AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2014 (2) TMI 1035
X X X X Extracts X X X X
X X X X Extracts X X X X
....r 2008-2009, the petitioner filed E-return of income declaring a total income of Rs.6,95,74,835/- on 30.09.2008. A notice under Section 143(2) of the Act was issued on 06.08.2009, asking the petitioner to furnish the computation of income and the notes thereto, copies of the balance sheet, profit and loss account and the notes thereto, audit report and also to furnish reasons and make disclosures in support of the various claims made in the return. On 11.01.2010, an enquiry was initiated by issue of notice under Section 142(1) of the Act and several explanations were sought with respect to the return of income and the various claims made by the assessee, and other clarifications. The notice issued on 12.08.20101, again under Section 142(1), called upon the petitioner to furnish the details as per the earlier notice dated 11.01.2010 and also required the petitioner to file the audit report along with balance sheet, profit & loss account and the computation of income. The petitioner was also directed to file the history of its income tax assessments for the past two years together with copies of the assessment orders. This requirement was complied with by the petitioner on 01.09.2010....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd the income and expenditure in relation thereto were in the course of normal business operations. The submissions were sought to be supported by reference to case law. 4. On 28.11.2011, the Assessing Officer, the respondent no.2 herein, submitted the terms of reference for special audit in the case of the petitioner as also in the case of M/s. AT & T Global Network Services Pvt. Ltd., to the Commissioner of Income Tax, Delhi-1, New Delhi (Annexure P-19). The terms of reference were actually submitted by the Additional Commissioner of Income Tax, Range-2, New Delhi through whom it is required to be submitted by the Assessing Officer. So far as the petitioner is concerned, the terms of reference for special audit were as follows: "(ii) AT&T Communication Services India Pvt. Ltd. Related party transactions with AT&T Global Network Services Pvt. Ltd. The mode of computation has to be worked out. (Brief facts: As per Annexure "E") Opportunity given to the assessee vide Order Sheet entries dated 19/10.2011 & 14/11/2011 as per provisions of the Act, to explain its position regarding complexities and Special Audit. In response to the same, the assessee's submitted its reply on 31/1....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Yours faithfully, Sd/- A.K.Dhir Asst. Commissioner of Income Tax, Circle 2(1), New Delhi." 6. On 23.12.2011, the Commissioner of Income Tax, Delhi-1, New Delhi, who is the first respondent herein accorded his approval to the special audit proposed in the case of the petitioner and appointed M/s. T.R. Chaddha, Chartered Accountant, Kuthiala Building, Connaught Place, New Delhi as the special auditors. 7. It is noteworthy that in the approval accorded by the respondent no.1, by letter dated 23.12.2011, there is reference to the terms of reference dated 16.12.2011, sent by the respondent no.2 herein. 8. The contention put forth on behalf of the petitioner against the order for special audit in the petitioner's case is threefold; (i) the books of account were not called for or examined by the Assessing Officer and no special audit can be ordered without examining the books of account of the assessee as without such an examination the Assessing Officer would not be in position to assess the nature and complexity of the accounts; (ii) no show cause notice was issued before ordering a special audit and thus there was a breach of the rules of natural justice and ; (iii) there was ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ities are sufficient to justify the reference to a special audit. In this behalf reliance was placed on a judgement of this court in Central Warehousing Cooperation Vs. Secretary, Department of Revenue & Ors. (2005) 277 ITR 452. 11. The learned standing counsel also pointed out that the special audit is now completed and the audit report is ready with the special auditor. He also pointed out that the other company of the same group, namely, AT&T Global Network Services Ltd., in which case also a special audit was approved, did not object to the same and that as a result of the special audit in that case, substantial tax evasion was detected. So far as the allegation of interpolation in the order sheet entries made on 14.10.2011 and 19.10.2011 is concerned, the learned standing counsel pointed out that by the notice dated 14.10.2011 issued under Section 142(1) of the Act, the respondent no.2 had inter alia called for the ledger accounts relating to the advances received from customers and those relating to the debtors and related parties and it was these ledger accounts, which were subjected to examination by the A.O. on 19.10.2011. He denied that there was any interpolation in the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e or detailed ones. This view was affirmed by the larger Bench of the Supreme Court in Sahara India (Firm) Vs. CIT (supra). The requirement of the first proviso that there should be adherence to the rules of natural justice and that the assessee should be given an opportunity of being heard before issuing a direction for special audit is satisfied in the present case. The respondent no.2 did require the petitioner to show cause as to why a special audit should not be directed in this case on 19.10.2011; the show cause notice was replied to by the petitioner by a letter dated 31.10.2011. The contention of the petitioner that no show cause notice was issued therefore fails. 14. The next contention to the effect that the books of account were not called for and examined by the A.O. and therefore the direction for special audit is bad in law is also without merit. As already pointed out while referring to the contention of the learned standing counsel for the Income Tax Department, sub-section (2A) of Section 142 does not require the "books of account" to be examined by the A.O. It empowers the A.O., with the previous approval of the Chief Commissioner or Commissioner of Income Tax, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y arising out of such accounts is the difficulty in allocating the expenses incurred by the petitioner against the three segments of revenues namely; (i) market research, administrative support and liaison services; (ii) network connectivity services and (iii) managed network services. The A.O. further proceeds to state in the impugned order that the allocation of costs/expenses impacts the profit and loss account (and the ultimate profit figure) and the method and the basis for such allocation is required to be verified and examined by the special auditor. The other complexity adverted to by the respondent is the plea taken by the petitioner that the overseas payments cannot be characterized as fees for technical services but represented purchase price of goods and services and therefore there was no obligation on its part to deduct tax under Section 195. Yet one more complexity is the nature of the other costs debited in the profit and loss account which include infrastructure costs, last mile charges and inter group charges. The precise nature of these costs is required to be ascertained not only from the legal aspect but also from the accounting aspect, to determine the applica....