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TMI Blog2011 (7) TMI 645X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner, a Government company within the meaning of Section 617 of the Companies Act, 1956 incorporated with the object of industrial development in the State of UP, has challenged the order passed by the Chief Commissioner of Income-tax dated 28.4.2011, granting approval under Section 142 (2A) of the Income Tax Act, 1961, for Special Audit, with directions dated 3.5.2011 given by the Deputy Commissioner of Income Tax-VI, Kanpur, for preparing the balance sheet, profit and loss accounts with annexures relating to assessment year 2008-09, to be made by M/s Kapoor Tandon Co., 24/57, First Floor, Birhana Road, Kanpur, the nominated Chartered Accountants and to furnish the report in the prescribed Form duly signed and verified by the said Chartered Accountant, setting forth for such particulars as may be prescribed under Rule 14-A in Form No. 6B upto 30th June, 2011. The petitioner has also prayed for a direction commanding respondent no. 3 not to proceed further in compliance to the order dated 30.6.2011, read with order dated 3.5.2011, and further not to proceed in making assessment for the assessment year 2008-09 in pursuance to directions dated 3.5.2011. The petitioner has also p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. The case was heard and it appears that a supplementary report was called by the CCIT on 21.12.2010. 9. The Assessing Officer sent his supplementary report on 23.12.2010. 10. The CCIT after considering the supplementary report dated 23.12.2010 granted approval on 28.12.2010. Thereafter, the impugned order was passed on 29.12.2010 by the Assessing Officer. 11. We have heard Sri S.K Garg and Sri Ashish Bansal, counsel for the Petitioner and Sri Shambhu Chopra, counsel for the Department. 12. The counsel for the Department was requested to obtain instructions and produce the photostat copy of the order sheet of the CCIT. This has been done. Counsel for the Department. The counsel for the petitioner has also filed a supplementary affidavit that is taken on record. With the consent of the parties, the writ petition is disposed of at this stage. THE DECISION 13. A perusal of the photostat copy of the order sheet of the CCIT indicates that the approval was granted on 14.12.2010. This was before the date fixed namely 15.12.2010 by the CCIT. Subsequently, he again granted approval on 28.12.2010 considering the supplementary report dated 23.12.2010. It is not disputed that c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exures and enclosures etc, and the date of compliance was fixed for 18.1.2010. Since no compliance was was made, a penalty notice was issued on 4.5.2010 fixing date of compliance for 12.5.2010, which also not complied with, on which a summon under Section 131 dated 16.6.2010 fixing date of compliance for 24.6.2010 was issued. Shri S.K. Maheshwari, Deputy Manager attended the office on 24.6.2010 and sought adjournment on which the matter was adjourned for 6.7.2010. 6. From the order of CCIT Kanpur we find that a printout of the copy of e-return filed electronically by the assessee was taken out, from which it was noted that the assessee while uploading the return had mentioned that tax audit was completed by M/s P.D. Agarwal Co., Chartered Accountant on 29.9.2008. To verify this fact, a letter was written on 05.7.2008 to M/s P.D. Agarwal Co, who informed by its letter dated 05.7.2010 that the audit of financial year 2007-08 relevant to the assessment year 2008-09, has not been completed by them and therefore, a copy of the tax audit report in Form 3CA 3CD could not be provided. The assessee company had thus made a false statement, in verifying and uploading the e-return, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that since the order of Special Audit visits serious civil consequences, and amounts to investigation, it can be passed only when the necessary ingredients are satisfied namely that there should be satisfaction recorded by A.O., of complexity of the accounts, and interest of revenue and that both the requirements should be read conjunctively and not disjunctively. He submits that neither the assessing authority or CCIT examined the auditor's reports nor arrived at any findings of complexity of accounts, before concluding that the matter requires special audit. He submits that the reasons given in the order, namely that there are reports of misfeasance, gross neglect or breach of duty by itself, cannot be a ground for special audit. In such case if the accounts are not produced or if the assessing authority is not satisfied, the A.O., can proceed to make best judgment assessment under Section 144 of the Act. Shri S.K. Garg also submits that the assessment has become barred by time. 10. We may firstly deal the conduct of the petitioner. It is not denied that in this case the order of sanction was earlier passed on 28.12.2010. This fact was cleverly concealed from this Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the A.O, while issuing the impugned order formed an opinion that the order was necessary in view of the nature, and complexity of the accounts of the assessee. On his own showing the petitioner in that case had filed voluminous details running into approximately 500 pages to explain the queries raised by the assessing authority. Further the details running into about thousand pages were also filed by the assessee before the assessing authority. This prima facie supported the formation of the opinion by the A.O. for conducting Special Audit. 13. In the present case we find that firstly the assessee company, which claimed that as Government Company its accounts are audited under Section 227 of the Companies Act, 1956 by the auditors appointed by the Controller and Auditor General of India, New Delhi, made a false statement in the e-return that its accounts have been accounted by P.D. Agrawal Co on 29.9.2008. The auditor was given notice, to which a reply was given on 5.7.2010, that they had not completed the audit for the relevant financial year. Subsequently the petitioner in response to the notice issued by the A.O. delayed submission of accounts. The accounts were submitted af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcept to the extent applicable the accounting/disclosure of land acquisition and disposal activities since inception and payment made as advance to the contractors through Chief Engineer Division, Kanpur amounting to Rs. 6, 05, 21, 740/- without submitting bills/invoice included in Industrial Land under development under Current Assets. ANNEXURE TO THE AUDITORS' REPORT 4. In respect of its Internal Control In our opinion and according to the information and explanations given to us during the course of audit, there are adequate internal controls system commensurate with the size of the company and the nature of its business with regard to purchase of stores, plant and machinery equipments and other assets, however in certain areas internal control needs further strengthening like allotments of industrial plots, payment of advances/development expenditures and collection of demand drafts and deposit into bank, we observed that MIS in respect of party ledger, lease deed register, Allotment Register, Plot wise register, transfer register full allottee wise details of earnest money are not completed. On the test checking of payment of advances, we found that payment made to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be given. In Swadeshi Cotton Mills Co. Ltd. v. CIT [1988] 171 ITR 634/[1987] 32 Taxman 271 this Court held that the Inspecting Assistant Commissioner and the Commissioner of Income Tax with due regard to the nature of the account books were satisfied that the accounts of the company were of a complex nature and that it was necessary in the interests of the revenue that a special audit should be conducted. It was held that it could not said that there was any arbitrary exercise of the powers in directing the special audit under Section 142 (2A). 15. We also do not find any substance in the contention that in the present case the CCIT has not examined the accounts in arriving at a conclusion that accounts books were not complex in nature for which the special audit is required. The satisfaction of the complexity of the accounts is not required to arrive at by discussing the accounts in meticulous details. Where the approving authority has considered the account books along with auditors reports and finds that there was a malafide intention to avoid the verification of the books and accounts and that there are various comments on the auditors justifying gross neglect, and misap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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