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TMI Blog1999 (7) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer should look into the accounts himself, in case the special auditor is not permitted to audit the account and the Assessing Officer is also not in a position to look into the accounts of all the branches when the assessee is not in a position to produce all the books of account maintained by all the 43 branches of the assessee, then whether it can be said that the impugned order under section 142(2A) of the Act is without application of mind. Sub-section (2A) of section 142 reads as under : "(2A) If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts 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 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 particu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 142(2A) deals with the cases having less turnover than referred in section 44AB. Therefore, he submits that when the turnover is more than 40 lakhs of rupees, no special auditor can be appointed under sub-section (2A) of section 142 of the Act as the accounts have already been audited under section 44AB of the Act. Learned counsel for the assessee submits in case the assessee fails to produce the documents, assessment can be completed under section 144 and there is no need to appoint the special auditor. Even in the assessment year 1993-94 the special auditor was appointed and in the report he found that income disclosed by the assessee was more than what had been found by the special auditor. Though the Assessing Officer did not accept that report and huge additions were made and those additions were deleted subsequently, therefore, he submits no purpose will be served by the appointment of the special auditor under section 142(2A) and the assessee will be unnecessarily burdened with the fees of the special auditor that will run into lakhs of rupees. On the other hand, learned counsel for the Revenue submits that considering the nature and complexity of the accounts and as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly turnover of more than a crore of rupees, or (vi) where there are allegations of substantial tax evasion, or (vii) where the Income-tax Officer has any other information necessitating special audit." In that case, the action of the Assessing Officer for appointment of the special auditor under section 142(2A) has been upheld, but it was observed that after seeing the accounts the Assistant Commissioner had formed his opinion that the appointment of the special auditor was a necessity. In the case of Peerless General Finance and Investment Co. Ltd. v. Deputy CIT [1999] 236 ITR 671 (Cal), the appointment of the special auditor was challenged by the assessee and this court after considering the facts of that case found that the appointment of the special auditor as has been proposed by the Assessing Officer on the ground that there was litigation between the assessee and the Reserve Bank of India and also between the assessee and the Department. The learned trial judge, in this case, found that the litigations had nothing to do with the assessment of income of the assessee and, therefore, that cannot be the basis for appointment of the special auditor. Therefore, that order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the previous year relevant to the assessment year, the assessee has added Rs. 81.42 crores to the plant and machinery, Rs. 2.95 crores to the motor vehicles Rs. 14.86 crores to the land and Rs. 6.69 crores to the buildings. These claims should be verified, to see whether these claims/expenditure was for the purpose of business and can be allowed under the Act, if so to what extent. The assessee-company has purchased leaf tobacco worth Rs. 66.33 crores, from All India Tobacco Co. Ltd., paper board worth Rs. 30.20 crores from Bhadrachalam Paper Board Ltd., and made payment of Rs. 11.45 crores on account of contractual obligation. Whether the expenditures are genuine or whether the expenditures are hit by any of the provisions of the Act that can be said only when there is verification from the material on which the accounts of the assessee and its branches are prepared. The assessee-company has also received share premium of Rs. 65.55 crores. Details thereof have not been furnished. The assessee has claimed deduction of Rs. 22.27 crores while computing the taxable income, but no proper accounts and details thereof have been furnished. The assessee has further debited Rs. 2,579.63 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al auditor should not be appointed. After hearing the assessee and considering his written submissions, the Commissioner of Income-tax endorsed the view taken by the Assessing Officer for appointment of the special auditor, under sub-section (2A) of section 142 of the Act and recommended the matter for appointment of a special auditor to the Chief Commissioner. The Chief Commissioner has also issued the notice to the assessee on March 5, 1999. Annexure "L" asking the assessee to either appear in person or through authorised representative on March 12, 1999, and submit his objections, if any, against appointment of the special auditor for the assessment year 1996-97. On March 12, 1999, written submissions were filed questioning the authority of the Chief Commissioner giving approval. In addition to the objections raised in the written submissions the summary of submissions made to the Commissioner, was also annexed. Dr. Pal, learned senior counsel appearing for the assessee, has submitted that the Commissioner of Income-tax instead of giving approval to the proposal of the Assessing Officer after hearing, he sent that proposal to the Chief Commissioner for approval Under section 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen he has given his submissions and objection in writing to the Chief Commissioner on the appointed day and those submissions were considered, which is reflected from paragraph 2 of the order of the Chief Commissioner wherein it is stated that in response to the notice the assessee-company filed its written submission on March 12, 1999, along with the annexures which have been produced, it cannot be said that that has not been considered. The written submissions not only were filed in response to the notice of the Chief Commissioner but those were considered also. Therefore, it cannot be said that the Chief Commissioner has not given any opportunity to the assessee to make submissions against the order of approval for appointment of the special auditor. There is, therefore, no case is made out that the principles of natural justice were violated. Therefore, it cannot be said that opportunity has not been given before approval of the appointment of the special auditor by the Chief Commissioner. Dr. Pal learned counsel for the appellant, further submits that on March 12, 1999, the Chief Commissioner was not available for hearing. As stated above, when the written submissions were g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 assessee has been protected that no assessee should unnecessarily be harassed by the Assessing Officer, that is why the duty has been cast on the senior officers of the Department, i.e., the Commissioner or Chief Commissioner, that without approval of either the Commissioner or Chief Commissioner, the Assessing Officer has no power to appoint the special auditor to look into the accounts of the assessee. Therefore, in our view, the power conferred on the Assessing Officer, and the approval of the Commissioner and Chief Commissioner is not confined to any turnover, in business or profession. There is no limit or any bar on account of amount of receipts either in business or profession. This power has been conferred on-the Assessing Officer to do justice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. It is not the case of the appellant that the Commissioner was not in favour of the approval. When all the three authorities are in favour of the appointment of the auditor, we do not find any justification to quash the order on the ground that approval has been given by the Chief Commissioner. Dr. Pal, learned counsel appearing for the assessee, further submits that in pursuance of the order of the learned single judge, the Assessing Officer has issued fresh notice/letter dated April 20, 1999, asking the assessee to produce the relevant papers and documents which are the basis for the accounts in all the 43 branches. Such as, profit and loss account, balance-sheet, trial balance, books of account and bank statements of some dividends of the company referred to at page 2 of the notice and some transactions in the leaf tobacco division up to November 30, 1996. The material regarding the pre-deposit of Rs. 170 crores during the financial year relevant to the assessment year 1995-96--the details relating to loss of Rs. 14.88 crores-details regarding the excise duty amount of Rs. 2,579 crores-the details of purchases worth Rs. 66 crores from the two concerns of this assessee-company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer cannot be curtailed and nowhere any provision of this Act prohibits the Assessing Officer to verify the correctness of various entries in the accounts. Thus, the nature of this assessee's account that he maintained the accounts in all the 43 branches separately and recast that in the head office. Whether that has been properly recast or not ? Can the Assessing Officer be stopped to verify and examine those entries ? Our answer is obviously in the negative. He cannot be stopped, in case he found that there is a possibility of escapement of income and there is a possibility of bogus claims. The Assessing Officer has the power to verify the entries of the accounts, which are based on the material with the assessee, having 43 branches all over the country. As the assessee-appellant as well as the Revenue-both are of the view that it is not possible and the interests of the Revenue may suffer in case the income is not properly assessed. It is pertinent to note that in December, 1996, there was a search in offices, business premises and factories throughout the country and illegal transactions worth more than Rs. 200 crores were found. In such case the scrutiny of accounts and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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