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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 ..... manages various entities in the form of Hospitals, Nursing College and Schools affiliated to the ICSE/ISC/IB Bonds having a turnover of over Rs.100 Crores per annum. 4 On 30 September 2010, the petitioner has filed its return of income for the Assessment Year 201011, declaring its total taxable income at Rs. Nil while gross total income was Rs.9.65 crores and gross receipts were Rs.15.59 crores. The books of account of the petitioner was subjected to audit and audit report in form 10B under Section 12A(b) of the Act was also filed. The statutory auditors did not pass any adverse remarks with respect to the books of account maintained by the petitioner. 5 During the course of scrutiny assessment proceedings for Assessment Year 201011, various queries were raised by the Assessing Officer and the petitioner responded to the same. However, the Assessing Officer i.e. the Joint Director of Income 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome Tax, the Assessing Officer by order dated 30 March 2013 directed the petitioner to have its accounts audited by M/s. Chokshi & Chokshi, Chartered Accountants as the special auditor under Section 142(2A) of the said Act for the Assessment Year 201011. The terms of reference for Special Audit, inter alia, included whether the accounts are maintained as per general accounting standards along with supporting evidences as well as to report transactions undertaken by trust with related persons besides determining the surplus receipts in view of running a pharmacy in the two hospitals. By the present Petition, the challenge is to the order dated 30 March 2013 of the Assessing Officer appointing a Special Auditor under Section 142(2A) of the said Act. 10 Mr. Sreedharan, learned Counsel appearing for the Petitioner in support of the Petition submits as under:S. (a) The Assessing Officer 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 Pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has a turnover of Rs.103 Crores which consequently involves a large number of entries and it is impossible for the Assessing Officer to carry out the task of examining the accounts. This itself would require that the same be examined by a Special Auditor in terms of Section 142(2A) of the said Act; and (d) No prejudice would be caused to the petitioner and it would certainly assists the revenue to determine correctly the income earned by the assessee and its liability to tax, if any. Particularly so, as the petitioner is claiming exemption under Section 11 of the Act on the ground that any excess of income over expenditure is utilized to fulfill the charitable objects of the Trust; In the above circumstances, it was submitted that this Court should not entertain the Writ Petition. 12 Before considering the submissions, it may be convenient to reproduce the relevant provisions 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 assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts were not verified." Further in the affidavit it is stated that while verifying books of accounts the Assessing Officer came to the conclusion that the audit report and the books of accounts submitted by assessee were faulty and unreliable as auditor had not reported related party transactions. Besides, we find that at no stage prior to the filing of this petition, has the petitioner taken up the plea that the Assessing Officer had not examined the books of accounts of the petitioner. In fact, even at the hearing before the Commissioner of Income Tax for purposes of considering grant to approval to carry out Special Audit, the petitioner's only submission as recorded in the approval letter dated 25 March 2013 was only that the accounts are not complex. There is not even a suggestion about the Assessing Officer concluding about the complexity of the accounts without 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrect position. Therefore, we find that no prejudice is caused to the petitioner by subjecting its accounts to special audit. 16 During the course of the hearing, the petitioner placed reliance upon the following decisions: ( a) Sahara India (Firm) v/s. Commissioner of Income Tax 300 ITR 403 (Supreme Court), the issue for consideration before the court was whether any hearing is to be given before passing an order for special audit under Section 142(2A) of the said Act is passed? In that context, the Court had made observations that recourse to the provisions of the special audit cannot be made only to shift his responsibility of scrutinizing the accounts to another auditor. The Court held that the exercise of powers under Section 142(2A) should not be arbitrary and/or unjust. In the circumstances the Court read the principle of natural justice i.e. personal hearing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be available to the petitioner. By virtue of directing a Special Audit of the petitioner's books of accounts, the Assessing Officer is being far from arbitrary. This would only ensure that the benefit of exemption under Sections 11 and 12 of the Act is not denied if otherwise available to the petitioner. Therefore, none of the above cases is applicable to the fact situation arising in the petitioner's case. 17 As against the above, Counsel for the Revenue places reliance upon Joint Commissioner of Incometax v/s. I.T.C. Ltd., in 106 Taxman 373 (Calcutta) 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. 18 The learned C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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