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TMI Blog2004 (10) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... d as remuneration for the special auditor cannot be said to be excessive or unjustified - - - - - Dated:- 12-10-2004 - Judge(s) : R. K. AGRAWAL., K. N. OJHA. JUDGMENT The judgment of the court was delivered by R.K. Agrawal J.- By means of the present writ petition filed under article 226 of the Constitution of India, the petitioner, the U.P. Financial Corporation, seeks the following reliefs:- "A -a writ, order or direction, including a writ in the nature of certiorari quashing the impugned order dated March 19,1999, passed by respondent No. 1 (annexure V to the writ petition); B-a writ, order or direction, including a writ in the nature of mandamus, declaring the provisions of section 142(2A) of the Income-tax Act as null, void, inoperative and unconstitutional; C-any other suitable writ, order or directions which this hon'ble court may deem fit and proper in the circumstances of the case; D-award costs of the writ petition." Briefly stated, the facts giving rise to the present petition are as follows: The petitioner, the U.P. Financial Corporation (hereinafter referred to as "the Corporation"), has been created under the State Financial Corporations Act, 195 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rected the petitioner to submit certain information. The order dated March 19, 1999, is under challenge in the present writ petition. As the counter affidavit and rejoinder affidavit have been exchanged between the parties, with the consent of learned counsel for the parties, the writ petition is being heard finally and disposed of at the admission stage itself in accordance with the provisions of the rules of the court. We have heard Dr. R.G. Padia, learned senior counsel, assisted by Sri Prakash Padia, advocate, on behalf of the petitioner, and Sri Shambhu Chopra, learned standing counsel appearing for the respondents. At the outset, it may be mentioned here that Dr. Padia, learned counsel for the petitioner, did not advance any argument relating to the constitutional validity of section 142(2A) of the Act and, therefore, we are not called upon to go into this question. Learned counsel for the petitioner submitted that in the order dated March 19, 1999, there is no reference to the notice dated January 29, 1999, issued by respondent No. 1 as also to the reply submitted by the petitioner on February 10, 1999. The said order has been passed mechanically without any applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 71 (Cal); and (ix) U.P. State Handloom Corporation Ltd. v. CIT [2000] 245 ITR 192 (All). Sri Shambhu Chopra, learned standing counsel for the Revenue, however, submitted that respondent No. 1 had issued a notice on January 29, 1999, seeking details/information/explanation in respect of various heads. The reply given by the petitioner was found to be unsatisfactory and vague and, therefore, respondent No. 1 was fully justified in forming the opinion that the accounts of the petitioner were complex in nature and the interests of the Revenue would be adversely affected in the event, a special audit is not made. He submitted that the Commissioner of Income-tax, Kanpur, respondent No. 2, on the basis of the proposal made by respondent No. 1, after application of mind, had accorded his approval and, therefore, the order dated March 19, 1999, does not call for any interference. He further submitted that this court while exercising jurisdiction under article 226 of the Constitution of India should decline to sit in appeal over the decision taken by the authorities. In support of his aforesaid submissions, he has relied upon the following decisions: (i) Living Media Ltd. v. CIT [2002] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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." From a reading of the aforesaid provision it is seen that after taking into consideration the nature and complexity of the accounts and the interests of the Revenue, if the assessing authority is satisfied, he can direct the assessee to get the accounts audited by an accountant, but before doing so, he has to get the previous approval of the Chief Commissioner or Commissioner of Income-tax. This court in the case of Swadeshi Cotton Mills Co. Ltd. [1988] 171 ITR 634 has held as under: "The exercise of the power to direct special audit under section 142(2A) of the Income-tax Act, 1961, dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subjective satisfaction. Even where a power is conferred on a public authority to exercise the same when 'they are satisfied' or when 'it appears to them' or when in their opinion 'a certain state of affairs exists' or when powers enable public authorities to take 'such action as they think fit' in relation to a subject-matter, the courts will not readily defer to the conclusiveness of an executive authority's opinion as to the existence of a matter of law or fact upon which the validity of the exercise of the power is predicated. Administrative decisions are required to be made in good faith on relevant considerations." In the case of Joint CIT v. ITC Ltd. [1999] 239 ITR 921, the Calcutta High Court has held as under: "In fact this is meant for the purpose in cases where the 'nature and complexity' of the accounts is such that it is not possible to the Assessing Officer to justify the correct assessment of the income and not possible to him to examine the correctness of the accounts. In that case, the Legislature has conferred power on the Assessing Officer for appointment of the special auditor with the approval of the Commissioner or Chief Commissioner. The interest of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have to be borne by the assessee. Therefore, the audit is likely to place substantial financial burden on the assessee. The mere fact that the stocks could not be reconciled by the then auditors, could not be a justification for ordering an audit when the audit had subsequently been completed and the Assessing Officer could examine the accounts and ask for necessary information." In the case of Living Media Ltd. [2002] 255 ITR 268, the apex court has affirmed the decision of the Delhi High Court in a case where a special audit under section 142(2A) of the Act was directed on the basis that the explanation of the assessee to the queries raised by the Assessing Officer was in voluminous details running into approximately 500 pages and further details running into 1,000 pages were filed, which prima facie supports the formation of the opinion of the assessing authority for directing special audit under section 142(2A) of the Act. In the case of Bata India Ltd. v. CIT [2002] 257 ITR 622, the Calcutta High Court has held as under: "The twin pre-conditions justifying the special audit under section 142(2A) of the Income-tax Act, 1961, are the nature and complexity of the accounts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to this office under Commissioner of Income-tax, Bihar and Orissa. Patna's letter No. Inv. (Inv.) 15/65-66/1053-2017 dated Patna September 24,1965, it appears that these persons are name-lenders and the transactions are bogus. Hence proper investigation regarding these loans is necessary. The names of some of the persons from whom money is alleged to have been taken on loan on hundis are: 1. Seth Bhagwan Singh Sricharan 2. Lakha Singh Lal Singh 3. Radhakissen Shyam Sunder. The amount of escapement involved amounts to Rs. 1,00,000." On the aforesaid materials, the apex court has come to the conclusion that the Income-tax Officer has not set out any reason for coming to the conclusion that it is a fit case to issue notice under section 148. The material he has before him for issuing notice, had not been mentioned in the report and what he said is that from those communications it appears that these persons are name-lenders and the transactions are bogus. The Income-tax Officer has not come even to a prima facie conclusion that the transactions to which he referred, are not genuine transactions and has had only a vague feeling that they may be bogus transactions. The apex c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show-cause notice or opportunity of hearing is required to be given to the assessee before appointing a special auditor as it does not involve civil consequences. The order appointing a special auditor is an administrative order. Applying the aforesaid principles to the facts in the present case, we find that from a perusal of appendices III and IV, which are proposals dated March 1, 1999, and March 3, 1999, submitted by respondent No. 1 to the Commissioner of Income-tax seeking approval for appointment of special auditor under section 142(2A) of the Act, respondent No. 1 who is the assessing authority of the petitioner had formed the opinion on the materials which were before her during the course of the assessment for the assessment year 1996-97, that the nature of the accounts were complex and the interests of the Revenue would suffer if a detailed audit is not directed. Even, according to the own showing of the petitioner, when it was asked to give explanation/reply to the various points raised in the notice dated January 29, 1999, it had taken a stand that it would take several months in compiling the information. The Commissioner of Income-tax had applied his mind and had a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Moreover, in our opinion, such a direction does not have civil consequences. It does not affect the assessee's rights or liability. Hence, the decision of the Supreme Court in State of Orissa v. Dr. Miss Binapani Dei, AIR 1967 SC 1269, does not apply. No doubt an administrative order if it has civil consequences can only be passed after giving opportunity of hearing, but in our opinion a direction under sub-section (2A) of section 142 does not have civil consequences because it does not affect his rights and does not create any liability against the assessee. It is only the assessment order which will create a liability. The purpose of the direction under sub-section (2A) of section 142 is to ensure that a correct assessment order is passed so that the Revenue is not deprived of its dues. Hence, we do not agree with learned counsel for the petitioner that an opportunity of hearing or show-cause notice has to be given to the assessee before passing the direction under section 142(2A)." We are in respectful agreement with the view taken by this court in the aforesaid case and hold that before passing the order under section 142(2A) of the Act any show-cause notice or any opportunit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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