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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 ..... the Assessing Officer with a safeguard of obtaining approval from the Commissioner, can direct the special audit - Where such a satisfaction has been arrived at, in bonafide manner after making a genuine and past attempt to understand the accounts and after giving opportunity to the assessee to submit explanation, it cannot be said that unless any of the conditions given in the guidelines are satisfied, special audit cannot be directed - Decided against assessee. - Writ Tax No. - 141 of 2012 - - - Dated:- 3-2-2012 - Hon'ble Sunil Ambwani And Hon'ble Manoj Misra,JJ. For the Petitioner : Anjali Upadhyay,V. B. Upadhya For the Respondent : C.S.C., Income Tax ORDER 1. Shri V.B. Upadhyay, Sr. Advocate assisted by Ms. Anjali Upadhyay appears for the petitioner. Shri Bharat Ji Agarwal, Sr. Advocate assisted by Shri Ashok Kumar appears for the department. 2. The petitioner is public limited company engaged in the business of running hotels. It has four units (hotel) i.e. (1) Hotel Clarks Shiraz, Agra; (2) Hotel Clarks Awadh, Lucknow; (3) Hotel Clarks Amer, Jaipur and (4) Hotel Clarks Khajuraho. It is stated that the petitioner's accounts are audited by internal auditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Discs, if it is desired. The counsel further informed the Assessing Officer that he has to attend the National Tax Conference and thus he would not be able to meet her before Tuesday, the 13th December, 2011, on which further discussions on the case would be made. 7. Shri Upadhyay submits that instead of giving further time to produce account books and perusing them, the Assessing Officer issued a show cause notice on 13.12.2011. The petitioner gave a detailed reply on 16.12.2011, which was not considered before approval order was passed by the Commissioner on 20.12.2011 and the directions were issued by the Assessing Officer under Section 142 (2A) of the Act on 26.12.2011. 8. Shri Bharat Ji Agrawal appearing for the department submits that the first notice was given to the petitioner by the Assessing Officer on 24.10.2011 asking the petitioner to prepare a true and correct return of income in respect of which it is assessable under the Act during previous year and to produce or cause to produce in her office on 31.10.2011 accounts and or documents specified by him. In the particulars of accounts and the documents required to be produced the Assessing Officer required the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax (Central) in his approval order dated 20.12.2011 as follows:- "It is not under dispute that the assessee holds investment as indicated in the audited account as per Schedule 8 of the Balance Sheet amounting to Rs.5,29,47,638/- and as per item No.16 of Notes to Accounts, it is seen that there is a massive sale and purchase of this investment during the year. It is also seen that the assessee had borrowed funds as well as reserve in its Balance Sheet and the borrowed fund has been reduced to NIL in the Current Year. Whereas the assessee had made only dis-allowance of Rs.2,10,631/- in terms of Rule 8D claiming to be 0.5% of the assets value. Looking to the details of the investment and sale and purchase of the investment during the year, it gives rise to two issues whether the resulting income or loss in the nature of business or whether in terms of long or short term capital gain/ loss to once the assets are classified as investment and the assessee had claimed that he is not in the business of trading in the investment. Therefore, the A.O.'s view that the Income should be treated as short term loss as restricted as per the provision u/s 94 (7) of the Act appears to be reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ull with the tax deducted thereon being accounted for under the head tax refunds/ payments. Dividend income is recognized when right to receive payment is established. (iii) Expenditure incurred on renovation/ improvement in or in relation to existing facility, structure, plant or equipment are charged off to revenue. Where there is extension to building or increase in capacity of equipment and plant, the amounts incurred thereon are capitalized. From the above, it can be seen that the assessee had debited expenses on account of 'impairment of assets' and 'expenditure on renovation and improvement' in relation to existing facility, structure, plant or equipment are charged off to revenue account. Similarly, in term of impairment of assets. It is mentioned that if any such indication regarding impairment of assets is received and the recoverable amount is less than the carrying amount, then the carrying amount is reduced to its recoverable amount by treating the difference between them a impairment loss and is charged to the Profit Loss Account. This system of accounting as mentioned in Item No.5 and 9 of the assessee's account is not in accordance with section 31 of the IT Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Auditors. In normal circumstances, the method of accounting with respect to foreign currency transactions are provided in the accounting standard 11 which deals with the recognition of income from foreign exchange as well as exchange fluctuation. In terms of the decision of the Hon'ble Supreme Court in the case of Wood Word Governors, accounting standard 11 has to be applied for the purpose of determination of impact of currency fluctuation on income. Moreover, the foreign currency has to be translated in Indian Currency as on the date of transaction and not on the date of raising the bill as mentioned in the Notes to Account. It is also seen that assessee makes sales of room rental to various foreign tourist who might have booked through foreign agent. In such cases, the expenses are incurred in India but their corresponding revenue is received in foreign currency at the time of booking through foreign travel agent or travellor as the case may be. Therefore, in view of the observations of the statutory auditor as given in item No.19 of Notes to the Accounts, earning in foreign currency and this matching expenditure on the tour of the guest in India needs to be verified b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "complexity" used in Section 142(2-A) is not defined or explained in the Act. As observed in Swadeshi Cotton Mills Co. Ltd. v. CIT it is a nebulous word. Its dictionary meaning is: (ITR p. 637) " 'The state or quality of being intricate or complex "or" that is difficult to understand.' However, all that is difficult to understand should not be regarded as complex. What is complex to one may be simple to another. It depends upon one's level of understanding or comprehension. Sometimes, what appears to be complex on the face of it, may not be really so if one tries to understand it carefully." (emphasis supplied) Thus before dubbing the accounts to be complex or difficult to understand, there has to be a genuine and honest attempt on the part of the assessing officer to understand accounts maintained by the assessee; appreciate the entries made therein and in the event of any doubt, seek explanation from the assessee. But opinion required to be formed by the assessing officer for exercise of power under the said provision must be based on objective criteria and not on the basis of subjective satisfaction. 8. There is no gainsaying that recourse to the said provision cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it would be required. 14. In Swadeshi Cotton Mills Company Ltd. (Supra) this Court considered the arguments from the facts of the case in which there was search in the business premises of company leading to the seizure of the voluminous records. The Court did not accept the argument that unless the case of the company comes in any of the eventuality given in the guidelines special audit may not be directed. The Court observed that the requirement of Section 2A must first be satisfied in every case that the objective assessment of the accounts of the assessee as to its nature and complexity and without there being such finding special audit ought not to be directed. 15. The guidelines are made for the guidance of the officers so that powers may not be misused or may not be used for oblique purposes. The guidelines cannot override or nullify the specific powers given under the Act. 16. In the present case under Section 142-A, the Supreme Court in Sahara India's case, if the accounts after a genuine and past attempt giving opportunity to the petitioner to clarify any doubt and after seeking explanation are found to be complex in nature and further that interest of revenue is in ..... 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