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TMI Blog2013 (8) TMI 448X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer concluding about the complexity of the accounts without having verified/examined the same - Condition precedent for exercising powers under Section 142(2A) of the said Act, viz: nature and complexity of accounts of the assessee have been satisfied. Reliance is placed upon the decision in the case of Joint Commissioner of Income tax v/s. I.T.C. Ltd., [1999 (7) TMI 68 - CALCUTTA High Court], wherein it was held that it is not possible for an Assessing Officer to look into the accounts and to verify whether each of the entries in the accounts reflects genuine transactions if the transactions are large in number. Therefore, in such a case, looking at large number of the transactions, the Assessing Officer can ask for the approval for the appointment of special auditor - In the present facts also, the transactions are large in number as it cover 10 entities and having turnover of Rs.100 Crores. Thus, the appointment of Special Auditor in terms of Section 142 (2A) of the Act cannot be found fault with – Decided against the Assessee. Effect of amendment to section 142(2A) vide Finance Act, 2013 - Petitioner relied upon the above provisions to contend that prior t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Tax (Exemption) was not satisfied with the accounts of the petitioner and the audit thereof. Having regard to the nature and complexities in the accounts as the petitioner was running 10 entities having turnover of Rs.103 Crores, the Assessing Officer issued a show cause notice on 13 February 2013 to the Petitionertrust, calling upon it to show cause why a special audit under Section 142(2A) of the Act should not be conducted in respect of its books of account for the assessment year 201011 as there was nondisclosure of transactions with related parties, nondisclosure of accounting policies including disclosures of notes to accounts along with the balance sheet and profit and loss account and information regarding the incomes of the pharmacy shop running at both the hospitals and receipts therefrom was also shown as hospital revenue. 6 The petitioner replied to the show cause notice pointing out that the special audit was not called. It was pointed out that the Auditor had not reported related party transactions as those transactions were at arms length/ prevailing rates, so far as the objections with regard to non filing of Accounting policy is concerned, it was submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer could not have invoked provisions of Section 142(2A) of the said Act as the condition precedent to invoke the same is complexity of the accounts. According to him, the Assessing Officer has not examined the petitioner's books of accounts and, therefore, could not conclude that the accounts of the Petitioner are complex warranting a Special Audit. Consequently, primary requirement for invoking the jurisdiction under Section 142 (2A) of the Act is not fulfilled. (b) In any event, the impugned order dated 30 March 2013, directing the special audit in the Assessment Year 201011 does not give any finding with regard to the complexity of the accounts and therefore, the impugned order is unsustainable. It was submitted that at no point of time, did the Assessing Officer examine the accounts of the Petitioner and made an attempt to understand the same. (c) The doubts about the correctness of the accounts cannot be equated with complexity of the accounts. In case, the Assessing Officer found the audit carried out by the Petitioner's Auditor is not acceptable, he was free to ignore the accounts and pass a best judgment assessment under Section 144 of the Act. (d) It is not open to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions as applicable to the case: ( a) The Special Audit is directed in accordance with Subsection 2A of Section 142 of the Act at the relevant time read as under: If, at any stage of the proceedings before him, 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 is is necessary so to do, he may, with the previous approval of the [Chief Commissioner or Commissioner], direct the assessee to get the accounts audited by an accountant, as defined in the Explanation below subsection (2) of section 288, nominated by the [Chief 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. (b) The audit report as furnished by the Petitioner in respect of its accounts to the revenue in accordance with the provisions of Section 12A (1)(b) of the said Act which reads as under: ( b) Where the total income of the trust or institution as computed under this Act without giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout having verified/examined the same. Therefore, in view of the above, there is no reason to disbelieve the statement made on oath by the Assessing Officer. Thus, the principal challenge of the petitioner with regard to direction of Special Audit is not sustainable. The Accounts have been verified and taking into account the complexity of the Accounts, the Special Audit has been directed. 14 The entire object of having the accounts audited by an independent Chartered Account in respect of the trust is to ensure that the income of the trust has not been diverted for purposes other then the objects of the trust. The audit report of the Chartered Accountant is in form 10B as prescribed under Rule 17B of the Income Tax Rules 1962. The audit report furnished by the auditor is taken into account while making an enquiry for the purpose of assessment under Section 143 of the said Act. The petitioner is a charitable trust which undertakes charitable objects and the income is exempted from tax, inter alia, on the basis of audit and audit report submitted under Section 12A( 1)(b) of the Act. The auditor in terms of the prescribed form has to report related parties transactions which hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aring into the provisions. In the above context it also held that the requirement of the previous approval by the Chief Commissioner should also not be turned into an empty ritual. It would, therefore, be noticed that the factual matrix in the above case was different and whether or not the special audit is required would depend upon the facts of each case. In the facts of this case we find that special audit is warranted and by doing so the Assessing Officer is not abdicating his responsibility. Otherwise the provision for special audit would never be invoked. (b) Delhi Development Authority and Another v/s. Union of India and Another 350 ITR 432, (Delhi High Court) wherein it has been recorded that before the special audit can be directed, the condition precedent is complexity of accounts and safeguarding the interest of revenue. Therefore, it was submitted that before special audit can be ordered, the Assessing Officer must be satisfied that the accounts are complicated, after having made a genuine and honest attempt to understand the accounts. In the present case, the Assessing Officer has found that the accounts of the petitioner are complex. This view has been approved by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer can ask for the approval for the appointment of special auditor. In the present facts also, the transactions are large in number as it cover 10 entities and having turnover of Rs.100 Crores. Thus, the appointment of Special Auditor in terms of Section 142 (2A) of the Act cannot be found fault with. 18 The learned Counsel for the petitioner drew our attention to the Finance Act, 2013, wherein the words the nature and complexity of accounts under Section 142(2A) of the said Act is now substituted with the words 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 that it is necessary so to do, he may . This amendment has come into force w.e.f. 1 June 2013. The aforesaid provision permits to order a special audit, inter alia, looking at the volume of the accounts or where there is a doubt about the correctness of the accounts. The Petitioner relied upon the above provisions to contend that prior to 1 June 2013, the volume of accounts and/or doubts about co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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