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TMI Blog2017 (4) TMI 921X X X X Extracts X X X X X X X X Extracts X X X X ..... balances of revaluation credits at an unreasonable premium, and after having been satisfied that considering the specialized nature of business activities of the assessee, the Assessing Officer has passed an order of special audit in exercise of powers under Section 142 [2A] of the Act. We see that the decision for audit of the assessees' account is backed by proper material on record and reasons recorded by the Assessing Officer. His formation of belief that looking to the multiplicity of the transactions in the accounts and specialized nature of business activities of the assessee, a special audit is called for, and therefore, it cannot be faulted. No error and/or any illegality committed while passing the order under Section 142 [2A] of the Act. Under the circumstances, the present writ petitions deserve to be dismissed - SPECIAL CIVIL APPLICATION No. 4613 of 2017 With SPECIAL CIVIL APPLICATION No. 4614 of 2017 With SPECIAL CIVIL APPLICATION No. 4619 of 2017 With SPECIAL CIVIL APPLICATION No. 4620 of 2017 - - - Dated:- 21-3-2017 - MR. M.R. SHAH AND MR. B.N. KARIA, JJ. For The Petitioner : Mr JP SHAH, Sr. Advocate with Mr MANISH J SHAH, Advocate Fo rThe Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequently named as Takshashila Realities Limited. It appears that in case of transferee companies viz ., Takshashila Gruh Nirman Private Limited; Chanakya Buildcon Private Limited; Chanakya Infracon Private Limited and Youngstar Infrastructure Private Limited, reassessment proceedings came to be initiated for A.Y 2009-2010. Notices under Section 148 of the Act came to be issued and served upon the respective assessees. The aforesaid transferee companies-original assessees preferred Special Civil Applications No. 13971 of 2016; 14018 of 2016; 14071 of 2016 and 14794 of 2016 before this Court challenging Notices under Section 148 of the Act and the reassessment proceedings. That, by a detailed judgment and order dated 5th December 2016, Division Bench of this Court, dismissed the said Special Civil Applications. 5.2 That thereafter, the petitioner herein-Takshashila Realities Private Limited has been served with a Notice under Section 142 [2A] of the Act and the petitioner, as the successor of firms viz ., Chanakya Buildcon Private Limited; Chanakya Infracon Private Limited; Takshashila Properties Private Limited and Youngstar Infracon Private Limited was called upon to show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ya Buildcon Private Limited and Takshashila Properties Private Limited by the Special Auditor. 6. Feeling aggrieved and dissatisfied by the impugned order passed by the respondent no. 1- Assessing Officer passed under Section 142 [2A] of the Act, the assessee has preferred by the present Special Civil Applications. 7. Heard Shri JP Shah, learned senior advocate appearing with Mr. Manish J Shah, learned advocate for the petitioner and learned advocate Mr. Nitin Mehta for the respondent-Revenue. 8. It is vehemently submitted by Shri JP Shah, learned counsel for the petitioner that the impugned orders passed in exercise of power under Section 142 [2A] of the Act appointing Special Auditor is absolutely bad, illegal and contrary to the provisions of Section 142 [2A] of the Act. It is further submitted by Shri J.P Shah, learned counsel for the petitioner that the Division Bench of this Court by its judgment and order dated 5th December 2010 had dismissed the writ petitions preferred by the transferee companies in which reassessment proceedings for A.Y 2009-2010 were challenged and thereafter immediately, the Assessing Officer, without even return being filed by the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iance upon for forming an opinion for directing special audit under Section 142 [2A] of the Act have not at all occurred in A.Y 2009- 2010, and thus, the foundation of forming an opinion itself is not sustainable, making the direction and approval bad in law. It is further submitted by learned counsel Shri JP Shah that even the respondent no. 2 Principal Commissioner of Income-tax has accorded approval in mechanical manner and it does not reflect any proper application of mind by the said Commissioner in according the approval. It is submitted that the Principal Commissioner, while granting the approval, is required to apply his mind and he is not required to act mechanically. In support of his above submissions, Shri J.P Shah, learned counsel for the petitioner has relied upon decision of Hon'ble Supreme Court in the case of Sahara India [Firm] v. Commissioner of Income-Tax Anr ., reported in [2008] 300 ITR 403 [SC] as well as a decision of Delhi High Court in case of DLF Commercial Projects Corporation Anr. vs. Assistant Commissioner of Income Tax Ors ., reported in [2013] 357 ITR 211 [Delhi]. It is further submitted by Shri JP Shah, learned counsel for the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see and in the interest of Revenue, it is necessary to get the accounts of the assessee audited by Special Auditor, the Assessing Officer has rightly passed an order under Sec.142 [2A] of the Act. 11.2 It is further submitted by Shri Nitin Mehta, learned counsel for the Revenue that in the present case, the complex issues involved in the erstwhile firms and the companies before conversion and amalgamation. It is further submitted that even there are complex issues and multiplicity of transactions in the accounts of the assessee in relation to introduction of land and revaluation of the same over a period of time; successions/ conversion of firms to a company, treatment of capital account of partners as loan, valuation of land at unreasonable premium and other issues, and therefore, accounts of the assessee are required to be audited by special auditor in the interest of the Revenue. 11.3 It is further submitted that there was conversion of four firms viz ., [i] Chanakya Infrastructure; [ii] Chanakya Buildcon; [iii] Takshshila Gruh Nirman; [iv] Yongstar Infrastructure into the four companies ie ., Chanakya Infracon Private Limited; Chanakya Buildcon Private Limited; Youngsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks of account, the Assessing Officer is of the opinion that there is a complexity in the account and/or he doubts the correctness of the accounts and then and then only the Assessing Officer can pass an order under Section 142 [2A] is concerned, it is submitted by Shri Nitin Mehta, learned counsel for the Revenue that the said decision has been rendered prior to amendment in Section 142 [2A] of the Act. It is submitted that after the amendment in Section 142 [2A] of the Act, apart from the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the account , if the Assessing Officer is of the opinion that having regard to the specialized nature of business activities of the assessee and in the interest of Revenue , the Assessing Officer may pass an order under Section 142 [2A] of the Act. It is submitted that with respect to specialized nature of business activities of the assessee, there need not be any books of account before the Assessing Officer at the stage of passing of the order under Section 142 [2A] of the Act. 12.1 Making the above submissions and relying upon recent decision of Divi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 15.1 Thus, considering the amended Section 142 [2A] of the Act, if at any stage of the proceedings before him, the Assessing Officer, having regard to [a] the nature and complexity of the accounts; [b] volume of the accounts; [c] doubts about the correctness of the accounts; [iv] multiplicity of transactions in the accounts; or [v] specialized nature of business activity of the assessee and the interests of the Revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Principal Commissioner of Income-tax, direct the assessee to get the accounts audited by an accountant [Special Auditor]. As per the proviso to Section 142 [2A] of the Act, before passing an order of Special Audit and prior to directing the assessee to get the accounts so audited, the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of shareholders and issues relating to issuance of equity shares against the balances of revaluation credits at an unreasonable premium, and after having been satisfied that considering the specialized nature of business activities of the assessee, the Assessing Officer has passed an order of special audit in exercise of powers under Section 142 [2A] of the Act. 18. We see that the decision for audit of the assessees' account is backed by proper material on record and reasons recorded by the Assessing Officer. His formation of belief that looking to the multiplicity of the transactions in the accounts and specialized nature of business activities of the assessee, a special audit is called for, and therefore, it cannot be faulted. 19. At this stage, it is required to be noted that the following material weighed with the Assessing Officer, while forming an opinion that there is necessity for accounts of the assessee audited by special auditor. That, the 5 Companies, which have amalgamated with Takshashila Gruh Nirman Pvt. Ltd., have their beginning as partnership firms, which were already doing the real estate and construction business and were executing various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts in the current accounts of all partners, conversion of firms in to companies which merged with the existing company, valuation of share by discounted cash flow method and allotment of shares against the amounts outstanding as unsecured loans at unreasonable premium, clubbed with multiple revaluation or properties over the years starting from 2008 to 2013 in various entities involves application of provisions of the Companies Act, application of Accounting Standards and examination of provisions of capital gains in the hands of various partners, firms and directions is involved. Having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialized nature of transaction in the cases which finally of the assessee, and the interests of the revenue, am of the opinion that it is necessary to get the accounts audited by a Special Auditor from the point of view of taxation of capital gains and accounting of stock-in-trade at each stage of transfer so that there is no loss to the revenue out of the complex web of transactions involved. 20. Considering the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be made and a return filed is presumed to be correct, but a deep and in depth scrutiny depending upon the facts may be warranted. Section 142 [2A] is an enabling provision to help and assist the Assessing Officer to complete scrutiny assessment with the help of assistance of an accountant. 11. There has been substantial expansion of scope and ambit of Special Audit under Section 142 [2A] of the Act with effect from 1st June, 2013. The amended section has been widened to include volume of accounts, doubts about correctness of accounts, multiplicity of transactions in the accounts or specialised nature of business activity of an assessee. These amendments by Finance Act, 2013 with effect from 1st June, 2013, substitute the words nature and complexity of accounts of the assessee . We are not concerned with the said amendment in the present case as the impugned order in question directing special audit was passed on 25th March, 2013, before the amendments became WPC 2363/2013 Page 9 of 21 effective. We are, therefore, primarily concerned with whether or not keeping in view the nature and complexity of accounts and the interest of Revenue direction for special audit is ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g under increasing scrutiny and investigation. A Chartered Accountant is a financial investigator and prober, is required to be curious, tenacious and well conversant to identify and unearth frauds, misreporting and wrong claims in the accounts. 27. The aforesaid observations should not be construed as a general expression or opinion, that every account or statement of income must be viewed with suspicion, distrust and scepticism. The past instances are mere warnings, for closer and more indepth scrutiny. It is also a fact that WPC 2363/2013 Page 20 of 21 the business transactions have become more complicated and accounting entries more complex than ever before. This may be one of the causes why possibly the frauds could not be detected in some cases. Indeed such cases have made the audit work more comprehensive, intrusive and investigative. Ethical managements may at times regard such enquiries as an unwarranted intrusion or a hounding approach. Section 142 [2A] does not permit fishing or roving inquiry approach or a witch hunt but is a regulated provision which accepts the need and necessity of the Assessing Officer to take help of an expert accountant i.e. a Chartered Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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