9911796707
TMI Blog2011 (5) TMI 1133X X X X Extracts X X X X X X X X Extracts X X X X ..... ertakings, two of which are located in Pondicherry and Goa respectively. Along with its return, the petitioner company duly enclosed its audited Profit & Loss Accounts and Balance Sheet, Tax Audit Report under Section 44AB of the Income Tax Act and other relevant documents including four Auditors' Reports, all dated 26th April, 2005 certifying the amount of profits derived from the industrial undertakings located at Pondicherry and Goa units and the two units located at Jammu. As in previous years, the petitioner company apportioned the Head Office and other common expenses and made proportional allocation of such expenses to its units at Pondicherry, Goa and Jammu, on the basis of the ratio of the turnover of the said units to the total turn over of the petitioner company, thereby reducing the profits of the said units during the Financial Year 2004-2005 corresponding to the Assessment Year 2005-2006. For allocation of Head Office and other common expenses to the Pondicherry unit, the petitioner company adopted the method of deducting from the actual expenses incurred during the year, an amount equivalent to the expenditure incurred in 1996-1997 plus a further amount calcula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and Loss Account and Balance Sheet of the respective units, the allocation of common head office and selling expenses to the units eligible for deduction under Section 80-1B were also certified in the said Form No.10CCB filed with the Assessing Officer. In 1998-99 also, a similar note was given by the auditors, in the Auditors' Report, certifying profits in respect of the Pondicherry unit. By an order dated 10th May, 2002 in Appeal No.DCIT Cir. 12/2001-02, the Commissioner of Income Tax (Appeals) upheld the basis adopted by the petitioner company. The Department did not contest the order of the Commissioner of Income Tax (Appeals) before the Income Tax Appellate Tribunal, hereinafter referred to as the Tribunal. For the Assessment Year 1999-2000 the Department duly accepted the profit as computed in respect of Pondicherry unit for the purpose of Section 80-1B whereunder the assessee had, as in the previous year, computed such profit by including the proportionate head office and selling expenses, on a similar basis as the Assessment Year 1998-99. The Department, however, issued a notice under Section 147 of the Income Tax Act for the Assessment Year 1999-2000, on the purpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Tribunal for the Assessment Years 2000-01 and 2001-02 and the order dated 13th August, 2007 of the learned Tribunal quashing the order passed by the Commissioner under Section 263 in respect of the Assessment Year 2002-03, the mode of computation of income was not open to question. The return filed by the petitioner company for the Assessment Year 2005-06 was selected for scrutiny by issuance of a notice dated 20th October, 2006 under Section 143(2) of the Income Tax Act, 1961. The return was processed under Section 143(1) on 26th July, 2006. Subsequently, another notice dated 14th September, 2007 under Section 142 (1) was issued enclosing a questionnaire requiring the petitioner company to furnish certain details and to answer certain queries in connection with the assessment proceedings for the Assessment Year 2005- 06. On or about 6th December, 2007 the petitioner company received show cause notice dated 3rd December, 2007 directing the petitioner company to inter alia show-cause why the case of the petitioner company should not be referred to the Chief Commissioner/ Commissioner of Income Tax for special audit as per the provisions of Section 142(2A) of the Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in hot haste, without proper application of mind to the lengthy objection of the petitioner company, running into numerous pages. The contentions of the petitioner company were not even discussed in the impugned order of approval. On the other hand, on a reading of the impugned order, it is patently clear that the approval has been prompted by reason of purchase of gold coins from P.C. Chandra Jewellery Apex Pvt. Ltd. The Commissioner of Income Tax purported to proceed on the basis of transactions with P.C. Chandra Jewellery Apex Pvt. Ltd., of which there is not a whisper in the proposal of the Joint Commissioner of Income Tax, as observed above, and approved the proposal. As argued by Dr. Pal, appearing on behalf of the petitioner, an approving authority can only approve or disapprove the proposal. The approving authority cannot travel beyond proposal and utilize materials on which the proposal is not based, for the purpose of approving the proposal. In Vijayadevi Navalkishore Bhartia & Anr. vs. Land Acquisition Officer & Anr. reported in (2003) 5 SCC 83, cited by Dr. Pal, the Supreme Court held: "What is provided under the proviso to Section 11(1) is that the proposed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artment. The judgment, however, reaffirms the proposition of law that approval means an act of confirming, rectifying, assenting, sanctioning or consenting to an act done by another and that an approving authority cannot exercise appellate power. The proposition of law laid down in Vijayadevi Naval Kishore Bhartia (supra) is applicable in this case. The Supreme Court clearly held that the power of approval is only an administrative power, which limits the jurisdiction of the authority to apply its mind to see whether the proposed award was acceptable or not. For the purpose of forming an opinion to approve or not to approve, the approving authority might satisfy itself as to the materials relied upon, but cannot give directions to the statutory authority, as to the manner in which the statutory authority should accept and/or appreciate materials in regard to the compensation payable. The Commissioner cannot substitute his own opinion for that of the Collector. On an analogy of reasoning, the Commissioner of Income Tax could not have asked for information regarding transactions with M/s. P.C. Chandra Jewellery Apex Pvt. Ltd., as he has done by his letter dated 14th December, 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of approval, approving special audit for the Assessment Year 2005-2006, had earlier passed an order under Section 263 of the Income Tax Act, for the Assessment Year 2002-03, opining that a special audit under Section 142(2A) was required to be made, but he could not direct special audit as he was only empowered to exercise power of revision under Section 263. Dr. Pal argued that it was thus clear that the Commissioner of Income Tax had already formed an opinion that in case of Head Office and other expenses of those units which were eligible for deduction under Section 80-1B, a Special Auditor was required to be appointed. As pointed out by Dr. Pal, the order of the Commissioner of Income Tax under Section 263 for the Assessment Year 2002-03 had been reversed and set aside by the order of the learned Tribunal dated 13th August, 2007. In reversing and setting aside the order of the Commissioner, the learned Tribunal relied upon its earlier decision dated 17th October, 2006 where the learned Tribunal had dealt with the question of allocation of Head Office and Selling expenses attributable to the Pondicherry unit and Goa unit for the Assessment Years 2000-01 and 2001-02 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asonably be deduced that there is a real likelihood of bias. In Rattan Lal Sharma vs. Managing Committee, Dr. Hari Ram (Coeducation) H.S. School & Ors. reported in AIR 1993 SC 2155, cited by Dr. Pal, the Supreme Court held as follows: "A predisposition to decide for or against one party without proper regard to the true merits of the dispute is bias. A Judge should be impartial and neutral and must be free from bias. He must be in a position to act judicially and to decide the matter objectively. If the Judge is subject to bias in favour of or against either party to the dispute or is in a position that a bias can be assumed, he is disqualified to act as a Judge." In Halsbury Laws of England 4th Edition, Vol.2, it has been pointed out that the test of bias is whether a reasonable intelligent man, fully apprised of all the circumstances would feel a serious apprehension of bias. In this case, having regard to the entire facts and circumstances, and in particular, the view taken by the Commissioner, the apprehension of bias expressed by the petitioner is not unjustified. For exercising power under Section 142(2A) the following principles have to be borne in mind i) the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries were raised with regard to these transactions. The petitioner company could not have anticipated that those grounds would constitute the main grounds for referring the accounts to special audit. By approving the special audit, on a ground that was not a ground for proposal of special audit by the Assessing Officer, the Commissioner acted in flagrant violation of principles of natural justice. The Commissioner has also acted in flagrant violation of principles of natural justice in not dealing with the elaborate submissions made by the petitioner company against special audit. It appears that the Commissioner has not properly applied his mind to the aforesaid submissions. Moreover, the petitioner company, as required, submitted its objection on 24th December, 2007. On the same date, that is, 24th December, 2007, the Commissioner approved special audit in hot haste without proper consideration of the objection of the petitioner company. The hearing given to the petitioner was thus, only illusory and not a reasonable, effective hearing. Natural justice could not have been compromises to avoid limitation, as has been done in this case. In Swadeshi Cotton Mills Co. Ltd. vs. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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