TaxTMI 
TaxTMI 
2017 (4) TMI 360
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....by this common judgment and order. 4. In all these writ petitions preferred under Article 226 of the Constitution of India, the common assessee has challenged impugned orders passed by the respondent no. 1-Assessing Officer by which, in exercise of power under Section 142 [2A] of the Income-tax Act, 1961 [hereinafter referred to as, "the Act"], the Assessing Officer has directed the petitioner to get its accounts audited for A.Y 2010-2011, as a successor of erstwhile firm-M/s. Chanakya Infracon Private Limited [Special Civil Application No. 2920 of 2017] as it has merged with Takshashila Gruh Nirman Private Limited [now known as Takshashila Realities Private Limited]; for A.Y 2010-2011, as successor of erstwhile firm-M/s. Chanakya Buildcom [P] Limited [Special Civil Application No. 4201 of 2017]; for A.Y 2010-2011, as a successor of erstwhile firm-M/s. Takshashila Gruh Nirman Private Limited [Special Civil Application No. 4202 of 2017]; for A.Y 2010-11, as a successor of erstwhile firm-M/s. Youngstar Infracon [P] Limited [Special Civil Application No. 4265 of 2017] and for A.Y 2010-11, as a successor of erstwhile firm-M/s. Takshashila Properties [P] Limited [Special Civil Applic....
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....an Private Limited; later with issue of equity shares against the balance of revaluation credits at a premium; valuation of shares as Discounted Cash Flow method by estimating cash flows and adopting a random discounted rate for valuation, there is a complex web of transactions in the group of firms namely introduction of land by some of the partners; revaluation of lands and crediting of amounts in the current accounts of all partners; conversion of firms into companies which merged with existing Company; valuation of share by discounted cash flow method and allotment of shares against the amounts outstanding as unsecured loans at unreasonable premium, clubbed with multiple revaluation or properties over the years, starting from 2008 to 2013 in various entities involves application of provisions of the Companies Act, application of Accounting Standards and examination of provisions of capital gains in the hands of various partners, firms and directors is involved, and therefore, 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 specialized nature of tran....
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.... the reopening; as required to be given as per the decision of the Hon'ble Supreme Court in the case of GKN Driveshafts [India] Limited v. Income Tax Officer & Ors., reported in [2003] 259 ITR 19 [SC], and without even waiting for the objections to be filed by the assessee challenging re-assessment proceedings, in haste, the Assessing Officer issued Notice under Section 142 [2A] of the Act. It is submitted that even at that stage, even the assessee was not served/furnished the reasons recorded to reopen the assessment for A.Y 2010-2011. It is further submitted that thereafter, the petitioner-assessee filed objections and reply to the show cause notice dated 21st December 2016 on 27th December 2016, and immediately on the very next day, the impugned order under Section 142 [2A] of the Act has been passed on 28th December 2016. It is submitted that therefore, when the notice under Section 148 of the Act came to be issued on 15th December 2016 and thereafter, without furnishing any reasons recorded to re-open the assessment for A.Y 2010-2011 and even without giving any sufficient opportunity to raise the objections against the re-assessment proceeding, as required to be given as p....
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....of the Act have not at all occurred in A.Y 2010- 2011, and thus, the foundation of forming an opinion itself is not sustainable, making the direction and approval bad in law. It is further submitted by learned counsel Shri JP Shah that even the respondent no. 2 - Principal Commissioner of Income-tax has accorded approval in mechanical manner and it does not reflect any proper application of mind by the said Commissioner in according the approval. It is submitted that the Principal Commissioner, while granting the approval, is required to apply his mind and he is not required to act mechanically. In support of his above submissions, Shri J.P Shah, learned counsel for the petitioner has relied upon decision of Hon'ble Supreme Court in the case of Sahara India [Firm] v. Commissioner of Income-Tax & Anr., reported in [2008] 300 ITR 403 [SC] as well as a decision of Delhi High Court in case of DLF Commercial Projects Corporation & Anr. vs. Assistant Commissioner of Income Tax & Ors., reported in [2013] 357 ITR 211 [Delhi]. It is further submitted by Shri JP Shah, learned counsel for the petitioner that even otherwise, the directions for which special audit is ordered are mainly ques....
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....of the Act. 11.2 It is further submitted by Shri Mehta, learned counsel for the Revenue that as per Section 142 [2A] of the Act, apart from 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 specialized nature of business activity of the assessee and in the interest of the Revenue, if the Assessing Officer is of the opinion that it is necessary so to do, he may, with the previous approval of the Principal Commissioner, direct the assessee to get the accounts audited by an Accountant [Special Auditor]. It is submitted that in the present case, having found that looking to the multiplicity of transactions in the accounts and specialized nature of business activities of the assessee and in the interest of Revenue, it is necessary to get the accounts of the assessee audited by Special Auditor, the Assessing Officer has rightly passed an order under Sec.142 [2A] of the Act. 11.3 It is further submitted by Shri Nitin Mehta, learned counsel for the Revenue that in the present case, the complex issues involved in the erstwhile firms and the companies before conversion and ama....
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....come-tax has not applied his mind and/or that there is non application of mind on the part of the Principal Commissioner of Income-tax in granting approval. It is submitted that against the show cause notice, objections were raised by the petitioners and the order disposing of the objections were placed before the Principal Commissioner of Income-tax with other materials and only thereafter, after considering the above material, the Principal Commissioner has accorded the approval. 12. Now, so far as reliance placed upon a decision of Kerala High Court in the case of Muthoottu Mini Kuries [Supra] by the learned counsel for the petitioner, in support of his submissions that unless and until the books of account are before the Assessing Officer and after verification of the books of account, the Assessing Officer is of the opinion that there is a complexity in the account and/or he doubts the correctness of the accounts and then and then only the Assessing Officer can pass an order under Section 142 [2A] is concerned, it is submitted by Shri Nitin Mehta, learned counsel for the Revenue that the said decision has been rendered prior to amendment in Section 142 [2A] of the Act. It i....
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.... 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 opinion that it is necessary so to do, he may, with the previous approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, direct the assessee to get the accounts audited by an accountant, as defined in the Explanation below sub section (2) of section 288, nominated by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in this behalf and to furnish a report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed and such other particulars as the Assessing Officer may require : Provided that the Assessing Officer shall not direct the assessee to get the accounts so audited unless the assessee has been given a reasonable opportunity of being heard." 15.1 Thus, considering the amended Section 14....
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....ited [Supra] is concerned, it is required to be noted that the objections raised against the reassessment proceedings/notice under Section 148 of the Act is altogether a different proceeding. The notice under Section 148 of the Act and the objections to be raised against the re-assessment are altogether a different and distinct proceedings then the Order under Section 142 [2A] of the Act. What is required to be considered while passing an order under Section 142 [2A] of the Act, at the time order under Section 142 [2A] of the Act, any proceedings are pending before the A.O or not ? Notice under Section 148 of the Act ie., reassessment proceedings can be said to be the proceedings pending before the A.O, and therefore, if at that stage of proceedings [in the present case, reassessment proceedings before him], the Assessing Officer, having regard to the multiplicity of transactions in the account or specialized nature of the business activities of the assessee and the interest of the Revenue, is of the opinion that it is necessary to so to do, he may pass an order under Section 142 [2A] of the Act; subject to compliance with the procedure, as required under Section 142 [2A] of the Ac....
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....ated with Takshashila Gruh Nirman Pvt. Ltd., have their beginning as partnership firms, which were already doing the real estate and construction business and were executing various projects like Takshashila Residency at Naroda Dehgam Road, Takshshila Colonials at Maninagar and Takshshila Habitat at Vastral, apart from hotel and commercial projects. Hotel projects with shops were earlier executed by Chanakya Buildcon, later by Chanakya Buildcon Pvt. Ltd. and now after amalgamation the present Takshshila Gruh Nirman Pvt. Ltd. has completed project and entered into sale agreement. Chanakya Infrastructure commenced construction of Takshshila Habitat and in the middle of the construction, the firm was converted into Company viz., Chanakya Infracon Pvt. Ltd. under chapter IX of Company Act. Now, the Chanakya Infracon Pvt. Ltd. has been amalgamated with Takshshila Gruh Nirman Pvt. Ltd. Similar is the case with Takshshila Gruh Nirman, a firm converted into company Takshshila Properties Pvt Ltd and amalgamated with Takshshila Gruh Nirman Pvt. Ltd. The 80IB project Takshshila Colonials, for which approval was granted by Local Authority to erstwhile firm and stock-in-trade/CWIP has changed h....
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....nting of stock-in-trade at each stage of transfer so that there is no loss to the revenue out of the complex web of transactions involved." 20. Considering the aforestated facts and circumstances of the case and having regard to the multiplicity and specialized nature of transactions and in the interests of the Revenue, when the Assessing Officer has passed the impugned orders of special audit under Section 142 [2A] of the Act, the same cannot be faulted with. 21. At this stage, decision of Delhi High Court in the case of DLF Limited & Anr. vs. Additional Commissioner of Income-tax & Anr., reported in [366] ITR 390 [Delhi] is required to be referred to and considered. In the said decision, Delhi High Court has considered scope, ambit and powers of the Assessing Officer, while passing order under Section 142 of the Income-tax Act. In the said decision, it is observed that Section 142 [2A] of the Act is an enabling provision to help and assist the Assessing Officer to complete the scrutiny assessment with the assistance of an accountant. In paragraphs 10, 11, 26 & 27 of decision, Delhi High Court has observed as under :- "10. Aforesaid rulings when appraised and reflected, s....
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....imarily concerned with whether or not keeping in view the nature and complexity of accounts and the interest of Revenue direction for special audit is justified for the reasons set out in the order dated 25th March, 2013. (We have not examined the constitutional validity of the amended provisions and we express no opinion on the said aspect). 26. Powers under Section 142 [2A] have to be exercised in 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 WPC 2363/....