TaxTMI 
TaxTMI 
2019 (3) TMI 18
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....ltural Commodities. 2.2 The Deputy Commission of Income Tax issued a show cause notice on 5.9.2018 calling upon the petitioner why the petitioner's accounts for the assessment year 2015- 16 should not be sent for special audit as per the provisions of Section 142(2A) of the Act. In such show cause notice, the said Authority highlighted different issues on the basis of which he was prima facie of the opinion that the special audit of the accounts of the petitioner was called for. In this context, he had recorded the following discrepancies:- "a) The assessee has claimed to have paid professional charges to Financial Technologies Knowledge Management Company Ltd (FTKMC), a related concern. Information available on record indicates that the said amounts are merely in the nature of accommodation and further are also in any case above the contracted rates. b) The assessee has entered into several agreements with NHBC, a related concern for payment of rent of warehouses. There are also several non-agreement based monies paid by the assessee. Details available on record also indicate that the warehouses for which rent has been claimed to have been paid were used by certain ot....
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....pany or application of mind on his part. With respect to discrepancies mentioned in the show cause notice, it was contended that the Financial Technologies Knowledge Management Company Limited (FTKMC) was not a party related to the assessee as per Section 40A(2)(b) of the Act. It was further contended that several transactions had already been subjected to transfer pricing mechanism and the Transfer Prising Officer ("TPO" for short) had already examined such transactions. On such grounds, the proposal for special audit of the accounts was opposed. 2.5 The Deputy Commissioner of Income Tax passed the order on 6.11.2018 disposing of the objections of the petitioner, dealing with each objections. 2.6 Under communication dated 8.11.2018, the Deputy Commissioner of Income Tax sought approval from the Principal Commissioner of Income Tax for special audit of the accounts of the petitioner under Section 142(2A) of the Act. In such letter, the Deputy Commissioner had given full details of the complexity in the petitioner's accounts and the reasons why he was of the opinion that special audit was necessary. On 9.11.2018, the Principal Commissioner of Income Tax granted his appr....
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.... deduction u/s. 80G of donation paid to Arunodaya Charitable Trust. The existence and activities of Arunodaya Charitable Trust have been doubted. e) The assessee has claimed to have engaged Splash Media and Infra Ltd to display hoardings at Mahim Causeway and Haji Ali locations in Mumbai. There are no documents on record to establish the genuineness of the activities carried out by Splash Media and Infra Ltd. f) The assessee has claimed to have engaged Mediacom Communications as its media agency for outdoor, print and TV campaigns. These payments are not established beyond doubts. 3. In entirety of the fact and reasons stated herein, you are required to conduct the special audit u/s. 142(2A) of the Act on the following terms of reference:-" The terms of reference for special audit were as under:- 3.1 The auditors need to audit books of accounts of M/s. Multi Commodity Exchange of India Ltd for the A.Y. 2015-16. They have to examine and report on the following aspects in general. 1. Whether proper books of accounts are maintained and verifiable? 2. Whether all bills / Vouchers and other relevant original documents are maintained and verifiable? 3.....
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.... contains a direction to the auditor to audit the accounts whereas under Section 142(2A) of the Act, the powers of the Deputy Commissioner are to ask the assessee to have the audit of the accounts carried out; ii. He contended that the requirements of Section 142(2A) of the Act were not satisfied. The Deputy Commissioner, therefore, committed an error in exercising the powers without satisfaction of the necessary requirements; iii. Learned counsel contended that the order suffers from non-application of mind. The Deputy Commissioner had proceeded on the basis of several inaccurate or erroneous grounds. Even when pointed out in the objections, the Deputy Commissioner refused to accept such errors; iv. It was contended that several of the transactions referred to in the impugned order were already subjected to transfer pricing mechanism. The TPO had already examined the transactions minutely. No useful purpose would be served by sending such transactions for special audit; v. The learned counsel also drew our attention to the judgment of this Court in Writ Petition No. 143 of 2018 and connected petitions dated 1.10.2018 filed by this petitioner in which the Court had quas....
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....d the claims of the donation etc. were doubtful. On such grounds, he formed the belief that special audit would be necessary. He, therefore, laid down the terms of reference for special audit. 7. Section 142 of the Act pertains to inquiry before the assessment. Sub-section (2A) of Section 142 reads as under: "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 specialized 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 verifie....
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....der Section 142(2A) leads to serious civil consequences, and, therefore even in the absence of any express provision for affording an opportunity of per-decisional hearing to the assessee, requirement of observance of the principle of natural justice is to be read into the said provision. 8. In the present case, we have already noted that the detail grounds on which the Assessing Officer formed an opinion that special audit was necessary and the final order that he passed calling for such special audit. As noted, final audit proceeds on various grounds of genuineness of the transactions and payments by the assessee. We may recall, doubts about correctness of the accounts, multiplicity of transactions and specialized nature of business activities are some of the additional grounds, now recognized by the legislative for special audit. We do not find that the order requires any interference. 9. Merely because the impugned order contains a narration that the special auditor should conduct the audit, would not destroy the very essence of the order nor would the same be fatal to the order itself. It is true that Section 142(2A) of the Act envisages the direction to the assessee to ....
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....16, issued to the petitioner, in fact, indicated the basis for directing special audit on the basis of the volume of the total trades executed by the petitioner, multiplicity of transactions in the accounts, including the nature and complexity of the accounts and doubts about the correctness of the accounts. Therefore, this grievance is also without substance. 10. We find that the impugned order dated 10 March 2016 directing a special audit is not without jurisdiction. The procedural safeguards of notice, approval of the Chief Commissioner and hearing have undisputedly been complied with. Besides, the satisfaction recorded by the Assessing Officer before directing a special audit is his opinion on the basis of the facts before him and such opinion is not shown to be perverse. We are not a court of appeal to substitute the opinion of the Assessing Officer to exercise power under section 142(2A) of the Act by our opinion to the contrary. We find that the opinion reached by the Assessing Officer to direct special audit on the present facts is a reasonable and possible view." 11. In case of Takshashila Realities (P) Ltd Vs. Deputy Commissioner of Income Tax, Circle 4(1)(2) [2017]....
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....an opportunity of hearing altogether or the absence of any reasons at all. 8. Thus, this Court cannot draw any inference of breach of principles of natural justice or arbitrariness in the impugned order passed by the respondent Authority. Accordingly, the requirement of Section 142(2A) of the said Act cannot be said to have been not complied by the respondent Authority. The same requires no interference under Article 226 of the Constitution of India. Therefore, the Writ Petition is liable to be dismissed and is accordingly dismissed. No costs." 13. Merely because some of the transactions were subjected to transfer pricing mechanism, would not debar the Assessing Officer from exercising powers under Section 142(2A) of the Act, if the conditions for exercising such powers were otherwise satisfied. The Transfer Pricing Officer would be essentially concerned with the assessment of the arm's length price of the specified transactions with an associated enterprise. 14. Reference to the judgment of this Court in case of this very assessee would also be of no avail. It was a case in which the assessee had challenged the orders passed by the Assessing Officer calling upon for s....