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TMI Blog2017 (2) TMI 921X X X X Extracts X X X X X X X X Extracts X X X X ..... re ORDER Per Sushma Chowla, JM This appeal filed by the assessee is against the order of CIT(A)-7, Pune, dated 25.05.2015 relating to assessment year 2008-09 against order passed under section 143(3) of the Income-tax Act, 1961 (in short the Act ). 2. The assessee has raised the following grounds of appeal:- 1. The Learned Commissioner of Income Tax (Appeals) 7, Pune is not justified on conforming addition of ₹ 6,30,000/- on account of difference observed in closing balance of the Hotel Division and Construction Division. 2. The Learned Commissioner of Income Tax (Appeals) 7, Pune is not justified on conforming addition of ₹ 5,00,000/- on account of difference in cash Balance. 3. The Learned Commissioner of Income Tax (Appeals) 7, Pune is not justified on conforming addition of ₹ 50,000/- on account of Cash Purchases. 4. The Learned Commissioner of Income Tax (Appeals) 7, Pune is not justified on conforming addition of ₹ 6,70,000/- on account of other contract receipts. 5. The Learned Commissioner of Income Tax (Appeals) 7, Pune is not justified on conforming addition of ₹ 20,54,754/- on account of negative cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... screpancies in the accounts maintained by the assessee which are enlisted at pages 2 and 3 of the assessment order. In view of the same, the Assessing Officer served letter dated 25.12.2010 upon the assessee, calling for clarification and granting opportunity for special audit under section 142(2A) of the Act. As per para 5 of the assessment order, it is mentioned that having regard to the nature and complexity of the accounts of the assessee and in the interest of Revenue, where the Assessing Officer was of the view that the books of account need to be audited by special auditor with the prior approval of the Commissioner of Income Tax. The Assessing Officer thus, referred the case of the assessee to CIT-IV requesting for granting permission for special audit under section 142(2A) of the Act on 24.12.2010. The approval was received from the Commissioner on 25.12.2010. Here, it may be pointed out that the assessee was served letter dated 25.12.2010 asking for clarification, in reply to which the assessee filed reply on 27.12.2010. The Assessing Officer passed an order under section 142(2A) of the Act on 30.12.2010, under which the assessee was directed to get his books of account a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... val of the Chief Commissioner or Commissioner, direct the assessee to get the accounts audited by an accountant as defined in the Explanation below sub-section (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: Provided that the Assessing Officer shall not direct the assessee to get the accounts so audited unless the assessee has been given a reasonable opportunity of being heard. 21. As per provisions of said section if at any stage during the course of assessment proceedings, the Assessing Officer in view of the nature and complexity of the accounts, its volume, doubts about correctness of the accounts, multiplicity of transactions in the accounts or specialized nature of business activity of assessee and the interests of revenue, is of the opinion that it is necessary to do so, he may, with previous approval of Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner as the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplication moved by the assessee or for any other reasons, to extend the period for furnishing the special audit report within such extended period. 24. Section 142(2A) of the Act in the first instance talks about the period which is specified by the Assessing Officer i.e. the period given to assessee to conduct special audit by issue of notice in this behalf. When the period is extended then, the cap is placed on aggregate period in which the report is to be given wherein, it is provided that the same shall not exceed 180 days from the date on which the direction under sub-section (2A) is received by the assessee. If we consider the main provisions of sub-section (2C) and proviso thereunder, then the reference is made to different periods. In the main provision, the reference is made to the period which has been specified by the Assessing Officer in the notice issued to the assessee. However, in order to reckon the period of 180 days, then from the date on which direction under sub- section (2A) is received by the assessee. 25. The relevance of dates and the time period within which special audit is to be taken note of is to be applied while calculating the time limit fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld to be implicit. The principles of natural justice are required to be applied, inter alia, to minimize arbitrariness. 56. 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. [See R. v. Kensington and Chelsea Rent Tribunal, Ex p. MacFarlane [1974] 1 WLR 1486 (QB)]. 57. 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 auditors. He could further show that what the Assessing Officer considers to be complex is in fact not so. It was also open to him to show that the same would not be in the interest of the Revenue. 58. In this case itself the appellants were not made known as to what led the Deputy Commissioner to form an opinion that all relevant factors including the ones mentioned in section 142(2A) of the Act are satisfied. If even one of them was not satisfied, no order could be passed. If the attention of the Commissioner could be drawn to the fact that the underlying purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in every case where the Assessing Officer issued directions in terms of section 142(2A) of the Act, the assessee has to be heard before such order is passed. The Division Bench was of the view that it does not appear to be correct position of law. The Three Judge Bench thereafter, took note of the provisions of section 142(2A) to (2D) of the Act and section 142(3) of the Act and observed that the twin conditions of the nature and complexity of accounts and interest of revenue were the pre- requisite for exercise of power under section 142(2A) of the Act. It was further observed the word complexity used in section 142(2A) of the Act was not defined or explained in the Act but what may be complex to one, may not be complex as far as the understanding of other. So, there has to be genuine and honest attempt on the part of Assessing Officer to understand the accounts maintained by the assessee, entries 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, was the proposition laid d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e would be implicit, the learned judges held {1.[2006] 287 ITR 91 (SC) 2.[1967] AIR 1967 SC 1269.} that by virtue of an order under section 142(2A) of the Act, the assessee suffers civil consequences and the order passed would be prejudicial to him and, therefore, the principles of natural justice must be held to be implicit. The court has further observed that if the assessee was put to notice, he could show that the nature of accounts is not such which would require appointment of special auditors. He could further show that what the Assessing Officer considers to be complex is, in fact, not so. It was also open to him to show that the same would not be in the interests of the Revenue. 21. In the light of the aforenoted legal position, we are in respectful agreement with the decision of this court in Rajesh Kumar that an order under section 142(2A) does entail civil consequences. At this juncture, it would be relevant to take note of the insertion of the proviso to section 142(2D) with effect from June 1, 2007. The proviso provides that the expenses of the auditor appointed in terms of the said provision shall, henceforth, be paid by the Central Government. In view of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Criminal Procedure, 1973. Though having regard to the language of the provision, we have some reservations on the said view expressed in Rajesh Kumar's case, but having held that when civil consequences ensue, no distinction between quasi-judicial and administrative order survives, we deem it unnecessary to dilate on the scope of section 136 of the Act. It is the civil consequence which obliterates the distinction between quasi-judicial and administrative function. Moreover, with the growth of the administrative law, the old distinction between a judicial act and an administrative act has withered away. Therefore, it hardly needs reiteration that even a purely administrative order which entails civil consequences, must be consistent with the rules of natural justice. (Also see : Mrs. Maneka Gandhi v. Union of India and S. L. Kapoor v. Jagmohan. As already noted above, the expression civil consequences encompasses infraction of not merely property or personal rights but of civil liberties, material deprivations and non- pecuniary damages. Anything which affects a citizen in his civil life comes under its wide umbrella. Accordingly, we reject the argument and hold that sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w expressed in Rajesh Kumar's (1) case. 31. The Apex Court further recognized the insertion of proviso under section 142(2A) of the Act w.e.f. 01.06.2007 which provided that no direction for special audit shall be issued without affording reasonable opportunity of hearing to the assessee. In the facts of the case before the Apex Court before passing the order requiring the assessee to have their accounts audited by Chartered Accountant, no show cause notice was given to the assessee. The assessee in the said case was required to furnish by March 20, 2006 the detailed explanation in respect of queries raised vide order sheet entries but in the meantime impugned order asking the assessee to get the accounts audited by the special auditor were passed on 14.03.2006. The Apex Court held that It is manifestly clear that when the impugned orders were made, the Assessing Officer had no occasion to have even a glimpse of the accounts maintained by the appellants. Therefore, in the light of the legal position noted above, we have no option but to hold that the impugned orders dated March 14, 2006, are vitiated by the failure to observe the principle of audi alteram partem. 32. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after the A.O. reaches to a fair conclusion after considering the reply given by the petitioner, and affording an opportunity of hearing, the CIT as approving authority will consider whether the special audit is required to be carried out for the purposes of understanding the accounts maintained by the assessee. The opinion must be formed reflecting the application of mind based on objective criteria and not on the basis of subjective satisfaction. 35. The Hon ble High Court of Allahabad in Kaka Carpets Vs. CIT (supra) thus, has distinguished between the adjudicating authority and approving authority and held that the first decision is to be made by the Assessing Officer, the adjudicating authority of giving the approval after considering the objections of assessee and affording reasonable opportunity of hearing in terms of provisions of the said section. The approval given by the Commissioner was as an approving authority and that also should be passed after application of mind to the facts of the case and the reply given by the assessee. 36. The Hon ble Bombay High Court in Nickunj Eximp Enterprises Pvt. Ltd. (supra) taking note of amended provisions of insertion of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... audit need to be looked into. The learned Departmental Representative for the Revenue has filed on record copy of order sheet entries, wherein the assessee was asked to file English translation of the seized note books after assignment of case upon the DCIT, Central Circle, the order sheet entry is dated 16.05.2008. Thereafter, there was proposal to centralize Patel group cases with Addl. CIT, Circle-1, Pune. Vide order sheet entry dated 11.09.2008 itself, a proposal for audit under section 142(2A) of the Act in the case of Patel was submitted to CIT, Central, Pune through proper channel. The cases of Patel group were assigned to the ITO, Central-I, Pune on 13.10.2008. On 22.10.2008, a proposal for audit under section 142(2A) of the Act in the case of Patel group was submitted to CIT(C), Pune through proper channel. Thereafter, letter dated 21.11.2008 in respect of special audit under section 142(2A) of the Act was served upon the assessee as per order sheet entry dated 25.11.2008. On 16.12.2008, the Counsel filed a letter requesting for copies of seized note books and diaries which were supplied to him on 17.12.2008. On 30.03.2009, the cases were assigned to ITO, Central, Kolhapur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g heard to the assessee and in view of the proviso to section 142(2A) of the Act, is the said proposal made without affording pre-decisional hearing to the assessee valid and can the proceedings conducted thereafter be held to be vitiated in law. The Hon ble Supreme Court in Three Judge decision in Sahara India (Firm) Vs. CIT and Another (supra) had decided the issue of show cause notice to be given on pre-decisional stage and post-decisional stage of starting the proceedings under section 142(2A) of the Act and had also referred to the earlier decision of Apex Court in Rajesh Kumar and Others Vs. DCIT (supra). The principles laid down by the Hon ble Supreme Court are that the principle of audi alteram partem cannot be ignored even at the stage of pre- decisional hearing. In other words, in case the Assessing Officer is of the view that having regard to the nature and complexity of the accounts and interests of revenue, it is necessary to get the accounts audited by an accountant, with previous approval of Principal Chief Commissioner, then he can do so. However, the proviso inserted by the Finance Act, 2007 w.e.f. 01.06.2007 has very categorically provided that the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the principles of natural justice and suffers from infirmity. The case of Revenue before us is that the CIT(C), Pune before passing his order of giving permission to the Assessing Officer to ask the assessee to get the special audit conducted had given fair opportunity of hearing to the assessee. The role of CIT(C) is the role of approving authority. The role is not that of adjudicating authority which had to be carried out by the Assessing Officer. The adjudicating authority in the present set of facts has failed to give any opportunity to the assessee before making proposal for special audit and the opportunity allowed by the approving authority, who in any case is enshrined with the duties of checking whether there is no arbitrariness in functioning of adjudicating authority, has to be satisfied before giving approval. Hence, the opportunity allowed by the CIT(C), Pune after proposal was made by the adjudicating authority does not absolve the non-allowance of reasonable opportunity of hearing by the Assessing Officer. 41. Applying the principles laid down by the Apex Court in Sahara India (Firm) Vs. CIT and Another (supra), we hold that where no show cause notice was given ..... X X X X Extracts X X X X X X X X Extracts X X X X
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