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TMI Blog2017 (4) TMI 1356X X X X Extracts X X X X X X X X Extracts X X X X ..... in the showcause notice as to why and for what purpose the special audit is required. Therefore, in the facts and circumstances of the case, it cannot be said that the Assessing Officer has committed any error and/or illegality in passing the impugned order of special audit, in exercise of powers under Section 142(2A) of the IT Act. No reason to interfere with the impugned order passed by the Assessing Officer ordering special audit under Section 142(2A) of the IT Act in exercise of powers under Article 226 of the Constitution of India. - Decided against assessee - Special Civil Application No. 4916 of 2017 - - - Dated:- 26-4-2017 - Honourable Mr.Justice M.R. Shah and Honourable Mr.Justice B.N. Karia Mr SN Soparkar, Sr. Advocate with Mr BS Soparkar, Advocate for the Petitioner Mr Manish R Bhatt, Sr. Advocate with Mrs Mauna M Bhatt, Caveator for the Respondent. JUDGMENT Honourable Mr.Justice M.R. Shah [1.0] By way of this petition under Article 226 of the Constitution of India, the petitioner assessee Pratius Merchants (P) Limited has prayed for an appropriate writ, direction and order to quash and set aside the impugned order passed under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onerassessee vide communication dated 28.11.2016 requested for 15 days time to submit the reply. That the Assessing Officer granted time upto 05.12.2016 and the hearing was fixed on 05.12.2016. That thereafter, again the petitionerassessee asked for adjournment on 05.12.2016, which was granted upto 09.12.2016. The petitioner submitted the letter / communication dated 08.12.2016 stating that it already sent reply to the earlier letters of the respondent and it was made clear that the said replies dated 28.11.2016 and 05.12.2016 should be treated as replies to the queries raised by the Assessing Officer. That thereafter the Assessing Officer disposed of the objections vide order dated 08.12.2016 and made a proposal on 09.12.2016. That thereafter, Assessing Officer has passed impugned order dated 21.12.2016 appointing Special Auditor for AY 2009-10 to 2015-16. [2.2] Feeling aggrieved and dissatisfied with the impugned order passed by the Assessing Officer passed under Section 142(2A) of the IT Act appointing Special Auditor for the AY 2009-10 to 2015-16, the assessee has preferred present Special Civil Application under Article 226 of the Constitution of India. [3.0] Shri S.N. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Special Auditor as per para 6 of the impugned order to verify various claims, purchase of assets, eligibility for exemptions etc. which are taken care of in the tax audit and do not require special audit. It is submitted that special audit cannot be directed for preparing new books of accounts as per the directions of Assessing Officer. [3.7] It is further submitted by Shri Soparkar, learned Senior Advocate for the petitioner that during the block assessment and the Assessing Officer has served the questionnaire upon assessee for which, the Assessing Officer has passed the order of special audit, which have been answered by the assessee. It is submitted that therefore, the purpose for special audit will be taken care by the Assessing Officer during the block assessment. [3.8] It is further submitted by Shri Soparkar, learned Senior Advocate for the petitioner that as such the petitionerassessee has nothing to do with 40,000 pages of documents requisitioned and / or has nothing to do with Sant Shri Asharamji Ashram and Shadahaks whose name figured in the requisitioned document. It is submitted that therefore, in absence of proving relevance of such material, respondent has ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 142(2A) of the IT Act. [3.13] Shri Soparkar, learned Senior Advocate appearing on behalf of the petitioner has submitted that the Assessing Officer could not have directed special audit under Section 142(2A) of the IT Act beofre considering books of account of the petitioner and/or without verifying the accounts and/or considering the complexity in the accounts. Making above submissions, it is requested to admit/allow the present petition and quash and set aside the impugned order passed under Section 142(2A) of the IT Act. [4.0] Present petition is vehemently opposed by Shri Manish Bhatt, learned Counsel for the Revenue. [4.1] It is vehemently submitted by Shri Bhatt, learned Counsel for the Revenue that in the facts and circumstances of the case and looking to the complexity and multiplicity of transaction visavis the requisitioned material i.e. 40,000 papers found from 42 gunny bags, in which, there is ample material with the Assessing Officer connecting the petitionerPage assessee that the requisitioned material and the persons / Sadhak whose names figured in the requisitioned material, the Assessing Officer is justified in passing the order under Section 142(2A) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitionerassessee) also established the multiplicity of transaction and it also established the multiplicity of transaction and therefore, in order to arrive at correct taxable income and the extent of real fund flow and to identify the real persons whose funds are being rotated, the Assessing Officer is justified in passing the order of special auditor under Section 142(2A) of the IT Act. [4.6] It is further submitted that in the present case detailed showcause notice was served upon the petitioner by which the petitioner was called upon to show cause why for the reasons mentioned in the said showcause notice the order of special audit under Section 142(2A) of the IT Act may not be passed. It is submitted that thereafter as the petitioner failed to respond to the showcause notice and thereafter as the assessment was time barred matter, after preparing a detailed satisfaction note the proposal was sent to the Principal Commissioner of Income Tax and the Principal Commissioner of Income Tax after careful consideration of the material on record, thereafter has granted the approval. It is submitted that therefore the impugned order cannot be said to be in breach of the principles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... att, learned Counsel appearing on behalf of the respondent that in the present case as such the principles of natural justice has been complied with to the fullest. Requisite opinion has been formed based on the material available on record. [4.11] Now, so far as the submission / contention of the petitioner that the impugned order does not disclose the recording of the opinion and/or it does not reflect that any opinion was formed by the Assessing Officer that the accounts for the year in consideration are required to be audited through the Special Auditor is concerned, it is vehemently submitted that as such the showcause notice itself notes in great detail the requirements relating to complexity etc. It is submitted that as such the impugned order is only a communication by the Assessing Officer directing the petitioner to have its books of account subjected to special audit. It is submitted that there is no requirement under the law / section that such intimation is required to contain reasons. It is further submitted that as such a detailed proposal was sent to the Commissioner. It is further submitted that thereafter a satisfaction Note has been recorded by the Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned order passed under Section 142(2A) of the IT Act, section 142 of the IT Act (including section 142(2A) of the IT Act) is required to be referred to and considered, which reads as under: 142. Inquiry before assessment.( 1) For the purpose of making an assessment under this Act, the Assessing Officer may serve on any person who has made a return under section 115WD or section 139 or in whose case the time allowed under subsection (1) of section 139] for furnishing the return has expired a notice requiring him, on a date to be therein specified, (i) where such person has not made a return within the time allowed under subsection (1) of section 139 or before the end of the relevant assessment year], to furnish a return of his income or the income of any other person in respect of which he is assessable under this Act, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed, or : Provided that where any notice has been served under this subsection for the purposes of this clause after the end of the relevant assessment year commencing on or after the 1st day of April, 1990 to a person who has not made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notwithstanding that the accounts of the assessee have been audited under any other law for the time being in force or otherwise. (2C) Every report under subsection (2A) shall be furnished by the assessee to the Assessing Officer within such period as may be specified by the Assessing Officer : Provided that the Assessing Officer may, suo motu, or 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 subsection (2A) is received by the assessee. (2D) The expenses of, and incidental to, any audit under subsection (2A) (including the remuneration of the accountant) shall be determined by the Principal Chief Commissioner or Chief Commissioner or Principal 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 XVIID for the rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been audited under any other law for the time being in force or otherwise. Section 142(2C) of the IT Act provides that every report under subsection (2A) shall be furnished by the assessee to the Assessing Officer within such period as may be specified by the Assessing Officer. Section 142(2D) of the IT Act (as amended) also provide that the expenses of, and incidental to, such audit shall be paid by the Central Government. As per subsection (3) of Section 142, the assessee shall be given an opportunity of being heard in respect of any material gathered on the basis of any inquiry under subsection (2) or any audit under subsection (2A) and proposed to be utilised for the purposes of the assessment. Thus, from the aforesaid provision, it appears that object and purpose of special audit is as such to facilitate the Assessing Officer to arrive at correct taxable income and for which the Assessing Officer is authorized to direct the assessee to get books of account audited by the accountant authorized by the Assessing Officer, in case, Assessing Officer is of the opinion that books of accounts are complex in nature and there are multiplicity of transactions, for which, accounts ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he accounts or camouflage has been adopted. No undesirable assumptions 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 accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vasion of taxes. Financial statements and accounts are coming 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to do, he may direct the account to be verified by the Special Auditor. Therefore, having regard to the nature and complexity of the account, if the Assessing Officer is satisfied and / or is of the opinion that accounts are required to be verified by the Special Auditor, he may pass such order. Therefore, on the aforesaid ground that the Assessing Officer has not stated that the accounts are required to be audited by Special Auditor in the interest of Revenue, the impugned order is not required to be quashed and set aside, more particularly, when it is stated in the order that looking to the complexity and the multiplicity of transactions, accounts are required to be verified by the Special Auditor. Considering the object and purpose of Section 142(2A) of the IT Act, it appears that the accounts are required to be audited by the Special Auditor under Section 142(2A) of the IT Act with a view to facilitate the Assessing Officer in passing the Assessment order and to arrive at a right conclusion. [6.5] Now, so far as the submission on behalf of the petitioner that the Principal Commissioner of Income Tax has mechanically granted the approval to the proposal made by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rections. The reasons for special audit is multiplicity and complexity in the transactions and in the interest of Revenue. As observed hereinabove 40,000 papers / material contained in 45 gunny bags are required to be tallied and considered visavis different persons and even the petitioner assessee. At this stage it is required to be noted that the petitioner has not alleged any malafides. [6.8] Now, so far as the submission on behalf of the petitioner that once the Assessing Officer granted the personal hearing on 09.12.2016, the Assessing Officer ought to have waited and ought not to have disposed of the objections and/or ought not to have send the proposal to the Principal Commissioner is concerned, at the outset it is required to be noted that as such there is no requirement under the law to grant personal hearing. Under the law, the objections raised against the showcause notice are required to be considered, which have been considered and dealt with by the Assessing Officer while disposing of the objections raised by the petitioner. Under the circumstances, the impugned order cannot be said to be in breach of principles of natural justice. [6.9] Considering the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the circumstances, when large number of papers are required to be considered / verified visavis the assessee and other persons whose names figured in the requisitioned papers, and when considering section 142(2A) of the IT Act, when the the Assessing Officer has thought it fit to exercise powers under Section 142(2A) of the IT Act, it cannot be said that the Assessing Officer has committed any error and/or illegality. Specific reasons are given so mentioned in the showcause notice as to why and for what purpose the special audit is required. Therefore, in the facts and circumstances of the case, it cannot be said that the Assessing Officer has committed any error and/or illegality in passing the impugned order of special audit, in exercise of powers under Section 142(2A) of the IT Act. At this stage it is required to be noted that with respect to other assessees who are alleged to be connected with Asharam Bapu and Narayan Sai Group, on the very ground order under Section 142(2A) of the IT Act has been passed by the concerned Assessing Officer and the petitions (Special Civil Application Nos.1266/2017 and other allied petitions) challenging the order of Special Audit under S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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