Court quashes audit remuneration orders, directs re-determination on ICAI scale

The court quashed the orders fixing the special audit remuneration at Rs. 20 lakhs per year, directing the Commissioner to re-determine it based on the ICAI scale, with a cap at Rs. 30 lakhs per year if necessary. The re-determination was to be completed within six weeks, and each party was to bear its own costs.

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Issues Involved:
1. Determination of remuneration for special audit under section 142(2A) of the Income-tax Act, 1961.
2. Alleged mutual agreement on remuneration between the petitioner and the respondents.
3. Authority of the Commissioner of Income-tax in fixing remuneration.
4. Compliance with the scale prescribed by the Institute of Chartered Accountants of India (ICAI).

Issue-wise Detailed Analysis:

1. Determination of remuneration for special audit under section 142(2A) of the Income-tax Act, 1961:
The petitioner, a firm of chartered accountants, was appointed as a special auditor for respondent No. 3 for the financial years 2002-03 and 2003-04. The remuneration for this audit was initially discussed and agreed upon based on the scale prescribed by the Institute of Chartered Accountants of India (ICAI). The petitioner raised bills for Rs. 49,94,419 and Rs. 44,69,447 for the respective years, which were initially paid by respondent No. 3.

2. Alleged mutual agreement on remuneration between the petitioner and the respondents:
A meeting held on April 10, 2007, allegedly resulted in a mutual agreement to fix the remuneration at Rs. 20 lakhs per year. The petitioner contended that this agreement was not genuinely consented to by its representative and was signed under pressure. The petitioner subsequently wrote a letter on April 11, 2007, withdrawing any alleged consent and insisting on remuneration based on the ICAI scale.

3. Authority of the Commissioner of Income-tax in fixing remuneration:
Section 142(2D) of the Income-tax Act mandates that the remuneration of the special auditor is to be determined by the Chief Commissioner of Income-tax, and this determination is final. The Commissioner had initially directed that the audit charges would be based on ICAI guidelines. Despite this, the Commissioner later fixed the remuneration at Rs. 20 lakhs per year without providing a clear basis or adhering to the previously agreed scale.

4. Compliance with the scale prescribed by the Institute of Chartered Accountants of India (ICAI):
The court found that the Commissioner had noted in the departmental file that the charges would be based on ICAI guidelines. The petitioner's acceptance letters also stipulated that the remuneration would be as per the ICAI scale. The respondents did not object to these terms at the time, indicating implicit acceptance. The court held that once the Commissioner had decided to fix the remuneration according to the ICAI scale, he could not later deviate from this decision without proper justification.

Conclusion:
The court quashed the impugned orders dated July 26, 2007, and September 18, 2007, which had fixed the remuneration at Rs. 20 lakhs per year. The court directed the Commissioner to re-determine the remuneration based on the ICAI scale, capping it at Rs. 30 lakhs per year if the calculated amount exceeded this figure. The re-determination was to be completed within six weeks from the date of receipt of the court's order. The writ petition was disposed of with each party bearing its own costs.

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