9911796707
TMI Blog2005 (5) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) continuing fee, (iii) SCM fee, (iv) territorial fee and (v) stewardship fee. The petitioner has been following its mercantile system of accounting in carrying on its business and claims that it has been maintaining books of account on an universally accepted accounting package named as "BaaN". Return declaring "nil" income accompanied by the statutory audit report and tax audit report was filed on October 28, 2002, for the assessment year 2002-03 for which assessment proceedings were taken on or about October 28, 2003, which are still pending. During the course of hearing of assessment proceedings, certain queries were raised by the Assessing Officer after the case was taken up for scrutiny in terms of the Central Board of Direct Taxes Instruction dated September 21, 2003 under compulsory scrutiny as the return of the assessee showed international transactions as defined under section 92(b) of the Act in excess of Rs. 5 crores. Being dissatisfied with the replies filed to the questionnaire of the Assessing Officer, the Assessing Officer formed an opinion on January 31, 2005 and submitted a proposal to the Commissioner of Income-tax, Delhi, seeking his approval for issuance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f has been given to the petitioner. As such nothing material survives in these two prayers. In the light of these facts, they were not even pressed before us. The contention on behalf of the petitioner is that the assessee would be entitled to a pre-decisional hearing and even issuance of a show cause or a document akin thereto before an order under section 142(2A) of the Act can be passed against the petitioner. The return submitted by the petitioner was accompanied by the statutory audit and tax audit reports. In the face of these returns, according to the assessee, the Assessing Officer was under obligation to grant a detailed hearing to the petitioner in regard to the nature and complexity of the accounts before passing the impugned order. As accounts of the petitioner are in no way complex, the proposal submitted by the Assessing Officer was without proper application of mind. The approval itself has been granted by the Commissioner of Income-tax, Delhi, in a mechanical way and again without any application of mind. Further it is contended that as the provisions of section 142(2A) of the Act do not specifically exclude application of the principles of natural justice to the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the buck to the special auditor. A cursory look at the books of account is not sufficient. It needs little emphasis that the opinion required to be formed by the Assessing Officer for exercise of power under section 142(2A) must be based on objective consideration and not on the basis of subjective satisfaction. Similarly, the requirement of the previous approval of the Chief Commissioner or the Commissioner, being an in-built protection against any arbitrary or unjust exercise of power by the Assessing Officer, casts a very heavy duty on the said high ranking authority to see to it that the requirement of the previous approval, envisaged in the section, is not turned into an empty ritual. Needless to add that before granting approval, the Chief Commissioner or the Commissioner, as the case may be, must have before him the material on the basis whereof an opinion in this behalf has been formed by the Assessing Officer. The approval must reflect the application of mind to the facts of the case. A bare endorsement of the proposal would not be sufficient. Peerless General Finance and Investment Co. Ltd. v. Deputy CIT [1999] 236 ITR 671 (Cal) and Muthoottu Mini Kuries v. Deputy CIT [2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons in the order after having examined the accounts by himself or getting the accounts examined by his subordinate officials, in support of his findings that the nature and complexity of the accounts is such that without special audit proper assessment is not possible to protect the interest of the Revenue. In a case where the provision for special audit under the aforesaid Act is sought to be applied, the Assessing Officer concerned must record as to why the audit report if furnished by the assessee under section 44AB of the Act is not accepted rather discarded, because as I have already observed the scope and purpose of the audit report under section 44AB is almost the same and identical except, little variation. He must also record as to why this audit report is not helpful to understand the particular accounts, or for removal of his idea of complexity in the accounts. In pursuance of this the Assessing Officer must give hearing to the assessee invariably to give opportunity to explain away his doubt. In the scheme of this Act, there is no express provision for giving a hearing in section 142(2A), but when the Assessing Officer exercises discretion under this section the right o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No order can be passed on whims or caprice. No order can be passed on the ipse dixit of an officer. A cursory look at the books of account would not serve the purpose. In the instant case, by a notice dated November 18, 1997, received on November 24, 1997, respondent No. 1 requested the petitioner to appear before him on December 19, 1997. No hearing took place on the same day. The petitioner's contention that uptill now no further notice had been issued and no hearing had taken place and he had no occasion to look into the accounts and/or examine the accounts of the petitioner in respect of the assessment years 1995-96 and 1996-97 is uncontroverted. How then did the Assessing Officer form an opinion about the complexity of the accounts? These facts clearly show a total non-application of mind on the part of the Assessing Officer in making a proposal. He appears to have made the said proposal mechanically which would be evident from his impugned order dated March 20, 1998, as contained in annexure 'K' to the writ application." In regard to the application of the principles of natural justice, in their absolute terms, the court also held as under: "In this context a question ari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the requirement of 'fair play in action' is any the less in an administrative inquiry than a quasi-judicial one? Sometimes an unjust decision in an administrative inquiry may have far more serious consequences than a decision in a quasi-judicial inquiry and hence the rules of natural justice must apply equally in an administrative inquiry which entails civil consequences.' In Assistant Collector of Customs and Superintendent, Preventive Service Customs v. Charan Das Malhotra, AIR 1972 SC 689, the apex court while considering the provision of sub-section (2) of section 110 of the Customs Act, observed: 'There can be no doubt that the proviso to the second sub-section of section 110 contemplates some sort of inquiry. The Collector, obviously, is expected not to pass extension orders mechanically or as a matter of routine but only on being satisfied that there exist facts which indicate that the investigation could not be completed for bona fide reasons within the time laid down in section 110(2), and that therefore, extension of that period has become necessary. He cannot, therefore, extend the time unless he is satisfied on facts placed before him that there is a sufficient caus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o placed upon the judgment of the Kerala High Court in the case of Deputy CIT v. Muthoottu Mini Kuries [2004] 266 ITR 213 that post-decisional hearing would be of no consequence and pre-decisional hearing was necessary. Further it was also held by the court that expenses to which the assessee is exposed as a result of the order passed under section 142(2A), is apparently an adverse consequence against the assessee. On the other hand, learned counsel appearing for the Revenue relied upon the judgments of different courts to contend that there is no requirement of law making it obligatory for the Assessing Officer to grant pre-decisional hearing or serve any show-cause notice upon the assessee before passing an order under section 142(2A) of the Act. It is also contended that no prejudice is caused to the assessee by the impugned order as it is merely a procedural order in finalisation of the assessment proceedings. In support of his contentions, he relied upon the cases of Living Media Ltd. v. CIT [2002] 255 ITR 268 (SC); Super Cassettes Industries Ltd. v. Asst. CIT [1999] 102 Taxman 202 (Delhi). As a proposition of law, it cannot be disputed that the distinction between an admini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... always expressly in a statute or in rules framed thereunder. They may be implied from the nature of the duty to be performed under a statute. What particular rule of natural justice should be implied and what: its context should be in a given case must depend to a great extent on the facts and circumstances of that case, the framework of the statute under which the enquiry is held. The old distinction between a judicial act and an administrative act has withered away. The adherence to principles of natural justice as recognized by all civilized States is of supreme importance when a quasi-judicial body embarks on determining disputes between the parties, or any administrative action involving civil consequences is in issue. Even an administrative order which involves civil consequences must be consistent with the rules of natural justice. The expression 'civil consequences' encompasses infraction of not merely property or personal rights but of civil liberties, material deprivations, and non-pecuniary damages. In its wide umbrella comes everything that affects a citizen in his civil life." Reliance was rightly placed upon the judgment of the Full Bench of this court by the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. Once such a return is filed, the Assessing Officer may conduct an inquiry before the assessment, in consonance with the provisions of section 142 of the Act. Thereupon under section 143 of the Act, the Assessing Officer would pass an order of assessment requiring the assessee to pay the tax in terms thereof. All these powers are vested in the Assessing Officer under Chapter XIV relating to "procedure for assessment". Section 142(2A) of the Act forms part of this procedure and mandates that if at any stage of the proceedings before the Assessing Officer, having regard to the nature and complexity of the accounts of the assessee and the interests of the Revenue, he is of the opinion that it is necessary so to do, he may with the previous approval of the Chief Commissioner direct the assessee to get the accounts audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and nominated in this regard. Exercise of power by the Assessing Officer under this provision is subject to the satisfaction of the limitations specified in the section itself. The Assessing Officer must form an opinion that having regard to the nature and complexity of the accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer should form the required opinion upon examining of books of account, after making sincere effort to understand the books of account and after putting the assessee to notice. Inability on the part of the assessee to provide the requisite clarifications to the satisfaction of the Assessing Officer would normally be sufficient ground for the Assessing Officer to exercise his jurisdiction under this provision and to record the? opinion on a subjective satisfaction recorded objectively. The Assessing Officer is not required to loose sight of the provisions of the Act and the objects sought to be achieved thereunder. The orders should be founded on application of mind relatable to the nature and complexity of the accounts and in the interests of the Revenue. Once these ingredients are satisfied, the scope of judicial review of such a direction would normally be not possible, as the High Court in exercise of its powers under article 226 of the Constitution of India does not sit as a court of appeal over such orders particularly when they are interim orders and post-decisional protection and remedy is available to the assessee under the same very provisions. It was also conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Division Bench of this court had rejected a similar plea and held that the specific object behind enacting sub-section (2A) to section 142 is to assist the officer in framing an assessment when he finds the accounts of the assessee to be complex by getting the service of a special auditor in the interests of the Revenue. Merely because the format of the reports prescribed under section 44AB or 142(2A) of the Act are similar, that would per se be no ground for doubting the jurisdiction of the Assessing Officer. It is for the reason that the information furnished by the assessee in the statutory audit report may not be sufficient and satisfactory, and may be provided by the accountants nominated under section 142(2A), upon detailed and comprehensive examination of the assessee's books of account. The accountants so nominated are obliged to examine the books of account particularly in regard to the matters or doubts raised by the Assessing Officer in regard to the nature and complexity of such account books. This object may not be achieved by submission of the statutory audit report submitted by the assessee under section 44AB of the Act. In the case of Super Cassettes Industries Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Keeping in view the nature of the duty to be performed by the Assessing Officer, it is clear that a regular lengthy hearing or a show-cause notice is not contemplated to the assessee under section 142(2A) of the Act. To impose unnecessary restrictions on the scope of the power vested in the authority under section 142(2A) would not be in consonance with the object of the section. In the case of Gurunanak Enterprises [2003] 259 ITR 637, the Bench of this court had dealt in great detail with the essential ingredients of section 142(2A) and had held that the Assessing Officer upon application of mind should form an opinion with regard to the nature and complexity of the accounts of the assessee and the interests of the Revenue which are the prerequisite for exercise of power under this provision. The Division Bench had not deliberated upon the application of principles of natural justice, its extent and scope in relation to exercise of power by the Assessing Officer. The judgments of the Calcutta High Court in the cases of Peerless General Finance [1999] 236 ITR 671 and West Bengal State Cooperative Bank Ltd. [2004] 267 ITR 345 had spelled out the principle that orders under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tisfaction, in exercise of such jurisdiction would be very limited. The High Court would not sit in appeal over the formation of opinion by the Assessing Officer. In the case of Super Cassettes Industries Ltd. v. Asst. CIT [1999] 102 Taxman 202 (Delhi) in relation to the nature and complexity of the accounts based or the fact that having profit of Rs. 7.18 crores and filing of return declaring nil income after claiming deduction under various provisions, was a fair and proper order. It was also stated in these judgments that the provisions of section 142(2A) are to be primarily invoked for proper assistance and help of the Assessing Officer in coming to a final conclusion. In the case of Living Media Ltd. v. CIT [2002] 255 ITR 268 (SC) it was specifically held while upholding the order by the High Court that an order directing special audit of accounts because the assessee himself had filed voluminous details running into a number of pages, and in answer to the Assessing Officer's questions another 1000 pages were filed, the prima facie formation of opinion by the assessing authority for conducting the special audit was proper. In the light of the above decisions, the post-decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld have no right to such examination. This would, to some extent, be an interference in the internal management of a company 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 the 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 the nature and complexity of the assessee's accounts for better comprehension. (e) The formation of opinion by the Assessing Officer should be directly relatable to the nature and complexity of the assessee's accounts and should also be in the interests of the Revenue. (f) Formation of opinion by the Assessing Officer and grant of approval by the Commissioner of Income-tax, application of mind is sine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o notice here that on November 10, 2004, the Assessing Officer had recorded that books of account in terms of the order dated November 3, 2004 were not produced. In these circumstances, the books of account of the assessee were impounded with a specific direction to the assessee to produce relevant vouchers, etc. Again on November 22, 2004, in the presence of the CA of the company, the Assessing Officer had noticed "No person with the knowledge of accounting package produced as required vide order sheet entry dated November 18, 2004. No bills or vouchers produced" and the matter was adjourned. Again on November 30, 2004, the Assessing Officer passed an order which reads as under: "Sh. Amit Aggarwal, CA appeared with Sh. Amit Jain, CA and Sh. Suhit working for P.R. Mehra and Co. to explain the accounting package. They have filed copy of trial balance as on March 31, 2002. The balances against each entry are credits as well as debits that too for previous period and for current period, i.e., there are 2 sets of double entry. Sh. Amit Aggarwal has stated that the accounting package or trial balance presentation is perfectly alright. Filed letter dated November 30, 2004. Statement o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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