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TMI Blog2019 (3) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... some of the transactions were subjected to transfer pricing mechanism, would not debar the Assessing Officer from exercising powers under Section 142(2A) of the Act, if the conditions for exercising such powers were otherwise satisfied. The Transfer Pricing Officer would be essentially concerned with the assessment of the arm's length price of the specified transactions with an associated enterprise. Reference to the judgment of this Court in case of this very assessee [2018 (10) TMI 376 - BOMBAY HIGH COURT] would also be of no avail. It was a case in which the assessee had challenged the orders passed by the Assessing Officer calling upon for special audit of the petitioner's accounts for several assessment years. However, the decision of the Court was not on merits. the Court did not decide the petitioner's objection to the special audit on merits, instead proceeded on consensus. Secondly, the assessment years involved in the said orders besides others were 2010-11, 2011-12 and 2014-15. For the assessment years 2010-11 and 2011-12 unamended provisions of Section 142(2A) would apply. In the result, we do not find merit in this petition - Decided against assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rges paid to FTIL is not established. Further, amounts paid to FTIL also are above the market rates. d) The assessee has entered in multiple related party transactions. The identification of related parties along with determination of fair market value also required determination. In background of such discussion, the said Authority after referring to the provisions of Section 142(2A) of the Act conveyed to the petitioner as under:- 4 As per the facts and circumstances enumerated in para 2 above, it is noted that the assessee company is engaged into a specialized business of an Exchange and its nature of accounting is complex. Further, it is observed that the accounts of assessee company are voluminous. The above instances also indicate that there exist serious doubts about the correctness of the accounts. There are also multiple related party transactions entered, the reasonableness and genuineness of which is under question. In entirety of the fact and reasons stated herein, it is in the interest of the revenue that an audit u/s. 142(2A) of the Act be directed in your case. 5. In view of above, this is to inform you that the special audit of your books of acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duced hereunder:- 1. M/s. Multi Commodity Exchange of India Ltd is a commodities exchange and an erstwhile subsidiary of M/s Financial Technologies (India) Ltd. (FTIL). 2. During the course of proceedings, it was observed that the assessee had incurred various expenses to related and nonrelated parties, which need to audited. Some of these expenses are as follows: a) The assessee has entered into several agreements with NBHC, a relate concern, for payment of rent of warehouses. There are also several non-agreement based monies paid by the assessee. Details available on record also indicate that some of the warehouses for which rent has beet claimed to have been paid were used by certain other persons. b) The assessee has claimed to have awarded multiple technological agreements to M/s Financial Technologies India Ltd (FTIL), a related concern. The rationale of charges paid to FTIL is not established. Further, amounts paid to FTIL also are above the market rates. c) The assessee has entered into multiple related party transactions. The identification of related parties along with genuineness of transactions and the factor of arms length pricing or reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken by the assessee company. ii. Detailed examination of parties covered u/s 40A(2)(b) of the Income Tax Act, 1961 and the nature, genuineness and reasonableness of payments made to these parties. iii. Detailed examination as regard to major expenses exceeding ₹ 10 lakhs and the tax deduction/collection thereon apart from those referred in subsequent points and allowability thereof as per the provisions of the Act. iv. Detailed examination as regard the Trade payables, their existence, genuineness and subsequent payments thereof. v. In respect of the expenditure incurred by the assessee towards advertisement, business promotion, marking, sponsorship, etc whether expenditure incurred is genuine? Whether it is commensurate with the services rendered by other party? vi. Details of donation paid along with genuineness and allowability of the same under the provisions of the Act. vii. Allowability of Warehousing Charges having regard to the provisions of the Act. viii. Allowablity of Technological Service charges having regard to the Act. ix. Any other issues arising in the course of audit, which ought to have been offered as income in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner had issued a show cause notice calling upon the objections from the petitioner to the proposal of special audit of the accounts. The objections were disposed of by speaking order. The impugned order was passed after taking necessary approval from the Principal Commissioner. The Deputy Commissioner has recorded proper reasons for exercise of the powers. He pointed out that the provisions of Section 142(2A) of the Act has been amended w.e.f 1.6.2013 substantially widening the scope for special audit. He contended that in facts of the present case, the necessary ingredients of Section 142(2A) were fully satisfied and the order was, therefore, correctly passed by the Deputy Commissioner. 5. Both sides have referred to the judgments, reference to which would be made at the appropriate stage. 6. From the material on record, it may be seen that the Deputy Commissioner after issuing the show cause notice recording his grounds why he proposed to call for special audit, considered the objections of the petitioner to such proposal. He passed a detail order disposing of the objections citing reasons. Subsequently, he also obtained the approval from the Principal Commissioner be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to get the accounts so audited unless the assessee has been given a reasonable opportunity of being heard.] We may notice that the group of words, the nature and complexity of the accounts, volume of the accounts, doubts about correctness of the accounts, multiplicity of the transactions in the accounts or specialized nature of business activity of the assessee and was substituted by the legislature by Finance Act, 2013 w.e.f. 1.6.2013 for the following group of words : the nature and complexity of the accounts of the assessee and . It can thus be straight away seen that prior to this amendment, the power of the Assessing Officer to call for special audit would have to be exercised having regard to the nature and complexity of the accounts of the assessee and the interest of the revenue. The legislature has now considerably widened the scope of exercise of such powers by including several other situations besides the nature and complexity of the accounts of the assessee. Thus, additional expressions which now finds way into Section 142(2A) of the Act are volume of the accounts, doubts about correctness of the accounts, multiplicity of the transactions in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... naccuracy in the language used in the impugned order, would not be fatal to the order itself. 10. The decisions cited by Shir. Pardiwala in respect of the contention that the requirements of Section 142(2A) were not satisfied, are all rendered before the amendment in Section 142(2A) w.e.f. 1.6.2013. In case of Delhi Development Authority Anr. Vs. Union of India Anr. (2013) 350 ITR 432 (Delhi), the Division Bench of Delhi High Court in background of the per-amended provisions had quashed the order of special audit. It was in this background observed that in order to direct special audit under Section 142(2A) of the Act, the Assessing Officer must form an opinion with regard to twin conditions namely nature and complexity of the accounts and interest of the revenue. As noted, this expresses nature and complexity of the accounts has now been substantially widened by the legislature. The amended provision of Section 142(2A) came up for consideration before this Court in case of Sharad Kantilal Shah Vs. Deputy Commissioner of Income Tax, Central Circle 8(3) [2017] 393 ITR 594 (Bombay) wherein it was observed as under:- 7. As far as the third grievance of the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of the petitioner that the Assessing Officer cannot direct special audit under Section 142 [2A] of the Act before calling for the accounts from the petitioner in the assessment proceedings and without doubting the accounts and/or considering the complexity in the accounts is concerned, it is required to be noted that as per amended Section 142 [2A] of the Act, apart from the nature and complexity of the accounts, etc., even in case of multiplicity of transactions in the accounts or specialized nature of business activity of the assessee and the interests of the Revenue, the Assessing Officer can pass an order for special audit in exercise of powers conferred under Section 142 [2A] of the Act. Therefore, while forming an opinion to get the accounts audited by special auditor; considering the specialized nature of business activities of the assessee, there need not be any books of account before the Assessing Officer. In the present case, having found that there are complex issues relating to introduction of land by the partners into the firms; revaluation of land; credit of partners in capital account equal to revalued amount of land; conversion of capital account to loa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad put it to both the counsel for the petitioner and the respondent why the whole gamut of the special audit be followed. Instead, during the course of assessment, that will be undertaken pursuant to the notice under Section 148 of the Act and when the petitioner was possessed a copy of the report of PWC, all contentions in relation to such proceedings can be raised and thereafter, orders can be passed after hearing the petitioner. This suggestion was accepted by both sides. It was, in this background, the Court disposed of the petition with following directions:- The Petitions can be disposed off with a direction that the special audit in terms of the impugned notice and the approval need not be undertaken for all the materials in relation to the petitioner's transactions, their share holdings, are already referred to in the PWC report as also the pending proceedings under Section 148 of the I.T. Act. There is a return of income filed under protest by the petitioners on 26th April, 2017 and that is under assessment. If during the course of assessment and pursuant to this return, the petitioner desires to raise objections with regard to the contents of the PWC report and t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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