AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (4) TMI 921
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....ticle 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 Assessment Year 2009- 2010, as a successor of erstwhile firm-Chanakya Infracon Private Limited [Special Civil Application No. 4619 of 2017]; for Assessment Year 2009-2010, as successor of erstwhile firm-Youngstar Infracon Private Limited [Special Civil Application No. 4613 of 2017]; for A.Y 2009-2010, as a successor of erstwhile firm- Chanakya Buildcon Private Limited [Special Civil Application No. 4614 of 2017]; and for A.Y 2009-10, as a successor of erstwhile firm-Takshashila Properties Private Limited [Special Civil Application No. 4620 of 2017]. 5. The facts leading to the present Special Civil Applications, in nutshell, are as under : 5.1 That, in the case of erstwhile firms viz., Chanakya Infracon Private Limited; Youngstar Infracon Private Limited; Chanakya Buildcon Private Limited and Takshashila Properties Private Limited, the asses....
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.... 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 transaction in the cases which finally of the assessee, and the interest of the Revenue, the accounts are required to be got audited by a Special Auditor from the point of view of taxation of capital gains and accounting 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. 5.3 That, the petitioner-assessee filed its objections, which came to be disposed of by t....
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....under Section 142 [2A] before calling for the accounts from the petitioner in the assessment proceedings. 8.1 It is further submitted that even otherwise, the Assessing Officer cannot form an opinion without calling for the record and before examining the accounts that the accounts are complex and correctness thereof is doubtful, and thus, interest of the Revenue is compromised, if special audit is not called for. It is submitted that therefore, before calling for the accounts from the petitioner in the assessment proceedings, the Assessing Officer without even doubting correctness of the accounts could not have passed an order for special audit under Section 142 [2A] of the Act. In support of his above submissions, Shri JP Shah, learned counsel for the petitioner has relied upon the following decisions viz., [i] Delhi Development Authority & Anr. v. Union of India & Anr., [2013] 350 ITR 432 [Delhi]; [ii] Peerless General Finance & Investment Co. Ltd. v. Deputy Commissioner of Income-tax & Ors. [1999] 236 ITR 671 [Calcutta]; [iii] Muthoottu Mini Kuries v. Deputy Commissioner of Income-tax & Anr. [2001] 250 ITR 455 [Kerala]; [iv] West Bengal State Cooperative Bank Ltd. v. Joint....
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....ta, learned counsel for the Revenue has vehemently submitted that in the facts and circumstances of the case, more particularly for the reasons stated in the show cause notice and being satisfied that a case is made out for special audit under Section 142 [2A] of the Act and only thereafter, the Assessing Officer has passed the impugned orders of special audit under Section 142 [2A] of the Act and that too after getting the approval from the respondent no. 2 herein ie., Principal Commissioner of Income-tax, Ahmedabad IV. 11.1 It is further submitted by Shri Nitin Mehta, learned counsel for the Revenue that the orders for special audit under Section 142 [2A] of the Act in the present case have been made after giving opportunity to the petitioner, and therefore, before passing of the impugned orders, the principle of natural justice has been followed. 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 assess....
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....onversion of capital account to loan account of shareholders and issue relating to issue of equity shares against the balances of revaluation credits at a premium. The above issues are clubbed with multiple revaluation of properties over the years, starting from 2008 - 2013 and also includes the fact of valuation of shares by discounted cash flow method and allotment of shares against the amounts outstanding as unsecured loans at unreasonable premium. It is submitted that therefore, in the facts and circumstances of the case, the Assessing Officer is justified in passing the impugned order under Section 142 [2A] of the Act. 11.4 It is further submitted by Shri Nitin Mehta, learned counsel for the Revenue that in the facts and circumstances of the case, it cannot be said that the respondent no. 2-Principal Commissioner of Income-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 ....
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....erified and scrutinized, and therefore, there might be a justification for special audit under Section 142 [2A] of the Act. It is submitted that therefore, the decision in the case of Ulhas Securities Private Limited [Supra] shall not be applicable to the facts of the case on hand. 14. Heard respective counsels appearing for the petitioner as well as Revenue at length. 15. At the outset, it is required to be noted that the impugned orders have been passed by the Assessing Officer of Special Audit in exercise of powers under Section 142 [2A] of the Act. Therefore, while considering the legality and validity of the impugned orders passed under Section 142 [2A] of the Act, Section 142 [2A] of the Act is required to be referred to and considered, which read as under :- "142 [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 opinion that it is necessary so to do, he may, with the previo....
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.... approval from the Principal Commissioner of Income-tax; as required under the Act, the Assessing Officer passed the impugned orders under Section 142 [2A] of the Act. Therefore, as such, the procedure which is required to be followed, while passing the order under Section 142 [2A] of the Act, has been duly followed by the Assessing Officer. 17. Now so far as submission made on behalf of the petitioner that the Assessing Officer cannot direct special audit under Section 142 [2A] of the 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 Act, apart from the nature and complexity of the accounts, etc., even in case of multiplicity of transactions in the accounts or specialized nature of business activity of the assessee and the interests of the Revenue, the Assessing Officer can pass an order for special audit in exercise of powers conferred under Section 142 [2A] of the Act. Therefore, while forming an opinion to get the accounts audited by special auditor; considering the specializ....
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....algamated 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 hands and the 80IB deduction is being claimed in the present Takshshila Gruh Nirman Pvt. Ltd. (Takshshila Realities Ltd.) That, at the time of formation or at the later date some of the partners brought land into the firms as their capital contribution. Before conversation to companies,the firms got the lands available in the books revalued and the amounts were credited in the current capital accounts of the partners. Consequent to amalgamation, the Company has issued and allotted 6,00,000 equity shares at a fair price of Rs. 10/- and a premium Rs. 390/- per share against the unsecured balances of Rs. 24 Crores, treating the same as share application money and share premium. The fair market value of shares has been arrived by the company on 'Discounted Cash Flow (DCF) method. The basis for free cash flow to equity is randomly taken by the company. Conversation of 5 firms into companies, after revaluation of lands, merger of 5 companies with Takshshila Gruh Nirman Pvt. Ltd. Later with issu....
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....ent 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, 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 be WPC 2363/2013 Page 8 of 21 complex and difficult to understand to a normal assessing officer who has basic understanding of accounts etc., without the aid, assistance and help of a special auditor. Thus due regard has to be given to nature and character of transactions, method of accounting, whether actuarial were adopted for making entries, basis and effect thereof, etc., though mere volume of entries might not be a justification by themself as volume and complexity are somewhat different. Accounts should be intricate and difficult to understand. Every scrutiny assessment entails investigation and verification of the books of accounts, genuineness o....
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.... 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 2363/2013 Page 19 of 21 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 article-ship under a mentor who is himself a Chartered Accountant with some years of experience. As opposed to an ordinary accountant, a Chartered Accountant with his experience and academic background is in a better position to investigate, examine and scrutinize entries and records of financial transactions. Calibre and competence of Chartered Accountants is of a high degree and should not and cannot be equated with the capability of an ordinary accountant or a normal person having knowledge or acquainted with accounts. Off late there has been demand for increased public scrutiny of accounts, inspite of statutory audit. Enron and other cases abroad and Satyams ....