TaxTMI 
TaxTMI 
2004 (10) TMI 22
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....he petitioner, the U.P. Financial Corporation (hereinafter referred to as "the Corporation"), has been created under the State Financial Corporations Act, 1951. It is an undertaking of the Government of Uttar Pradesh. Its various activities, including financial, supervisory and administrative, are directly controlled by the State Government. According to the petitioner, the managing director is appointed by the State Government, who happens to be a senior officer of the I.A.S. cadre. According to the petitioner, it has been established for the purposes of disbursing loans to various industrial units in the State in order to promote and help industrial activities and the loan is disbursed after following the requisite procedure. Its accounts are duly audited by a chartered accountant appointed by the Corporation. It has submitting its return of income under the provisions of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). According to the petitioner, in respect of the accounting year 1996, the auditors of the Corporation submitted an interim report pointing out certain deficiencies. However, they submitted a final report stating therein that the alleged deficiencies....
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....issued by respondent No. 1 as also to the reply submitted by the petitioner on February 10, 1999. The said order has been passed mechanically without any application of mind. According to him, the twin pre-conditions mentioned in section 142(2A) of the Act, viz., the satisfaction of the assessing authority regarding the nature and complexity of the account and the interests of the Revenue, are not fulfilled in the present case and, therefore, the action taken under the aforesaid section is wholly without jurisdiction. He submitted that the word "and" occurring between "the nature and complexity of the account of the assessee" on the one hand and "the interests of the Revenue" on the other, is conjunctive and both the conditions are to be fulfilled before any action under section 142(2A) of the Act can be taken. According to him, the petitioner is a State Government undertaking and is a statutory corporation. Its accounts have been audited by reputed chartered accountants, namely Parikh & Jain of Kanpur, and there was neither any complexity in the account nor the interests of the Revenue was at stake so as to warrant scrutiny and audit of the account once again by the auditor appoin....
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....peal over the decision taken by the authorities. In support of his aforesaid submissions, he has relied upon the following decisions: (i) Living Media Ltd. v. CIT [2002] 255 ITR 268 (SC); (ii) Jhunjhunwala Vanaspati Ltd. v. Asst. CIT (No. 1) [2004] 266 ITR 657 (All); and (iii) Uttranchal Welfare Society v. CIT [2004] 268 ITR 214 (All). Having heard learned counsel for the parties, we find that even though the accounts of the petitioner have been audited by a chartered accountant yet in reply to the notice dated January 29,1999, which is Appendix I to the judgment, the petitioner had submitted a vague reply on February 10,1999. In fact, from the perusal of the reply, Appendix II to the judgment, we find that in respect of items Nos. 1, 2 and 3 the petitioner itself had stated that furnishing of the details about the list of defaulters would take several months in compilation. As the order dated March 19, 1999, only stated that the nature of accounts was found complex and having regard to the nature and complexity of the accounts and the interests of the Revenue approval for audit under section 142(2A) of the Act has been obtained with certain directions to the special au....
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.... of Swadeshi Cotton Mills Co. Ltd. [1988] 171 ITR 634 has held as under: "The exercise of the power to direct special audit under section 142(2A) of the Income-tax Act, 1961, depends upon the satisfaction of the Income-tax Officer with the added approval of the Commissioner. But he must be satisfied that the accounts of the assessee are of a complex nature, and, in the interests of the Revenue, the accounts should be audited by a special auditor. The special auditor is also an auditor like the company's auditor, but he has to be nominated by the Commissioner and not by the company. The accounts are again to be audited at the cost of the company. The power under section 142(2A) cannot be exercised lightly. The satisfaction of the authorities should not be subjective satisfaction. It would be based on objective assessment regard being had to the nature of the accounts." The aforesaid case has been followed by this court in the case of U.P. State Handloom Corporation Ltd. v. CIT [1988] 171 ITR 640. This court has held that where the accounts maintained by the assessee were very complex as more than 150 sets of accounts for different units had been maintained showing numerous ....
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....case, the Legislature has conferred power on the Assessing Officer for appointment of the special auditor with the approval of the Commissioner or Chief Commissioner. The interest of the assessee has been protected that no assessee should unnecessarily be harassed by the Assessing Officer, that is why the duty has been cast on the senior officers of the Department, i.e., the Commissioner or Chief Commissioner, that without approval of either the Commissioner or Chief Commissioner, the Assessing Officer has no power to appoint the special auditor to look into the accounts of the assessee. Therefore, in our view, the power conferred on the Assessing Officer, and the approval of the Commissioner and Chief Commissioner is not confined to any turnover, in business or profession. There is no limit or any bar on account of amount of receipts either in business or profession. This power has been conferred on the Assessing Officer to do justice with the assessee and also to protect the interests of the Revenue." This court in the case of Sahara India Ltd. v. CIT [2000] 246 ITR 475 has held as under: "Section 142(2A) of the Act ordains the Assessing Officer that before directing the as....
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.... Calcutta High Court has held as under: "The twin pre-conditions justifying the special audit under section 142(2A) of the Income-tax Act, 1961, are the nature and complexity of the accounts and the interests of the Revenue. Before an approval is sought for, the Assessing Authority must form an opinion as regards the said twin conditions. There should be an honest attempt to understand the books of account of the assessee. There has to be an application of mind on the part of the assessing authority. Complexity of the accounts cannot be equated with doubts being entertained by the Assessing Authority either with regard to the correctness thereof or the need for obtaining certain vital information not ascertainable from the accounts. The satisfaction is to be based upon objective considerations." In the case of Dr. Miss Binapani Dei, AIR 1967 SC 1269, the apex court has held that even administrative order which involves civil consequences has to be passed consistently with the rules of natural justice. In the cases of the Siemens Engineering and Manufacturing Co. of India Ltd., AIR 1976 SC 1785; A.K. Kraipak, AIR 1970 SC 150; and S.N. Mukherjee, AIR 1990 SC 1984, the apex c....
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....ficer has not come even to a prima facie conclusion that the transactions to which he referred, are not genuine transactions and has had only a vague feeling that they may be bogus transactions. The apex court on the material placed before it came to the conclusion that the Income-tax Officer has no reasons to believe that the income chargeable to tax has escaped assessment. The aforesaid decision is of no help to the petitioner inasmuch as the present case is not of escaped assessment and there is no question of any reason to believe. In the case of Jhunjhunwala Vanaspati Ltd. [2004] 266 ITR 657, this court has held that it is not necessary for the Assessing Officer to give a show-cause notice or to give a hearing to the assessee before issuing the direction under section 142(2A). The direction under section 142(2A) of the Act is purely administrative in nature and not quasi-judicial and such a direction does not have civil consequences. It also does not affect the assessee's rights or liabilities. This court has distinguished the decision of the apex court in the case of Dr. Miss Binapani Dei, AIR 1967 SC 1269. In the aforesaid case, this court by following the decision of the....
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....y to the various points raised in the notice dated January 29, 1999, it had taken a stand that it would take several months in compiling the information. The Commissioner of Income-tax had applied his mind and had also come to the conclusion that it is essential to know the actual state of affairs of the Corporation as the books of account are complex and enormous anomalies and discrepancies have also been pointed out by the statutory auditors in their audit report. Thus, it cannot be said that the preconditions for appointment of the special auditor, as envisaged under section 142(2A) of the Act, have not been fulfilled. The reasons are also contained in the communication letter dated March 8, 1999, appendix V, and therefore, the approval granted by the Commissioner of Income-tax does not suffer from any infirmity. As held by this court in the cases of Jhunjhunwala Vanaspati Ltd. [2004] 266 ITR 657 and Uttaranchal Welfare Society [2004] 268 ITR 214, this court cannot sit in appeal over the decision taken by the authorities in directing the special audit. The order is based on the objective satisfaction of the authorities and does not suffer from any legal infirmity. So far as t....