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TMI Blog2006 (11) TMI 135X X X X Extracts X X X X X X X X Extracts X X X X ..... were in the hard disk of the computer. They upon seizure all through remained in possession of the respondents. Assessment was under the law required to be completed within a period of two years. A notice was issued under section 158BC of the Act by the Deputy Commissioner of Income-tax, Central Circle-18 requiring the appellants to submit a return of undisclosed income for the block period of ten years pursuant whereto returns were filed. A notice was issued under section 142(1) of the Act. Questionnaire was issued on November 1, 2004. On November 22, 2004, the Deputy Commissioner decided to proceed first with the assessment proceedings under section 158BC of the Act in the case of three individuals, viz., Smt. Sushila Rani, Smt. Sunayana Prabhakar and Smt. Sunanda Prabhakar as also two companies, viz., M/s. Daily Agro Milk Food P. Ltd., and M/s. Sushila Milk Specialities P. Ltd. The said questionnaire was responded to Affidavits were also filed before the Deputy Commissioner on behalf of Mis. Sushila Milk Specialities P. Ltd. By a letter dated November 23,2004, the Deputy Commissioner mooted a proposal for special audit in terms of section 142(2A) of the Act to the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material, which are outside the books of account. The fees to be paid to the special auditor by the assessee will be determined subsequently, as per norms'." Pursuant thereto one M/s. Dhanesh Gupta and Co., was appointed as a special auditor. Only on December 7, 2004, appellants Nos. 1 to 3 were informed by a letter in regard to appointment of an auditor for special audit of their accounts in terms of section 142(2A) of the Act. Indisputably, prior thereto no opportunity of hearing was given to them. The Deputy Commissioner was requested by the appellants herein to supply a copy of the reasons therefor by a letter dated December 11, 2004, which was refused by a letter dated December 13, 2004. The chartered accountant submitted its" audited report on January 17, 2005. A writ petition was filed by the appellants before the Delhi High Court raising, inter alia, a question that the order impugned therein was vitiated in law having been passed without giving an opportunity of hearing to them as also on the ground that the same suffers from total non-application of mind. Mala fides on the part of the Deputy Commissioner were also alleged. By the impugned judgment, the said writ pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factors enumerated therein. The use of the word "and" shows that it is conjunctive and not disjunctive. All the aforementioned factors are conjunctively required to be read. The formation of opinion indisputably must be based on objective consideration. The expression "complexity" would mean the state or quality of being intricate or complex or that it is difficult to understand. Difficulty in understanding would, however, not lead to the conclusion that the accounts are complex in nature. No order can be passed on whims or caprice. It is also not in dispute that whereas the Calcutta High Court and the Kerala High Court have taken a view that before issuance of a direction under section 142(2A) of the Act, it is necessary to comply with the principles of natural justice, the Allahabad High Court, the Bombay High Court and the Delhi High Court have thought it otherwise. When a raid is conducted on the premises of an assessee, block assessment is permissible, procedures wherefor have been laid down under section 158BC of the Act. Section 158BE(b) of the Act contemplates that the order thereunder is necessary to be passed within two years from the end of the month in which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within such period as may be specified by the Assessing Officer: Provided that the Assessing Officer may, on an application made in this behalf by the assessee and for any good and sufficient reason, extend the said period by such further period or periods as he thinks fit ; so, however, that the aggregate of the period originally fixed and the period or periods so extended shall not, in any case, exceed one hundred and ,eighty days from the date on which the direction under sub-section (2A) is received by the assessee. (2D) The expenses of, and incidental to, any audit under sub-section (2A) (including the remuneration of the accountant) shall be determined by the Chief Commissioner or Commissioner (which determination shall be final) and paid by the assessee and in default of such payment, shall be recoverable from the assessee in the manner provided in Chapter XVII-D for the recovery of arrears of tax. (3) The assessee shall, except where the assessment is made under section 144, be given an opportunity of being heard in respect of any material gathered on the basis of any inquiry under sub-section (2) or any audit under sub-section (2A) and proposed to be utilised for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he passing of the English Arbitration Act, 1979 unless a court requires the arbitrator to give reasons for the award [vide sub-sections (5) and (6) of section 1 of the English Arbitration Act, 1979], an award is not liable to be set aside merely on the ground that no reasons have been given in support of it." We, however, need not dilate on the said question being not very necessary for the purpose of this case. But it is beyond any cavil that ordinarily unless excluded by operation of a statute, the superior courts while exercising power of judicial review shall proceed on the basis that assignment of reasons is imperative in character. When an authority be it administrative or quasi-judictal adjudicates on a dispute and if its order is appealable or subject to judicial review, it would be necessary to spell out the reasons therefor. While applying the principles of natural justice, however, the court must also bear in mind the theory of useless formality and the prejudice doctrine. If an assessee files a return the same is not presumed to be incorrect. When the Assessing Officer, however, intends to pass an order of assessment, he may take recourse to such steps including the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid down in this behalf compliance with the principles of natural justice would be implicit. In the case of denial of principles of natural justice in a statute, the same may also be held ultra vires article 14 of the Constitution. K. J. Shetty J. in Swadeshi Cotton Mills Company Limited v. CIT [1988] 171 ITR 634 (All) succinctly laid down the import of the said provision in the following terms: "The exercise of power to direct special audit depends upon the satisfaction of the Income-tax Officer with the added approval of the Commissioner. But he must be satisfied that the accounts of the assessee are of a complex nature, and, in the interests of the Revenue, the accounts should be audited by a special auditor. The special auditor is also an auditor like the company's auditor, but he has to be nominated by the Commissioner and not by the company. The accounts are again to be audited at the cost of the company. This is the substance of the statutory provisions. The power thereunder cannot, in our opinion, be lightly exercised. The satisfaction of the authorities should not be subjective satisfaction. It should be based on objective assessment regard being had to the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed nor can the right be narrowed. Where the statute is silent about the observance of the principles of natural justice, such statutory silence is taken to imply compliance with the principles of natural justice. The implication of natural justice being presumptive it may be excluded by express words of statute or by necessary intendment. Where the conflict is between the public interest and the private interest, the presumption must necessarily be weak and may, therefore, be readily displaced." In Delhi Transport Corporation v. D. T. C. Mazdoor Congress [1991] Suppl 1 SCC 600 ; [1991] 79 FJR 1 (SC), Ray J. opined: "It is now well-settled that the 'audi alteram partem' rule which in essence, enforces the equality clause in article 14 of the Constitution is applicable not only to quasi-judicial orders but to administrative orders affecting prejudicially the party-in-question unless the application of the rule has been expressly excluded by the Act or Regulation or Rule which is not the case here. Rules of natural justice do not supplant but supplement the Rules and Regulations. Moreover, the rule of law which permeates our Constitution demands that it has to be observed bot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the functions of the statutory authority under section 142(2A) are more of an administrative action than a quasi-judicial function. Relying on or on the basis of a decision of this court in Canara Bank v. Debasis Das [2003] 4 SCC 557, the learned judges opined that although the principles of natural justice are an integral part of the procedure, one must notice that the concept of natural justice has undergone a great deal of change. But then while observing that section 142(2A) of the Act does not exclude the application of the principles of natural justice, it was opined that interaction with and confrontation of the assessee would serve the purpose. Distinguishing the judgments of the Calcutta High Court in the cases of Peerless General Finance and Investment Co. Ltd. v. Deputy CIT [1999] 236 ITR 671 and West Bengal State Co-op. Bank Ltd. v. Joint CIT [2004] 267 ITR 345, the High Court observed: "However, the scope of the kind of hearing that an assessee would be entitled to, was not discussed even in these judgments, primarily for the reason that in one case the Assessing Officer had taken into consideration irrelevant material like litigation pending between the Rese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany related to its accounts. (c) Before the Assessing Officer seeks an approval of the competent authority under section 142(2A) of the Act, it would be obligatory upon him to call upon the assessee during the course of assessment proceedings for a 'purposeful interaction and confrontation' in regard to nature and complexity of the assessee's accounts. (d) Such interaction with and confrontation of, the assessee with his account books should be with an object to attain better clarity and understanding of the accounts by the Assessing Officer. There has to be serious attempt on the part of the Assessing Officer to seek clarification of his doubts in regard to nature and complexity of the assessee's accounts for better comprehension." [Highlighting is ours for showing the inconsistencies in the judgment] In any event, the learned judges did not exclude the application of the principle altogether. A Division Bench of the Bombay High Court in Atlas Copco (India) Ltd. v. V. S. Samuel, Asst. CIT [2006] 283 ITR 56, however, disagreed with the decisions of the Calcutta High Court and the Kerala High Court stating that the order passed under section 142(2A) of the Act is purely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had not been explicitly dissented from. The learned judges of the Delhi High Court in Yum Restaurants India P. Ltd. [2005] 278 TITR 401 and Gurunanak Enterprises [2003] 259 ITR 637, did not hold that the decisions have been incorrectly rendered. They were, however, held to be inapplicable to the facts of the cases. We may place on record that even the learned Additional Solicitor General categorically stated before us that the doctrine of procedural safeguards applied by the Calcutta High Court and the Kerala High Court cannot be faulted having regard to the peculiar fact situation obtaining therein. The fact, thus, remains that there may be a situation when the provision would be misused. An order may be passed not only without any application of mind but also in ignorance of the requirements of law. The Bombay High Court and the Delhi High Court, with respect, in our opinion, are not correct in stating a direction issued under section 142(2A) of the Act to be administrative in nature. In view of section 136 of the Act, the entire proceedings of assessment before the Assessing Officer being judicial, it is difficult to understand how a part thereof, which indisputably is resor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo matters mentioned isolated from other relevant factors. It is neither possible nor advisable to lay down any decisive tests for the guidance of the Income-tax Officer. The satisfaction depends upon the facts of each case. The only guidance is his capacity to put himself in the position of a prudent businessman or the director of a company and his sympathetic and objective approach to the difficult problem that arises in each case." The factors enumerated in section 142(2A) of the Act, thus, are not exhaustive. Once it is held that the assessee suffers civil consequences and any order passed by it would be prejudicial to him, principles of natural justice must be held to be implicit. The principles of natural justice are required to be applied, inter alia, to minimize arbitrariness. It is trite, even if there is a possibility that the Tribunal would correctly follow the statutory provisions, still compliance with principles of natural justice would be required. Justice, as is well known, is not only to be done but manifestly seem to be done. If the assessee is put to notice, he could show that the nature of accounts is not such which would require appointment of special aud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fruitful purpose." Whereas the order of assessment can be the subject matter of an appeal, a direction issued under section 142(2A) of the Act is not. No internal remedy is prescribed. Judicial review cannot be said to be an appropriate remedy in this behalf. The appellate power under the Act does not contain any provision like section 105 of the Code of Civil Procedure. The power of judicial review is limited. It is discretionary. The court may not interfere with a statutory power. 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 justice are required to be complied with, the same by itself would not mean that the court would not insist on complying with the fundamental principles of law. If the principles of natural justice are to be excluded, Parliament could have said so expressly. The hearing given is only in terms of section 142(3) which is limi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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