AI Drafter 
TaxTMI 
TaxTMI 
2018 (6) TMI 1500
X X X X Extracts X X X X
X X X X Extracts X X X X
....al estate projects in National Capital region, but is also fast establishing a pan India presence. It is further noticed that the assessee-company has the most diversified product mix comprising residential, commercial, IT Parks, retail, amusement parks and hotels. It was also into some major projects in India as well as overseas i.e. Libya wherein the company is in the construction of transmission lines, power houses etc. 3. Assessee has filed its return of income on 4.10.2010 declaring total income at Rs. 704,98,86,354/-. A draft assessment order was prepared by the AO on 13.4.2011 which was served upon the assessee. It has filed its objection before the ld.DRP and the ld.DRP has passed its order under section 144C(4) of the Act on 10.8.2015. Thereafter, the AO has passed assessment order on 28.9.2015 determining income of the assessee at Rs. 995,82,28,090/-. It is pertinent to take note that the ld.DRP has given part relief which is being challenged by the Revenue in its appeal. 4. The ld.counsel for the assessee, at the very outset, submitted that the assessee has preliminary jurisdictional ground in ground no.1.1 to 1.3 whereby it has pleaded that direction for special a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e DRP-2 erred in deleting addition of Rs. 54,64,23,410/- as proposed by AO on account of deemed dividend without appreciating the provisions of section 2(18) of the Income Tax Act, 1961 and section 3(l)(iii) of the Companies Act, 1956. 2. "On the facts and in the circumstances of the case, the DRP-2 erred in deleting addition of Rs. 16,75,28,3797- as proposed by AO on account of interest paid to Tata Reality Infrastructure Ltd." 5. The ld.counsel for the assessee while impugning order of the AO has contended that at the fag-end of expiry of limitation to pass assessment order, the ld.AO has made a proposal for appointment of special auditor which has been accepted by the ld.CIT and special auditor was appointed. Such exercise was carried out by the department in order to get the time extended for passing assessment order after expiry of limitation. He submitted that financial statement of the assessee-company for the impugned assessment year have been duly audited by the statutory auditors after verification of the books of accounts and other relevant documents maintained by the company. There is no adverse finding of the statutory auditors with respect to the books of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....He pointed out that without considering any of the explanations given by the assessee, special auditor was appointed, and copy of order to this effect is available at page no.280 of the paper book. He took us through the order dated 26.3.2014 vide which special auditor was appointed after taking prior approval from the Commissioner. All these pages have been referred by the ld.counsel for the assessee in order to demonstrate parity between the facts and circumstances in the assessment year 2009-10 to 2010-11. He pointed out that the order of appointment of special auditor is verbatim same. Thus, according to the ld.counsel for the assessee, it is to be declared that the order passed by the Addl. CIT dated 26.3.2014 for appointment of special auditor under section 142(2A) is illegal and invalid and not in accordance with law, and this assessment order so made after taking benefit of extended time period, be declared as time barred. 6. On the other hand, the ld.DR contended that appointment of special auditor cannot be challenged before the Tribunal. It is not an appealable order and remedy of assessee lies somewhere else. This aspect cannot be entertained in the appeal of the ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sh notice 143(2) on 4.6.2012 along with questionnaire. He again issued a fresh notice on 24.9.2012 and 14.1.2013 under section 143(2) of the Income Tax Act. It is pertinent to observe that the assessee has filed reply to these show cause notices and submitted details. Index of the paper book submitted would indicate that the assessee has filed more than 1110 pages in the shape of reply and information. For the purpose of examining preliminary issue all these details are not relevant therefore, we desist from making reference to the replies submitted by the assessee during the course of assessment proceedings. 9. There is no dispute with regard to the proposition of time limit to pass assessment order upto 31.3.2014, as contemplated in section 153(1) of the Act. When this time limit is going to expire, the ld.AO on 5.2.2014 made a proposal for appointment of special auditor. He issued a show cause notice to the assessee inviting its explanation as to why its case be not referred to special auditor. Copy of such proposal is available at page no.244 to 248 which reads as under: "F.No.DCIT-C-18/2013-14/AAACU1482H Dated:5.2.2014 The Principal Officer M/s Un....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bsidiaries out of which 4 are appearing for the first time in the current year. Investments and transactions with these companies needs a thorough check. h. In the assessee's own case for FY 2008-09, it was observed that consolidated stock register was not being maintained and on contrary it was maintained in a piece-meal manner on a project wise basis, which are in large numbers. There were frequent transfers of material from one project to another without any justifiable reason or.basis:-ln the .absence of a master stock register, there exists complexity in examining and verifying the transaction involving huge and frequent transfer of material form one project to another, especially in the absence of sequential material issue. i. Complex web of subsidiaries & inter-company transactions: From the Annual Report of assessee company for F.Y. 2009-10, it is evident that there are 303 Indian Subsidiary Companies with same office address i.e. 6, Community Centre, Saket, New Delhi and common directors and share holders viz. Ramesh Chandra, Sanjay Chandra and Ajay Chandra.& 32 Foreign Subsidiary Companies. Besides, there are 30 Joint Ventures. Assessee comp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ervice charges to such subsidiary companies. Through payment of consideration in the form of land advance, transfer of developmental right and payment of service charges, it is evident that Land Owning Subsidiary Companies are just custodian and title holders of the land, only on paper. But in substance the actual ownership rights & possession lies with assessee. Thus these transactions form a colourable device of camouflaging transactions of sale of land as share transactions i.e. apparent transfer of shares in subsidiary companies in place of substantial transfer of landed properties and treating them as Capital Gain, needs through verification, for correct determination of Income with its effect on tax payable. In fact, in AY 2009-10, such income has been assessed as Income from Business, based on the report of Special Audit. i. Assessee company has taken loan from its subsidiary companies to the extent of Rs. 325,98,89,588/-. These subsidiary companies do not have capacity to give such huge funds, as they are filing return with nil income or loss. They do not have any asset of their own for conducting business. Similarly, loans have also been advanced to subsidiary com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or arriving at correct amount of total income. Accordingly, you are hereby given an opportunity to Show Cause, why your case should not be referred to Special Audit u/s 142(2A) of the IT. Act, 1961. 4. Your reply must reach this office within 10 days of receipt of this notice/letter i.e. latest by 15-02-2014, failing which it will be presumed that you have no explanation to offer with regard to the proposed special audit u/s.142(2A) of IT. Act, 1961 in your case for F.Y. 2009-10 relevant to A.Y. 2010-11." 10. The assessee filed reply to this proposal and copy of that reply is available at page no.249 to 264. We deem it to take note of the reply also. It reads as under: "Date : 03.03.2014 Before Additional Commissioner of Income Tax Range-18, NewDelhi In the matter of: M/s Unitech Limited Subject: Assessment Proceedings for Assessment Year 2010-11 Respected Sir, 1 That a show cause notice u/s 142(2A) of the Act dated 05.02.2014 has been served on the assessee company for compliance on 15.02.2014. 1.1 The assessee in response, begs to respectfully submit that, the aforesaid show-caus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to the returned income, you are now intending to issue directions for Special audit so as to extend to the period of limitation. It is a clear case of abdication of responsibility. 1.3 Without prejudice to the above, the assessee company in the shortest time made available and, without having all the information relied upon in the notice the assessee company, in response to the aforesaid show cause notice seeks to submit as under: 2 It is submitted, that aforesaid notice is in respect of invocation of provisions contain in section 142(2A) of the Act, which reads as under: "(2A) If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts 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 Chief 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 Chief Commissioner or Commissioner in this behalf and to furnish a report of such audit in the prescribed form duly signed and ve....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ll factors relevant for exercise of the power. It is-submitted that no action u/s 142(2A) of the Act, can be initiated on whims or caprice, and on the ipse-dixit of an officer. 2.4 The conditions of nature and complexity of the accounts' and 'the interests of the revenue' are the pre-requisites for exercise of power under section 142(2A). The assessee company submits that in the instant case it is evident that the pre-requisites for exercise of power u/s 142(2 A) of the Act have not been fulfilled. It is further submitted that in instant case it is evident that your good self is seeking to exercise the power u/s 142(2A) of the Income Tax Act merely to shift your responsibility to an auditor. The assessee also seek to place reliance on the judgement of the Hon'ble Delhi High Court in the case of Gurunanak Enterprises v. CIT [2003] 259 ITR 637 where the Hon'ble Court held that there should be formation of an opinion by the Assessing Officer in regard to nature and complexity of accounts of assessee and interest of revenue. In this regard there should be a proper application of mind by the Assessing Officer. In that case, the Court had dismissed the writ p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the case. A bare endorsement of the proposal Would not be sufficient. Peerless General Finance and Investment Co. Ltd. v. Dy. CIT [1999] 236 ITR 671 (Cal.) and Muthoottu Mini Kuries v. Dy. CIT[2001 ] 250 ITR 455 (Ker.) hold so." [Emphasis Supplied] 2.5 It is trite that in order to invoke provisions of Section 142 (2A), two conditions have to be fulfilled i.e. * Nature and Complexity of the Accounts; and * Interest of the revenue In absence of both these ingredients, provisions of Section 142(2A) cannot be invoked. Therefore, it is incumbent upon the Assessing Officer to first examine the books of account and form his opinion regarding the nature and complexity of accounts. The hon'ble Supreme Court in the case of Rajesh Kumar v DCIT (287 ITR 91) held that the satisfaction of the authorities should not be a subjective satisfaction. It should be based on objective assessment regard being to the nature of the accounts. The nature of the accounts must indeed be a complex nature. That is the primary requirement for directing a special audit. What is complex to one may be simple to another. It depends upon one's level of u....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2 (b) There is no specific query and moreover the figures shown in notice are the same as shown in Company's Audited Accounts in Schedule 13. The detailed information of Income from various projects have been filed with your goodself earlier and now hereby enclosed for your reference (Annexure 2). In view of the aforesaid it is evident that the observation are based on factual misconception and thus cannot be taken as the basis to regard that there is any complexity in the books of account of assessee company. Reply to Para 2 (c ) With regards to allocation of interest to Project in Progress amounting to Rs. 9606,78,88,151/- we may place "on records that the allocation of interest to these projects is being done constantly as per earlier years and as per Accounting Policy with regards to Borrowing Cost adopted by the company. We would also like to bring to your kind notice that the allocation of interest to projects was also verified by the Special Auditor appointed for A.Y 2009-10 and no adverse opinion on the same was drawn by them. They'hM made detailed analysis of "revenue arid expenditure booked .under real estate projects in broad heads l.i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Loans or deposit as required under section 269SS and 269T), we may submit that except one party we have submitted the full address and PAN of all the accounts/parties mentioned therein except one party i.e. M/s Unibuild Associates, The full details of Unibuild Associates is given hereunder: Unibuild Assocaites A-67, Lajpat Nagar-II, New Delhi II0024 " ADZPG0852E With regards to annexure VIII of Form 3CD also the details of one single party i.e. of HDFC Ltd. has not been provided that to also unintentionally omit to mention there as the party is not unknown or uncommon to any person. The same is. also given hereunder: HDFC Ltd. . The Capital Court Outer Ring Road Munirka New Delhi-110067 AAACH0997E Therefore the unintentional omission of information would not be construed as basis to allege complexity of books of accounts. In view of the aforesaid it is evident that the observation are based on factual misconception and thus cannot be taken as the basis to regard that there is any complexity in the books of account of assessee company. Reply to Para 2 (f) Re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stock registers and consolidating the same annually. Further, there is no frequent transfer of material from one project to another without any justifiable reason or basis and as per Company's consistent policy the material purchased is shown as 'IN' and immediately shown as 'OUT' to the contractors in Real Estate Projects company is not keeping stock in hand. Besides, the assessee company has a Pan India presence with number of projects across India. It is not possible to prepare consolidated stores/inventory register on daily basis as there is no such legal requirement. However, the company is duly maintaining stores/inventory registers at all of its sites/projects and thus meeting all the statutory compliances. There is no complexity in accounts regarding the same. Further, the assessee company also get audited physical verification certificate for stock/inventory from an independent chartered Accountant for each financial year which itself is a proof of keeping proper accounting records. The company undertakes large number of projects under execution resulting in huge volumes cannot be construed as making the accounting complex when there are proper records ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mpany or for approvals thereafter are duly disclosed as Unsecured loan for purchase of land. Moreover these transactions does not affect tax revenue as any consideration from sale of land as well use of land parcel for development of project is accounted for by Unitech Limited in its revenue and subsidiaries are not taking any income from these land parcels, in turns receiving the service charges from Unitech Limited to hold these land parcels and showing the same as revenue only. In view of the aforesaid it is evident that the observation are based on factual misconception and thus cannot be taken as the basis to regard that there is any complexity in the books of account of assessee company. Reply to Para 2 (j) With regards to your query for transfer of share of its subsidiary companies to related and unrelated parties at Par value. In this connection, we would like to bring to your kind notice that the company has not transferred share of any subsidiary company to any of the unrelated party at cost or face value. We are enclosing the chart/detail showing the transfer of shares of subsidiaries to related & unrelated parties separately, which shows our contention....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... In earlier para, we have already clarified that capital gain on sale of shares of subsidiaries has been duly declared in the ROI filed for the concerned assessment year. It is a question of law whether it is treated as business income or income under head of capital gain. In view of the aforesaid it is evident that the observation are based on factual misconception and thus cannot be taken as the basis to regard that there is any complexity in the books of account of assessee company. Reply to Para 2 (1) With regards to your query regarding loan of Rs. 325.99 Crores taken by the company from its subsidiaries and stating that these companies do not have capacity to give such huge funds and are filing nil income return. In this connection we enclose herewith a chart of 19 companies from which the above loan of Rs. 325.99 crores has been taken. The company wise profit and tax paid by these companies amounting to Rs. 126.24 crores (Profit) and Rs. 44.07 Crores (Tax) is also depicted in this chart (Annexure 7). In view of the aforesaid it is evident that the observation are based on factual misconception and thus cannot be taken as the basis to regard t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....land and as a consideration for holding the land in their name and acquiring the development rights from original land owning subsidiary companies, the Unitech Limited has paid to the subsidiaries companies an amount @ Rs. 10000 per acre payable in five year as service charges. As far as detail of interest on these accounts, as mentioned that these companies never book any profit on the land sale and transferring the same to Unitech Limited to offer for tax as they are custodian of land on behalf of Unitech Limited. In view of the aforesaid it is evident that the observation are based on factual misconception and thus-cannot be taken as the basis to regard that there is any complexity in the books of account of assessee company. Reply to Para 2 (o) In response to query no. O, it is submitted that the facts mentioned in the first part of the query regarding difference in premium on issue of 42,10,64,935 shares of Unitech Limited, are in correct for the following reason: On April 22, 2009, Unitech Limited issued 42,10,64,935 equity shares of face value of Rs. 2/- each at a price of Rs. 38.50 per equity share including a premium of Rs. 36.50 equity share, to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es. The calculation of base price for the April Issue is as under: Symbol Series Date Close Price (in Rs.) onNSE Weekly High/ Low (in Rs.) Average of weekly High and Low (in Rs.) Avg. of Weekly averages for 2 weeks (in Rs.) UNITECH EQ 31 -Mar-09 34.90 37.50 UNITECH EQ 01 -Apr-09 37.35 UNITECH EQ 02-Apr-09 37.50 UNITECH EQ 03-Apr-09 - 36.20 UNITECH EQ 04-Apr-09 . UNITECH EQ 05-Apr-09 . UNITECH EQ 06-Apr-09 36.75 34.90 UNITECH EQ 07-Apr-09 _ 42.10 38.46 UNITECH EQ 08-Apr-09 39.35 UNITECH EQ 09-Apr-09 42.10 UNITECH EQ 10-Apr-09 _ 40.725 UNITECH EQ 11 -Apr-09 _ UNITECH EQ 12-Apr-09 - UNITECH EQ 13-Apr-09 41.75 39.35 In....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aken as the basis to regard that there is any complexity in the books of account of assessee company. Reply to Para 2 (p) From a plain reading of Para (P) of the aforesaid notice, it is apparent that no honest attempt has been made by the Income Tax Department to understand the accounts of the Assessee (Unitech Ltd.) and the special audit is being proposed without looking into its accounts, without any proper investigations and merely on the basis of incorrect assumptions, some of which are as under: Even before the Ld. Special Court dealing with the 2G Spectrum Case could finally decide the matter, the Income Tax Department has already pre.-judged the matter and formed an opinion that the 2G Spectrum Case was the "2-G Scam". Though the Assessee has not been named in the chargesheet filed-before the Ld. Special Court (2G Spectrum Case) by the Central Bureau of Investigation (CBI), the Income Tax Department has on its own assumed the involvement of the Assessee in the alleged 2-G Scam by using the words "complicity of assessee in the 2-G scam". No documentary evidence has been furnished' by the Income Tax Department in support of this assumpti....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Commissioner of Income Tax [(2002) 257 ITR 622], the Hon'ble High Court of Calcutta held that the power to order special audit must be based on proper investigations and reasons. The two pre-conditions justifying action under Section 142(2A) are the nature and complexity of the accounts and the interests of the Revenue. There can be no doubt that before an approval is sought for, the Assessing Officer must form an opinion as regards the said two conditions. The satisfaction is to be based on objective considerations. There has to be an application of. mind on the part of the Assessing Officer. If any vital information cannot be ascertained from the , accounts the Assessing Officer should call for particulars from the assessee, which he is entitled to do. There should be an honest attempt to understand the accounts of the assessee. The power to appoint a Special Auditor cannot be lightly exercised. Complexity of the accounts cannot be equated with doubts being entertained by the Assessing Officer, either with regard to the correctness, or the need to obtain certain vital information not ascertainable from the accounts. In the absence of reasons based on which it can be said tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee had been served with a show cause notice dated 05.02.2014 and 26.02.2014 for reference to the special auditor and in response there to, assessee has furnished reply dated 03.03.2014 submitting that, show cause notice is highly vague, unspecific, unsubstantiated, unwarranted and therefore not only arbitrary but also without jurisdiction. It was submitted that mere general observations without stating any basis thereof cannot be a ground to allege complexity in the books of accounts. The assessee thus prayed that, it may kindly be confronted with the basis of the allegations/observations recorded in the said vague notice, so as to enable the assessee company to furnish a proper reply to such notice. Without prejudice to above, the assessee furnished parawise reply to the show cause notice establishing that there is no specific or cogent material to allege complexity in the books of accounts of the assessee. It was further submitted that notice has, been, issued based on mere suspicion and fishing and roving inquiry is being made to order the special audit, of the assessee, which not contemplated under section 142(2A) of the Act, 1961. It was submitted that the proposed action s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ial that a party should be put on notice of the case before any adverse order is passed against him. This is one of the most important principles of natural justice. It is after all an approved rule of fair-play. 13. How then have the principles of natural justice been interpreted in the Courts and within what limits are they to be confined ? Over the years by a process of judicial interpretation two rules have been evolved as representing the principles of natural justice in judicial process, including therein quasi judicial and administrative process. They constitute the basic elements of fair hearing, having their roots in the innate sense of man for fairplay and justice which is not the preserve of any particular race or country but is shared in common by all men. The first rule is 'nemo judex in causa sua' or 'nemo debet esse judex in propria causa sua1 as stated in (1605) 12 Co. Rep. 114, that is, 'no man shall be a judge in his own cause'. Coke used the form 'aliquis non debet esse judex in propria causa quia non potest esse Judex at pars' (Co. Litt. 1418), that is, no man ought to be a judge in his own cause, because he cannot act as Jud....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on would have to be obtained from the assessee. ii) 257 ITR 622 (Ca) Bata India Ltd. vs. CIT the Hon'ble High Court of Calcutta held that the power to order special audit must be based on proper investigations and reasons. The two preconditions justifying action under Section 142(2A) are the nature and complexity of the accounts and the interests of the Revenue. There can be no doubt that before an approval is sought for, the Assessing Officer must form an opinion as regards the said two conditions. The satisfaction is to be based on objective considerations. There has to be an application of mind on the part of the Assessing Officer. If any vital information cannot be ascertained from the accounts the Assessing Officer should call for particulars from the assessee, which he is entitled to do. There should be an honest attempt to understand the accounts of the assessee. The power to appoint a Special Auditor cannot be lightly exercised. Complexity of the accounts cannot be equated with doubts' being entertained by the Assessing Officer, either with regard . to the correctness, or the need to obtain certain vital information not ascertainable from the accou....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on 3.3.2014. Thereafter on 10.3.2014, the learned Assessing Officer has already prepared a printed order sheet which had his observations on few of the entries in books of accounts. The learned Assessing Officer did not grant any time to reply to the said observations. He obtained a general response to the said observations despite the fact that assessee sought further time to satisfy him that such observations are based on misconception. The central idea of the aforesaid approach of the learned Assessing officer was to overcome the inherent defect in the show cause notice and, not to make an honest attempt to examine the books of accounts. Madam, the assessee is a public limited company with a turnover of Rs. 2,000 crores approximately, and therefore it is absolutely unfathomable to comprehend that any person can respond to observations on a real time basis after a gap of more than four years. The number of transactions in the case of assessee would be close to 1 lakh and, in such a situation, vague observation on approximately 70 transaction at the fag end period of limitations and that too by riot granting time to respond to said observations reflects the mid-set of learned Ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the books of account and other relevant documents maintained by the assessee company. The provisions of section 142(2A) of the Act were invoked only to extend the period of limitation for framing of assessment under section 143(3) of the Act. The perusal of the notice issued for special audit would show that there is no complexity in the accounts of the assessee. It is thus submitted that there is no complexity in the books of accounts of the assessee company. All what has been done by learned Assessing Officer is to draw adverse legal inferences on the facts as stated by the assessee company and recorded in the books of the assessee company. It is thus, submitted that the reference for special audit is proposed to abdicate his own responsibility and to overcome the period of limitation and proposed reference is without jurisdiction. 3.6 It is also pertinent to add here that Hon'ble Delhi High Court in the case of Gurunanak Enterprises vs. CIT reported in 259 ITR 637 has held as under: "A bare perusal of the provision would show that the opinion of the Assessing Officer has to be formed only by having regard to: (i) the nature and complexity of the account....
X X X X Extracts X X X X
X X X X Extracts X X X X
....w the aforesaid judgment the Hon'ble le Delhi High Court in DDA vs. Union of India reported in 350 ITR 432 has held as under: "13.... In the present case, we are not concerned with an assessee who does not maintain books of accounts as per law or has duplicate books of account. It is a case of a statutory authority which is maintaining books of accounts. Notes of accounts may be the basis for the Assessing Officer to ask for queries and examine the accounts but, before an order under Section 142(2A) was passed and keeping in mind the consequences and the ratio expounded by the Supreme Court and this Court, we feel that it was necessary and required that the Assessing Officer should have examined the books of accounts or the relevant accounting entries himself before forming an opinion. Non-examination of books of account would show that there was haste and hurry and that the Assessing Officer not fully appreciate the consequences and the harassment/inconvenience which the assessee may suffer if a wrong order directing special audit was passed or directed. 24.... Firstly, the note reveals that the Assessing Officer felt that the case required detailed scrutiny or m....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... will show due and proper application of mind and not exercise of power under Section 142(2A) on the pretend or on the pretext that such power exists and, therefore, should be exercised. Existence of the power is not in dispute; it is the exercise of power, which is in dispute and question. The exercise of power must withstand and meet the requirements prescribed. Failure to exclude irrelevant and extraneous matters negates the "opinion" as the said matters should not cloud or dent formation of opinion. Reasons recorded must be genuine and have a nexus with the twin statutory requirements i.e. complexity of accounts and interest of the Revenue." 3.8 Reliance is also placed on the judgment of the Apex Court in the case of CIT vs. Excel Industries reported in 358 ITR 295 wherein it has been held as under: "28. In Radhasoami Satsang Saomi Bagh v. Commissioner 'of Income Tax, [1992] 193 ITR 321 (SC) this Court did not think it appropriate to allow the "reconsideration of an issue for a subsequent assessment year if the same "fundamental aspect" permeates in different assessment years. In arriving at this conclusion, this Court referred to an interesting passage fr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... page no.3 of the impugned order, which was rejected by recording the following finding: "The issue has been dealt with in details in the draft order. The objections raised by the Assessee are on many aspects and it has been attempted to show as if the Auditors have exceeded the jurisdiction also. Section 142(2A) is an enabling provision to help and assist the Assessing Officer to complete scrutiny assessment with the help of assistance of an accountant. Powers under Section 142(2A) emanate from and in terms of the legislative provisions. The object and purpose behind Section 142(2A) is to facilitate investigation and proper determination of the tax liability. Accounts ought be accurate for providing real time information on the financial transactions of the assessee. Enterprises resort to internal audit and an external audit which can be a statutory audit for fair and correct picture. Chartered Accountants are specialists who have trained for such audit work. Financial statements and accounts of big enterprises are coming under increasing scrutiny and investigation on account of multi layering and couching of transactions in order to prevent rivals from accessing and also....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s prior to expiry of limitation for passing the assessment order. Thus, in this given factual matrix, the Tribunal has considered that had the case was not referred for special auditor, the assessment would have become time barred and in order to gain time, a reference for appointment of special auditor was made. Let us take note of relevant finding of the Tribunal on this issue: "21. The preliminary submission of the revenue viz-a-viz the aforesaid prayer of the appellant is that there can be no challenge to the directions u/s 142(2A) of the Act in this appeal and as such contention of the appellant company is misconceived. 22. To appreciate the above contention we seeks to notice the statutory provision contained in section 142(2A) of the Act. Section 142(2A) of the Act, as is relevant to the year under consideration, reads as under: "[(2A) If any stage of the proceedings before him, the [Assessing]; Officer having regard to the nature and complexity of the accounts of the assessee and the interest of the revenue, is of the opinion that it is necessary so to d, he may, with the previous approval of the [Principal Chief Commissioner or] Chief Commissioner or [Pri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sioner in accordance with such guidelines as may be prescribed8 and the expenses so determined shall be paid by the Central Government.] (3) The assessee shall, except where the assessment is made under section 144, be given an opportunity of being heard in respect of any material gathered on the basis of any inquiry under sub-section (2) [or any audit under sub-section (2A)] and proposed to be utilized for the purposes of the assessment." 23 The aforesaid provision was subject matter of consideration in a judgment of three judges Bench of Hon'ble Supreme Court in the case of Sahara India (Firm) (supra). In that case the matter was placed before Bench in view of a common order dated 14.12.2006 passed by a two judges Bench to examine whether it is necessary to afford an opportunity of hearing to an assessee before ordering special audit in terms of section 142(2A) of the Act in view of the earlier judgment of Hon'ble Supreme Court in the case of Rajesh Kumar and Ors. vs. DCIT (supra). Their Lordships noted that in the case of Rajesh Kumar and Ors. vs. DCIT it has been held that principles of natural justice must be held to be implicit in section 142(2A) of the Act. It w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the accounts of an assessee and pass on the buck to the special auditor. In regard to the approval of CIT it was held that such an approval is an inbuilt protection and is not an empty ritual. It was thus observed before granting approval the Chief Commissioner or the Commissioner, as the case may be, must have before him the material on the basis whereof an opinion in this behalf has been formed by the AO and the approval must reflect the application of mind to the facts of the case. Thereafter the question whether the principles of natural justice demand that an opportunity of hearing should be afforded to an assessee before an order under section 142(2A) of the Act was examined. Their Lordships concurring with the decision in Rajesh Kumar (supra) held that an order under section 142(2A) does entail civil consequences and therefore the rule of audi alteram partem is required to be observed. It was concluded with regard to the question posed as under: "24. The upshot of the entire discussion is that the exercise of power under section 142(2A) of the Act leads to serious civil consequences and, therefore, even in the absence of express provision for affording an opportunit....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... period of limitation under Explanation 1(iii ) to section 153(3) of the Act was not available to the Assessing Officer because of an invalid order under section 142(2A) of the Act. However, it will be open to the appellants to question before the appellate authority, if so advised, the correctness of the material gathered on the basis of the audit report submitted under sub-section (2A) of section 142 of the Act. 30. In the result, both the appeals are allowed to the extent indicated above leaving the parties to bear their own costs." 26. A reading of the aforesaid makes it apparent that Their Lordships agreed with the submission of the learned Additional Solicitor General that interpretation be given prospective effect as otherwise the interest of revenue will be greatly prejudiced because the time to frame fresh assessment for the relevant assessment year by ignoring the extended period of limitation in terms of Explanation 1(iii) to sub-section (3) of section 153 of the Act was already over. It was thus directed that petitioners will not be entitled to urge before the appellate authorities that the extended period of limitation under Explanation 1(iii) to section 153(3....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... under Section 142(2A) of the Act. As rightly held by the Tribunal that, such a procedure was resorted to extend the period of limitation. Therefore viewed from any angle, the assessment order passed is void as being barred by limitation and the, Tribunal was justified in setting aside the order of the Appellate Authority".[underlined by us]. 28. Further even in the case of CIT v Vijay Kumar Rajendra Kumar and Co. (MP) (supra), the ITAT quashed direction u/s 142(2A) of the Act since no opportunity of hearing was afforded to the assessee before issuing the direction for getting the audit done and since the accounts did not involve any complexity and held therefore the assessment made is barred by limitation. However though the Hon'ble High Court reversed the decision of Tribunal on the ground that the direction u/s 142(2A) of the Act was legal, proper and valid and legally sustainable and therefore the order of assessment within the period of limitation but hereto it was neither challenged nor disputed that validly of directions cannot be challenged before the appellate authority so as to contend the assessment order is barred by limitation. 29. Similar view was ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncome Tax Act 1961 for f.Y. 2008-09 pertaining to A.y. 2009-10 by M/s Dass Gupta and Associates, B-4, Gulmohar Park, New Delhi and to furnish a report on such audit in the prescribed performa duly signed and verified by the CA. The audit report u/s 142(2A) should be furnished by you to the undersigned within a period of 120 days from the date of receipt of this direction. This direction u/s 142(2A) is issued with the prior approval of Commissionier of Income Tax, Delhi-VI, New Delhi vide letter F.No. CIT/Delhi-VI/Spl..Audit/2011- 12/2233 dated 9.12.2011 Yours faithfully (Addl. Commissioner of Income Tax Range-18, New Delhi Copy to: 1 The Commissioner of Income Tax, Delhi-VI, New Delhi 2 M/s Dass Gupta and Associates, B-4, Gulmohar Park, New Delhi with a direction to carry out the audit as per the terms of reference attached herewith. Yours faithfully (Addl. Commissioner of Income Tax Range-18, New Delhi" 32. It is not denied and disputed that the aforesaid directions is the only document communicated to the assessee u/s 142(2A) of the Act. According to the appellant the aforesaid direction is an order ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....der :- "Government of India have carefully considered the points made by the applicants, but see no justification for interfering with the order under appeal" 8. The order was struck down on the ground that reasons for rejecting the points in appeal had not been disclosed in Bhagat Raja v. Union of India AIR 1967 SC 1606 the Supreme Court deprecated the practice of one word order of the type "rejected" or "dismissed". Similarly, in case of Dhondi Ba Gundu Proma Je v. State of Maharashtra AIR 1976 SC 1151, the High Court had dismissed a criminal appeal summarily under section 421 of the Code of Criminal Procedure by one word order "dismissed", it was held that some reasons should have been given by the High Court why no arguable case was made out on a perusal of the record. There is a vital difference between the conclusions and reasons. Reasons are the links between the material on which conclusions are based. The actual conclusion should disclose how the mind is applied to the subject matter for a decision, and should reveal a rational nexus between the facts considered and the conclusion reached See Union of India v. M.L. Capoor AIR 1974 SC 87 on p. 98. 9. There....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... system. j. Insistence on reason is a requirement for both judicial accountability and transparency. k. If a Judge or a quasi-judicial authority is not candid enough about his/her decision making process then it is impossible to know whether the person deciding is faithful to the doctrine of precedent or to principles of incrementalism. l. Reasons in support of decisions must be cogent, clear and succinct. A pretence of reasons or 'rubber-stamp reasons' is not to be equated with a valid decision making process. m. It cannot be doubted that transparency is the sine qua non of restraint on abuse of judicial powers. Transparency in decision making not only makes the judges and decision makers less prone to errors but also makes them subject to broader scrutiny. (See David Shapiro in Defence of Judicial Candor (1987) 100 Harward Law Review 731-737). n. Since the requirement to record reasons emanates from the broad doctrine of fairness in decision making, the said requirement is now virtually a component of human rights and was considered part of Strasbourg Jurisprudence. See (1994) 19 EHRR 553, at 562 para 29 and Anya vs. University of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Hon'ble Supreme Court in the case of Rajesh Kumar (supra) and Sahara India (Firm) (supra) and the conclusions reached by us in paras 15,16, 17, 18, 19 and 21 above, we are of the view that A.O. should reconsider the issue as to whether a direction should be issued under Section 142(2A) of the Act after considering the objections of the assessee and affording a reasonable opportunity of being heard, in terms of Section 142 (2A) of the Act. It is only after the A.O. reaches to a fair conclusion after considering the reply given by the petitioner, and affording an opportunity of hearing, the CIT as approving authority will consider whether the special audit is required to be carried out for the purposes of understanding the accounts maintained by the assessee. The opinion must be formed reflecting the application of mind based on objective criteria and not on the basis of subjective satisfaction." 39. Also in the case of United Electricals Co. (P) Ltd. vs. CIT (supra), it has been held as under: "19. What disturbs us more is that even the Additional Commissioner has accorded his approval for action under section 147 mechanically. We feel that if the Additional Co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he prior approval of Commissionier of Income Tax, Delhi-VI, New Delhi vide letter F.No. CIT/Delhi-VI/Spl..Audit/2011- 12/2233 dated 9.12.2011 Yours faithfully (Addl. Commissioner of Income Tax, Range-18, New Delhi Copy to: 1 The Commissioner of Income Tax, Delhi-VI, New Delhi 3 M/s Dass Gupta and Associates, B-4, Gulmohar Park, New Delhi with a direction to carry out the audit as per the terms of reference attached herewith. "F. No.DCIT C-18/2013- 14/AAACU1482H/142(2A)/951 Dated: 26.3.2014 To, Principal Officer M/s.Unitech Ltd. Basement, 6-Community Centre, Saket, New Delhi 110 017. Subject: Assessment proceedings in your case u/s.143(2) of the Income Tax Act, 1961 for the A.Y 2010-11-regarding Sir, Please refer to the subject cited above 2. Considering the following aspects w.r.t. to your accounts for F.Y.200910(relevant to A.Y.2010-11) i.e. Nature & Complexity, Volume, Doubts about the correctness, Multiplicity of transactions and Sepcialised nature of business activity of the assessee with a direct bearing on the interest of Revenue, I hereby direct you to get your accounts audited u/s.142(2A) of the |Income Tax Act, 19....