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TMI Blog2010 (2) TMI 625X X X X Extracts X X X X X X X X Extracts X X X X ..... e basis of the pro- visional balance-sheet already submitted by the petitioner. 2. The brief facts giving rise to the present writ petition are as follows : 3. The petitioner is a subsidiary company of U. P. Power Corporation Ltd. The company was known as UPPCL from January 14/15, 2000 tillAugust 11, 2003, and with effect fromAugust 12, 2003UPPCL was converted as holding company of its subsidiary company, viz., M/s. Purvanchal Vidyut Vitran Nigam Ltd., Pachchimanchal Vidyut Vitran Nigam Ltd., Madhyanchal Vidyut Vitran Nigam Ltd. and Dakshinanchal Vidyut Vitran Nigam Ltd. 4. The petitioner is a Government public limited company engaged in the business of distribution of electricity, construction of lines and service pro- vided to the consumers. Under the provision of section 619(2) of the Com- panies Act, 1956 (called the Companies Act for short), the petitioner is required to get its annual accounts audited by the office of the Comptroller and Auditor General ofIndia(hereinafter referred to C and AG ). Admit- tedly, for the assessment year in dispute, viz., 2007-08, the petitioner could not get its accounts audited under section 619(2) of the Companies Act (ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Requested for adjournment. Case re-fixed on21-12-2009. 7. 21-12-2009 Furnished part details During the course of assessment proceedings as stated above Sri O. P. Shukla, attended and submitted photocopy of Form 3CB, Form 3CD and provisional balance-sheet as at31st March 2007. As per the computation of income the assessee has incurred losses to the tune of Rs. 11,51,99,56,110. It is to be pointed out that the auditors have mentioned in Form 3CB that we have examined the provisional balance-sheet as on31st March, 2007, and the provisional profit and loss account for the year ended . . . It is also stated that the financial statements are the responsibility of the company s management. Our responsibility to express an opinion on these financial statements based on our audit. It was further stated that the figures of the financial statements are provisional. Audit as required under the Companies Act, 1956, has not been conducted for the relevant financial year. It is further seen that cash in hand have shown at a negative figure of Rs. 52, 30, 50,115 for which no sufficient reason on record. It is not possible to have a negative cash balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attention that the auditor has not made audit as required as per the Companies Act, 1956 and as the report submitted by the auditor provisionally due to the statutory obligation is required for the submission of the return of income. (c) That as per your letter dated December 22, 2009, as mentioned that you have only issued notice and fixed the date for compliance for six times and as mentioned the notices issued by your good self has not served on the assessee-company properly. It has observed above that the notices served on the assessee-company not properly. It has observed above that the notices served on the assessee-company after closing of our office after 5 pm. or on the date on which hearing was fixed which can be verified in the notice received and annexed thereof. (d) It is crystal clear that the assessee-company has already expressed its inability to furnish the audited accounts by the statutory auditor and had submitted the return of income within stipulated time limit under section 139(1) of the Income-tax Act. (e) That you have made query on December 9, 2009 through order sheet entry on the request of the assessee s counsel and the compliances of your qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... good self on December 18, 2009, December 21, 2009. (g) That the assessee-company has claimed depreciation as per the Electricity Act, 1948 at 7.84 per cent. and as per rule 5(1A) of the Income-tax Rules Appendix 1A the depreciation is admissible for assets of an undertaking engaged in the generation and distribution of powers. A copy of Appendix 1A is enclosed for your kind perusal. No any rate has quoted depreciation has charged under the Income- tax Act. In the assessee s case the depreciation charged by the assessee-company has already been accepted by the Income-tax Department for the assessment years 2004-05 and 2005-06 hence it is a settled law and no adverse inference may be drawn. (h) That before the issue of show-cause notice the reasonable opportunity to the assessee must be provided for hearing of the case in the interest of the principles of natural justice. To explain the accounts in a proper manner, the Central Board of Direct Taxes has issued Circular No. 1076 datedJuly 12, 1977, and also issued instruction/guideline which are binding on the authority and special auditor can be appointed only under the following conditions- (i) There are reports of misfea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uery has been issued on the provisional balance-sheet and negative cash in hand when the time limit is came to expire on December 31, 2009 and only one week (including four holidays from December 25 to 28) in hand for complete the assessment, the learned Assessing Officer has issued notice under section 142(2A) of the Income-tax Act. The assessee-company is a Government body and for the audit it has more limitation all the purchase of power and sale of power and expenses incurred are fully vouched which details already been submitted before the learned Additional Commissioner of Income-tax but the learned Assessing Officer the facts of the case and only ground that the accounts is the provisional and cash in hand is negative hence we cannot determine the correct position of losses. It is well settled law that even in case to which the principle of audialterampartem is not applicable and the Legislature has left the matter to the wisdom of the authority, the authority must ensure its action is inspired by reason and not on arbitrary and extraneous consideration. The requirements of reasonableness and fair play are in essence emanates from the doctrine of natural justice. (b) Tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in nature. The formation of opinion under sec- tion 142(2A) that the accounts of the assessee is required and expert audit should indisputably be based on objective consideration. No order can be passed on whims or caprice all that is difficult to under- stand should not be regarded as complex, what is complex? To one may appear simple to another. It depends upon one s level of under- standing or comprehension some times what appears to be complex on the face of it, may not be really so if one tries to understand it carefully. Therefore, the special audit should not be directed on a cursory look at the accounts there should be an honest attempt to understand the accounts of the assessee. It is hereby mentioned that the learned Assessing Officer has not made any honest attempt to understand the accounts and issue the show-cause notice only for saving his face and inability for completion of assessment. In the case of Jhunjhunwala Vanaspati Ltd. v. Asst. CIT (No. 1) [2004] 266 ITR 657 (All) and in the case of U. P. State Handloom Corporation v. CIT [1988] 171 ITR 640 (All), the hon ble Allahabad High Court relied on the facts that two sets of accounts were maintained by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amined the provisional balance-sheet as at 31st March, 2007 and the provisional profit and loss account for the year ended on the date, attached herewith of Purvanchal Vidyut Vitran Nigam Limited, Vidyut Nagar, P.O., DLW, Varanasi Permanent Account No. AADCP4092M It was further clarified by the auditors that the figures of the financial statements are provisional. (b) In Form No. 3CD, against column No. 12(a), the auditor has made the following comments- No inventory is maintained by the company except for the stores, materials required for maintenance of lines and sub-stations. Such stores materials are valued at established. (c) Against column 17(k), it has been mentioned by the auditor that, the balance-sheet and profit and loss account are provisional, no contingent liability has been stated. (d) Against column 21(1), the auditor has mentioned that, In respect of electricity duty payable to the UP Government and interest on secured loans provided for during the year, such liabilities has been transferred to the holding company, the UPPCL, as such the status of the payment or otherwise rest with the holding company. (e) Against column 27(a), the comment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the assessee on his request onDecember 30, 2009wherein he has submitted his written reply datedDecember 30, 2009along with its enclosures, however, no books of account produced. 4. In its reply, it was conceded by the assessee that the provisional profit and loss account and balance-sheet has been filed because, the statutory auditor appointed under section 619(2) of the Companies Act, by the Office of the Comptroller and Auditor General ofIndia, has not completed the audit till date. However, the assessee-company has already provided the relevant documents yet, the statutory auditor has not provided the signed copy of the balance-sheet and profit and loss account till date, therefore, the assessee-company is unable to submit the balance-sheet along with tax audit report and the delay is on the part of the statutory auditors. 5. It is further noteworthy to mention that in the earlier years also, while submitting the return of income the provisional balance-sheets were submitted. However, now a copy of balance-sheet as on March 31, 2006 (assessment year 2006-07) duly signed by the statutory auditor M/s. M. B.Gabhawala on February 12, 2009 has been furnished where the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dl. Commissioner of Income-tax Range-2,Varanasi. Even No. of date (1) Copy to the learned Commissioner of Income-tax,Varanasiwith reference to his letter F. No. CIT/VNS/Spl. Audit/2009-10 dated31-12-2009for favour of kind information. (2) Copy to M/s. V. K. Jindal and Company, chartered accountants, D.53/118-B, Plot No. 11, Kaliya Nagar (Near Peshwanibag), Rathyatra Crossing, Varanasi with a request to carry out such audit, as directed and also to submit as follows : (i) to find out the correct and true affairs in the form of drawing profit and loss account and balance-sheet, so that exact profit/loss assessable as per the Income-tax Act can be quantified. (ii) Prepare correct cash flow to ascertain the reason for such negative cash balance/and reconciliation thereof. (iii) Any lapse of the assessee with respect to the non-deduction and non-payment of TDS, specially with respect to the expenditure, here the provisions of section 40(a)(1a) is applicable. (iv) To examine the capital receipts as discussed above. (v) To examine the purchase and sale of units along with expenditure incurred by the assessee after examining the books of account/ bills/vouchers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment. The purpose to get the accounts audited under section 142(2A) of the Act is part of the assessment proceeding. He submitted that in the present case the proper opportunity has been given by issue of show-cause notice. In the show-cause notice the reasons have been given and, there- fore, it is not the case where proper opportunity has not been given. He submitted that the petitioner is a subsidiary company of UPPCL and under it there are several branches, viz., atVaranasi,Allahabad,Gorakhpur, Mirzapur, etc. Each branch maintains its separate accounts. The petitioner has, in the return, disclosed a huge loss of about Rs. 11,51,99,56,110. Admittedly, the accounts were not got audited under section 619 of the Companies Act, which is the statutory audit. This statutory audit is being carried on by the competent expert auditors from the office of the Comptroller and Auditor General ofIndia. The purpose of such audit is to check irregularities in the books of account, embezzlement, etc. The petitioner has prepared a provisional profit and loss account and balance-sheet and after engaging a private chartered accountant company got the account audited under section 44AB on the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n record has granted the approval. He submitted that the balance-sheet and profit and loss account is part of the account. The various discrepancies have been found in the provisional balance- sheet and profit and loss account. 10. Having heard learned counsel for the parties, we have perused the impugned order and the material available on record. The apex court, in the case of Rajesh Kumar v. Deputy CIT reported in [2006] 287 ITR 91 (SC) while considering the scope of section 142(2A) of the Act has held that before issuing the direction for the special audit it is necessary to give opportunity to the assessee. It appears that having regard to the said decision the proviso to section 142(2A) of the Act has been added providing an opportunity to the assessee before issuing the direction for the special audit. However, the issue involved in the case of Rajesh Kumar [2006] 287 ITR 91 (SC) has been referred to the larger Bench. The larger Bench of the apex court in the case of Sahara India (Firm) [2008] 300 ITR 403 has affirmed the decision in the case of Rajesh Kumar [2006] 287 ITR 91 (SC). It has been held that the opportunity to the assessee is necessary before issuing the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be a genuine and honest attempt on the part of the Assessing Officer to understand accounts maintained by the assessee; appreciate the entries made therein and in the event of any doubt, seek explanation from the assessee. But opinion required to be formed by the Assessing Officer for exercise of power under the said provision must be based on objective criteria and not on the basis of subjective satisfaction. There is no gainsaying that recourse to the said provision cannot be had by the Assessing Officer merely to shift his responsibility of scrutinizing the accounts of an assessee and pass on the buck to the special auditor. Similarly, the requirement of previous approval of the Chief Commissioner or the Commissioner in terms of the said provision being an inbuilt protection against any arbitrary or unjust exercise of power by the Assessing Officer, casts a very heavy duty on the said high ranking authority to see to it that the require- ment of the previous approval, envisaged in the section is not turned into an empty ritual. Needless the emphasize that before granting approval, the Chief Commissioner or the Commissioner, as the case may be, must have before him the material o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as shown the closing cash-in- hand as on March 31, 2007 Rs. (-)69,89,60,070.16 including the cash- in-hand account group No. 24.110 cash with SDO 75612.11, cash with PI Rs. 34,159.20 and cash with TI Rs. 76,97,753.47. It is hereby submitted that the assessee-company s audit as on March 31, 2006 was not finalized till the submission of the return for the financial year 2006-07, i.e., the assessment year 2007-08 and the assessee- company has taken opening balance as on March 31, 2007 Rs.17,59,09,955 in place of opening cash Rs. 69,40,44,052 and the net effect of closing cash has come to Rs. 52,30,50,115.16 and after taken the actual opening cash balance from the audited final account Rs.69,40,44,052 the net cash effect will be comes as on March 31, 2007, Rs. 49,17,905.54. A copy of ledger account from the books of the assessee-company, permanent imprest account group 24.210, temporary imprest group 24.220, cash with SDO group account 24.260 is enclosed for your kind perusal along with copy of audited balance-sheet audited by the statutory auditor as on March 31, 2006 is enclosed for your kind perusal. The detailed annexure A is enclosed separately. 14. In the circumstances, we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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