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TMI Blog2017 (4) TMI 1626X X X X Extracts X X X X X X X X Extracts X X X X ..... e basis of the material available, the Special Auditor has as such prepared a report. However, because of the pendency of the petition, no further steps are taken. In any case as observed hereinabove, there is no illegality committed by the Assessing Officer in ordering the special audit under section 142(2A) of the IT Act. AO cannot direct special audit u/s 142(2A) 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 - As per amended Section 142(2A) of the IT Act, apart from the nature and complexity of the accounts, etc., even in case of multiplicity of transactions or otherwise nature of the business activity of the assessee and in the interests of the Revenue, the AO can pass an order for special audit, in exercise of powers under Section 142(2A) - Therefore, while forming an opinion to get the accounts audited by Special Auditor; considering the specialized nature of business activities of the assessee, and/or while considering the multiplicity of transactions, there need not be any books of account before the AO. In the present case AO has thought it fit to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying on the business of trading in shares and securities as well as financing. That approximately 40,000/papers in 45 gunny bags in the case of Asaram Bapu and Narayansai Group were seized by the Police Authority. That the Income Tax Authority requisition in the said document under Section 132 of the IT Act in the case of Asaram Bapu and Narayansai Group on 09.03.2015 from Police Authorities, Surat. That on the basis of the same, the petitioner was served with the notice under Section 153 C of the IT Act for block period i.e AY 200910 to 201415 and the petitioner assessee was required to furnish return of income under Section 153 C of the IT Act for the aforesaid year. That the petitioner assessee was served with the questionnaire by way of notice under Section 142(1) dated 01.08.2016 on the basis of the requisitioned material, statements and loose papers etc. The petitioner assessee was also asked to furnish various details such as ledger accounts, bank statements, confirmatory letters from unsecured depositors etc. During the course of block assessment for the aforesaid period, Assessing Officer was of the opinion that looking to the complexity and multiplicity nature of material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitution of India. [3.0] Shri Tushar Hemani, learned Advocate has appeared on behalf of the petitioner assessee and Shri Manish Bhatt, learned Counsel has appeared on behalf of the Revenue. [3.1] The impugned order is challenged by the petitioner on the following grounds. (1) Insufficient opportunity. (2) All the conditions for appointment of Special Auditor under Section 142(2A) of the IT Act are not satisfied. (3) The Special Auditor is directed only with a view to extend the period of limitation to frame block assessment. [3.2] Shri Hemani, learned Advocate for the petitioner-assessee has vehemently submitted that in the facts and circumstances of the case, the impugned order of appointing Special Auditor is bad in law, contrary to the provision of Section 142(2A) of the IT Act and in breach of principles of natural justice as sufficient opportunity has not been given to the petitioner-assessee. [3.3] It is vehemently submitted by Shri Hemani, learned Advocate for the petitioner-assessee that notice dated 11.11.2016 was served upon the petitioner-assessee on 17.11.2016, thereafter petitioner assessee asked for 15 days time to respond to the same as a five y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the special audit. It is submitted that the respondent has not reached to the satisfaction in objective manner of directing the special audit. [3.9] It is further submitted by Shri Hemani, learned Advocate for the petitioner that even in the impugned order it is not stated by the Assessing Officer that in the interest of Revenue and / or to protect the interest of the Revenue again are required to be audited through special auditor. It is submitted that in absence of such case / claim, the impugned order under Section 142(2A) of the IT Act is not sustainable as the conditions for special audit under Section 142(2A) of the IT Act are not satisfied. [3.10] It is vehemently submitted by Shri Hemani, learned Advocate appearing on behalf of the petitioner that for the purpose of invoking jurisdiction under Section 142(2A) of the IT Act, the Assessing Officer is required to form an opinion that having regard to the nature of complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialized nature of business activity of the assessee and the interest of revenue, it is necessary to have s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he petitioner-assessee as per proviso to Section 142(2A) of the IT Act and after considering the reply submitted by the petitioner-assessee dated 30.11.2016 thereafter the impugned order has been passed after getting approval from the higher authority. It is submitted that therefore, the impugned order cannot be said to be breach of principles of natural justice as alleged. It is submitted that even in the memo of petition no such ground is taken that no sufficient opportunity has been given to the petitioner. [4.4] It is submitted by Shri Bhatt, learned Counsel for the Revenue that object and purpose of special audit is to facilitate the Assessing Officer in arriving at right conclusion and to arrive at correct taxable income. It is submitted that even after the report is submitted by the special auditor considering Section 142 of the IT Act, thereafter the assessee shall be given the opportunity to make submission on the report of the special auditor and he shall be furnished copy of the report of the special auditor. It is submitted that therefore, as such no prejudice shall be caused to the assessee if the account for the period between the 200910 to 201516 are audited by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y noncooperative and failed to answer the questions which were raised. [4.7] It is submitted that based on the voluminous record, which did pertain to the petitioner also and since the petitioner never came forward to assist the Assessing Officer, detailed show cause notice dated 18.10.2016 was issued proposing special audit. It is submitted that show cause notice enumerates in great detail the above aspects, as also the nexus between the requisitioned documents and the case of the petitioner. [4.8] It is further submitted by Shri Bhatt, learned Counsel appearing on behalf of the respondent that in view of the above, a clear opinion was formed by the Assessing Officer that having regard to the nature and complexity of the accounts, volume of the accounts, doubts about correctness of the accounts, multiplicity of transactions as also the specialized nature of business activity of the petitioner assessee and considering the interest of revenue, the matter was required to be referred under section 142(2A) of the IT Act. It is submitted that as mandated under the said provision, approval of the Principal, CIT (Central) was also obtained. It is submitted that the Principal (CIT) h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, accounts are required to be audited through Special Auditor, thereafter, the Commissioner has granted the approval which came to be subsequently communicated by the Assessing Officer to the petitioner. It is submitted that therefore the procedure as required to be followed under Section 142(2A) of the IT Act has been followed after giving opportunity to the petitioner and thereafter having been satisfied the requirement of special audit in the case of the petitioner for the AY 200910 to 201516 and thereafter a detailed proposal was sent to the Commissioner and thereafter having prepared a satisfaction note and having been satisfied, thereafter the proposal for special audit has been approved. Making above submissions and relying upon the following decisions, it is requested to dismiss the present petition. 1. Living Media vs. Commissioner of Income Taxmann.com 225 ITR 268 (SC) 2. Takshashila Realties Private Limited v. Deputy Commissioner of Income Tax (Spl. Civil Application No.2920/2017, Paras 16, 17) 3. Fedco (P) Limited vs. S.N. Bilgrami Ors. AIR 1960 SC 415 (Para 9) 4. Neesa Leisure Limited vs. Deputy Commissioner of Income Taxmann.com 35 Taxmann.com 216 (Para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer may require, or (iii) to furnish in writing and verified in the prescribed manner information in such form and on such points or matters (including a statement of all assets and liabilities of the assessee, whether included in the accounts or not) as the Assessing Officer may require : Provided that (a) the previous approval of the Joint Commissioner shall be obtained before requiring the assessee to furnish a statement of all assets and liabilities not included in the accounts ; (b) the Assessing Officer shall not require the production of any accounts relating to a period more than three years prior to the previous year. (2) For the purpose of obtaining full information in respect of the income or loss of any person, the Assessing Officer may make such inquiry as he considers necessary. (2A) If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialised nature of business activity of the assessee, and the interests of the revenue, is of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in accordance with such guidelines as may be prescribed and the expenses so determined shall be paid by the Central Government. (3) The assessee shall, except where the assessment is made under section 144, be given an opportunity of being heard in respect of any material gathered on the basis of any inquiry under sub-section (2) or any audit under sub-section (2A) and proposed to be utilised for the purposes of the assessment. (4) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year. [6.1] At this stage, it is required to be noted that Section 142(2A) of the IT Act has been amended w.e.f. 01.06.2013 and it provides that if at any stage of the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be any prejudice caused to the assessee if the accounts are ordered to be audited through Special Auditor under Section 142(2A) of the IT Act. With this, challenge to the impugned order is required to be considered. [6.2] Identical question came to be considered by the Delhi High Court in the case of DLF Limited and Another (supra). In the said decision, the Delhi High Court has considered the scope, ambit and powers of the Assessing Officer while passing order under Section 142(2A) of the IT Act. In the said decision, it is observed that Section 142(2A) of the IT Act is enabling provision to help and assist the Assessing Officer to complete the scrutiny assessment with the assistance of an accountant. In paras 10, 11, 26 and 27, the Delhi High Court has observed as under: 10. Aforesaid rulings when appraised and reflected, state that while examining the question of complexity in accounts, we have to apply the test of reasonable man by replacing the word and qualities of a reasonable man, with the word and qualities of a reasonably competent Assessing Officer. The question of complexity of accounts has to be judged applying the yardstick or test; whether the accounts would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of the legislative provisions. The object and purpose behind the legislation is to facilitate investigation and proper determination of the tax liability. The importance and relevancy of the legislation cannot be underestimated and it is a power available with the Assessing Officer to aid and assist him. Accounts should be accurate and provide real time record of the financial transactions of the assessee. Preparation of accounts is the work of the accountant on the payrolls or employed by the assessee. In order to ensure reliability and accuracy, enterprises resort to internal audit and an external audit which can be a statutory audit. Internal audits are normally conducted in house generally by acquainted or qualified accountants. Statutory audit is compulsory under the Companies Act, 1956 or when stipulated by the Act and accounts have to be audited by a qualified Chartered Accountant. Chartered Accountants are not ordinary accountants but specialists who have successfully undergone academic study and have extensive practical experience and trained for the said work. Curriculum requires articleship under a mentor who is himself a Chartered Accountant with some years of ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ants and when required and permissible, therefore, can take help and assistance from the qualified specialists to complete the assessment and determine the taxable income of an assessee. [6.3] In the present case, the Assessing Officer has thought it fit to get account audited by the Special Auditor as requisitioned materials are to the extent of 40000 papers found from the 14 gunny bags, which were requisitioned from Asharam Bapu and others. It appears that many of the persons with whom the petitioner assessee has transaction/ relation/ dealing are common and therefore, it cannot be said that the persons/ Shadahaks named in the requisitioned material are alien to the petitioner-assessee. Under the circumstances, when large number of papers are required to be considered / verified vis- -vis assessee and other persons whose names figured in the requisitioned papers and when considering Section 142(2A) of the IT Act, the Assessing Officer has thought it fit to exercise of powers under Section 142(2A) of the IT Act, it cannot be said that the Assessing Officer has committed any error and / or illegality. It is required to be noted that impugned order has been passed after giving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required special audit has been sent by the Assessing Officer. The same was sent through the proper channel i.e. office of the Joint Commissioner of Income Tax and thereafter, after preparing a detailed satisfaction note, the proposal has been approved by the Principal Commissioner of Income Tax. The satisfaction note demonstrates application of mind by the Principal Commissioner of Income Tax agreeing with the proposal of the Assessing Officer for special audit. The proposal and the satisfaction note has been shown to the learned Counsel appearing on behalf of the petitioner. Under the circumstances, it cannot be said that while granting approval there is nonapplication of mind by the Principal Commissioner of Income Tax. By preparing a detailed satisfaction note and having been satisfied that in the present case looking to the multiplicity and complexity of transactions and in the larger interest of Revenue, the special audit is required, thereafter the proposal has been approved and thereafter the Assessing Officer has passed the impugned order. [6.6] Now, so far as the submission on behalf of the petitioner that the approval does not reflect the satisfaction and except givi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner that the Assessing Officer cannot direct special audit under Section 142(2A) of the IT 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 IT Act, apart from the nature and complexity of the accounts, etc., even in case of multiplicity of transactions or otherwise nature of the business activity of the assessee and in the interests of the Revenue, the Assessing Officer can pass an order for special audit, in exercise of powers under Section 142(2A) of the IT Act. Therefore, while forming an opinion to get the accounts audited by Special Auditor; considering the specialized nature of business activities of the assessee, and/or while considering the multiplicity of transactions, there need not be any books of account before the Assessing Officer. In the present case, the Assessing Officer has thought it fit to get the account audited by the Special Auditor as requisitioned material are to the extent of 40,000 papers in 45 gunny bags, which were found during the search conduct ..... X X X X Extracts X X X X X X X X Extracts X X X X
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