9911796707
TMI Blog2013 (7) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee were complex and in the interest of the Revenue, it was so required, directed that the accounts be audited by the special auditor - proviso to Section 142(2A) does not envisage any personal hearing before an order under sub-section (2A) can be passed - Following decisions of F.N Roy v. Collector of Customs, Calcutta & Ors. [1957 (5) TMI 1 - SUPREME COURT OF INDIA], Union of India v. Jyoti Prakash Mitter [1971 (1) TMI 108 - SUPREME COURT] and Smt. Ambeydevi v. State of Bihar & Anr. - Decided in favour of Revenue. Special audit - 142(2A) - Complexity of accounts and complexity of the question whether accounts are complex or not - Held that:- petitioner had been given previous notices under section 142 (1) of the Act with respect to its accounts but for a long time, the petitioner did not comply with such notices - Assessing Officer, therefore, issued notice why considering the complexities in the accounts, the same may not be audited by the special auditor - authorities have highlighted several aspects of the matter to indicate that the accounts were complex and that interest of revenue would be served if the special audit report is obtained - notice was issued in Decem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer under section 142 (1) of the Act calling for various details regarding the accounts of the petitioner. Undisputedly for sometime, the petitioner did not comply with such notices. On 26th December 2012, the respondent no.1 issued a notice stating : having regard to the nature of complexity of your accounts as mentioned above and in the interest of revenue, I hereby propose to refer your case for approval to the CIT, Central II, Ahmedabad for special audit u/s.142 (2A) of the Act. 4. In view of above, you are required to show cause why your case should not be referred for special audit u/s. 142 (2A) of the I.T Act, 1961... In such notice, the respondent no. 1 gave detailed account why he believed prima facie that special audit in case of the petitioner was necessary. He conveyed to the petitioner, thus- 2. I have gone through the seized material and return of income filed u/s. 153A of I.T Act and other documents filed during the assessment proceedings. Plethora of papers essentially, bills and vouchers related to construction were found and seized from various premises covered under the search in your case. The following cases emerged, which are sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were also found. From the perusal of these accounts, it can be seen that the payment of Rs. 7,00,00,000/= has been shown to have been made by you to M/s. Palm Lagoon Backwater Resorts Pvt. Limited and Dr. V. Harikumar. Whereas as per the sale deed the amount was being paid to Ms. Gujarat Sysport Services Pvt. Ltd. against the purchase of the shares of the company M/s. Palm Lagoon Backwater Resorts Pvt. Ltd. Further, it is evident those bills cannot be found. In the case of Shri J.C Patel and Shri S.V Khant bills and vouchers were found and seized from Neesa Leisure Limited at Cambay Square, GIDC Electronic Estate, Sector No. 25, Gandhinagar. When the same was verified with the digital accounts seized/impounded from various premises, during the course of survey/search the entry in the books of account in the name of Shri J.C Patel could not be found. Similar is the case with Shri S.V Khant. It is also pertinent to note that Shri Bharat M. Shah, Prop. Of Kala Sales, Manu Enterprise and P.M Traders and Director of Asopalav Trades Private Limited has already accepted during his statement taken on 29.09.2010 and 10.12.2010 u/s. 131 of I.T Act, that he has provided accommodation entries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide various notices dated 25.09.2012, 18.10.2012, 07.11.2012, 27.11.2012 and 14.12.2012. But even after lapse of the stipulated time mentioned in the notice, this office has not received any details for the query. vi. You have sold commercial space on the first floor of the complex in your Gandhinagar Office for a total consideration of Rs. 2.14 Crores to M/s. Benefit Infomedia Limited. You were required to provide the complete documents for this transaction and evidence in support of the income arising out of this transaction being offered to tax. Neither you have furnished any information or documentary evidences, nor you have shown whether it has been offered to taxation. Despite of lapse of Three months from the issuance of first notice, no information has reached this office. You were required to explain the nature of such credits and explain the genuineness of the credits. You were given opportunity to furnish the above mentioned details vide various notices dated 25.09.2012, 18.10.2012, 07.11.2012, 27.11.2012 and 14.12.2012. But even after lapse of the stipulated time mentioned in the notice, this office has not received any details for the query. vii. You were r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnish the ledger accounts in the case of Shri S.V Khant and Shri J.C Patel as appearing in the books of accounts. No such details were submitted. The purchases were neither properly explained, nor their genuineness were confirmed by you. Further, even the identity of Shri J.C Patel has not been provided which was sought by this office vide letter dated 18.10.2012. You were required to explain the nature of such credits and explain the genuineness of the credits. You were given opportunity to furnish the above mentioned details vide various notices dated 25.09.2012, 18.10.2012, 07.11.2012, 27.11.2012 and 14.12.2012. But even after lapse of the stipulated time mentioned in the notice, this office has not received any details for the query. In response to such notice, the petitioner replied under communication dated 5th January 2013. The proposal for special audit was opposed on the ground that there were no complexities in the accounts nor such an action was necessary to protect the interest of the Revenue. It was contended that the resort to the special audit is being taken only to buy time since the assessments are getting time barred on 31st March 2013. In such reply, the petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y 2005-06 to 2011-12 in your case vide letter no. CIT (C) II/ Neesa/Special Audit/2012/13 dated 11.02.2013. Relevant extract of the approval granted by CIT CentralII, Ahmedabad is reproduced hereunder : Please refer to your letter dated 09/01/2013 in the above case requesting the undersigned to give approval to refer the case to Special Audit u/s. 142 (2A) of the Act. In the above referred letter, you have also enclosed the show cause notice issued by you to the assessee on 26/12/2012 and reply of the assessee on the show cause notice vide letter dated 05/01/2013. 2. The undersigned has gone through your letter dated 26/12/2012 addressed to the assessee asking it as to why its case should not be referred to special audit for A.Y 200506 to A.Y 2011-12. The discrepancy in date pointed by you in para 2 (i) of your show cause notice and other specific issues referred to in your show cause notice have also been noted. The undersigned has also noted your queries raised during the course of the assessment proceedings and non compliance of the assessee of these queries, which have been mentioned by you in almost each para of your show cause notice. The replies of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity should observe principles of natural justice. It seems that the Assessing Officer had not provided any opportunity of hearing to the assessee before referring the case to the CIT in that case. The complexities in the accounts of the assessee were never disclosed to the assessee before order u/s. 142 (2A) of the Act. 7. The reply of the assessee dated 05/02/2012 has been considered. The perusal of the reply reveals that the assessee has not given reply on many issues of your show cause notice dated 26/12/2012. After going through the assessment records, the reply of the assessee during the assessment proceedings and your show cause notice for Special Audit, it cannot be said that you have not attempted to understand the accounts of the assessee in a fair and honest manner. Further, the complexities of accounts referred to you in your show cause notice for Special Audit are genuine and the assessee has not been able to given any satisfactory reply of your notice on many issues. 8. In the present case, you have not only issued an elaborate show cause notice to the assessee specifying the complexities and non compliance of various queries during the assessment proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired to go through the following issues: (i) To take into account seized/impounded documents, seized/impounded documents, seized/impounded papers, seized/impounded books of accounts, material seized/ impounded in soft copies, document submitted during the course of search and survey proceedings and report. (a) Whether there is any discrepancy in entries in regular books of account visavis the seized / impounded material. (b) Whether transactions reflected in seized/impounded materials are shown in regular books of account. (c) Whether books of account of the assessee show true and correct picture of the affairs. If not, then the nature and quantum of discrepancies. (d) Whether some transaction shown in regular books of account need more investigation by the A.O. (ii) To verify whether proper records of income and expenditure are maintained, if not then details thereof. (iii) To verify the depreciation claim of the assessee. (iv) To examine the banking transactions of the assessee and ascertain whether the same have been duly reflected in books of accounts and income tax return. (v) To list all the transactions of loan given by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allenged in the present petition. Learned counsel for the petitioner raised following contentions : [a] No personal hearing was granted to the petitioner by the respondent no. 1 before passing the impugned order. Counsel contended that hearing envisaged under Section 142 {2A} of the Act necessarily includes a personal hearing. In the present case, though a specific request was made for such personal hearing, the respondent no. 1 did not grant such hearing. [b] The order passed by the respondent no. 1 is not a reasoned order. Various grounds and objections raised by the petitioner in the reply to the show cause notice have not been dealt with. [c] Counsel lastly contended that the requirement of exercise of the powers under Section 142 (2A) of the Act are not fulfilled. This is neither a case of complexities of accounts nor a case where interest of revenue required any such reference to the special auditor. In support of his contentions, counsel relied on the following decisions : [a] In case of Rajesh Kumar Ors. v. Deputy Commissioner of income-tax Ors., reported in (2006) 287 ITR 91 (SC), wherein, the Supreme Court in the context of the provisions of Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsonal hearing cannot be read into Section 142 (2A) of the Act. Whenever the Legislature desired that a personal hearing should be given, it has been specifically so provided. He drew our attention to Section 250 of the Act, in which, the procedure in appeal before the appellate Commissioner is provided. sub-section (2) of Section 250 provides that the appellant, either in person or by an authorized representative; and the Assessing Officer, either in person or by a representative, shall have a right to be heard at the hearing of the appeal. Likewise, Rule 23 of the Income Tax Appellate Tribunal Rules, 1963 provides that on the date fixed by the Tribunal or any other date to which, the hearing may be adjourned, the appellant shall be heard in support of the appeal. The Tribunal shall then, if necessary hear the respondent against the appeal and in such case, the appellant shall be entitled to reply. On the basis of such statutory provisions, counsel contended that when no personal hearing is envisaged under Section 142 (2A) of the Act, the same cannot be read into the said provision. [b] Counsel further submitted that the petitioner was granted personal hearing by the Commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrect and proper assessment based on the accounts maintained by the assessee and when he finds the accounts of the assessee to be complex, with a view to protect the interest of the revenue, recourse to said provision can be had. In case of Purvanchal Vidyut Vitran Nigam Limited v. Union of India Ors., reported in (2010) 329 ITR 508 (All.), the Allahabad High Court upheld such order passed by the concerned authority with the approval of the Commissioner observing that on facts and circumstances of the case, approval granted by the Commissioner could not be said to be mechanical or without application of mind. Having thus heard learned counsel for the parties, we may first examine whether requirement of hearing envisaged under Section 142 (2A) of the Act includes personal hearing. Section 142 of the Act pertains to inquiry before assessment. sub-section (2A) thereof provides that if, at any stage of 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, may with the previous approval of the Chief Commissioner or Commissioner, direct the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest of the Revenue. Such decision was approved by the Supreme Court in a later decision in case of Sahara India [Firm] v. CIT Anr. {Supra}, observing as under :- ...The upshot of the entire discussion is that the exercise of power under section 142 (2A) of the Act leads to serious civil consequences and, therefore, even in the absence of express provision for affording an opportunity of predecisional hearing to an assessee and in the absence of any expression provision in section 142 (2A) barring the giving of reasonable opportunity to an assessee, the requirement of observance of the principles of natural justice is to be read into the said provision. Accordingly, we reiterate the view expressed in Rajesh Kumar s case. The above legal position, which was till the introduction of the proviso governed by the decisions of the Supreme Court noted above was statutorily recognized by insertion of the said proviso. What was implicit was made explicit. Statutorily now, it is required for the Assessing Officer to give a reasonable opportunity of being heard to the assessee before passing an order to get the accounts audited under section 142 (2A) of the Act. An opp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be affected by a decision is entitled to know the evidence against him and to have an opportunity of making a representation. He however cannot claim that an order made without affording him an opportunity of a personal hearing is invalid. The President is performing a judicial function when he determines a dispute as to the age of a Judge, but he is not constituted by the Constitution a Court. Whether in a given case the President should give a personal hearing is for him to decide. The question is left to the discretion of the President to decide whether an oral hearing should be given to the Judge concerned. The record amply supports the view that the President did not deem it necessary to give an oral hearing. There were no complicated questions to be decided by the President. In case of S. Kapur Singh v. Union of India, reported in AIR 1960 SC 493, the Constitution Bench of Supreme Court observed as under :- 23. By the Constitution, an opportunity of showing cause against the action proposed to be taken against a public servant is guaranteed and that opportunity must be a reasonable opportunity. Whether opportunity afforded to a public servant in a particular case is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in AIR 1996 SC 1509 in the context of contention of denial of opportunity of personal hearing before rejecting the prayer for dispensing with predeposit of the penalty, the Apex Court observed as under:- 5. The High Court has primarily considered the question as to whether denying an opportunity to the appellant to be heard before his prayer to dispense with the deposit of the penalty is rejected, violates and contravenes the principles of natural justice. In that connection, several judgments of this Court have been referred. It need not be pointed out that under different situations and conditions the requirement of compliance of the principle of natural justice vary. The Courts cannot insist that under all circumstances and under different statutory provisions personal hearings have to be afforded to the persons concerned. If this principle of affording personal hearing is extended whenever statutory authorities are vested with the power to exercise discretion in connection with statutory appeals, it shall lead to chaotic conditions. Many statutory appeals and applications are disposed of by the competent authorities who have been vested with powers to dispose of the same. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not require that personal hearing shall be given, but, if in appropriate cases where complex and difficult questions requiring familiarity with technical problems are raised, personal hearing is given, it would conduce to better administration and more satisfactory disposal of the grievances of citizens. ... In case of State of U.P Ors. v. Maharaja Dharmander Prasad Singh, etc., reported in AIR 1989 SC 997, it was observed as under :- 29. On the point of denial of natural justice, we agree with conclusion of the High Court, though not for the same reasons, that there has been such a denial in the proceedings culminating in the order of cancellation. The show cause notice itself is an impalpable congeries of suspicions and fears, of relevant or irrelevant matter and has included some trivia. On a matter of such importance where the stakes are heavy for the Lessees who claim to have made large investments on the project and where a number of grounds require the determination of factual matters of some complexity, the statutory authority should, in the facts of the case, have afforded a personal hearing to the lessees.... From the above catena of decisions, it can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnical questions of law and facts are involved. Such requirement, however, cannot be read into or fastened under the proviso to section 142 (2A) of the Act. In other words, in the context of the statutory provisions, such requirement cannot be seen as part of the scheme of the Act. In a given case, in special set of facts and circumstances it may be desirable or even necessary, but not in all cases. In case of Rajesh Kumar Ors. {Supra}, the Supreme Court though read the requirement of hearing in Section 142 (2A) even prior to introduction of provision, nowhere provided that such hearing must be personal hearing. In fact, the observations made by the Supreme Court in paragraph 63 of the said judgment would indicate that such hearing would be of summary nature. It was observed as under :- 63. The hearing given, however, need not be elaborate. The notice issued may only contain briefly the issues which the Assessing Officer thinks to be necessary. The reasons assigned therefor need not be detailed ones. But, that would not mean that the principles of justice are not required to be complied with. Only because certain consequences would ensue if the principles of natural justi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the Income Tax authorities was quashed on the ground that no details were furnished as to when the petitioner s counsel were heard. However, the question whether such personal hearing was necessary or not was not answered. Such decision, therefore, cannot be seen as an authority to the proposition that requirement of personal hearing is inbuilt in Section 127 of the Act. The decision in case of Dr. N Rajkumar vs. Deputy Commissioner of Income Tax, [Supra] of the Madras High Court does not lay down any ratio which can be applied in the present case. In the said decision, the Income Tax Appellate Tribunal at Chennai had proceeded to decide appeal in absence of the assessee. In such a case, the Court observed that the approach of the Tribunal in proceeding with the passing of the final order cannot be faulted. The assessee was however given an opportunity of fullfledged hearing. For which purpose, the order was setaside solely with a view to comply with the principles of natural justice and with a view to extend one more opportunity of hearing and for such purpose, the proceedings were remitted to the Tribunal for de novo hearing. The decision in case of Re Jagdish Prasad Cho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. In the context of the case, consideration means taking into account and dealing with the materials on record leading to a decision. However, in the instant case, the order impugned is silent how the replies and enclosures on record were considered. Therefore, the logical conclusion would be that the materials on record were not considered at all. Further, section 127 of the Act postulates that the assessee should be given a reasonable opportunity of being heard in the matter, wherever it is possible to do so, thus making it imperative for the Revenue to give the assessee an opportunity of being heard. I find the petitioner was not given an opportunity of hearing. No reason has been spelt out for denying such opportunity. Hence, the order is in breach of the provisions contained in section 127 of the Act. In view of the clear mandate in section 127, the principles of law in Madhya Pradesh Industries [Supra] passed in the light of the provisions contained in Mines Minerals [Regulation Development] Act, 1957 are not applicable to the facts of the case. For the reasons as indicated, the order impugned passed under section 127 of the Act cannot be sustained and is, thus, setasi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the final order; after considering the objections. The authorities have highlighted several aspects of the matter to indicate that the accounts were complex and that interest of revenue would be served if the special audit report is obtained. The various points on which the Assessing Officer desired that the auditor should make a report itself would demonstrate that the accounts were complex. They were also of the opinion that it would be in the interest of Revenue to get the accounts audited. The contention that only to buy time, the action was taken, cannot be accepted since notice was issued in December 2012 where admittedly, the proceedings were getting time barred on 31st March 2012. There was thus sufficient time to complete the assessment even without the extended time limit. In case of U.P Financial Corporation v. Joint Commissioner of Income Tax Ors., reported in (2006) 280 ITR 100 (All), the Allahabad High Court upheld the order passed under Section 142 (2A) of the Act, making following observations : 28. From the above decisions, the following principles emerge which have to be kept in mind while exercising the powers under section 142 (2A) of the Act : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntment of the special auditor, as envisaged under section 142 (2A) of the Act, have not been fulfilled. The reasons are also contained in the communication letter dated March 8, 1999, appendix V, and therefore, the approval granted by the Commissioner of Income tax does not suffer from any infirmity. As held by this Court in the case of Jhunjhunwala Vanaspati Limited [2004] 266 ITR 657 and Uttaranchal Welfare Society [2004] 268 ITR 214, this court cannot sit in appeal over the decision taken by the authorities in directing the special audit. The order is based on the objective satisfaction of the authorities and does not suffer from any legal infirmity. We are conscious that the observations in para 28 (c) of the judgment are not in consonance with the judgment of the Supreme Court in case of Rajesh Kumar [Supra] and in case of Sahara India (Firm) [Supra]. This however would not water down above observations/conclusions of the decision. In case of Purvanchal Vidyut Vitran Nigam Limited v. Union of India Ors., reported in (2010) 329 ITR 508 (All.), it was observed as under :- 14. In the circumstances, we are of the view that the present is the case where the opportunity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. In those cases, the Assessing Officer had not examined the books of account and had formed an opinion as contemplated under section 142 (2A) of the Act without proper application of mind. While in the case of Bata India [2002] 257 ITR 622 (Cal) the court found that it was only the doubt of the Assessing Officer which had been equate to the complexity of accounts and the satisfaction has not been recorded upon objective considerations. In fact, the authorities did not find any fault with the two audit reports filed by the petitioner along with the return in that case. These cases are of no help to the petitioner because it is only after perusing the records of the assessee, raising queries for the year in question as well as for such years and having failed to get any satisfaction answer and keeping in view the complexity and nature of accounts and the interest of the Revenue, that such a direction has been made by the Assessing Officer. We have already noticed that on the own showing of the assessee they have a huge business of different kinds, part of which is taxable while part of which is exempted from taxation. The losses of one are being set off against the other and with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioners on December 18, 2002. Large records alongwith the books of account were seized. During the pendency of the assessment proceedings, commenced upon issuance of notice under section 158BC of the Act for the block period April 1, 1996 to December 18, 2002, the return filed by the assessee was found to be unsatisfactory. After examination of the books of account and the documents which were seized, the Assessing Officer was of the opinion that it would be in the interests of the Revenue to direct special audit under the provisions of the Act. The contention raised before us is that there is no application of mind and no reasons have been provided in the impugned direction by the Assessing Officer. We find no merit in this contention. Before passing the impugned direction, the Assessing Officer had issued a detailed questionnaire under section 142 (1) of the Act to each of the petitioners requiring them to furnish the details. As many as 120 questions were served upon the assessee under the questionnaire dated November 1, 2004. It is not necessary for us to note these questions in greater detail. Suffice it to note that certain amounts which were not found in the books of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 mala fide intention to avoid the verification of the books of accounts and that there are various comments on the auditors justifying gross neglect, and misappropriation of funds, the satisfaction, in this case for Special Audit, cannot be said to be without application of mind. The order under Section 142 (2A) may have civil consequence as it involves investigation but that in the facts and circumstances of the present case where the activities of the UPSIDC were found to be extremely large and that there is delay in carrying out the statutory audit coupled with the fact that full and detailed accounts including ledger of the parties was not complete and produced before the auditors, the satisfaction of the nature of the complexity of accounts and interest of revenue, is entirely justified. Bearing in mind above principles, we see no reason to interfere. In exercise of ju ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
