This takes us to the next submission of Mr.Soparkar to the effect that the assessment proceedings being part of judicial process and not an administrative in nature, the Assessing officer cannot delegate his judicial functions to the Auditor. According to him, the special auditor cannot go into and examine the legal issues as has been directed by the respondent in some of the questions. In this regard, Mr.Soparkar has relied upon the observati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidering the Section 142(2A) as it stood prior to its amendment in 2013. After the amendment on 1.6.2013, the scope of Section 142(2A) has been widened, whereunder, the Assessing officer is empowered to direct the assessee to get the accounts audited by a nominated accountant, having regard to not only the nature and complexity of the accounts, but also to the volume of the accounts, doubts about the correctness of the accounts, multiplicity of the transactions in the accounts or specialized nature of business activities of the assessee coupled with the interest of the revenue and furnish a report of such audit in the prescribed form, setting forth the prescribed particulars and such other particulars as he i.e. the Assessing Officer may require. There cannot be any disagreement to the proposition that the assessment proceedings are in the nature of quasi judicial proceedings and not administrative proceeding, and therefore, it is the Assessing officer, who has to decide the legal issues or questions involved in the case, nonetheless the Assessing officer cannot be restrained from calling for the particulars which may involve legal issues. There may be certain particulars or queri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the satisfaction note drawn by the Assessing officer and the order dated 8.4.2021, voluminous material was seized during the course of search proceedings and post search proceedings, by the DDIT, INB Unit-1(Ahmedabad), conducted at various premises of Dishman Group including the residential premises of the petitioners. It was detected from the seized material that the key persons of Dishman Group identified were Shri Janmejay Vyas, Chairman; his son Shri Arpit Vyas, Global CMD, Shri Bharat Padiya, Executive Director and Shri Harshil Dalal, Global CFO of the Group, and Smt. Deohooti Vyas and the said persons were connected with each other through various companies, firms/LLPs in a web-manner and that the said group had unaccounted transactions to the tune of ₹ 3949 crore. The seized material included voluminous record running into 50 plus HD drive of 1 TB each i.e. more than 50 TB plus SAP software data and loose material running into more than 22000 papers. The seized material including the loose paper files contained the details of about 76 properties i.e. plots at various places purchased by the petitioners. There were bogus claims of expenditures, higher income shown throu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalyse each and every direction and come to the conclusion whether it is bad in law or not. The submission of Mr.Soparkar that if some of the questions, which seem to be bad in law cannot be segregated, the entire impugned order containing the directions be quashed and set aside, also cannot be accepted. 23. It is axiomatic that when an authority has a jurisdiction to pass an order, the exercise of jurisdiction in wrongful manner in certain cases even though held to be illegal, would not necessarily render the order a nullity. All irregular or erroneous or illegal orders cannot be held to be null and void. The Supreme Court in case of Deepak Agro Foods Vs. State of Rajasthan Ors., reported in (2008) 7 SCC 748 drawing a fine distinction between the orders which are null and void and the orders which are irregular, wrong or illegal, has observed as under:- 17. All irregular or erroneous or even illegal orders cannot be held to be null and void as there is a fine distinction between the orders which are null and void and orders which are irregular, wrong or illegal. Where an authority making order lacks inherent jurisdiction, such order would be without jurisdiction, nul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al audit is not challenged. The assessing officer would naturally wait for this report before proceeding further. Order of special audit followed by conducting special audit and report thereof, thus, become part of assessment proceedings. If the order directing special audit is challenged and an interim order is granted staying the making of a special report, the assessing officer would not proceed with the assessment in the absence of the audit as he thought, in his wisdom, that special audit report is needed. That would be the normal and natural approach of the assessing officer at that time. It is stated at the cost of repetition that in the estimation of the assessing officer special audit was essential for passing proper assessment order. If the court, while undertaking judicial review of such an order of the assessing officer directing special audit ultimately holds that such an order is wrong (for whatever reason) that event happens at a later date and would not mean that the benefit of exclusion of the period during which there was a stay order is not to be given to the Revenue. Explanation 1 which permits exclusion of such a time is not dependent upon the final outcome of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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