2013 (5) TMI 23 - HC - Income Tax

Appointment of Special auditor - Discrepancies in maintaining of accounts pointed by the Comptroller & Auditor General of India - Held that - The discrepancies in the account books have already been pointed out by the Comptroller and Auditor General as well as in the Auditor s report and further on perusal of the accounts, the Assessing Authority has come to the conclusion that the accounts are complex and difficult to understand. The Assessing Authority before passing the impugned order for appointment of Special Auditor has made genuine attempt to understand the accounts so maintained. Thus discrepancies in maintaining the accounts have been pointed by the Comptroller & Auditor General of India. With regard to the satisfaction of the Assessing Authority, while referring the matter under Section 142 (2A) it is not only the books of accounts, but even by other documents which are available during the course of an assessment and at any stage subsequent thereto may become available to the Assessing Officer. Further, it is settled principle of law that while exercising its jurisdiction under Article 226 of the Constitution of India, the High Court does not sit as a Court of appeal and a patent illegality or lack of inherent jurisdiction in passing the impugned action/letter would be a limited ground for invoking the jurisdiction. In view of these facts, the impugned order does not suffer from illegality or infirmity - writ petition is dismissed.

Summary

Issues:
1. Complex discrepancies in the account books leading to the appointment of a Special Auditor under Section 142 (2A) of the Income-tax Act.

Analysis:
The petitioner, a government-owned company, filed a writ petition challenging the order appointing a Special Auditor for auditing its accounts for the Assessment Year 2010-11. The Assessing Officer identified discrepancies in the accounts, particularly related to labor charges and accounting policies, which were highlighted by the Comptroller & Auditor General of India and the statutory auditors. The petitioner argued that the accounts were not complex and the order for a Special Auditor lacked objective reasoning. The Respondent contended that the discrepancies were significant, such as understated liabilities and overstatement of profits, as pointed out by the auditors and the CAG. The Respondent emphasized the need for a Special Auditor based on the complexity of the accounts, citing non-compliance with Accounting Standards. The Court noted that the Assessing Authority had made genuine efforts to understand the accounts before appointing the Special Auditor.

In support of their arguments, both parties relied on relevant case laws. The Petitioner cited cases emphasizing objective assessment by the Assessing Authority, while the Respondent referred to cases where discrepancies in maintaining accounts justified the appointment of a Special Auditor. The Court distinguished the cited cases based on the specific facts and complexities of the present case. It was highlighted that the Assessing Authority's satisfaction under Section 142 (2A) should consider not only the books of accounts but also other relevant documents available during assessment. The Court clarified that while exercising jurisdiction under Article 226, it does not act as an appellate court, and only illegality or lack of inherent jurisdiction would be grounds for intervention.

Ultimately, the Court dismissed the writ petition, upholding the appointment of the Special Auditor based on the complexity and discrepancies found in the company's accounts. The judgment emphasized the importance of the Assessing Authority's opinion regarding the nature and complexity of accounts, as well as the need for a broad interpretation of 'accounts' under the Income-tax Act to fulfill the legislative intent.