TaxTMI 
TaxTMI 
2014 (1) TMI 1190
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....ion 142 (2A) within four months from the receipt of the letter; (iv)that a suitable writ, order or direction in the nature of prohibition restraining and prohibiting the respondents, their officers, servants and agents in proceeding in any manner whatsoever under the provisions of Section 142 (2A) of the Income Tax Act ; (v)that a suitable writ, order or direction be issued as this Hon'ble Court may deem fit and proper in the facts and circumstances of the case. (vi)To award costs throughout." 2.Briefly stated the facts of the present case are that the petitioner is a partnership firm engaged in manufacture and export of carpets from Bhadohi. For the assessment year 2009-10, the petitioner got his accounts audited by a Chartered Accountant under section 44 AB of the Income Tax Act, 1961 (hereinafter referred to as the Act) as the turnover of the firm exceeded the limit of 40 lacs per annum. The petitioner filed his return of income on 24.9.2009 along with a duly audited balance sheet, profit and loss account and the auditor's report for the AY 2009-10 (financial year 2008-09). For the AY 2007-08, the case of the petitioner was taken up on scrutiny under Section 143(2)/142(1) of....
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....Tax Appellate Tribunal, Allahabad Bench Allahabad in his case for the AY 2003-04; and that in view thereof no opinion could be formed for special audit so as to overreach the order of the ITAT. He relied on the judgment of Hon'ble Supreme Court in the case of Union of India and others v. Kamalaxmi Finance Corporation Limited, 1992(1suppl.) SCC 648. In paragraph 36 of the writ petition, it is stated that the petitioner was surprised to receive a letter dated 29.12.2011 written by one M/s V.K.Jindal & Company, Chartered Accountants (hereinafter referred to as Special Auditors) on 2.1.2012, informing the petitioner that that they have been appointed as an auditor to audit the accounts of the petitioner for the financial year ending 31.3.2009 under Section 142 (2 A) of the Act pursuant to the order of the CIT Varanasi dated 23.12.2011. The petitioner was required to provide documents as mentioned in the said letter. It is stated in paragraph 38 that the CIT neither passed any order nor informed orally or in writing, or served any order upon the petitioner directing the petitioner to get its books of accounts audited by Special Auditor as appointed by the A.O. In paragraph 39 it is stat....
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.... whether the order directing Special Auditor under Section 142 (2A) of the Act was made and served on the petitioner but nothing has been brought on record by the respondents despite a pointed query made by the Court. Neither any such order has been served in accordance with the provisions of Section 282(1) of the Act, nor any proof of service of order under Section 142 (2A) of the Act has been filed by the respondents. (iv)The ingredients of Section 142 (2A) of the Act are not present in the instant case namely the nature of accounts, complexity of accounts, nor the interest of revenue is involved, and as such the power under Section 142 (2A) of the Act cannot be invoked by the respondents. (v) The so called points mentioned in the letter of the Additional Commissioner dated 28.12.2011 (Annexure 12) with regard to the system of accounts and the income and expenditure could be easily looked into by the A.O. The entire exercise has been done by the respondents merely for collateral purposes so as to extend the limitation which expired on 31.12.2011. 7. Elaborating his submissions Sri Nikhil Agarwal submits that unless an order is communicated and served upon the petitioner, it is....
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....lf of respondents 9. Sri Dhananjay Awasthi submits that : (i)An order under Section 142 (2A) of the Act was passed after considering all the relevant factors and submissions made by the assessee including written reply dated 22.12.2011 of the firm in response to show cause notice dated 6.12.2011. (ii) The approval to the proposal of special audit under Section 142 (2A) of the Act in respect of the petitioner for the AY 2009-10, was granted by the CIT Varanasi vide letter dated 23.12.2011. (iii)The allegation of the petitioner that there was no complexity is misleading. (iv)The allegation of the petitioner that no opportunity was provided to him is also misleading because the Act does not provide for hearing at every stage. The petitioner was heard before recommendation for approval and only thereafter the proposal was forwarded to the CIT for approval for special audit under Section 142(2A). (v) The petitioner cannot challenge the issue of complexity because that differs from case to case and no benchmark can be set. Since at the present, no financial implications are involved, hence, the petitioner has no reason to challenge the special audit. The only requirement of opportu....
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....quired to be furnished by the petitioner. The averments in paragraph 15 of the writ petition that for the AY 2007-08 the case of the petitioner was taken up for scrutiny under Section 143(2), 142(1) of the Act and the assessment order dated 31.12.2009 was passed after detailed scrutiny, have been admitted by the respondent in paragraph 14 of the counter affidavit. 14. To properly appreciate the controversy before us, it would be appropriate to reproduce certain paragraphs of the writ petition and reply thereof in the counter affidavit as under : Paragraphs of the writ petition Paragraphs -of the counter affidavit 23. That after the submission of the reply on 9.11.2011, the petitioner was orally informed by the assessing authority that the hearing in the case has ended as also no further enquiries or documents relating to any of the items mentioned in the books of accounts or in the Balance-sheet or Profit & Loss A/c or in the Auditors report was ever made to the petitioner. The petitioner was under a bona fide belief that the assessing authority was duly satisfied with all the enquiries, replies, submissions of documentary evidences and the examination of books of accounts, Aud....
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....al audit can be conducted by the respondent no.3 in case of the petitioner. 56. That none of the necessary ingredients for exercise of powers under Section 142(2a) of the Act are conjointly present in the instant case i.e. (i) the nature of accounts, (ii) complexity of accounts, and (iii) interest of the Revenue. 59. That it may also be relevant to state herein that unless an order directing the petitioner to get the accounts audited by an Accountant his communicated by the assessing authority directly to him, it is no order in the eyes of law because under section 2C the limitation of 120 days start from the date of receipt of such direction. 60. That the powers under Section 142 (2A) of the act cannot be exercised for collateral purposes as such as to extend the period of limitation. 15. That the contents of paragraphs no. 16, 17, 18, 19, 20, 21, 22 & 23 of the writ petition need no comments. 18. That the contents of paragraphs no. 33, 34, 35, 36, 37, 38, 39 & 40 of the writ petition denied in the form state. The petitioner has annexed ITAT's order which do not help the case of the petitioner and neither does the citation mentioned in para 34 of the writ petition. The case o....
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....tition by the respondents in paragraph 15 of the counter affidavit clearly shows that the A.O. had orally informed the petitioner after submission of the reply on 9.11.2011 that hearing in the case has ended, and thus petitioner was under a bona fide belief that the A.O. was satisfied with the replies, submissions of documentary evidences and examination of accounts, auditor's report, balance sheet, profit and loss account of the petitioner for the AY 2009-10. 17. The Additional Commissioner of Income Tax, Range- 1, the A.O., Varanasi issued a show cause notice dated 16.12.2011 to the petitioner under Section 142 (2A) of the Act alleging therein that books of accounts and documents maintained by him is complex and the interest of revenue will be affected adversely if special audit is not directed. The date for submission of reply was fixed for 22.12.2011. On the top of the notice, the A.O. mentioned as under : "Time Barring Limitation expires on 31.12.2011." 18. The petitioner submitted his reply dated 22.12.2011 to the A.O., annexing therewith various statements containing details on the enquired heads. The order of the ITAT for AY 2003-04 dated 23.11.2007 was also filed by th....
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.... respondents reads as under : "GOVERNMENT OF INDIA OFFICE OF THE COMMISSIONER OF INCOME TAX AAYAKAR BHAWAN M.A.ROAD, VARANASI F.No. CIT/VNS/HQ-1/Spl. Audit/2011-12/2635 Dated 23.12.2011 To The Additional Commissioner of Income Tax Range-I, Varanasi. Sub: Proposal for Special Audit u/s 142 (2A) of the Income Tax act, 1961 in the case of M/s Kaka Carpets, Gyanpur Road, Bhadohi for A.Y. 2009-10-Regarding : Please refer to your office letter F.No. Addl. CIT/R-I/VNS/ 2011-12 dated 23.12.2011 on the subject mentioned above. In reference to the same as per your proposal, after considering the facts of the case and material on record, I find the proposal fit for conducting special audit U/s 142(2A) of the I.T.Act, 1961. The approval is hereby accorded and M/s V.K.Jindal & Co., D-53/118, Plot No.11, Kaliya Nagar, Rathyatra, Varanasi is hereby nominated to conduct special audit U/s 142 (2A) of the I.T.Act, 1961. (D.N.Mishra) Commissioner of Income Tax Varanasi Copy to the : M/s V.K.Jindal & Co., D-53/118, Plot No. 11, Kaliya Nagar, Rathyatra." 21. The order of approval also indicates that the A.O. had sent the proposal vide his letter dated 23.12.2011, on which the CIT grant....
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....We may at the outset notice that the following are the relevant factors for invoking Section 142(2A) of the Act: (i) The nature of accounts (ii) Complexity of accounts and (iii) Interest of the revenue. 12. The formation of opinion of the assessing officer must be on the premise that while exercising his power regard must be had to the factors enumerated therein. The use of the word 'and' shows that it is conjunctive and not disjunctive. All the aforementioned factors are conjunctively required to be read. The formation of opinion indisputably must be based on objective consideration. 13. The expression "complexity" would mean the state or quality of being intricate or complex or that it is difficult to understand. Difficulty in understanding would, however, not lead to the conclusion that the accounts are complex in nature. No order can be passed on whims or caprice. K.J. Shetty, J. in Swadeshi Cotton Mills Company Limited v. Commissioner of Income-Tax and Another [171 ITR 634] succinctly laid down the import of the said provision in the following terms: "The exercise of power to direct special audit depends upon the satisfaction of the Income-tax Officer with the added app....
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.... considers to be complex is in fact not so. It was also open to him to show that the same would not be in the interest of the Revenue. 58. In this case itself the appellants were not made known as to what led the Deputy Commissioner to form an opinion that all relevant factors including the ones mentioned in Section 142(2A) of the Act are satisfied. If even one of them was not satisfied, no order could be passed. If the attention of the Commissioner could be drawn to the fact that the underlined purpose for appointment of the special auditor is not bona fide it might not have approved the same. Assuming that two sets of accounts were being maintained the same would not mean that the nature of accounts is difficult to understand. It could have furthermore not been shown that the power is sought to be exercised only for an unauthorised purpose, viz., for the purpose of extension of the period of limitation as provided for under Explanation 2 to section 158BE of the Act. An order of approval is also not to be mechanically granted. The same should be done having regard to the materials on record. The explanation given by the assessee, if any, would be a relevant factor. The approvin....
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....on. Sometimes, what appears to be complex on the face of it, may not be really so if one tries to understand it carefully." Thus, before dubbing the accounts to be complex or difficult to understand, there has to be a genuine and honest attempt on the part of the Assessing Officer to understand accounts maintained by the assessee; appreciate the entries made therein and in the event of any doubt, seek explanation from the assessee. But opinion required to be formed by the Assessing Officer for exercise of power under the said provision must be based on objective criteria and not on the basis of subjective satisfaction. There is no gainsaying that recourse to the said provision cannot be had by the Assessing Officer merely to shift his responsibility of scrutinizing the accounts of an assessee and pass on the buck to the special auditor. Similarly, the requirement of previous approval of the Chief Commissioner or the Commissioner in terms of the said provision being an inbuilt protection against any arbitrary or unjust exercise of power by the Assessing Officer, casts a very heavy duty on the said high ranking authority to see to it that the requirement of the previous approval, env....