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TMI Blog2013 (12) TMI 419X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer) under Section 142 (2A) of the Income Tax Act, 1961 dated 26.12.2011, for special audit of the accounts of the company to be carried out by M/s Dhanesh Chandra Gupta & Co., Dariyaganj, New Delhi, as auditors. 4. Shri V.B. Upadhyay, learned counsel for the petitioner submits that the Assessing Officer or the Commissioner of Income Tax in its approval order under Section 142 (2A) of the Act dated 20.12.2011 has recorded its satisfaction of the complexity of the accounts and the interest of revenue without looking into the accounts. He submits that the reasons given for special audit, are by way of conclusions drawn by the Assessing Officer, without going into the details of the accounts and unless the conclusions are drawn prior to issuing directions for special audit, the mandate of the Act is violated. 5. Shri V.B. Upadhyay further submits relying upon Swadeshi Cotton Mills Co. Ltd. v. Commissioner of Income Tax and Ors., 1988 (171) ITR 634, that under the guidelines vide Instruction No.1076 dated July 12th, 1977, which are binding on the income tax authorities, the petitioner's case does not fall in any of the categories given in the instructions for selection of cases for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and building construction (addition Rs.15045383/-) and loss on sale of assets (Rs.37,36,274/-). 18. Give details of debts due from firms or private companies in which any director is a partner or a director or a member (Rs.1,92,962/-). 19. Please produce complete books of account alongwith all relevant registers, bill and vouchers to substantiate the expenses claimed in profit and loss account. 20. Please submit ledger of interest paid (Rs.2260762/-). Also explain this interest amount was paid on which kind of fund and for what purpose." 9. Shri Agrawal submits that along with reply dated 2.11.2011 the petitioner submitted two volumes of documents containing the link-sheets and related statements, which covered almost entire accounts and most of the queries raised. He refers to the letter written by Shri Arvind Shukla, learned counsel for the petitioner dated 2.11.2011, giving his comments along with two volumes of documents. The ordersheet queries dated 2.11.2011 and 15.11.2011 would further show that the petitioner was required to comply with query nos.10, 16, 17, 18, 19 and 20 of the Questionire dated 24.10.2011 and to produce ledgers of fixed assets for examination, advan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to supporting documents would required complexity with regard to investment of individual shares and determination of long term/ short term profit/ loss arising from these scripts. Therefore, the A.O's reference with regard to expenditure incurred in relation to earning exempt income as well as classification of short term loss appear justified. It is also seen that as per item no.6 of Significant Accounting Policy, the current income comprising investments in units of mutual fund are carried at lower of cost or fair value. This system of statement is applicable only in the case of stock-in-trade. As per assessee's own clarification as given in the Balance Sheet, these are shown as investment and therefore the Accounting Policy as indicated in item no.6 of the assessee's final accounts needs to be examined for which the statement in accounts needs to be evaluated. In this context, the Accounting Policy point No.5 and 9 as appearing in the 48th Annual Report of the assessee for F.Y. 2008-09 dealing in 'Impairment of assets' and 'recognition of income and expenses' are reproduced below:- "No.5- The company on an annual basis makes an assessment of any indication that may lead to im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re. Thus any renovation/ improvement has to be examined whether it falls in the category of current repairs and whether in the nature of capital. The assessee's claim that merely it is the renovation/ improvement does not necessarily classify the expenses to be revenue in nature. Therefore, these issues have to be examined in light of the provisions of law and the nature of the repairs. In absence of any further details being available, the same clarification could be obtained by getting the accounts audited by an Accountant with specific term of reference to determine the same. The Accounting Policy with respect to the "Transactions in Foreign Currency' is mentioned in item 11 of Accounting Policies as given in the 48th Annual Report is reproduced below: (i) Sales made in foreign currency are being converted at exchange rate prevailing on the day the bills are raised. The realization of foreign currency on account of settlement of bills over the counter and encashment of foreign exchange are being translated at exchange rate prevailing on that date. Gain 7 loss arising out of fluctuation in exchange rate is accounted for on ralization. (ii) Payments made in foreign currency are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue which may require reference to the auditor, as the present accounts do not correspond to accept accounting standards. In view of the above, it is seen that the opinion of the A.O. is formed on the basis of four issues which are all relevant consideration and therefore, approval is hereby granted t the A.O. (ACIT, Central Circle, Varanasi) to direct the assessee to get the accounts audited by an Accountant. The A.O. may appoint M/s Dhanesh Chandra Gupta & Co. Address 1/16, Shanti Mohan House, Aasar Road, Dariya Ganj, New Delhi-110002 in this behalf, who shall furnish the report of the A.O. The A.O. will clearly indicate the terms of reference as referred to by in this proposal referred to above. (Davendra Shanker), Commissioner of Income tax, (Central), Kanpur" 11. In the directions issued by the Assessing Officer to receiving the approval, the terms of preference for audit under Section 142 (2A) in Annexure No.1 details the complexity of the accounts. 12. In Sahara India (Firm), Lucknow v. Commissioner of Income Tax, Central-I and Anr., (2008) 14 SCC 151 the Supreme Court held:- "6. A bare perusal of the provision of sub-section (2-A) of the Act would show that the opinio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of power by the assessing officer, casts a very heavy duty on the said high ranking authority to see to it that the requirement of the previous approval, envisaged in the section is not turned into an empty ritual. Needless to emphasise that before granting approval, the Chief Commissioner or the Commissioner, as the case may be, must have before him the material on the basis whereof an opinion in this behalf has been formed by the assessing officer. The approval must reflect the application of mind to the facts of the case." 13. We have considered the submissions and perused the documents annexed to the writ petition. We do not find that the order directing special audit suffers from any jurisdictional error. The Assessing Officer had given sufficient opportunities beginning from 24.10.2011, and on various dates, when accounts were submitted to allow the petitioner to satisfy her with regard to accounting procedures and the accounts, and to explain the expenditure incurred in relation to the earning exempt income in the form of dividend; clarification of repairs and maintenance expenses, which are in the nature of capital expenses, expenditure incurred on renovation of making ro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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